International Contracts in Kuwait: Governing Law, Documentary Credits and Enforcement (2026)

An extended legal guide to international commercial contracts in Kuwait: the choice of law clause and its limits, international jurisdiction, Incoterms 2020, documentary credits and bank guarantees, force majeure, and enforcement of foreign judgments.

Introduction

The State of Kuwait operates an open economy closely bound to foreign trade. Most of what is consumed and invested there passes through a contract containing a foreign element: an international sale, a supply or agency arrangement, a construction contract with foreign participation, carriage by sea, a licence to exploit a mark or technology, or cross-border bank financing. What distinguishes these contracts from their domestic counterparts is that they are not governed with advance certainty by a single legal system. Several systems intersect within them, and identifying the applicable law and the competent forum becomes a question logically prior to any discussion of the substantive right itself.

A frequent practical error is that parties negotiate price, specifications, and delivery dates with great care, then neglect the clauses that determine the fate of a dispute should one arise: the governing law clause, the jurisdiction clause, the force majeure clause, the international delivery term, and the payment and security instrument. These clauses appear to be matters of detail at signature, yet it is they which determine — at the first sign of difficulty — who bears the risk of loss of the goods, who sues whom, where, under which law, at what cost, and whether any judgment obtained is capable of enforcement at all.

This article analyses the framework governing international contracts and foreign commercial transactions in the State of Kuwait, addressing in particular conflict of laws rules and the choice of law clause and its limits, the international jurisdiction of the Kuwaiti courts, international delivery terms (Incoterms 2020), documentary credits and bank guarantees, the position of the Vienna Sales Convention, force majeure and hardship clauses, dispute resolution mechanisms, and the enforcement of foreign judgments in Kuwait, together with practical procedures and hypothetical scenarios.

Quick Answer

Central legislation on conflict of laws: Law No. 5 of 1961 on the Regulation of Legal Relationships Having a Foreign Element, which lays down the connecting rules identifying the law applicable to an international relationship.
Complementary legislation: the Civil Code No. 67 of 1980, the Commercial Code No. 68 of 1980, and the Civil and Commercial Procedure Law No. 38 of 1980 as regards jurisdiction and enforcement of foreign judgments.
Governing principle: party autonomy — the parties may choose the law governing their contract, and that choice is respected by the Kuwaiti courts in contractual matters, though it is not unlimited.
Three limits on choice: Kuwaiti public policy; mandatory rules that cannot be contracted out of; and evasion of the law, where a connecting factor is manipulated to escape a mandatory provision.
Absent a choice: the subsidiary connecting rules apply, referring the contract to the law of the parties' common domicile, failing which to the law of the place of conclusion, with special rules for contracts relating to immovables.
International jurisdiction: the Kuwaiti courts have jurisdiction where the defendant is a Kuwaiti national or domiciled in Kuwait, and in the connecting situations identified by the Procedure Law, including obligations created or performed in Kuwait.
Incoterms 2020: not law but international trade usages deriving their force from the contract's incorporation of them; they allocate cost and risk, not transfer of title.
The Vienna Sales Convention (CISG): Kuwait is not, on the settled position as at the date of this article, a contracting state. It may nevertheless apply by the parties' choice or where the applicable law is that of a contracting state.
Enforcement of foreign judgments: available in Kuwait subject to conditions, the most important being reciprocity and satisfaction of the formal and substantive requirements, without any re-examination of the merits.
The practical rule: the strength of an international contract is measured not by the elegance of its substantive obligations but by whether a judgment given under it can actually be enforced against the debtor's assets.

I. The Legislative Framework for Contracts with a Foreign Element

1. Law No. 5 of 1961 as the Cornerstone

Law No. 5 of 1961 on the Regulation of Legal Relationships Having a Foreign Element is the reference text on conflict of laws in the State of Kuwait. It does not determine the substance of any right; it performs an entirely different function — identifying the applicable law. Its provisions are accordingly described as connecting rules rather than substantive rules: they attribute the relationship to a given legal system, which then governs its substance.

Grasping this function correctly matters in practice, because it explains a phenomenon that puzzles commercial parties: a Kuwaiti court hearing a dispute and applying a foreign law. The court is not abdicating its jurisdiction; it is applying the Kuwaiti connecting rule that led it to the foreign law, and is therefore applying Kuwaiti law in its choice-of-law dimension.

2. Complementary Provisions in the Civil and Commercial Codes

Alongside the connecting rules, the framework is completed by the substantive provisions that govern the contract where Kuwaiti law is ultimately applicable:

Civil Code No. 67 of 1980: the reference for the general theory of obligations and contract — formation, validity, nullity, rescission, damages, and exceptional circumstances — applicable to an international contract where Kuwaiti law governs and no special commercial provision exists.
Commercial Code No. 68 of 1980: governs commercial acts and obligations, commercial sales, negotiable instruments, and banking operations. It is substantively closest to international commercial contracts, and is the source of important rules such as the relaxed regime of proof in commercial matters and presumed joint liability among commercial debtors.
Civil and Commercial Procedure Law No. 38 of 1980: the reference for international jurisdiction, the conduct of proceedings, and the enforcement of foreign judgments and orders.
Direct Investment Promotion Law No. 116 of 2013: relevant to international contracting as regards the incentives and guarantees afforded to foreign investors and the form of the entity through which they contract.
Electronic Transactions Law No. 20 of 2014: a provision of considerable practical importance in foreign trade, conferring evidential weight on electronic records and signatures within its limits — the basis on which most cross-border contracting by email and trading platforms now proceeds.
Consumer Protection Law No. 39 of 2014: raises a delicate question in international contracts directed at consumers in Kuwait, since its protections include mandatory rules that a choice of foreign law may not displace.

3. The Place of International Trade Usages and Model Contracts

The international trader operates in an environment governed, alongside legislation, by a body of usages and professional rules that are not legislation at all: the Incoterms issued by the International Chamber of Commerce, the uniform rules on documentary credits, and sectoral model contracts in supply and construction. These rules are not law in themselves and acquire binding force only in one of two ways: express incorporation by the contract, or their status as a settled trade usage in the sector such that the parties are presumed to know of them.

