Commercial and Business Law:

Chapter 1
The Legal Framework
The Saudi Legal System
The Components of our Life

What are the components of our life?

 Major Components of our Life:

• POLITICAL • SOCIAL

Government
Relations
Structure between
Relations Individuals
between &
Government Groups
& Public

Laws
Business
&
Relations
Regulations
• LEGAL • BUSINESS
 ‫العالقات القانونية للفرد في المجتمع‪:‬‬

‫• العالقة‬ ‫• العالقات‬
‫السياسية‬ ‫اإلجتماعية‬
‫العالقة مع‬ ‫العالقات بين‬
‫الدول‬ ‫األفراد‬
‫ومؤسساتها‬ ‫والمجموعات‬

‫العالقة مع‬
‫القوانين‬ ‫العالقات‬
‫واألنظمة‬ ‫التجارية‬
‫المباشرة‬
‫• العالقة القانونية‬ ‫• العالقة‬
‫المباشرة‬ ‫التجارية‬
The Components of our Life

POLITICAL: The act of, or relating to, or dealing

with the structure or affairs of government,
politics, or the state: a political system.
SOCIAL: The act of, or relating to human society
and its modes of organization: social classes;
social problems; a social issue.
LEGAL: The act of, or relating to, or concerned
with law and legal issues.
BUSINESS: The act of manufacturing, buying or
selling commodities, products, or services.
 Legal Environment of Business:

• Legislations • Regulations

Legal
Framework Regulatory
(Structure Framework
& (Operations)
Provisions)

Internal
Contract Policies
principles
&
& Rules Procedures
• Islamic Rules • Corporate
Governance
 ‫البيئة القانونية لألعمال‪:‬‬

‫• التشريعات‬ ‫• األنظمة واللوائح‬

‫والقوانين‬
‫اإلطار‬
‫اإلطار‬
‫التشريعي‬
‫اإلجرائي‬
‫والقانوني‬
‫والرقابي‬
‫(الهيكلة)‬

‫القواعد العامة‬ ‫األنظمة‬

‫في الشريعة‬ ‫الداخلية‬
‫اإلسالمية‬ ‫والسياسات‬
‫(أحكام العقود)‬ ‫واإلجراءات‬
‫الشريعة اإلسالمية •‬ ‫• الحوكمة‬
The legal Framework

Definition of Law

What is a law?

Why do we need a law?

Who makes a law?

SECTION 1-1: INTRODUCTION TO LAW:

 Law is essential to any society in that it provides the rules by

which people and businesses interact.
 Law affects almost every function and area of business. Can
you give examples?
 Every business decision has legal consequences, including
deciding whether to incorporate a business, obtaining
financing, protecting proprietary knowledge used to develop
products/services, entering into contracts to purchase raw
materials, ensuring that products meet safety standards,
disposing of plant wastes, promoting and pricing
products/services, entering into contracts to sell
products/services, and providing product warranties and after-
sales service.
SECTION 1-1: INTRODUCTION TO LAW:

 The difference between winning and losing in the

business world often depends upon the ability to make
good choices from a legal perspective.
 At all stages of business, running out of the law can hurt a
business, while playing within the boundaries of the law
can help the business to succeed. For this reason,
accountants, who play a key role in almost every aspect
of operations, must have a solid working knowledge of
the law.
Definition and Purpose of Law:

 The word “law” is generally associated with the word “rules.”

 A simple definition of law can be defined as “a rule that can
be enforced by the courts”. Or, as “the body of rules that
can be enforced by the courts or by other government
agencies”.
 Also, it is defined as “a set of rules and principles
intended to guide conduct in society, primarily by
protecting persons and their property; facilitating
personal and commercial interactions; and providing
mechanisms for dispute recognition”.
 Law works to “set standards of behaviour that are enforced
by government, and also by individuals and groups with the
Definition and Purpose of Law:

 Law works to “set standards of behaviour that are

enforced by government, and also by individuals and
groups with the help of government”.
 A rule, usually made by an authority, that is used to
organize the way in which a society behaves, or the
whole system of such rules;
Definition and Purpose of Law:

