Category: Uncategorized

Bahrain International Commercial Court: Transnational System of Commercial Justice

On 20 March 2024, a judicial milestone was taken by the Kingdom of Bahrain where a bilateral treaty was signed with the Republic of Singapore (the “Treaty”). Preceding the signing of the Treaty, two memoranda were signed by the judiciaries of Bahrain and Singapore in May 2023, namely the Memorandum of Understanding on Cooperation and Memorandum of Guidance regarding the Enforcement of Money Judgements.

The Treaty is the first of its kind in the Middle East and was signed during a virtual meeting between the Minister of Justice, Islamic Affairs and Endowments, H.E. Nawaf bin Mohamed Al Maawda and the Minister of Home Affairs and Minister of Law of Singapore, Mr. Kasiviswanathan Shanmugam.

This article will briefly outline the essence of the Treaty, highlighting its significance and its foreseeable impact in the development of the Bahrain judiciary.

What Does the Treaty Establish?

Bahrain International Commercial Court

Through the cooperation of Bahrain and Singapore, the Treaty aims to establish a Bahrain International Commercial Court (“BICC”). The BICC will be based on the Singapore International Commercial Court (“SICC”) model which will be adopted to settle disputes regionally and internationally.

The judicial model adopted by the SICC is renowned as a trusted and neutral forum that ensures efficiency and effectiveness in settling international commercial disputes. Since its launch in 2015, the SICC formed a diverse panel of international and local judges in both civil and common law traditions. In brief, the SICC combines international arbitration’s best practices with the principles of international commercial law, creating a so-called “arbitration in litigation”. This model aims to keep up with the fast-paced developments of international commerce and offer practical and compatible procedures with the demands of cross-border commercial markets.

The BICC is forecasted to hear international arbitration related disputes in the near future with relatively minor adjustments as Bahrain is a bilingual jurisdiction where cases are heard before appointed international judges in English at the highest level of court (the Court of Cassation). In addition, English language litigation is implemented by the Bahrain Chamber for Dispute Resolution for specified cases pursuant to Resolution No. 28 of 2023, where disputes are settled without the need for English translations or the appointment of translators.

Designated Body for Appeals

Furthermore, the Treaty stipulates that cases heard before the BICC may be appealed, where such cases will be heard before a designated body in Singapore. The hearing of appeals by the SICC from the BICC aims to aid in providing the disputed parties a transnational dispute resolution route leading to the growth of international trade and overall development of judicial systems.

What is the Significance of the Treaty?

The establishment of the BICC and a designated body for appeals is forecasted to create a positive wave of change in the judicial system, catalyzing opportunities for growth and expansion. Hatim Q. Zu’bi, Managing Director of Zu’bi & Partners Attorneys & Legal Associates, commented on the Treaty and its vital role in Bahrain (for the commentary, kindly refer to the Al-Watan Newspaper publication linked here).

The Treaty embodies a balance between party autonomy and simultaneously ensures the adherence to public policy, and we are of the view that its implementation will lead to transformative opportunities on a regional and international level, such as:

1.  the promotion of international rule of law, fostering the principles of, among other things, supremacy of the law, equality before the law and accountability to the law;
2. The boosting of international trade and development of dispute resolution in international commerce;
3. The protection of the rights and interests of the international business community, thus encouraging the commercial market to thrive;
4. The reduction and resolution of current difficulties faced in international dispute resolution; and the development and supplementation of commercial jurisprudence.

Overall, the cooperation between the BICC and the SICC will pave the way to enhancing the standards of international commercial dispute resolution, building on current mechanisms and encouraging the prosperity of transnational commercial justice.

Navigating Share Transfers: A Legal Perspective on WLLs and BSC(c)

Understanding the intricacies of share transfers is essential for companies considering adjustments to their share structure. Whether introducing a new shareholder or altering the distribution of shares among existing shareholders, the share transfer process involves relocating existing shares rather than issuing new ones. This is a common method used to bring in new strategic business partners. The regulations governing share capital transfer are primarily outlined in Legislative Decree No. 21 of 2001, known as the Commercial Companies Law, as amended from time to time (“CCL”).

This article will discuss the process of share transfers for Limited Liability Companies (“WLL”) and Bahrain Shareholding Companies (Closed) (“BSC(c)”) from a Bahraini legal perspective. For a detailed explanation of the differences between these two types of companies, please refer to this article explaining the various types of businesses.

In principle, shares can be freely transferred over time unless the company’s constitutional documents explicitly state otherwise. Shareholders of WLLs and BSC(c) companies often seek to manage the admission of new shareholders, particularly if this could significantly influence company management or control. It is customary for such companies to impose certain restrictions on shareholders’ rights to transfer their shares. These transfer restrictions, which can include the right of refusal by directors and pre-emption rights, are stated in the company’s constitutional documents and/or shareholders’ agreement. If there are any restrictions in the constitutional documents, this might impede the intended transfer. Assuming there are restrictions, these restrictions can be waived or disapplied through unanimous agreement or a validly passed resolution.