Hence a common and defective drafting habit must be avoided: referring to an international delivery term by two or three letters without identifying the version of the rules incorporated or specifying the place of delivery with precision. Such drafting opens a dispute about the content of the obligation itself. The correct approach is a complete reference: the name of the term, then the place identified beyond ambiguity, then the version of the rules incorporated.

II. The Applicable Law and the Choice of Law Clause

1. Party Autonomy and Its Scope

The rule in international contracts is that the parties' intention governs the identification of the law applicable to their contract. The rationale is purely practical: commercial parties best understand their own interests, and enabling them to select a law familiar to both affords predictability — the highest value international commerce pursues. Kuwaiti judicial practice respects that choice in contractual matters where it is express, clear, and not contrary to public policy.

The choice may be express, by a clause in the contract, or implied, inferred from the circumstances and indicia of the transaction — the use of model forms identifiably belonging to a particular system, reference to technical terminology peculiar to it, or an exclusive choice of the courts of a given state. An implied choice is, however, a matter of appraisal and argument, so an express clause is always the safer route.

2. Drafting the Choice of Law Clause Properly

Many draft this clause in general terms that generate rather than prevent disputes. Criteria for sound drafting include:

Identifying the legal system completely: it is not sufficient to name a state containing several internal legal systems without specifying the relevant jurisdiction.
Defining the clause's scope: it should cover interpretation, validity, performance, termination, and liability arising from the contract, not merely "interpretation" — confining it to interpretation invites dispute as to the law governing validity and nullity.
Excluding foreign connecting rules: by stipulating that the reference is to the substantive rules of the chosen law, avoiding the problem of renvoi.
Consistency with the dispute resolution clause: a costly error is to choose the law of one state and the courts of another unfamiliar with it, converting the dispute into an expensive and protracted battle of experts.
Consistency of contract language: where the contract is executed in two languages, it must state which version prevails in case of divergence — among the most frequently omitted and subsequently litigated clauses.

3. The First Limit: Kuwaiti Public Policy

A foreign law will not be applied — even where expressly chosen — if its application would produce a result contrary to public policy and morals in the State of Kuwait. Public policy here is not a broad concept for excluding every differing foreign rule, but a narrow exception protecting the essential foundations of the legal and social order. The test is the practical result of application, not the mere divergence of the foreign rule from its Kuwaiti counterpart.

Practical illustrations include an agreement giving effect to a transaction prohibited under Islamic law, a term defeating a right conferred by a Kuwaiti mandatory rule, or an arrangement enabling exploitation or adhesion contrary to fundamental principles.

4. The Second Limit: Mandatory Rules Immune from Choice

Certain fields of Kuwaiti law retain their mandatory force even where the parties have chosen a foreign law, because those rules are overriding mandatory provisions protecting interests beyond those of the contracting parties. The most prominent practical examples are:

Kuwaiti labour law in respect of work performed in Kuwait, so that the statutory minimum protection cannot be displaced by choosing a less favourable foreign law.
Consumer protection rules in contracts directed at consumers resident in Kuwait.
Rules governing real rights over immovable property situated in Kuwait, which are subject to Kuwaiti law as the law of the situs.
Market regulation, licensing, and supervisory rules, together with the related prohibitions and conditions for carrying on activity in the State.

5. The Third Limit: Evasion of the Law

Evasion of the law occurs where the parties deliberately alter a connecting factor — the place of conclusion, the domicile of one of them, or the place of registration of the contracting entity — in order to escape a mandatory rule that would otherwise have applied. The sanction is that the intended effect is disregarded, so the law sought to be evaded continues to apply. Two elements are required: a genuine alteration of a connecting factor, and an intention to evade a mandatory rule, that intention being inferred from indicia such as the temporal proximity between the alteration and the creation of the obligation.

6. Absence of Choice and the Subsidiary Connecting Rules

Where the contract contains no choice of law clause and no implied intention can be inferred, the Kuwaiti connecting rules determine the applicable law in a familiar sequence: reference is made first to the law of the parties' common domicile where their domiciles coincide, and failing that to the law of the place where the contract was concluded. Contracts relating to immovable property are governed by the law of the situs. These rules reveal a serious practical risk: silence as to the applicable law in truth surrenders the outcome to criteria that may lead to a law neither party knows or expects.

7. Splitting the Contract Across More Than One Law

The parties may in theory subject different aspects of their relationship to different laws — the principal contract to one law and a performance guarantee to another. Such splitting can be useful in composite and financing structures, but it carries a risk of incoherence: applying two divergent laws may produce contradictory results on the same question, such as differing limitation periods or a different characterisation of termination. The practical rule is not to split without a clear technical reason, and at a minimum to unify the law governing validity, termination, and limitation.

8. Renvoi and Proof of Foreign Law

Where a connecting rule leads to a foreign law, two precise practical questions arise. First, is the reference to the substantive rules of that law, or to its connecting rules as well? This question of renvoi is best settled in the contract by expressly stipulating that the reference is to substantive rules only.

The second — and more consequential in practice — is that foreign law is treated as a question of fact rather than of law for evidential purposes. A party relying on it must place its content before the court in a certified official translation and, where necessary, support it with the opinion of a legal expert in that system. Where a party fails to prove it, or the court cannot ascertain its content, practice applies Kuwaiti law as the law of the forum. This has an important tactical consequence: choosing a remote and poorly documented foreign law may in practice end in the application of Kuwaiti law for want of proof.

III. International Jurisdiction of the Kuwaiti Courts

1. The Basis of Kuwaiti Jurisdiction over an International Dispute

Jurisdiction is entirely distinct from the applicable law, and conflating the two is among the most common errors. A Kuwaiti court may have jurisdiction and apply a foreign law; a foreign court may have jurisdiction and apply Kuwaiti law. The Civil and Commercial Procedure Law No. 38 of 1980 lays down the bases of international jurisdiction of the Kuwaiti courts, which turn broadly on factors connecting the dispute to the State, the most prominent being:

The defendant's nationality or domicile: the Kuwaiti courts have jurisdiction over actions brought against a Kuwaiti national, and against a foreigner having a domicile or place of residence in Kuwait.
Connection with an obligation created or performed in Kuwait: including a contract concluded in Kuwait or performable there.
The presence of the defendant's assets in Kuwait, in the cases where the law permits jurisdiction on that basis.
Submission to jurisdiction: where the defendant appears and addresses the merits without raising a jurisdictional objection in due time, that is treated in practice as submission to the court's authority in cases where submission is permissible.

