Navigating the Concept of Exceptional Circumstances in Saudi Construction Contracts: Legal Insights and Practical Implications
Dispute Resolution / KSA
Muhammad El HagganSenior Associate,Dispute Resolution
Zane AnaniSenior Knowledge Lawyer (Consultant),Dispute Resolution
The concept of "exceptional circumstances" (or "unforeseen circumstances") is an important concept in civil law jurisdictions, providing a legal mechanism for parties to seek relief when extraordinary, unforeseeable events fundamentally disrupt contractual balance. In Saudi Arabia, the approach to exceptional circumstances has evolved significantly, especially with the introduction of the Saudi Civil Transactions Law (Royal Decree M/191 dated 29/11/1444 H).
By drawing on recent judgments, this article explores the Saudi courts’ treatment of exceptional circumstances before and after the issuance of the Saudi Civil Transactions Law and how they distinguish between normal commercial risks from exceptional circumstances. The article also highlights the practical implications of the concept of exceptional circumstances for contracting parties, particularly in the construction sector.
Prior to the promulgation of the Saudi Civil Transactions Law, the Saudi legal system was primarily governed by Shariah principles, which, while not codified, provided a basis for recognizing force majeure and exceptional circumstances. The courts, in the absence of a comprehensive civil code, relied on general Shariah doctrines such as "calamity" (ja’eha) and "valid excuse" (uthr), which allowed for relief in cases of general, external, and unavoidable events that rendered contractual performance impossible or excessively onerous.
Saudi courts, however, applied these doctrines strictly. Relief was only granted where the event was:
Outside the control of the parties and unforeseeable;
General in application (not affecting only the parties);
Unavoidable, or its damages were unavoidable; and
Rendering performance impossible, rather than excessively onerous or burdensome.
The burden of proof was high, and courts were reluctant to excuse performance unless these stringent criteria were met. Financial hardship or increased costs, for example, were generally considered part of the normal risks of business and not sufficient to trigger relief.
Before the Civil Transactions Law came into force, the Saudi Administrative Courts (previously the Board of Grievances or ‘Diwan Al Mathalim’) consistently required that for the doctrine of exceptional circumstances (or “circumstances beyond control”) to apply, the event must be external, unforeseeable, and must fundamentally disrupt the contract’s financial balance, making performance excessively burdensome but not impossible. The courts distinguished between normal commercial risks (such as routine price fluctuations) and truly exceptional events that justify judicial intervention to restore contractual economic equilibrium. Furthermore, the courts emphasized the necessity of a direct causal link between the exceptional event and the claimed damages, and often defer to explicit regulatory or contractual provisions governing compensation.
In Case No. 1951 of 1406H before the Administrative Courts, the contractor sought compensation for losses due to price increases and delays, arguing that these were caused by exceptional, unforeseeable circumstances. The court acknowledged the theory of "circumstances that disturb the financial balance of the contract", but ultimately held that, under then-applicable law and government resolutions, compensation for such circumstances was only available if there was fault on the part of the administration. The court refused to grant relief for mere economic hardship or market fluctuations, emphasizing that only events making performance impossible, and not just more onerous, could justify intervention. In another KSA Judgment involving a government contract (Case No. 2375 of 1425H), the court addressed a situation where a construction project was relocated after commencement, causing the contractor significant additional costs and losses. The court recognized the contractor’s right to compensation for direct, proven losses resulting from the administration’s unilateral change, but rejected claims for increased material prices, holding that such fluctuations were subject to market forces and did not, in themselves, constitute exceptional circumstances warranting relief.
These cases illustrate the pre-Code judicial tendency to limit relief to cases of impossibility or direct administrative fault, rather than mere hardship or economic imbalance.
The Saudi Civil Transactions Law: A New Framework and the Concept of Exceptional Circumstances Post-Code
In construction disputes where contractors have claimed relief due to government-mandated project relocations or market disruptions, the courts have scrutinized the evidence to determine whether the circumstances were truly exceptional and unforeseeable, and whether the losses claimed were directly attributable to those circumstances rather than to the contractor’s own actions or omissions.
The enactment of the Saudi Civil Transactions Law in 2023 (Royal Decree M/191 dated 29/11/1444 H) marked a significant shift, codifying and clarifying the doctrine of exceptional circumstances. Two articles are particularly relevant:
Article 97: Provides that if "exceptional circumstances of a general character" arise, unforeseeable at the time of contracting, and their continuation would threaten a party with "exorbitant/heavy loss," the affected party may seek to renegotiate the contract. If renegotiation fails, the court may intervene to restore the obligation to a reasonable level, potentially sharing the loss between the parties or excusing performance of the onerous obligation.
Article 471(3): Specifically addresses construction (muqawala) contracts, allowing the court to restore contractual balance where exceptional circumstances have severely prejudiced the financial equilibrium of the contract. Remedies may include extension of time, adjustment of contract price, or even termination.
