Saudi Civil Transactions Law and Share Purchase Agreements: Managing Statutory Warranties and Contractual Limitations

5 min 44 sec August 20, 2026 (Edited)

Written by

Zain Zainalabedin

Associate

z.zainalabedin@tamimi.com View LinkedIn Profile

Abdullah Al Shubat

A.Alshubat@tamimi.com View LinkedIn Profile

The Saudi Civil Transactions Law, issued under Royal Decree No. M/191 dated 29/11/1444H (the “CTL”), provides a codified framework governing contractual liability and contracts of sale. For parties negotiating share purchase agreements (“SPAs”), the CTL is particularly relevant because it establishes statutory warranties that may apply independently of the express warranties set out in the transaction documents. These include the seller’s warranty against third-party title claims and its warranty that the asset sold is free from qualifying defects.

The CTL generally permits parties to modify, expand or exclude these statutory warranties. However, that freedom is subject to mandatory limitations. In particular, a seller cannot rely on contractual wording to avoid liability arising from its own acts, intentional concealment, fraud or gross fault. The result is a statutory “floor” of protection that SPA limitation clauses must respect.

Warranty against third-party title claims

The CTL requires the seller to protect the buyer against interference with the buyer’s enjoyment of the asset sold and against qualifying third-party rights affecting that asset. In the context of an SPA, this regime is most directly relevant to the seller’s ownership of the shares and to third-party rights over those shares, such as pledges, liens, competing ownership claims or other encumbrances.

Article 337 expressly permits the parties to exempt the seller from the warranty against title claims or to limit or increase that warranty. Parties therefore have broad freedom to allocate title risk contractually. For example, an SPA may identify permitted encumbrances, qualify title warranties by reference to disclosed matters or specify the remedies available if the seller does not transfer good title.

That freedom is not absolute. Article 337 provides that the agreed exclusion or limitation does not apply where the title claim results from an act of the seller or where the seller intentionally concealed the relevant matter. A seller that creates an encumbrance, transfers or promises the same shares to another person, or knowingly conceals a competing ownership claim cannot rely on a general disclaimer to avoid responsibility.

Article 337 also preserves an important buyer remedy. Even where the parties agree to exclude the title warranty, that agreement does not prevent the buyer from recovering the purchase price unless the seller proves that the buyer knew, at the time of sale, of the basis for the third-party claim. This is particularly significant in an SPA because an exclusion of the title warranty may not, by itself, eliminate the buyer’s right to recover the consideration where good title to the shares is not transferred.

Warranty against defects

Article 338 establishes the statutory warranty against defects. The seller warrants that, at the time of delivery, the asset is free from defects that reduce its value or usefulness by reference to the purpose stated in the contract, the apparent nature of the asset or the purpose for which it was prepared. The seller may be liable for such a defect even where it was unaware of its existence. The buyer’s statutory remedies may include rescission, retaining the asset and recovering the difference in value, and compensation where appropriate.

Article 343 then permits the parties to exempt the seller from this defects warranty or to limit or increase it. This gives SPA parties considerable flexibility to replace the statutory position with a negotiated contractual regime. The parties may, for example, agree that the seller gives only the express warranties contained in the SPA, that those warranties are qualified by fair disclosure, and that claims are subject to agreed financial thresholds, liability caps and time limits.

However, Article 343 imposes a clear boundary: the seller cannot rely on an exclusion or limitation where it intentionally concealed the defect. The article does not state that every exclusion clause becomes void in its entirety. Rather, the safer interpretation is that the seller cannot rely on the exclusion to the extent that the relevant liability arises from the intentionally concealed defect.

Buyer knowledge, examination and disclosure

The statutory defects regime must be read alongside Articles 339 and 340. Under Article 339, the seller is generally not liable where the buyer knew of the defect at the time of sale or could have discovered it by examining the asset with the care expected of an ordinary person. This does not apply where the seller specifically guaranteed the absence of the defect or intentionally concealed it.

Article 340 also requires the buyer, after taking delivery, to examine the asset as soon as reasonably possible in accordance with ordinary practice. If the buyer identifies a defect covered by the seller’s warranty, it must notify the seller within a reasonable period. Where the defect could not be identified through an ordinary examination, the buyer must notify the seller promptly after discovering it. Failure to provide the required notice may result in the buyer being treated as having accepted the asset with the defect.

These provisions are highly relevant to SPA disclosure and due-diligence mechanics. The SPA should specify what information is treated as disclosed, whether documents merely uploaded to a virtual data room qualify as fair disclosure, whose knowledge is attributed to the buyer and whether actual or deemed buyer knowledge limits warranty claims. A seller should not assume that a broad data-room disclosure clause will necessarily protect it where material information was obscured or intentionally concealed.

The 180-day period

Article 344 provides that a defects-warranty claim will generally not be heard after 180 days from delivery unless the seller undertakes to provide a longer warranty period. The seller cannot rely on that period where it is established that the seller fraudulently concealed the defect.

For SPA practitioners, this raises important drafting questions. The SPA should identify whether its express warranty survival periods are intended to constitute a longer warranty period for the purposes of Article 344. It should also define when delivery occurs, which in a share sale may be linked to completion, payment of the consideration, execution of the transfer instrument or registration of the buyer as shareholder.

The limitations clause should expressly address statutory claims as well as claims brought under the express warranties. A clause applying only to “claims for breach of warranty under this agreement” may leave room for an argument that a statutory claim under the CTL falls outside the agreed limitations.

The general contractual-liability backstop

Article 173 provides a broader limitation applicable to contractual liability generally. Article 173(1) permits the parties to exclude compensation for damage resulting from non-performance or delay in performing a contractual obligation, except where the damage results from the debtor’s fraud or gross fault. Article 173(2) separately prohibits contractual exclusion of liability arising from a harmful act.

Article 173 should be distinguished from Articles 337 and 343. Article 337 focuses on title claims arising from the seller’s own acts or intentional concealment, while Article 343 focuses specifically on intentional concealment of defects. Article 173 provides a broader contractual-liability backstop covering fraud and gross fault. These concepts may overlap in practice, but they should not be treated as interchangeable.