2. The Choice of Forum Clause and Its Limits

Parties commonly insert a clause conferring jurisdiction on the courts of a specified state. Such a clause has considerable practical value, but two matters require attention. First, the clause must be clear as to its exclusivity: wording stating that the courts of a given state "shall have jurisdiction" without specifying that the jurisdiction is exclusive is sometimes read as non-exclusive, and so as not precluding recourse to another competent court.

Second, an agreement conferring jurisdiction on a foreign court does not divest the Kuwaiti courts of jurisdiction in cases where that jurisdiction is a matter of public policy — a dispute concerning a real right over immovable property situated in Kuwait, matters connected with enforcement against assets located in the State, or matters within the exclusive province of the national courts by their nature.

3. The Jurisdictional Objection and Its Timing

An objection to international jurisdiction must be raised at the first hearing and before addressing the merits in cases where jurisdiction is not a matter of public policy. A common practical error is for the defendant's counsel to begin by answering the merits and to raise the jurisdictional objection later, whereupon it loses its effect. Where the lack of jurisdiction is a matter of public policy, however, it may be raised at any stage and the court will address it of its own motion.

4. Parallel Proceedings

Among the most difficult situations facing international traders is the commencement of concurrent actions in two states concerning the same dispute, each party seeking to pre-empt the other by litigating in the forum most convenient to it. Serious risks follow: contradictory judgments, duplicated cost, and the possibility that enforcement of the foreign judgment will be refused for conflict with a domestic judgment on the same subject matter. Prevention lies in drafting an exclusive and internally consistent dispute resolution clause, not in managing the position after it has arisen.

5. Sovereign Immunity of States and Public Entities

Where the counterparty is a foreign state or a public entity belonging to it, the questions of jurisdictional immunity and immunity from execution arise. These are distinct: jurisdictional immunity may be lost by waiver or because the transaction is commercial rather than sovereign, while immunity from execution may persist over assets dedicated to sovereign purposes. Professional drafting in contracts with public entities therefore includes an express waiver of immunity in both its aspects, together with an identification of the assets against which execution may be had.

IV. International Delivery Terms — Incoterms 2020

1. The Legal Nature of Incoterms

Incoterms are a set of rules issued by the International Chamber of Commerce standardising the meaning of delivery terms in international sales. They are neither a treaty nor legislation, but contractual rules acquiring force only through incorporation by the contract. Their function is precisely defined: allocating obligations between seller and buyer on three questions — who arranges carriage and clearance, who bears the cost, and when risk passes.

Critically, Incoterms do not govern the transfer of title, nor the price and its mode of payment, nor the applicable law, nor the dispute resolution mechanism, nor the consequences of breach. Anyone who supposes that citing a delivery term suffices to regulate a contract of sale is gravely mistaken: these rules govern a part of the contract, not the whole of it.

2. Classifying the Terms by the Extent of the Seller's Obligation

Incoterms range from the lightest to the heaviest burden on the seller, and may be visualised along a continuum:

Delivery at the seller's premises: the lightest obligation on the seller, who places the goods at the buyer's disposal at his own premises, the buyer bearing all subsequent loading, carriage, and clearance.
Terms for delivery to the carrier, alongside the vessel, or on board: the seller bears the obligation up to a defined point, after which risk passes to the buyer.
Terms under which the seller bears freight and insurance to the port of destination: these cause the greatest practical confusion, because although the seller bears the cost of carriage and insurance to destination, risk passes to the buyer at the port of shipment and not at destination. Cost and risk are here entirely separated.
Terms for delivery at the place of destination: the heaviest obligation on the seller, who bears carriage and risk to the agreed place of destination, and whose obligation may extend to clearance and duties depending on the term chosen.

3. The Separation of Cost from Risk — The Most Consequential Concept

The rule to be committed to memory is that the party who pays freight is not necessarily the party who bears the risk of loss. A seller may be obliged to pay freight and insurance to the port of destination while the goods have nonetheless been at the buyer's risk from the moment they passed a defined point at the port of shipment. The practical consequence is significant: if the goods are lost at sea, the buyer remains liable for the price and his remedy lies in recovery against the insurer, not against the seller.

From this flows the most important practical advice in this field: always review the insurance policy as to the identity of the insured, the scope of risks covered, the adequacy of the sum insured, and the party entitled to indemnity. Many disputes that present as sale disputes are in truth insurance disputes.

4. Common Errors in Using Delivery Terms

Using maritime terms for containerised carriage: terms designed for delivery on board or alongside the vessel are unsuited to container traffic, in which goods are handed over at the container terminal before loading. The correct choice is a term designed for delivery to the carrier.
Failing to identify the place precisely: naming a country or city without specifying the port, terminal, or address opens a dispute about the point at which risk passes.
Omitting the version of the rules: with successive editions in circulation, the version incorporated must be expressly stated to avoid argument as to which applies.
Imposing import clearance on the seller under a term that does not require it: a recurrent practical problem, since import clearance generally requires an importer resident and registered in the country of destination.
Inconsistency between the delivery term and the payment term: such as agreeing a delivery term that does not generate a negotiable transport document, and then requiring an original marine bill of lading under the documentary credit.

5. Transfer of Title Between Incoterms and the Applicable Law

Since Incoterms do not regulate the transfer of title, that question is governed by the law applicable to the contract and should therefore be expressly addressed in the contract. Professional drafting ties the passing of title to payment of the price in full — a retention of title clause — because it strengthens the seller's position if the buyer defaults. The efficacy of such a clause nevertheless varies with the law of the state where the goods are located, so its enforceability against third parties in that state must be verified.

V. Payment and Security Instruments in Foreign Trade

1. The Documentary Credit — The Safest Instrument

A documentary credit is an undertaking issued by a bank at the buyer's request to pay the seller the value of the goods against presentation of documents conforming to the terms of the credit. It solves the fundamental problem of international sales: the seller does not trust the buyer enough to ship before payment, and the buyer does not trust the seller enough to pay before delivery. The bank supplies the missing trust by making payment conditional on documents rather than on goods.

