Are liquidated damages enforceable in Saudi Arabia?

Article 178 of the Civil Transactions Law allows the parties to fix compensation in advance, but not where the subject of the obligation is a cash amount. Article 179 then makes the agreed figure unpayable if the debtor proves no harm was suffered, allows the court to reduce it where it is excessive or the obligation was partly performed, and declares void any agreement that contradicts those rules.

Does a service agreement have to be in writing in Saudi Arabia?

Article 33 of the Civil Transactions Law allows intent to be expressed verbally, in writing, by a discernible sign or by exchange, and explicitly or implicitly, unless legal provisions, the agreement or the nature of the dealing require otherwise. Article 1(2) preserves any specific legal provision, so a sector rule requiring a particular form still applies.

Can a party terminate for breach without going to court?

Article 107 of the Civil Transactions Law lets the innocent party, after notifying the breaching party, demand performance or termination and claim compensation, with the court able to refuse termination where the unperformed part is insignificant. Article 108 recognises a contractual right to terminate without a judicial ruling, but the creditor must still notify the debtor of the intention to terminate unless the parties explicitly agreed otherwise.

Service Agreement in Saudi Arabia

Saudi Arabia now has a codified general law of contract, and several of its rules cut across common drafting habits. Article 178 allows pre-agreed compensation except where the subject of the obligation is a cash amount. Article 179 lets a court reduce an excessive agreed sum and voids any agreement to the contrary. Article 96 lets a court rewrite arbitrary terms in an adhesion contract.

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Governing law

The Civil Transactions Law, Royal Decree No. M/191 of 18 June 2023, governs contract formation and effects in Articles 30 to 114 and contracts for service in Articles 461 to 478; Article 721 brought it into force 180 days after its publication in the Official Gazette.

Civil Transactions Law, Royal Decree No. M/191 of 18 June 2023, Arts. 30 to 114, 461 to 478 and 721 (Bureau of Experts official translation, Ministry of Investment)

What a service agreement has to contain in Saudi Arabia

Article 31 concludes a contract by concurrence of offer and acceptance, and Article 33 allows intent to be expressed verbally, in writing, by a discernible sign or by exchange, explicitly or implicitly, unless legal provisions, the agreement or the nature of the dealing require otherwise.
Civil Transactions Law, Royal Decree No. M/191 of 18 June 2023, Arts. 31 and 33 (Bureau of Experts official translation, Ministry of Investment)
Article 95 requires performance in accordance with the contract and in a manner consistent with good faith practices, and binds a party to what legal provisions, custom and the nature of the contract require.
Civil Transactions Law, Royal Decree No. M/191 of 18 June 2023, Art. 95 (Bureau of Experts official translation, Ministry of Investment)
Article 178 allows the parties to fix compensation in advance, in the contract or later, unless the subject of the obligation is a cash amount.
Civil Transactions Law, Royal Decree No. M/191 of 18 June 2023, Art. 178 (Bureau of Experts official translation, Ministry of Investment)
Article 179 makes agreed compensation unpayable where the debtor proves no harm, lets the court reduce it where excessive or the obligation was partly performed, lets it increase for fraud or gross negligence, and voids any contrary agreement.
Civil Transactions Law, Royal Decree No. M/191 of 18 June 2023, Art. 179 (Bureau of Experts official translation, Ministry of Investment)
Article 107 lets a party, after notifying the breaching party, demand performance or termination and claim compensation, with the court able to refuse termination where the unperformed part is insignificant. Article 108 preserves an agreed right to terminate without a ruling but still requires notice of that intention unless explicitly agreed otherwise.
Civil Transactions Law, Royal Decree No. M/191 of 18 June 2023, Arts. 107 and 108 (Bureau of Experts official translation, Ministry of Investment)
Article 97 lets a debtor facing unforeseeable extraordinary events that make performance excessively onerous invite negotiation without suspending performance, lets the court reduce the obligation to a reasonable level, and voids any agreement to the contrary.
Civil Transactions Law, Royal Decree No. M/191 of 18 June 2023, Art. 97 (Bureau of Experts official translation, Ministry of Investment)

What catches drafters out

Article 96 lets a court amend arbitrary conditions in a contract concluded by way of adhesion, or exempt the adhering party from them as equity requires, and voids any agreement to the contrary.
Civil Transactions Law, Royal Decree No. M/191 of 18 June 2023, Art. 96 (Bureau of Experts official translation, Ministry of Investment)
Article 295 bars a claim after 10 years, Article 296 after five for professionals' fees and renewable periodic rights such as rent and wages, and Article 297 after one year for merchants' rights against non-traders.
Civil Transactions Law, Royal Decree No. M/191 of 18 June 2023, Arts. 295, 296 and 297 (Bureau of Experts official translation, Ministry of Investment)
Article 2 calculates all periods and deadlines under the Civil Transactions Law by the Hijri calendar, which does not align with Gregorian periods written into a contract.
Civil Transactions Law, Royal Decree No. M/191 of 18 June 2023, Art. 2 (Bureau of Experts official translation, Ministry of Investment)