Force Majeure: Legal and Business Implications

Under Saudi law—now codified in the Civil Transactions Law and grounded in Shari’ah principles—the analysis extends beyond contractual wording alone. The law recognizes both force majeure and extraordinary events, drawing a fundamental distinction between situations where performance is impossible and those where it remains possible but excessively burdensome. Unlike common law systems, where force majeure typically depends on an express contractual clause, Saudi law permits reliance on force majeure as a matter of law, although the parties may contractually allocate or modify its consequences.

A Nuanced Application of “Force”
Disruption typically arises at the operational level, through issues such as material shortages, logistics constraints, regulatory restrictions or loss of site access. These challenges can quickly escalate into customer-facing impacts, including delays, non-performance and potential contractual breaches. As disruption continues, companies must manage increased costs, margin pressure and supply chain inefficiencies, while assessing their contractual exposure and potential claims.

Force majeure is highly fact-specific and subject to a stringent legal threshold. Under Saudi law, it generally applies only where an external event beyond the parties’ control renders performance objectively impossible. It does not extend to situations where performance is merely more difficult, delayed or expensive. In some cases, impossibility may be partial or temporary, which affects the legal consequences—such as suspension of obligations rather than termination—depending on the circumstances and contractual framework. Where force majeure results in impossibility, the Civil Transactions Law provides that corresponding obligations in reciprocal contracts are extinguished. As a result, and subject to the terms of the contract, parties are generally released from performance without liability, with restitution principles applying to restore the parties, where applicable, to their pre-contractual position.

By contrast, many disruption scenarios fall within extraordinary events (hardship), where performance remains possible but becomes excessively onerous. In such cases, Saudi courts may intervene to rebalance contractual obligations rather than discharge them entirely. Under Article 97 of the Civil Transactions Law, where unforeseeable extraordinary events render performance excessively onerous, the affected party may request renegotiation; however, this does not entitle it to suspend or cease performance. If no agreement is reached, the court may reduce the obligation to a reasonable level, and any agreement excluding this mechanism is void.

Force Majeure Does Not Mean Fait Accompli
Invoking force majeure does not automatically relieve a party of liability. The affected party must demonstrate causation, actual impact and compliance with contractual requirements, including notice and mitigation obligations. Premature or imprecise reliance on force majeure can increase dispute risk and expose a party to breach or wrongful termination claims.

Similarly, reliance on extraordinary events requires careful handling. The statutory framework contemplates renegotiation and, failing agreement, judicial adjustment of obligations, without entitling the affected party to suspend performance. Accordingly, performance should generally continue to the extent possible pending agreement or court determination. Prematurely invoking extraordinary events (hardship) or unilaterally reducing or stopping performance without a proper legal basis, may undermine a party’s position and give rise to liability.

For these reasons, from a disputes perspective, the initial phase of disruption is critical. Companies frequently undermine their legal position through informal communications, inconsistent narratives or failure to comply with contractual notice provisions.

Key early actions include:

• Maintaining detailed and contemporaneous records of disruptions, delays, costs and mitigation efforts;
• Strict compliance with contractual notice requirements, including timing, content and method of delivery;
• Avoiding premature legal characterization and focusing instead on accurate factual descriptions;
• Ensuring communications do not contain unintended admissions and include appropriate reservations of rights; and
• Taking reasonable mitigation measures and documenting those efforts.

In parallel, timely and transparent communication with counterparties, suppliers and insurers is essential to manage expectations and facilitate constructive engagement. Effective responses typically involve a dual-track approach:

• Legal: reviewing contractual rights and obligations, ensuring procedural compliance, preserving evidence and maintaining defensible positions; and
• Commercial: implementing mitigation strategies, engaging with counterparties, renegotiating where appropriate and planning operational recovery.

This coordinated approach enables businesses to protect their legal position while maintaining commercial continuity and long-term relationships.

Force majeure and related concepts are also reflected across sector-specific frameworks, including government procurement regimes and labor regulations, where relief mechanisms may apply subject to defined statutory and procedural requirements. These frameworks should be considered alongside contractual and general legal principles.

Developments over the past decade—including the COVID-19 pandemic and regional disruptions—have further shaped judicial and arbitral practice in Saudi Arabia, reinforcing a structured, evidence-based approach to assessing claims of impossibility and hardship.

Conclusion
In an increasingly volatile environment, force majeure should not be treated as a default or purely reactive tool. Its application requires a clear understanding of the distinction between impossibility and hardship. Early action, disciplined documentation and coordinated legal and commercial strategies are essential.

A structured and evidence-based approach will better position businesses to manage disruption effectively while protecting both their legal rights and long-term commercial relationships.

It was a pleasure to share these insights at the recent AmCham Saudi Arabia webinar, where engagement from attendees underscored just how immediate and complex these force majeure and disruption issues remain for businesses operating in the region. If you have any questions or concerns arising from these developments, please do not hesitate to reach out to our team for further guidance.