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Expert Insights

31 August 2022

Technology Disputes, Bahrain 2023

Preliminary Considerations

Common disputes and preliminary actions

What are the most common issues that arise in connection to technology contracts? What actions should be considered when these issues arise? (For example, what steps should parties take to protect their rights while negotiating with the other side? Can they agree to suspend time running? How can they preserve any claims that may have arisen?)

In our experience, the most common disputes occur following perceived or actual failures to deliver required technology services and lack of clarity as to each party’s expectations in relation to that delivery.

As technology contracts relate to specific technical areas, it is especially important to ensure that contracts are tailored precisely to the relevant specific technology or product. Using standard contracts and generic provisions is unfortunately common, as it is quick and cost-efficient, but these rarely serve the best interests of either party in the event that a dispute arises.

Technology contracts should include details relating to the technology or product, including, but not limited, to how that technology or product will be protected, used and by whom. These contracts should also address any potential issues that may arise and how these are to be dealt with, such as in relation to data protection or intellectual property rights following termination. The parties should also agree upon proper dispute resolution clauses.

Both parties’ interests are best served at the negotiation stage. Technology contracts should be drafted by experts who understand the intricacies involved and can draft accordingly. Taking the time to enter into properly thought-out contracts at the beginning of any relationship is the most efficient way of avoiding lengthy and costly disputes.

Contract Termination

How can a contract be terminated in your jurisdiction? What considerations should be taken into account when deciding whether and how to terminate a technology contract?

A contract may be terminated in various ways, including, but not limited to, termination by way of mutual agreement between the contracting parties, unforeseen circumstances that render the parties’ performance impossible (force majeure), failing to make payments in accordance with the terms of the contract, or breaching other contractual obligations. A number of these provisions are included in various Bahraini statutes, including Legislative Decree No. (19) of 2001 (the Civil Code).

A party seeking termination should assess what its termination rights are under the contract (eg, is the party able to terminate for convenience? Is there a break clause within the contract? Has the other party committed a material breach of the contract which gives rise to termination?)

Parties should also consider any applicable post-termination restrictions, warranties, data protection and IP obligations, among other factors.

Practically, under statute, service of termination notices should be sent by registered post through the Bahrain Post Office, unless the contract specifies otherwise.

Without-prejudice communications

Is it possible to have conversations aimed at settling a dispute which cannot subsequently be used as evidence in legal proceedings if the dispute is not resolved? If so, what formalities are required (if any)? If not, how should confidentiality be preserved through mutual agreement?

Bahraini law does not recognise without prejudice communications in the same way common law jurisdictions do. That said, it is not uncommon for communications to be sent labelled on that basis, notwithstanding the Bahraini courts’ position.

Additional wording may also be incorporated in such communications to protect the parties’ positions, such as including text stating that any statements given are not considered admissions of liability.

Settlement formalities

If a settlement is reached, what formalities are required in your jurisdiction for the settlement to be enforceable?

If a settlement is reached, there is no specific statutory requirement for this to take a specific form, although it is recommended that the parties seek to legalise the settlement agreement before a notary in Bahrain. This additional layer of formality is recommended as it ensures that the local courts will enforce the provisions strictly and disregard common objections to the enforceability of the settlement’s terms.

Claims

Causes of action

What causes of action commonly arise in connection to a contract for hardware or software design, implementation and licensing? What elements must be established to succeed in these claims? (Can any non-contractual claims be brought, such as liability for pre-contractual statements?)

The most common causes of action tend to be for breach of warranty or failure to supply services (software design and licensing in particular). Disputes often involve claims in relation to defective technology or products, or a party not complying with their payment obligations (particularly in respect of licencing) or not performing their obligations in accordance with the contract.

There is no bar to non-contractual claims in Bahrain. These can include claims (eg, negligence, misrepresentation and pre-contractual misrepresentation) or claims in respect of restitution or unjust enrichment. Traditionally, Bahraini courts have been willing to entertain a wider gambit of claims, and ‘strike outs’ of these claims at an early stage are rare.

Statutory claims

Has your jurisdiction enacted any legislation providing additional protection for business purchasers of hardware, software or associated licences? (For example, are any rights, duties or other terms implied by statute, including a duty of good faith?) What practicalities should be considered when bringing statutory claims?

