GBR – Global Business Reports

Selected quotes from the interview with Qays H. Zu’bi, Senior Partner, Zu’bi & Partners

Zu’bi & Partners is the oldest local law firm in Bahrain. Could you give a brief history of the firm and some of the services it provides, particularly in regard to aluminium and related industries?

Zu’bi & Partners is a family law firm established in 1921 and has operated in Bahrain since 1971. Hatim Sharif Zu’bi, who today is chairman, was a banker and minister for King Hussein of Jordan. As a result, when Hatim S. Zu’bi set up the firm in Bahrain, banks were attracted to Zu’bi & Partners, some of which were major international banks that today have been with the firm for 40 years. The firm also had a relationship with ALBA, one of the country’s most important companies by many benchmarks, since 1979. In addition to the firm’s litigation work, Zu’bi & Partners is often invited by international law firms to serve as local counsel on major projects. For instance, when the EPCM firm Bechtel is granted a contract, the firm assists in the setup of the structure and licenses. In nearly all largescale projects in Bahrain, Zu’bi & Partners has had a role, from advising financiers, advising contractors, advising banks, or advising developers to environmental regulation and structuring. Additionally, the firm has the resources that would enable it to defend any case or advise on any matter relevant to the aluminium industry.

The complexity of a legal system can impact the successful operation of an industry, especially a significant exporting industry like aluminium. What is the legal environment like for firms in Bahrain?

The Bahrain legal system is flexible. As an example, if a major aluminium company wants to sign an agreement, they can stipulate arbitration elsewhere and can subject it to English law as the governing law. Likewise, the government allows law suits to be brought against it, meaning that if the government enters into a contract, it considers itself like any other party. There are many cases where the government has been sued on contractual civil cases. In regards to the courts in Bahrain, compared to many countries in the region, the legal system is more robust. The execution of judgements takes more time than it should, but the firm believes the Ministry of Justice and Islamic Affairs are working on improving the speed of execution of judgements.

As a firm that is involved in the transportation and logistics sector, how would you asses the ease of export infrastructure in Bahrain for aluminium?

One of impediments at the moment for the aluminium industry is the King Fahd Causeway that links Bahrain to Saudi Arabia. Trucking delays are a major issue for the aluminium industry because of alternative cost. The delays have improved, but not to the extent that they are no longer an issue. However, Bahrain’s ports are superior to many other ports in the region. For example, in other ports, freight can sometimes take six months to clear. Despite the problems with the causeway, it is still faster to ship and clear goods in Bahrain rather than directly to neighboring ports.

Zu’bi & Partners has survived as a family law firm for several generations. Where would Global Business Reports expect to find Zu’bi & Partners in three to five years?

Zu’bi & Partners is in the process of engaging an international consultancy firm that specializes in developing law firms. The plan is to streamline the firm Zu’bi & Partners, to keep it ahead of other firms and bring in new partners to meet the expectations of a new generation of lawyers. Therefore to progress the matter, the firm plans to utilize technology to perform its work more efficiently and at a reasonable price. Zu’bi & Partners is also expanding its Dubai operations from the beginning of October 2015 onwards. We believe there  will also be a great deal of work in the oil and gas industry as the sector is restructuring.  For example, the firm has been invited by major international law firms to be local counsel on an upcoming LNG project in Bahrain.  Regarding the aluminium sector, the firm will continue to involve itself in ALBA’s line 6 expansion and is available to help the growing downstream sector and related service providers.

Notes to Editor:

Zu’bi & Partners is the oldest established local law firm in Bahrain and a top-tier legal services provider in Bahrain and the GCC.  The firm provides legal services across all leading sectors including banking and finance, corporate, commercial, construction, real estate, to name just a few.  It acts for both corporate clients and high net worth individuals in many diverse areas, including litigation and arbitration, property, labour, trade and family law.

The breadth of expertise and success of the Firm has been widely recognized by independent legal commentators and publications and is reflected in its client base of leaders in their fields, including both private and public institutions, government and quasi-government bodies, as well as high net worth individuals.

Contact: Qays H. Zu’bi, Senior Partner

Tel + 973 17 538 600 / email: qzubi@zubipartners.com / website:  www.zubipartners.com

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.

Has the country signed up to any international treaties?

New York Convention, 6th April 1988.

How does the way arbitration works in the Kingdom of Bahrain differ from other international jurisdictions?

Bahrain was the first country to offer what is being called a “Free Arbitration Zone” and the first to introduce the concept of statutory arbitration for commercial and financial disputes. Legislative Decree No. (30) for the year 2009 With Respect To the Bahrain Chamber for Economic, Financial and Investment Dispute Resolution (the “Decree”) gives parties who are interested in international arbitration the option of holding the arbitration in Bahrain without concern that the courts of Bahrain might interfere with, or set aside, the resulting award, as long as the parties seek to enforce the award only in another country.

What are the main Arbitration bodies in this jurisdiction- what laws/ type of laws do they operate under?

  • BCDR-AAA under Resolution No. (65) Issuing the Regulation of Dispute Resolution Procedures for Statutory ADR Tribunal.
  • Gulf Cooperation Council Commercial Arbitration Centre (GCAC) under the Charter & Arbitral Rules of Procedure.
  • The provisions of the UNCITRAL Model Law on international commercial arbitration attached to Law No. 9 of 2015 promulgating the Arbitration Law (the “New Arbitration Law”) (UNCITRAL 1985 with 2006 amendments) 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 New Arbitration Law.

Do people in this jurisdiction generally use local arbitration bodies or bodies in other locations? If so, which routine is most common – and does this vary with different types of transaction?

Litigants in Bahrain tend to use the local arbitration bodies available, such as the BCDR and the GCAC; however, parties have the option to choose a neutral site, reasonably convenient to both parties, with a friendly arbitration law, in which the courts have acquired a reputation for respecting arbitration awards.

How does recognition of foreign awards work in this jurisdiction?

According to the UNCITRAL Model Law, an arbitral award, irrespective of the country in which it was made, shall be recognized as binding and, upon application in writing to the competent court, shall be enforced.

Foreign awards are recognized and honored in Bahrain as long as these awards are not inconsistent with Shari’a laws and public order.

Is there a difference in the way foreign arbitration decisions and foreign court decisions are recognized?

In accordance with article (252) of the Bahrain Civil and Commercial Procedures Act 1971, Court judgments and orders passed in any foreign country may be ordered to be enforced on the same conditions as are laid down in the law of that country for enforcing court judgments and orders issued in Bahrain.

Application for issue of an enforcement order shall be filed with the High Court in accordance with the terms and conditions for filing court action after payment of the prescribed fees.

Are there specific situations where awards are not enforceable?

Article (V.1) of the New York Convention provides a limited list of reasons for which a court may refuse to enforce an award, including technical or procedural deficiencies in the arbitration agreement or process.

UNCITRAL Model Law Article 36 provides Recognition or enforcement of an arbitral award, irrespective of the country in which it was made, may be refused only:

(a) at the request of the party against whom it is invoked, if that party furnishes to the competent court where recognition or enforcement is sought proof that:

(i) a party to the arbitration agreement was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or

(ii) the party against whom the award is invoked was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or

(iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or

(v) the award has not yet become binding on the parties or has been set aside or suspended by a court of the country in which, or under the law of which, that award was made; or

(b) if the court finds that:

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of the State; or

(ii) the recognition or enforcement of the award would be contrary to the public policy of the State.

(2) If an application for setting aside or suspension of an award has been made to a court referred to in paragraph (1)(a)(v) of this article, the court where recognition or enforcement is sought may, if it considers it proper, adjourn its decision and may also, on the application of the party claiming recognition or enforcement of the award, order the other party to provide appropriate security.

Are there any differences in free arbitration zones or secondary jurisdictions?

Yes, the BCDR has two types of jurisdiction. The first is called “Jurisdiction under the Law” which authorizes referrals to the BCDR of two types of disputes that would otherwise have been heard by the Bahraini courts. The first type comprises disputes brought by or against financial institutions licensed under the terms of the Law of the Central Bank of Bahrain when the amount in controversy exceeds 500,000 Bahraini Dinars (approximately US$1.33 million). The second type of dispute to be sent to the BCDR as part of its Jurisdiction under the Law consists of all “international commercial disputes” in which the same amount or more is in dispute. The Decree specifies that:

A dispute is international if the headquarters of one of the parties to the dispute, the place where a substantial part of the obligations arising from the relationship is performed, or the place with which the subject matter of the dispute is most closely related, is located outside the Kingdom (of Bahrain).

