Clyde & Co and Zeenat Al Mansoori & Associates enforce an arbitration agreement before the BCDR

Clyde & Co’s Middle East disputes team, working closely with Zeenat Al Mansoori & Associates as local co-counsel in Bahrain, has successfully enforced an arbitration agreement before the BCDR in a landmark judgment recognising good faith and the principle of estoppel in Bahraini law.

Inconsistent conduct and international arbitration: a landmark ruling on estoppel in the Civil Law

The BCDR

The Bahrain Chamber for Dispute Resolution (the BCDR or the Chamber) was established as a forum for commercial disputes pursuant to the Bahrain Chamber of Economic, Financial and Investment Dispute Resolution Law No. 30 of 2009, as amended, (the BCDR Law). Section One of Chapter Two of the BCDR Law, titled “Chamber Jurisdiction by Law”, gives the BCDR jurisdiction over disputes, previously under the jurisdiction of the Bahrain courts, excluding bankruptcy cases, in which the value of the claim exceeds BHD 500,000 and which involve a financial institution licensed by the Central Bank of Bahrain or is an international commercial dispute.¹

Proceedings before the BCDR can be conducted in the English language if it is agreed by the parties,² English-speaking judges are appointed to the Court,³ and non-Bahraini lawyers are permitted to appear and represent parties provided they are accompanied by a licensed Bahraini lawyer with rights of audience before the Court of Cassation⁴.

Resolution No. 28 of 2023 Determining the Language other than Arabic that may be Usedjud Before the Courts and the BCR and the Mechanism and Scope of Application (the Resolution No. 28 of 2023), which came into effect on 10 March 2023, expanded on the permissibility of the use of the English language under the BCDR Law by providing that English shall be the default language used in commercial disputes falling under the jurisdiction of the BCDR where the contract that is the subject of the dispute and all parties’ communications are in the English language on the basis that the Parties have agreed to the use of the English language.⁵ The potential inconsistency between the BCDR Law and the Resolution No. 28 of 2023 in relation to the application of the English language to proceedings has not been tested by the Bahrain courts.

The proceedings and judgment in the case noted here is one of the few cases to be heard and determined in English by the BCDR , when English language proceedings by default were first provided for under the Resolution No. 28 of 2023. Following the more recent establishment of an international commercial court pursuant to the Bahrain International Commercial Court (BICC) Law No. 9 of 2024, which is closely influenced by and aligned with the Singapore model, the number of cases in the English language is expected to increase in Bahrain.

The Dispute

The plaintiffs brought proceedings in the BCDR claiming sums alleged to be due to them for services provided under an architectural and engineering consultancy services agreement (the Consultancy Agreement). The defendants, represented by Clyde & Co and Zeenat Al Mansoori & Associates, raised several preliminary objections including a jurisdictional objection that the dispute was governed by a valid and binding arbitration agreement. The plaintiffs contested its signatory’s authorisation to enter into the arbitration agreement and contended for a different contractual framework, which was alleged by them to subsist – to the exclusion of any later agreement - in a preceding letter of award in which there had been no agreement to arbitrate.

The issues in the case raised important questions of interpretation under Bahraini Arbitration Law No. 9 of 2015 (the Arbitration Law), which adopts the UNCITRAL Model Law on International Commercial Arbitration 1985 with amendments as adopted in 2006, without any amendments.

The Judgment

Following an in-person hearing of the preliminary issues arising, conducted before a panel of three judges (Justices Jan Paulsson, Amani Khalifa and Dr Karim A. Youssef) in late March 2024, the Court handed down its reasoned judgment on 21 April 2024.

By its judgment, the Court dismissed a sequence of challenges to the validity of the arbitration agreement and struck out the proceedings as having been brought in breach of the parties’ agreement to arbitrate disputes arising out of or relating to the Consultancy Agreement.

The starting point for the Court was Article 8(1) of the Arbitration Law, pursuant to which the Court had a duty to give effect to the parties’ choice of arbitration unless there was a clear and convincing reason to deem the arbitration agreement unenforceable.

The Court dismissed the plaintiff’s argument that the letter of award prevailed over the Consultancy Agreement. To the contrary, the parties had expressly agreed that the letter of award would fall away upon the execution of the Consultancy Agreement, and it was notable that the plaintiffs had even relied on the Consultancy Agreement in purporting to terminate the defendants’ services.  In the circumstances, the Court had a duty to give effect to the plain terms of the parties’ agreement to arbitrate.

