Saudi Law Task

Royal Decree 191 – 1444H

7/10/2023

Karim Hani Abdelhamid – Nouran Tag El Dine

Shahid Law Firm
I. LIQUIDATED DAMAGES:.......................................................................................................................................2
A. Does the civil code allow liquidated damages as a pre-estimate of future damages?..............................2
B. If so, can the court intervene and adjust the amount of liquidated damages?.........................................2
C. if so, what is the standard for decreasing liquidated damages?...............................................................3
II. DELAYED PAYMENT:............................................................................................................................................3
A. What is the rule for delayed performance (payment) under the civil code?..............................................3
B. Is setting a delayed payment interest rate allowed?.................................................................................4
C. Does it specify an interest rate for delayed payment? (as per Egypt/UAE)...............................................4
D. Does it at least allow a damage claim for delayed payment? (as per Qatar)............................................4
III. SET OFF: IS SET OFF ALLOWED AS A RIGHT UNDER THE CIVIL CODE?.............................................................................5
IV. WHAT IS THE APPLICABLE STATUTE OF LIMITATION UNDER THE CIVIL CODE?...................................................................5
A. Can we contractually reduce or extend such period?................................................................................6
V. DIRECT PAYMENT:..............................................................................................................................................6
A. Can subcontractor/laborer claim direct payment against the Employer even if no contractual relation
exists? (as per Qatar)......................................................................................................................................... 6
B. If so, what is the conditions for claiming such direct payment?................................................................6
VI. DEFECTS LIABILITY: DOES THE CIVIL CODE SPECIFY ANY DEFECTS LIABILITY FOR CONSTRUCTION WORKS (INCLUDING DECENNIAL
LIABILITY)? CAN WE CONTRACTUALLY REDUCE OR EXTEND SUCH DEFECT LIABILITY PERIOD? CAN WE EVEN CONTRACT OUT SUCH
DEFECT LIABILITY?........................................................................................................................................................7
VII. TAKING OUT OF WORKS AND COMPLETING THE WORKS AT THE EXPENSE OF THE CONTRACTOR: DOES THE CIVIL CODE
SPECIFY ANY RULES ABOUT TAKING OUT OF THE WORKS AND COMPLETING THE WORKS AT THE EXPENSE OF THE CONTRACTOR (SIMILAR
TO UAE CIVIL CODE 877 / QATAR CIVIL CODE 688)..........................................................................................................7
VIII. TAKING-OVER OF THE WORKS AFTER COMPLETION: DOES THE CIVIL CODE SPECIFY ANY RULES ABOUT DEEMED TAKING
OVER OF THE WORKS IN CASE THE EMPLOYER, WITHOUT REASONABLE CAUSE, FAILS TO DO SO DESPITE GIVEN NOTICE TO DO SO
(SIMILAR TO UAE CIVIL CODE 884 / QATAR CIVL CODE 693)..............................................................................................8
IX. TERMINATION FOR CONVENIENCE: DOES THE CIVIL CODE ALLOW TERMINATION FOR CONVENIENCE IN CONSTRUCTION
CONTRACTS?...............................................................................................................................................................9
X. TERMINATION PROCESS: DOES THE CIVIL CODE FOLLOW COURT SANCTIONED TERMINATION RULE AS PER THE OTHER GCC
COUNTRIES? IF SO WHAT IS THE REQUIREMENT FOR CONTRACTING OUT OF THIS REQUIREMENT (RULE)?.....................................12

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 I. Liquidated Damages:
A. Does the civil code allow liquidated damages as a pre-estimate of future
damages?

Yes the civil code allows liquidated damages as a pre-estimate of future damages in article 178
stating “ The contracting parties may determine in advance the amount of compensation by
stipulating it in the contract or in a subsequent agreement, unless the object of the obligation is
monetary and the entitlement to compensation does not require major force .”

