Force Majeure Under Saudi Law: What It Means for Your Contracts

Under Saudi law, force majeure and exceptional circumstances are two different rules. The Civil Transactions Law says that if performing an obligation becomes impossible for a cause beyond the debtor’s control, the obligation ends, the other side’s matching obligation ends with it, and the contract is dissolved by operation of law. If performance is still possible but general, exceptional circumstances that could not be foreseen make it so burdensome that it threatens heavy loss, the debtor may invite the other side to negotiate, must keep performing in the meantime, and a court may reduce the burden to a reasonable level if no agreement is reached. So before you stop delivering, stop paying or send a termination letter, read your contract, notify the other party in writing, document what happened, negotiate, and have a lawyer review your specific case.

This guide follows the official text published by the Bureau of Experts at the Council of Ministers. It is general information, not legal advice. For the effects of the current disruption on shipping and prices, see the impact of regional crises on Saudi businesses.

Two rules, not one: impossibility and exceptional circumstances

Business owners often say “force majeure” about any event that hurts a contract: a closed shipping route, a government decision, a sudden jump in prices. The Civil Transactions Law separates these situations by what they do to performance, not by the type of event.

• Impossibility of performance. The obligation can no longer be performed, in whole or in part, for a cause beyond the debtor’s control. This is what most people mean by force majeure, and the law’s answer is that the obligation ends.
• Exceptional circumstances. Performance is still possible but has become a burden that threatens heavy loss. The contract does not end. The law opens a path to negotiation and, if that fails, to a court adjusting the burden. Arabic legal writing commonly calls this the theory of emergent circumstances.

The same event can fall under either rule. A regional crisis that closes the only route a supplier can use may make delivery impossible for a while; for a supplier that can reroute, it only makes delivery cost more. So ask first what exactly can no longer be done, and what has only become harder.

Which contracts the law covers

The Civil Transactions Law is the general law of contracts in the Kingdom. The royal decree that issued it applies it to commercial transactions where the commercial laws have no special provision, without conflicting with their commercial nature, and to facts that happened before it came into force, with exceptions. If your contract is older, or falls under a special law such as the Government Tenders and Procurement Law, ask your lawyer which rules govern it.

Force majeure and impossibility of performance: what the law says

The contract provisions of the law do not list force majeure events. They speak of a cause beyond the debtor’s control. The law’s chapter on harmful acts names force majeure as one example of such a cause, alongside the fault of a third party or of the person harmed (Article 125).

When performance becomes impossible

Under Article 110, in contracts binding on both sides, if performing an obligation becomes impossible for a cause beyond the debtor’s control, his obligation and the other party’s matching obligation end, and the contract is dissolved by operation of law. Article 294 repeats the rule with a word that matters: the obligation ends if the debtor proves the impossibility. The burden is on the party relying on it, which is why the evidence file described below matters.

Partial and temporary impossibility

If only part of the obligation becomes impossible, only that part and what corresponds to it ends. The same applies to temporary impossibility in contracts that run over time, such as a lease. In both cases the creditor may ask for rescission, and the court may refuse if the impossible part is of little importance compared with the whole obligation.

After the contract ends

Under Article 111, when a contract is rescinded or dissolved, the parties go back to their position before the contract, and if that is impossible the court may award compensation. In contracts that run over time, the end has no retroactive effect, so what was performed before the event stands.

Damages for non-performance and delay

Under Article 170, a debtor who fails to perform pays compensation unless he proves the failure was due to a cause beyond his control. Article 171 applies the same exception to delay. For many companies this is the real value of force majeure: not ending the contract, but avoiding a claim for a delay nobody could have prevented.

Exceptional circumstances: when performance becomes excessively burdensome

Article 97 is the provision most Saudi companies need in a crisis that raises costs without making the work impossible. It has four parts.

The conditions in the text

• The circumstances are exceptional.
• They are general. The word points to events that affect the market or the public rather than one company’s own affairs; how far it reaches in a given case is a question for your lawyer.
• They could not have been foreseen at the time of contracting, so the date of your contract matters.
• They make performance burdensome to the point of threatening the debtor with heavy loss. The text speaks of heavy loss, not of lower profit.

