Conditions in agreements that restrict or prohibit certain dispositions: are they valid or void under Kuwaiti laws?

Kuwait / Litigation

Conditions in agreements that restrict or prohibit certain dispositions: are they valid or void under Kuwaiti laws?

Mohamed Tawfik
Senior Associate,
Litigation

Parties to an agreement may lay down certain conditions, in their agreement that may restrict or prevent certain acts in relation to their transaction. For example, a seller may stipulate a condition in the sale contract preventing the purchaser from disposing the sold item until the full purchase price is paid. These types of conditions may prevent a certain act entirely or merely restrict it.

The conditions are deemed valid and would be upheld by Kuwait Courts provided they follow the requirements set out in Kuwait law. A disposition (e.g. sale of property) in breach of an agreed valid restrictive condition in an agreement would be deemed as null and void. On the other hand and if, for example, the conditions violate public policy, they would be deemed as null and void. Also, the foregoing conditions need to satisfy certain criteria such as, being based on a strong cause and for a reasonable period of time. Through this article, we will set out the requirements for such type of conditions in a contract to be valid under Kuwait law.

Restrictive or prohibiting conditions are recognized and regulated under Articles 815 up to 817 of the Kuwaiti Civil Law.

In essence, if a condition was agreed upon between the parties in relation to a given legal disposition to prohibit or restrict the transferee from disposing the funds/property that he is acquiring its ownership, the condition will not be valid unless it is based on a strong cause and limited to a reasonable time.

There are three requirements to deem a condition as such to be valid, as outlined below:

1. The condition must be laid down in the contract addressing the disposition itself. Both the subject matter and the condition should be in the same document.

2. The condition must be based on a strong cause. A cause is deemed strong if its objective is to protect a lawful interest of the transferor or transferee or a third party.

(a) Protecting the transferor:
For example, the grantor may set a condition on the grantee to not dispose the grant throughout his life. As such, the grantor retains the right to withdraw the grant if there is a breach from the grantee on other agreed terms which allows for such withdrawal. I in this example, the grantor’s objection is to protect his interest by keeping the grant in the possession of the grantee, as in the absence of the foregoing condition, the grantee can dispose the grant and the grantor will lose the ability to withdraw it in the event of a breach. Another example is when a seller, who retained to himself the right of usurfruct (which is the right to use and benefit from the sold property), to place a condition on the purchaser not to dispose the property to avoid dealing with a new owner who he does not know nor trust.

(b) Protecting the transferee:
The grantor may lay down a condition that the grantee should not dispose the grant until he reaches a certain age. The objective in this example is to protect the guarantee from being reckless in his spending or disposition.

(c) Protecting a third party:
The grantor of a property may place a condition on the grantee to pay a third party a regular payment throughout his life, so that if there is a breach in such payment, the third party can execute against the property.The assessment of whether an interest is lawful and valid is subject to the discretionary power of the competent Court.

3. The condition must be of a reasonable
period of time.

The prohibition cannot be absolute and ultimately forever as in such circumstance, the property/moveable is outside the realm of any dealing which is against public policy unless regulated by law. A condition as such will be deemed as null and void. A reasonable period could be the lifetime of the grantor or a grantee or a third party.

Likewise, the reasonable period is subject to the assessment of the competent court per its discretionary power. Accordingly, restrictive conditions, and those placing a prohibition on certain dispositions, in agreements, are recognized and regulated under the Kuwait Civil Law.

To ensure their validity, they have to satisfy certain requirements such as having a strong cause aiming to protect the interests of the concerned parties and should not to be for an indefinite period of time, rather a reasonable one. Any disposition in violation of the prohibiting or restrictive condition would be deemed as null and void.

This will apply towards a third party who is aware of such restrictive/prohibiting condition and still entered into a disposition with the transferee. The only exception if he was acting in good faith and unaware of the same.

For further information,
please contact Mohamed Tawfik.

^{Published in October 2022}