COVID-19: Bahrain Update

The COVID-19 pandemic has affected most, if not all, communities/businesses around the world in one way or another.

While the health implications are rightfully in the forefront, the focus of this email are on the challenges facing businesses in maintaining continuity and mitigating the consequences of the pandemic.

While maintaining commercial operations is a top priority for business owners and management during this crisis, associated legal risks should also be considered and managed. Measures that should be taken will vary depending on the relevant circumstances. Our comments should not be seen as a substitute for formal legal advice. This email is merely meant to highlight certain issues that may be of relevance. We recommend businesses retain the services of legal counsel to provide advice on the issues facing their operations as a result of COVID-19 in light of their particular circumstances.

We hope you find our comments below helpful and that you, your families and colleagues stay safe during this time.

1. Contracts Generally

Contracts should be reviewed to assess the impact of the current circumstances on the parties’ rights and obligations. Contracts often regulate the consequences that may flow from the impact of significant and unforeseen circumstances on a contracting party’s obligations.

Perhaps one of the more significant issues to consider is the relevance and impact of force majeure provisions. These provisions typically regulate what would occur should the performance of contractual obligations become impossible due to considerations beyond the control of the obligated party. While Bahrain law does regulate this issue generally, parties may agree in a contract on what may constitute a force majeure event within certain parameters as well as which party would bear the risk should such an unforeseen force majeure event occur. Unless otherwise agreed, parties would typically bear their own losses arising from force majeure events. We do emphasize that force majeure provisions tend to be bespoke and circumstances which may trigger force majeure provisions as well as the consequences thereof often differ.

Where unforeseen and extraordinary circumstances arise which makes it unduly onerous to perform an obligation but not impossible (in which case, contractual force majeure provisions may apply), Bahrain law also contemplates the possibility of relief being available to a detrimentally impacted party. Any such relief would usually be determined by a judge allowing for adjustments to consideration or obligations of the impacted party.

Other rights of recourse/relief may also be available, whether under law or as contemplated in the underlying contract between the parties (e.g. rights to suspend or terminate some or all obligations, relief on account of sovereign/government action, changes in law, limitations of liability, indemnities, etc.). The approach which may be taken will have to be considered in light of the relevant circumstances and the contractual terms which govern the parties’ relationship; and care should be taken to ensure that all rights and remedies are preserved as far as possible.

Finally, governments may step in to require public or private actors to forestall enforcement of obligations. In Bahrain, this has been seen with the government mandated alleviation of electricity, water and municipal charges upon residents, requirements for local banks to permit deferrals on certain loans and prohibitions on local banks from enforcing loans in case of COVID-19 impacts upon borrowers.

2. Employment Relations

In assessing their options, businesses may be considering how to deal with their employees, particularly where matters escalate. While the payment of salaries is a significant consideration, employers are also looking at innovative ways to mitigate the risks to staff, maintain continuity and to keep costs down as far as possible, such as work from home arrangements. It has been our experience that employers aim to find reasonable solutions and avoid resorting to drastic action as far as possible.

Of possible significance, measures such as applying a suspension or reduction in salary and/or obliging employees to take leave are impacted by and generally restricted under the Bahrain Labour Law. That said, the Bahrain Labour Law does consent a reduction in salary for employees who would be able to work but-for circumstances beyond the control of the employer. Similarly, Bahrain has introduced a redundancy regime which may mitigate severance costs for terminating employees. Application of the salary reduction and redundancy regimes are heavily fact dependent and would involve an assessment of the different protections afforded to employers and employees under the subject employment contracts, various laws (which may differ with regard to the type of relief available) and the relevant circumstances.

3. Lease Arrangements

Certain sectors and businesses have been closed down by the Bahrain Government (e.g. non-essential retail, cinemas, gyms, sit-down restaurants, etc.) while otherwise have been subject to operational limitations. The pandemic and measures taken to curb its spread have also had knock-on effects for some other businesses which, while not expressly required by law to close, have done so for other reasons (e.g. lack of customers/foot traffic, work from home recommendations, border closures, etc.). In light of this and the resultant negative impact on cash flow, businesses may be looking to cut down costs including rental expenses.

Depending on the circumstances, tenants may be entitled to pursue different forms of relief such as the possible application of the force majeure or extraordinary circumstances arguments noted above. Extraordinary circumstances causing undue hardship may feature prominently in regard to landlord – tenant relationships particularly where landlords receive relief from Government programs and do not pass it along to their tenants. In all events, each situation and lease would need to be considered carefully to assess the parties’ respective rights and obligations.

4. Lending Arrangements

In consideration of the economic challenges brought upon by the pandemic, the Central Bank of Bahrain has issued an order to all local banks requiring an offer of deferral of installment payment obligations on all loans to Bahrain natural citizens and resident businesses for a period of six months. All applicable fees arising during this period will also be waived. Interest is permitted to accrue, but not compound interest. A number of banks have also offered to delay the payment of installments of all customers of their own accord (including that of expatriates) for a period of six months. Several banks have taken an opt out approach where the deferral is automatic until a borrower opts to continue payment in the ordinary course.

5. Management/director Liability

Business owners and management should be cautious regarding the manner in which they operate their businesses during this time. Depending on the circumstances, certain members of management (e.g. a registered general manager and the board of directors) could be subject to liability for causing obligations upon the company which were known (actually or constructive) to be beyond the company’s ability to perform or otherwise acted without the duty of care of a manager/director under the circumstances. The Bahrain Commercial Companies Law provides for the possible personal liability of such parties.

6. Ongoing Litigation & Time Bar

While the Bahrain Government remains open, a reduced staff initiative have been instituted. Accordingly, the timing of certain governmental actions and responses may be delayed. Similarly, the Bahrain courts, having established an online case filing system, have mandated its use for filing of court actions and pleadings. Entry into the Bahrain courts is limited to attendance at hearings, many of which have been delayed from the normal adjournment periods.

A related issue which may be of significance is where a party only has a limited period to institute an action for a claim and which, if not done, could result in the claim being barred due to the lapse of time. As claims may be filed, there is no immediate impact of time bar upon claims; however, further developments of COVID-19 may impact the Bahrain courts resulting in such considerations becoming relevant. We recommend potential claimants to consult with legal consultants to ensure that their claims and challenges do not become time barred.

Read our COVID-19: Kuwait Update here.

Hisham Al Qura’an

Steven Brown

Sherif Saad Eldin
Senior Associate


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