Saudi Arabia’s legal system is a blend of Sharia provisions and statutory law, which together form the basis for commercial and civil obligations. Parties to an international contract are generally free to choose the law governing their agreement, provided that the chosen law does not conflict with mandatory Saudi Arabian legislation or Sharia principles. If the dispute is wholly domestic, local (ie, Saudi) law would take priority and apply by default.

In cross-border transactions, courts may recognise foreign governing laws if they are in alignment with Saudi public policy. However, courts retain the discretion to override foreign law clauses in an approach that is intended to balance contractual autonomy with support for the social foundations of the legal framework.

Commercial contracts in Saudi Arabia do not generally take a specific form and, unless the law specifically stipulates otherwise, may take any form the parties wish. However, some agreements may need to meet certain requirements to be deemed enforceable, such as being in written form for evidentiary purposes or registration within the competent authority to be validated. Furthermore, contracts are now being executed electronically in compliance with the Electronic Transactions Law (2023), which sets out the eligibility requirements for digital signatures and consent standards.

The main legislation governing commercial contracts includes the Commercial Transactions Law (2023), the Civil Transactions Law (2023) and the Electronic Transactions Law (2023), alongside the Companies Law (2022) and Commercial Agencies Law (2023). These laws have worked to modernise Saudi Arabia’s contract law and broader civil law frameworks by introducing clearer definitions of offer, acceptance and liability.

Saudi Arabia has recently (2024) formally agreed to the UN Convention on Contracts for the International Sale of Goods. It should be noted that this was a partial acceptance; the contract formation and interpretation rules of the Convention may be applicable domestically, but rules regarding buyer and seller obligations remain governed by local law as Saudi Arabia remains rooted in Sharia principles that prioritise good faith and the avoidance of uncertainty. Where the UN convention adopts a more transactional approach, using damages as a form of a remedy, Saudi Arabia emphasises the moral as well as legal obligations.

Although contractual freedom is a defining feature of Saudi Arabian commerce, certain sectors in Saudi Arabia are subject to mandatory contractual rules set by sector-specific regulators and designed to protect the public interest. For example, franchise contracts must comply with the Commercial Franchise Law (2020) to be registered with the Ministry of Commerce, this requires franchisors to provide a disclosure statement and registration of each agreement within 90 days from signature. Likewise, agency and distribution agreements are regulated under the Commercial Agencies Law (2023), which emphasises registration requirements for agency or distributor relationships (as protected by the Ministry). This ensures statutory protections for the agents and must be completed to legally assume the role.

Similarly, additional formalities may apply in regulated industries such as insurance, finance, construction and energy, where certain contracts may be subject to specific licensing and compliance obligations within the Saudi regulatory authorities such as the Zakat, Tax and Customs Authority, Saudi Central Bank, and Ministry of Investment.

Between 2023 and 2025, Saudi Arabia’s commercial landscape has undergone a major shift toward codification and digital transformation. The introduction of the Civil Transactions Law (2023) and Electronic Transactions Law (2023) marked a turning point as these provided legal certainty, giving both local and foreign investors greater confidence in the Saudi Arabia legal system. Courts and arbitral bodies, especially in the Saudi Center for Commercial Arbitration, have relied on these principles to uphold contractual autonomy and make use of digital evidence.

Over the past 12 months there has been a clear market trend towards technology-enabled contracting, including smart contracts, AI-assisted compliance, blockchain-based documentation, and cross-border e-commerce, as reflected in the Kingdom’s Vision 2030 initiative.

Saudi Arabia recognises the right of contracting parties to determine the governing law of their commercial agreement, particularly if the transaction is considered international. Courts generally respect the parties’ choice in practice, as long as the chosen law does not conflict with mandatory Saudi Arabian regulations or Sharia principles. However, if no governing law is chosen, or the chosen law is found to be incompatible, the courts will apply Saudi law as laid out in the Civil Transactions Law (2023) and other related statues.

In practice, many cross-border investors prefer to apply Saudi laws to simplify enforcement and minimise uncertainty over judicial discretion. Where a foreign law is applied, parties must bear the burden of submitting certified translations and expert evidence to assist the court. This approach (ie, respecting freedom of contract where it does not conflict with public policy) allows international flexibility to co-exist while preserving local ethical standards.