Definition of Law (Books):

law is:
 An obligatory rule of conduct;
 The body of principles and guidelines recognized and
applied by the state in the administration of justice.
 Rules "system of rules" established by a legislative
authority "governing authority" to institute and uphold
organize human activities.
 Divine law, a perfect system comprehended true faith
and reason;
 Natural law, which could be understood by all creatures,
lacked the perfection of faith, and could be improved by
philosophy.
 Definition and Purpose of Law:

 With these definitions in mind, business law could be defined

as rules that govern business relationships.
 Business law performs many functions, including:
1. Defining general rules of commerce;
2. Protecting business ideas and business assets;
3. Providing mechanisms that allow business people to
determine how they will participate in business ventures and
how much risk they will accept;
4. Ensuring that losses are borne by those responsible for
causing them; and
5. Facilitating planning by ensuring that business commitments
are fulfilled.
Definition and Purpose of Law:

 The rule of law:

“The rule of law refers to the regulation of the relationship
between the state and individuals by pre-established
and knowable laws.
The state, no less than the individuals it governs, must be
subject to and obey the law.
The state’s obligation to obey the law is central to the very
existence of the rule of law. Without this obligation,
there would be no enforceable limit on the state’s
power over individuals”
Definition and Purpose of Law:

Law is obligatory == Penalty.

Law is common == Applies to everyone.

Law is Just == Public interest.

Law is ethical == Reduces Crimes & Corruption

Business Law versus Business Ethics:

 Laws in our life and in business, not sufficient. Businesses

must also recognize additional limitations and
expectations placed upon them by business ethics.
 Ethical principles and values that define what is right and
wrong.
 While ethical principles normally start with what is legal,
they often impose a higher standard that recognizes a
multitude of stakeholders beyond just suppliers,
customers, and employees.
 For example: “Whoever cheats us is not one of us”.
“‫”من غشنا فليس منا‬
 SECTION 1-2: SOURCES OF LAW AND a
LEGAL SYSTEM:

Categories of Law
The law can be categorized in several ways. First, there is the
distinction between substantive law and procedural law.
 Substantive Law consists of the rights and duties that each
person has in society, e.g., the right to own property or to make
contracts and the duty to avoid injuring others and to obey
various laws.
 Procedural Law deals with the protection and enforcement of
the rights and duties of substantive law; it provides the
machinery by which these rights and duties are realized and
enforced.
 Briefly, substantive law relates to what the law is, whereas
procedural law relates to how it is enforced.
 Categories of Law:

Substantive law is divided into two fields:

1. Public law is concerned with the conduct of government
and with the relationship between government and
private individuals. Public law is divided into categories
such as constitutional, criminal, and administrative law.
2. Private law consists of the rules governing relations
between private individuals or groups of persons. Private
law—which can be divided into categories such as torts,
contracts, business entities, business relationships, and
property rights and forms

The substance of business law is the main focus of this course.

 Legal Systems:

 There are several different types of legal systems applied

in most countries around the world. The three used by
most countries are:
1. Common law System;
2. Civil Law System;
3. Shariah Law.
4. Mixed Legal Systems.
(NB: Nowadays, most world legal systems have
mixed legal systems which apply more than one
system: i.e. common and civil, Islamic and civil,
Islamic and common, socialist and civil ….)
Legal Systems (Common law System):

1. Common law System:

Common law is the system of law in most of the English-speaking world
and many non-English-speaking countries that were once part of the
British Empire, such as India, Pakistan, and the Caribbean.
 Common law is based on precedents, the recorded reasons given by
judges for their decisions and adopted by judges in later cases.
 Common law (equity) is a system of law whose sources are the
decisions in cases by judges.
 Also, the system has a legislature body that passes new laws and
statutes
 Common Law has developed through legal process based on the
outcomes of individual court cases.
 Over the centuries and many thousands of court cases, this process
led to a body of laws covering most aspects of activities.
Legal Systems (Common law System):

1. Common law System;

Core Principles of Common Law:
 The rights of individuals exist alongside the rights of the
state;
 It is created from adversarial (disputes);
 A presumption of innocence;
 It develops case law through judgments and precedents;
 Case law co-exists with statute law and - in most cases - a
constitution;
 Crimes are punished and civil wrongs are rectified
(remedy) by compensation.
Legal Systems (Civil Law System):

2- Civil Law System;

