The volume of investment by Turkish construction and trading companies in Saudi Arabia has grown markedly in recent years, driven in particular by the giant infrastructure and urban development projects under Vision 2030. Alongside this growth, Saudi Arabia’s first comprehensive Civil Transactions Law, which entered into force in 2023, has also changed how contractual relationships are interpreted. In short, contract security in Saudi Arabia for a Turkish company is no longer just a matter of getting the Arabic translation of the text right; the governing law, the forum for dispute resolution, and the enforceability of any eventual award or judgment in Turkey have become three distinct risk areas that must be planned for from the outset.
Why Contract Security in Saudi Arabia Calls for a Different Kind of Assessment
Consider, for example, a Turkish construction contracting firm entering a large urban development project near Riyadh as a subcontractor to a local main contractor. The firm will typically prepare its construction schedule, equipment logistics, and labor planning with great care, while pushing the legal framework of the contract to the background on the assumption that it is “just a standard text.” In reality, commercial law in Saudi Arabia operates within a distinctive system in which codified civil law rules are interwoven with Islamic law principles.
For this reason, assuming that a concept from Turkish contract law will automatically produce the same result in Saudi Arabia is itself a risk. Local licensing, partnership structures, and sector-specific permit requirements can change over time, so current rules should be confirmed with qualified Saudi legal counsel or the relevant official authority. In our view, the real risk lies not in the wording of the contract clauses, but in neglecting this prior decision as to which legal system the relationship will be built on.
What Saudi Arabia’s New Civil Transactions Law Changed for Contracts
Issued by Royal Decree M/191 in June 2023 and effective as of 16 December 2023, the Civil Transactions Law is the country’s first regulation to bring contract formation, performance, and termination together in a single code. The law comprises approximately 721 articles and separately regulates specific contract types such as sale, lease, agency, and construction contracts.
Suppose a Turkish machinery supplier’s 2021 distribution agreement with its Saudi distributor is still in force. Even though this agreement predates the new law, the law generally applies to pre-existing contracts as well; an exception applies only where doing so would conflict with a previously vested right or a limitation period already running. Article 1 of the law further provides that, in the absence of an express provision, the judge is to apply the codified fiqh (Islamic jurisprudence) principles in addition to the law itself. This means that Islamic law remains the ultimate point of reference even as the written code expands.
How Governing Law and the Arbitration Clause Should Be Structured in the Contract
In a contract signed with a main contractor or distributor in Saudi Arabia, setting out the governing law and the method of dispute resolution in writing is critical. If the parties fail to include a clear clause on this point, determining which court or which arbitral institution has jurisdiction can itself become a source of dispute once a disagreement arises.
There is an advantage here that is often overlooked. Saudi Arabia acceded to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1994, subject only to a reciprocity reservation, meaning it recognizes awards rendered in other contracting states. Turkey, for its part, became a party to the same Convention in 1991 under Law No. 3731 and began applying it from 1992. The fact that both countries are parties to the same Convention means that a properly drafted arbitration clause significantly facilitates recognition of the award in the other party’s jurisdiction.
That said, some practitioners drop a foreign-seated arbitration clause altogether, reasoning that if the Saudi party will not accept it, pressing the point only creates needless friction. From a legal reasoning standpoint, however, the correct approach is the opposite. Settling the seat and institution of arbitration at the outset makes it predictable which forum the parties will face in any future dispute, and that predictability offers more protection than any other single clause in the contract. Omitting this clause at the contract drafting stage is one of the gaps that is hardest to remedy later. The general framework on commercial contracts also supports this point.
Recognition and Enforcement in Turkey of a Judgment or Award Obtained in Saudi Arabia
A Turkish company may become a creditor as a result of an arbitral award or court judgment obtained in Saudi Arabia. The real question is how that award or judgment can be used against the Saudi debtor’s assets in Turkey. Here, Articles 50 to 59 of Turkish Law No. 5718 on Private International Law and Civil Procedure (MOHUK) apply to foreign court judgments, while the New York Convention provisions together with Articles 60 to 63 of the same law apply to foreign arbitral awards.
These provisions draw a distinction between recognition and enforcement. Recognition gives the foreign judgment or award conclusive evidentiary effect in Turkey, while enforcement (tenfiz) renders it actually executable in Turkey. Enforcement additionally requires that the reciprocity condition be met. For example, a Turkish company holding an arbitral award from a construction subcontracting dispute in Saudi Arabia that wishes to enforce it against the debtor’s bank account or real property in Turkey must first file an enforcement action before the competent civil court of first instance. It is not possible to proceed directly to execution proceedings without first obtaining this enforcement order. The general process is also discussed under collection of company receivables. The general framework on corporate and commercial law can also be instructive in related dispute processes.
Practical Steps to Take Before Signing the Contract
For a Turkish company planning to commence operations in Saudi Arabia, the recommended sequence is as follows. First, confirm from current, authoritative sources which structures the relevant sector permits under local regulation; next, set out the governing law and arbitration clause in writing within the contract; and finally, assess reciprocity in advance with a view to the eventual enforcement of any award or judgment in Turkey.
Completing these steps in order, before the contract is signed, prevents the majority of disputes that would otherwise arise later. The following points in particular should not be overlooked in this process.
- Confirming from current sources the law governing the contract and the effect of the new Civil Transactions Law on the relevant contract type
- Clearly and explicitly specifying the forum for dispute resolution and the arbitral institution in the contract
- Taking the reciprocity requirement into account for the eventual enforcement of any award or judgment in Turkey
- Separately verifying signature authority, representation, and approval procedures under local regulations
- Keeping the contractual relationship under regular legal review throughout the project
If any of these points is not clarified before signature, it can produce consequences that are difficult to remedy later. For this reason, each specific project and contractual relationship should be assessed on its own facts, through an individualized legal review.
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