The Riyadh Commercial Court (Case No. 3842/1445) delivered a landmark ruling on the interpretation of force majeure clauses in international supply contracts governed by Saudi law. A German industrial equipment manufacturer sought damages against a Saudi distributor for breach of a five-year exclusivity agreement. The distributor invoked force majeure, citing global supply chain disruptions.
The parties entered into a Distribution Agreement in 2021 under which the German manufacturer granted the Saudi distributor exclusive rights to sell specialized manufacturing equipment within the Kingdom. The contract contained a standard force majeure clause listing "acts of God, war, civil unrest, government intervention, and unforeseen circumstances beyond the reasonable control of the affected party."
In early 2023, the distributor suspended orders, citing supply chain breakdowns in component sourcing from Southeast Asia. The manufacturer terminated the agreement and claimed SAR 12.4 million in lost profits.
The Court applied Article 174 of the Saudi Civil Transactions Law (promulgated by Royal Decree M/191), which codifies the concept of quwah qahirah (force majeure). The Court held that for force majeure to excuse performance, the event must be: (a) unforeseeable at the time of contracting; (b) unavoidable; and (c) render performance objectively impossible, not merely more burdensome or expensive.
"Supply chain disruptions that increase costs but do not make performance impossible do not constitute force majeure under Saudi law. The obligor bears the commercial risk of price fluctuations and logistical delays." — Riyadh Commercial Court, Judgment at 34
The Court placed the burden squarely on the distributor to prove that the supply chain issues rendered performance impossible, not merely commercially disadvantageous. The distributor failed to produce evidence that alternative suppliers could not have been sourced.
The Court ruled in favor of the German manufacturer, awarding SAR 8.7 million in damages (reduced from the claimed SAR 12.4 million after the Court applied the principle of mitigation of damages under Saudi law).
This is one of the first major applications of the Civil Transactions Law's force majeure provisions to international trade. It signals that Saudi courts will interpret force majeure clauses narrowly, consistent with international commercial norms, and will not allow parties to escape contractual obligations merely because performance became economically burdensome.