Even where a contract is governed by foreign law, Saudi courts will apply the mandatory local provisions that safeguard fundamental public interests. These include the Sharia prohibitions on interest (riba) and excessive uncertainty (gharar), as well as the statutory protections regarding commercial agencies, employment and data protection. Any clause conflicting with these principles may be declared void or unenforceable to the extent of that inconsistency.

This discretion ensures that foreign laws operate only within the limits of Sharia and Saudi Arabia public policy, in reflection of the Kingdom’s goal of maintaining a moral legal framework.

Where one party to a contract is a Saudi Arabian national and the other is foreign, the parties may agree to submit disputes to a foreign court, provided this does not affect Saudi public policy or deny either party access to justice. However, when both contracting parties are Saudi Arabian nationals, this is more complex as, while there is no express statutory prohibition against choosing a foreign court, the parties are obliged to strive to preserve enforceability inside the Kingdom by using the national judicial authority.

Foreign judgments are recognised and enforced under the Enforcement Law (2012), provided the judgment is finalised and consistent. This has encouraged parties to draft jurisdiction clauses carefully, pairing them with arbitration options that would ensure the resulting decisions can legitimately be enforced within the Kingdom.

Arbitration is well established in Saudi Arabia and is a commonly used mechanism for cross-border transactions. The Arbitration Law (2012) allows parties to freely select the seat, language and procedural rules of their arbitration. The Saudi Center for Commercial Arbitration provides a modern framework consistent with international standards, while the Kingdom’s agreement to the New York Convention (1958) ensures the recognition and enforcement of foreign arbitral awards if not contrary to Sharia principles.

Where an arbitration clause is validly agreed the local courts will generally decline jurisdiction; however, this does not prevent parties from seeking procedural assistance or enforcement from a local court so long as there is a mutual understanding/agreement on this issue between the involved parties. It is important to note that mandatory national laws will remain applicable to agency protections and competition rules as this cannot be waived through arbitration (see 1.4 Mandatory Rules for Specific Contracts).

Saudi law recognises that a valid contract may be held in any form, whether written, oral or implied by conduct, unless otherwise required by law. Written contracts are, however, strongly encouraged in commercial practice to avoid disputes over proof of consent and terms. Courts generally accept electronic or digital formats as equivalent to paper-based ones, as long as their authenticity and integrity is demonstrated as per the Electronic Transactions Law (2023).

Under this regulation, electronic documents and signatures have full legal effect when issued through approved e-systems for authentication. This has enabled the widespread use of electronic contracting platforms in both private and government transactions. Certain sectors do, however, remain subject to additional registration requirements to ensure enforceability.

The Civil Transactions Law (2023) introduces the express recognition of pre-contractual liability, similar to the civil law concept of culpa in contrahendo. This concept refers to the requirement for the parties’ engaged in negotiation to act in good faith, to avoid deceptive and unjustified behaviour and not to improperly disclose confidential information. A breach of this duty may lead to the remedy of compensation for the losses suffered.

Saudi Arabian courts increasingly apply this principle to discourage immoral conduct in commercial negotiations and to reprioritise the goal of restoring fairness for the wronged party based on the reasonable expectations created by the agreement, rather than solely completing the contractual obligation.

In Saudi Arabia, businesses often rely on standard terms and conditions to facilitate contracting, but these are only binding if the other party has had a full opportunity to review and consent to the terms. As these may be incorporated by express reference or within the agreement/annexe, courts consistently confirm the awareness of clauses to ensure proper consent as the law focuses on mutual understanding rather than basic formalities, meaning a party cannot simply reference the terms if the counterparty is unaware of their content.

In commercial practice, in an attempt to reduce disputes, it is recommended to require parties to sign pages containing critical terms or disclaimers. This not only provides proof of consent but also demonstrates transparency, which is valued highly in local law and practice. Digitally, platforms in line with the Electronic Transactions Law (2023) require users to sign contracts through a confirmation process as a safeguard to ensure proper steps are taken.

Saudi Arabia places a strong emphasis on fairness and transparency when using pre-drafted or standard-form contracts. The Civil Transactions Law (2023) requires the terms used to be clear, accessible and accepted knowingly. The E-Commerce Law imposes additional duties on traders to disclose material terms before a transaction. In this case, the main concern for Saudi courts is whether both parties have genuinely understood and consented to the terms.

As a result of Sharia principles, judges are obliged to look beyond the basic background of how an agreement was reached and take an equity-driven approach to prioritise good faith through interpretation.