Bahrain does not have any legislation specific to business purchases of hardware, software or associated licences. The Civil Code governs and provides for the general principles of contract. Article 128 of the Civil Code specifically refers to the principle that agreements must be kept, namely, that the contract’s provisions are deemed the law between the parties. Article 129 further states that the parties must comply with the requirements of good faith and honesty.

Defences

What defences are available against the most common claims raised in technology disputes? What elements must be established for these defences to succeed?

Technology disputes are treated in the same manner as other disputes. As technology is a relatively new area of law, the specific matters disputed may not expressly be covered by legislation.

The majority of cases raised in respect of technology disputes will be contractual, and so breaches under the agreed terms between the parties will need to be established. Technology disputes are dealt with in the same manner as other commercial or civil disputes.

Each dispute is heard on its own merits.

Limitation period

What limitation periods apply for bringing claims in your jurisdiction? (Please indicate whether different periods apply for different types of claim.)

The limitation period in Bahrain is generally 15 years from the date in which a personal right was infringed or an unlawful act occurred. However, the limitation period depends on the type of claim. For instance, claims arising from commercial contracts generally have a limitation period of 10 years, whereas claims relating to construction have a limitation period of three years. 

It is essential to assess what the specific claim relates to at the outset to determine the appropriate limitation period and ensure compliance.

Litigation proceedings

Pre-action steps

What pre-action steps are required or advised before bringing legal action? (For example, is pre-action mediation mandatory in your jurisdiction?)

There are no pre-action requirements before bringing legal action under Bahraini law, except where notices must be provided to the other party (different claims may have different notice periods or procedures) and where contracts expressly provide for pre-action steps, such as pre-action mediation or attempting to amicably settle a dispute before initiating proceedings.

Competent courts

Does your jurisdiction have a specialist court or other arrangements to hear technology disputes? Are there specialist judges for technology cases?

Bahrain does not have a specialist court to hear technology disputes as cases are heard in the regular civil courts. However, courts may appoint experts to deal with specialist matters.

Procedural rules

What procedural rules tend to apply to technology disputes?

Technology disputes are dealt with in the same manner as other commercial or civil disputes.

There are several laws that govern these disputes, including the following:

  • Legislative Decree No. 12 of 1971 on the Issuance of the Civil and Commercial Procedural Law;
  • Legislative Decree No. 14 on the 1996 Promulgating the Law of Evidence in Civil and Commercial Matters (the Bahraini Law of Evidence);
  • Legislative Decree No. 19 of 2001 on the Issuance of the Civil Law (the Civil Code);
  • Legislative Decree No. 20 of 2009 with respect to the Bahrain Chamber for Economic, Financial and Investment Dispute Resolution (BCDR);
  • Resolution No. 65 of 2009 with Respect to the Procedures of the BCDR;
  • Legislative Decree No. 9 of 2015 Promulgating the Arbitration Law; and
  • Ministerial Decision No. 62 of 2018 with Respect to the Case Management Procedures.

Evidence

What rules and standard practices govern the collection and submission of evidence in your jurisdiction (eg, discovery/disclosure obligations or obligations to preserve relevant documents)?

Bahraini law does not recognise the concept of disclosure in the same way that common law systems do. Parties are required to submit all documents (and expert reports) they consider to be relevant with their submissions. Requests for specific disclosure can be made.

There are various statutory provisions that govern the collection and submission of evidence, but parties should ensure that they adhere to the Bahraini Law of Evidence.

Courts and arbitral tribunals have broad discretion regarding how evidence is obtained and what manner of evidence is acceptable, including the power to determine the admissibility, relevance, materiality and weight of any evidence.

Privilege

What evidence is protected by privilege in your jurisdiction? Do any special issues surrounding privilege arise in relation to technology disputes?

The concept of privilege and disclosure are not expressly recognised by Bahraini statute. However, article 66 of the Bahraini Law of Evidence states that a public sector employee may not testify in relation to information that was not disclosed through legal means during his or her employment, and which he or she is not authorised to disclose by the competent authority unless this has been requested by the court or one of the litigants involved in the proceeding.

