The Saudi Civil Transactions Law and its impact on the Healthcare & Life Sciences Sector
Healthcare &Life Sciences Focus
The Civil Transactions Law (“CTL”) issued by Royal Decree No. M/191, came into effect on 20 December 2023 (the “Effective Date”) (approximately 180 days from the date of its publication on 23 June 2023).
Law Update: Issue 364 - Healthcare & Life Sciences Focus
Mohammed Negm Partner,Dispute Resolution
Christina SochackiSenior Counsel,Corporate Commercial
The Civil Transactions Law (“CTL”) issued by Royal Decree No. M/191, came into effect on 20 December 2023 (the “Effective Date”) (approximately 180 days from the date of its publication on 23 June 2023). The CTL is considered a major milestone in the reform of the Saudi legal framework as, prior to its issuance, Saudi Arabia (“KSA”) lacked a codified contract law and contractual disputes were resolved solely on the basis of the Shari’ah principals, subject to the interpretation and broad discretion of the KSA courts.
The CTL is one of the largest legislations issued in the history of KSA, containing seven chapters and 720 articles. It is worth noting that the CTL has retrospective applicability, therefore, it applies to almost all contracts, even those signed before the Effective Date. The only exception will be where a party can sufficiently establish that the application of the CTL will contradict a Shari'ah principle. However, we note that the CTL has not replaced or repealed any previous legislation issued before it; rather, it aims to enhance the certainty of the provisions that govern civil transactions in KSA.
Given the extensive nature of the CTL, it is not possible to cover the full of extent of the law in this article. However, we highlight below a number of key provisions that are of particular relevance to entities operating within the Healthcare and Life Sciences (“HLS”) sector in KSA, including highlighting the impact of the CTL on commercial agency agreements and the civil liability provisions within the CTL that may impact cases of medical malpractice.
As many of the agreements that HLS entities enter into in KSA are commercial agency agreements, it is worth noting certain provisions within the CTL that may have an impact on existing and future arrangements. As an introductory point, we highlight that any commercial agent in KSA is required by the Commercial Agency Law (issued by Royal Decree No. 11 dated 22/07/1962G, as amended) to be a Saudi national, whether the commercial agent is a natural or legal person. This means that if the commercial agent is a legal person, then it will need to have 100% Saudi ownership. Additionally, the Implementing Regulation of the Commercial Agency Law requires the registration of any commercial agency agreement with the Ministry of Commerce within three months of the parties concluding the agreement. However, disputes over de-registration and termination have caused a great deal of uncertainty for foreign principals that enter into commercial agency agreements in KSA, especially when the agreement and registration granted exclusivity to the local KSA commercial agent. Nonetheless, the CTL has certain provisions related to termination that can enhance the certainty of commercial agency agreements in KSA.
Article 111 of the CTL provides that in cases of termination or annulment of the contract, both parties shall be returned to their previous status before entering the contract; where that is impossible, the court may order compensation that aims to restore the injured party to the position they were in prior to the formation of the contract, rather than placing them in the position they would have been in had the contract been performed. The objective of this provision is to prevent unjust enrichment by ensuring that no party benefits at the undue expense of another.
This is in line with the provisions within the CTL regarding compensation for damages, as Article 136 of the CTL provides that damages shall be determined so as to provide for full compensation for the harm suffered, whereby the harmed party is restored to the position he was in prior to the breach or would have been had the breach not occurred.
Further, The CTL allows for compensation of lost profits if such loss was a natural result of the breach. Lost profits are deemed a natural result of the breach if the non-breaching party was unable to avoid such losses by exerting reasonable efforts required by the circumstances, which a normal position under such circumstances would be expected to make. Historically, prior to the CTL, recovery was only permitted in respect of actual, direct and proven loss incurred, not indirect or consequential loss such as loss of profits.
Additionally, in commercial agency agreements that have expired but in which the parties have continued to exercise their obligations under the agreement, we note that Article 37 of the CTL provides that the silence shall not be deemed an acceptance unless an agreement or presumptive evidence indicating acceptance exists. Also, Silence shall be deemed an acceptance if the contracting parties had a prior dealing, and the offer relates to such dealing. Accordingly, if the parties continue to exercise their obligations under the agreement, then the silence of the parties regarding the termination while continuing their obligations may lead to the agreement still being valid under KSA law.
The HLS sector should also stay apprised of developments regarding the Commercial Agency Law. In January 2022, the Saudi Ministry of Commerce proposed substantial amendments to the Saudi commercial agency and distributorship regime. The new version of the Commercial Agency Law is expected to come into effect in 2024 and expand the scope of application as well as further regulate exclusivity, termination, and compensation related to commercial agency agreements.