A Comprehensive Overview of General Assembly Meetings in Bahrain Shareholding Companies

In corporate governance, the processes governing Ordinary General Meetings (OGM) and Extraordinary General Meetings (EGM) serve as frameworks for decision-making within organizations. As per Legislative Decree No. 21 of 2001, promulgating the Commercial Companies Law (“CCL”), as amended from time to time, Joint-stock Companies, known as Bahraini Shareholding Company (“BSC”), and Joint-stock Companies (Closed), known as Bahraini Shareholding Company (Closed) (“BSC(c)”), are required to hold their general assembly meetings. This article covers the requirements pertaining to invitations, legal quorums, voting procedures, and authorities applicable to both public and closed joint stock companies in Bahrain.

Before we dive into the intricacies and differences of the two types of meetings, a brief introduction, BSC shareholders are liable for the company’s debts only to the extent of the value of their shares. A BSC allows negotiable shares, enabling multiple legal or natural persons to subscribe. There are two categories of BSCs: public and closed. Public BSCs are listed on the Bahrain Bourse, the capital market of Bahrain, and their shares are openly traded. Closed BSCs may be listed on the Bahrain Bourse but are not open for public subscription.

In conclusion, the General Assembly Meetings (OGMs and EGMs) in Bahrain Shareholding Companies play a crucial role in corporate governance, ensuring transparency and effective decision-making within organizations. By understanding and adhering to these frameworks, Bahraini companies can enhance investor confidence and propel sustainable growth in the corporate governance landscape.

Insurance Coverage for Rain Damage and Business Interruption

 Last week in Dubai, a storm hit the Gulf Estates, resulting in unprecedented damage to vehicles and property. As a result, all eyes are now on insurance companies as policyholders seek compensation for their losses. It is anticipated that many insurance claims currently being filed are for damaged vehicles, property, and business interruption.

 While it is widely known that most insurance policies provide coverage for rain-related damages, the ability to successfully file a claim hinges on the precise wording and clauses within each policy, including its coverage and exclusions.

For example, a comprehensive vehicle policy explicitly offering protection against rain and natural disasters ensures coverage for rain-related damages. Similarly, property All Risk insurance policies, covering all risks including those arising from natural calamities, typically extend coverage for rain-related damages.

 It is important to note that while damages from heavy rain are generally covered, specific weather-related events such as storms, cloud seeding, hailstorms, and flooding may be excluded unless expressly stated otherwise in the policy. Therefore, insurance professionals and policyholders alike must meticulously scrutinize the terms, conditions, and exclusions of their insurance policies to ensure comprehensive protection against such events.

Regarding business interruption coverage, it is well known that if a business is operational within twenty-four to forty-eight hours after an incident, there may be no eligibility for a business interruption claim under the policy. However, as previously mentioned, the availability of any insurance coverage depends on the precise wording of the insurance policy and its coverage and exclusions. Therefore, it is very important to review the wording of the policy in place carefully before seeking insurance coverage.

As for standard homeowners’ insurance policies, such policies provide coverage for damage resulting from rain-induced flooding. The extent of coverage depends on the specifics of the claim, as these policies typically address perils associated with the property itself, such as accidental leakage within the property. However, some policies may offer the option to include flooding as a covered risk, potentially providing compensation for such damages.

An important factor to consider is that it is essential for policyholders to thoroughly examine and revisit the unique terms and conditions of their insurance policies. Regular review, preferably on an annual basis and in light of any new unprecedented events, is crucial. This practice helps identify any gaps in the required coverage and ensures that the insurance policy adequately protects against any risk.

Contact Us

Should you wish to obtain further clarity on the above matters, please do not hesitate to contact our firm and speak to one of our corporate law experts.

• Raghad Hammad (Partner & Executive Director) rhammad@zubipartners.com  
• contact@zubipartners.com  

Navigating Franchising Laws in Bahrain: Legal Considerations for Establishing
and Operating Franchise Businesses

Franchising has emerged as a dynamic avenue for business expansion in Bahrain, offering entrepreneurs an opportunity to leverage established brands and proven business models. However, navigating the legal landscape governing franchise operations in Bahrain requires a nuanced understanding of local regulations and compliance requirements. From franchise agreements to intellectual property protection, various legal considerations shape the establishment and operation of franchise businesses in the Kingdom.

In this article, an essential background brief of information for prospective franchisors and franchisees seeking to enter the Bahraini market is provided. By examining key laws and regulations governing franchising, the aim is to offer clarity and guidance for stakeholders looking to capitalize on the burgeoning franchising sector in Bahrain.