A dispute is commercial if its subject matter concerns relationships of a commercial nature, whether contractual or not, including any transactions or agreements for the supply, exchange, or distribution of goods or services; commercial management or agency; leasing; factory construction; consultancy services; engineering projects; licensing; investment and financing; banking transactions; insurance; franchising; joint ventures; other forms of industrial or commercial cooperation; and transporting goods or passengers by air, sea, or land.

The second is called “Jurisdiction by Party Agreement”, under which the “Free Arbitration Zone” falls, thus allowing the parties to have the additional option of conducting their arbitration within the Free Arbitration Zone, cutting off all recourse to the courts of Bahrain to challenge any subsequent arbitration award, unless that award is to be enforced in Bahrain. Jurisdiction by Party Agreement, by contrast, depends on contract. The Decree permits parties to agree to arbitrate a dispute before the BCDR, with no requirement as to the amount in controversy, and no requirement that the dispute be international or commercial. It is only necessary that “the parties agree in writing to settle it through the chamber.”

Are there any types of dispute that cannot use arbitration as a vehicle?

If the parties do not confirm their will to resort to arbitration as a dispute resolution proceeding, they shall not be entitled to use arbitration as a vehicle.

Are there any mandatory procedures that have to be followed?  

Parties must comply with the regulations and rules of procedures issued in the arbitration bodies before which they choose to litigate. If the parties do not wish to litigate before the arbitration bodies mentioned above, they must abide by the general rules and regulations stated in the Bahrain Civil and Commercial Procedures Act No. (12) of 1971.

Are there specific features required in an arbitration agreement?

The New Arbitration Law provides that Bahrain will use option 1 in Article 7 of the UNCITRAL Model Law for the definition of an arbitration agreement and its form. Article 7 of the UNCITRAL Model Law 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 shall 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 that 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 that the reference is such as to make that clause part of the contract.

Are arbitration decisions domestically binding?

Yes. In accordance with Article 35 of the UNCITRAL Model Law, an arbitral award, irrespective of the country in which it was made, shall be recognized as binding and, upon application in writing to the competent court, shall be enforced.

Who can act as an arbitrator?

Anyone can act as an arbitrator as long as he/she has the required expertise. In accordance with UNCITRAL Model Law Article 11, no person shall be precluded by reason of his nationality from acting as an arbitrator, unless otherwise agreed by the parties. In accordance with Article 6 of the New Arbitration Law, non-Bahraini lawyers may represent the parties to a dispute in the case of international commercial arbitration in Bahrain.

In what circumstances can an existing arbitrator lose their status?

In accordance with Article 12 of the UNCITRAL Model Law:

(1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose any circumstances likely to give rise to justifiable doubts as to his impartiality or independence. An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall without delay disclose any such circumstances to the parties unless they have already been informed of them by him.

(2) An arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to his impartiality or independence, or if he does not possess qualifications agreed to by the parties. A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.

According to the BCDR-AAA Arbitration Rules – Challenge of Arbitrators – Article (8) allows the parties to challenge an arbitrator whenever circumstances exist that give rise to justifiable doubts as to the arbitrator’s impartiality or independence. Such challenge is to be noticed by the administrator within 15 days after being notified of the appointment of the arbitrator or within 15 days after the circumstances giving rise to the challenge become known to that party. If the other party/parties agree to the acceptance of the challenge upon notification, the arbitrator shall withdraw, however, this is not the case if the other party/ parties do not agree to the challenge or the challenged arbitrator does not withdraw. Here, the administrator in its sole discretion shall make the decision on the challenge. The challenged arbitrator may also withdraw from office in the absence of such agreement.

Do the arbitrators have any potential liabilities?

In accordance with Article 35 under “Exclusion of Liability” of the Arbitration Rules issued by the BCDR-AAA it is stated that the members of the tribunal and the administrator shall not be liable to any party for any act or omission in connection with any arbitration conducted under the rules, except that they may be liable for the consequences of conscious and deliberate wrongdoing.

How does the cost of arbitration vary with other jurisdictions?

In accordance with Article 32 under “Compensation of Arbitrators” of the Arbitration Rules issued by the BCDR-AAA, arbitrators shall be compensated based upon their amount of service, taking into account their stated rate of compensation and the size and complexity of the case. The administrator shall arrange an appropriate daily or hourly rate, based on such considerations with the parties and with each of the arbitrators as soon as practicable after the commencement of the arbitration. If the parties fail to agree on the terms of compensation, the administrators shall establish an appropriate rate and communicate it in writing to the parties.

In accordance with Article 23, Chapter 5 “Attribution Costs” of the G.C.C Commercial Arbitration Centre’s “The Charter & Arbitral Rules of Procedures” it is stated: the Centre’s Secretary General shall prepare a list containing a provisional estimate of arbitration costs and shall instruct each of the parties to the dispute to equally deposit a certain sum as an advance on account for such costs. He may instruct the parties to make supplementary deposits during the course of the arbitration proceedings.

How does the cost of arbitration vary with the cost of litigation in this jurisdiction?

Unlike the costs of litigation which are significantly cheaper than the costs of arbitration, arbitration costs vary from one arbitration body to another and from one arbitrator to another, depending on the expenses of the details chosen by the parties, such as the time given for the case to be resolved, the necessity of experts and translators, the seat of arbitration etc. Ultimately, arbitration is a much more expensive procedure in this jurisdiction.

In accordance with the BCDR-AAA rules:

FEE SCHEDULE
Amount of claimInitial filing feeCase service fee
Above $0 to $10,000$775$200
Above $10,000 to $75,000$975$300
Above $75,000 to $150,000$1,850$750
Above $150,000 to $300,000$2,800$1,250
Above $300,000 to $500,000$4,350$1,750
Above $500,000 to $1,000,000$6,200$2,500
Above $1,000,000 to $5,000,000$8,200$3,250
Above $5,000,000 to $10,000,000$10,200$4,000
Above $10,000,000Base fee of $12,800 plus 01% of the amount of claim above $10 million.$6,000
Non-monetary claims$3,350Filing fees capped at $65,000$1,250

Are any important specific time limits to be aware of in the arbitration procedure?

Time limits for arbitration procedures in Bahrain are regulated according to the procedural rules of the arbitration bodies mentioned above unless agreed otherwise by the parties.

How is the arbitration process started?

In accordance with Commencing the Arbitration, Notice of Arbitration and Statement of Claim, Article 2 of the Arbitration Rules issued by the BCDR-AAA -section 1, the party initiating arbitration shall give written notice of arbitration to the administrator and at the same time to the party against whom a claim is being made. Arbitral proceedings shall be deemed to commence on the date on which the administrator receives the notice of arbitration. The notice of arbitration shall contain a statement of claim including the following:

(a) A demand that the dispute be referred to arbitration;

(b) The names, addresses and telephone numbers of the parties,

(c) A reference to the arbitration clause or agreement that is invoked;

(d) A reference to any contract out of or in relation to which the dispute arises;

(e) A description of the claim and an indication of the facts supporting it;

(f) The relief or remedy sought and the amount claimed; and

(g) May include proposals as to the means of designating and the number of arbitrators, the place of arbitration and the language(s) of the arbitration

Upon receipt of the notice of arbitration, the administrator shall communicate with all parties with respect to the arbitration and shall acknowledge the commencement of the arbitration.

Do parties have to be physically present?

In accordance with General Conditions – Representation – Article (12) of the Arbitration Rules issued by the BCDR-AAA the answer is no, representatives may be present on the parties’ behalf. Their contact details (names, addresses and telephone numbers) must however be communicated in writing to the other parties and to the administrator. Once the tribunal has been established, the parties of their representatives may communicate in writing directly with the tribunal.

Are formal hearings normal?

The Charter & Arbitral Rules of Procedure of the GCC Commercial Arbitration Centre states, in Article (21) “Hearings”, the following:

“The tribunal shall hold, at the request of either party, at any stage of the proceedings, hearings for verbal pleadings or for hearing testimony from witnesses or experts. If neither party makes such a request, the Tribunal shall have the option either to hold such hearings or to go ahead with the proceedings on the basis of the papers and documents, provided that at least one hearing has already been held.”

Failure to appear has some consequences. According to Article (27), if either party fails to appear at the hearings after receiving notification to appear from the tribunal, and does not provide, during a period of time being fixed by the tribunal, an acceptable excuse for his absence, such absence shall not bar proceeding with the arbitration.

How do the evidential rules work in such cases?

See above. Furthermore, Article (20) of the BCDR-AAA Arbitral Rules states that evidence of witnesses may also be presented in the form of written statements signed by them. Next, the tribunal determines the admissibility, relevance, materiality and weight of the evidence offered by any party. The tribunal shall take into account Applicable principles of legal privilege, such as those involving the confidentiality of communications between a lawyer and client.

