PART 1 of 2 — Basic Guidelines to Understanding the recently released Civil Transaction Law of Saudi Arabia. (Saudi Arabia Royal Decree No. M191/1444).

1. Brief Overview and Purpose.

The “CTL” ( hereinafter referred to as “CTL” ) consists of 721 articles and is divided into five parts:

Part 1 : Preliminary

Part 2 : Obligations

Part 3 : Named Contracts

Part 4 : Real Rights

Part 5 : Concluding Provisions

According to Article 1 the “CTL” shall apply to all matters within its scope, and to the extent that the codified provisions do not cover a matter, then the 41 Fundamental Principles as written under Article 720 in the final provisions of this law shall apply. Failing that, the most appropriate principles derived from Sharia law take precedence.

All along and before the release of the “CTL”, all civil contractual relationships in KSA (with the exception of Government Contracts which has their own set of Laws) were governed by Islamic Law (Sharia) derived mainly from the principles of the Holy Quran and the Sunnah (prophetic teachings of the Prophet Muhammad) and the Hadith (recorded sayings & teachings of the Prophet).

*** Difference between the Sunnah and Hadith :

Sunnah and Hadith are two important concepts in Islamic Law. Sunnah refers to the practices, customs, and traditions of the Prophet Muhammad. It includes his statements, actions, and tacit approvals. Sunnah is derived from the Arabic word “sanna,” which means “to establish a path or way of life.”

On the other hand, Hadith refers to the recorded sayings, actions, and approvals of the Prophet Muhammad. Hadiths are considered a primary source of Islamic Law, along with the Quran. They provide guidance on how Muslims should live their lives in accordance with Islamic principles.

The main difference between Sunnah and Hadith is that Sunnah refers to the practices and traditions of the Prophet Muhammad, while Hadith refers to the recorded sayings, actions, and approvals of the Prophet Muhammad. Sunnah is more general and comprehensive than Hadith, as it encompasses not only the words of the Prophet Muhammad (peace be upon him), but also his life, character, and behavior.

The purpose and enactment of the Civil Transactions Law aims to :-

- increasing access to law and

- the predictability of applicable contractual provisions in the KSA and

- to fill in the lacunas in Construction Law that are not covered under the existing law framework. *** lacuna in Latin means “gaps” or “missing parts”.)

One of the main aims is to provide a clear written legal framework to the Construction Industry and enhancing transparency to reduce discrepancies in legal reasoning and judicial thinking.

Alongside the Law of Evidence which were enacted previously, the “CTL” establishes a comprehensive civil law framework for the KSA by setting out clear guidelines for civil obligations, contracts, torts and property rights.

2. In your opinion, which is the most important part of the “CTL” ?

This will be Article 5 as it applies to all Construction Contract, Disputes and Claims (with the exception of Government Contracts as it has its own set of Construction laws to follow) that has not been completed and the disputes and claims resolved on or before the effective date of the “CTL” which is December 16 2023. This is a deviation from the general rule adopted in other countries whereby contractual obligations remain governed by the law that was in force at the time of conclusion of the contract. Whether this can be considered a Change in Law is unclear and as such need to be determined in court.

Article 5 of Saudi Arabia Royal Decree No. M191/1444, states very clearly that the “CTL” applies retrospectively to events that occurred before it came into force.

The wording of this provision seems to encompass all events including past contractual and non-contractual obligations. In effect, the Law will be applicable to contracts that were entered into before its enactment and contractual breaches that occurred prior to its entry into force.

However, Article 5 of provides two exceptions to the retrospective application of the Law:

1) The “CTL” might not apply if another law or court decision disagrees with it. If someone wants to use a different law for an old contract, they have to show that the other law was there first and goes against this law. But this could make it hard to know if the law works for things that happened before. This law can be used for contracts made before it started.

2) The “CTL” is not applicable if the relevant provision pertains to a statute of limitations period that started to run before the effective date of December 16 2023.

3. A Brief Overview of the 5 Parts

Part1 : Preliminary Section of the Law contains chapters that deal with fundamental concepts of civil law such as :-

1. The Law has adopted the civil law distinction between Persons and Things.

2. The Law contains provisions pertaining to natural persons (legal personality, domicile, capacity) and legal persons.

3. The Law also contains a chapter related to things and adopts the distinction between movable and immovable objects.

4. The Law has adopted the doctrinal civil law distinction between personal rights and real rights (Articles 25 et. al.) and

5. Dedicated a chapter on the lawful and unlawful exercise of rights by adopting the theory of abuse of rights in Article 29.

Part 2: Obligations is dedicated to civil obligations and is composed of five chapters.

1. The First Chapter is dedicated to the Sources of Obligations. Obligations may derive from the following five sources: -

· contracts,

· unilateral acts,

· torts,

· unjust enrichment and

· statutory provisions.

Thia chapter deals with contract formation, execution and termination in the chapter dedicated to contracts.

2. The Second Chapter deals with the effects of the obligations which includes provisions on specific enforcement and equivalent enforcement of obligations.