Legislative Decree No. 21 of 2001 promulgating the Commercial Companies Law, as amended, governs the establishment and operation of commercial entities in Bahrain, including franchising businesses. It outlines various corporate structures, registration requirements, and corporate governance principles that may apply to franchisors and franchisees.

Bahrain has specific laws and regulations governing the registration, use, and protection of trademarks. These laws aim to safeguard the intellectual property rights of franchisors, including their brand names, logos, and other proprietary assets. Protecting intellectual property rights is crucial for franchisors to safeguard their brand identity and proprietary business methods. Franchisees must adhere to strict guidelines regarding the use of trademarks, logos, and other intellectual property assets. Bahrain provides legal frameworks for the registration and enforcement of intellectual property rights, offering franchisors avenues for recourse in case of infringement.

In addition, there are consumer protection laws in place to safeguard the rights of consumers and regulate commercial transactions. These laws include provisions related to advertising standards, product quality, pricing transparency, and dispute resolution mechanisms.

The Ministry of Industry and Commerce is the primary regulatory authority responsible for overseeing commercial activities in Bahrain. It may issue regulations, guidelines, or licensing requirements that impact franchising businesses operating within the country. The Bahrain Chamber of Commerce and Industry is a prominent business association in Bahrain that provides support and advocacy for businesses, including those involved in franchising. It may offer resources, networking opportunities, and guidance on legal and regulatory matters affecting franchisors and franchisees.

One of the fundamental legal documents in franchising is the franchise agreement. This contract outlines the rights and obligations of both the franchisor and the franchisee, including the use of trademarks, operating standards, fees, and territorial rights. In Bahrain, franchise agreements must comply with local laws and regulations, ensuring fairness and protection for all parties involved.

Despite careful planning and adherence to legal requirements, disputes may arise between franchisors and franchisees. Having robust dispute resolution mechanisms in place, such as mediation or arbitration clauses in franchise agreements, can help mitigate conflicts and protect the interests of both parties. Bahrain offers reliable legal pathways for resolving franchise-related disputes through its judicial system. In the event of disputes between franchisors and franchisees, Bahrain’s judicial system provides channels for resolving legal conflicts. This may include civil courts, which adjudicate commercial disputes according to Bahraini law.

Alternatively, franchise agreements may include provisions for alternative dispute resolution mechanisms such as arbitration or mediation. Bahrain has arbitration and mediation centers that offer neutral and private forums for resolving disputes outside of traditional court proceedings.

 As the franchising sector continues to thrive in Bahrain, entrepreneurs must prioritize a comprehensive understanding of the legal landscape governing franchise operations. By proactively addressing legal considerations such as franchise agreements, intellectual property protection, regulatory compliance, and dispute resolution mechanisms, stakeholders can mitigate risks and maximize opportunities for success in the Bahraini market. With careful navigation of franchising laws and regulations, entrepreneurs can unlock the full potential of franchising as a strategic growth strategy in Bahrain’s dynamic business environment.

Environment Law: Obligations and Prohibitions

Law No. 7 of 2022 promulgating the Environment Law (the “Environment Law”) was issued with the aim of protecting the environment from all activities and practices that pollute or degrade the environment. Preventing pollution and combating environmental deterioration in all its forms (land, air, marine and sound) are principles embodied in the provisions of the Environment Law, through which Bahrain seeks to protect biodiversity and fulfil the United Nations Sustainable Development Goals.

Since environmental protection is a collective effort, the Environment Law is applicable to all public and private entities in addition to individuals in Bahrain, with the exception of the Bahrain Defense Force, the Ministry of Interior and the National Guard.

This article will briefly outline the obligations and prohibitions stipulated under the Environment Law that may significantly impact entities and individuals.

Environmental Impact Assessment

Generally, any activity that pollutes the environment, contributes to its deterioration or causes damage to natural resources or living organisms is prohibited in Bahrain. This is monitored by the Supreme Council for Environment (“SCE”), the competent authority empowered to protect the environment and achieve sustainable development in the Kingdom.

The SCE sets the standards, specifications, foundations and controls necessary to evaluate the environmental impact of projects to ensure that all projects do not negatively impact the environment in any form. An environmental impact assessment is conducted by the SCE prior to the implementation, modification, or expansion of any project by an entity.

The said entity must submit an Environmental Impact Assessment Data Form to the SCE prior to obtaining any licenses or initiating the project, thereafter the SCE will determine whether a detailed report is required to grant the license.

Monitoring Waste

Subsequent to the environmental impact assessment conducted by the SCE, all project owners must comply with certain obligations that enable the SCE to accurately monitor the performance of project owners and their waste management. In accordance with the controls and procedures set out by the SCE, project owners must:

• conduct periodic analysis of the project’s waste;
• monitor the discharge and pollutants resulting from the project; and
• record data and submit reports to the SCE.

