Article Published 11 Apr 2025 Breach Of Contract: Legal Remedies In Saudi Arabia Saudi Arabia C ...

Breach Of Contract: Legal Remedies In Saudi Arabia

Under Saudi Arabia's Civil Transactions Law (2023), parties have several remedies for breach of contract, including compensation and specific performance.

Under Saudi Arabia's Civil Transactions Law (2023), partieshave several remedies for breach of contract, includingcompensation and specific performance. This article outlines theseremedies and the enforcement process through litigation orarbitration.

Contracts are the backbone of business transactions, ensuringthat parties fulfill their obligations as agreed. In Saudi Arabia,contracts are governed primarily by Islamic Sharia principles andsupplemented by statutory laws, including the Saudi CivilTransactions Law (2023) and relevant commercial regulations. Abreach of contract can lead to severe legal consequences, andunderstanding the legal remedies available is crucial forindividuals and businesses operating in the Kingdom.

Legal Framework Governing Contracts in Saudi Arabia

The key laws governing contracts in Saudi Arabia include theSaudi Civil Transactions Law (2023), which serves as the main legalstatute regulating contractual obligations and liabilities.Articles 122-150 outline provisions related to contract enforcementand breach. Furthermore, the Commercial Court Law (2020) regulatescommercial disputes arising out of contractual breaches, while theSaudi Labor Law covers employment contract disputes. The GovernmentTenders and Procurement Law governs contracts involving governmententities, and the Arbitration Law (2012, amended in 2023) providesmechanisms for resolving contract disputes outside court.

Types of Breach of Contract

A breach of contract occurs when one party fails to fulfill itsobligations as agreed. The types of breaches include materialbreaches, where a significant failure undermines the contract'spurpose, such as the failure to deliver goods or services. A minorbreach is a less serious violation that does not void the contractbut causes inconvenience. An anticipatory breach occurs when oneparty indicates an intention not to fulfill obligations before thedue date. A fundamental breach is so severe that the non-breachingparty is entitled to terminate the contract immediately.

Legal Remedies for Breach of Contract in Saudi Arabia

Under Saudi law, various legal remedies are available to addressa breach of contract. Specific performance is one of the primaryremedies, as per Article 180 of the Civil Transactions Law, if aparty fails to fulfill contractual obligations and the amount ofdamages was undefined in the contract then the court may order theparty to perform as agreed, particularly in cases involving uniquegoods, services, or property where monetary compensation isinsufficient.

Compensation for damages is another remedy, allowing the injuredparty to claim financial and moral damages resulting from thebreach in which this compensation shall fully remedy the damage andthis should be done by returning the injured party to the positionhe was in or could have been in had the damage not occurred, aswell as in some cases such compensation shall cover the losssuffered by the injured party and the gain he missed as a result ofbreaching the contractual obligations, as outlined in Article136-139. These damages include direct losses such as unpaidinvoices or lost profits, consequential losses like reputationaldamage, and in rare cases, punitive damages due to fraudulentbreaches.

Termination of contract is another remedy available underArticle 107, allowing the affected party to seek contractdissolution if the breach is fundamental. However, in some casescourts may assess whether the breach justifies termination andwhether compensatory damages should be awarded or not.

Moreover, another type of contract also may include liquidateddamages clauses, specifying pre-determined penalties for breaches.According to Article 108, courts will enforce such clauses unlessthey are deemed excessively unfair. Additionally, courts may issueinjunctions and preventive orders to stop further contractviolations, particularly in cases involving intellectual propertyinfringement or non-compete breaches.

Steps for Contract Enforcement in Saudi Arabia

If a breach occurs, the affected party should first review thecontract to assess the terms, obligations, and breach clauses. Itis crucial to check whether the contract contains an arbitrationmediation or litigation clause. Before resorting to legal action,Saudi law encourages parties to resolve disputes amicably throughnegotiation, which can save time and costs. If resolution attemptsfail, the next step is to send a formal legal notice demandingcorrective action within a specified timeframe. This notice servesas evidence if the dispute escalates.

If the breaching party does not respond or rectify thesituation, the next step is to file a claim with the relevantauthority. For commercial disputes, claims should be filed with theCommercial Courts, while employment disputes should be taken to theLabor Courts. Government contract disputes should be submitted tothe relevant government agency. If arbitration is stipulated in thecontract, the dispute should be submitted to an arbitration centerinstead. During court proceedings or arbitration hearings, partiesmust present evidence, contracts, and witness testimonies. However,courts in Saudi usually follow Sharia principles which increasinglyalign with international contract law.

Once a judgment is issued, enforcement is the final step.Successful claims result in compensation orders or performancedirectives. The Execution Court ensures compliance with rulings,and non-compliance can lead to asset seizure or travel bans on thebreaching party

Conclusion

Saudi Arabia has a robust legal framework for enforcingcontracts and remedying breaches. Legal remedies range fromspecific performance and monetary compensation to termination andarbitration. Understanding the Saudi Civil Transactions Law andcommercial dispute mechanisms ensures better contract enforcementand legal protection in the Kingdom.

The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circumstances.