September 28th, 2015

A Summary of the Impact of Bahrain’s New Arbitration Law

LNB News 28/09/2015

 

Noor Al Tareif, Associate at Zu’bi & Partners Attorneys & Legal Consultants examines the impact of the Kingdom’s new arbitration law.

Analysis

On 9 August 2015, Bahrain Law No. 9/2015 promulgating the Arbitration Law (the “New Arbitration Law”) came into effect. Article 1 of the New Arbitration Law provides provisions of the UNCITRAL 1985 Model Law with its 2006 amendments on international commercial arbitration (the “UNCITRAL Law”) will apply to any arbitration whatever the legal relationship of the parties to the dispute, if the arbitration takes place in Bahrain or abroad and the parties to it agreed to be subject to the UNCITRAL Law. The provisions of the UNCITRAL Law will apply to all arbitration beginning after the New Arbitration Law’s entry into force regardless of whether the arbitration agreement was concluded before such entry into force. As a result of the promulgation of the New Arbitration Law, Chapter 7 on arbitration and Article 253 from the Civil and Commercial Procedures Act promulgated by Decree No. 12 of 1971 will be repealed. The International Commercial Arbitration Law promulgated by Decree No. 9 of 1994 will also be repealed. The introduction of the New Arbitration Law is a step forward in unifying international arbitration rules and ensuring Bahrain is an attractive jurisdiction in which to settle commercial disputes.

The New Arbitration Law provides that Bahrain will use option 1 in Article 7 of the UNCITRAL Law for the definition of an arbitration agreement and its form. In order to ensure successful reliance on arbitration as a method of dispute resolution, parties must ensure the arbitration agreement is in line with and meets the criteria of the provisions of Article 7 of the UNCITRAL Law, which provides as follows:

  1. “Arbitration agreement” is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
  2. The arbitration agreement will be in writing.
  3. An arbitration agreement is in writing if its content is recorded in any form, whether or not the arbitration agreement or contract has been concluded orally, by conduct, or by other means.
  4. The requirement that an arbitration agreement be in writing is met by an electronic communication if the information contained therein is accessible so as to be useable for subsequent reference; “electronic communication” means any communication the parties make by means of data messages; “data message” means information generated, sent, received or stored by electronic, magnetic, optical or similar means, including, but not limited to, electronic data interchange (EDI), electronic mail, telegram, telex or telecopy.
  5. Furthermore, an arbitration agreement is in writing if it is contained in an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by the other.
  6. The reference in a contract to any document containing an arbitration clause constitutes an arbitration agreement in writing, provided the reference is such as to make clause part of the contract.

GCC laws and practice of international arbitration, specifically with regard to the recognition and enforcement of foreign arbitral awards, were insufficient and required updating to fully conform to modern international arbitration practice, due to hindrances and lack of understanding of typical arbitration proceedings. This well-established GCC-wide issue is, however, rectified by the New Arbitration Law.

According to the UNCITRAL Law, an arbitral award, irrespective of the country in which it was made, will be recognised as binding and, upon application in writing to the competent court, will be enforced. Article 3 of the New Arbitration Law provides the Bahraini High Court is entrusted with considering and determining all arbitration related applications, including applications to enforce or set aside arbitral awards. Previously, little trust was placed in arbitration as a means of rectifying conflict. This new development ensures trust can and should be placed in Bahrain’s system of alternative dispute resolution.

In line with UNCITRAL Law Article 11, no person will be precluded by reason of his nationality from acting as an arbitrator, unless otherwise agreed by the parties. Amongst the most impactful provisions of the New Arbitration Law is Article 6, which provides “non-Bahraini lawyers may represent the parties to a dispute in the case of international commercial arbitration in Bahrain.” Thus, the New Arbitration Law permits foreign parties to use their own representation in international commercial disputes, a new development which has obvious positive ramifications on encouraging commercial investment into Bahrain and is a sign of the beneficial steps taken by the nation’s government to encourage such investment, bringing increased confidence to Bahrain’s judicial system of arbitration.

Article 7 of the New Arbitration Law provides no arbitrator appointed on the basis of the provisions of the UNCITRAL Law will be questioned on an act or omission in the carrying out of his duties, unless they were carried out in bad faith or were the result of a serious error. This provision also applies to the employees of the arbitrator or those authorised by him to direct some of the work associated with the tasks entrusted to him. Thus, arbitrators cannot be held liable save for cases of bad faith or grave error, which is a positive advancement sure to lead to an increase in the number of available arbitrators in Bahrain, boosting overall faith in the arbitral process.

Bahrain’s signature of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1988 was a positive step in itself towards encouraging means of alternative dispute resolution, as the traditional route of local courts can be an expensive and time-consuming process. However, other GCC countries have been reluctant to amend or produce local legislation reflecting the desire to committedly promote arbitration. The New Arbitration Law takes a huge leap forward to ensure Bahrain’s arbitration laws are in line with international best practices, bringing predictability in arbitral procedures and certainty in enforcement of awards in the region. Going forward, the enactment of the New Arbitration Law will hopefully result in an increase in the number of parties opting for Bahrain as the appropriate jurisdiction for their international commercial arbitrations.

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