Overview

This post summarizes and adapts a legal reading of a judicial ruling whose litigation began in 1427 AH and concluded in 1437 AH (the ruling itself was discussed on 28 March 2023). The original analysis identifies key legal and practical issues arising from the judgment and offers guidance to companies – particularly listed companies – on managing related-party transactions and disclosure obligations.

Original analysis by: Abdulrahman bin Sami Al-Jandal – 06/09/1444 AH (28/03/2023). Source document: judicial-ruling commentary.

Structure of this Research

The original commentary is organized into five parts:

• Applicable laws and their interplay.
• Jurisdictional (forum) competence.
• Definitions and the meaning of “related parties”.
• The legal basis for disclosure obligations.
• Observations and practical conclusions derived from the judgment.

1. Applicable Law – Overlapping and Evolving Rules

The case was litigated under multiple corporate and capital-market laws that changed over time. The claimant relied on provisions of the 1385 AH Companies Law (1965 CE, amended 1412 AH / 1992 CE). Meanwhile, the appellate decision and later regulatory context involved the 1437 AH Companies Law (10 Nov 2015). Crucially, the Capital Market Law (issued 1424 AH / 2003 CE) and its implementing regulations (disclosure rules, listing rules, market conduct rules, etc.) are central to issues of disclosure and remedies for investors.

Practical point: when a newer statute contains a clause that repeals conflicting earlier provisions, the more recent law and its implementing rules should normally govern disputes that fall within its scope.

2. Jurisdiction – Which Forum Decides?

A central procedural question in the case was whether the matter fell within the jurisdiction of the specialized Capital Market Disputes Committee (and its appeals body) or within commercial courts (e.g., the Board of Grievances/Administrative courts) that historically handle company law disputes.

Early committee decisions have held that where a dispute arises directly from the Companies Law, commercial tribunals may be competent. However, the Capital Market Law expressly empowers the market dispute committees to decide disputes that fall “within the scope of this law and its regulations,” and it contains a clause that overrides conflicting provisions. Given that the defendant company was publicly listed and that the contested acts implicated capital-market rules (disclosure, related-party controls, investor protection), the market committee’s competence is legally strong.

Practical point: when a dispute involves both company law and capital-market rules, determine whether the market law and its regulations expressly cover the contested activity; if so, specialized market adjudicators may have priority jurisdiction.

3. Who Is a “Related Party”?

The definition of “related party” in capital-market regulations – not in the Companies Law – governs disclosure duties. Market rules define related parties to include senior executives, board members, major shareholders, their spouses and minor children, and companies controlled by those persons. Importantly, those regulations do not automatically include the sibling of a board member among the defined “related parties.”

As a result, transactions between the listed company and a board member’s brother are not, in the abstract, automatically treated as related-party transactions that trigger mandatory disclosure and approval requirements – unless one of the statutory thresholds or factual conditions is met (for example, if the transaction value exceeds 10% of the issuer’s net assets per the latest audited/ reviewed financial statements, or if a direct or indirect benefit to the board member can be demonstrated).

4. When Must a Transaction Be Disclosed?

Disclosure obligations attach when a transaction involves a defined related party or when the transaction meets materiality thresholds or creates a direct or indirect personal interest for a board member, senior executive, or major owner. Governance rules require:

• Disclosure of any direct or indirect personal interest;
• Presentation of the conflict to the board and, where required, submission to the general assembly for approval; and
• Documentation in minutes and, where applicable, an independent report (e.g., from the external auditor or a fairness/conflict report) to support transparency.

The substance – whether a party benefits – is determinative. It is not the mere family relationship (e.g., sibling) alone that triggers disclosure; rather, it is the presence of a direct/indirect interest or materiality of the deal relative to the issuer’s assets that activates the requirement.

5. Key Observations on the Judgment

5.1 If the transaction is unlawful under company law

If a transaction clearly violates a statutory provision (for example, a prohibited type of loan to a director under the Companies Law), liability and remedies can attach. However, the commentator notes procedural and substantive concerns with the judgment:

• The Companies Law (article cited) allocates joint liability to all board members for certain breaches, whereas the judgment awarded compensation specifically against the chair and CEO only. This raises questions about selective attribution of liability instead of solidaristic responsibility where the law provides for it.
• The external auditor’s role and reporting obligations (e.g., failing to disclose a material fact in statutory reports) may also give rise to liability and were not fully considered in assigning responsibility.

5.2 Calculation of damages

The commentator criticizes the damages calculation in the ruling for not following the mechanism the Capital Market Law prescribes. The market law ties compensation to the difference in the security’s price attributable to the wrongful act, with the defendant having an opportunity to prove alternative causes for the price change. Departing from that statutory method without justification undermines sound legal method.

5.3 A different reading (no fault / insufficient proof)

The alternative view – favored by the commentator – is that the claimant failed to prove the essential elements of tortious liability: fault, damage, and causal link. In particular:

• No direct or indirect personal interest of the chair or CEO was established in the contract at issue;
• There was insufficient proof that a compensable loss occurred (e.g., mere loss of anticipated profit was not firmly established as legally compensable harm); and
• Standing and evidentiary burdens were not adequately addressed in the ruling.

Practical Recommendations for Listed Companies

From the commentary’s conclusions we derive these practical steps every listed company should adopt:

• Robust related-party policy: Define related parties consistently with market rules and set clear approval thresholds (e.g., value/percentage triggers).
• Annual disclosure program: Regularly review and publish related-party transactions and conflict declarations; consider a dedicated disclosure officer.
• Board protocol for conflicts: Require affected directors to declare interests, recuse themselves, and document votes and minutes; obtain shareholder approval when required.
• Independent review: For material transactions with potential conflicts, obtain an independent fairness or valuation report and involve audit/nomination committees early.
• Auditor and committee oversight: Ensure auditors and audit committees proactively check for material omissions and that statutory reports include required disclosures.
• Regular training: Train board members and senior executives on market disclosure rules and materiality thresholds.

Conclusion

This judicial reading highlights the practical and legal complexity of related-party transactions in listed companies. The decisive questions are (1) which law/regulation governs the transaction, (2) whether the transaction confers a direct or indirect benefit to a defined related party, and (3) whether the required disclosure and approval processes were followed. Companies that proactively clarify policies, document conflicts, and apply independent checks materially reduce legal and reputational risk.

you would like our compliance team to review your related-party policies, run a disclosure gap analysis, or prepare board templates for conflict management, Contact our team.