COVID-19: KUWAIT UPDATE

The COVID-19 pandemic has affected most, if not all, communities/businesses around the world in one way or another.

While the health implications are rightfully in the forefront, the focus of this email are on the challenges facing businesses in maintaining continuity and mitigating the consequences of the pandemic.

While maintaining commercial operations is a top priority for business owners and management during this crisis, associated legal risks should also be considered and managed. Measures that should be taken will vary depending on the relevant circumstances. Our comments should not be seen as a substitute for formal legal advice. This email is merely meant to highlight certain issues that may be of relevance. We recommend businesses retain the services of legal counsel to provide advice on the issues facing their operations as a result of COVID-19 in light of their particular circumstances.

We hope you find our comments below helpful and that you, your families and colleagues stay safe during this time.

1. Contracts Generally

Contracts should be reviewed to assess the impact of the current circumstances on the parties’ rights and obligations. Contracts often regulate the consequences that may flow from the impact of significant and unforeseen circumstances on a contracting party’s obligations.

Perhaps one of the more significant issues to consider is the relevance and impact of force majeure provisions. These provisions typically regulate what would occur should the performance of contractual obligations become impossible due to considerations beyond the control of the obligated party. While Kuwaiti law does regulate this issue generally, parties may agree in a contract on what may constitute a force majeure event within certain parameters as well as which party would bear the risk should such an unforeseen force majeure event occur. Unless otherwise agreed, parties would typically bear their own losses arising from force majeure events. We do emphasize that force majeure provisions tend to be bespoke and circumstances which may trigger force majeure provisions as well as the consequences thereof often differ.

Where unforeseen and extraordinary circumstances arise which makes it unduly onerous to perform an obligation but not impossible (in which case, force majeure may apply), Kuwaiti law does contemplate the possibility of relief being available to a detrimentally impacted party.

Other rights of recourse/relief may also be available, whether under law or as contemplated in the underlying contract between the parties (rights to suspend or terminate the obligation, relief on account of sovereign/government action, changes in law, limitations of liability, indemnities, etc.). The approach which may be taken will have to be considered in light of the relevant circumstances and the contractual terms which govern the parties’ relationship; and care should be taken to ensure that all rights and remedies are preserved as far as possible.

2. Employment Relations

In assessing their options, businesses may be considering how to deal with their employees, particularly where matters escalate. While the payment of salaries is a significant consideration, employers are also looking at innovative ways to mitigate the risks to staff, maintain continuity and to keep costs down as far as possible (work from home, etc.). It has been our experience that employers aim to find reasonable solutions and avoid resorting to drastic action as far as possible.

Of possible significance, measures such as applying a suspension or reduction in salary and/or obliging employees to take leave are impacted by and generally restricted under the Kuwaiti Employment Law. That said, the COVID-19 pandemic is unprecedented and may give rise to possible arguments applying general “force majeure” and/or “extraordinary circumstances” principles of law to support such measures depending on the particular circumstances – applying a balanced approach to employees’ rights vis-à-vis the financial implications being suffered by employers as a result of the crisis. This would involve an assessment of the different protections afforded to employers and employees under the subject employment contracts, various laws (which may differ with regard to the type of relief available) and the relevant circumstances.

3. Lease Arrangements

Certain sectors and businesses have been closed down by the Government (malls, cinemas, restaurants, etc.). The pandemic and measures taken to curb its spread have also had knock-on effects for some other businesses which, while not expressly required by law to close, have done so for other reasons (Government imposed curfew, lack of customers/foot traffic, working from home, etc.). In light of this and the resultant negative impact on cash flow, businesses are looking to cut down costs including rental expenses.

Depending on the circumstances, tenants may be entitled to pursue different forms of relief such as the possible application of the force majeure or extraordinary circumstances arguments noted above. Extraordinary circumstances causing undue hardship may feature prominently in regard to landlord – tenant relationships particularly where landlords receive relief from Government programs and do not pass it along to their tenants. In all events, each situation and lease would need to be considered carefully to assess the parties’ respective rights and obligations.

4. Lending Arrangements

In consideration of the economic challenges brought upon by the pandemic, the Kuwait Banking Association has declared that all local banks are to suspend the obligation to pay installments on consumer debt and loan arrangements of all Kuwaiti citizens, the children of Kuwaiti women, stateless persons and of SMEs for a period of six months. All interest and applicable fees arising during this period will also be waived. A number of banks have also delayed the payment of installments of all customers of their own accord (including that of expatriates) for a period of six months.

5. Management/director Liability

Business owners and management should be cautious regarding the manner in which they operate their businesses during this time. Depending on the circumstances, certain members of management (e.g. a registered general manager and the board of directors) may be held liable for mismanagement of their businesses and the taking of actions that are in conflict with the law. The Kuwaiti Companies Law provides for the possible personal liability of such parties.

6. Ongoing Litigation & Time Bar

While certain Governmental projects continue, all other non-emergency Government offices/departments are currently closed. While they are presently scheduled to reopen and resume work on
26 April 2020, this shutdown may be extended further. This Government shut down also includes the Kuwaiti Courts and the Experts Department at the Ministry of Justice. All court and expert hearings, which are scheduled during the period of shutdown, are automatically adjourned to a later date that will be decided on in due course.

A related issue which may be of significance is where a party only has a limited period to institute an action for a claim and which, if not done, could result in the claim being barred due to the lapse of time. Under the law, the time bar period differs depending on the nature of the claim. There is also the issue of the timely filing of court notices/challenges and the impact of the current crisis on such filing. We recommend businesses consult with legal consultants to ensure that their claims and challenges do not become time barred in the circumstances.

Sam Habbas
Senior Partner
shabbas@asarlegal.com

Ahmed Barakat
Managing Partner
abarakat@asarlegal.com

Paul Day
Partner
pday@asarlegal.com

Luis Cunha
Partner
lcunha@asarlegal.com