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Saudi Arabia’s Supreme Court to rule on Covid-19 related disputes

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In a progressive move to help encourage a strong economic bounce-back, new rules outlined by Saudi Arabia’s Supreme Court (SC) have been brought into effect to help the Kingdom’s judiciary deal with contractual disputes related to the coronavirus pandemic.

Through the establishing of two specific court circuits — general circuits 50 and 51 — the court will look into contracts affected by the COVID-19 outbreak, and any new or ongoing cases will be distributed equally between the two circuits.

The SC’s action applies to disputes concerning construction, supply, leasing, and other contracts concluded before the start of the pandemic.

When ruling, the courts must weigh the degree and percentage of the impact the pandemic has had on disputed contracts.

Under the ruling, the courts will intervene where the performance of the contract becomes practically impossible, cannot be implemented, or ultimately prevents one or both parties from fulfilling their obligations. In such cases, the court will treat the pandemic as an emergency or force majeure event.

On 23 December 2020, the Supreme Court of Saudi Arabia issued order no. M/45 of 8/5/1442 H (‘the SC order’), setting out the rules to be applied to contracts impacted by the Covid-19 pandemic.

In order for the rules set out in the SC order to be applied, a number of preliminary conditions must be met. These include:

  • the contract was entered into before pandemic precautionary measures took effect, and the contract continues during the pandemic.
  • the contract was directly impacted by the pandemic, and such impact could not have been avoided.
  • the impact on the contract was solely as a result of the pandemic, and not because of any other factors.

Dr. Osama Ghanem Al-Obaidy, a professor of law at the Institute of Public Administration in Riyadh, told Arab News that additional provisions, including the taking of precautionary measures since the onset of the outbreak, the aggrieved party not having waived their contractual rights, and that the impact caused was not addressed by a separate law or decision by a relevant authority, must also be satisfied.

“It is expected that pandemic-related cases in Saudi courts will concentrate mainly on cases of breaches of contracts in commercial, construction, industrial, services, financial and banking, insurance as well as professional and consultation services in addition to obligations and claims relating to compensation, fines, and damages relating to delay in performance of such contracts,” Dr Al-Obaidy said.

Al-Obaidy also pointed out that instructions from the Saudi Ministry of Justice also required that parties seek mediation and settlement before resorting to litigation, in order to ease any possible clogging of court dockets.

Resolving months of suspension on rulings, court disputes caused by the pandemic can now rely on the order to rule on pending and upcoming litigation that meets the criteria. Any such future contractual agreements should consider the SC order when drafting their agreements.

Working towards resolving disagreements, increasing transparency, and fostering a receptive business environment in the Kingdom is seen to be vital to the success of the ongoing construction and fair regulation of its marketplace.

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