In what circumstances can an arbitration case be referred to national courts?

There are three cases in which an arbitration case may be referred to national courts:

(a) Where arbitral procedures fail to close a case with a final judgement that is accepted by both parties.

(b) If a substantial issue arises in the arbitral procedure, for example mismanagement or an unlawful act on behalf of the Tribunal. Thus, said case would then be transferred to the national court for a final judgement.

(c) Finally, if the arbitral procedure has taken more time than what was agreed on prior to the beginning, the national court would therefore take full responsibility for the case and its concluding judgements. On the other hand, the arbitral procedure may take longer than originally planned, this is when a formal request for an extension is given, if agreed upon by both parties. If the parties do not agree on the time extension, the initial time agreed upon will therefore apply.

Are interim measures possible?

Yes, Article (21) under Interim Measures of Protection of the BCDR-AAA Arbitral Rules states the following:

At the request of any party, the tribunal may take whatever interim measures it deems necessary, including injunctive relief and measures for the protection or conservation of property.

The Charter & Arbitral Rules of Procedure Article (28) “Interim Measures” further adds the exemplar measure of the preservation of the contentious goods, such as ordering the deposit of the goods with third parties or sale of the perishable items thereof in compliance with the procedural rules in the country where the interim measure is adopted.

Article 17A of the UNCITRAL Model Law provides that the party requesting an interim measure shall satisfy the arbitral tribunal that:

(a) Harm not adequately reparable by an award of damages is likely to result if the measure is not ordered, and such harm substantially outweighs the harm that is likely to result to the party against whom the measure is directed if the measure is granted; and

(b) There is a reasonable possibility that the requesting party will succeed on the merits of the claim. The determination on this possibility shall not affect the discretion of the arbitral tribunal in making any subsequent determination.

What majority is needed for a decision?

In accordance with Article 29 of the UNCITRAL Model Law, in arbitral proceedings with more than one arbitrator, any decision of the arbitral tribunal shall be made, unless otherwise agreed by the parties, by a majority of all its members.

What types of awards are available?

All types of awards whether substantive, supportive, procedural, institutional, or ancillary are binding in Bahrain, irrespective of the country in which they are obtained, upon an application for enforcement is submitted in writing.

What are the methods for challenging awards?

In accordance with Article 34 of the UNCITRAL Model Law, an arbitral award may be set aside by the High Civil Court only if:

(a) the party making the application furnishes proof that:

(i) a party to the arbitration agreement was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the State; or

(ii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside; or

(iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of the UNCITRAL Model Law from which the parties cannot derogate, or, failing such agreement, was not in accordance with the UNCITRAL Model Law; or

(b) the court finds that:

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of the State; or

(ii) the award is in conflict with the public policy of the State.

An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the award or, if a request had been made under article 33 (on correction and interpretation of award), from the date on which that request had been disposed of by the arbitral tribunal.

The court, when asked to set aside an award, may, where appropriate and so requested by a party, suspend the setting aside proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the arbitral tribunal’s opinion will eliminate the grounds for setting aside.

Can interest be applied for delays – if so how?

Article (268) of the Bahrain Civil and Commercial Procedures Act No. 12 of 1971 provides that interest may apply for delays. Upon the service of notification, the Court demands the convicted litigant to appear in Court and shall demand payment of the debt in one lump sum. If the said debt is satisfied together with the costs, fees, and interests, the debtor may be released. A brief summary of the aforesaid procedures shall then be recorded in the enforcement statement.

How are costs awarded?

If the arbitration is conducted under the GCAC rules, provision is made for the cost of arbitration to be regulated. The GCAC charges a nominal fee for every reference to arbitration, and charges fees for the services provided to the parties not exceeding two per cent of the amount in dispute. Remuneration for arbitrators is also determined as a percentage of the amount in dispute.

What is the domestic procedure for enforcing a foreign court judgment?

According to Article (252) of the Bahrain Civil and Commercial Procedures Act No. 12 of 1971, the domestic procedure for enforcing a foreign court judgment in Bahrain requires filing an application with the High Court for “issue of an enforcement order” in accordance with the terms and conditions for filing court action after payment of the prescribed fees.

No enforcement order may be passed except after ascertaining the following:

  1. That the Bahrain law courts are not competent to hear the case in respect of which the court judgment or order was passed and that the foreign courts which passed it are competent in accordance with the international rules of jurisdiction set down in the laws thereof.
  2. That the litigants to the case in respect of which the judgment was issued were duly summoned and properly represented.
  3. That the court judgment or order has become final in accordance with the law of the cou7rt that passed it.
  4. That the court judgment is in no way consistent with any judgment or order previously passed by the Bahrain courts and does not provide for anything which constitutes a breach of public order or ethics.

How does Islamic law affect the enforcement of foreign court judgments?

In accordance with Articles (254-255) of The Bahrain Civil and Commercial Procedures Act No. 12 of 1971, the High Court may not issue an enforcement order except after ensuring that the conditions required for the validity of the application are in accordance with the law of the country where it was created. Subsequently, the application shall not contain anything that constitutes a contravention of public order or ethics in Bahrain, and compliance with the rules set forth shall not prejudice the provisions of existing treaties.

Will it be relevant to consider if the foreign court had personal jurisdiction over the parties?

Yes. In accordance with Article (252) of the Bahrain Civil and Commercial Procedures Act No. 12 of 1971, no enforcement order may be passed except after ascertaining the that the Bahrain law courts are not competent to hear the case in respect of which the court judgment or order was passed and that the foreign courts which passed it are competent in accordance with the international rules of jurisdiction set down in the laws thereof.

Will the local party have to have been served with any specific notifications before the case for a foreign court judgment to be enforceable?

Yes. In accordance with Article (252) of the Bahrain Civil and Commercial Procedures Act No. 12 of 1971, it is essential for the judge, who is required to enforce the foreign judgment, to ascertain that the litigants have been duly summoned and properly represented.

Are judgments from some jurisdictions, e.g. other GCC states given greater deference – if so which ones and how?

Article (1) of the GCC Convention for the Execution of Judgments, Delegations and Judicial Notifications states the following:

1. Each of the GCC countries shall execute the final judgments issued by the courts of any member state in civil, commercial and administrative cases and the personal affairs cases in accordance with the procedures as provided under this agreement, provided that the court that issued the judgment has the jurisdiction in accordance with the international jurisdiction as applicable in the member state where the judgment is required to be executed or has the jurisdiction in accordance with the provisions of this agreement.

2. The preceding paragraph shall apply to any resolution whatsoever shall be issued in accordance with judicial or venue procedures by courts or any competent party in one of the member states.

Will domestic authorities ever only recognize part or limit awards?

Domestic authorities must execute the foreign judgments as issued, provided that they do not oppose the Shari’a Law and public order.

Will damages in a foreign judgment need to be paid in local currency/using local interest rates?

Judgment amounts are determined in the currency of the country in which the judgment has been issued or its equivalent in Bahraini dinars.

Text by:

Rasha Belbaisi, Legal Consultant/Certified Arbitrator, Zu’bi & Partners Attorneys & Legal Consultants

Assisted by Noor Al Tareif, Associate, Zu’bi & Partners Attorneys & Legal Consultants

Note to Editor:

About Zu’bi & Partners

Zu’bi & Partners is the oldest established local law firm in Bahrain and a top tier legal services provider. The firm provides legal services across all leading sectors, including banking and finance, corporate, commercial, construction, and real estate, to name just a few. It acts for both corporate clients and high net worth individuals in many diverse areas, including litigation and arbitration, property, labour, trade, and family law.

Contact: Qays H. Zu’bi, Senior Partner

Tel + 973 17 538 600 / email: qzubi@zubipartners.com / website:  www.zubipartners.com

Gulf Insider: July 2015

The Problem…

During recent years, Bahrain has witnessed a revolution of high quality developments and substantive projects that reflected positively on the national economy, through the creation of multiple job opportunities and attracting foreign investment.

Nevertheless, Bahrain’s real estate market has been constantly facing a number of challenges, mainly those arising from the sale of “off plan properties” to investors without governmental approval. Many of those projects were never fully completed, either due to improper planning and mismanagement of funds, material breaches of contractual provisions, unforeseen events of force majeure, or violations of the laws through undertaking real estate development activities prior to obtaining the required licenses and approvals from concerned authorities, leaving the investors without remedies for the incurred losses resulting from such delays.

… and the Solution

Based on the large number of legal claims arising from those issues, the New Law was passed as a tool to offer further protection to investors and to restore confidence in the Bahrain real estate development market.