B. If so, can the court intervene and adjust the amount of liquidated damages?

Yes , the court may intervene and adjust the amount of the liquidated damages as provided for in
article 179 stating “ 1- The agreed compensation shall not be due if the debtor proves that the
creditor has not suffered any damage
2- The court may, at the request of the debtor, reduce this compensation if it is proven that the
compensation agreed upon was exaggerated or that the original obligation has been partially
fulfilled.
3- The court may, at the request of the creditor, increase this compensation to what is equal to the
damage if it is proven that the damage exceeded the amount of the agreed compensation as a
result of fraud or gross error on the part of the debtor.
4- Any agreement that contradicts the provisions of this Article shall be null and void “

C. if so, what is the standard for decreasing liquidated damages?

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Article 180 states : “ If the compensation is not estimated in the contract or by a statutory
provision, the court can adjudicate it in accordance with the provisions of the articles 136 , 137 ,
138 and 139 , and of this Law. However, if the obligation is derived from the contract, the
debtor who has not committed a fraud or a gross error shall be bound only to compensate the
damage which could normally have been anticipated at the time of the contract.

According to article 179 stated above , the court may at the request of the debtor reduce the
compensation if it is proven that the compensation agreed upon is exaggerated or that the
original obligation has been partially fulfilled , on the other hand the article does not state the
standard for decreasing liquidated damages by the court , it is therefore not expressly stated in
the law the standards to which the court may decrease the liquidated damages agreed upon in the
contract except upon the request of the debtor .

II. Delayed Payment:

A. What is the rule for delayed performance (payment) under the civil code?

Article 170 states “1- The debtor shall be ordered to pay compensation for non-fulfillment if it is
impossible to implement in kind, including if the debtor delays to fulfill his obligation until it
becomes unprofitable for the creditor.
2- If the debtor is late in fulfilling his specific obligation, the creditor may set him a reasonable
period for execution. If he does not fulfill his obligation , the creditor may request compensation
for non-fulfillment.
3- Compensation shall not be ruled in accordance with paragraphs 1 and 2 of this Article if the
debtor proves that the non-payment is due to a reason beyond his control or due to major force . “

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Article 171 also states “ If the debtor is late in fulfilling his obligation, he must compensate the
creditor for the damage he suffered as a result of the delay, unless it is proved that the delay in
fulfillment is for a cause beyond his control or due to major force . “

B. Is setting a delayed payment interest rate allowed?

The law does not address this point .

C. Does it specify an interest rate for delayed payment? (as per Egypt/UAE)

The law does not address this point .

D. Does it at least allow a damage claim for delayed payment? (as per Qatar)

Article 171 also states “ If the debtor is late in fulfilling his obligation, he must compensate the
creditor for the damage he suffered as a result of the delay, unless it is proved that the delay in
fulfillment is for a cause beyond his control or due to major force . “

Article 178 also states “ The contracting parties may specify in advance the amount of
compensation by stipulating it in the contract or in a subsequent agreement, unless the object of
the obligation is monetary and no excuses are required for the entitlement to compensation.”

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III. Set off: Is set off allowed as a right under the Civil Code?

Yes set off is allowed under article 281 that states : “ The debtor has a set-off between what is
due to be paid to his creditor and what is due to be paid to him towards this creditor, even if the
reason for the two debts differs, if the object of each of them is monetary or things of similar
type and quality and each of them is free from conflict and is valid for claiming it in court and
reservable . “

IV. What is the applicable statute of limitation under the Civil Code?

Article 143 states “ The claim for compensation arising from a damage caused shall not be heard
after the lapse of 3 years from the date of knowledge of the victim of the occurrence of the
damage and of the person responsible for it. In all cases, the claim shall not be heard after the
lapse of 10 years from the date of the occurrence of the damage.
If the compensation claim arose from a crime, it is not precluded from being heard as long as the
penal lawsuit was not precluded from being heard. “

A. Can we contractually reduce or extend such period?

The law does not address this point .

V. Direct Payment:

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 A. Can subcontractor/laborer claim direct payment against the Employer even
if no contractual relation exists? (as per Qatar)

No direct payment is not allowed as per article 474 that states “ The subcontractor may not claim
for himself the employer anything of what the contractor is entitled to unless the contractor refers
his right to the subcontractor . “

B. If so, what is the conditions for claiming such direct payment?

Direct payment is not allowed as per article 474 , therefore its conditions are not addressed by
this law .