Article 67 of the Bahraini Law of Evidence recognises a similar concept to legal professional privilege, as it states that lawyers, agents, physicians, auditors or others may not disclose information that they have obtained during the course of their work unless the information was revealed with the aim of committing a misdemeanour or felony.

Protection of confidential information

How else can confidential information be protected during litigation in your jurisdiction?

There are several laws that govern confidentiality and data protection, such as Law No. 30 of 2018 Promulgating Personal Data Protection Law, which recently came into effect as the main data protection law in Bahrain, and Law No. 7 of 2003 on Trade Secrets.

However, courts may, in certain situations, request parties disclose information that may be deemed confidential, such as information that is covered by non-disclosure agreements.

Proceedings before the commercial courts and the BCDR are essentially public. Similarly, the Bahraini Arbitration Law contains no express provisions regarding the confidentiality of arbitral proceedings. Therefore, this is a matter for the court or the parties to agree on.

In practice, confidentiality is often expressly prescribed in the relevant contracts. In cases where confidentiality has not been expressly provided for in a contract, the court may decide to hear the case privately, depending on sensitivity. Many institutional arbitration rules also recognise (at least a partial) principle of confidentiality in international arbitrations.

For example, the BCDR Arbitration Rules 2017 state that an award may be made public only with the consent of all parties and that, unless otherwise agreed by the parties, all matters concerning the arbitration shall be kept confidential by the tribunal, the BCDR and any experts involved in an arbitration. However, this confidentiality requirement does not apply to the parties themselves.

Additionally, the majority of cases in Bahraini courts are submitted in writing, and judgments are only available to the parties themselves or third parties that can demonstrate they are ‘interested parties’ to a litigation. In short, a non-confidential case in Bahrain receives significantly more protection than one heard in the United Kingdom, for instance.

Expert witnesses

Can expert witnesses be used in your jurisdiction? If so, how are they appointed and what is their role in the proceedings?

Expert witnesses can be heard in litigation proceedings in Bahrain. One or three experts are usually appointed by the court; however, the parties may also agree on the expert to be heard. Where three experts are appointed, the court may allocate specific tasks to each expert. Each expert may submit independent reports unless the experts have agreed to submit a joint report. The appointed expert is usually listed on a roster of experts. The court will also include a detailed statement of the expert’s task and the urgent matters he or she may deal with in the case. The expert must then assess the claim and its merits, and provide a report setting out the results of his or her tasks and opinion, and the grounds for such.  Where three experts are appointed, each expert may submit an independent report, unless the experts have agreed to submit a joint report. 

An arbitral tribunal may also appoint one or more experts to report on specific issues to be determined by the tribunal, and may require a party to give such an expert any information or documents that the tribunal considers relevant to the issues pertaining to the arbitration.

The parties may also appoint their own experts with their reports accompanying their submissions to the court or arbitral tribunal.

Time frame

What is the typical time frame for litigation proceedings involving technology disputes?

Since there are no specialist courts that hear technology disputes, litigation proceedings in Bahrain often take months. However, a proceeding’s duration depends on the court (eg, the Court of Cassation’s waiting list for cases to be listed is far longer than the Civil High Court’s, but the time the former requires to hold a hearing and pass judgment is far shorter).

As a guideline, the initial phase of the dispute takes 12 to 18 months, and receiving a listing at the Court of Cassation requires a further 12 to 18 months.

Litigation funding and costs

Litigation funding options

How can litigation be funded in your jurisdiction? Can third parties fund litigation? Can lawyers enter into ‘no win, no fee’ or other forms of conditional fee arrangement?

Although third-party funding is still not widely used in Bahrain, there is a growing interest and uptake in this concept. Bahraini law does not include a clear process for third-party funding but does not prohibit it.

The four main funding options available are:

  • conditional fee agreements (CFAs);
  • damages-based agreements (DBAs);
  • after the event (ATE) insurance; and
  • third-party funding.

In basic terms, CFAs and DBAs are agreements a client enters into with their lawyer whereby the risks and rewards of a dispute are shared. ATE insurance and third-party funding are agreements between a client and non-lawyer third parties. Each option can be used separately or in conjunction. Their use provides a party to litigation or arbitration with increased opportunities to mitigate or negate its exposure to legal costs and potential adverse costs.