Under this New Law, real estate developers are prevented from undertaking, marketing or promoting any project, prior to obtaining the required licenses from the concerned authorities (in particular, from the Ministry of Municipalities and Urban Planning) following the submission of all necessary and supporting documents relating to the projects. Furthermore, completed plans, including the design, artist impressions, the start and completion dates and value estimates are required to be presented and approved by the Engineering Practices Regulatory Committee. Therefore, as a result to these regulations, “off plan” properties will be prohibited, since developers will only be permitted to sell completed units, unless otherwise approved, and a detailed field assessment has been conducted.

The New Law also imposes penalties, including imprisonment and fines, on developers who commit any of the violations stated in the New Law; such as selling unlicensed, incomplete or unregistered projects, violating the provisions of a granted license, or having knowingly submitted false information to the competent authorities for the purposes of registering a project or obtaining a license.

Always on the Safe Side

As a substantive guarantee to investors’ rights, developers shall be compelled to deposit their projects’ funds into a “Guarantee Account”, prior to commencing work on a project, of which 5% will be held by the appointed Account’s Secretary to ensure the settlement of any compensation claims that may arise from the suspension of the project. The New Law also grants both the buyer and the seller the right to terminate a sale and purchase agreement and claim compensation for any loss and damage arising from such termination.

Furthermore, under the New Law, if a project is partially suspended, the developer will be obliged to complete the project or reimburse the investors for the amounts. If a project has been fully suspended, the developer will be required to complete the project at its own expense, under the supervision of a different developer or sell the project and distribute the revenues among the investors.

One of the most prominent outcomes of the New Law is the introduction of the “Real Estate Projects Dispute Committee” whose main role is to resolve the disputes relating to real estate projects within six (6) months. The Committee’s verdict can be challenged before the Court of Appeal within fifteen (15) days of the verdict’s issuance date.

We hope that the New Law will pave the way towards a prosperous future for Bahrain’s real estate market which will ultimately benefit the national economy as a whole.

Text by:

Rasha Belbaisi, Legal Consultant/Certified Arbitrator, Zu’bi & Partners Attorneys & Legal Consultants

Arabian Homes: July 2015

Comparison of New and Old Lease Laws

A new Lease Law, Law No.27 of 2014 (“Lease Law”) came into effect on February 7th, 2015, as part of a new wave of development in the real estate market.

The previous law, the Rents Act No. 42 of 1946, as amended, was, at times, difficult to enforce, as it divided the Kingdom into two municipalities only, Manama and Muharraq, and applied only to certain premises with specific types and purposes. Furthermore, the imbalance of rights afforded to both the tenants and the landlords under the old law was one of the crucial issues that was fortunately addressed by the Lease Law.

In comparison, Law No.27 of 2014 applies to new and existing residential, industrial, commercial, professional leases of properties in Bahrain; however, the following leases are exempt from the provisions of the Lease Law:

  • Industrial Tenancies which are subject to Law No. 28 of 1999 in relation to the Establishment and Organization of Industrial Zones;
  • Leases of agricultural land;
  • Properties leased for the purposes of hospitality and tourism;
  • Leases of furnished apartments which do not exceed a period of 1 month;
  • Leases of units which are used for work circumstances; and
  • Properties subject to Musataha arrangements for the purposes of development.

The Lease Law annuls previous laws issued under proclamations 29 of July 9th 1944, 42 of August 25th 1946, 42 of 1955 as well as law decrees 9 of 1970 and 8 of 1948.

As a result, the comprehensiveness of the Lease Law and its applicability to exclusive types of properties in all areas of Bahrain, achieves the aim of providing clarity and consistency to an extremely important sector of the region’s legal system, by codifying the previous lease laws into one single piece of legislation.

Prominent Features of the Law No.27 for 2014

The documentation and registration of the existing and new leases has been addressed in the Lease Law. Under the Lease Lawall existing and new leases must be documented and registered by the landlord, with the “Municipal Lease Registration Office”, which is the entity responsible for the registration and management of leases, upon payment of a fee ranging from BHD (1) to (5) for residential leases and BHD (5) to (10) for other types of leases within 6 months from the effective date of the new Lease Law.

Article 35A of the Lease Law prevents a landlord from requesting a tenant to vacate the lease property within the first 3 years of the term of residential leases, or within the first 7 years of the term of other leases (industrial, professional, or commercial), unless the parties agree otherwise.

The restrictions imposed on the landlord’s rights to increase rent were among the most significant impacts of the Lease Law. Unless the parties to a lease agreement have agreed otherwise in writing, the Lease Law restricts landlords from increasing the agreed rent for a consistent period of (2) years from the date of the lease or the date of the last increase of rent. The Lease Law limits the level of the rent increase to 5% for residential leases and 7% for all other types of leases. Under the Lease Law, the landlord is not entitled to increase the rent more than (5) times during the term of the lease.

Furthermore, the Lease Law stipulates that rent should be paid within the first week of the agreed due date. If the lease agreement does not specify a due date, the rent shall be due on the first day of each month during the term of the lease agreement.

Furthermore, the Lease Law permits the landlord to receive a deposit not exceeding 3 months’ rent which should be refunded to the tenant on the expiry of the lease term or any time sooner by termination or handover. The deposit payment will be subject to deductions applied by the landlord for any breaches or obligations that remain at the time of termination of lease on the tenant.

One of the most prominent outcomes of the new Lease Law is the introduction of the “Rent Disputes Committee”. Under the new Lease Law, all disputes related to any provision of the new Lease Law will now be resolved out of Court in a timely manner by the “Rent Disputes Committee”. It is hoped that this new approach will result in an overall reduction of the burden set on national courts.

The passing of the Lease Law is considered to be a long awaited development in the regulation of the property sector and is expected to resolve many of the issues currently faced by contracting parties and facilitate the settlement of related disputes.

Text by:

Rasha Belbaisi, Legal Consultant/Certified Arbitrator, Zu’bi & Partners Attorneys & Legal Consultants

Noor Al Taraif, Associate, Zu’bi & Partners Attorneys & Legal Consultants

The Oath: April 2015

Rasha Belbaisi and Noor Al Tareif of Zu’bi & Partners analyze the impact of new real estate development laws in Bahrain

Investor protection law

The Bahrain Development Property Association has been working hard to improve the Kingdom’s property and real estate industry by rehabilitating Bahraini cadres, bringing together developers and professionals and cooperating with international real estate development institutions. So far, they have succeeded in recruiting 18 international real estate companies to take advantage of their expertise to improve the quality of real estate laws and regulations in the country. More recently, the Kingdom’s Cabinet has approved a new law aimed at resolving failed multi-million Dinar investment projects and protecting investors. Bahrain Law No. 28/2014 complements a new law governing new investment projects which has already been passed by the National Assembly and ratified by H.M. King Hamad bin Isa Al Khalifa. That law, amongst other things, requires anyone embarking on a new project to submit complete plans including start and completion dates, designs and artists’ impressions, as well as a valuation estimate for the scheme which has been calculated by an engineering firm and ratified by the Engineering Practices Regulatory Committee. The Municipalities and Urban Planning Affairs Ministry will be the competent authority in charge of real estate development and will take charge of carrying out the provisions of the new law. Developers who break the law could be jailed.

Rationale

Despite recent high quality developments and real estate projects, Bahrain’s real estate market has faced numerous challenges including the sale of ‘off plan properties’ to investors without government approval being obtained, improper planning causing completion delays, fund mismanagement and unforeseen force majeure events. Countless legal claims have been brought as a result of losses incurred, which persuaded the government to provide investors with further guarantees to restore confidence in the real estate development market and assist investors in securing long awaited properties.

Most significant changes

Under the law, main and sub-developers will be prohibited from promoting any off-plan sale of property units either inside or outside Bahrain before completing registration procedures in the relevant Register and obtaining a license from the relevant authorities. The Law also includes substantive guarantees to investors, by allocating a separate project account to be created in the name of each property development project. This account will be exclusively allocated for management, construction and execution payments and will be established following a written agreement between developers, depositors and account trustees. The agreement must clearly define the account operating guidelines and the rights and obligations of the parties. 5% of the account will be held by the appointed trustee so as to ensure any compensation claims which may arise from any suspension of the project are settled.

