When and under what circumstances is the Saudi Arabian Civil Code applicable?

Saudi Arabia released the highly anticipated Civil Transactions Law (the KSA Civil Code) following its endorsement through Royal Decree No M/191 (Royal Decree). The KSA Civil Code is an all-encompassing legislation that will regulate various facets of civil (and partially commercial) dealings within the country.

Since the establishment of modern Saudi Arabia in 1932, the Kingdom has relied on uncodified principles of Sharia law to govern civil and commercial transactions. These principles have been derived from a vast body of rules developed by Islamic scholars over centuries. However, the application of these rules by the courts has been inconsistent, particularly in the absence of a system of binding precedent. As a result, there has been significant uncertainty surrounding the enforceability of certain agreements and the resolution of disputes in the Saudi legal system. However, this landscape is about to undergo a transformative shift with the introduction of the KSA Civil Code.

Entry into force

Article 721 of the KSA Civil Code provides that the law will enter into force 180 days after its publication in the Saudi Official Gazette—that is, 16 December 2023 (Effective Date). All provisions that contradict the KSA Civil Code will be abolished upon its entry into force.

The KSA Civil Code governs all matters that are explicitly or implicitly addressed within its provisions. In situations where a specific provision is lacking, the next point of reference is a collection of legal principles influenced by Sharia law, which can be found in the final chapter of the KSA Civil Code. Should these legal maxims fail to offer a resolution, the rules derived from Sharia law that are deemed the “most appropriate” for the KSA Civil Code shall be applied.

The Royal Decree stipulates that the KSA Civil Code has retroactive application to past events and existing relationships, regardless of whether they are contractual or not, before the Effective Date. However, there are exceptions to this rule. One exception is when a party invokes a conflicting “statutory provision” or “judicial principle” that pertains to the specific event and predates the Effective Date. The other exception is when a limitation period had already commenced before the Effective Date.

In simpler terms, the KSA Civil Code will generally affect events and relationships that occurred before the Effective Date. However, if there is a conflicting law or legal principle that existed before the Effective Date and is invoked by one of the parties, or if a limitation period had already begun ticking before the Effective Date, then the Royal Decree does not apply retroactively to those specific circumstances.

This means that the KSA Civil Code creates a rebuttable presumption that pre-existing relationships and disputes will automatically be governed by the provisions of the KSA Civil Code as of the Effective Date instead of the uncodified rules of Sharia. A party resisting the retrospective application of a certain provision of the KSA Civil Code will therefore have the burden of proving the existence of a conflicting statutory provision or judicial principle. 

However, it is important to note that the application of the KSA Civil Code retrospectively is not effective until 16th December 2023. As a result, Saudi courts will continue to adjudicate pending cases based on the non-codified rules of civil transactions under Sharia until the Effective Date. Additionally, certain aspects of contracts executed between now and the Effective Date may still be subject to Sharia rules.

Therefore, parties contemplating entering into new contracts may find it advisable to delay this action until the KSA Civil Code comes into force. This will ensure that all elements about the contract, including contract formation, are governed by the provisions of the KSA Civil Code.

Commercial Transactions

In the realm of commercial transactions, the application of the KSA Civil Code is subject to certain considerations. Its applicability extends as long as it does not contradict any specific provisions outlined in another law that governs commercial matters, or go against the inherent nature of the commercial transaction under consideration. Notably, the Saudi government has already circulated a draft version of the “Commercial Transactions Law” for public consultation, signalling its forthcoming official implementation. Once enforced, the Commercial Transactions Law will work in conjunction with the KSA Civil Code, with precedence given to its provisions in case of any conflicts with the Civil Code.

In conclusion, the introduction of the KSA Civil Code represents a momentous achievement in the Kingdom’s ongoing legislative reforms, signalling a new chapter in the interpretation and implementation of Saudi law by globally recognized standards. This milestone development aligns Saudi Arabia with international best practices and ushers in a progressive era in legal matters.

The enactment of the KSA Civil Code is poised to have a profound impact on how commercial entities navigate legal risks within the Saudi legal framework. Its implementation will undoubtedly bolster the increasing interest of investors in the Saudi market, providing them with greater confidence and clarity in conducting business operations.

By harmonizing Saudi law with international norms, the KSA Civil Code facilitates a more transparent and predictable legal environment, offering a solid foundation for domestic and foreign businesses to thrive. This progressive legal framework is expected to foster economic growth, enhance legal certainty, and stimulate investment in Saudi Arabia.