A CFA transfers all or part of the client’s risk of legal costs to their lawyer. The usual form of a CFA provides that the lawyer receives no fees if the client loses its case, but if the client wins the lawyer is entitled to his or her normal fees plus an increased percentage (usually up to 100 per cent) of his or her normal fees. There are a number of variants of CFAs available, such as:

  • discounted CFAs – the lawyer receives a lesser percentage of his or her fee (eg, 75 per cent) if the client loses, but receives fees at the full rate and a success fee if the client wins;
  • partial CFAs – only a proportion of the lawyer’s fees are deferred to the conclusion of the case; and
  • CFA lite – the lawyer operates on a no-win, no-fee or discounted CFA basis, but additional fees, and any success fees payable on winning, are capped at costs awarded or agreed with the opponent.

A DBA is a contingency fee agreement. It is similar to a CFA in that what the lawyer is paid depends on the outcome of the case. However, in a DBA, the lawyer’s fee is not calculated by reference to the work carried out but by reference to the compensation recovered by the client. If the client wins, the lawyer will receive a percentage of the client’s damages. If the client loses, the lawyer receives nothing. In most jurisdictions, the maximum amount recoverable by the lawyer is 50 per cent of the damages recovered by the client. As such, DBAs are only available to claimants or counterclaiming defendants where the level of damages is sufficiently high to ensure that they will cover the lawyer’s fees and an uplift to reflect the risk of being paid nothing should the client lose.

ATE insurance provides cover for the legal costs incurred in the pursuit or defence of litigation and arbitration, and is purchased after a dispute has arisen. Such insurance typically covers the client’s liability for the expenses and disbursements of the client’s own lawyers, and adverse costs in the event that the opponent wins.

There are four main types of premiums with ATE insurance:

  • one-off premiums that are payable upfront;
  • staged premiums so that the premium payable increases as the dispute progresses and thus remains proportionate to the costs incurred;
  • deferred premiums that are only payable at the conclusion of the case; and
  • contingent premiums that are only payable if the case is won – if the case is lost, the premium is not payable.

Third-party funding involves a party that is not involved in a dispute providing funds to cover legal fees and expenses to a party in a dispute in exchange for an agreed return. The funder may also agree to pay the opponent’s costs and provide security for costs. In addition to funding one-off cases, third-party funding is now available to cover a portfolio of cases where the risk of no return for the funder can be spread across a number of cases.

The funder’s return, and the way it is calculated, will always be tailored to the particular case and various factors will be taken into account, including the size of the expected damages, the likely length of the matter, and the level of risk. The calculation can be based on a fixed percentage share (typically 30 per cent to 50 per cent of recoveries), a multiple of the funding to be provided (usually a multiple of three or four), or a combination of both.

Costs and insurance

Can the losing party be required to pay the successful party’s costs in the litigation? If so, is insurance available to cover a party’s legal costs?

Generally, the courts will require that the losing party pays the court fees, in addition to a contribution towards the winning side’s lawyers’ fees, but these latter awards tend to be nominal.

It should be noted that costs are not awarded in the same manner as the common law system – costs awarded to the winning party include the court fees and a nominal amount for the legal fees that may have been spent in bringing or defending any case.

A party may obtain ATE insurance that can substantially reduce the legal costs they are exposed to.

ATE insurance may be used to cover all or part of the costs that the losing party would have to pay the winning party (ie, adverse costs), any fees paid to professionals, such as experts, and the fees of the losing party’s lawyers (if any). Depending on the level of cover, the insurance may also cover all or part of the insured losing party’s own disbursements (including barristers’ and expert’s fees) and solicitors’ fees.

There are four main types of premiums with ATE insurance:

  • one-off premiums that are payable upfront;
  • staged premiums, so that the premium payable increases as the dispute progresses and thus remains proportionate to the costs incurred;
  • deferred premiums that are only payable at the conclusion of the case; and
  • contingent premiums that are only payable if the case is won – if the case is lost, the premium is not payable.

Remedies and enforcement

Interim remedies

What interim remedies are available and commonly sought in technology disputes in your jurisdiction?