Impact

By setting a solid framework to regulate real estate projects, the Law will provide further protection to investors by stopping real estate developers from undertaking or promoting any projects without obtaining the mandatory licenses from the relevant authorities and depositing the projects’ allocated funds in the project’s account. As a result, the ‘off plan’ selling situation which has put many real estate projects at risk, will be prohibited, as developers will only be permitted to sell completed units. The current issue of project suspension will also be efficiently regulated under the Law, as a project developer will be obliged to complete the project or reimburse investors with the relevant amounts if the project has been partially suspended. In the case of the project being fully suspended, the developer will be required to complete the project at their own expense under the supervision of a different developer or sell the project and distribute the proceeds of sale among the investors. The developments and guarantees stipulated in the Law will not only re-establish Bahrain on the map as a regional hub for real estate industry but is also expected to attract further foreign investment, which will inevitably have a positive effect on the country’s economy.

New lease law

In a similar area of development, on 7th February 2015 a new lease law, Law No. 27 of 2014, came into effect. This new law is the culmination of many improvements the government of Bahrain has been seeking to implement with respect to property rental. Previously, lease laws were difficult to source, as there was no single consolidated lease law. For over 70 years, the numerous property lease laws in Bahrain were either applicable only to certain municipalities or certain types or purposes of premises. As a result of the laws being scattered, inconsistency issues often arose, along with confusion over which laws to apply. The centralisation of this entirely new law on leases, applicable to all types of properties in all areas of Bahrain, achieves the aim of providing clarity and consistency to an extremely important sector of the region’s legal system.

The previous law

Previous laws divided the country into only two municipalities – Manama and Muharraq. Due to massive booms in property development, and in particular the gradual urbanisation of residential areas, provisions relating only to these areas are no longer sufficient. The Rents Act No. 42 of 1946, as amended, was the primary law related to leases and governed residential and some industrial properties. Again, this law separated the country into only two municipalities. Along with being difficult to enforce in parts, one of the most prominent problems with the Rents Act was that it favoured the tenant. For example, the tenant alone had the right to renew the lease if it expired, thereby severely restricting the rights of the landlord.

Impact of most significant changes

The most significant change is that the lease laws themselves are being codified into one single piece of legislation. Doing so enhances clarity and consistency while still maintaining sections of the core framework. The new rules revoke five previous rent laws, which may be seen by some as a drastic change. However, this measure will ensure uniformity amongst all types of rental premises in all areas of the Kingdom of Bahrain, which can only be seen as a positive development for the property sector.

The new law also brings with it the introduction of a Rent Disputes Committee. All disputes related to any provision of the new law will now be resolved outside of court in a timely manner, resulting in an overall reduction of the burden on national courts.

One entirely new provision that has the potential to impact every leased property is the requirement for the landlord to wait two years from the lease commencement date or the last rent increase date before having the right to increase the rent. The maximum increase is now set by the new law at 5% for residential properties and 7% for commercial and other properties, unless otherwise agreed in writing. A landlord must notify the tenant of his intention to increase the rent at least three months before the lapse of the second year.

One crucial issue that needed resolving was the imbalance of rights afforded to landlord and tenant in accordance with the Rents Act. The landlord’s rights at the end of the lease were disputed due to lack of clarity in previous laws. The new law guarantees the specific rights of the landlord, correcting the perceived inequality of the Rents Act in this respect. As stated above, the tenant was previously favoured in lease renewal circumstances. This is now rectified by the requirement of mutual agreement for renewing a lease in the new law, which balances this and many other rights to apply to both landlord and tenant, resulting in a fairer and more equitable piece of legislation.

In any case, the new lease law is a welcome and long-awaited development in the regulation of the property sector of Bahrain.

Lawyer Monthly: April 2015

Legal Focus: Commercial Disputes

Continuing with our Legal Focus on Commercial Disputes, we turn to Bahrain and speak to Qays H. Zu’bi, the Senior Partner of Zu’bi & Partners Attorneys & Legal Consultants, a fourth generation family-run law practice.

Q: You have been practising law in Bahrain since 1981; how has the landscape surrounding commercial disputes altered in that time?

While I commenced practicing law in Bahrain in 1981, my legal career actually started in Bahrain in 1971 as a student, with the Independence of the State of Bahrain at the time and the set-up of my father’s legal practice Hatim S. Zu’bi& Partners, who pioneered the legal practice in Bahrain. At the time Bahrain was gaining independence from the British and with the vision, wisdom and foresight of its Rulers, the country developed into a hub for Offshore Companies and a Banking and Finance Centre. Investments and money poured into the country with the oil boom requiring the enactment of many laws and regulations. As a result, the legal and Court system infrastructure developed, enabling Bahrain to accede to many international conventions becoming a leader in the region and an international player.

With the upsurge in banking and commercial activity including infrastructure building, the landscape surrounding commercial disputes took a different turning. The legal system in Bahrain had to deal with international complicated contracts imposed by international companies assisting with the development of the infrastructure of the country. This elevated the level of commercial disputes forcing local legal firms to bring in expert lawyers and join hand in hand with international law firms to handle complex issues, not to forget the introduction of expert firms.

Due to this upsurge in development, the law Courts where not in a position to handle such complex and multi-jurisdictional disputes. As a result, conciliation and arbitration became an important element in resolving disputes. This prompted Bahrain to accede to the 1958 New York Convention on the recognition and enforcement of foreign arbitration awards. This significant step set the basis to enhance and encourage the arbitration culture in Bahrain as well as in the Arab World.

Q: Is it now more, or less, complex to resolve a business dispute? Why is this?

The complexity of resolving a dispute depends on the merits of the dispute itself and the circumstances surrounding it. Recent moves by authorities in Bahrain to create a fast track mechanism and provide disputants with alternatives to courts following arbitration rules embodied in the Bahrain Chamber for Dispute Resolution ( BCDR ) regulations, has somewhat relieved the procedural complexities often faced in litigation cases before the local courts. Firstly, the timeframe in which commercial disputes are resolved through the BCDR are well defined, enabling speedy judgments. Secondly, these mechanisms have opened the doors for disputants to engage international lawyers and experts to defend their cases. This will maximize successes. Having said this, any awards must still be executed through the execution courts reserved for normal courts. This has arguably hampered the effectiveness of the fast track judgment or award.

Q: How do the regulatory frameworks surrounding dispute resolution in Bahrain differ from other jurisdictions?

The majority of the countries surrounding Bahrain are Civil Law jurisdictions. Bahrain was among the first in the region in 1971 to pass a Civil and Commercial Procedures Law. The law stipulated, among other provisions, provisions relating to the appointment of an arbitrator and an arbitration process. Therefore, arbitration has been embedded in our laws since the early days of independence. In addition to Court procedures, independent arbitration clauses and bodies such as the ICC became popular, influenced by the size of transactions concluded and the multinational parties behind them.

Bahraini legislatures continue, to date, to develop and regulate various sectors depending on current developments within the country and globally. Bahrain is considered a vanguard amongst the Gulf and Arab Countries, having in place integrated laws in respect of most sectors, particularly, the banking and insurance sectors, as well as the international commercial relations sector.

Furthermore, Bahrain is mainly differentiated from its Gulf constituents by its comprehensive and up to date legislation regulating the banking sector, which has led Bahrain to be regarded globally as an important and leading country in this respect.

Q: What changes would you like to see made to the regulatory framework which surrounds dispute resolution in Bahrain?

Bahraini legislatures are required to review, improve and strengthen the laws and regulations governing litigation procedures. Such laws need to be updated to provide faster mechanisms and eliminate bureaucratic underpinnings, by which dispute resolution timescales are shortened without affecting work efficiency and quality. Moreover emphasis must be directed towards improving executions of judgements, which today remain a stumbling block towards efficient conclusion of litigation cases and enforcement of arbitral awards. One of the reasons is that these courts are overwhelmed with work and not adequately staffed.

Q:What are the biggest challenges you face within commercial dispute cases?

There are various challenges we could face. Among these challenges is the inability of judges to understand the complexity of a case as it could be a precedent foreign to our jurisdiction. Another complexity lies in the appointment of an expert. Court experts tend to be limited in numbers and experience. Another issue is that Court cases must be in Arabic which means that language difficulties and translations could influence meanings in a case including the outcome of a case or an expert’s report. Another challenge is in the timeframe for a judgement or award to be executed as this could run into months or years.

Q: What types of dispute resolution are the most popular currently in Bahrain and the GCC? Why do you think this is?

In relation to complex technical commercial contracts that contain an arbitration clause, which is the most common practice, the parties will be prevented from resorting to the courts for redress in relation to the respective contract, and only after arbitration has been exhausted and failed, the parties will be able to resort to the courts for recourse. In such instances, one would have to say that as the parties had agreed initially to resolve disputes by arbitration, such will be the popular route.