Civil law is the system of law derived from Roman law. Its focus is
on the development of a comprehensive legislated code.
 Civil law developed in continental Europe and was greatly
influenced by the Code of Napoleon in 1804.
 It is also called Civil Code and Roman law.
 It is a legal system where laws are legislated by parliament or
some other form of representative government and codified (i.e.
brought together).
 They are distinguished from common law mainly because they
come from parliaments, not from court cases.
 In civil code system, the courts do not usually have as much
freedom to interpret laws.
Legal Systems (Civil Law System):

Core Principles of Civil Law:

 Laws applied to citizens are made by citizens
through their political representatives.
 Judges are there to administer laws, not make
them.
 Laws are codified, which means laws of a similar
nature are bundled together to create a rational
system across the whole areas.
 All laws are consistent and interact with each other
in a logical way without conflict between laws.
Legal Systems (Shariah Law):

3- Shariah Law):
 Islamic law is a divine law that was revealed and
inspired by Allah through the prophet
Mohammed (PBUH).
 Islamic law or the Shari’ah, refers to the group of
rules and commands as a comprehensive law for
all life.
 This system will be discussed next chapter.
 Legal Systems of the Kingdom of Saudi Arabia
(Shariah Law):

Shariah Law):
 Islamic law is a divine law that was revealed and
inspired by Allah through the prophet
Mohammed (PBUH).
 Islamic law or the Shari’ah, refers to the group of
rules and commands as a comprehensive law for
all life.
 Legal Systems of the Kingdom of Saudi Arabia
(Shariah Law):

Shariah Law:
 It is a legal system based on religious laws which apply
to people in both of their private and public lives.
 Islamic law (Shariah), which is based on divine legal
sources: the Quran and the Sunnah,
 Islamic law includes supplementary sources which are all
those interpretations made by Muslim scholars over the
centuries.
 It provides rules on how Muslim should live their lives.
 Legal Systems of the Kingdom of Saudi Arabia
(Shariah Law):

Core Principles of Shariah Law:

 It is evolved through application and interpretation of
Quran and Sunnah;
 Islamic law can be adaptable to various contexts
through interpretations that based on common
Islamic methodology and rules of interpretation;
 It is valid for any period of time and is timeless;
 It covers all aspects of human life;
 Legal Systems of the Kingdom of Saudi Arabia
(Shariah Law):

Core Principles of Shariah Law:

 The term Shariah means “the path to be followed”;
 A legal definition of Shariah Law (Al-Fikh) can be
given as “Divine Rules, which are revealed by Allah,
whether via the Holly sources of the Quran or the
Sunnah”.
 The term Usol Al-Fikh means jurisprudence, but it
can also be legally defined as “the technical
procedures to interpret divine rules by the way of
reasoning and deduction”.
 The Saudi legal Framework:
(Branches of Law:)

Branches of Law:
A. Religious Law: between individuals and
Allah:
1- Belief: Oneness of Allah; ……………………;
2- Worship:? Rules for Al-Salat; ………………;
3- Ethics (Akhlag): Telling truth; ……………;
4- Conduct (Muamalat): Honoring Parents ……;
The legal Framework: (Branches of Law:)

Branches of Law:
B. Public Law:
1- International Public Law: between countries.
2- National Public Law: between government
and people.
i. Constitutional Law (Basic Law):
ii. Administrative Law:
iii. Financial Law:
iv. Criminal Law:
The legal Framework: (Branches of Law:)

C. Private Law:
1- Civil law: (Personal status law; Contract Law;
Ownership Rights……)
2- Commercial Law: Business Activates;
Banking; Companies….)
3- Marine and Aviation Laws:
4- Labor Law:
5- Legal Procedures (Disputes):
6- International Private Law: (Government &
Non-citizens).
 Saudi Judiciary System:

According to the Ministry of Justice, there are three types of courts. At

the top comes the supreme court, followed by courts of appeal, then
courts of first instance at the bottom of the judicial structure.
1- Supreme Court
There is only one Supreme Court in Saudi Arabia. This court oversees
implementation of Islamic laws and decrees issued by the Saudi
Monarch in conformity therewith in matters that lie within the
jurisdiction of the general judiciary system.
2- Courts of Appeal
In each region of Saudi Arabia there is one or more courts of appeal,
called “Second Degree Courts”, they review verdicts issued by courts of
first instance, that are subject to appeal, within their respective
jurisdiction.
 Saudi Judiciary System:

3- Courts of first instance

They are available in all provinces and regions of Saudi Arabia,
courts of first instance are entrusted with all claims that fall within
their respective jurisdiction. Verdicts issued by courts of first
instance are subject to appeal except those issued in simple claims
identified by the Higher Judicial Council. Courts of first instance
deal with a variety of claims that are divided into five types:
1- General courts are entrusted with all claims and final evidence
that fall out of the jurisdiction of other courts, notary public or
Grievance Tribunal.
 Saudi Judiciary System:

3- Courts of first instance

2- Criminal courts are available in various provinces and regions of
Saudi Arabia. They deal with all criminal cases and all matters upon
which the verdict on a criminal case before the same court depends,
unless otherwise is indicated in the system.
3- Personal Status Courts are available in various regions of Saudi
Arabia, they deal with all personal status and matrimonial claims.
4- Business courts: Available in various provinces and regions of Saudi
Arabia, business courts deal with all principal and sequential business
disputes.
5- Labor Courts: Available in various provinces and regions of Saudi
Arabia, labor courts deal with labor disputes of all types and forms.
 Saudi Judiciary System:
The Board of Grievances

• The Board of Grievances is an independent administrative

judiciary body which is directly associated with King.
• It seeks establishing justice, equity and effective judiciary
control over the administration works.
 Saudi Judiciary System:
The Board of Grievances

The Structure of Board Courts:

The Board judiciaries are formed according to article No (8) of its
law of the following:
1-Supreme administrative Court.
2-Administrative Courts of Appeal
3-Administrative Courts.
These courts conduct their jurisdictions according to article 9 of
the Board law through circles formed of three judges and in
administrative courts may be formed of one judge.
 Saudi Judiciary System:
The Board of Grievances
The Jurisdictions of Board Courts:
Under Article 13 of the Royal Decree 2007, Administrative Courts of the
Grievance Board have the jurisdiction to decide:
1. Disputes involving the Saudi Arabian government and government
agencies;
2. Cases for revocation of final administrative decisions;
3. Tort cases initiated against the administrative authority’s decisions or
actions;
4. Cases related to contracts to which the administrative authority is party;
5. Disciplinary cases filed by the competent authority;
6. Other administrative disputes;
7. Requests for execution of foreign judgments and arbitral awards.
 Saudi Judiciary System:
Other Judicial Authority

 Other Committees "Quasi-Judicial" to adjudicate

Particular Litigations:
There are several "Administrative Committees" with judicial
powers which have been established to process specific
disputes. These "Administrative Committees" have
jurisdiction over civil, commercial, administrative and
criminal cases and they adjudicate disputes arising out of
the implementation of several laws and regulations. The
jurisdiction of each committee is determined by the
decree that created it.
C. The Judicial Authority

Examples of current Saudi administrative committees:

 The Banking Disputes Settlement Committee; (SAMA)

 The Committee for the Resolution of Securities Disputes;

(CMA)
 The Committees for the Resolution of Insurance Disputes
and Violations. (SAMA)
 Alternative Dispute Resolution:

 Alternative dispute resolution (ADR) refers to private

procedures to resolve disputes without going to courts.
 The advantages of ADR include speed, reduced cost,
choice of mediator or arbitrator, confidentiality (not
generating bad publicity or revealing confidential
information), and the protection of ongoing relations
between the two parties.
 Alternative Dispute Resolution:

 There are three major types of ADR:

1- Negotiation does not involve a third party, nor is there
any guarantee of binding resolution.
It is the most common type of ADR since business people
routinely settle their differences through discussion.
 Alternative Dispute Resolution:

2- Mediation is a process by which a neutral third party who

is acceptable to both sides assists them in reaching a
settlement by clarifying issues, outlining the strengths and
weaknesses of both sides, and suggesting possible
solutions.
The mediator does not make a decision. Mediation is usually
voluntary but also may be required by contract.
 Alternative Dispute Resolution:

3- Arbitration is a process where the parties agree to be

bound by the decision of a neutral third party who decides
the matter, although there may be a right to appeal to the
courts, if there is a clear mistake, but in most cases the
decision is final.
The arbitrator, who is chosen by the parties for his or her
expertise in an area, hears witnesses and reviews evidence.
Again, arbitration may be required by contract or law.
Conclusion:

Questions?