Kuwait's Court Of Cassation Upholds Arbitration Clause In Distribution Agreement

On 13th February 2018, the Kuwaiti Court of Cassation confirmed in a landmark judgement that an arbitration clause providing for international arbitration in a distribution agreement is valid and excludes the jurisdiction of the Kuwaiti courts. The decision puts an end to many years of ambiguity regarding the arbitrability of disputes based on commercial agency, dealership, and franchise agreements in Kuwait.

For many years, whether disputes based on distribution agreements may be submitted to arbitration was an unsettled matter in Kuwait. This ambiguity stems from Article 285 of the Kuwaiti Commercial Code, which establishes the competence of the courts at the "place where the contract is performed" for all "disputes based on agency". Furthermore, Article 286 of the Commercial Code applies Article 285 to exclusive dealership contracts.

Legal commentators in the past interpreted these provisions broadly and inferred that disputes based on distribution agreements (generally understood to comprise commercial agency, dealership, and franchise agreements) could not validly be submitted to arbitration. Therefore, according to widespread opinion, an arbitration clause contained in a distribution agreement was invalid and did not exclude the Kuwaiti courts' jurisdiction.

The Case in the Court of Cassation

On 13th February 2018, the Kuwaiti Court of Cassation decided a case based on a typical set of facts: the principal, an international company, terminated its medical products distribution agreement with a Kuwaiti distributor. Aggrieved by the termination, the distributor brought a claim for compensation against the principal.

The distribution agreement contained an arbitration clause providing for LCIA arbitration in London, in the English language. In court, the distributor argued that the clause did not exclude the jurisdiction of the Kuwaiti courts. First, the distributor claimed that Article 285 of the Commercial Code rendered arbitration impermissible in matters relating to distribution, making the arbitration clause invalid. Second, the distributor argued that its management had lacked the authority to enter into the arbitration clause. Third, the distributor claimed that the arbitration clause lapsed once the principal terminated the distribution agreement.

The Decision of the Court

The Court refuted the distributor's arguments and held that, under Kuwaiti law, an arbitration clause providing for international arbitration in a distribution...