However, as a matter of quantum of disputes referred to the courts in Bahrain and the GCC region, in general, we still see that the courts are the preferred route for redress where possible, for the reason that, although the timeframes for procedures relating thereto tend to be lengthy and usually capable of being further extended, they are generally less costly than arbitration, and their procedures are better known amongst local lawyers and clients especially, unlike other alternative means of dispute resolution which are moreover, usually available at a higher cost, and further require detailed knowledge and sometimes specialization in the procedural aspects relating thereto.

Q: Would you agree with reports that mediation is rising in popularity?

It may be said that awareness of mediation as a mechanism for dispute resolution and its advantages are spreading widely, however slowly, and one could say that it may rise in the coming years. The slowness of the rise of mediation may be attributed to the culture it requires, whereby the parties to mediation must have a cooperative mindset capable of accepting compromise. In Bahrain, before mediation becomes popular, efforts must be made to prepare the legal arena for mediation especially in relation to the mindset it requires.

Contact: Qays H. Zu’bi, Senior Partner

Tel + 973 17 538 600 / email: qzubi@zubipartners.com / website:  www.zubipartners.com

Oxford Business Group: THE REPORT Bahrain 2015

I.     A REVIEW OF THE NEW LABOUR LAW

It has been almost two years since the introduction of the Labour Law for the Private Sector Law No.36 of 2012 (the “New Labour Law”). This legislation repealed and replaced the more archaic Labour Law for the Private Sector – Law No. 23 of 1976 – as amended (the “Old Law”). The New Labour Law is seen as a milestone for the private sector by the Ministry of Labour, as it was hoped that its introduction will revitalise the private sector labour market, whilst further enhancing the rights of employees and simultaneously protecting employers’ rights.

However, it is important to note that the new Labour Law imposes onerous provisions on employers and has given rise to additional costs and strain on the operation of their business. The most significant changes are the provisions relating to employees’ leave entitlements, their end-of-service leaving indemnity, the rights of female employees and penalties. These sweeping changes have given rise to much controversy since the law’s implementation. The impact of the New Labour Law will be examined by discussing the aforementioned changes in turn.

Leave Entitlements:

Annual Leave: The change in the number of annual leave days to which an employee is entitled has been the subject of considerable debate over the past two years. The New Labour Law grants an employee who has completed one year of service an entitlement of 30 days, accruing at the rate of 2.5 days each month. The Old Law provided 21 days increasing to 28 days following five consecutive years of service. The provision governing annual leave fails to stipulate whether the 30 days are calculated on the basis of calendar days or working days which has inevitably given rise to great uncertainty and distress among employers, who are concerned that their companies would suffer if their staff were given 30 working days off every year, in addition to the generous public holidays and weekends. On April 14, 2013, the Cabinet of Ministers reached a decision that the reference to “days” should be construed as “calendar days”, until this point is subjected to legal clarification.

Meanwhile, pending the resolution of this uncertainty, the advice we provide is to apply 30 calendar days, unless the employee has a contractual right to a higher leave entitlement, in which case that must be applied, as the New Labour Law does not permit the employer to diminish any of the employees already established legal and contractual rights.

Contingency Leave: This is an addition to leave entitlement under the New Labour Law. This provides employees the right to take leave on a last-minute basis in the case of an emergency causing an urgent need for the employee to remain off duty. Such leave may be taken for a period not exceeding six days during the year, with a maximum of two days in each case. However, the leave taken will be deducted from the employee’s annual leave days, reducing any additional costs on employers. Nevertheless, this new entitlement could still hinder an employer’s business, as an employer can take such leave on short notice, leaving the employer with the burden of finding a replacement to cover the workload, and thus impacting on business operations.

Educational Leave: Educational leave provides for an employee the right to leave for the purposes of sitting an examination at any educational level, subject to the employee giving 30 days’ advance notice. This provision is a further burden on employers.

Sick Leave: The increase of sick leave entitlement allowing 15 days of sick leave on full pay and 20 days on half pay also increases costs for employers, coupled with the burden of making employees cover provisions to ensure business operates to the best standards possible, despite the reduced workforce.

Female Employees:

The New Labour Law enhances the rights of female employees and replaces the archaic views under the Old Law to ensure that women are placed on equal footing with male employees, as they “shall be subject to all the provisions governing the employment of workers without discrimination between them where their employment conditions are similar” (Article 29 New Labour Law). The New Labour Law is thus arguably more aligned with international standards and better equipped for modern day society.

Furthermore, the New Labour Law has increased paid maternity entitlement from 45 days to 60 days. It has also increased the permitted period for nursing, allowing women two one-hour periods per day to nurse their newborn until they reach the age of six months, at which time a female employee is entitled to a further two half-hour periods for nursing, until the child reaches one year of age. In addition, female employees are permitted to take up to six months without pay up to three times throughout their period of service for the purposes of child care, until the child reaches six years of age.

These enhanced rights for female employees have led to considerable concerns for employers. The increased maternity period means employers must continue to finance women’s paid leave for a longer period, which could inevitably prove to be a costly endeavour for employers. Furthermore, females could take longer periods of absence, requiring employers at short notice to replace their female employees temporarily. Whilst the New Labour Law seeks to enhance female rights, there is an inherent risk that this provision may backfire by making employer’s reluctant to employ females, especially if they have young children. Nonetheless, there is the argument that this provision will allow female employees to strike a balance between child care and their employment, with many female workers being able to successfully hold down full time positions whilst also taking care of their family.

Leaving Indemnity & Summary Dismissal:

Under the Old Law, employees dismissed summarily under Article 113 were not entitled to any leaving indemnity entitlements; however, the New Labour Law now allows an employee who has been terminated for a justified cause under Article 107 to be entitled to leaving indemnity.

The New Labour Law has increased protection for all employees, as the calculation of leaving indemnity is the same regardless of who terminated the contract, length of service, or reason for termination. We are of the view that the reasoning behind this change is to apply fair treatment to employees upon termination, without diminishing their rights in cases where an employer may contemplate summary termination of employment for cause in an attempt to avoid payment of leaving indemnity.

Penalties:

Another change in the New Labour Law that has a considerable effect on employers is the imposition of tougher penalties against employers who fail to comply with the New Labour Law. Companies are being warned to strictly implement the provisions of the New Labour Law or risk being subjected to tough penalties. The fines range from BD50 ($133) to BD1000 ($2650) and imprisonment of up to three months for certain offences. Furthermore, the penalty shall apply for each breach and is multiplied according to the number of employees subjected to the breach. It also imperative to note that the Ministry of Labour is clamping down on repeat offenders, who will be subject to twice the penalty. Such provisions, whilst heavily favourable to employees, are placing a significant burden on employers and their businesses.

Conclusion:

It appears that the New Labour Law heavily favours the interests of the employee over that of the employer. The provisions discussed arguably raise a significant burden on employers financially and in terms of their business operation. Nonetheless, the New Labour Law has also introduced some positive aspects namely, providing a clear mechanism for calculating compensation upon termination, leading to an increased number of out of court settlements taking place and thus reducing litigation costs for employers. Overall, the aim of the New Labour Law is to ultimately introduce more efficient and effective employment regulations that are in line with current international standards and best practices. It is also expected that fewer disputes will be processed through the courts, which should in turn reduce the number of frivolous cases filed by disgruntled employees.

II.     A REVIEW OF RESIDENCY IN BAHRAIN

Self-sponsorship Scheme for Expatriates in Bahrain:

Bahrain pioneered the Middle East’s oil production in 1932. However, aware of the new resource’s finite nature, the kingdom sought to diversify its economy at an early stage by moving beyond traditional industries such as pearl diving and fishing. Today, Bahrain is recognised as a leading regional financial centre with a highly regarded regulatory system. Without a doubt, the journey thus far has been highly influenced by the influx of foreign professionals and experts who together with Bahrainis invested their time, efforts and dedication to bring the kingdom to where it stands now. The island hosts a diverse, multicultural population that, according to the Central Informatics Organisation Census in 2010, totals 1.23m, 54% of which are expatriates.

Bahrain is a liberal state for the region, and it offers a vibrant blend of traditional and modern social mores. The standard of life here is quite high and it is not uncommon for expatriates to want to continue living in Bahrain after they retire. This article aims to assist expatriates considering their options for continued residence in Bahrain. The Ministerial Order No. 74 of 2007 (the “Order”) governs the self-sponsorship residence regime. In accordance with the Order, a residence permit can be issued to foreigners who either, (i) have retired from work; (ii) own free-hold real estate in Bahrain; or (iii) have investments in local companies. These three options and their conditions are discussed further below.

Retirement Residence Permit:

Expatriates who have worked in Bahrain, or in any other GCC country, are eligible to apply for a residency permit and remain domiciled in Bahrain as retirees, provided that their duration of work was at least 15 years. Applicants can have worked in the private or public sector. This policy allows married couples to remain in the country without local sponsorship. However, their adult children will continue to need such sponsorship.

