Post-M&A disputes in Saudi Arabia: What investors and deal teams need to know about liability limits

As transaction size and complexity in Saudi Arabia have increased, so too has the frequency and intensity of post-closing disputes. While these disputes are rarely novel in form, outcomes often turn on the  interaction between transaction structure, governing law and the enforceability of contractual limits on liability, assumptions that parties frequently rely on at signing.

This risk profile has sharpened as Saudi Arabia has become the most significant M&A market in the Middle East. With nominal GDP of approximately USD 1.2 trillion, more than twice the size of the UAE economy, it is now the  principal destination for regional and international strategic capital. Transaction volume is driven by sustained investment by the Public Investment Fund and its portfolio companies, alongside inbound private capital across healthcare, construction, logistics, technology, hospitality and infrastructure.

Where claims arise and why recovery is constrained

Post-closing disputes in Saudi-related M&A transactions most commonly arise from earn-out and KPI mechanisms, working capital and net debt adjustments, warranty and indemnity claims and allegations of misrepresentation or non-disclosure. Warranty and indemnity disputes are particularly prevalent where diligence has been compressed or disclosure has been heavily qualified, often against ambitious forward-looking assumptions.

A recurring structural feature is the use of special purpose vehicles as sellers. While commercially orthodox, this has direct consequences for disputes. Where the seller SPV distributes proceeds shortly after completion or is subsequently wound down, warranty and indemnity claims may be legally sound but economically hollow unless supported by guarantees, escrow arrangements or insurance.

This dynamic explains why liability caps, limitation clauses and carve-outs assume outsized importance in Saudi post-M&A disputes: They are often the primary obstacle to meaningful recovery. Buyers frequently seek warranties from ultimate beneficial owners (UBOs) where the seller is an SPV. Such warranties are uncommon and, where given, are typically limited to title, capacity, authority, and ownership matters, subject to low caps and short limitation periods.

Full operational or business warranties from UBOs are rare, particularly in transactions involving family groups, sovereign-linked structures, or strategically sensitive assets. Risk mitigation more commonly takes the form of shareholder or parent guarantees, escrow or holdback mechanisms, and fraud carve-outs drafted to apply irrespective of corporate form.

Contractual limits on liability: Comparing legal tests

English law

Under English law, parties can generally rely on contractual caps and limitation clauses as part of their negotiated allocation of risk. Courts do not treat these provisions with suspicion. Instead, they interpret them in the same way as any other contractual term, by reference to wording, context and commercial purpose. The Supreme Court confirmed this approach in Wood v Capita Insurance Services Ltd [2017] UKSC 24.

In practice, the analysis proceeds in three stages.

1.      Construction: The court asks whether the limitation clause, properly construed, applies to the liability alleged. In M&A disputes this often turns on whether the clause applies to the specific cause of action pleaded (e.g. warranty, indemnity, misrepresentation), the category of loss claimed or the particular contractual obligation said to have been breached.

2.      Statutory controls (where applicable): Some limitation clauses may be subject to statutory reasonableness requirements, most notably under the Unfair Contract Terms Act 1977. In large, negotiated SPAs between sophisticated parties, this route is typically narrow, but it remains relevant in cases involving standard terms or negligence-based exclusions.

3.       Non-excludable liability for fraud: As a matter of public policy, English law does not allow parties to exclude or limit liability for fraud or fraudulent misrepresentation cannot be excluded or limited. Courts apply this exception strictly: allegations of bad faith, recklessness or sharp practice will not suffice.

English law does not recognize “gross negligence” as a separate legal category with automatic consequences for limitation clauses. Unless the contract defines it and assigns specific legal consequences, it is treated as negligence of a high degree.

This was made clear by the Court of Appeal in Axa Sun Life Services plc v Campbell Martin Ltd [2011] EWCA Civ 133, which illustrates that, absent fraud, even deliberate or dishonest breach may fall within a clearly drafted liability cap.

Saudi law

Saudi law adopts a materially different approach. While it recognizes contractual autonomy, it subjects limitation clauses to substantive statutory and Sharia-based constraints.