2. The Autonomy of the Credit from the Underlying Contract

This is the governing principle of documentary credits: the bank's undertaking is entirely independent of the contract of sale in connection with which the credit was opened. The buyer may not ask the bank to withhold payment on the ground that the goods are defective or that the seller is in breach, nor may the bank assert against the seller defences derived from the sale contract.

The consequence is practical and decisive: a documentary credit is not a guarantee of the quality of the goods but a guarantee of the regularity of documents. A buyer needing assurance as to quality therefore cannot find it in the credit alone, but in a pre-shipment inspection requirement — stipulating among the credit documents a certificate of inspection issued by an approved independent inspection body, so that the absence of that certificate prevents payment.

3. The Doctrine of Strict Compliance

The bank examines the documents with precise formal scrutiny to satisfy itself that they appear on their face to conform to the terms of the credit; it does not answer for the condition of the goods or the truthfulness of the documents in themselves. This formalism may appear severe, but it is the condition of the system's survival, since the bank has no means of substantive verification.

The practical result is that what most frequently obstructs payment in foreign trade is documentary discrepancies: an error in a name or address, a shipment date late by one day, a description of goods differing by a word from the text of the credit, an incomplete set of bills of lading, or presentation after the period allowed for presentation has expired. Hence the practical advice to sellers: review the text of the credit immediately on receipt and before shipment, and request amendment where it contains a condition impossible to satisfy or a document obtainable only from the buyer himself, since such a condition empties the credit of value.

4. Forms of Credit and Their Practical Effects

Irrevocable credit: the safe form for the seller, since it may not be amended or cancelled without the agreement of all parties.
Confirmed credit: a second bank — usually in the seller's country — adds its own undertaking to pay, transferring the risk from the buyer's bank and country to a bank known to the seller. Its greatest value lies in dealings with countries presenting transfer or political risk.
Standby credit: functionally closer to a bank guarantee, since it is intended not for payment in the ordinary course but for payment on the counterparty's default.
Transferable credit: the intermediary's instrument, enabling the first beneficiary to transfer his entitlement wholly or partly to the actual supplier.

5. The Bank Guarantee and Its Legal Nature

A bank guarantee is an undertaking issued by a bank to pay a specified sum to a beneficiary on his first demand, securing performance of an obligation owed by the bank's customer. Its legal nature is that of a primary and not an accessory obligation, and this is the essential distinction from suretyship: a surety may assert the principal debtor's defences, whereas a bank under a guarantee may not raise defences derived from the underlying relationship.

A consequence follows that may appear harsh: the bank pays on the beneficiary's first demand even if the customer disputes his entitlement. Such instruments are accordingly described in international practice as on-demand guarantees — a powerful weapon in the beneficiary's hands and a genuine exposure for the party procuring them.

6. The Exception of Manifest Fraud

The single settled exception to the principle of autonomy — in documentary credits and bank guarantees alike — is established manifest fraud. Where it is proved by conclusive evidence that the beneficiary is demanding payment fraudulently, for instance because the documents are fabricated or the goods do not exist at all, payment may be withheld and interim relief restraining payment may be sought. The burden of proving fraud is nevertheless very heavy, and a mere allegation of contractual breach or a dispute about quality or conformity will not suffice, otherwise the entire principle of autonomy would collapse.

7. Other Instruments and Risk Assessment

Alongside credits and guarantees, foreign trade knows other instruments allocating risk differently:

Advance payment: maximum security for the seller and maximum exposure for the buyer, who pays before seeing anything; the exposure is mitigated by an advance payment guarantee issued by a bank.
Documentary collection: the bank acts as intermediary in delivering documents against payment or acceptance, but gives no undertaking to pay. It is far less secure than a credit and correspondingly cheaper.
Open account: maximum trust and maximum exposure for the seller, advisable only with a tested counterparty or with export credit insurance in place.
Export credit insurance: an instrument many overlook, transferring the risk of non-payment to an insurer, and of particular value in higher-risk markets.

VI. The Vienna Convention on Contracts for the International Sale of Goods (CISG)

1. Nature and Scope of the Convention

The United Nations Convention on Contracts for the International Sale of Goods — known as the Vienna Convention, or CISG — is an international treaty laying down uniform substantive rules for the international sale of goods: formation, the obligations of seller and buyer, conformity, breach, avoidance, and damages. Its great advantage is that within its scope it dispenses with recourse to connecting rules, applying uniform rules directly instead of requiring a search for the applicable national law.

Its scope is defined: it applies to sales of goods between parties whose places of business are in different states, and expressly excludes categories of sale such as consumer sales and sales of securities, ships, aircraft, and electricity. It also does not govern the transfer of title, nor in all cases the validity of the contract as regards capacity and form.

2. Kuwait's Position on the Convention

On the settled position as at the date of this article, the State of Kuwait is not a contracting state to the Vienna Convention. It follows that the Convention does not apply automatically to an international sale merely because one party has its place of business in Kuwait. Verification of accession status and any reservations at the date of each contract is always advisable, since treaty participation is by its nature liable to change.

3. Situations in Which the Convention May Nonetheless Apply

It would be wrong to assume that the Convention is remote from Kuwaiti dealings, for it may find its way into the contract in two practically important situations:

Express choice: the parties may agree in the contract to subject it to the Convention's provisions as the law applicable by their choice, in which case it applies as a contractual stipulation within the limits allowed by the applicable law.
Reference to the law of a contracting state: where the parties choose the law of a state party to the Convention without expressly excluding it, the Convention may apply as part of that national law. This point escapes many contracting parties: choosing the law of a European or Gulf state that is a party may unintentionally trigger the Convention.