3. The Third Chapter deals with the modalities of obligations and includes provisions on conditional obligations, obligations affected with terms, joint and several obligations, alternative obligations and indivisible obligations.

*** Modalities of Obligations — are conditions, variables or factors that can change how an obligation works without changing what it is. An obligation is a legal requirement for someone to do or not do something. The modalities can affect when, how, or if the obligation happens.

4. The Fourth Chapter deals with :-

· the transfer of obligations and

· provisions on the transfer of the rights of the creditor,

· the transfer of the debt and

· the waiver of contractual rights.

5. The Fifth Chapter deals with the extinction of the obligation. This chapter has dedicated provisions on the extinction of obligations :-

· by payment,

· transfer in lieu of payment,

· compensation,

· merger,

· debt remission,

· impossibility of execution,

· statute of limitations.

Part 3 : Named Contracts deals with named contracts which includes provisions on

· Sales contracts,

· Construction contracts

· Design and Built contracts

· EPC contracts

· Exchange contracts,

· Donation,

· Loans,

· Settlements,

· Rent,

· Service Contracts,

· Labor Contracts,

· Mandates,

· Deposit Contracts,

· Guardianship,

· Partnerships and

· Guarantees.

Part 4 : Real Rights deals with real rights and includes provisions on property rights, usufruct, rights of usage, easements and Wakf. It contains two articles:

i) Article 720 and enumerates 41 fundamental rules derived from Shari’a that are applicable in case the codified provisions do not cover a specific issue.

ii) Article 721 states that the law will come into effect 180 days from the date of publication in the Official Gazette on 16 December 2023 (the Effective Date).

*** Wakt : Wakf, also spelled Waqf, is an Arabic word that means “detention” or “tying up”. It refers to an inalienable charitable endowment under Islamic law, where a person donates a building, plot of land or other assets for Muslim religious or charitable purposes with no intention of reclaiming the assets. The person making such dedication is known as a waqif (‘donor’).

The Wakf Act of 1954 defines Wakf as the permanent dedication by a person professing Islam, of any movable or immovable property for any purpose recognized by Muslim Law as religious, pious, or charitable23. A Wakf can be created either in writing or through an oral presentation.

4. What are the next most important parts and changes it has brought in?

The preliminary section of the law contains interesting provisions pertaining to the concept of persons, things and rights in the KSA. These provisions pertain to concepts that are deeply rooted in the civil law tradition.

From a methodological standpoint, the Saudi Legislature has chosen to enact a general regime of civil obligations which includes rules and specific provisions that govern 17 named contracts which will legal practitioners and claim practitioners to carefully analyse each situation in order to apply the relevant regime :-

· sources of obligations,

· transfer of obligations,

· enforcement of obligations and

· extinction of obligations.

· In addition, the Law contains clarifications pertaining to the rules that govern contracts, torts and unjust enrichment. In particular, the Law introduces provisions on

· contract formation,

· effects of contracts,

· types of civil liability and

· compensation of damages and

New concepts such as

· indemnification of moral harm and

· a statute of limitations on obligations have been introduced.

Finally, the rules pertaining to the different modalities of property rights (co-ownership, shared wall) as well as the different real rights (usufruct and easement) complete the framework of the Civil Transactions Law.

*** Usufruct and Easement — Usufruct and easement are both legal concepts that involve the use of someone else’s property.

Usufruct is a legal right that allows a person to use and derive income or benefit from someone else’s property for a limited time. It combines two property rights: usus, which is the right to use something directly without damaging or altering it, and fructus, which is the right to enjoy the fruits of the property being used, such as by leasing it or selling crops produced by it.

An easement, on the other hand, is a right to cross or otherwise use someone else’s land for a specified purpose. For example, an easement might allow one person to use a path across their neighbor’s land to access their own property. Easements can also be purchased by utility companies to run pipes or power lines across private property.

In summary, usufruct and easement both involve the use of someone else’s property, but usufruct allows for the temporary use and enjoyment of the property, while an easement grants the right to cross or use the property for a specific purpose.

This musing comes in two Parts.
Part 2 of 2 which is a more comprehensive guide on Construction Contracts and the impact of the CTL on such contracts in Saudi Arabia.

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Please also spare some time and read my weekly postings “My Musings on Construction Law “of which I have posted 40+ episodes to date at medium.com and I assure you that it will bring new insights and perspective to Construction Claims and Disputes hence my tagline — CONSTRUCTION LAW SIMPLIFIED.

P/s to find me on Medium , please use the link –

https://lhchin.medium.com.

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I have also created one What’s App Discussion Group and 3 LinkedIn Forum Groups and if you wish to join, please click on the one which interest you the most.

1# The International Construction Law Group on What’s App at https://chat.whatsapp.com/GCpIFSS63hR51XDoAYxynU

2# “FIDIC 1999 & 2017 Suite of Contracts | Group” | LinkedIn.

3# “Contract Claims Management Group — Construction Industry” | Groups | LinkedIn.

4# “ PAM 2018 and Construction Law in Malaysia” | Groups | LinkedIn — For those residing or working in Malaysia —

Cheers, Happy Reading and Wishing you Good Health Always.