The General Assembly of Saudi Arabia’s Supreme Court accorded its approval to consider coronavirus pandemic as an emergency situation; if it is not possible to fulfill a commitment or implement contractual obligation; without incurring unusual loss, and force majeure if implementation becomes impossible.
The court directed to write off delayed rents due to the pandemic and review contracting conditions.
The new regulations, issued by the Supreme Court; stipulated five conditions for applying the principle to affected contracts and obligations.
This will be in case of concluding the contract before the start of the precautionary measures; to stem the spread of coronavirus and continued implementing it after its occurrence.
Another condition is that there had a direct impact of the pandemic on the contract and that was unavoidable. Similarly, the impact of pandemic on the contract is not dependent on anything else or not sharing with another reason.
The conditions also include that the affected person has not waived his right; and that the effects and damages of the pandemic cannot be dealt with a special law or a decision of the competent authority.
The Supreme Court affirmed that the court, upon the request of the plaintiff who suffered damage; and after balancing the two parties and looking into the circumstances surrounding the circumstances; shall undertake amendments in the contractual obligation impacted by the pandemic so as to deliver justice.
Real state & movable property
The court confirmed that the provisions for renting real estate and movable property; affected by applying the pandemic in two circumstances. The first is the inability of the tenant to fully or partially use the leased property; and in such a circumstance the court will reduce the rent to the extent of the actual decrease in the usual intended benefit.
In the second circumstance, the landlord does not have the right to terminate the contract if the tenant delays in paying the rent for the period during; which it was not possible to use in whole or in part due to the pandemic.
Supreme courts’ provisions
The Supreme Court’s instructions also affirmed that four provisions are in contracting, supply and related agreements affected by the pandemic.
Firstly, if the effect of the pandemic results in an increase in the value of materials, labor supply or operation; then the court increases the value of the contract. In the event that the material price increase is temporary and it is about to disappear; then the court suspends the implementation of the commitment for a temporary period.
Secondly, if the impact of the pandemic results in the lack of goods from the market; then the court will decrease the quantity to the extent it deems sufficient to remove the unusual harm.
Thirdly, if the impact of the pandemic is on the temporary lack of materials from the market; the court suspends the commitment for a temporary period in case of not seriously affecting the obligee by this suspension.
In case of being damaged then he has the right to request for annulment; but if the damage is absolute and this leads to the impossibility of implementing some or all of the contractual obligations; then the court shall terminate it at the request of one of the contracting parties.
Fourthly, if the subject of the contract is an obligation to perform a work and the pandemic causes it to be impossible to be implemented on time; then the court shall suspend the implementation of the commitment for a temporary period; and if the obligee suffers a serious damage, he may request the annulment.
Exemption from liability
The Supreme Court clarified that, subject to the previous provisions, a court; while examining lawsuits arising from contracts and obligations affected by the pandemic, is not to apply the penalty clause or fines in whole or in part; depending on the case, or withdraw the project and implement the account contained in contracts and obligations; if the pandemic is the reason for delaying the implementation of the obligation.
If the contract includes a clause of exemption from liability for one of the parties to the contract; when the emergency or force majeure occurs, then this condition has no effect. Besides, the party who breached the obligation has the liability of proving that the pandemic caused this, the Supreme Court clarified.