Riyadh’s ‘investor-friendly’ civil code comes into force

• Clarity for foreign investors
• Courts will use English
• Penal code to follow

The new Saudi civil code has now come into effect, marking what the government hopes will be a milestone in encouraging foreign investment to the country. 

A statement on the website of the cabinet advisory body Bureau of Experts said the law became effective 180 days after its official publication in June last year.

A lawyer familiar with the process confirmed the code had now been implemented. 

The government hopes the law will finally provide foreign investors with clarity on doing business in the country. The kingdom is trying to shake off a reputation for opaque and arbitrary justice and push annual foreign direct investment towards a target of $100 billion by 2030.

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In November the ministry of investment announced a figure of $33 billion in 2022, revising a previous lower estimate of about $8 billion. 

The code’s 721 articles lay down statutory requirements for judges to follow in a wide range of issues including real estate and tort, rather than traditional Islamic principles that give them free rein in interpreting the law and no cause to follow recent precedent. 

Notably it enforces limited liability regardless of losses suffered and limits courts’ ability to increase liquidated damages. It also allows for indirect loss as part of compensation in contractual disputes and introduces statutes of limitation. 

Yvonne Biesinger of Creation Business Consultants in Dubai said the law complements government efforts to encourage foreign companies to establish regional headquarters in the kingdom, which is now necessary for access to state contracts worth SAR1 million ($270,000) or more. 

Arbitration in English

Following practice in other Gulf countries, the new rules mean that foreign companies will be able to take commercial cases to an arbitration court operating in English rather than the Saudi grievances court. 

Foreign legal consulting offices can now operate with unrestricted foreign ownership and a number have opened offices in the kingdom over the past year. The most recent was Norton Rose Fulbright, which said last month it had been licensed by the ministry of justice. 

But Biesinger said companies would still need to be aware of possible applications of Islamic sharia law that judges could use. 

“Despite the codification there will be room for sceptics concerned about the potential for judges, primarily trained in Islamic law, to exercise discretion,” she said.

“While the law creates a statutory framework, sharia principles remain relevant.”

The last pillar of the government’s legal reforms is a new penal code, which could be announced this year.