The modern framework is set out in the Civil Transactions Law, which came into force in 2023 and reflects principles long applied by Saudi courts. The law permits contractual limitations or exclusions of liability, except where the damage results from fraud or serious fault.

The statute does not exhaustively define “serious fault”. This is deliberate. Saudi courts assess the nature of the conduct itself. They look at blameworthiness, whether the party consciously  disregarded known consequences and whether allowing contractual protection would conflict with public policy or Sharia principles. The focus is on behavior, not labels.

Saudi judgments are not binding precedents in the common-law sense, and publicly accessible case law remains limited. That said, it is well understood in practice that Saudi courts are willing to disregard contractual limitations where conduct involves deception, concealment or serious professional misconduct. The focus is normative and factual, rather than technical or purely interpretive.

Saudi law also recognizes liability for harm caused by fault alongside contractual obligations. Where the facts allow, courts may characterize the conduct as a harmful act rather than a simple breach of contract, with direct consequences for the availability of contractual caps.

The result is that under Saudi law, unattractive facts alone can be enough to undermine a liability cap.

Why outcomes diverge in post-M&A disputes

The contrast between the two systems is structural. As set out above, conduct that would be characterized under English law as negligent mismanagement or aggressive accounting, and therefore capped, may under Saudi law be reassessed as serious fault if it involves deliberate non-disclosure, manipulation of financial information, or conscious disregard of known risks.

In post-M&A disputes, this divergence is often decisive.

What deal lawyers look at pre-signing

For transaction lawyers, the implications are largely front-loaded. Before signing, attention focuses on the substance of the seller (particularly where it is an SPV), the availability of meaningful balance-sheet support post-closing and the robustness of alternative protections such as guarantees, escrow arrangements and insurance.

Equally important is the drafting of limitation and carve-out provisions. Concepts such as fraud and serious misconduct should not be left undefined or assumed to operate identically across legal systems. Governing law and dispute resolution choices are no longer boilerplate; they directly affect recoverability.

What disputes lawyers look for once things go wrong

Once a dispute has arisen, the analysis shifts.

Disputes lawyers assess whether the seller SPV remains asset-holding in any meaningful sense, and if not, whether there are viable routes to alternative defendants, guarantors or insurers. Conduct analysis becomes central, particularly under Saudi law, where the classification of behavior may determine whether contractual limitations apply at all.

Enforcement considerations are brought forward early. Asset location, political sensitivity, and the practical prospects of execution inform both pleading strategy and settlement leverage.

Disputes as strategy: Early dispute assessment, enforcement and capital deployment

An increasingly common feature of procurement in high-value post-M&A disputes is the involvement of third-party capital providers at an early stage, not to fund the dispute, but to assess it. Before appointing counsel, parties seek independent analysis of merits, enforcement pathways and post-completion asset location, alongside support identifying legal teams with the right jurisdictional and sector experience. This reflects a shift away from treating disputes as reactive legal events and towards managing them as a strategic risk decisions.

In Saudi-related post-M&A disputes, enforcement realities shape arbitration strategy from the outset. Parties carry out corporate intelligence and asset-tracing exercises early to understand where value sits post-completion, particularly in a jurisdiction without a public companies register equivalent to Companies House. That analysis informs decisions on seat, interim relief and how claims are structured, including whether they need to reach operating entities, guarantors or offshore holding structures. In practice, parties plan arbitration around how and where any award can be enforced. 

The scale, duration and enforcement profile of post-M&A disputes has also sharpened focus on funding strategy. Parties increasingly use third-party capital as a form of risk transfer, particularly where recoverability depends on multi-jurisdictional enforcement, prolonged proceedings or economically asymmetric outcomes. Used this way, dispute financing supports capital and risk allocation, allowing parties to pursue meritorious claims without disproportionate balance-sheet exposure.

Conclusion

Under English law, a well-drafted cap may survive even unattractive facts. Under Saudi law, unattractive facts may themselves destabilize the cap.

These issues are no longer confined to legal teams. In practice, hedge funds, sovereign wealth funds and other allocators active in Saudi and GCC transactions are increasingly asking how post-closing liability is likely to be treated in reality, rather than how it is assumed to operate under English-law documentation.