Latest News
Bahrain Court of Cassation Expands Scope of Arbitration Agreements to Non-Signatories
Introduction:
The recent decision by the Bahrain Court of Cassation (COC) in Case No. 31 of 2023, issued on 8 January 2024, marks a pivotal development in the application of arbitration clauses to non-signatories within Bahrain-seated arbitrations. This landmark judgment centered on whether an arbitration agreement in a sub-subcontract could extend to the main contractor, a party not originally signatory to the contract.
Background:
The dispute arose from an electricity generating station project involving an employer, a main contractor, a subcontractor, and a sub-subcontractor. The main contractor agreed to assume liability for payments owed by the subcontractor to the sub-subcontractor, as stipulated in a letter dated 15 May 2018 (the "15 May Letter"). Despite this agreement, the main contractor failed to make the payments, prompting the sub-subcontractor to file a claim before the Bahrain Court of First Instance (CFI). The CFI rejected the jurisdictional challenge raised by the main contractor and subcontractor, ruling that there was no explicit arbitration agreement in the 15 May Letter. This decision was upheld by the Bahrain Court of Appeal (COA), leading the main contractor and subcontractor to appeal to the COC.
The COC Judgment: Expanding the Doctrine of a Chain of Contracts
The COC overturned the COA's judgment by applying the doctrine of a chain of contracts. This doctrine recognizes the interconnectedness of contracts that share the same subject matter and collectively facilitate a single commercial transaction. The COC found that the 15 May Letter, by referring to the Sub-Subcontract, linked the main contractor to the arbitration agreement within that contract. The COC held that this reference satisfied the requirement under Article 7 of the Bahrain Legislative Decree No. 9 of 2015 Concerning Arbitration (BAL), which mandates that arbitration agreements be in writing and may be incorporated by reference. The COC further ruled that the 15 May Letter constituted a delegation, not a novation, of the subcontractor’s obligations to the main contractor. Thus, the main contractor’s obligations were concurrent with those of the subcontractor, creating a tripartite agreement binding all three parties to the arbitration clause.
Implications for Arbitration in Bahrain:
The COC Judgment represents a significant shift from the traditional Bahraini judicial approach, which limited arbitration agreements to signatories explicitly named within the contract. By extending the arbitration agreement to a non-signatory through the doctrine of a chain of contracts, the COC has broadened the scope of arbitration in Bahrain, aligning with modern commercial practices and economic realities. This decision has already influenced subsequent cases, including a May 2024 judgment where the COC applied the same principle to another dispute involving the same main contractor and a different sub-subcontractor. The COC’s approach reflects a growing trend towards a more inclusive interpretation of arbitration agreements, even in the absence of explicit consent.
Conclusion:
The Bahrain Court of Cassation's ruling in Case No. 31 of 2023 underscores the judiciary's commitment to enhancing arbitration as a preferred dispute resolution mechanism in Bahrain. By adopting the doctrine of a chain of contracts and expanding the interpretation of consent, the COC has set a precedent that may influence not only Bahraini law but also judicial practices in other jurisdictions. This decision highlights the evolving landscape of arbitration law, where non-signatories may increasingly find themselves bound by arbitration agreements through interconnected contractual arrangements.
- The COC overturned the COA's judgment by applying the doctrine of a chain of contracts.
- The COC further ruled that the 15 May Letter constituted a delegation, not a novation, of the subcontractor’s obligations to the main contractor.
- The COC Judgment represents a significant shift from the traditional Bahraini judicial approach, which limited arbitration agreements to signatories explicitly named within the contract.
