The conflict in the Middle East brings uncertainty. The escalating confrontation between Iran, the United States, and Israel has sent shockwaves well beyond the battlefield. Trade routes are being squeezed, supply chains are strained, and the stability of structured legal arrangements is called into question. The conflict has created an environment in which the performance of contracts has become significantly more challenging and, in certain cases, entirely impossible.
This article provides an overview of the potential impacts on contracts in general and outlines the key statutory considerations that businesses should be aware of under the Saudi Civil Transactions Law (Royal Decree No. M/191, 2023) (“CTL”).
Not One Rule, But a Spectrum of Relief Tools under CTL
The CTL provides relief mechanisms for parties whose performance is hindered by regional conflict, classifying such conflict as event beyond a party’s control. These mechanisms address two categories of impact:
- full or partial impossibility of performance, and
- cases involving delay or excessive onerousness.
Each category is governed by separate and independent rules under the CTL, carrying its own dedicated conditions and legal consequences, as follows:
1. Full or partial Impossibility of performance
The CTL adopts a broader formulation of force majeure that does not require the event to be universal, focusing instead on its nature and degree of impossibility as it affects the party responsible for performance.
a. Full Impossibility
Where a conflict-driven event beyond a party’s control has made contractual performance genuinely and completely unachievable and impossible, the CTL steps in decisively across two complementary explicit provisions:
Article 110(1) specifically addresses bilateral contracts, where performance of an obligation becomes impossible for a reason beyond the debtor’s control, both the affected obligation and its counterpart are automatically extinguished, and the contract is terminated by law, without the need for a court order, a notice of termination, or any further step by either party.
However, if the parties dispute whether the event rendered performance impossible, they may resort to the courts to confirm such impossibility, and the burden of proof lies on the party claiming impossibility. In addition, Article (111), governs the consequences that follow termination and requires that the parties be restored to their pre-contract positions wherever that is feasible. The court is also empowered to award compensation where restoration is not possible.
Article (294), sets out the foundational principle where a debtor can show that its failure to perform was caused by an event outside its control that made performance impossible, therefore both its affected obligation and its counterpart are released by law, bringing the contract to an end without any need for formal termination proceedings, and the burden of proof lies on the party claiming the impossibility.
The standard, however, is rigid, as impossibility under the CTL means objectively and factually impossible, not inconvenient, not loss-making, or logistically painful. The distinction matters as Saudi courts have made this abundantly clear in two separate cases before the Commercial Court decided in 1444H (Case No. 4470011137, Judgment No. 4430586878; and Case No. 4470242417, Judgment No. 4430562046): the court dismissed force majeure arguments rooted in the Covid pandemic, ruling that financial strain and operational difficulty are not substitutes for genuine impossibility. These decisions send a firm signal that courts will dig into the facts, and vague claims will not hold up.
A further and critical consideration is found in Article (174), which permits parties to allocate force majeure risk contractually. Where the parties should agree that the debtor shall bear the effects of non-performance under circumstances beyond its control, the default protection provided by Articles (110) and (294) is displaced entirely and the debtor remains liable for non-performance even where the event would otherwise qualify for relief. A force majeure clause within an agreement could therefore be either the strongest asset available or the most significant liability.
b. Partial Impossibility
Where only a portion of the contractual obligations is impossible to perform, Article 110(2) limits the extinguishment to that portion alone, however, the creditor retains the right to request full termination, though a court may decline to grant this where the impossible portion is insignificant relative to the contract as a whole. It is worth noting that parties should not assume that partial impossibility will by default entitle them to terminate the contract entirely.
Should full or partial impossibility remain unestablished, the second category of mechanisms under the CTL remains available as follows:
2. Delay or Excessive Onerousness of performance
a. Delay
Where the conflict has not prevented performance entirely but has caused a delay, Article (171) protects a debtor from compensation claims where such delay stems from circumstances beyond their control, though it does not suspend the underlying obligation to perform.
b. Excessive Onerousness
In practice, most parties affected by the current conflict may not find themselves in a position of outright impossibility. They will face performance that is achievable, but at a cost that was never part of the equation when the deal was made. This is precisely the terrain Article (97) is designed to address, where extraordinary and unforeseeable circumstances have tipped the scales beyond ordinary commercial risk, such a party is entitled to renegotiate without undue delay.
Should those negotiations fail, the courts are empowered to adjust the terms to restore equilibrium between the parties in order to reduce the onerous obligation to a reasonable level, taking into account the circumstances and the interests of both parties. Importantly, the right to request renegotiation does not entitle the debtor to suspend or withhold performance in the meantime.
Crucially, this right cannot be stripped away by contract. Article 97(4) expressly renders any clause that attempts to exclude it or limit this right as void.
Practical Takeaway
The CTL provides useful tools to manage the consequences of extraordinary events, but none of those tools operate automatically or without scrutiny. The contract’s own language, the applicable legal framework, and the degree of impact on performance all feed into the outcome.
Businesses should act now rather than wait for the impact of the conflict to deepen. In practical terms, this means:
- Reviewing existing contracts to identify governing law, performance clauses, and risk allocation provisions.
- Gathering contemporaneous evidence such as port notices, carrier communications, government advisories to substantiate any future claim.
- Assessing carefully whether the circumstances amount to full or partial impossibility, delay, or excessive onerousness.
- Engaging the counterparty early where renegotiation under Article (97) appears to be the appropriate route.
In a rapidly evolving situation, waiting to see how things develop is rarely a sound strategy, a party that undertakes reasonable measures, legally and practically, is in a position of strength.
Key Contacts
Emad Salameh, Partner, Head of Office - Riyadh, e.salameh@tamimi.com
Dr. Abubaker Jeeballa, Partner, a.jeeballah@tamimi.com
Shaymaa Qurashi, Associate, s.qurashi@tamimi.com
Laith Alkayyali, Knowledge & Innovation Advisor, la.alkayyali@tamimi.com