Chapter 3 of the CTL addresses the provisions related to harmful acts and the civil liabilities that arise from such acts. It should be noted that such civil liabilities are exclusive from any criminal liability that may arise on the concerned party as a result of the harmful act. The CTL identifies three types of civil liabilities, which are personal liability, extended liability, and liability arising from objects.
For personal liability, Article 120 of the CTL confirms that individuals are liable for any harm that is caused by their own actions. This includes direct actions that result in injury, loss, or damage to others and covers a wide range of scenarios ranging from simple negligence to intentional harmful acts. Further, it is stated that the individual committing the harmful act is obliged to compensate the victim of such a harmful act. The effects of this provision on the HLS sector lie in the possibility of it giving rise to a civil liability for a healthcare professional who commits any act that may be regarded as harmful and that may be considered as medical malpractice.
Moreover, in relation to extended liability, the CTL extends liability to include harm caused by third parties under certain conditions. Article 129 covers situations where an individual or an entity is responsible for the actions of another person, such as an employer’s lability for the actions of their employees. This extends to scenarios where there is a duty of supervision or control, implicating a broader responsibility for the actions of others. Therefore, in essence, the CTL may extend the civil liability of harmful acts that may be committed by healthcare professionals to the entities that employ such healthcare professionals provided that it is proven that there is a duty of supervision or control.
With regards to liability arising from objects, Article 132 specifically deals with liabilities arising from objects that are capable of causing harm. This includes but is not limited to, medical devices and other objects used in administering medical care. The provision addresses situations where the nature of the object or its usage poses potential risks, holding the owner or controller of such objects liable for any resulting harm. For example, a healthcare professional or hospital can be held liable under this provision for the administration of a defective medical device on a patient.
With the above being said, the Law of Practicing Healthcare Professions (“PHCP”) (Royal Decree No. M/59 dated 06/12/2005G) states at Article 27 that any healthcare practitioner that commits a professional error causing harm to a patient shall be held liable for indemnification, which can lead to civil liability on the healthcare practitioner as it constitutes medical malpractice. The following actions will be deemed as medical malpractice:
Error of treatment or lack of follow up;
Lack of knowledge of technical matters to be known by physicians of the same specialty;
Performing experimental and unprecedented surgeries on a patient in a way which contradicts the governing laws;
Conducting experiments or unapproved scientific researches on a patient;
Administering medications to patients on an experimental basis;
Using medical equipment or devices without having sufficient knowledge of their use, without taking adequate precautions to prevent any harm arising from such use;
Lack of control or supervision; and
Failure to consult other physicians when the condition of a patient so requires.
Also, is it mentioned within the PCHP that any contractual clause designed to restrict the liability of a healthcare practitioner, or to hinder the process of holding them accountable, is considered legally void in Saudi Arabia. . Therefore, although the PHCP lists out the instances where a healthcare practitioner may be held liable, the CTL has extended the civil liability to include not only the healthcare practitioner but also the healthcare organizations that employ the healthcare practitioners. Furthermore, Article 173 of the CTL provides that 1) Parties can agree to exempt a debtor from the obligation to compensate for harm arising from the failure or delay in fulfilling a contractual obligation, unless this failure or delay is attributed to the debtor's fraud or gross negligence. 2) no agreement is valid if it seeks to exempt any party from liability for a harmful act.
Despite these provisions in the CTL, the PCHP takes precedence in matters involving healthcare practitioners and their patients. This ensures that the specific regulations and standards set forth by the PCHP are the primary governing rules in healthcare-related scenarios, emphasizing the paramount importance of patient rights and practitioner accountability in Saudi Arabia's healthcare sector. Conclusion:
In conclusion, it is clear that the CTL represents a significant milestone in the reform of the legal framework in Saudi Arabia and it has a direct impact on various sectors, including the HLS sector. The retrospective applicability of the CTL ensures uniformity in contracts both past and present.
Further, the provisions regarding termination of agreements introduce much-needed clarity and certainty to arrangements, such as commercial agency agreements that involve a foreign principal and a local KSA agent.
Finally, the CTL's civil liability provisions establish accountability for harmful acts, encompassing personal liability, extended liability, and liability arising from objects. As Saudi Arabia strives for a more robust legal framework, the CTL plays a vital role in enhancing transparency, fairness, and protection of rights within the HLS sector and beyond.
For further information,please contact Mohammed Negm andChristina Sochacki.
Published in January 2024
