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Asad Ahmad - Associate - Corporate / Mergers and Acquisitions
A new wave of concerns and queries has risen regarding Kuwait Law No. 25 of 1996 (the “Commissions Law“). Foreign companies doing business with Kuwait are typically unaware of the Commissions Law until it is too late. Usually Kuwait public tender projects are awarded to foreign companies. These foreign companies have more than likely utilized the services of an intermediary local agent to procure the government project. This scenario sets the stage for a Commissions Law violation. The proverbial net has been cast wide and far with an unclear broad scope and no known avenue for correction available to any violator.
In the year of its enactment, the Commissions Law was extensively debated in the Kuwait National Assembly. The debate included the draft legislation related to the Kuwaiti Ministry of Defense procurement and alleged irregularities, which included excessive commission payments to brokers and middlemen. Against this backdrop, the policy reasoning behind the Commissions Law becomes clear, there must be full transparency and accountability in connection with government contracts. The Kuwait government should be applauded for taking this step as an attempt to identify and expel any internal corruption. Yet it seems this deterrence mechanism has been underutilized by the Kuwait judiciary,
Briefly summarized, the Commissions Law places an obligation on both a foreign principal and a local Kuwaiti agent, whom are involved in the execution of a Kuwait government contract, to disclose their commercial arrangement to the relevant government entity. This disclosure must include specific details enumerated under the Commissions Law, and must be done in a certain timeframe. Furthermore, the disclosure requirement is not limited to commission payments. If any party involved in the execution of a Kuwait government contract derives any type of benefit as a result of the execution of the same, they would be obligated to disclose. It is important to note that the Commissions Law was not intended and does not prohibit the payment of commissions to local Kuwaiti agents for services they provide. On the contrary, an agreement to pay a commission fee as the basis for remuneration in an agency agreement would be considered a common practice in Kuwait. Please see below for more details.
The Commissions Law is drafted in broad and ambiguous terms, meaning that administrative and judicial interpretations and practices will be important in determining the precise application of the Law. The main principals and requirements of the Commissions Law are as follows:
As stated above, it is important to note that the language of the Commissions Law is somewhat convoluted (in both English and Arabic) and, in our experience, has given rise to some debate amongst legal practitioners in Kuwait. Having said that, we have found that the conclusion of the analysis under the Commissions Law is heavily based on the relevant facts of the matter in question. The vagueness of the language under the Law creates an opportunity for arguments to be made, based on the facts, that the Commissions Law elements are not fulfilled. Minimal changes to the facts seem to have a substantial impact on the analysis. This is of course subject to future judicial interpretation and application.
As of today, no Kuwait court has taken up a claim for a violation of the Commissions Law, however, with Kuwait’s attempt to crackdown on inter-governmental fraud, it’s only a matter of time before this occurs.