What the Construction Industry Should Know About the New KSA Civil Transactions Law’s Introduction of Vicarious Liability
On 13 June 2023, His Royal Highness Prince Mohammed bin Salman bin Abdulaziz Al-Saud, Crown Prince and President of the Council of Ministers, announced the Council of Ministers’ approval of the Civil Transactions Law (the “Civil Law”). The official Gazette “Umm Al-Qura” published the full text of it six days later. The Civil Law includes seven chapters and 721 articles and will be effective within 180 days of its publication date, which is approximately 16 December 2023.
The Civil Law is part of Saudi Arabia’s effort to attract more outside investment and business activity into the Kingdom. It attempts to codify legal principles that combine modern legal concepts contracting parties rely on when conducting business around the globe with Islamic principles that form the basis of Sharia law, on which much of Saudi law is based. Before the Civil Law, contracting parties doing business in Saudi Arabia had to navigate laws derived from religious texts and traditions, varying interpretations of both, and a lack of consistent, binding precedent—all of which complicated doing business there.
The Civil Law takes a big step toward eliminating these obstacles by clarifying and codifying key legal concepts, such as liquidated damages, bad faith, force majeure, and enrichment without cause. In some instances, the Civil Law’s provisions represent a change to established law, such as those regarding statutes of limitations and moral damages.
The Civil Law introduces vicarious liability
One of the biggest changes the Civil Law provides, which has received little published commentary, is in Articles 127 and 129(2). Together, they suggest that under the Civil Law, parties can be vicariously liable for the actions of a subordinate. This is a departure from traditional Saudi law, which did not recognize vicarious liability unless an injured party could prove that an actor’s free will was overcome by the person directing them to act. This reflects Sharia law, which focuses responsibility for human actions on the individual taking the action.
Article 127 states that:
If there are multiple persons responsible for a harmful act, they shall be joint in their obligation to compensate for the damage, and the court shall determine the share of each of them in compensation in accordance with the rules contained in this chapter. If this is not possible, the responsibility shall be equally between them.
Article 129(2) states that:
The subordinate shall be responsible towards the injured party for the damage caused by his subordinate through his mistake during the performance of his work or because of this work, if the subordinate has actual authority to control and direct the subordinate, even if the subordinate is not free to choose his subordinate.
Taking these two Articles together, a party can be jointly liable with a subordinate it controls and directs through actual authority for injuries the subordinate causes. Though a court will determine the share of the parties’ liability, the fact that a party exercising actual authority could be liable for the actions of its subordinate will change the behavior of parties exercising that authority in Saudi Arabia.
What the Civil Law’s introduction of vicarious liability means for construction companies
Until Saudi courts start applying the new Civil Law to cases before them, we can only speculate as to the effects any of its Articles will have on litigation in the Kingdom. But even today, we believe the Civil Law’s introduction of vicarious liability will cause parties, especially construction companies, to change their behaviors or otherwise face increased legal and financial exposure.
Before the Civil Law, if an employee of a construction company took an action, or failed to take action, that caused injury to another party, only they could be liable for that person’s injuries. Even if the construction company failed to employ certain processes or procedures that could have—or would have—prevented the injury, it would not be found liable for the injury. This arguably motivated construction companies and other employers in Saudi Arabia to refrain from investing in safety and injury prevention. But with the Civil Law’s introduction of vicarious liability, construction companies and other employers will need to make these investments to avoid a court determining that their employees’ injuries were because of their negligence or recklessness.
For example, before the Civil Law, if a construction company’s employee was injured on a job site while not wearing personal protective equipment when there were signs on the site reminding employees to do so, a Saudi court would side with the employer if its employee sued it regarding the injury. The court would only consider the injured worker’s failure to protect themself and the actions of whichever individual(s) caused the worker’s injury.
But under the Civil Law, the employer could be vicariously liable if the injured worker shows the employer failed to establish or follow standard safety provisions, perhaps by not having any safety inspectors at the job site ensuring that workers wear personal protective equipment and follow the employer’s safety procedures. The threat to the employer of vicarious liability will change how parties in lawsuits where vicarious liability is a possibility proceed through pre-litigation, litigation, and settlement discussions. The ongoing threat of vicarious liability to construction companies under the Civil Law could cause construction companies to proactively improve all aspects of their operations to minimize the potential they are liable down the road for an employee’s actions that injured another person.
What construction companies should do now
The Civil Law does not go into effect until the middle of December 2023, so it is unlikely that we will see any court decisions interpreting Articles 127 and 129(2) until the middle of 2024, at the earliest. However, construction companies and all other employers should not wait until then before taking action. They should consider how to reduce both the risk that they could be vicariously liable for employee actions and the potential financial damage they would endure if they were held vicariously liable.
As to the former, construction companies should reevaluate their operating procedures to ensure they are, at a minimum, complying with applicable law and regulations, and at a maximum, surpassing industry best practices for how they and their employees operate. Investing today in improving their operations, especially their safety protocols, is likely to yield future returns in the form of avoiding liability for employee or third-party injuries.
As to reducing the risk of potential financial damage, construction companies should evaluate both the types and limits of their insurance policies to ensure that they are protected in the event they cannot dismiss a lawsuit alleging vicarious liability and thus must either settle the suit or pay a judgment against them.
The Civil Law’s introduction of vicarious liability may expose employers, including construction companies, to new opportunities to be held liable for the actions of their employees. Although it will probably be a while before Saudi courts interpret the Civil Law’s vicarious liability provisions, construction companies should consider investing in strategies today to minimize their exposure to both future vicarious liability claims and the financial risk to their businesses if they were held or accused of being vicariously liable for an individual’s injury.