Negotiate first, and keep performing

The debtor may invite the other party to negotiate, without unjustified delay. The article states that asking for negotiation does not entitle the debtor to stop performing. A supplier who halts deliveries, or a customer who halts payments, “while the talks go on” acts outside this rule and may face a claim for breach.

What the court can do

If no agreement is reached within a reasonable period, the court may, depending on the circumstances and after balancing both parties’ interests, reduce the burdensome obligation to a reasonable level. The text does not say the court cancels the contract or moves the whole loss to the other side.

The rule cannot be excluded

Any agreement contrary to the provisions of Article 97 is void, so a clause saying “neither party may rely on changed circumstances” does not remove this protection. Force majeure clauses, as the next sections show, are different.

Impossible or only harder: how to tell the difference

Test each affected obligation separately, and answer these questions before you meet your lawyer:

• Can the obligation be performed by any reasonable means, or has it only become slower or more expensive?
• Is the obstacle permanent, temporary or partial?
• Was the cause really outside your control, or did your own choices contribute, such as relying on one supplier, holding no stock or ordering late?
• If the problem is cost, how large is the loss compared with the whole contract?

Worked example. A Riyadh distributor supplies packaged goods to a retail chain every month. Its overseas supplier cannot ship for several weeks because the only route open to it is closed by regional disruption. For those weeks delivery is impossible for a cause beyond the distributor’s control, so the rules on temporary impossibility and the contract’s own clause are the starting point. Then the route reopens, but freight and insurance cost much more and every delivery loses money. Delivery is possible again, so the question becomes whether the extra cost meets the conditions of Article 97, and the first step is to invite the chain to negotiate while continuing to deliver.

A higher cost on its own does not make performance impossible. In serious cases it may fall under exceptional circumstances, but only if the conditions in the text are met. Our article on shipping and insurance costs for Saudi importers covers the commercial side.

What a written force majeure clause adds

The law sets default rules and lets the parties shape them. Article 174 allows them to agree that the debtor bears the risk of force majeure, so a supplier can take that risk on, for example for a higher price. Article 173 allows them to exempt the debtor from compensation for non-performance or delay, except for his fraud or gross error. Who carries force majeure risk is therefore largely for the contract to decide, unlike the exceptional circumstances rule.

A good clause answers these points:

1. Covered events: a definition, examples, and whether the list is closed. Many clauses name natural disasters, epidemics, government decisions, closure of ports or routes, and regional crises.
2. Exclusions: often lack of funds, changes in market prices and a supplier’s own failure, unless that failure was caused by a covered event.
3. Notice: to whom, in what form, how soon after the event, and with what content.
4. Evidence: the documents the affected party must provide.
5. Mitigation: a duty to take reasonable steps, such as finding another route or source.
6. Effect: suspension, extension of time, and who carries costs in the meantime.
7. Long events: a right to end the contract if the event lasts beyond an agreed period, and how the accounts are settled.
8. Price changes: a separate price-adjustment or hardship clause, written to work alongside Article 97, not against it.
9. Disputes: the competent court or arbitration, and the governing law.

Watch for clauses copied from foreign templates written for another legal system. They may use terms that do not fit the Civil Transactions Law or try to exclude rules that cannot be excluded. The Arabic and English versions of one contract can also word the clause differently, so have both read together.

Notice, evidence and mitigation

Force majeure disputes are usually decided on paper. The party that gave notice early, kept records and tried to limit the damage is in a far better position than the one that went quiet.

Notice

Follow your contract’s notice clause exactly: its form, address and timing. The law also gives weight to formal notice. Under Article 175, compensation is not due until the debtor has been formally notified, unless an agreement or a legal provision says otherwise, and Article 177 allows notice by any means agreed between the parties or any means of notification recognized by law, including filing a claim. Article 97 expects the call to negotiate to come without unjustified delay.

In Saudi business, problems are often first raised in a call or a meeting between owners. That is fine, but follow it with a written note. A good notice states the event, when it started, which obligations it affects, your steps, how long you expect it to last, and a request to meet.

Evidence

• Official announcements and decisions about the event.
• Letters and emails from suppliers, shipping lines, freight forwarders and insurers.
• Shipping documents, booking cancellations, port notices and delivery records.
• Price quotes from before and after the event, and your cost calculations.
• Meeting minutes, copies of every notice, and a dated log of what you did.

