Saudi Arabia’s new Commercial Transactions Law 'a clearer framework for business'

The new law was approved on 27 October and will replace the Commercial Law, Commercial Papers Law and Commercial Books Law. It builds on the Kingdom's wider programme of legislative reform, particularly the introduction of the Civil Transactions Law in 2023.

It is expected to come into effect 180 days after its publication in the Official Gazette, Umm Al-Qura. The legislation comprises 271 articles and governs business activities, merchants and their obligations, commercial establishments, accounting records, contracts and commercial papers.

Among other areas, the new law establishes rules on commercial sales, supply contracts, agency and brokerage arrangements, the rights and obligations of parties to commercial transactions, and the consequences of contractual breaches.

Dr Sairah Narmah, a KSA-based expert in commercial transactions at Pinsent Masons, said: "The legislation is therefore relevant not simply to traditional trading businesses, but potentially to organisations across a wide range of sectors that enter into commercial arrangements in the Kingdom, including multinational companies, investors, education providers, professional services businesses and other organisations contracting with Saudi counterparties."

"The new Commercial Transactions Law is a significant development in Saudi Arabia's commercial legal framework. In particular, bringing rules relating to commercial activities, merchants, commercial contracts, accounting records and commercial papers within a comprehensive framework should provide businesses operating in the Kingdom with greater clarity in their commercial dealings," she said.

"The express regulation of commercial sales, supply contracts, commercial agency and brokerage is particularly relevant for companies doing business in Saudi Arabia, as these are fundamental arrangements across a wide range of sectors."

For businesses operating in the Kingdom, the period before the law comes into force should be used to assess its potential impact on existing and future arrangements, according to Narmah.

"In particular, businesses should consider reviewing standard Saudi-law contractual templates, supply and procurement agreements, commercial agency arrangements, brokerage and intermediary agreements, sales arrangements, termination and breach provisions, contractual remedies and liability mechanisms, and the interaction between existing contractual provisions and the new statutory requirements," she said.

"Businesses with agreements already in place should also consider carefully any transitional and application provisions to determine the extent to which the new regime may affect existing contractual relationships."

Sadia Farooq of Pinsent Masons said: "Businesses should familiarise themselves with the new framework and, once the final text is available, assess the impact on their existing contractual arrangements and commercial practices."
"Given the breadth of the new law, its implications are likely to extend across a wide range of businesses and commercial relationships in the Kingdom," she said.

"The new law should also be viewed as part of a much broader transformation of Saudi Arabia's legislative environment. The introduction of the Civil Transactions Law in 2023 represented a major move towards codifying the general principles governing private legal relationships. The new Commercial Transactions Law takes that process further by providing a dedicated and more detailed framework for transactions undertaken in a commercial context."