Reporting Incidents

The Environment Law obliges all concerned entities and individuals to immediately report any kind of pollution incident. This reporting obligation extends to entities and individuals not responsible for the incident.

In the event that an incident of pollution to the marine environment occurs, such as an oil leak, the SCE must be immediately notified with an indication of the circumstance of the accident, the type of leaked material and the measures taken to stop or limit the leak.

General Prohibitions

The prohibitions stipulated under the Environment Law concern all possible forms of pollution, some of which are listed below:

1. All marine means are prohibited from dumping garbage or discharging sewage water, oil, hazardous waste or polluting materials into the marine environment of Bahrain. International treaties ratified by Bahrain and national implementing regulations that regulate the conservation of marine life must be taken into account by the concerned entities and individuals.
2. All entities such as commercial or industrial projects are prohibited from conducting any activity that may cause pollution or deterioration of the costal or marine environment.
3. All entities are prohibited from emitting or leaking air pollutants beyond the permissible limits stipulated under the laws and regulations. Entities must be equipped with the necessary networks and units to monitor and control the air pollutants expelled, and such networks must be electronically linked and monitored by the SCE.
4. All entities and individuals alike must take the necessary precautions when carrying out excavation, construction or demolition works. The import of vehicles, machinery or engines that emit pollutants exceeding the permissible limits is also prohibited.
5. Any activity that directly or indirectly harms soil, affects its natural properties or harms the quality or quantity of vegetation leading to desertification, distortion of the natural environment or change to agricultural areas is prohibited.
6. The import, burial, storage or disposal of hazardous materials and waste are prohibited without obtaining the necessary licenses from the SCE.
7. Exceeding the permissible sound intensity is prohibited, especially with regard to projects that require the operation of machinery, equipment and vehicles that emit loud noises.

The SCE will take the necessary measures to force any violator to rectify the acts committed in violation of the Environment Law, whereby all the repair costs will be borne by the violator.

Furthermore, the violator may face imprisonment or a fine that may range from five hundred Bahraini Dinars (BHD 500) to one million Bahraini Dinars (BHD 1,000,000), and in the case of recurrence of a crime, the penalties may be doubled to their maximum limit.

Appointment, Retirement, Resignation, and Removal of a Director in Bahraini Companies

This article delves into the processes surrounding appointing, retiring, resigning, and removing directors within companies operating under Bahraini law. As financial institutions are governed by the Central Bank of Bahrain (“CBB”) and the provisions of the rulebook, this article will not cover them.

The pertinent legislation governing directorship in Bahrain includes Legislative Decree No. 21 of 2001, which enacts the Commercial Companies Law (“CCL”), as amended, and Ministerial Decree No. 19 of 2022 concerning the amended Corporate Governance Code (the “Code“). The Code applies to all joint-stock companies registered under the CCL, while limited liability companies are exempt from its provisions.

Definition of a Director

A director is an individual elected to oversee a company’s daily operations along with other directors. They have authority over the management, administration, and supervision of the company’s affairs.

Director Qualifications and Requirements

In accordance with Article 173 of the CCL, a director must fulfill the following conditions:

•  Full legal capacity to act.
• Have not been convicted of a crime involving negligent or fraudulent bankruptcy, a crime affecting honor or a breach of trust, or a crime on account of his violation of the provisions of the CCL unless he has been reinstated.
• Have not been prohibited from assuming the directorship of a joint stock company pursuant to the CCL or any other law in force in Bahrain.
• With respect to the chairman and the deputy chairman, a director must not simultaneously assume such positions and the position of the most senior executive in the company.
• Any other conditions specified in a regulation applicable to the executive, non-executive, and independent directors of companies that are not licensees of the CBB as specified in a regulation issued by the competent Minister of Industry and Commerce.
• Any other conditions specified in the company’s Memorandum of Association (“MoA”).

Types of companies

This article will explore two types of companies in Bahrain: A Limited Liability Company (“WLL”) and a Bahrain Shareholding Company (“BSC”), also known as a joint stock company. A brief introduction: A WLL can be established with one or more legal or natural persons (companies or individuals). It limits liability to the company’s assets, with each partner liable only to the extent of their share in the capital unless specific circumstances apply.

Like WLLs, BSC shareholders are liable for the company’s debts only to the extent of the value of their shares. A BSC allows negotiable shares, enabling multiple legal or natural persons to subscribe. There are two categories of BSCs: public and closed. Public BSCs are listed on the Bahrain Bourse, the capital market of Bahrain, and their shares are openly traded. Closed BSCs (“B.S.C (c))” may be listed on Bahrain Bourse; however, they are not open for public subscription.

In conclusion, directors play a crucial role in managing the company’s affairs, and it is essential to ensure that they meet the requirements outlined by the law.