Kingdom of Saudi Arabia Civil Code: retrospective effect

The KSA Civil Code was enacted on 19 June 2023 by Royal Decree M/191. This is significant because up to now, the law governing contracts in the Kingdom of Saudi Arabia has been Islamic Law (Sharia), as derived from the Qur’an and the Sunnah. The new codified law shifts the legal landscape underpinning contractual relationships, with potentially major impacts on the rights and obligations of contracting parties and the resulting risk allocation between them.

We will release detailed commentary on the substance of the KSA Civil Code over the coming weeks and months. In the immediate term, the following questions arise for commercial parties:

• If I sign a new contract today, will it be interpreted and governed by the KSA Civil Code or the uncodified Sharia?
• If I commence a dispute under an existing contract today, will the dispute be decided by the KSA Civil Code or the uncodified Sharia?

When does the KSA Civil Code come into effect?

The KSA Civil Code is stated to come into effect 180 days after it was published, which date is 16 December 2023. The KSA Civil Code also states that, when it comes into effect, all provisions that contradict it shall be abolished. As such, contracts signed after 16 December 2023 will be subject to the KSA Civil Code (as opposed to the uncodified Sharia) and all disputes decided on that basis.

How does it apply to existing contracts and disputes?

The position in respect of contracts signed prior to 16 December 2023 (including existing contracts) is more complicated. The Royal Decree by which the KSA Civil Code was enacted states that it shall apply retrospectively except where a party seeks to rely on conflicting statutory provisions or judicial principles that pre-date its entry into force.

Accordingly, the outcome is that the KSA Civil Code will apply to all contracts subject to Saudi law (including existing contracts and contracts signed prior to 16 December 2023) save where a contracting party can demonstrate that there was a conflicting Sharia principle (e.g. where one of the four Sharia schools of jurisprudence offers an alternative interpretation, as recorded in a court judgment). In effect, this means that, where there are inconsistent principles, the uncodified Sharia will apply to those contracts to the exclusion of the KSA Civil Code but that the party seeking to rely on the uncodified Sharia principle will bear the onus of proving that it should be applied.  

For any dispute on an existing contract, the starting point is that the KSA Civil Code shall be applied. If a party wants the uncodified Sharia to apply to that dispute to the exclusion of the KSA Civil Code, the only option would seem to be to commence the dispute now and press for a final and binding decision before 16 December 2023 (if possible) when the KSA Civil Code comes into effect.

What next?

The inevitable conclusion is that the KSA Civil Code changes the risk allocation of contracts to which it applies, including those signed previously on the basis that the uncodified Sharia was the governing law. How significant this change is would depend on the specific type of contract and what the KSA Civil Code says about that contract. Nonetheless, parties should bear the above in mind when making decisions on (a) whether to enter into new contracts and (b) whether to commence disputes, in advance of the KSA Civil Code becoming effective on 16 December 2023.

For more information please contact Ben Cowling or Aliaa Ibrahim.