Technology disputes are treated in the same manner as other disputes.

Various interim remedies are available to the suffering party. Those include, but are not limited to, freezing orders and the preservation of assets and evidence.

The claimant may submit an application to the relevant court for an interim remedy. The claim may also be submitted to the Court of Urgent Matters if the claimant requires the matter to be dealt with expeditiously.

In addition, an arbitral tribunal in Bahrain has the power to order preliminary or interim relief. The types of relief available include those set out above and orders to prevent any prejudice to the arbitral procedure.

A party requesting an interim measure must satisfy the arbitral tribunal that harms not adequately reparable by an award of damages is likely to occur, and that there is a reasonable possibility that the requesting party will succeed on the merits of its claim or defence.

An arbitral tribunal may require the party requesting an interim measure to provide appropriate security and may modify, suspend or terminate an interim measure, either on the application of one of the parties or, in exceptional circumstances, on its own initiative.

Upon application by a party, the Bahraini High Civil Court will recognise and enforce an interim measure issued by an arbitral tribunal, irrespective of the country in which it was issued, subject to limited grounds for refusing enforcement, including invalidity in law, incapacity of a party and improper composition of the tribunal.

Furthermore, the Bahraini High Civil Court has the same power to issue an interim measure in relation to arbitral proceedings, irrespective of whether the seat of the arbitration is Bahrain, as it has in relation to proceedings in the courts, and will exercise such power in accordance with its own procedures, having regard to specific features of international arbitration. 

Substantive remedies

What substantive remedies are available and commonly sought in technology disputes in your jurisdiction? How are damages usually calculated?

The substantive remedies that are commonly sought in Bahrain are damages and specific performance. 

The courts in Bahrain generally consider all the relevant factors of the claim when assessing damages. Article 161 of the Civil Code includes that damages are limited to the loss incurred and loss of profit by the aggrieved party. Damages are also extended to cases where the damages suffered are moral (article 162 of the Civil Code).

The courts generally assess damages on a case-by-case basis, considering all the relevant factors. Loss of profits and moral damages are often included in the calculation of damages.

Limitation of liability

How can liability be limited in your jurisdiction?

Parties should seek to limit their liability under a contract. This can be done by excluding liability for certain losses, such as those that were not caused directly by the party in breach, or by including a cap on the amount of compensation recoverable.

The Civil Code also includes several provisions relating to limiting liabilities. For instance, under article 422 of the Civil Code, in the case of sold goods, the contracting parties may agree to increase, limit or discharge liability where the goods are defective. However, any agreement to discharge or limit the liability will be deemed null and void if it is found that the seller has fraudulently concealed the defect.

Liquidated damages

Are liquidated damages permitted? If so, what rules and restrictions apply?

Liquidated damages are permitted in Bahrain. Article 226 of the Civil Code states:

No agreed compensation shall be payable if the debtor proves that the creditor has suffered no damages.

The court may decrease the agreed amount of compensation if the debtor proves that the amount fixed is overestimated or if the obligation has been performed in part.

Any agreement to the contrary shall be null and void.


Accordingly, the parties may agree on a sum that is equivalent to the potential losses suffered by one of the parties due to the other party’s breach. However, this compensation would not be enforceable if the party claiming liquidated damages did not suffer any damages. The court may also decide to reduce the amount of liquidated damages so that it is equivalent to the actual loss suffered.

Enforcement

What means of enforcement are available and commonly used by successful litigants in technology disputes in your jurisdiction?

Technology disputes are not differentiated from other commercial disputes.

A party seeking enforcement should apply to the Bahraini Court of Execution. 

Available methods of enforcement include: 

  • issuing an attachment order on property; 
  • ordering the forced sale of property subject to the attachment order; 
  • ordering the payment of amounts under the judgment; 
  • collecting payment and transferring it to the successful party; 
  • seeking assistance from the police, if necessary; 
  • ordering the disclosure of assets owned by the debtor;
  • ordering a travel ban on the debtor; 
  • levying a distraint on the debtor’s property (including stocks and bonds) in order to satisfy the debt; and 
  • ordering the sale of any property (movable and immovable) by public auction. 