VI. Defects Liability: Does the civil code specify any defects liability for construction
works (including decennial liability)? Can we contractually reduce or extend such
defect liability period? Can we even contract out such defect liability?
No , unfortunately it seems that this law may not cover the topic at hand, as it does not provide
any pertinent information.
In contrast to Saudi provisions , the Egyptian Civil law number 131 for 1948 article 651,
which specifically addresses the issue of defects liability, including the decennial liability, it
states that the architect and contractor are jointly responsible for any issues arising within ten
years of the complete or partial demolition of the buildings or other fixed structures they have
constructed. This responsibility extends even if the demolition is a result of a defect in the land
or if the employer has authorized the construction of faulty structures. However, it should be
noted that if the parties involved have explicitly intended for these structures to remain for less
than ten years, this liability may not apply. The guarantee mentioned in the previous paragraph
covers any potential defects in the buildings and structures that could potentially compromise

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their stability and safety. The ten-year period starts from the moment the project is delivered. The
contractor may still have rights to claim against subcontractors, but this provision does not apply
to those rights.

Yet to prevent the contractors and consultants operating in the Kingdom without the risk of no-
fault liability , The Saudi Building Code Application Law (the SBCAL) - approved by Royal
Decree on 24 January 2017 and amended on 18 September 2019 - sets out the legal
principles that give rise to decennial liabilities in KSA. Article 29 (1) of the Implementing
Regulations of the SBCAL - approved by Royal Decree on 28 June 2018 and amended on 31
October 2019 - provides for decennial liability and states the following:
The Supervising designer who supervising the implementation of the construction and the
contractor shall be jointly responsible for compensating the owner for ten years - from the date
of issuance of the occupancy certificate – for the total or partial demolition of the buildings they
constructed or the facilities they built and for every hidden defect that threatens the durability
and safety of the building.
In summary, the Royal decree 191 for year 1444H does not contain any provisions pertaining to
liability for defects, such as decennial liability. However, another Saudi law, specifically the
SBCAL, incorporates decennial liability for defects.

VII. Taking Out of works and completing the works at the expense of the contractor:
Does the Civil Code specify any rules about taking out of the works and completing
the works at the expense of the contractor (similar to UAE Civil Code 877 / Qatar
Civil Code 688)
Yes , the new law has implemented a regulation concerning the removal of works, which may
incur costs for the contractor. It does provide that in case the contractor shall commit any
breaches outlined in the agreement during the project duration, the employer possesses the legal
entitlement to deliver a notification, that obliges the contractor to remedy the mentioned issue
within a reasonable timeframe explicitly designated by the employer. In the occurrence that the
designated duration would elapse without the essential rectification being undertaken, the
employer retains the prerogative to employ the services of an alternative contractor, either to
finalize the outstanding tasks or rectify the existing work, with all expenses thereby incurred to
be borne by the original contractor, in accordance with the provisions delineated in Article 167 of
this system.

The article to be used :

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 Article 466 stipulates : " If the contractor violates the provisions stipulated in the agreement
during the course of the project, the employer has the legal right to issue a warning, demanding
that the contractor rectify the issue within a reasonable timeframe specified by the employer. In
the event that this specified period elapses without the necessary rectification taking place, he
has the option to engage the services of an alternate contractor to either complete the pending
work or rectify the existing work at the expense of the original contractor, as per the stipulations
outlined in Article 167 of this system.
Alternatively, the employer may choose to terminate the contract altogether by formally
requesting its immediate termination if the repair of the defect is impractical or if the
reinforcement stages at the commencement of the project are excessively delayed, rendering
completion within the agreed-upon timeframe unattainable."

VIII. Taking-Over of the works after completion: Does the Civil Code specify any rules
about deemed taking over of the works in case the Employer, without reasonable
cause, fails to do so despite given notice to do so (similar to UAE Civil Code 884 /
Qatar Civil Code 693)
Yes , it implies that in case the employer refuses to take possession of the completed work
without a justifiable reason, despite being duly notified to do so, and as a result of this refusal,
the work is either destroyed or damaged without the contractor's fault or negligence, the
contractor shall not be held liable for compensation or damages.

Article 468 :

If the contractor fulfills their obligations by completing the work and making it available for
possession to the employer, the employer is legally obligated to take possession of the completed
work. In the event that the employer refuses, without a justifiable reason, despite being duly
notified, and as a result, the work is either destroyed or damaged through no fault or negligence
on the part of the contractor, the contractor shall not be held liable for any compensation or
damages.

