On 16 December 2023, the Saudi Civil Transactions Law (CTL) came into force, marking the most significant legal transformation in how the Kingdom governs contracts and commercial relationships in decades. Issued by Royal Decree M/191 and comprising 721 articles, the CTL is Saudi Arabia’s first comprehensive civil code — a unified body of law governing civil and commercial transactions across the Kingdom.
What matters most for businesses and investors is not simply that a new law has been issued, but that this law has retrospective effect. This means that contracts your company signed before 16 December 2023 may now be subject to the new law’s provisions — even though you never read or negotiated against them.
In this article, we examine the most consequential changes introduced by the CTL, and what every business operating in the Kingdom should be doing right now.
I. Why This Law Represents a Fundamental Shift
Before the CTL, contractual relationships in Saudi Arabia were primarily governed by principles of Islamic Sharia, with judicial interpretation that was sometimes inconsistent across courts. This created legal uncertainty for businesses and investors — particularly foreign ones — who struggled to predict the outcomes of legal disputes.
The CTL addresses this through:
- Comprehensive codification: consolidating contract rules into a single, authoritative legal text
- Alignment with international standards: rules on contract interpretation and enforcement now more closely mirror global commercial practice
- Enhanced predictability: with unified principles, court decisions are expected to become more consistent
- Support for Vision 2030: by creating a legal environment more attractive to foreign investment
It is important to emphasize that Sharia remains the supreme reference. The CTL complements Sharia rather than replacing it — Sharia principles apply where the CTL is silent, and where the CTL conflicts with an established Sharia principle that a party invokes, the Sharia principle prevails.
II. Retrospective Application — What You Need to Know
This is the most critical point for every business operating in the Kingdom:
Contracts signed before 16 December 2023 may now be governed by the new law.
Article 721 of the CTL provides that any conflicting provisions are abolished from the effective date. The exceptions are narrow, and include:
- Conflict with established Sharia principles: if a party invokes a Sharia principle that contradicts the CTL, the Sharia principle applies
- Limitation periods already running: limitation periods that began before 16 December 2023 continue under prior rules
- Cases filed before effective date: cases pending before the courts at the time of entry into force remain governed by the rules in effect when they were filed
What this means practically: A commercial contract you signed in 2020 or 2022, which you believed was governed by older rules, may find that any dispute arising from it after December 2023 will be decided under entirely new rules — some of which may favor your position, and some of which may not.
III. Key Changes That Affect Your Contracts
Of 721 articles, here are the most impactful for businesses:
1. Good Faith in Negotiation and Performance
The CTL expressly obliges parties to act in good faith at all stages of a contract — from negotiation, to performance, to termination. This opens the door to claims that were not previously available in the same form, such as claims for breach of pre-contractual good faith obligations even before a contract is signed.
2. Force Majeure and Hardship
The CTL clearly codifies the concepts of Force Majeure and the doctrine of Hardship (changed circumstances). This means companies can, in specific circumstances, request modification or termination of a contract when fundamental changes have made performance unreasonably onerous.
3. Damages and Compensation
The CTL expands the scope of recoverable damages and introduces more detailed rules for calculating compensation, including damages for loss of opportunity and moral damages in certain cases. This represents a substantial shift from prior practice.
4. Penalty Clauses
The CTL regulates penalty clauses with greater flexibility, granting judges discretion to adjust penalty clauses that are deemed excessive. Drafting that was previously considered “iron-clad” may not be enforceable as written under the new framework.
5. Construction Contracts
The CTL provides broader protection for contractors and redistributes risk in construction contracts in ways that differ from prior practice. Any company with ongoing obligations on major construction projects should review its legal position immediately.
IV. What Your Company Should Be Doing Now
At Al-Jaber & Partners, we advise every company operating in the Kingdom to take the following steps:
1. Comprehensive review of existing contracts Start with contracts above a defined value threshold, or those extending several years into the future. These are most exposed to the impact of the new law.
2. Update future contract templates Contracts you sign after December 2023 must take the new rules into account in their drafting. Many traditional clauses need to be rewritten.
3. Assess current legal risk exposure Any existing or potential dispute — even one arising from an older contract — may now be decided under new rules. Early assessment gives you strategic advantage.
4. Train internal teams In-house legal departments, procurement teams, and contracts teams need to update their understanding of the new rules, particularly in drafting termination, indemnification, and force majeure provisions.
5. Prepare for the transition period During the early years of the CTL’s application, new case law will emerge. Monitoring these developments is essential for effective legal risk management.
V. How We Can Help
At Al-Jaber & Partners, our commercial law team has been leading contract review and update programs for some of the largest companies operating in the Kingdom since the CTL came into force. Our services include:
- Comprehensive legal audits of existing contracts to identify risk clauses
- Drafting new contract templates compliant with the CTL
- Strategic advice on existing disputes under the new framework
- Training programs for in-house legal departments and procurement teams
Conclusion
The Civil Transactions Law is not merely a legal update — it is a fundamental transformation in how commercial relationships are managed in the Kingdom. Companies that approach this shift proactively will find new opportunities to strengthen their contractual position. Companies that delay their response may find themselves facing unanticipated legal exposure.
The question is not whether the CTL will affect your company, but when and how you will prepare for it.