A contractual clause may be modified or invalidated in Saudi Arabia if it creates an unreasonable or unjust disadvantage to one of the parties. For example, terms regarding liability, penalties or unfair termination are particularly subject to judicial intervention. Instead of rendering the entire contract void, the court may choose to adjust the clause to realign fairness and prevent unnecessary harm.

As recommended, businesses should thoroughly review standard clauses to ensure they align with fairness standards before putting them into practice. This approach guarantees contractual freedom is not abused and the ethics of commercial dealings are upheld.

In Saudi Arabia, a “battle of forms” refers to a situation in which each party seeks to impose its own standard terms. In practice this is resolved through an approach based on intent rather than procedural issues. Saudi courts focus on identifying whether the parties reached genuine mutual consent and what was actually agreed through conduct, correspondence or performance. For example, if a buyer issues a purchase order with its terms and the seller responds with an invoice acknowledging different terms, the court may then examine which set of terms were implicitly accepted by performance.

The Civil Transactions Law (2023) does not recognise the strict “first shot” or “last shot” rule, unlike common law jurisdictions. Instead, judges use good faith and equity principles to rationalise. If conflicting clauses cannot be reconciled, they may then be disregarded and replaced by default standard legal provisions in that area; the objective here would be to uphold the contract to preserve the parties’ commercial intent than the technicalities of the agreement.

In practice, parties now mitigate these risks by issuing a final confirmation of the agreed terms or sign a master service agreement that would override any inconsistent future agreements. This documentation ensures clarity and reduces uncertainty during the execution stage.

Saudi Arabian law adopts a flexible and modern approach to contract execution. In most commercial relationships, a contract does not require a handwritten or notarised signature to be valid as the key requirement is mutual consent, whether this is given orally, in writing or through conduct. However, Saudi Arabian commercial practice favours written and signed agreements to provide certainty and admissible evidence in court.

Since the integration of the Electronic Transactions Law (2023), electronic signatures have full legal recognition in the Kingdom provided they meet the requirements of authentication and are certified by the National Center for Digital Certification. The law equates verified e-signatures with handwritten signatures, meaning contracts signed electronically hold the same status and may be enforced before Saudi courts and arbitration tribunals.

Depending on the commercial sector, certain transactions may require formal authentication or notarisation due to their significance; this includes Power of Attorney, agency and franchise agreements, and governmental entity contracts. Depending on the contract type, these documents may be authenticated through official channels – such as the Najiz e-platform (the Ministry of Justice’s online platform), the Ministry of Commerce or the Chambers of Commerce – to ensure traceability and prevent fraud through regulatory oversight. In practice, many companies execute using a hybrid model, where the main agreement is signed electronically, and later notarised to meet local filing requirements.

Certain commercial contracts in Saudi Arabia must be registered with the competent authority to achieve full legal effect or to be enforceable against third parties. This requirement is not intended as a mere administrative formality, but is rather designed to enhance transparency, traceability and investor protection within the Saudi Arabian market. As an example, commercial agency agreements must be recorded with the Ministry of Commerce under the Commercial Agencies Law (2023) and franchise agreements must similarly be registered on the Franchise Register in accordance with the Commercial Franchise Law (2020). Official registration gives public notice of ownership and priority as it allows third parties access to verified information.

Failure to register does not automatically render a contract void between parties, but it may prevent its enforcement before Saudi courts and limit claims for statutory protections. In practice, most businesses prioritise complete registration to avoid any procedural delays and to secure regulatory approval to strengthen their legal position in future stages.

Beyond the exchange of consent, for a contract to be valid under Saudi law, it must involve a lawful subject matter, permissible consideration, and parties with legal capacity in compliance with Sharia principles. Most importantly, the parties must act through the authorised representatives when necessary to fulfil the legal capacity requirement – ie, as long as an authorised representative of a company has signed a contract then the contract will be valid. The authority may be via a delegation of authority from the board of the company or a Power of Attorney. This is to ensure honest and reasonable actions as codified in the Civil Transactions Law (2023). A contract that violates these prohibitions or conflicts with public order may then be declared void even where mutual consent was clear.

In the case of contracting with government or semi-public bodies, additional formalities are outlined under the Government Tenders and Procurement Law (2022) including approval procedures that are in place to safeguard public funds and accountability.

