Assignment of rights under the Saudi Civil Transactions Law: legal framework and practical implications
Mohammed Negm
Al Tamimi & Co, Riyadh
Introduction
The Saudi Civil Transactions Law (CTL) was introduced recently as part of broader efforts to codify key principles of civil law in Saudi Arabia. It was issued under Royal Decree No (M/191) 29/11/1444H (18 June 2023), published in the Official Gazette according to 1/12/1444H (19 June 2023) and came into effect 180 days after its publication. Its provisions became operational towards the end of 2023.
One important feature of the CTL is that it applies retroactively. Specifically, it affects transactions whose legal effects continued after the law entered into force, meaning that certain transactions with continuing legal effects may now fall within its scope.
The CTL addresses a wide range of matters, including obligations, contracts and related transactions. Among these areas is the assignment of rights, providing a legal framework for transferring entitlements between parties.
Structurally, the CTL operates as a general legal framework intended to fill any legislative gaps wherein no specific sectoral law governs a matter. According to Article 1(2), its provisions do not override special legislation that governs particular industries or legal areas.
With this in mind, examining the rules for the assignment of rights under the CTL involves setting out the key legal principles and practical issues. It is equally important to note that special laws, such as the financing laws issued in 2012 and the rules issued by the Saudi Central Bank (SAMA) on securitisation and refinancing, continue to operate alongside the CTL.
Assignment of rights: concept and governing provisions
Definition of the assignment of rights
The assignment of a right refers to the transfer of a financial entitlement from a creditor (the assignor) to another person (the assignee), who thereby becomes entitled to a claim relating to the performance relating to that entitlement from the debtor. While the CTL does not provide an express definitional article on the concept, it addresses the matter substantively. Article 238 provides that a creditor may assign their right to another person, unless otherwise precluded by a specific statutory provision, an agreement or the nature of the obligation.
Accordingly, the default position under the CTL permits the transfer of rights from one creditor to another in all cases wherein the right is transferable, whether the right is immediate, deferred or conditional, as long as the right is not inherently personal or expressly non-transferable under specific legislation. Furthermore, the assignment does not require the debtor’s consent to be valid: it is effective according to an agreement between the assignor and the assignee without the need for the debtor’s approval, in line with the clear language used in Article 238.
This approach aligns with established jurisprudence and comparative legal doctrine, which generally recognises that rights are, in principle, assignable regardless of their nature (whether accrued, conditional or even related to future events), unless there exists a legal or contractual impediment to such a transfer. The assignment of a right does not create a new obligation in regard to the debtor’s patrimony, rather it affects the substitution of the creditor, transferring the existing obligation in its original form from the assignor to the assignee. Once the assignment is validly concluded between the assignor and assignee, the right passes to the latter with all its associated attributes, accessories and guarantees from the date of the agreement, pursuant to Article 241 of the CTL.
Conditions on the validity of an assignment
For an assignment of right to be valid, the right must be subject to seizure, that is, it must be transferable and not inextricably linked to the original creditor. Article 239 provides that ‘an assignment shall only be valid to the extent that the right in question is subject to attachment’, thereby excluding from assignability any rights that are non-attachable under the law, such as purely personal rights or those of an alimentary nature.
Moreover, specific statutory provisions or contractual stipulations may impose limitations on assignment. For instance, a contract between the original creditor and the debtor may include a non-assignment clause or a special regime, such as one governing employment rights or government concessions, which may prohibit the transfer of certain rights without prior approval.
The intrinsic nature of the obligation may also render the right unassignable. This applies when the right is strictly personal, such as rights of usufruct that depend on the identity of the beneficiary. Outside of such exceptions, any lawful and ascertainable right is, as a rule, assignable under the CTL.
There is no prescribed formality for the assignment of rights. The agreement may be concluded consensually between the assignor and assignee in accordance with the general rules governing contracts.
Enforceability of an assignment vis-à-vis the debtor and third parties
Although the assignment is validly concluded between the assignor and the assignee without requiring the debtor’s consent, its enforceability against the debtor and third parties is subject to an additional procedural requirement, namely that the debtor must be made aware of the assignment or must expressly accept it. Article 240 of the CTL provides that the assignment of a right shall not be enforceable against the debtor or third parties unless the debtor has either accepted the assignment or been formally notified of it through the use of a method prescribed under the law.
As a result, the debtor is not legally obligated to perform any action in favour of the new creditor (the assignee) unless the latter can prove that the debtor has either explicitly accepted the assignment or was duly informed through an authorised and legally recognised mechanism. This includes formal notification via the courts, a notarial instrument or any certified means of communication that establishes the provision of official knowledge of the assignment on the part of the debtor.
If the assignee seeks to rely on the debtor’s acceptance as evidence of enforceability, such acceptance must be in writing and dated in order to be effective against third parties. This requirement is particularly important for the purpose of determining the priority of assignments wherein multiple assignees exist and to guard against potential manipulation of acceptance dates.
More broadly, the rationale behind requiring notification or acceptance is to protect the debtor from double payment claims and to ensure that third parties (such as other creditors of the assignor) are aware of the change in ownership of the right. Should the debtor plead unenforceability of the assignment on grounds of a lack of knowledge or acceptance, the courts are required to uphold such defences if it is established that neither valid notification nor valid acceptance occurred.
Legal effects of the assignment of rights
A valid assignment results in the transfer of the assigned right to the assignee, along with all its attributes and associated guarantees. According to Article 241, the right passes to the assignee with its characteristics, accessories and security rights. This means that the right is transferred with all its ancillary components, such as interest, penalties and any other agreed-upon contractual stipulations. The assignment also includes any securities attached to the right, including guarantees, mortgages or preferential rights.