4. Practically Important Provisions of the Convention

Familiarity with the Convention's principal rules is worthwhile because of their influence on negotiation even in contracts not governed by it:

The concept of conformity: goods conform if they are fit for their ordinary purposes or for the particular purpose made known to the seller at the time of contracting — widening the concept of defect beyond physical defect.
The duty to examine and to give notice within a reasonable time: the most dangerous provision for companies to overlook, since a buyer's failure to notify non-conformity within a reasonable time may forfeit his right to rely on it even where the defect is established.
Fundamental breach as the threshold for avoidance: the contract may be avoided only where the breach is fundamental, depriving the other party of what it was entitled to expect; lesser breaches are addressed by damages, repair, or price reduction.
The seller's right to cure: an important right that restrains a buyer's precipitate avoidance.
The foreseeability test in damages: only loss foreseeable at the time of contracting is recoverable — a principle close to its counterpart in Kuwaiti law.
The duty to mitigate: a party who fails to take reasonable steps to limit his loss has his damages reduced by the amount that could have been avoided.

5. Express Exclusion and Protective Drafting

The decisive practical rule is this: if you do not wish the Convention to apply, do not rely on silence — exclude it expressly by a clause in the contract. If you do wish it to apply, say so expressly and identify any provisions you wish to exclude. Leaving the question open is the worst option, because it makes the legal regime governing your contract a function of an incidental choice of law rather than a considered decision.

VII. Force Majeure and Economic Hardship

1. Distinguishing Force Majeure from Hardship

Confusion between these two concepts does more than anything else to spoil a negotiation. Force majeure is an event beyond the party's control and unforeseeable, rendering performance of the obligation impossible; its effect is either temporary suspension of performance or dissolution of the contract, depending on whether the impossibility endures. Hardship or exceptional circumstances, by contrast, is an event rendering performance onerous to an exceptional degree but not impossible, and its effect is not dissolution but restoration of contractual balance.

The distinction is not academic: a party invoking force majeure when in truth facing financial hardship — rising raw material prices or freight rates — exposes its plea to failure, because increased cost does not render performance impossible but merely expensive. Professional drafting addresses the two situations in two separate clauses rather than one.

2. Conditions of Force Majeure in Judicial Practice

A plea of force majeure is admitted only where cumulative conditions are met:

Externality: the event must not result from the debtor's own act, fault, or poor organisation, so the default of a supplier chosen by the debtor is not of itself force majeure as against his own creditor.
Unforeseeability: measured objectively by what an ordinary person in the debtor's position could have foreseen at the time of contracting; events already known before signature are accordingly difficult to invoke.
Irresistibility: it must have been impossible to avert the event's effects by the reasonable means available.
Absolute impossibility of performance: not mere difficulty or increased cost.

3. Drafting an Effective Force Majeure Clause

A well-drafted clause goes beyond a general formula and includes:

A definition of the event with an indicative list — war, blockade, embargo, natural disaster, epidemic, decisions of authorities, closure of ports and corridors — stating that the list is non-exhaustive.
A notification obligation within a short, defined number of days and by a specified means, stating the consequence of failure to notify.
A staged effect: suspension of performance initially, then a right for either party to terminate if the event persists for a specified period.
Allocation of costs during the suspension period — the very question most often left unaddressed and which becomes the real dispute.
A duty to mitigate and an obligation to use reasonable efforts to find an alternative source or route.
Exclusion of payment obligations from the clause's scope, since inability to pay is not, as a general rule, force majeure.

4. Exceptional Circumstances under Kuwaiti Law

The Kuwaiti Civil Code provides a remedy where exceptional and general unforeseeable events render performance so onerous as to threaten the debtor with grave loss: the court may then reduce the onerous obligation to a reasonable measure, rather than discharge the debtor from it altogether. This solution balances the binding force of contract against contractual fairness.

The conditions are narrow: the events must be exceptional and general rather than peculiar to the debtor, unforeseeable at the time of contracting, and the hardship must amount to grave loss rather than a mere reduction in profit. Ordinary price fluctuations in a commercial market accordingly do not suffice, being among the risks of commercial activity that a trader is presumed to have taken into account.

5. Practical Contractual Alternatives

Sophisticated companies do not wait for legal doctrines to be applied; they build preventive mechanisms into their contracts addressing volatility in advance. The most prominent are a price review clause tied to a published objective index, a clause adjusting delivery dates upon defined events, a clause requiring mandatory renegotiation where cost variation exceeds a stated percentage, and a clause permitting variation of the delivery term where a particular transport route is closed. Such clauses are far more effective than litigation, because they convert a crisis from a dispute into a pre-agreed contractual procedure.

VIII. Dispute Resolution Mechanisms in International Contracts

1. Choosing the Mechanism

No mechanism is universally "best"; there is only the mechanism most suitable to a given contract, judged by practical criteria: the location of the counterparty's assets, the value of the contract, whether the anticipated dispute is technical or legal, the parties' need for confidentiality, and the enforceability of the resulting judgment or award in the state where the debtor's assets lie. That last criterion is in truth the governing one, because an unenforceable decision is worthless however well reasoned.

2. The Escalation Clause

Among the most effective formulations in practice is the tiered clause setting out successive stages: negotiation between authorised representatives within a defined period, then mediation or technical expert determination, then recourse to the agreed judicial or arbitral mechanism. Its merit is that it resolves most disputes at an early stage at lower cost. It must, however, be drafted with great care, since vagueness as to the duration of each stage and the conditions for moving between them may generate a dispute about the clause itself and become a device for obstructing a claim.

3. A Brief Note on Arbitration

Arbitration remains the mechanism most used in international contracts, given the neutrality, flexibility, and confidentiality it affords, and because foreign arbitral awards benefit from an international enforcement framework under the New York Convention of 1958, to which the State of Kuwait has acceded. Separate articles on this blog address the arbitration clause, arbitral procedure, and enforcement of awards in detail, so we confine ourselves here to three practical points: the arbitration clause must be in writing; it should specify the seat, the language, the number of arbitrators, and the procedural rules; and attention must be paid to the authority of the person signing the clause on behalf of a legal entity.

4. Technical Expert Determination and Mediation

In technical contracts — construction, systems, and equipment supply — much of the dispute is in truth a technical disagreement rather than a legal one: does performance conform to specification? Is the delay attributable to the contractor or to the employer's variations? Two mechanisms assist here: binding expert determination, appointing a neutral expert to issue a binding decision on technical questions, and mediation, in which a neutral third party has no adjudicative power but works to narrow positions. Both are faster and cheaper and preserve an ongoing commercial relationship — a consideration insufficiently valued in litigation.

