Contract Drafting and Review in Saudi Arabia: The Clauses That Decide Disputes

1. Language

Court proceedings in Saudi Arabia are in Arabic, so documents in another language will normally need an Arabic translation. If you sign a bilingual contract, state which version prevails, and check that the two versions actually match.

For employment contracts, the Labor Law already provides that the Arabic text prevails (Article 9). See Employment Contracts for Expats.

2. Disputes: courts or arbitration

Decide where disputes will go:

• Saudi courts: often the most direct route to enforcement against a Saudi counterparty.
• Arbitration: if the clause is valid and the defendant relies on it, the court will not hear the dispute.

Arbitral awards and court judgments are both executive instruments under the current Enforcement Law. Foreign judgments and awards must meet the applicable enforcement conditions. See Enforcing Foreign Judgments and Awards.

3. Payment terms and security

• Set clear due dates, and state how invoices are approved and when an invoice counts as accepted.
• Ask for security in a form that can be enforced directly. Under the current Enforcement Law, cheques and registered promissory notes are executive instruments, and so are attested contracts and acknowledgments.
• Do not rely on a fixed penalty for late payment. The Civil Transactions Law allows parties to agree compensation in advance, except where the obligation is to pay a sum of money.

4. Delay and liquidated damages

Agreed compensation for delay or non-performance is generally permitted, but:

• it is not payable if the debtor proves the creditor suffered no harm;
• the court may reduce it if it is exaggerated, or if the obligation was partly performed;
• it may be increased where fraud or gross negligence caused greater harm.

Set a realistic rate and a cap, and keep records of actual harm.

5. Termination

• Without an express clause, a party generally notifies the other and asks the court to rescind for non-performance. The court may refuse if the breach is minor.
• If you want the right to terminate without a court order, say so expressly. The parties may agree that the contract can be rescinded for breach without a judicial ruling, and may waive prior notice.
• Dispute-resolution and confidentiality obligations survive rescission unless the parties agree otherwise. Other provisions, such as liability caps, may not survive without express wording.

6. Exceptional circumstances

If general, unforeseeable exceptional circumstances make performance excessively burdensome, a party may ask to renegotiate, but it must keep performing. If no agreement is reached, the court may reduce the burden. Consider adding a clear price-adjustment or force-majeure mechanism.

7. Time limits

Filing time limits depend on the claim and the applicable law. An acknowledgment of the right or an excuse accepted by the court may matter, but do not rely on an exception. Check the deadline and act promptly.

Example: A Jubail fabrication company is about to sign a SAR 4 million supply contract with a Saudi buyer. On review, we find: no clause on which language prevails; a delay penalty with no cap; a termination clause that does not say whether a court order is needed; and payment security in the form of an unregistered promissory note. Each of these is fixed before signature.