By Amal Lari, Partner
Commercial disputes rarely begin when a claim is filed or arbitration proceedings commence.
In many cases, the foundations of a dispute are laid much earlier: a contractual provision that was overlooked during negotiations, an agreed variation that was never documented, a notice that was not given correctly, or an operational problem that was allowed to continue without being formally addressed.
For businesses, effective dispute management often starts long before there is a dispute.
Negotiate the contract for the difficult days
When a commercial relationship is new, the focus is naturally on getting the transaction completed. Provisions dealing with notices, approvals, variations, delays, acceptance criteria and termination can feel secondary to the commercial terms.
They become considerably more important when the relationship deteriorates.
Notice provisions are a common example. A party may have a legitimate substantive claim but create an avoidable issue because notice was given late, sent to the wrong person or did not contain the information required by the contract.
Variation provisions can present similar difficulties. An operational instruction or email approval may appear sufficient at the time, but the contract may require changes to be authorised in a particular way.
Termination also requires careful consideration. The contractual ground, any applicable notice or cure period and the required method of service should be understood before a termination decision is made.
The dispute-resolution clause deserves the same attention. Businesses should make a deliberate choice between court litigation, arbitration or another available forum, and ensure that the clause is internally consistent and workable.
Under Bahrain law, the contract remains central to the parties’ relationship. Article 128 of the Bahrain Civil Code provides, in substance, that the contract is the law of the parties, while Article 129 requires contractual obligations to be performed in accordance with their terms and consistently with good faith and fair dealing.
The practical lesson is straightforward: negotiate the contract with the difficult days in mind, not only the good ones.
The signed contract is not a document to file away
A carefully negotiated contract can still provide a weak foundation for a dispute if it is not properly administered.
Businesses frequently depart from contractual procedures in the ordinary course of a project or commercial relationship. Deadlines are extended without documenting the extension. Additional work is requested without completing the contractual variation procedure. Approvals are given by individuals whose authority is unclear. Performance problems are discussed repeatedly but never formally recorded.
None of these actions necessarily creates an immediate problem.
The difficulty comes later, when the parties disagree about what was agreed.
Article 125 of the Bahrain Civil Code gives particular importance to clear contractual language. Where interpretation is required, the common intention of the parties may be considered alongside the nature of the transaction, commercial custom and good faith.
This makes consistency between the written contract and the parties’ subsequent conduct particularly important.
Businesses should therefore treat contract administration as an ongoing process, not an administrative task that ends when the contract is signed.
Recognise when a commercial problem is becoming a legal dispute
A dispute often develops gradually.
The correspondence becomes more formal. Senior management starts being copied. Contractual provisions are quoted for the first time. Invoices remain unpaid. Approvals slow down. One party starts reserving its rights.
Other warning signs can include repeated requests to change scope without agreement on price or time, disagreement over milestones or acceptance criteria, unexplained withholding of payments and requests for extensive historic documentation.
None of these necessarily means litigation or arbitration is inevitable.
They do indicate that the business should begin managing the relationship with the possibility of a dispute in mind.
A useful distinction is between when the legal dispute formally starts and when the commercial dispute actually began. The latter may be months earlier.
Recognising that distinction can give a business more opportunity to understand its position, preserve evidence and consider its options before positions become entrenched.
Build the evidence while the facts are fresh
A commercially persuasive account of what happened is not necessarily the same as a legally provable one.
The strongest cases tend to have a contemporaneous documentary chronology: the contract, amendments, purchase orders, invoices, delivery records, approvals, notices, meeting minutes, relevant emails and technical records.
The weakest may depend heavily on the recollection of individuals several years after the events.
Businesses commonly fall short in three areas.
Important decisions may be made orally or through informal messaging platforms without being properly recorded. Records may be spread across employees and systems rather than maintained centrally. And once a dispute becomes apparent, documents may continue to be deleted through ordinary retention processes or become unavailable when employees leave.
Electronic records should not be treated as inherently inferior evidence because they are electronic. Bahrain’s Electronic Communications and Transactions Law recognises electronic records for evidential purposes and identifies matters including integrity, creation or storage and preservation as relevant considerations.
A document-preservation process should therefore be considered as soon as a serious dispute is reasonably anticipated.
Protect the legal position without escalating unnecessarily
There is often a concern that involving lawyers too early will damage the commercial relationship.
Early legal input does not necessarily mean sending an aggressive letter or commencing proceedings.
It may simply involve identifying the contractual requirements, preserving evidence, ensuring that correspondence does not inadvertently prejudice the company’s position and helping management understand what must be protected and what can safely be compromised.
The right point for intervention is usually before the business makes an irreversible decision or misses an important contractual step.
This may be particularly important where there is a material payment default, threatened termination, persistent non-performance, a significant change in scope, an allegation of breach, a potential regulatory issue or correspondence expressly reserving contractual rights.
Protecting the legal position and maintaining the commercial relationship are not mutually exclusive.
A carefully drafted notice can, for example, preserve contractual rights while allowing the parties to continue discussing a commercial solution.
Three principles for businesses
There are three practical steps businesses can take at the beginning of a commercial relationship to put themselves in a stronger position if difficulties arise.
First: negotiate the contract for the difficult days, not only the good ones.
Give proper attention to scope, payment, change control, notices, liability, termination and dispute resolution.
Second: administer the contract as carefully as you negotiated it.
Document changes. Follow notice requirements. Confirm important oral discussions in writing. Ensure approvals come from people with appropriate authority. Maintain a complete central record.
Third: intervene early and proportionately.
Do not wait until positions have hardened before identifying the legal issues. Early legal input can help protect the business’s position while preserving room for a commercial resolution.
A well-managed commercial relationship will not eliminate every dispute.
It can, however, put a business in a significantly stronger position if a dispute does arise.
For further information on commercial disputes in Bahrain, please contact Amal Lari or our ASAR Bahrain team at asarbh@asarlegal.com.