Saudi laws distinguish between business-to-business (B2B) contracts and business-to-consumer (B2C) transactions through both the Civil Transactions Law (2023) and sector-specific statutes. B2B contracts are primarily governed by the Civil Transactions Law and the Companies Law (2022), which regulate the commercial obligations, payment terms and corporate responsibilities of the professional parties to an agreement. These agreements emphasise freedom of contract and assume relatively equal bargaining power, allowing the parties flexibility in risk allocation and dispute resolution mechanisms.

By contrast, B2C contracts in Saudi Arabia are governed by a framework of consumer-protection provisions dispersed across several existing laws, rather than a single comprehensive statute. The principal legislation currently in force includes the E-Commerce Law (2019), together with the Anti-Commercial Fraud Law, the Commercial Data Law, and the recently enacted Product Safety and Standards & Quality Laws (both 2024), all overseen by the Ministry of Commerce. These laws impose stricter duties of disclosure, truthful representation and warranty to protect consumers against unfair or misleading commercial practices. A dedicated Consumer Protection Law remains in draft form, but is in its final stages of preparation (opened for public consultation in 2022) and, once enacted, is expected to consolidate and strengthen the existing consumer-rights framework.

Consumers in Saudi Arabia are afforded a range of statutory rights intended to guarantee fairness, safety and clarity in transactions. While a dedicated Consumer Protection Law is still in draft form and yet to be enacted (see 4.1 Different Laws), consumer rights are currently protected under various existing statutes, including the E-Commerce Law (2019), the Anti-Commercial Fraud Law and the Commercial Data Law. These collectively promote accuracy in marketing and pricing, prohibit deceptive practices, and require suppliers to honour warranties for defective products within the applicable period.

Under the E-Commerce law, additional safeguards apply to online transactions. Sellers must disclose their legal identity, contact details, total price, and the cancellation policies before payment is made. Unless the goods are perishable, consumers hold the right to withdraw within seven days from most online purchases. Violations may lead to fines, suspension from the market or a penalty. This is in furtherance of Saudi Arabia’s commitment to a trust-based digital economy and a consumer-centric marketplace.

The concept of liability under Saudi law is rooted in Sharia principles of harm and restitution. A party who causes loss or damage whether by breach of contract, negligence or unlawful acts, is obliged to compensate the injured party to the extent of the proven harm. The foundation of this concept can be found within the Sharia legal maxim of “no harm and no reciprocation of harm” recognised in Islamic jurisprudence to reflect the obligation to avoid harm and compensate for loss. This feeds into the ideas of liability, compensation and tort as they are understood in Saudi Arabia’s Civil Transaction Law.

The principles of the Civil Transaction Law outline how compensation is to cover both actual damage and direct consequential loss. Liability arises only where three elements exist: fault, harm and a link between both. This approach ensures that compensation serves a restorative rather a punitive purpose, which is consistent with the philosophy of Sharia.

Saudi law does not recognise punitive damages as compensation must be limited to a real and quantifiable loss suffered by the claimant, meaning the courts may not award damages intended to punish the breaching party or deter future misconduct. This is based on the fact that Sharia emphasises restoration and fairness to ensure awards only correspond to actual harm sustained.

Loss of profit may be recoverable only if such loss was foreseeable and directly caused by the breach, the claimant may then be able to provide objective evidence. There is no statutory maximum on liability, although courts frequently reduce inflated claims to match the evidence presented. Parties in commercial contracts often manage exposure through liability caps or insurance as the law provides the freedom to agree on monetary limits so long as they do not undermine the contract’s fundamental fairness.

In practice, liability caps are common in construction and engineering agreements where they may be expressed as a percentage of the contract value or aligned with a recoverable amount under the contractor’s insurance. Courts typically uphold these clauses if they are clearly negotiated and mutually understood, reflecting genuine and deliberate risk allocation between parties.

Saudi Arabia recognises limited forms of liability without fault, primarily in areas of public safety or in relation to high-risk activities. For example, operators of industrial or construction projects may be held liable for damage caused by dangerous operations even if no negligence is proven; manufacturers and importers can face strict liability for defective products under the Product Safety Regulations. Outside of these regulated sectors, liability generally requires proof of fault or breach. This preserves the balance between commercial freedom and public protection, as businesses are not automatically responsible for every loss, but are held strictly accountable where risk to the public and property are foreseeable.

