“We claim compensation of ten million riyals” — a sentence written in many statements of claim, and rejected in many judgments, not because there was no damage but because the figure was built on revenue rather than profit, or on future years with no basis, or because nobody separated what the claimant actually lost from the profit it missed. Since the Civil Transactions Law came into force, compensation in the Kingdom has written rules, and the accounting expert has a clear framework on which to build the number.
This guide sets out those rules as the law states them, then the accounting methods for quantifying actual loss and lost profit, the errors that sink claims, and how a report should be presented so that a judge or arbitrator can rely on it.
1. The compensation rules in the Civil Transactions Law
- Scope of damage: the damage the liable party must compensate is measured by “the loss suffered by the injured party and the profit it missed, where that is a natural consequence of the harmful act”, and it is treated as such “if the injured party could not have avoided it by the reasonable effort” the circumstances require (Article 137).
- Moral damage: compensation includes the moral damage suffered by a natural person, assessed by the court (Article 138) — outside the scope of accounting quantification.
- Form of compensation: assessed in money, and the court may award it in instalments or as periodic income (Article 139); the court may make a provisional assessment while reserving the injured party’s right to seek a review (Article 141).
- Agreed compensation (penalty clause): not due if the debtor proves the creditor suffered no damage; the court may reduce it if it is excessive or the obligation was partly performed, and may increase it to the amount of the damage where the damage exceeded the agreed sum through the debtor’s fraud or gross error (Article 179).
- Foreseeable damage in contracts: where compensation is not fixed in the contract, the court assesses it under Articles 136–139, but a contractual debtor who committed no fraud or gross error is liable only for the damage that could normally be foreseen at the time of contracting (Article 180).
- Pre-contract: withdrawing an offer or ending negotiations in bad faith gives rise to compensation, but not for the expected profit from the contract that was never concluded (Articles 35 and 41).
For the expert these provisions mean three questions before any figure: is the damage a natural consequence of the act? Was it foreseeable at the time of contracting (in contractual liability)? And did the injured party make a reasonable effort to mitigate it?
2. The components of financial compensation
| Component | What it covers | Evidence |
|---|---|---|
| Actual loss | Costs the injured party incurred because of the act: additional costs, amounts paid for nothing, damaged assets, repair and replacement costs | Invoices, contracts, bank statements, books |
| Lost profit | The profit that would have been earned but for the act: the margin on a terminated contract, profits during a stoppage, lost market share | Historical financial statements, contracts, budgets, market data |
| Mitigation costs | What the injured party spent to reduce the damage (replacement hire, restarting operations) | Expenditure documents and their effect |
| Moral damage | Natural persons only, assessed by the court | Outside accounting quantification |
3. How lost profit is computed
The first rule, and the one that sinks most claims: lost profit is a margin, not revenue. What the injured party missed is the revenue it would have earned less the costs it saved by not performing the work (materials, direct labour, commissions, transport), not the whole revenue. The expert uses one of the following methods depending on the nature of the dispute:
- Before and after: comparing the business’s performance in a comparable period before the harmful act with its performance afterwards, neutralising other factors (seasonality, price changes, market conditions).
- Benchmark comparison: comparing the injured party with another branch of its own, a comparable business, or a sector index unaffected by the act.
- But-for scenario: projecting what would have been achieved on the basis of existing contracts, budgets approved before the dispute and the historical trend, then comparing with the actual result.
- Contract margin on termination or breach: the value of the remaining works under the contract less the costs that would have been incurred to perform them, within the limit of damage foreseeable at contracting (Article 180).
In every method the expert defines the loss period with a reasoned start and end (when the effect began and when the injured party could reasonably have returned to its position), presents the sensitivity of the result to the main assumptions, and explains how any time value of future losses was handled, because the court needs to see the effect of each assumption on the figure, not the figure alone.
4. The evidence the expert needs
- The disputed contract and the correspondence on its performance, and whatever shows the other party knew the nature of the potential loss at the time of contracting.
- Financial statements for at least three years before the act, monthly management accounts, and the trial balance.
- Budgets and forecasts approved before the dispute arose — forecasts prepared afterwards carry less weight.
- Documents for additional costs and mitigation costs, and evidence of reasonable attempts to reduce the damage.
- Market or sector data where a comparison method is used.
5. The errors that sink or shrink claims
- Claiming lost revenue instead of lost margin.
- Double counting: including both actual loss and lost profit for the same element.
- Ignoring the duty to mitigate: losses that could have been avoided by reasonable effort are not compensated (Article 137).
- Open-ended future years with no contractual or market basis, or growth rates unlike the business’s actual history.
- Confusing agreed compensation with court-assessed compensation, or claiming both for the same damage.
- Overlooking that contractual liability — absent fraud or gross error — stops at the damage foreseeable at contracting (Article 180).
6. Agreed compensation — the expert’s role in both directions
Where the contract contains a penalty clause, the accounting expert’s role becomes proving the actual damage and its amount: a debtor seeking to reduce the clause must show that the damage is smaller or that the obligation was partly performed, and a creditor seeking to increase it must show that the damage exceeded the agreed sum through fraud or gross error (Article 179). In both cases the argument rests on a documented accounting assessment, not on the clause alone.
7. How the report is presented
A court-appointed expert’s report is subject to Article 117 of the Evidence Law: the task, the work performed in detail, the parties’ documents and their technical analysis, and the result and technical opinion with the grounds stated precisely. In damages assessments we add alternative scenarios wherever the figure turns on a legal question the court decides (for example: is management remuneration an expense? Is the period two years or three?), so the judge has a ready figure for each possibility. More on the structure of the report and the grounds of challenge: the accounting expert report before the commercial court.
We quantify financial damages within our litigation support reports service, whether appointed by the court, engaged by a party, or appointed by an arbitral tribunal.
Frequently asked questions
Is lost profit recoverable under Saudi law?
Yes. Article 137 of the Civil Transactions Law provides that recoverable damage is measured by the loss suffered by the injured party and the profit it missed, provided it is a natural consequence of the harmful act and could not have been avoided by reasonable effort.
What is the difference between actual loss and lost profit?
Actual loss is an actual reduction in the injured party’s position (costs paid or assets damaged); lost profit is profit that would have been earned but for the harmful act and was not. The first is proven directly by documents; the second needs a quantification method and a reasoned but-for scenario.
Can lost revenue be claimed?
Not as revenue. What is compensated is lost profit, that is revenue less the costs the injured party saved by not performing. Claiming the whole revenue is one of the most common reasons claims are rejected or reduced.
May the court adjust a penalty clause?
Yes. It may reduce it if the debtor proves it is excessive or the obligation was partly performed, and may increase it to the amount of the damage if the creditor proves the damage exceeded it through fraud or gross error; and it is not due at all if it is proven that no damage occurred (Article 179).
What if compensation cannot be finally assessed?
The court may make a provisional assessment while reserving the injured party’s right to seek a review within a set period (Article 141), so the expert presents what can be assessed now and what depends on later facts.
