Arbitration is designed to offer a neutral, expeditious and relatively simple method of resolving business disputes. In many domestic and international contexts arbitration accomplishes these goals and provides a means of dispute resolution that is, in most cases, superior in important respects to judicial proceedings.

Kuwaiti law is based on an amalgam of Shari’a (Islamic Law) and the Kuwaiti Civil Code – rather than common law principles – which is derived mainly from the Egyptian model (Egyptian Law No. 13 of 1968) and from French legal sources and practices. The explanatory memorandum to the Kuwaiti Code of Civil and Commercial Procedures enacted by Law 38 on 9 June 1980 (the “Procedural Code”) makes express reference to the Egyptian Court of Cassation – the equivalent of the Supreme Court – in matters of arbitration.

The contribution of Islamic law to arbitration is negligible, notwithstanding Article 2 of the Kuwaiti Constitution which provides that the Shari’a is a primary source of law.

There are two types of arbitration in Kuwait:

• commercial arbitration at law in which the arbitrator is called upon to determine the dispute in accordance with the substantive law of the contract or as determined by the Procedural Code; and
• commercial arbitration ex aequo et bono, where the arbitrator who is named in the arbitration clause or agreement is not bound to apply any national law, and renders an award according to principles of equity.

Domestic Commercial Arbitration is regulated by Articles 173–188 of the Procedural Code which superseded (i) Law No. 6 of 1960 (the former Procedural Law); (ii) part of Law 5 of 1961 Regulating Legal Relationships Containing a Foreign Element; and (iii) Law 3 of 6 January 1971 (now contained in the Procedural Code as Article 177) which sets up an arbitration panel of arbitrators to deal with civil and commercial disputes.

Under Articles 173–188 of the Procedural Code, disputes can be resolved by an ad hoc panel of arbitrators selected by the parties (Articles 174 and 175) or by a panel of arbitrators constituted by the Ministry of Justice (Article 177).

As for International Commercial Arbitration, it is regulated by and subject to Articles 182, 183, 184, 185, 186, 187 and 188 of the Procedural Code.

The Kuwaiti Chamber of Commerce has also assumed the role of an arbitration institution under Articles 6 and 11 of the Chamber of Commerce Law (“CCL”) of 28 June 1959. However, despite its statutory authority as an arbitration institution, the Kuwaiti Chamber of Commerce has in practice focused on achieving settlements by way of conciliation rather than arbitration. In addition, the Kuwaiti Society of Engineers has special rules governing disputes in the construction industry and related areas of activity.

As discussed in greater detail in Section (II) below, the abovementioned Article 177 was replaced by Law No. 11 (enacted on 19 February 1995) on Judicial Arbitration. Under this new Law, arbitration proceedings are conducted before an “administratively controlled” panel set up by the Ministry of Justice.

By and large, arbitration in Kuwait is similar, and sometimes identical to the arbitration process in other Arab and foreign jurisdictions.

Procedure and relevant issues
Since the arbitration provisions of the Procedural Code mirror the provisions of the Egyptian Model (Law 13 of 1968) and resemble closely France’s arbitration legislation, we propose not to dwell on the rules of arbitral procedure under Kuwaiti Law but rather to focus on some of the special features of arbitration under Kuwaiti Law and some of the problems encountered.

Language:
Since Kuwaiti law recognises the validity of arbitration agreements providing for a foreign language as the language of the arbitration proceedings and of contracts written in a foreign language, the appointment of an arbitrator with appropriate language skills is of paramount importance. If, in addition, the “Substantive Law” of the contract is Kuwaiti Law, and the relevant provisions must be translated into English, the choice of an arbitrator fluent in both languages is highly recommended.

Autonomy of the arbitration clause:
If the validity of a contract is challenged or the contract is terminated, would such termination or presumed invalidity apply automatically to the arbitration “clause compromissoire” contained in such contract? Although the Procedural Code is silent on this issue, the courts have generally held that such termination or repudiation of the contract does not affect the arbitrability of disputes arising out of such contract, thus upholding the general view that the arbitration clause is “autonomous” from the contract in which it is situated.