IX. Enforcement of Foreign Judgments in the State of Kuwait

1. The Governing Idea: An Enforcement Order, Not a Retrial

A foreign judgment does not carry direct executory force in Kuwait by virtue of having been rendered; it requires an order for its enforcement issued by the competent Kuwaiti court in accordance with the Procedure Law. The essential point is that in this exercise the Kuwaiti court does not re-examine the merits of the dispute, nor review the foreign court's appraisal of the evidence, but verifies that defined formal and substantive conditions are satisfied.

2. Conditions for an Enforcement Order

Reciprocity: the most important condition in practice, requiring that the state in which the judgment was rendered enforces Kuwaiti judgments in its territory. It is the first filter at which many applications fail.
Jurisdiction of the foreign court: that it had jurisdiction over the dispute under the rules of international jurisdiction, and that jurisdiction was not vested exclusively in the Kuwaiti courts.
Regularity of service: that the parties were duly summoned and properly represented — a requirement protecting the right of defence and denying effect to judgments rendered in an absence of which the defendant had no notice.
Finality: that the judgment is final under the law of the state in which it was rendered, so that a judgment still open to ordinary appeal is not enforced.
No conflict with a Kuwaiti judgment: where a Kuwaiti judgment exists on the same subject matter between the same parties, enforcement of the conflicting foreign judgment is barred.
No conflict with public policy or morals: the flexible condition, measured by the practical result of the judgment rather than by mere divergence of its rules.

3. Regional Conventions and Their Practical Effect

The rigour of the general conditions is tempered by regional judicial cooperation conventions facilitating mutual enforcement of judgments, most prominently the Riyadh Arab Convention on Judicial Cooperation and the Convention on the Enforcement of Judgments, Judicial Delegations, and Notifications within the framework of the Cooperation Council for the Arab States of the Gulf. Their practical effect is considerable: a judgment rendered in a member state travels a simpler and faster route than one rendered in a state having no convention with Kuwait. Knowing the treaty framework applicable to the counterparty's state is therefore a matter to be examined before signature, not after a dispute arises.

4. Judgments Concerning Assets in Kuwait

An important limitation is often overlooked: an agreement conferring jurisdiction on a foreign court does not dispense with the enforcement order procedure in Kuwait where the assets to be executed against are located in the State. A company dealing with a Kuwaiti counterparty and inserting a distant foreign jurisdiction clause must therefore appreciate that it has chosen a two-stage route: obtaining the judgment abroad, then obtaining an order for its enforcement in Kuwait, with the additional time and cost that entails.

5. Foreign Arbitral Awards in Brief

Foreign arbitral awards differ from court judgments as to the enforcement mechanism, being governed by a dedicated international framework — the New York Convention of 1958, to which Kuwait has acceded — which confines the grounds for refusing enforcement to a limited and exhaustive list. This advantage is the primary reason for preferring arbitration in international contracts, and it is examined in detail in separate articles on this blog.

X. Settled Principles of the Court of Cassation

In disputes involving a foreign element and in banking and commercial litigation, the Kuwait Court of Cassation has established a body of principles that now serve as practical reference points. The most prominent are:

Respect for the parties' choice of law: it is settled that in contractual matters the parties may subject their contract to a law of their choosing, and that the court will give effect to that choice unless it conflicts with Kuwaiti public policy or was intended to evade a mandatory rule.
Foreign law treated as fact for evidential purposes: judicial practice proceeds on the basis that a party relying on a foreign law must place its content before the court, and that where it is not produced or its provisions cannot be ascertained, Kuwaiti law is applied as the law of the forum.
Autonomy of the documentary credit: it is settled that the bank's undertaking under a documentary credit is independent of the relationship in connection with which the credit was opened, so that the bank may not assert defences derived from that relationship, nor may the customer invoke it to prevent payment.
Autonomy of the bank guarantee: practice proceeds on the basis that a bank guarantee differs fundamentally from suretyship, the bank being bound as a primary and not an accessory obligor, and being unable to raise against the beneficiary the defences available to its customer.
The manifest fraud exception: it is settled that the principle of autonomy does not extend to established manifest fraud, but that proof of fraud lies on the party alleging it and must be conclusively established rather than merely asserted as a contractual breach.
The trial court's power to construe the contract: construction of instruments and ascertainment of the parties' intention are questions of fact within the exclusive province of the trial court, provided it does not attribute to clear wording a meaning contrary to its plain import.
The narrow scope of the public policy exception: practice proceeds on the basis that invoking public policy to exclude a foreign law or a foreign judgment is an exceptional and narrow plea; mere divergence between the foreign rule and its Kuwaiti counterpart does not suffice, and application must produce a result impairing a fundamental foundation of the legal order.
No review of the merits of a foreign judgment: it is settled that on an application for an enforcement order the court's role is confined to verifying that the prescribed conditions are satisfied, without addressing the merits of the dispute or reviewing the foreign court's appraisal of the evidence.

Methodological note: the principles set out above are settled principles applied in Kuwaiti judicial practice and are not intended as references to any particular judgment. Reference should always be made to the specific ruling relevant to the facts of each dispute, since the application of a principle varies with the facts, the documents, and the drafting of the contract that fixes the parties' positions.

XI. Practical Steps in Managing an International Contract

1. Pre-Signature Checklist

Verify the counterparty: its legal existence, commercial registration, the capacity and authority of the signatory, and its financial standing so far as it can be ascertained.
Fix the applicable law by an express clause covering interpretation, validity, performance, termination, and liability.
Fix the dispute resolution mechanism exclusively and consistently with the chosen law, having regard to the location of the counterparty's assets.
Fix the delivery term by name, with the precise place and the version of the rules incorporated.
Fix the payment instrument and the security required, tying the payment schedule to objectively verifiable performance milestones.
Separate force majeure and hardship clauses, with notification periods and a clear staged effect.
A limitation of liability clause excluding consequential loss, and a liquidated damages clause for delay with a clear cap.
A language clause identifying the prevailing version, and a notices clause specifying addresses and approved means.
A confidentiality clause and an intellectual property clause where the subject matter involves technology, a mark, or a design.
Review import and export restrictions and required licences, together with any international restrictions affecting the counterparty or the origin of the goods.

