Contracting out of Kuwait’s court jurisdiction: annulment of agreements to exclude Kuwait courts from reviewing certain disputes

Kuwait / Litigation

Contracting out of Kuwait’s court jurisdiction

Annulment of agreements to exclude Kuwait courts from reviewing certain disputes

Khaled Youssef
Senior Associate,
Litigation

Parties to a contract may find it surprising that their dispute is being heard before a court which differs from that which was stipulated under in the dispute resolution mechanism under their agreement. For example, parties may agree in writing that any dispute in connection with their agreement will be finally resolved and settled by Dubai Courts. However, despite the jurisdictional provision stating otherwise in the agreement, one party may opt to file a claim before Kuwaiti Courts which then accepts the claim.

The issue touches upon jurisdiction and certain mandatory provisions that may exist in local laws that supersede any agreement to the contrary by contractual parties. This issue is more common to occur in cross-border transactions or in transactions where the contracting parties are of different nationalities with a desire to have their dispute resolved by a more familiar court. Through this article, we will examine some circumstances in which the Kuwait courts may disregard the parties’ chosen dispute resolution forum in their agreement.

Jurisdictional clauses are of significant importance and consequently require careful consideration at the time of entering into a contractual relationship. The importance stems from the serious consequences that may result should a dispute arise between the contracting parties.

In practice, the tendency for many international companies doing business in Kuwait or entering into contractual relationships with Kuwaiti nationals, whether natural or legal persons (i.e. local companies), is to contract out of the Kuwaiti Courts’ jurisdiction. Contracting out of Kuwait courts is even more common in contracts of carriage and insurance agreements. Regrettably, this occur in many instances without due consideration of whether a Kuwait court would take jurisdiction despite the agreement of the parties.

For international entities with no local presence in Kuwait or that provide their services or products from abroad or for any other commercial reason, it might sound as a rational decision to contract out of the local jurisdiction in order to avoid the uncertainty of being dragged into the jurisdiction of Kuwait where they do not have significant business, or simply for their acquaintance and familiarity with another preferable legal system.

Prima facie contracting out of jurisdiction may seem consistent with the principle of “Pacta Sunt Servanda”, which is similar to the objective regulated under Article 196 of the Kuwaiti Civil Law. An English translation thereof states as follows:

“The contract is the law of the two contracting parties, and neither of them may unilaterally revoke it or amend its provisions, except within the limits of what the agreement permits or the law requires as otherwise”.

However, and unlike some other jurisdictions that recognize such agreements, the Kuwaiti Courts - save for few exceptions - do not in practice effect the agreement of the parties to refer disputes to a foreign jurisdiction in cases where one of the parties is a Kuwaiti national, a foreigner who has a domicile in Kuwait, or where the contract is wholly or partially performed in Kuwait. This means that a claim brought before a Kuwaiti Court - in such circumstances - would be admissible and heard, despite the existence of a dispute resolution clause referring to another jurisdiction to settle the dispute.

On a number of occasions, Kuwaiti Courts have declined to apply a jurisdictional clause which refers disputes to foreign courts. The Kuwaiti Courts defer to the provisions of the Civil Procedures Law and in such circumstances, and further consider the rules governing Kuwait Courts’ jurisdiction as a matter of public policy as affirmed by. a number of rulings issued by the Kuwait Court of Cassation (the highest court in Kuwait). Those rulings provide that jurisdiction in such circumstances is a matter of public policy and may not be derogated from by parties’ agreement. In this regard, the Court of Cassation described the jurisdiction of the Kuwaiti Courts as an international jurisdiction. This principle laid down by the Cassation court is repeatedly confirmed in several precedents.

For example, the reasoning set out in the Cassation Judgment No. 1232 of 2004, provides that it is not permissible to agree to derogate from the jurisdiction of the Kuwaiti judiciary in favor of a foreign one and any agreement to the contrary is null and void in light of public policy and Kuwait sovereignty considerations in certain cases some of which have been discussed in this article.

Whilst the above sets out the general rule, there are exceptions such as having a dispute involving a property located abroad or when the parties agree to resolve their dispute through arbitration.

In summary, the Kuwaiti Courts may not uphold the parties’ agreement to contract out of the jurisdiction of the Kuwaiti Courts, in the circumstances outlined in this Article. Any agreement to that effect may be deemed as null and void. If the parties wish to exclude the jurisdiction of the Kuwaiti Courts and upon due consideration of public policy matters, agreeing to resolve their dispute through arbitration may be the best available option in this respect.

To that effect, it is quite crucial to give sufficient attention when entering into a contractual relationship and while drafting contracts in respect of identifying the correct forum and competent jurisdiction. A legal assessment is recommended to identify whether there are circumstances that may grant exclusive jurisdiction of the Kuwaiti Courts.

For further information,
please contact Khaled Youssef.

^{Published in October 2022}