The alleged invalidity of a contract is determined by the arbitral tribunal rather than by the Kuwaiti courts. However, in the absence of any contrary agreement between the parties, the Kuwaiti courts retain jurisdiction when the arbitrator’s competence is challenged on the ground that the arbitration clause is invalid or ineffective. Accordingly, careful wording of the arbitration clause is recommended with respect to the arbitrator’s competence and powers including, inter alia, conferring upon the arbitrators the authority to decide jurisdictional disputes relating to the validity of the arbitration clause.

Some jurists have argued that an arbitration clause in an exclusive distributorship or agency agreement is invalid in view of Article 285 of the Kuwaiti Commercial Code which states: “As an exception to the rules of competence specified in the Procedural Code, the court within whose jurisdiction the contract was to be performed shall have jurisdiction over all disputes arising from agency contracts.” Other jurists have suggested that a clause compromissoire would be invalid, whereas a “compromis” (a submission by the parties to arbitration after the dispute has arisen) is acceptable. Our view – supported by several court decisions – is that an arbitration clause in such contracts is valid.

Nationality of arbitrators:
There is a perceived tendency for the chairman of three-member international arbitral tribunals (appointed under the auspices of foreign international institutions such as the ICC, LCIA or AAA) to be from a developed country, even if the law governing the underlying contract is that of a developing country. In the context of disputes between parties from the developed and developing world – where the party-appointed arbitrators tend to share the same nationality as the appointing party – this will result in the appointment of a predominantly ‘developed world’ tribunal. This has led some commentators to conclude that the interests of parties from developing countries may not be best served in arbitration.

Seat of arbitration:
In the absence of a provision in the arbitration agreement specifying the seat of arbitration, international arbitrations conducted under the auspices of ICC, LCIA or the AAA are often seated in developed States, such as France, England or Switzerland. The high cost of conducting international arbitration proceedings in such countries for parties from developing countries (e.g. hearing venue costs; accommodation and travel costs of lawyers, parties and arbitrators; and the arbitrators’ fees) have led to a growing tendency for Kuwaiti parties to insist on local or regional arbitration.

Arbitrability of disputes against the State or State entities & sovereign immunity:
There are no rules in the Procedural Code regarding the right to arbitrate disputes against the State or its government agencies. A party wishing to ensure that such a dispute can be arbitrated should seek to negotiate the insertion of an arbitration clause in its commercial agreement with the State.

Due to its disastrous track record in international arbitration proceedings, the Kuwaiti Government issued a circular in 1985 requesting all governmental entities not to include arbitration clauses (clauses compromissoires) in their “commercial” agreements. Indeed, a ban on arbitration was imposed between 1985 and 1990. Such resistance to international arbitration declined after the Gulf War, when Kuwait had to engage in a reconstruction program requiring the intervention and assistance of foreign contractors.

The notion of sovereign immunity from the jurisdiction of foreign courts was widely abused until the courts developed the notion that States could only enjoy immunity from the jurisdiction of the courts of other sovereign States for acts performed in their capacity as States (jure imperii) and not for acts performed in their commercial capacity (jure gestionis). This limitation is recognised in Kuwait. Moreover, Kuwait is accustomed to waiving sovereign immunity in various treaties and international agreements (including arbitration agreements).

Conflict of law rules:
Kuwait is the only State member of the Gulf Cooperation Countries (Saudi Arabia, U.A.E., Bahrain, Qatar, Oman, Kuwait, Muscat) with a specific conflicts of law statute (Article 31 of Law 5 of 1961 Regulating Legal Relationships Containing a Foreign Element). Unless otherwise agreed by the parties or required by the circumstances, contractual obligations are governed by the law of the domicile of the contracting parties if that domicile is common to both of them and by the law of the place in which the contract was made if the parties have different domiciles (subject to certain exceptions, e.g. contracts relating to real estate, the stock exchange or public markets are governed by the law of the place in which the real estate/stock exchange, etc. is situated).