The Court also found that the plaintiffs’ signatory had the necessary authority to enter into the arbitration agreement. It rejected the plaintiffs’ reliance on Article 644(a) of the Decree Law No. 19 of 2001 on the issuance of the Civil Law (the Civil Code) which requires specific authority for agents to enter into arbitration agreements. The Court held as a matter of clear statutory construction that Article 644(a) was confined to the specific context of agency relationships created by agency agreements.

The Court went on to find that the plaintiffs’ conduct had been inconsistent with their conduct relating to the validity and applicability of the arbitration agreement. In so finding, the Court had regard to a number of factors, including that the Consultancy Agreement containing the agreement to arbitrate had been drafted by the plaintiffs; that clauses within the Consultancy Agreement were relied upon by the plaintiffs; that the plaintiffs failed to raise any objection or reservation to the arbitration clause upon execution; and that no steps were taken by the plaintiffs (as might be expected to have been taken at the time, consistent with their position) to ratify the arbitration agreement or to grant the signatory special authorisation.

Accordingly, the Court applied the principle of good faith enshrined in Articles 127 and 129 of the Civil Code, which requires the parties to act in good faith in the performance of their contractual obligations and when interpretating the arbitration agreement.

In addition, and notably, the Court considered the principle of estoppel which precludes a party from asserting a position which contradicts one previously established by their own representation and conduct. While the concept of estoppel is not explicitly named in traditional Islamic jurisprudence, the Court held that it is congruent with the core Islamic values of truthfulness, justice, and prohibition of harm or deceit. According to the Court, the principle of estoppel is inherent in the requirements of good faith embedded within the Civil Code, such that, in appropriate cases, a party will be debarred from adopting a position inconsistent with earlier representations or actions. 

In the present case, applying the overarching principles of good faith and estoppel in Bahraini law as well as an express undertaking of good faith within the Consultancy Agreement, as drafted by the plaintiffs, the BCDR Court concluded that the arbitration agreement reflected the parties’ unequivocal and binding choice of forum. The Court therefore lacked jurisdiction to decide the substantive dispute.

Procedural Aspects

The decisive issues in the case were the subject of oral argument and submissions in English before the Chamber by both local and international counsel.   

In addition, and in parallel, as part of the full defence of the claim supported by expert evidence, the plaintiffs’ legal team engaged early with the Court in seeking production of contractual and contemporaneous works documents relevant to liability and quantum. The plaintiffs also sought directions for the examination on oath of witnesses and for an evidential hearing entailing the cross-examination of witnesses. Additionally, directions were sought on costs. It is fair to say that all of these requests and applications raised untested questions of procedure for the BCDR in the application of their Rules to English language proceedings as influenced by common law procedure. 

Costs

The Court’s judgment is also of interest in its treatment of costs. In particular, the Court eschewed the usual practice under Bahraini civil procedure of awarding only minimal costs and instead adopted a midway approach. Whilst the full costs of the BCDR proceedings as claimed by the defendants were not awarded, the Court deemed it appropriate to order the plaintiffs to pay a substantial lump sum in respect of the defendants’ costs. In doing so, the Court placed particular weight on the circumstance that the plaintiffs did not withdraw the action following the jurisdictional challenge.

Comment

The judgment is of particular interest in demonstrating the pro-arbitration stance of the BCDR. The Chamber’s adoption of the principle of estoppel in the context of agreements to arbitrate, on the basis that the principle is enshrined within the core Islamic values of truthfulness, justice, and prohibition of harm or deceit, is an important contribution to the comparative tools available to tribunals and courts in holding parties bound to their agreement to arbitrate.

The Chamber’s application of the requirement of good faith under the Bahraini Civil Code, as well as under the terms of the agreement between the parties, is undoubtedly of interest to arbitration practitioners in the Middle East region. The stance of the BCDR mirrors the position taken by the Abu Dhabi Court of First Instance in Case No. 95 of 2021, where the principle of estoppel was accepted and applied in rejecting the claimant’s attempt to disavow the arbitration agreement in that case. Together these developments show that there is some potential vitality in the interplay of equitable principles and civil code concepts in the sphere of international arbitration.

If you have any questions regarding this judgment, please feel free to reach out to:

Patrick Dillon-Malone, Partner, Clyde & Co

Alfred Thornton, Partner, Clyde & Co

Amel AlAseeri, Partner, Zeenat Al Mansoori & Associates

Elizabeth Sonnekus, Senior Associate, Clyde & Co

 

<sup>1. Article (9) of the the BCDR Law, as amended by Law No. 26 of 2021.
2. Article (12) of the BCDR Law and Resolution No. 134 of 2021 
3. Bahrain Royal Order No. 3 of 2022 
4. Article (30) of the BCDR Law and Article (23) of Resolution No. 134 of 2021
5. Article (1) of Resolution No. 28 of 20</sup>