A contract is a risk-management tool

In many dealings, the contract is treated as a formality to get out of the way before work starts. In reality, it is the document that defines each party’s rights and obligations, allocates risk between them, sets out the consequences of a breach, and becomes the reference point when a dispute arises.

This is clearest in commercial disputes. A common example: a supplier agrees with a contractor to deliver materials for a project on the strength of a quotation and a purchase order, with nothing on how deliveries are received, when payment falls due, or what happens if either side is late. When payment stalls months after delivery, the supplier finds itself having to prove every delivery separately, and the matter usually ends with a court-appointed expert, a mountain of documents and a long dispute, all of which clear clauses at the outset could have prevented.

The contract is the law between the parties, all of it

The settled rule is that the contract is the law of the parties, a principle confirmed by the Civil Transactions Law. What the parties agree binds them, and neither may amend or rescind it alone except by agreement or on a ground the law recognises. Where the wording is clear, it may not be departed from under the guise of interpretation. Where it is ambiguous, the judge looks for the parties’ common intention, an exercise whose outcome neither side can guarantee, which is why clarity when drafting is safer than interpretation in a dispute.

In practice, every word in a contract works for you or against you. The clause you accepted without noticing may be the one that decides when you can terminate, who bears the cost of delay, how much you pay if you are in breach, where you will litigate, and which version prevails if the Arabic and foreign-language texts differ. A good contract does not protect only the stronger party; it protects the relationship itself, because it answers the hard questions before they are asked in the middle of a dispute.

Common drafting failures

  • The copied template: a contract from a previous deal or a template from the internet with the name and amount changed, while its clauses were written for a different kind of business or under a law other than Saudi law, and the gap shows at the first dispute.
  • Vague obligations: phrases such as “as soon as possible”, “of appropriate quality” and “as needed” feel comfortable at signing, then each party reads them in its own favour once a dispute arises.
  • No mechanism for acceptance and payment: the contract does not say who signs for delivery, when payment falls due, or what counts as acceptance of the work, so every riyal becomes a question of proof.
  • A poorly considered penalty clause: either a large sum written in as a deterrent with no link to the expected loss, which the court may reduce if it is excessive, or a token sum that does not cover the real loss, bearing in mind that, as a rule, more than the agreed amount cannot be claimed except in limited cases such as fraud or gross fault.
  • Silence on termination: the contract does not say when each party may end it, on what notice, or what follows, leaving the injured party tied to a relationship that no longer works.
  • Neglected jurisdiction and arbitration: a defectively worded arbitration clause can drag the parties into a dispute over jurisdiction before the merits, and arbitration abroad can cost more than the claim itself.
  • Signature by someone without authority: an employee or manager who has no signing authority under the articles of association or a power of attorney, which opens the door to the argument that the company is not bound.
  • Missing schedules: a contract that refers to a bill of quantities, specifications or a quotation that was never attached or signed, so the most important part of the deal sits outside the contract.

What happens when a contract is not reviewed

First, the burden of proof shifts. When the contract is vague or silent, the dispute moves from what was agreed to what each party can prove, and the party in the right is left relying on correspondence, chat messages and transfer receipts to rebuild an agreement that should have been in writing.

Second, disputes last longer. A point that a clear clause would settle quickly can, once there is ambiguity, require an expert, rounds of submissions and months of proceedings, while payments are held up and the business relationship suffers.

Third, unexpected obligations surface. In a dispute it may emerge that a clause accepted without scrutiny imposes uncapped liability, restricts the right to terminate, sends disputes to arbitration in another country, or leaves acceptance of the work in one party’s hands.

Fourth, cost. The cost of reviewing a contract before signing does not compare with the cost of a single dispute caused by a drafting gap.

Questions to check before you sign

  1. Do I know exactly what I am committing to, what I will receive, and when?
  2. Are payment and delivery dates fixed by dates or periods rather than general wording?
  3. Who signs for delivery or acceptance, and what counts as acceptance?
  4. What happens if either party is late, and is the sanction proportionate to the loss?
  5. When may I terminate, on what notice, and how does termination affect amounts due?
  6. Is my liability capped, or are my obligations open-ended?
  7. Where will disputes be heard, before whom, and in which language?
  8. Is every schedule the contract refers to attached and signed?
  9. Does the person signing for the other party actually have authority to sign?
  10. Does the deal call for security, such as an electronic promissory note issued through the Nafith platform or a bank guarantee, so that collection is possible without a lengthy lawsuit?

If you cannot answer any of these questions from the text of the contract itself, the contract needs review before signing, not after.

Talk to us

At Shehab Alsaleh Lawyers & Legal Advisors we provide contract drafting and review services, drawing on our experience in commercial and employment litigation and on what disputes reveal about the cost of poor drafting. This covers supply, construction, services, agency, partnership, finance and employment contracts, whether you are drafting your own contract from scratch or reviewing one the other party has put in front of you before you sign it.

If your company is about to close a deal, or is still working with contracts that have not been reviewed in years, book an appointment through our contact page by choosing “Company / Establishment”, with the company name, a copy of its commercial registration and a brief summary of the matter. If you are an individual with a partnership agreement, a construction contract for your home, an employment contract or any agreement you are hesitant to sign, contact us through the same page by choosing “Individual” and attach the draft contract to the form, because the right time to review it is before you sign, not after a dispute has arisen.

This article is for general awareness only and does not constitute legal advice on any specific case.