Setting aside arbitral awards
Grounds for setting aside:
The grounds for setting aside a domestic or foreign award, as specified in Article 186 of the Procedural Code, focus primarily on whether or not the arbitrator had sufficient powers to issue his award and whether or not any fundamental procedural irregularities occurred during the proceedings or when rendering the award.

• Lack of powers: an award should be issued by the arbitrator in accordance with the terms of the arbitration agreement. If, for any reason, the arbitrator(s) lacked authority to issue the award, the award will be null and void. Thus, the following reasons would constitute grounds for setting aside the award:
  
  
  • if there was no arbitration agreement or if such agreement was invalid or had lapsed; or
  • if the arbitrator exceeded his powers and decided upon matters which did not fall within the scope of the arbitration agreement.
    
    
• If any of the grounds entitling the court to reconsider the award (requete civile) are sustained in the award. These grounds, as specified in Article 148, mostly relate to the discovery of relevant evidence and documents after publication of the award which establish fraud or forgery, suggest that the key issues in dispute were wrongly decided, demonstrate that the arbitrator(s) acted in excess of their powers, or issued an award against a person who was not legally represented.
  
  
• Procedural irregularities affecting the award or the proceedings: where, for example, an arbitrator has behaved inappropriately (not necessarily in the moral sense) or the award has been improperly procured, the court may set the award aside.

Procedure for setting aside:
An application for setting aside the award must be filed with the court which originally would have had jurisdiction in the absence of an arbitration agreement within 30 days of the date on which the award was notified to the parties. However, if the ground for setting aside the award is one specified in (3.1b) above, then the time limit of 30 days will start of the date on which the reasons specified in Article 148 came to the knowledge of the prejudiced party (Article 187). The procedure to be adopted is the one laid down for civil actions in judicial proceedings, and the application should include the reasons and grounds for setting aside the award. Furthermore, Article 187 requires an amount of KWD 20 (Kuwaiti Dinars Twenty; approx. USD 75) to be deposited as security for consideration of this application, and this amount is confiscated if the party loses its application for any reason. After hearing the case, should the court decide to set aside the award, it will ex officio try the subject matter of the dispute (Article 188.5). In both cases (i.e. refusing or granting annulment), the court’s judgment will be subject to appeal in accordance with the general rules of Kuwaiti civil procedure.

It should be noted that the institution of proceedings for setting aside the award neither prevents nor stays the enforcement of the award. The court may, however, upon the plaintiff’s request, suspend enforcement if it considers it necessary to prevent significant prejudice to the party opposing enforcement, or if the alleged grounds of the annulment application create a strong presumption that the award will be set aside. If the court does agree to suspend enforcement it may order the party opposing enforcement to provide suitable security to protect the interests of the party seeking enforcement of the award (Article 188).

Enforcement of arbitral awards under the Procedural Code
Domestic awards:
An arbitral award issued in Kuwait is enforceable by application to the President of the court at the place of arbitration. The President will decide, without a hearing, after reviewing the award and the arbitration agreement, making sure that the award is not appealable and that there is no legal impediment for enforcement of such award. Awards rendered by arbitral tribunals constituted pursuant to Article 177 of the Procedural Code are not appealable. The enforcement order is affixed to the award itself and includes a summons to enforce the award as a judgment. As in most other legal systems, the judge may not, while examining the award, re-open discussion of the case on its merits.

Foreign awards:
Kuwait is a signatory to the New York Convention on Recognition and Enforcement of Foreign Arbitration Awards. The Kuwaiti Government, however, entered a ‘reciprocity reservation’ when signing the Convention with the consequence that Kuwaiti Courts are only obliged to apply the enforcement regime in the Convention to foreign awards rendered in the territory of another signatory State.

Regime for enforcing foreign awards:
When enforcement of a foreign award (i.e. any award issued outside the territory of Kuwait) is sought in Kuwait, the level of court control will differ according to the nationality of the award. If it is from one of the States that have contracted or acceded to the New York Convention, the court will apply the rules of this Convention. In all other cases, the foreign award will be subject to the procedure laid down for the enforcement of foreign judgments as expressed in Articles 199–200 of the Procedural Code.

