AI Contract Drafting in Saudi Arabia: Getting It Right Under the Civil Transactions Law

How Saudi Arabia's Civil Transactions Law affects contract drafting — liquidated damages, liability caps, hardship and limitation periods — and how AI can help.

Since 16 December 2023, Saudi Arabia has had a codified Civil Transactions Law (issued by Royal Decree No. M/191). For the first time, many contract rules are written down in one law. If you draft or sign contracts in the Kingdom, these are the provisions to know.

Liquidated (agreed) damages

Agreed damages clauses are allowed, but:

• they are not payable if the other party shows there was no loss;
• a court may reduce them if they are excessive or the obligation was partly performed;
• they can be increased up to the actual loss in cases of fraud or gross error.

These rules are mandatory, so draft liquidated damages as a genuine estimate of loss.

Limiting liability

Liability caps are generally valid — but not where the party relying on them committed fraud, gross error or a wrongful act. Draft caps with these exceptions in mind.

Exceptional circumstances

If unforeseeable events make performance excessively burdensome, a party may ask to renegotiate, must act without undue delay and should keep performing. If no agreement is reached, a court may reduce the burdensome obligation. This rule cannot be excluded.

Notice before claiming compensation

Compensation is generally due only after the defaulting party has been notified, unless the contract says otherwise. Good contracts set out how and when notice must be given.

Limitation periods

The general limitation period is ten years, with shorter periods for some claims (for example, five years for certain periodic rights and professional fees).

How AI helps

AI contract drafting can produce a first draft in Arabic and English that reflects these rules — realistic liquidated damages, properly carved-out liability caps, a hardship clause and clear notice provisions — and flag terms in an existing contract that may be unenforceable under the new law.

Try it: draft or review a Saudi contract with LexArab.

This article is general information, not legal advice. Consult a licensed Saudi lawyer about your contract.