To be eligible for this permit, expatriates must meet the following conditions:

  • The applicant must have a place of residence in Bahrain. For this purpose, the applicant may own a residential property or have entered into a lease agreement for a residential property in Bahrain.
  • The applicant must have a source of income sufficient enough to support him and his dependents.
  • The applicant must have a fixed deposit of at least BD5000 ($13,250), or an equivalent amount in another currency, in a Bahraini financial institution. This is required to be confirmed by a certificate from the financial institution.
  • The applicant and his dependants must have medical insurance.
  • The applicant must not have any criminal record. This is to be supported by a character certificate to be issued by the Criminal Investigation Department (CID).

Property Ownership Residence Permit:

An expatriate may be issued an entry visa and residence permit under personal sponsorship by virtue of owning a residential property in Bahrain, provided that the total value of such a property is not less than BD50,000 ($132,500).

The value of this property must be supported by a certified copy of the property documents confirming that value of the property to be BD50,000 ($132,500) or greater. The purchase of the property may be facilitated by a finance facility from a Bahraini financial institution. Further, the property may be mortgaged as security in favour of the lending financial institution.

Investment Residence Permit:

Similarly, an expatriate may be issued an entry visa and residence permit under personal sponsorship by virtue of his or her investments in any financial institution or other corporate entity in Bahrain, provided that the invested capital is not less than BD100,000 ($265,000) or an equivalent amount in another currency. The investment can be made in any company which is involved in the business of tourism, health, education and training, among other sectors, or in any investment project established in the kingdom. The investment must be supported by a certified copy of the company’s constitutive documents which confirm the applicant’s shareholding to the prescribed extent.

Furthermore, the applicant must also have a place of residence in the kingdom. For this purpose, the applicant may own a residential property or have entered into a lease agreement for a residential property in Bahrain.

To be eligible for a Property Ownership or an Investment Residence Permit, expatriates must meet the following conditions:

  • The applicant must have a fixed deposit of at least BD15,000 ($39,750), or an equivalent amount in another currency, in a Bahraini financial institution. This is required to be confirmed by a certificate from the financial institution. This confirmation is required to be submitted after every six months and at the time of renewal of the residence permit.
  • The applicant must have a source of income sufficient enough to support himself and his dependents which shall not to be less than BD500 ($1325) per month.
  • The applicant and his dependants must have medical insurance.
  • The applicant must not have any criminal record. This is to be supported by a character certificate issued by the Criminal Investigation Directorate.

While the application requirements may appear to be straightforward, these permits come with their own set of inherent issues. Firstly, these permits may be revoked for a variety of reasons. Examples include public security and order, national interest, applicant’s reliance on false information for the residence permit and non-compliance with any of the initial conditions of the application. Secondly, although they are renewable, these permits are only valid for a period of two years. Thereafter, and subsequently after every two years, the applicant has to apply for renewal. In terms of the documentation requirements and timeline, the renewal process is as involved as the initial application. The periodic nature of resident permit extensions and the risk of non-renewal is a source of concern for applicants, especially those with long-term investments in the country.

III.      A REVIEW OF CORPORATE LAW

Distributorship Agreements:

To help promote foreign investor confidence and Bahrain’s “business friendly” credentials, the kingdom replaced its main law of 1975 governing distributorship arrangements, the Commercial Agencies Law promulgated by Legislative Decree No. 10 of 1992 as amended by Legislative Decree No. 8 of 1998 and Legislative Decree No. 49 of 2002 (“Agency Law”).

Following the introduction of the Agency Law, King Hamad bin Isa Al Khalifa launched Economic Vision 2030 in 2008 to provide a clear direction for the continued development of Bahrain’s economy. The Agency Law is part of a larger legal framework intended to support the three guiding principles of Economic Vision 2030, namely: sustainability, fairness and competitiveness.

The Bahraini Commercial Agent:

Commercial agents under the Agency Law must be Bahraini individuals or Bahraini companies with at least 51% Bahraini ownership. Thorough due diligence of a potential agent should be carried out. If the commercial agent is a natural person, he or she must:

  • Be a Bahraini national;
  • Not have been convicted of a felony relating to honour or integrity or any economic crime unless he or she has been reinstated; and
  • Not have been adjudged bankrupt unless he or she has been reinstated.

If the commercial agent is a corporation it must:

  • Be validly incorporated and registered in accordance with the applicable laws, rules and regulations in Bahrain;
  • Be licensed to carry out of all or some of the business activities under the Agency Law and the activities covered by the agency agreement;
  • Be a majority-owned Bahraini company (no less than 51%);
  • Have its main office address in Bahrain; and
  • Hold a valid commercial registration with no pending violations.

The Agency Agreement:

The Bahraini commercial agent must register its agency agreement with the Commercial Agencies Register at the Directorate of Company Affairs in the Ministry of Industry and Commerce. Any unregistered agency agreement shall not be recognised by the Agency Law.

The agency agreement must be written and must include, without limitation, the names and nationalities of all the parties, goods and/or services that are covered by the agency agreement. It must also define the term of the agreement, the respective rights and obligations of the parties, a termination procedure, and any special terms and conditions that have been agreed upon by the parties.

Termination: Two important questions for foreign investors are: How can I terminate my distributorship agreement? And what liability will I be exposed to if I do? Parties are permitted to terminate a distributorship agreement either with a clear cause or for convenience, but in either case, termination by a party of a registered agency agreement shall trigger the right for the other party to claim compensation under the Agency Law.

When claiming termination compensation, if the claimant is a locally licensed agent, it may be entitled to receive compensation if it can prove that its business activities have resulted in an obvious success in promoting the principal’s products in Bahrain and that the agent has been prevented from making a profit due to the principal’s termination of the agreement. It is difficult to determine the amount of compensation that the courts may award as each case is decided on its own merits.

IV.     REVIEW OF ANTI-BRIBERY LAWS

Anti-Bribery Laws Recently Extended to the Private Sector in Bahrain: Up until February 14, 2013, under the Penal Code, the offence of bribery had been limited to public sector workers and officials. Almost a year ago, the Bahrain legislature introduced Law No. 1 of 2013 with Respect to Amending Certain Provisions of the Penal Code, promulgated by Legislative Decree No. 15 of 1976 (the “Amendment”), which detailed that the offence of bribery had been extended to the private sector. Bahrain’s Penal Code, promulgated by Amiri Decree No. 15 of 1976 (the “Penal Code”), criminalises bribery of civil servants in public service, defined as:

  • Persons in a position of authority and staff of ministries, departments and local administrative units;
  • The armed forces personnel and servicemen;
  • Members of councils and public representative units (whether elected or nominated);
  • Every person authorised by a public authority to perform a particular task to the extent of the duties entrusted;
  • Chairmen or members of board of directors, managers and all staff of public institutions and organisations; and
  • Chairmen and members of board of directors, managers and staff of units belonging to public institutions and organisations. Term and nature of the relevant employment as well as remuneration do not have any bearing on the offence of bribery.

Subsequent to the Amendment, the law was extended to criminalise bribery in the private sector, and persons subject to anti-bribery laws now include:

  • Workers who are defined as every natural person employed for a wage of any kind and under the employer’s management and supervision;
  • Every person who does work or provides a service in any capacity without being under the management and supervision of the person for whom he performs the work or service;
  • Private corporate persons; and
  • Boards of directors, boards of trustees, chairmen, deputy chairmen and all members of the board irrespective of designation or formation.

Under the Penal Code, as amended, it is now an offence to offer gifts or privileges to civil servants, company employees, board members, or corporate trustees of a private corporation, and it is illegal for them to accept the same, with consideration for the purpose of doing an act, or omitting to do an act, involved in their duties, or a promise to give a gift or privilege of any kind with consideration to performing work or abstaining from performing the same, in breach of their duties or in a manner detrimental to the interests of the employer or firm.

It will be considered immaterial whether the official, employee, board member or corporate trustee actually intends to perform or abstain from performing the act in question, and whether the act or omission does not constitute part of their duties, even if the perpetrator has alleged or wrongly believed that it was within their duty, and whether the bribe has been demanded or offered after having completed the act or omitted any action in violation of the duties of their office, or in relation to corporations, in a manner detrimental to the interests of the employer or private corporate person.

Sanctions: An official, employee, board member or corporate trustee who asks for or accepts a bribe for acting or omitting to act in relation to his duties shall be liable for a term of imprisonment not exceeding 10 years. Offering a bribe to an employee, board member or corporate trustee is also punishable by imprisonment not exceeding a term of 10 years, although offering the same to an official in the public sector is punishable by imprisonment limited to a maximum term of three years.