Enforcement under the Rules of the New York Convention:
The Kuwaiti courts will apply the Rules of the New York Convention to any award whose enforcement is sought in Kuwait, subject to the reservation that such an award was made in the territory of another Contracting State. We do not propose to set out the detailed provisions of the New York Convention in this chapter. Suffice it to say that Kuwaiti courts, pursuant to Article III of the Convention, will recognise arbitral awards as binding and enforce them without “impos[ing] substantially more onerous conditions or higher fees or charges on the recognition or enforcement … than are imposed on … the enforcement of domestic arbitral awards”.

The party applying for enforcement shall, at the time of the application, provide duly authenticated original copies of the award and the arbitration agreement or duly certified copies thereof together with official translations of these documents, if they are not in Arabic (Article IV).

The party against whom the award is invoked can then request the court to refuse enforcement on the following grounds (Article V):

• the parties to the arbitration agreement were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case;
• the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognised and enforced;
• the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or failing such agreement, was not in accordance with the law of the country where the arbitration took place; or
• the award has not become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.

Moreover, the court can refuse the enforcement ex officio on one of the following two grounds:

• the subject matter of the dispute is not capable of settlement by arbitration under the law of Kuwait; or
• the recognition or enforcement of the award would be contrary to the public policy of Kuwait.

Enforcement in accordance with Articles 199–200 of the Procedural Code:
In the case of foreign awards not governed by the New York Convention, the party seeking enforcement will have to follow the procedure laid down in Articles 199–200 of the Procedural Code. According to these rules, a foreign award may be enforced in Kuwait if it satisfies the conditions for enforcement laid down by the law of the country in which the award was made.

The party will seek the enforcement of the award in Kuwait by instituting proceedings at the Kuwaiti court of First Instance in accordance with the rules of procedure laid down for Kuwaiti judicial proceedings. Before issuing the enforcement order, the court must ensure that the following pre-conditions have been respected:

• the foreign award was rendered by a properly constituted tribunal having jurisdiction to issue the award in accordance with the rules of the State in which it was made;
• the parties were given proper notice of the arbitration proceedings and were legally represented during these proceedings;
• the award has become binding on the parties and is enforceable under the law of the State in which it was made; and
• the award does not contradict or conflict with a judgment or order issued by a Kuwaiti court, does not violate Kuwaiti public policy or morals, and the subject matter of the dispute is capable of settlement by arbitration under the laws of Kuwait.

A comparison between the sets of rules provided for under the New York Convention and those provided for under the Procedural Code for the enforcement of foreign arbitral awards in Kuwait reveals some differences in the level of Court control. Articles 199–200 of the Procedural Code place the burden of proof that the required conditions have been fulfilled upon the party seeking recognition and enforcement, while the New York Convention shifts such burden to the defendant who must prove that there are valid reasons for refusing the enforcement of the award.

As a final point in this Section, we note that Kuwait has adhered to the Arab League Convention on the Enforcement of Judgments and Awards of 14 September 1952, and has entered into bilateral treaties with Lebanon (ratified by Law No. 16, 27 April 1964) and Egypt (ratified by Law No. 96, 25 May 1977) for the recognition and enforcement of arbitration awards.

Law No. 11 regarding Judicial Arbitration in Civil and Commercial Matters was enacted on 19 February 1995 (“Judicial Arbitration Law”) and replaced Article 177 of the Procedural Code. It does not, however, replace the provisions dealing with an ad hoc panel of arbitrators selected by the parties (Articles 174 and 175).

The Explanatory Note to the Judicial Arbitration Law stated that new arbitration legislation had become necessary in light of the unpopularity of the panels constituted by the Ministry of Justice under Article 177 of the Procedural Code, the original aim of which was to encourage arbitration and the speedy resolution of disputes. Article 177 proved unpopular, in particular, due to the way arbitrators were selected and challenged, which increased considerably the length of the proceedings. In addition, litigants (erroneously) perceived arbitration as hazardous due to the fact that the final award could be set aside by the Kuwaiti courts, necessitating a re-trial of the dispute.