2. Managing the Contract During Performance

Document every change by a written variation order: most international contract disputes arise from changes implemented by oral agreement and subsequently denied.
Preserve the complete document chain: purchase orders, loading invoices, bills of lading, certificates of origin and inspection, customs declarations, and receipt records with any reservations noted.
Record reservations immediately on receipt: acceptance without reservation is an indication of apparent conformity and may forfeit rights under some systems and conventions.
Notify non-conformity in writing and promptly, and do not rely on amicable negotiations without documented notice.
Monitor the credit's deadlines: the latest shipment date, the credit's expiry, and the presentation period — exceeding any of them by a single day may block payment entirely.

3. Documents Required When a Dispute Arises

The original contract, its annexes and variation orders, and all pre-contractual correspondence evidencing the negotiations.
Banking documents: the text of the credit and its amendments, notices of discrepancy, and guarantees together with demands for payment under them.
Transport and insurance documents: the bill of lading, the insurance policy, and the survey report on arrival.
Technical inspection and survey reports, and certificates from independent bodies.
Evidence of loss: replacement purchase invoices, proof of price differential, and proof of penalties incurred by the injured party towards its own customers.
The content of the foreign law in certified translation where it is applicable, and the opinion of a legal expert in that system where required.

XII. Practical Analysis and Hypothetical Scenarios

Scenario One: Loss of Goods at Sea

Hypothetical facts: A Kuwaiti company contracts to import equipment from an Asian supplier on a delivery term under which the seller bears freight and insurance to Shuwaikh Port. The container is lost at sea, and the Kuwaiti company refuses to settle the value of the documentary credit on the ground that it received nothing and that, as the seller paid freight and insurance, the goods remained at the seller's risk until arrival.

Legal characterisation: the argument rests on confusing cost with risk. The seller's bearing of freight and insurance to the port of destination does not mean that risk remained with him to that port; under this family of terms risk passes to the buyer at the port of shipment. The buyer accordingly remains liable for the price, and his remedy lies against the insurer under the policy. The documentary credit, meanwhile, remains autonomous: the bank pays where the documents conform, because loss of the goods is not a documentary discrepancy. The correct course for the Kuwaiti company is to verify that it is the insured or that the policy has been endorsed to it, to notify the insurer immediately, and to retain the survey report.

Scenario Two: Choosing a Foreign Law Without Considering Enforceability

Hypothetical facts: A Kuwaiti company concludes a supply contract with a foreign company, inserting a clause subjecting the contract to the law of a foreign state and conferring exclusive jurisdiction on that state's courts. The foreign company fails to supply, the Kuwaiti company obtains a judgment in that state, and it then emerges that the debtor's only realisable assets are in a third state having no enforcement treaty with the state of the judgment.

Legal characterisation: the error lay not in the drafting of the substantive obligations but in the architecture of the dispute resolution clause. A judgment's value is measured by its enforceability against the debtor's assets rather than by its content, and the practical rule is that selecting a mechanism begins with a single question: where are the counterparty's assets, and what treaty framework governs enforcement of judgments or awards in that state? Arbitration would have been the more suitable choice here, given the wider enforcement framework afforded by the New York Convention, as would obtaining a locally enforceable bank guarantee obviating litigation abroad altogether.

Scenario Three: Invoking Force Majeure for Increased Cost

Hypothetical facts: A supplier contracts to deliver defined quantities at fixed prices over two years. Raw material prices and freight rates then rise sharply, and the supplier notifies the buyer that it regards the contract as dissolved by force majeure and suspends deliveries.

Legal characterisation: increased cost does not render performance impossible but merely expensive, so the plea of force majeure is misplaced and exposes the supplier to liability for breach and for losses flowing from the interruption of supply. The most its position could support is a plea of exceptional circumstances, if the narrow conditions are met — an exceptional, general, unforeseeable event rendering the obligation so onerous as to threaten grave loss — the effect of which is reduction of the onerous obligation to a reasonable measure rather than dissolution. The practical lesson is that the correct remedy for this risk is a price review clause tied to a published objective index, not reliance on a subsequent legal characterisation.

XIII. Comparative Table — Documentary Credit, Bank Guarantee, and Documentary Collection

Documentary credit: function — payment of the price in the ordinary course of the contract. Nature of the bank's undertaking — primary, independent of the sale contract. Trigger for payment — presentation of documents conforming to the credit. Beneficiary — the seller. Level of security — high for both parties, the seller assured of payment and the buyer assured that payment will not be made before shipping documents are presented. Cost — the highest.
Bank guarantee: function — securing performance of an obligation rather than paying the price. Nature of the bank's undertaking — primary, independent of the secured relationship. Trigger for payment — the beneficiary's demand in accordance with the terms of the instrument, without proof of breach in most formulations. Beneficiary — the creditor of the secured obligation. Level of security — very high for the beneficiary and correspondingly hazardous for the customer. Cost — intermediate.
Documentary collection: function — the bank acting as intermediary in delivering documents against payment or acceptance. Nature of the bank's role — agency, with no undertaking to pay; this is the essential distinction. Trigger for payment — the buyer's willingness to pay or to accept the bill. Beneficiary — the seller, but without any bank undertaking. Level of security — moderate to low, since the bank guarantees nothing. Cost — the lowest.

The practical conclusion is that conflating these three instruments exposes companies to risks they never intended to assume. A party who procures a documentary credit while seeking assurance as to quality has chosen the wrong instrument; a party who issues an on-demand guarantee believing it to be an accessory suretyship discovers the difference only after payment; and a party who relies on a documentary collection believing it to be a credit finds itself with no bank undertaking at all. The choice of instrument must be founded on risk analysis rather than on sectoral habit.

Frequently Asked Questions

1. May parties subject their contract to a foreign law before the Kuwaiti courts?

Yes. In contractual matters the applicable law may be chosen, and the Kuwaiti courts give effect to that choice where it is express and clear. The choice nevertheless stops at three limits: Kuwaiti public policy, overriding mandatory rules, and evasion of the law where a connecting factor has been manipulated to escape a mandatory provision.

