Although the State of Kuwait is a relatively small country, it enjoys one of the strongest financial positions amongst member states of the Gulf Cooperation Council (GCC) and the Middle East, holding one of the highest valued currencies in the world partly due to its vast crude oil reserves, estimated at 9% of the world’s total crude oil reserves. As Kuwait aims to diversify its economy away from the oil sector, legislative and regulatory measures have been taken to strengthen its private sector by encouraging the growth of local commercial endeavours and small and medium enterprises (SMEs).
Since 2012, Kuwait had witnessed significant changes in market behavior with a shift from traditional commerce towards e-commerce. Of particular interest, is the fact that Kuwait’s population’s internet penetration rate is estimated at approximately 87% with a very strong social media presence, a reality capitalised on by the local private sector which has created online markets to cater to the demands in a broad range of sectors (from online food and/ groceries orders and delivery services, online payment/transfer applications, etc.). Even Kuwaiti governmental authorities have adopted online options (including e-visas and various online payment options). In the wake of this digital revolution and to address the various legal challenges created by those new opportunities and recent technological developments in the field of communications based on the exchange of information through modern communication network, the Kuwaiti national assembly issued Law No. 20 of 2014 (Regarding Electronic Transactions) (the “ET Law”). The ET Law was became effective upon the issuance of Executive Regulations No. 48 of 2014 on January 4 2015 (the “ET Bylaws”).
Introduction to ET Law
The ET Law has been drafted in light of model law issued by the United Nation along with comparative law on electronic transaction of Arab and western countries. The objective of the ET Law is to emulate the traditional paper based transactions processes in a regulated digitalized system that ensures efficiency and security in the contemporary business ecosystem. The ET Law governs electronic contractual agreements, electronic signatures and electronic payments along with other related operations. It also provides the provisions that illustrate the extent of its application and safeguard its implementations and enforcement.
Article 2 of the ET Law provides for the scope of its application (i.e. electronic documents and signatures, online payments, etc.). Please note however, that the ET Bylaws specifically exclude the followings from the scope of its application:
1. transactions and issues related to personal status, endowment, and wills;
2. real estate title deeds and the resulting original or consequential real rights;
3. promissory notes and negotiable bills of exchange; and
4. any event that the law requires to be expressed in a written document or to be documented or the making of which is subject to a specific provision of another law.
Furthermore, please note that the ET Law specifically provides that no one is required to accept to deal by electronic means.To that effect and as a general premise, an electronic document or record (submitted into evidence as a hard paper copy) with an electronic stamp should be enforceable in Kuwait subject to the counterparty having accepted or approved the electronic transaction. More specifically, Article 4 of the ET Law provides that no person is obligated to accept or approve electronic transactions without their consent. Such consent may in certain instances be implied by the actions of individuals. However, in respect to governmental entities and authorities, their consent and approval of electronic transactions must be explicit and unequivocal.
Having regard to the foregoing, adopting a conservative approach, it would be preferable for a non-governmental counterparty to expressly agree to electronic transactions (including for example the use of electronic invoices and electronic stamps). For governmental counterparties this would be mandatory.
The ET Law provides that electronic payment is an acceptable payment method so long as it complies with its provisions and the provisions set forth by the Central Bank of Kuwait (CBK) in Law No. 32 of 1968 (the “Banking Law”). The ET Law also states that financial institutions carrying out electronic payments must take the necessary procedure to ensure the safety and security of customer services and maintain banking confidentiality in accordance with the relevant legal standards. Moreover, the CBK is given the authority to issue instructions to banking and financial institutions under its jurisdictions in relation to the regulations of such electronic payments.
The ET Law sets up the legal requirements that must be met to render an electronic signature as legally binding as a written “wet ink” signature. Under the ET Law, an electronic signature is binding and admissible as evidence, if it complies with the provisions of Law Decree No. 39 of 1980 on Evidence in Civil and Commercial Matters, and certified by an electronic certification entity approved by the local authority. The relevant authority will specify the standards required and set the technical specifications thereof.
Under Article 9 of the ET Law, to be binding an electronic document or record must meet the following requirements:
a) it must be kept and maintained in the form of an electronic document or record in accordance with any other requirements of the concerned authority responsible for supervising electronic transactions.
b) it must be capable of being saved and maintained in the form for which it was created, communicated or received, or in any form which is easy to prove the validity and accuracy of its information upon its creation, communication or delivery – an electronic document or record shall not be binding on an addressee if the creator arranged for the addressee to be unable to retrieve, print out, store or maintain the electronic document or record;
c) information in the electronic document or record must be possible to maintain, keep and store for retrieval at any time; and
d) the information contained in the record or document must indicate the transaction reference or number, identity of the creator (and sender if different than the creator), the receiving person and date and time of creation, transmission and receipt
Privacy and data protection
Of particular significance, is the introduction of a concept akin to what is known in jurisdictions such as the US and the UK as data privacy. More specifically, government authorities and non-governmental bodies will not be able to access, disclose or publish any “personal data” or information registered in the records or systems of electronic processing related to positional affairs, personal status, health status or elements of the financial disclosure of persons or other personal information registered at any government authorities or non-governmental bodies and will be required to take certain steps to ensure the confidentiality of such information.
The ET Law imposes responsibilities on entities that collect personal data. More specifically, the ET Law provides that entities may not disclose any personal data or information kept or documented on electronic data processing systems related to a person (including inter alia its financial status) without the approval of the person to whom the data relates, or after obtaining a court order granting permission to disclose the information, it being specified that the purpose of the data collection must be explained. Furthermore, upon obtaining the consent of the relevant person whose data will be shared with a third party, entities must ensure that the data (a) is used for the purpose for which it has been collected for, (b) is correct and updated regularly and (c) is sufficiently protected from loss or disclosure.
It is unclear at this stage whether “personal data” are those relating to individuals only or also extend to corporate entities. Further, the territoriality scope of those provisions is not expressly provided for and one may consider that same applies to any entity carrying on business in Kuwait. However, it is too early yet, to express an opinion as to how the ET Law will be interpreted and enforced by Kuwaiti courts.