Accordingly, under the Judicial Arbitration Law, a panel or panels of five arbitrators will be constituted at the seat of the Appeal Court, composed of three judges appointed by the Higher Judicial Authority for two years and two arbitrators selected by the litigants, either from a list of arbitrators published at the Appeal Court or from outside such list.

The main features of the Judicial Arbitration Law are as follows:

Jurisdiction over:

• all civil and commercial disputes regarding contracts concluded after the date of entry into force of the Law and which include a specific clause compromissoire, by which the parties may elect to have their dispute resolved according to the Judicial Arbitration Law;
• exclusive jurisdiction over all disputes between governmental agencies or between such agencies and companies assimilated as such (i.e. owned by the government); and
• all disputes that the litigants elected to entrust to the panel regarding claims against the ministries and governmental agencies unless such disputes have already been referred to the national courts.

Despite such wording, two panels constituted under the Judicial Arbitration Law to look into claims against ministries and governmental agencies under public works contracts declined jurisdiction on the ground that such contracts should be classified as “Administrative” in nature and therefore fell within the exclusive jurisdiction of the Administrative Chamber of the Court of First Instance, according to Article 2 of Law No. 20 of 1981, as amended by Law No. 61 of 1982.

The above two decisions followed a ruling of the Cassation (Supreme) Court to the effect that contracts concluded with the government, although commercial by nature, are classified as “Administrative” and therefore fall outside the scope of the Judicial Arbitration Law which must restrict itself to “civil and commercial” issues.

The above approach threatens seriously to undermine the purpose and utility of the Judicial Arbitration Law.

The arbitrator’s fees and expenses are to be determined by the Panel.

The Panel has no jurisdiction over disputes relating to personal status, legal capacity, or criminal or administrative issues, with the exception of financial rights derived from such issues.

As under the now defunct Article 177, the Panel enjoys some powers usually reserved to the national courts such as the power to impose fines and/or other remedies if a party fails to submit evidence, pleadings or statements or if a party fails to comply with orders to produce documents within a prescribed time limit, and the power to issue judiciary summons and request the determination of preliminary issues by other judicial authorities without having to suspend the proceedings (Article 180 of the Procedural Law).

Any challenge to the jurisdiction of the Panel or plea based on the absence or invalidity of an arbitration agreement must be made before lodging any written pleading or taking any steps in the proceedings because such jurisdictional challenges are regarded by Kuwaiti law as procedural in nature rather than substantive.

Any challenge to an arbitrator is to be filed with the Cassation (Supreme) Court and will not necessarily result in a stay of the proceedings.

The award of the Panel may be issued without regard to the (six-month) time limit specified in Article 181 of the Procedural Code.

The award must be approved by the majority of the arbitrators. The award will specify if one or more arbitrators refuse to sign it but will be deemed valid if signed by the majority even if one or more resigned from office after the date on which the final hearing ended.

The award may be set aside by a motion filed with the Cassation Court on the grounds specified in Article 186 of the Procedural Code.

Arbitration is an effective means of resolving complex commercial disputes in Kuwait.

As regards arbitration under the Judicial Arbitration Law, its effectiveness has – despite all good intentions – been seriously undermined by the tendency of the Kuwaiti Courts to construe all disputes against the Kuwaiti State or State entities as falling outside the scope of the law. This means that foreign investors who have entered – as is often the case – into contracts with Kuwaiti State entities risk being unable to resolve disputes arising under such contracts in arbitration. The enactment of Foreign Investment Law No. 10 of 1999 aimed at encouraging foreign investment in Kuwait has rekindled debate about the need to restore the confidence of foreign investors (and domestic litigants) in the Judicial Arbitration Law as a mechanism by which disputes can be settled quickly and competently.

Foreign investors can nevertheless be comforted by the fact that Kuwait is party to and has ratified the New York and Washington (ICSID) Conventions, which are designed to promote the enforceability of international arbitration awards in Kuwait and beyond.

The Levant Lawyers
Abdel Hameed A. Dashti, Al Watania Tower Building, 8th Floor
Fahd El Salam Street
Kuwait City, Kuwait


Souham El Harati
T +965 241 76 80
M +965 6 60 38 81
E souham.harati@tll.cc