These provisions align Saudi law with other civil law jurisdictions, such as Egypt and France, and provide a clear, mandatory framework for judicial intervention in cases of severe, unforeseeable disruption, thus, providing an exception for courts to intervene and amend (or in some events terminate) the agreement of the parties. Saudi courts, drawing from both Shariah principles and the new codified law, have consistently emphasized several key elements in the practical application of the exceptional circumstances doctrine:
Threshold of Exceptionality and Generality: The courts require that the circumstances in question must be of a general nature, affecting not just the contracting parties but a broader segment of the public or industry. For example, a global pandemic or a war that disrupts international supply chains would typically meet this threshold, whereas a localized or party-specific hardship would not.
Unforeseeability and Externality: The event must have been unforeseeable at the time the contract was concluded. Courts assess this objectively, considering what a reasonable person in the same position would have anticipated. The event must also be external to the parties’ control, and not the result of their own actions or negligence.
Severity and Impact on Contractual Balance: The impact of the event must be so severe that it threatens the affected party with losses that go beyond normal commercial risk—what the law terms "exorbitant/heavy loss." The courts look for evidence that the event has fundamentally altered the economic assumptions underlying the contract, making performance excessively onerous or even impossible.
Requirement to Attempt Renegotiation: Under Article 97 of the Saudi Civil Transactions Law, before seeking judicial intervention, the affected party is generally expected to attempt renegotiation in good faith. Failure to do so may undermine their claim for relief, as the courts encourage parties to resolve such issues amicably where possible.
Judicial Powers and Remedies: If renegotiation fails, the court has broad discretion to restore the contractual balance, and in some events, the discretion to terminate the agreement. This may include extending deadlines, adjusting prices, or even terminating the contract if necessary. The aim is not to absolve one party entirely of loss, but to equitably distribute the burden of the unforeseen event.
Practical Application of the Concept of Exceptional Circumstances in Saudi courts
The practical application of the exceptional circumstances doctrine in Saudi courts means that parties to contracts, especially in sectors like construction, must be prepared to:
Document the unforeseeable nature and general impact of the event;
Demonstrate the severity of the loss and its direct connection to the event;
Show evidence of good faith attempts to renegotiate the contract;
Maintain detailed records of all communications, mitigation efforts, and financial impacts.
The courts’ approach is not to provide a windfall to the affected party, but to ensure fairness and the continued viability of contractual relationships in the face of extraordinary events. The burden of proof lies with the party seeking relief, and the threshold for intervention is high, reflecting the principle that contracts are to be honoured except in truly exceptional circumstances.
The primary distinction between force majeure events and exceptional circumstances lies in the concept of impossibility. Under force majeure, an event must render the contractual obligation entirely impossible to perform; in such cases, the event is recognised as force majeure, regardless of any prior agreement between the parties as to what constitutes such an event. In contrast, exceptional circumstances do not require absolute impossibility. Instead, the threshold is met when an event causes a temporary impossibility or renders performance excessively onerous, resulting in exorbitant loss, even if performance remains technically possible.
In these situations, the court has the discretion to redistribute only the portion of the loss deemed exorbitant. This may include, where appropriate, suspending the performance of the onerous obligation until the exceptional circumstances has ceased to exist. The court’s intervention is thus aimed at restoring contractual balance without absolving either party of all loss, but rather equitably sharing the burden imposed by the extraordinary event.
The approach of Saudi Arabian courts to the concept of exceptional circumstances is shaped by a combination of Shariah principles, statutory provisions, and evolving judicial practice, particularly in the context of construction and commercial contracts. The recent codification of the Saudi Civil Transactions Law has provided greater clarity and structure to this area, but the courts’ reasoning remains deeply rooted in the principles of equity and good faith.
At the heart of the Saudi approach is the recognition that contracts are to be performed in accordance with their terms, and parties are generally expected to bear the risks inherent in commercial dealings. However, the law also acknowledges that certain events—so extraordinary, unforeseeable, and beyond the control of the parties—may fundamentally disrupt the contractual balance or render performance excessively onerous or even impossible. In such cases, the courts are empowered to intervene to restore fairness and prevent one party from shouldering an intolerable burden.
In construction disputes where contractors have claimed relief due to government-mandated project relocations or market disruptions, the courts have scrutinized the evidence to determine whether the circumstances were truly exceptional and unforeseeable, and whether the losses claimed were directly attributable to those circumstances rather than to the contractor’s own actions or omissions. The courts have also emphasized the importance of good faith negotiations between the parties before seeking judicial intervention, particularly under Article 97, which mandates an attempt at renegotiation before resorting to the courts.
Saudi courts have consistently held that mere economic hardship, increased costs, or loss of profitability do not, in themselves, constitute exceptional circumstances warranting relief. The threshold is high: the event must be external, general, unforeseeable, and must render performance either impossible or so oppressive as to threaten the party with grave loss. The burden of proof lies squarely with the party seeking relief, and the courts require clear, convincing evidence of both the event and its direct impact on contractual performance.
For further information,please contact Muhammad El Haggan and Zane Anani.
Published in September 2025