However, if such guarantees are provided by a third party (eg, a guarantor or a pledgor unrelated to the debtor), the continuation of those guarantees after the assignment is subject to that third party’s consent, either express or implied, depending on the nature of the relationship.
The debtor retains the right to raise against the assignee all defences that were available to them against the assignor at the time the assignment became enforceable. These include defences, such as invalidity or nullity of the underlying obligation, payment or set-off, limitation of actions or any challenge directly related to the underlying right, provided they arose prior to notification or acceptance of the assignment.
Additionally, the debtor may raise defences arising from the assignment agreement itself, for instance, if the assignment contract contains terms that alleviate the debtor’s burden or modify the scope of the obligation. In contrast, the debtor may not rely on defences that relate solely to the assignor’s personal situation and which arose after the assignment became enforceable against them.
A further legal effect relates to the priority of multiple assignments. If the same right is assigned to more than one assignee, Article 246 stipulates that precedence shall be given to the assignment that becomes effective first against third parties, that is the one which was first notified to or accepted by the debtor.
Where a judicial attachment is placed over the right before the assignment becomes enforceable against third parties, the assignment is treated as if it were a subsequent attachment and the proceeds of the right are to be distributed pro rata between the attaching creditor and the assignee, according to the respective values of their claims.
Assignor’s liabilities and warranties
The transfer of a right to an assignee does not fully absolve the assignor of liability. The CTL imposes certain warranties on the assignor depending on whether the assignment was made for consideration or gratuitously.
If the assignment is made for consideration (eg, the assignee pays a price to the assignor in return for the right), the assignor warrants the existence of the right at the time of the assignment, unless the parties have agreed otherwise. This implies that should it later be discovered that the right did not exist or had already expired (eg, the debtor had previously discharged the obligation or was never liable in the first place), the assignor is obligated to refund the consideration received and to compensate the assignee, unless explicitly excluded by agreement.
Conversely, if the assignment is made without consideration (such as by way of a gift), the assignor provides no warranty as to the existence of the right, unless they have expressly agreed to such a warranty.
In all cases, the assignor does not warrant the solvency of the debtor, unless there is a specific agreement to that effect. Even when such a warranty is agreed upon, the assignor’s liability is limited to the debtor’s solvency at the time of the assignment, unless the parties have stipulated otherwise.
To cap the assignor’s liability, Article 244 provides that where the assignee claims indemnification from the assignor under the above warranties, the assignor shall not be liable to return more than what they received in consideration for the assignment, plus any associated costs, even if the parties have agreed otherwise. This provision aims to protect the assignor from being unduly burdened beyond the value they derived from the assignment transaction.
Practical and regulatory applications
At the practical level, the rules governing the assignment of rights under the CTL serve as general principles supplementing specific regulations applicable in regard to commercial and financial sectors. The law itself, through Article 1(2), expressly affirms that its provisions do not override special legislation. Consequently, sector-specific laws remain in full force and continue to govern matters within their respective domains.
In the banking and finance sectors, for instance, special legislation enacted in 2012 regulates various matters related to debt and financing activities, such as the Law on the Supervision of Finance Companies, the Real Estate Financing Law and the Financial Leasing Law. These sectoral regimes sometimes contain detailed provisions concerning the assignment, transfer or sale of debts (as in the sale of financing portfolios or the transfer of debt portfolios between financial institutions).
The second paragraph in Article 1 of the CTL ensures that such special regulations continue to apply without derogation, meaning that the assignment of rights within financing agreements must first be assessed in light of those sector-specific statutes and regulatory instructions.
Thus, if a finance company assigns its receivables to another entity for the purposes of securitisation, the validity and effects of such an assignment would primarily be determined in accordance with the SAMA’s rules and the parties' specific contractual terms. However, the general rules under the CTL would apply to fill any gaps, for instance, in determining whether the rights assigned are legally transferable or addressing the consequences of failing to notify debtors of a change of creditor.
Building on the foregoing, the CTL clearly serves as the general legal foundation for the assignment of rights, with sector-specific legislation prevailing where applicable.
It is common for modern commercial and financing contracts to include explicit non-assignment clauses or conditions regulating assignment. These clauses are legally valid and enforceable under Article 238 of the CTL, which recognises that parties may validly restrict or place conditions on assignments by agreement.
In regard to some banking practices, such as letters of guarantee or letters of credit, special arrangements are often required for the assignment of claims arising therefrom, in accordance with the SAMA’s regulatory requirements.
In all these cases, the CTL functions as a legislative safety net that addresses issues where the special regulations or the parties’ contracts are silent. For example, if no specific regulatory provision dictates the method of notifying a debtor of an assignment of rights, the general procedure under Article 240 governs, requiring either the debtor’s acceptance or formal notification for the assignment to be effective against them.
Taken together, these developments reshape the legal landscape for assignments in Saudi Arabia. This layered approach ensures harmonisation between sector-specific regulations and the general civil law framework, thereby promoting legal certainty and transactional stability.
Conclusion
In conclusion, the regulation of the assignment of rights under the CTL represents a major advancement in codifying long-established principles within Saudi jurisprudence. It provides greater legal certainty and establishes a clear normative structure for civil transactions.
The relevant provisions mirror those found in comparative civil law systems, such as the Egyptian Civil Code, while maintaining sensitivity to Saudi Arabia’s regulatory environment, particularly the preservation of special legislation.
Thus, the CTL acts as the default framework for assignments where sector-specific legislation or express contractual arrangements do not otherwise govern.
Over time, as Saudi courts continue to interpret and apply these provisions, a richer body of case law will emerge, further refining the practice and bolstering confidence in civil transactions, in line with the Kingdom of Saudi Arabia’s broader legal reforms.