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Article 884 UAE

The employer shall be bound to take delivery of the work done when the contractor has
completed it and placed it at his disposal, and if, without lawful reason, he refuses, despite being
given official notice, to take delivery, and the property is destroyed or damaged in the hands of
the contractor without any wrongful act or default on his part, the contractor shall not be liable.

Qatar Civil Code 693 :

Where the contractor completes the work and puts it at the disposal of the employer after
notification thereof, the employer shall take over the work according to the familiar procedures
of transaction. If the employer without any good reason rejects taking over the work despite
being invited to do so under a formal notice, the work shall be deemed to have been delivered to
the employer.

IX. Termination for Convenience: Does the Civil Code allow termination for
convenience in construction contracts?
The second paragraph of article 466 states that : " Alternatively, the employer may choose to
terminate the contract altogether by formally requesting its immediate termination if the repair
of the defect is impractical or if the reinforcement stages at the commencement of the project are
excessively delayed, rendering completion within the agreed-upon timeframe unattainable."

After carefully reviewing the aforementioned article, it has been found that it merely goes in the
same flow as the Egyptian Civil Law which adopted the concept of termination starting in
Article (157) of the Egyptian Civil Law.

The Termination usually means the dissolution of the contractual relationship between the
contracting parties and the removal of all its effects, so that the contract becomes null and void as
if it had never existed.

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Article (157) of the Egyptian Civil Law states the following:

"In contracts binding on both parties, if one of the contracting parties fails to fulfill its
obligations, the other party may, after notifying the debtor, demand the performance of the
contract or its termination with compensation in both cases if the circumstances require it. The
judge may grant the debtor an extension according to the circumstances, and he may also refuse
termination if what the debtor failed to fulfill is of little significance with regard to the entire
obligations."

In both the Egyptian and the Saudi Law , the legislator has bestowed the employer the right to
terminate the contract if he wishes , but it is not an absolute power. Firstly , to start but the Saudi
law , the legislator in case of negligence from the contractor leading to defects that could affect
the timeframe of the project.

On the other hand , the Egyptian Civil Law pertains a right for the employer to terminate the
contract concluded between him and the contractor when the latter engages in any of the
following actions:
A) The contractor's failure to provide "performance guarantee" or failure to respond to the notice
of correction.
B) The contractor's abandonment of the works assigned to him if it becomes evident that he does
not intend to continue fulfilling his contractual obligations.
C) The contractor assigning all the works committed to him to subcontractors without obtaining
approval.
D) The contractor offering or providing bribes, gifts, grants, commissions, or financial donations
to any person in exchange for hindering the contract's execution due to insolvency or inability to
fulfill its contractual obligations accordingly.

In the event of the contractor performing defective work, the employer is not required to wait
until the end of the contract period to exercise his right to request specific performance. In this
case, the employer has the right to terminate the contract unilaterally and to carry out this
execution through another contractor at the expense of the first contractor.

The Egyptian Law went further and clarified another situation where the employer terminated
the contract without the contractor's fault. It is not usually an abusive attitude however it is
within the employer's right to terminate the contract at any time when it serves his interest,
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without any reason related to the contractor. In this case, issuing a notice informing the
contractor of this termination is required, and the termination is considered to have taken place
after 28 days from the date of the contractor's receipt of the termination notice or the date of
return of the performance guarantee, whichever comes first. Surely , the employer can seek
compensation in case of damages occurred. The contractor's right to claim compensation for
damages resulting from this termination

To conclude on both laws , although the termination of the contract by the employer is a right
granted to him by the law, it is conditional on a specific scope, which is the requirement of
expressing that intention before the completion of the contractor's works. This is because once
the contractor completes the work, there is no room for the employer to dissolve the contract.

X. Termination Process: Does the Civil Code follow court sanctioned termination rule
as per the other GCC countries? If so what is the requirement for contracting out of
this requirement (rule)?
Article 466 second paragraph could be used here also as it grants the employer the right to
terminate the contract in case if the repair of the defect is impractical or if the reinforcement

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stages at the commencement of the project are excessively delayed, rendering completion within
the agreed-upon timeframe unattainable.
But the question that remained to be asked is : the request from which person and entity ?

Articles related to " The Termination of the Contracting Contracts" from 475 to 478. 466 ,
Articles related to " The Termination of Contracts '' in general from 105 to 114.

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