Civil Transactions
Force Majeure under Saudi Law: The Impact of Exceptional Circumstances on Contractual Obligations and Business Continuity
From time to time, the world and various regions experience developments and changes that may raise questions among government entities, companies, investors, and individuals regarding the potential impact of such circumstances on contractual obligations and business continuity.
Nevertheless, such circumstances do not necessarily mean that business operations will be disrupted or that contractual performance will cease. Legal systems provide clear mechanisms for addressing exceptional circumstances in a manner that balances the protection of contracting parties with the stability of commercial transactions.
The Concept of Force Majeure under Saudi Law
Force majeure refers to an exceptional event beyond the control of the parties, which is unforeseeable and unavoidable, and which results in the impossibility of performing the obligation.
This matter is regulated under the Saudi Civil Transactions Law, issued pursuant to Royal Decree No. (M/191) dated 29/11/1444H (the “Civil Transactions Law”), through provisions addressing the impossibility of performance and exceptional circumstances, including the following:
Article (97)
If general exceptional circumstances arise that could not reasonably have been foreseen at the time of contracting, and their occurrence renders the performance of the contractual obligation excessively burdensome for the debtor, such that it threatens the debtor with substantial loss, the debtor may, without unjustified delay, invite the other party to negotiate.
A request for negotiation does not entitle the debtor to refrain from performing the obligation.
If no agreement is reached within a reasonable period, the court may, depending on the circumstances and after balancing the interests of both parties, reduce the burdensome obligation to a reasonable level.
Any agreement contrary to the provisions of this Article shall be deemed void.
Article (110)
In bilateral contracts, if the performance of an obligation becomes impossible due to a cause beyond the debtor’s control, the obligation and the corresponding counter-obligation shall be extinguished, and the contract shall automatically terminate.
If the impossibility is partial, the obligation shall be extinguished only to the extent of the impossible part and the corresponding counter-obligation. This rule also applies to temporary impossibility in continuing contracts.
In both cases, the creditor may request termination of the contract, and the court may reject such request if the impossible part is of minor significance in relation to the obligation.
These provisions demonstrate how Saudi law seeks to balance the protection of contracting parties with the stability of economic and commercial dealings.
Do Climate, Economic, or Political Developments Always Trigger Force Majeure?
The concept of force majeure is not automatically triggered merely because climate, economic, or political developments occur. Rather, it must be demonstrated that the event has resulted in an actual impossibility of performing the obligation, for example:
- Closure of ports or shipping routes.
- Government decisions preventing performance.
- Disruption of supply chains due to circumstances beyond the parties’ control.
Where performance remains possible, contractual obligations generally continue to apply.
Lessons Learned from the COVID-19 Pandemic
The COVID-19 pandemic demonstrated that companies can adapt to exceptional circumstances without completely halting their operations. Many organizations adopted practical solutions to ensure business continuity, including:
- Transitioning to remote work.
- Utilizing digital tools and electronic signatures.
- Rescheduling contractual obligations between the parties.
- Temporarily adjusting certain contractual terms to accommodate exceptional circumstances.
- Strengthening communication and cooperation between contracting parties.
- Promoting positive collaboration among all parties to the contractual relationship, whether within the private sector or between the public and private sectors, in order to mitigate the negative impact of such circumstances.
These approaches demonstrated that legal and administrative flexibility plays an important role in managing crises.
Legal Risk Management and Business Continuity
To ensure business stability in the face of exceptional circumstances, companies and individuals are advised to take proactive steps, including:
- Reviewing force majeure clauses in commercial contracts.
- Documenting any direct impact that may hinder the performance of contractual obligations.
- Providing early notice to the counterparty upon the occurrence of an exceptional event.
- Exploring cooperative solutions, such as rescheduling obligations.
- Seeking legal advice to assess the contractual position and potential solutions.
- Ensuring legal preparedness for any implications arising from legislative or contractual matters.
Conclusion
Force majeure remains a specific and limited legal exception, while the general principle remains the continued performance of contractual obligations and the stability of commercial transactions.
With proper legal preparedness and effective risk management, companies and individuals can navigate exceptional circumstances with greater flexibility, helping to minimize disruption to their operations and interests while promoting business continuity and long-term sustainability.
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