Saudi law allows parties considerable freedom to limit or exclude liability by contract, provided that the clause does not violate public policy. Under the Civil Transaction Law, a limitation clause is valid where it reflects mutual consent and does not exempt a party from responsibility for gross negligence, fraud or intentional misconduct. Clauses that attempt to waive all liability or create extreme unfairness may be deemed invalid or be reduced/amended by the courts as these undermine overall good faith.

Whether a limitation clause appears in a standard form agreement or an individually negotiated contract can influence its enforceability. Where a clause appears in standard terms, courts examine whether the disadvantaged party had a true opportunity to understand and accept the clause. However, in negotiated agreements between commercial actors with experience, a greater degree of party autonomy is recognised.

Saudi law recognises the concept of force majeure as part of both Sharia and the Civil Transactions Law (2023). Where an unforeseeable unavoidable event, such a as natural disaster or epidemic, makes performance impossible, the affected party may be released from liability. This relief applies even if the contract itself is silent, reflecting the Sharia principle of “hardship brings relief” meaning that no party is bound to perform the impossible.

To benefit from this protection, the affected party must prove that the event was beyond its control, could not have reasonably been anticipated, and directly prevents performance. Partial or temporary impossibility may justify the suspension rather than the termination of the obligation to perform. The parties must act in good faith, promptly notify the counterparty, take reasonable steps to mitigate the impact, and prepare to resume performance once the event ceases; whether these procedural obligations are met is evaluated on a case-by-case basis. For example, the COVID-19 pandemic was recognised as a force majeure event as it made delivery impossible worldwide; however, market volatility would not be recognised as such as it would be understood as a hardship rather than an event that made performance impossible.

Despite the statutory foundation (as discussed in 6.1 Concept of Force Majeure), it remains standard practice in Saudi Arabia for commercial contracts to include a detailed force majeure clause. Such clauses specify qualifying events, notice requirements, and the consequences such as suspension, extension or termination. They help avoid uncertainty about what may be considered as impossible and how long non-performance may last before termination becomes permissible.

The absence of this clause does not prevent a party from claiming relief under the Civil Transactions Law, which applies a statutory safety net by default. However, expressly including this clause is advisable as courts assess each case individually.

Saudi Arabia recognises the doctrine of hardship. This applies to an event that, while it may not render performance impossible, makes it extremely difficult to do what was originally agreed between the parties. The Civil Transactions Law codifies this principle by allowing the court the discretion to balance contractual obligations when unforeseeable circumstances create a severe imbalance.

A party seeking relief must prove that the hardship was beyond its control and that the loss in question would be disproportionate if performance continued unchanged. The court may then order a revision of the contract terms or order a suspension to relieve the burden. This is a reflection of the Sharia principle that harm must be removed.

In commercial practice, it is now increasingly common for contracts to include a hardship clause, especially within long-term agreements. Such clauses provide a contractual mechanism for renegotiation or adjustment if external conditions change sufficiently to justify this throughout the term of the contract.

The absence of a hardship clause does not bar a party from seeking statutory relief under the Civil Transaction Law, but including the clause expressly can offer greater procedural clarity. The advantage of doing so is that it allows the parties to define thresholds for hardship and to agree on renegotiation processes before resorting to litigation.

Under the Civil Transactions Law (2023), two key statutory warranties apply to sale and purchase transactions:

• the Entitlement Warranty, requiring the seller to transfer the asset free from third-party rights or encumbrances (Articles 321, 324 and 330); and
• the Defects Warranty, requiring the item to be free from defects diminishing its value or hindering its agreed use (Article 338).

If these warranties are breached, the buyer may claim damages or recission. While these statutory warranties provide a degree of protection, they are expressed in broad terms and should be supplemented by contractual warranties and indemnities so the parties can achieve commercial certainty.

Parties to a contract in Saudi Arabia may limit, extend or exclude the statutory warranties discussed in 7.1 Warranties and Remedies Under Local Law by mutual agreement under the Civil Transactions Law, provided such exclusions are not the result of fraud, deliberate concealment or bad faith. (Article 337).

Parties can also agree to liquidated damages (pre-agreed compensation) for delay or non-performance, subject to the rules in Articles 178 and 179, which provides that the amount must not be excessive.

However, contractual clauses cannot override certain mandatory rules deriving from Sharia law or public policy. A clause purporting to exempt a party from liability for fraud or wilful misconduct will be unenforceable for example.