Apart from confiscation of the bribe, fines shall also apply equivalent to the amount of the bribe, requested, accepted, promised or offered, subject to a minimum fine of BD100 ($265) in the public sector and a minimum of BD500 ($1325) and maximum of BD10,000 ($26,500) in the private sector.

Conclusion: The introduction of the Amendment is a large step towards the prevention of bribery and corruption. The Amendment brings Bahrain in line with other developed countries, which are perceived to have more sophisticated anti-bribery and anticorruption legislation. The Amendment has filled a gap which had previously existed under the Penal Code, whereby prior to the Amendment, sanctions on bribery were limited to the public sector. Thus, in extending such sanctions (even somewhat stricter sanctions in some parts) to the private sector, the Amendment has provided a better legal framework to curtail bribery on a wider scale, which in turn serves as a deterrent. Furthermore, the enactment of the Amendment introduces and reinforces the anti-bribery culture in corporations.

In 2012, prior to the Amendment, Transparency International ranked Bahrain as 53rd out of 176 countries and scored a 51 on a scale of zero to 100, where zero indicates a country is perceived as highly corrupt and 100 means it is perceived as very clean. In 2013, after the Amendment had been effected, Bahrain was ranked 57th out of 177 countries and scored a 48 on the same scale.

In this regard, it may be said that there is still much work to be done and that alongside improving the legislation, a competent investigating authority is needed for more effective and efficient investigation and enforcement of crimes related to corruption and bribery solely. Pursuant to Law No. 16 of 2002, as amended by Law No. 49 of 2010, the National Audit Court of Bahrain is currently the organisation responsible for the enforcement of anti-bribery laws in the public sector, and it independently investigates suspicious activities and reports its findings to the Public Prosecution Office for prosecution. Furthermore, a new agency is in the process of being formed, the Anti-Corruption Authority, which will be responsible for the investigation and prosecution of offences related to corruption and bribery. Bahrain continues its efforts to combat corruption, and the Anti-Corruption Directorate of the General Directorate of Anti-Corruption and Economic and Electronic Security launched the National Anti-Corruption Campaign in June 2014. This is part of the Ministry of Interior’s strategy to support community partnerships and interactions with different segments of society to combat corruption and enhance awareness of its dangers for individuals and society.

Oxford Business Group: THE REPORT Bahrain 2015

Draft legislation addresses computer-based criminal activity

Most organisations have defences in place to protect against physical attacks, such as armed robbery. Protective measures operate on a few simple premises:

  1. Just because it has not happened, this does not mean it will not happen in the future;
  2. Strong, obvious defences are a deterrent against opportunistic threats, but do no guarantee against more sophisticated attackers;
  3. Defensive measures must remain robust, up-to-date and consistent throughout an organisation.

This should be no different for cyber threats. The threat may have changed – it is now virtual as well as physical – but the defences that companies have in place should follow the same logic. In other ways, things will be different. Unlike physical attacks, which are likely to be localised, the impact of a successful attack on, for example, a whole financial system is potentially more serious from a financial stability perspective.

Criminals, terrorist organisations or state-sponsored actors’ motivations for conducting cyber attacks vary. More often than not they are economic, but other reasons include damaging a system, either to destroy data or cause non-availability of systems, or both. The capability of these actors and thus the nature of the threat is rapidly evolving – barriers to entry are low in cyber space and attacks are readily scalable. Low-level attacks are now not isolated events but are continuous.

NEW CYBER CRIMES LAW:

The main Bahrain legislation relevant to cyber crime is currently the Constitution, the Penal Code, the Telecommunications Law, and the Central Bank of Bahrain Law and its regulatory framework. In recognition of the growing cyber threat and the need to amend the existing law, Bahrain will be introducing a new cyber crimes law, once it is approved by the Shura Council, based on the cyber crime convention of 2001, among other international laws. Cyber attacks can originate from anywhere in the world and the potential advantages for Bahrain of modelling its proposed law on the convention are conciseness, more consensus, and assistance from member countries in investigating and prosecuting cyber crimes.

The draft new law lists cyber offences, including unauthorised access, interference with data or a system, unauthorised interception of data, threatening to cause damage, misuse of devices, forgery, fraud and others. Special provisions will grant the courts the power to search, seize, preserve and produce stored data. Proposed penalties include substantial fines and/or imprisonment, and both firms and individuals can be held liable.

MANAGING CYBER RISK:

Bahrain’s proposed new cyber law will align the kingdom with international laws and is a welcome development. But detailed prescription of any law is only a part of managing risk. Governments, regulators, firms and individuals all need to develop and implement best practices to counter cyber threats. For example, the Bank of England, which regulates the financial sector in the UK, recently launched a new framework to test for cyber vulnerabilities. Called CBEST, it brings together the best available threat intelligence from government and elsewhere, tailored to the business model and operations of individual firms, to be delivered in live tests in a controlled testing environment. What makes this different to other security tests is that it is intelligence-led, bespoke and adapts to the reality of changing threats.

Another UK initiative from the Government Department for Business, Innovation and Skills is Cyber Essentials, a cyber security certification scheme. Companies that are awarded certification will be able to show consumers they have measures in place to help defend against common cyber threats. The scheme has the backing of insurers, which are offering reduced premiums and other incentives for firms to become certified. By implementing similar initiatives in Bahrain, as well as adopting self-protection measures like encryption and enhanced data protection, organisations and individuals will be better prepared to face cyber threats.

OBG would like to thank Zu’bi & Partners for their contribution to THE REPORT Bahrain 2015

Oxford Business Group: THE REPORT Bahrain 2015

Qays H Zu’bi, Senior Partner, Zu’bi & Partners, on recent legislation affecting the real estate sector

Real estate developers are the main contributors converting ideas and drawings into property, facilitating the creation or renovation of real estate projects. Real estate development projects can be rewarding and highly profitable to all participants if planned, supervised and executed within a well-regulated framework and in a highly professional manner, where distinguished business skills are incorporated with effective marketing strategies, sufficient safety measures and client guarantees. In recent years, Bahrain has seen many high-quality developments that reflected positively on the economy, providing jobs, attracting foreign investment and putting Bahrain on the map as a regional hub.

Despite this, however, Bahrain’s real estate market faces a number of challenges, mainly those arising from the sale of off-plan properties to investors without government approval. Although such projects have brought millions in investment into the country, certain projects were never completed, at times due to improper planning, mismanagement of funds, material breaches of contractual provisions, unforeseen events of force majeure, or violations of the law. On many occasions, delayed completion of real estate projects has left investors out of pocket, without compensation for incurred losses resulting from such delays.

Based on the number of legal claims that have been brought regarding this issue, a draft law concerning real estate development guarantees was passed by parliament, with the aim of protecting investors and restoring confidence in the real estate development market.

Under this draft law, real estate developers may not undertake, market or promote any project prior to obtaining the required licences from the concerned authorities, in particular from the Ministry of Municipalities and Urban Planning, following the submission of all the necessary and supporting documents. Furthermore, completed plans – including the design, artist’s impressions, the start and completion dates, and value estimates – will need to be presented and approved by the Engineering Practices Regulatory Committee. Thus, the current situation of selling off-plan properties will be prohibited, since the developers will only be permitted to sell completed units, unless otherwise approved, following a detailed field assessment.

The draft law also imposes penalties, including imprisonment and fines, on developers who commit violations such as selling from unlicensed, incomplete or unregistered projects; violating the provisions of a granted licence; or knowingly submitting false information to the competent authorities for the purposes of registering the project or obtaining a license. As a guarantee to investors’ rights, developers shall be compelled to deposit project funds into a guarantee account prior to commencing work on the project, and 5% of the sum will be held by the appointed account’s secretary to ensure the settlement of any compensation claims that may arise from suspension of the project. The draft law also grants the buyer and seller the right to terminate a sale and purchase agreement, and claim compensation for losses arising from the termination.

Furthermore, the draft law also addresses the current issue of project suspension. If a project is partially suspended, the developer will be obliged to complete the project or reimburse the investors their paid amounts. If a project has been suspended, the developer will be required to complete the project at its own expense or under the supervision of a different developer, or sell the project and distribute revenues among the investors. The lengthy time frames for the resolution of disputes involving real estate projects has also been considered by the draft law, by providing for the establishment of a committee whose main role is to resolve such disputes within six months.

We believe such legislation is necessary to protect the interests of involved parties when property development issues arise and to provide investors with legal recourse to compensation or damages. Such legislation will not only ensure that Bahrain meets international standards and best practices, but it will also pave the way to a prosperous future for the entire sector.