Mitigation

The law requires a contract to be performed according to its terms and in a way consistent with good faith (Article 95), and many contracts add an express duty to limit losses. Look for other suppliers or routes, offer partial delivery, propose a new schedule, and keep the other party informed. If the weak point is a single-source supply chain, our supply chain advisory work starts by mapping those dependencies.

Supply, lease and construction contracts: how the rules apply

The law also has specific rules for some contract types. These examples are general; real outcomes depend on the contract and the facts.

Supply and sale of goods

Under Article 329, if goods sold perish before delivery for a cause for which neither party nor a third party is responsible, the sale is dissolved and the buyer recovers the price; if only part perishes, the buyer may also ask to rescind the rest. In ongoing supply agreements, partial and temporary impossibility usually matter more: only the affected part ends. Check whether you may buy elsewhere during the event and whether minimum purchase commitments are suspended.

Leases

If the leased property is totally destroyed during the lease, the contract is dissolved by operation of law (Article 420). If it is partly destroyed, or falls into a condition that reduces the use it was leased for, through no act of the tenant, the tenant may ask for rescission or a lower rent (Article 421). The tenant may ask for the same if an act of a public authority reduces the use of the property (Article 424). Under Article 442, either party may ask to rescind the lease for an unexpected excuse relating to that party, but must compensate the other for the harm the rescission causes, so it is not a free exit. For leases registered on the Ejar platform, read the registered contract’s terms as well.

Construction and works contracts

Under Article 471, in a works contract based on an agreed design for a lump-sum price, the contractor may not claim any increase even if material prices, wages or other costs rise. The same article adds an exception: if general exceptional circumstances that could not be foreseen collapse the contractual balance, the court may restore it, including by extending the time or increasing or reducing the price, or may rescind the contract. Article 476 allows either party to ask to rescind for an unexpected excuse relating to performance, with compensation. Under Article 477, a contractor who could not finish for a cause beyond his control is entitled to the value of the work done and to his spending on the unfinished work, to the extent it benefited the owner. Government contracts follow the Government Tenders and Procurement Law and its implementing regulations, which have their own rules on price adjustment, extensions and delay penalties.

The labor angle in brief

Employment contracts are governed by the Labor Law. It lists force majeure among the situations in which an employment contract ends (Article 74), and gives a worker who leaves work because of force majeure beyond his control the full end-of-service award (Article 87). These provisions are narrow. Do not treat a fall in sales or a cash squeeze as force majeure that ends employment contracts; a lawyer should review any such question before anything is said to staff.

Any change to an employee’s pay, hours or leave needs the employee’s written agreement and must follow the Labor Law. Do not cut pay, force unpaid leave or end contracts unilaterally. Our article on managing staff costs in a crisis under the Saudi Labor Law covers the options that keep you within the law.

What to do now with your contracts

1. List your critical contracts: major customers, key suppliers, leases, construction and maintenance, financing and government contracts, in one register with renewal dates, notice clauses and governing law.
2. Read the relevant clauses: force majeure, price adjustment, delay compensation and termination, with their notice periods and evidence requirements.
3. Link each crisis effect to an obligation: what has become impossible, what has become more expensive, and what is unaffected.
4. Notify in writing, early, and keep proof of delivery.
5. Document from the first day: open the evidence file and the action log.
6. Keep performing what you can: partial delivery or a revised schedule is usually better than silence.
7. Negotiate specific changes, such as new dates, a temporary pricing mechanism or shared costs, and record any agreement in a signed amendment.
8. Take legal advice before ending or suspending any contract.
9. Check your insurance and notify insurers within the deadlines in your policies.

Contract rules between companies do not change your obligations to government bodies: ZATCA filings, GOSI contributions and salary payments through Mudad continue unless the competent body announces otherwise.

A risk advisory review can rank your contracts by the damage each would do in a crisis, and Innovant can help you build the register and the evidence file. Innovant is an advisory firm, not a legal practice; when a question needs a lawyer, we coordinate with partner lawyers. If contract problems start to threaten your ability to pay debts, read about preventive settlement and financial reorganization early.

Common mistakes

• Stopping work or payment on your own because “it is force majeure”.
• Calling every cost increase force majeure.
• Giving notice late, by phone only, or to the wrong address.
• Assuming a contract clause can switch off the exceptional circumstances rule.
• Using force majeure to end employment contracts without legal advice.

Frequently asked questions

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