Compensation Under the Saudi Civil Transactions Law
The concept of compensation was far from absent in Saudi courts prior to the Civil Transactions Law. Sharia principles, combined with decades of judicial practice, have long upheld a clear rule:
Whoever suffers harm deserves to have it remedied, and the remedy must match the actual harm incurred.
However, this principle—despite its deep roots—was scattered across various legal sources and judicial interpretations. With the rapid expansion of commercial activity in Saudi Arabia, especially in cities like Riyadh and Jeddah, and with the increasing complexity of business risks, the need to codify this principle into a unified, modern legal framework became urgent.
The Civil Transactions Law provides precisely that: a cohesive statutory structure that elevates compensation from a narrowly applied doctrine—typically associated with individual tort liability—to a comprehensive system addressing all contractual and commercial relationships where liability for fault may arise.
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Codification Does Not Mean Creation: An Old Principle in a New Legal Form
Contrary to what some may assume, the principle of compensation did not “begin” with the new law. Courts have long applied it rigorously—requiring the party at fault to restore the injured party to their prior position and awarding compensation strictly according to the actual harm, not hypothetical or inflated sums.
What is new, however, is that this principle is now embedded within a unified statutory framework—expanding its reach from purely material harm to a broader spectrum including moral damages, lost profits, and contractual breaches across commercial dealings.
Articles 120–140: The Modern Structure of Liability in the Civil Transactions Law
The law introduces a more precise and stringent architecture for civil liability. Compensation now requires:
- proof of fault
- proof of harm
- proof of causation
In addition, compensation may include actual losses and lost profits, provided they result directly from the liable party’s fault.
Of particular importance to business owners is Article 136, which sets the standard for compensation:
“Restoring the injured party to the position they were in—or would have been in—had the harm not occurred.”
This represents a significant shift. It empowers courts to consider not only existing losses but also the economic position the injured party reasonably would have reached—an essential consideration in commercial sectors affected by supply chain disruptions, halted projects, or breached long-term agreements.
Furthermore, Article 138, which expressly recognizes compensation for moral (non-material) harm, marks a major development—especially in an era where a company’s brand value depends heavily on trust, reputation, and market perception. Although courts previously hesitated to grant moral damages, codification now paves the way for a more mature judicial approach to reputation-related harm.
Between Theory and Practice: How Will the Courts Apply These Rules?
Ultimately, it is the judiciary that brings legal texts to life. Historically, Saudi courts have approached compensation conservatively, granting it only when:
- harm is clearly proven
- fault is certain
- causation is direct and unambiguous
This cautious approach is expected to continue, consistent with the principle that compensation is not a penalty but a restoration mechanism aimed at rebalancing—not enriching—either party.
The law also preserves long-standing doctrines from Sharia and jurisprudential practice, such as reducing compensation where the injured party contributed to the harm—an established principle in Islamic jurisprudence and now a general rule of civil liability.
Additionally, the wide discretion granted to courts in assessing moral damages allows judicial precedents to develop gradually, ultimately shaping a uniquely Saudi standard for evaluating non-material harm in commercial contexts.
Why This Matters for Business Owners
Modern business environments no longer rely solely on contractual strength; they depend on the legal risks surrounding every commercial interaction. The new law places commercial relationships squarely within the framework of civil liability.
Examples of conduct that may give rise to compensation include:
- repeated delivery breaches
- delayed payments
- harming a business partner’s reputation
- project collapse due to one party’s non-performance
- supply chain disruption
- loss of expected profits
Business owners who once believed that “the worst outcome is contract termination” now realize that liability may extend far beyond termination—to substantial financial compensation where direct harm is proven.
Conversely, injured parties now wield stronger tools for recovering losses—because the law does not require intent or bad faith; fault, harm, and causation are sufficient.
A New Era Under the Civil Transactions Law
What distinguishes the Civil Transactions Law is not merely its modern drafting, but its successful integration of:
- the authenticity of Sharia-based harm-remedy principles
- modern civil-law doctrines of liability
- comparative legal experience
- the practical needs of a rapidly growing national economy
The law has shifted compensation from being a “judicial exception” to a “statutory rule,” making accountability central to commercial stability.
As a result, business parties must now approach their commitments with greater discipline: contracts are no longer just words—they carry significant financial consequences.
Between long-established jurisprudential principles and a contemporary legal framework, Saudi Arabia is shaping a sophisticated modern doctrine of civil liability—one that will redefine risk, commercial behavior, and the expectations of companies across the Kingdom.
FAQs
What are the conditions for compensation under Saudi law?
Fault, harm, and direct causation.
Can moral (non-material) harm be compensated under Saudi law?
Yes. Article 138 of the Civil Transactions Law expressly allows compensation for moral damage.
What is the time limit for filing a compensation claim?
Ten years from the date the harm occurred.
However, claims arising from a harmful act are barred after three years from the injured party’s knowledge of the harm and the responsible person.
For claims arising from a criminal act, they remain admissible as long as the criminal case is admissible.
When does the right to claim compensation expire?
Ten years after the injured party becomes aware of the harm.
Conclusion
Compensation disputes require specialized legal expertise. Do not take any action before consulting a professional.
call now to Book a confidential and specialized consultation now with AlSalama Law Firm.
