The rules governing the issue of cheques in Kuwait are unique and the gaols of Kuwait are full of persons who have, often unknowingly, issued dishonoured cheques. Beware!
The regulations in Kuwait governing banking and commercial papers, such as letters of credit and guarantee, bills of exchange and promissory notes, are similar to what they are in North American and European jurisdictions.
However, when it comes to cheques, the rules are very different. Consider the following:
- Stop payment orders are illegal and, once it has been issued, the payment of a cheque cannot be blocked at the bank.
- To write a cheque without sufficient funds to cover it in the account is a criminal offence.
- A cheque is payable at sight regardless of its date, ie, a post-dated cheque may be presented for payment before its due date and, if this is done, it must be paid.
In some parts of the world a post-dated cheque may be issued before a service is performed. This assures the supplier that he will be paid when the job is done and, at the same time, the customer knows that he can stop payment should he not receive the service for which he has contracted.
This practice would not make sense in Kuwait as the supplier could legally cash the post-dated cheque as soon as he had received it and it would be impossible for the customer to stop payment under any circumstances.
The penalties for breaching the rules concerning cheques are very severe. Though offences relating to cheques were reduced from felonies to misdemeanours some years ago, you can get up to three years imprisonment and/or a fine of KD300 (just over US$1,000) in the following circumstances:
- where a cheque (including a post-dated cheque) has been issued without sufficient funds in the account to cover it at the time of signing the cheque;
- where money has been withdrawn from the bank account concerned after a cheque was written so that the remaining funds are not enough to pay the cheque;
- where a ‘stop payment’ order has been placed on the cheque; and
- where the cheque has been signed in a way that has been designed to prevent payment; eg, by using different signature than the sample signature lodged with the bank.
Another difference relating to cheques written in Kuwait compared to Western jurisdictions is that they become ‘stale’ after only one month; ie a cheque must be presented for payment within one month of its date, a far shorter period than in most of the developed world.
Up to relatively recently a legal action on account of a dishonoured cheque could be started at anytime, even in the distant future. Nowadays, it must be started within four months of the date of issue (provided the cheque was issued locally) or within six months of that date where it was issued overseas but is payable in Kuwait.
The advice for anyone living, working, or carrying on business in Kuwait is obvious – never, ever issue a cheque unless you have sufficient funds to cover it in your account at the time you are signing it, even if it is a post-dated cheque.
And never let the balance of your account fall below the amount needed to pay all outstanding cheques.