Under Bahraini law, an arbitral award shall be recognised as binding, irrespective of the country in which it was made (as long as that country is a signatory to the New York Convention), and, upon application in writing to the Bahraini High Civil Court, shall be enforced, subject to limited grounds for refusing recognition or enforcement.

Alternative dispute resolution

Available ADR mechanisms

What alternative dispute resolution (ADR) mechanisms are available and typically used for technology disputes in your jurisdiction? (Do they have statutory support?)

Although litigation remains the primary dispute resolution mechanism in the Kingdom of Bahrain, international arbitration is an increasingly popular alternative. Other forms of alternative dispute resolution include mediation, expert determination and early neutral evaluation, all of which can be provided by the Bahrain Chamber for Dispute Resolution.

Parties to international arbitrations in or concerning Bahrain have indicated that the main drivers for their choosing arbitration over litigation or other forms of dispute resolution are the confidential nature, flexible procedure and international enforceability of arbitral awards.

A cultural preference to resolve disputes ‘behind closed doors’ means that parties to international contracts or disputes in or concerning Bahrain (in keeping with those based across the Gulf Cooperation Council and Middle East region) are often attracted to arbitration over other forms of dispute resolution.

Recognition and enforcement

What rules and practices govern the recognition and enforcement of foreign arbitral awards in your jurisdiction?

In line with other Gulf Cooperation Council states, Bahrain has recently updated and streamlined its arbitration law, Legislative Decree No. 9 of 2015 (the Bahraini Arbitration Law), and has adopted the international norms set out in the United Nations Commission on International Trade Law (UNCITRAL) Model Law (the Model Law). 

Moreover, Bahrain has been a signatory to the New York Convention since 6 April 1988. Under the Bahraini Arbitration Law, arbitral awards are recognised as binding irrespective of the country in which they were made, as long as that country is a signatory to the New York Convention, and will be enforced upon a written application to the Bahraini High Civil Court, subject to limited exceptions, similar to those relating to challenging or appealing.

Therefore, in principle, Bahraini courts will recognise and enforce international arbitral awards.

However, in relation to foreign arbitration awards, differences between the legal system of Bahrain and those of other jurisdictions may lead to a case being effectively retried on its merits by the Bahraini courts. 

Bahraini courts may also refuse to recognise and enforce an award at the request of the party against which it is invoked if that party can show the award has been set aside or suspended by a court of the country in which, or under the law of which, the award was made.

Recent developments and trends

What have been the most notable recent developments and trends affecting the conduct and resolution of technology disputes in your jurisdiction (including any recent or pending case law and legislative changes)?

As of 1 December 2021, the WIPO Arbitration and Mediation Center provides domain name dispute resolution services for .BH and البحرين. pursuant to the Regulation for Settling the Disputes Related to the Registration of (.BH and البحرين.) Domain Names, Trademarks and Trade Names.

Court sessions in Bahrain in the previous year have been limited due to the outbreak of coronavirus. The pandemic has had a significant effect on business in Bahrain and the wider region and this has, in turn, caused interruptions and delays to litigation and international arbitration.

In an attempt to address these delays, the Ministry of Justice, Islamic Affairs and Endowments has announced that the High Criminal Courts, High Civil Courts, Administrative Courts and Lower Criminal Courts will take part in televised court proceedings.

Moreover, arbitration is by nature a flexible dispute resolution mechanism, and participants have been able to proceed with arbitrations with only limited covid-19 related interference, while remote hearings have become standard practice. Arbitral institutions such as the Bahrain Chamber for Dispute Resolution, International Chamber of Commerce and London Court of International Arbitration have implemented measures to streamline and improve remote working, facilitating online filing and case management.

Tribunals, legal representatives and parties have been able to adapt quickly and have been able to make use of the state-of-the-art technology available to ensure that any covid-19 interruptions are limited as far as possible.

In light of this, it should be remembered that the flexibility of international arbitration means that an arbitral tribunal can often render a decision far quicker than the domestic courts, with limited scope for appeal and a facilitated international enforcement process, so, at least in theory, the process should be more cost effective than domestic litigation.

Reproduced with permission from Law Business Research Ltd. This article was first published in Lexology GTDT – Technology Disputes 2023. For further information, please visit: https://www.lexology.com/gtdt

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