2. Which law applies if the contract is silent?

The connecting rules in Law No. 5 of 1961 determine it: reference is made to the law of the parties' common domicile where their domiciles coincide, failing which to the law of the place of conclusion, with contracts relating to immovable property governed by the law of the situs. Silence is a poor option in practice, since it may lead to a law neither party anticipated.

3. Who proves the content of a foreign law before a Kuwaiti court?

The party relying on it must place its content before the court in a certified official translation, supported where necessary by the opinion of a legal expert in that system. Where a party fails to prove it, or the court cannot ascertain its provisions, practice applies Kuwaiti law as the law of the forum — a tactical point of real significance in case planning.

4. Does a foreign jurisdiction clause bar litigation in Kuwait?

Not absolutely. The clause is given effect within its limits, but it does not divest the Kuwaiti courts of jurisdiction in matters where their jurisdiction is a matter of public policy, such as real rights over immovable property in Kuwait and enforcement against assets located in the State. The clause must also be clear as to its exclusivity, failing which it may be read as non-exclusive.

5. What is the difference between a documentary credit and a bank guarantee?

A credit is a payment instrument, paid in the ordinary course of the contract against conforming documents; a guarantee is a security instrument, paid on the counterparty's default and upon the beneficiary's demand. Both are bank undertakings independent of the underlying contract, but their function and the trigger for payment differ fundamentally.

6. Can a buyer stop the bank from paying because the goods are defective?

As a general rule, no. The autonomy of the credit from the underlying contract requires the bank to pay where the documents conform, and a defect in the goods is not a documentary discrepancy. The only exception is conclusively established manifest fraud, and the burden of proving it is heavy. A buyer seeking assurance as to quality must stipulate an inspection certificate from an approved independent body among the credit documents.

7. Do Incoterms govern the transfer of title to the goods?

No. Incoterms allocate cost, risk, and the obligations of carriage and clearance only. They do not govern transfer of title, the price, the applicable law, or dispute resolution. Transfer of title is governed by the law applicable to the contract, and it is advisable to address it expressly and tie it to payment of the price in full.

8. Does the Vienna Sales Convention apply to Kuwaiti contracts?

On the settled position as at the date of this article, Kuwait is not a contracting state, so the Convention does not apply automatically. It may nevertheless apply where the parties choose it expressly, or where they choose the law of a contracting state without excluding it. Verification of accession status at the time of each contract is advisable, as is express exclusion where the Convention is not wanted.

9. Are rising prices and freight rates force majeure?

As a general rule, no, because force majeure requires impossibility of performance and not mere onerousness. The most such a situation can support is a plea of exceptional circumstances on its narrow conditions, the effect of which is reduction of the onerous obligation to a reasonable measure rather than dissolution of the contract. The correct preventive solution is a price review clause tied to a published objective index.

10. What are the conditions for enforcing a foreign judgment in Kuwait?

The principal conditions are reciprocity, the foreign court's jurisdiction over the dispute, regularity of service and representation, finality of the judgment in its state of origin, absence of conflict with a Kuwaiti judgment on the same subject matter, and consistency with Kuwaiti public policy and morals. The Kuwaiti court does not re-examine the merits but verifies that these conditions are satisfied.

11. Do regional conventions make enforcement easier?

Yes, considerably. A treaty framework — such as the Riyadh Arab Convention on Judicial Cooperation and the Gulf Cooperation Council convention on enforcement of judgments — makes the enforcement route simpler and faster than that for a judgment rendered in a state having no convention with Kuwait. The treaty framework applicable to the counterparty's state should therefore be examined before signature rather than after a dispute.

12. What is the one clause I should never sign an international contract without?

The matter cannot be reduced to a single clause, but the most dangerous omission is the dispute resolution package: the applicable law, the exclusive mechanism, and its place and language. This package determines — at the first sign of difficulty — where you litigate, under which law, and whether what you obtain can be enforced. Next in importance are the force majeure clause and the payment and security instrument.

13. Is an electronic signature sufficient to conclude an international contract?

Electronic Transactions Law No. 20 of 2014 confers evidential weight on electronic records and signatures within its limits, so electronic contracting is possible. Three matters must nevertheless be verified: whether the counterparty's law accepts that means, the position of the authorities to which the contract will be presented such as banks and customs, and whether the law prescribes a special form for the particular transaction.

14. How do I protect myself against counterparty risk in practice?

Through graduated measures: verifying the counterparty and its signatory's authority before contracting; tying payments to objectively verifiable performance milestones; obtaining a bank guarantee or a confirmed credit; stipulating pre-shipment inspection by an independent body; insuring the goods and taking out export credit insurance; documenting every change by a written variation order; and selecting a dispute resolution mechanism enforceable where the debtor's assets are located.

Conclusion

A study of international contracts and foreign commercial transactions in the State of Kuwait reveals a professional truth simple in expression and profound in effect: the risk in these contracts lies for the most part not in the substance of the obligation but in the legal architecture surrounding it — which law governs it, which forum determines a dispute under it, how the risk of loss passes, by what instrument the price is paid or performance secured, and whether any judgment obtained can actually be enforced against the debtor's assets. All of these are settled before signature in a few lines, or paid for afterwards in years of litigation.

The Kuwaiti framework, as we have seen, provides adequate tools for managing these risks: clear connecting rules in Law No. 5 of 1961, settled substantive provisions in the Civil and Commercial Codes, an organised framework for the enforcement of foreign judgments in the Procedure Law, and a jurisprudence that has settled on respecting the parties' choice of law and the autonomy of banking undertakings. Those tools nevertheless do not substitute for precise drafting, because the law repairs the failings of drafting only within narrow limits.

The overarching practical recommendation is that an international contract should be treated as a risk management system rather than merely an instrument recording an agreement: its clauses should be built around the question "what if performance fails?" and not only around "what did we agree?". It is prudent to involve specialised legal counsel at the negotiation and drafting stage rather than at the dispute stage, since an hour of review before signature generally spares years of litigation in a distant jurisdiction, and spares the discovery that a judgment given in your favour cannot be enforced.

Legal Disclaimer

The information contained in this article is provided for legal awareness purposes only and does not constitute legal advice or a binding legal opinion, as each case differs according to its own circumstances and facts.

If you require specialised legal advice or representation before the judicial authorities, we welcome you to book an appointment with our legal team.

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