RESOLVING DISPUTES IN A SOCIETY WITH MIXED LEGAL TRADITIONS Author: Sheikha Haya Rashed Al Khalifa Bahrain

August - 2012

The dynamic pace of the development in technology and communication has created the necessity to understand the variation of cultures, accept the differences and to adapt to accommodate them, this reality, naturally applies to the legal community.

 
Endeavoring to understand the facts of a dispute, as well as accurately interpret and understand the texts of a contract or of the law and apply them to the facts, ultimately leads to better fairness and justice.
 
As we are all aware, legal systems differ and what we will deal with today is a sort of looking in depth to the interpretations and principles.  Invariably, the common law system and the civil law system govern or apply to most international transactions.  It is therefore evident, that better understanding of each system translates to the quality of work and subsequently to its effectiveness.
The civil law system  is based on codified laws, accordingly judges rely on the text of law and their understanding and interpretation, however,  a judge in the common law system, relies on the text of the law and case precedents, even in the existence of the text, the judge relies on the justifications of the case precedents.
There are certain issues that must be taken into consideration when drafting contracts, rendering legal opinions, raising cases or drafting reasons for a judgment or  an arbitral award, to ignore such issues  may affect the effectiveness of the act which may extend to nullifying it.
I will refer to a certain  issues which we face daily in our practice,  such as,  form,  evidence, capacity, interpretations of certain concepts as  ‘Estoppels’ or ‘Without Prejudice’ as it applied in the common law system 
This presentation is a reflection of a civil law practicing lawyer relating to the different angles that the common law and the civil law assess an issue, in a bid to avoid misunderstanding the differences and misapplying the rules.  
I will deal with certain issues that need to be considered first, these relate to the substantive or procedural legal rules when applying any method of dispute resolution, whether before courts, institutional  or adhoc Arbitration.
 
The issues are as follows:
 
1. The Form:
The law may provides that certain  acts or procedures must be effected  in a certain form, if the form does not correspond,  the act  or the procedure will be considered as null and void, common examples are :
 
The Bahraini Law of Evidence provides as follows;
Article 72
 
“The verdict ordering the pursuit of evidence by witnesses shall indicate each of the facts ordered to be proved, otherwise it shall be null and void.  Such verdict shall also confirm the date on which the investigation will commence and the time and place at which it is to be conducted.”
 
Therefore, this Article provides that the preliminary judgment which orders the pursuit of evidence by witnesses must indicate the facts ordered to be proved otherwise the procedure will be null and void.
 
Article 84
“The witness shall take an oath that he will tell the truth, all the truth and nothing but the truth, otherwise his testimony shall be null and void “
 
Accordingly, this Article provides for the text of the oath, as in most rules of evidence, to be respected and that any judgment that has relied on such testimony in its reasoning could be subject to nullification should this not be the case.
 
The effect of the aforementioned Article was illustrated in Dubai on 20 February 2002 after the Dubai Chamber for Dispute Resolution issued a decision in favor of an American Company for approximately US$24.4 million, after hearing the testimonies of 15 witnesses.  This award was based on the witnesses statements, consequently, the other party challenged the decision for nullity before the competent court in Dubai on the ground that the witnesses did not pronounce the oath in the same wording provided by the law.  The court agreed and nullified the award on   the grounds of invalidity of the oath; the judgment was further confirmed by the court of cassation.
 
The substantive laws may provide for the form for certain acts such as a transaction relating to real estate pursuant to Article 14 of the Bahrain Land Registration Law of 1979 that provides that;
 
“All acts of disposal which may result in the creation of an original real right or transfer, alteration or lapse of such right and the final Court orders evidencing such disposals shall be registered in the Land Register.
 
The above mentioned rights shall not be created, transferred, altered or lapsed, neither towards the parties concerned nor towards other parties, in case of the failure to make such registration.”
As such, the transaction will be null and void if it is not registered in the land register, therefore it is important to be aware of such requirements of Form, provided by the applicable law  as its violating will results nullity . 
 
All law provisions which impose nullification when contravened are matters of public order, however, some provisions allow the parties to agree otherwise subsequently and if the parties agreed otherwise it will not be considered as public order violation 
 
2. The Capacity:
According to the procedural provisions, a Case is the right to seek justice in order to protect a right or the claimed legal position, it therefore needs to be raised by a person who enjoys the right to claim, and to be raised against a person who seeks to infringe this right (ultimately being subject to implementation of the result of the case).
 
Accordingly, if the parties to the dispute do not possess such capacities, the case will not be accepted by the court.
 
In verifying the parties’ capacities, the judge applies his discretionary power and the judge has the absolute power to decide on capacity of the parties, conditional upon him/her justifying it on reasonable grounds.
 
In this respect, I refer to an Arbitral Award issued by the Cairo Regional Arbitration Center in an arbitration in which the panel decided that: “it appears from the case documents that the contracted company, the supplier, which has the capacity to arbitrate, is not the claimant in this Arbitration, it therefore appears from the documents submitted by the claimant that the claimant has no capacity to arbitrate“.  Furthermore, the panel confirmed that signing of the Terms of Reference between the parties in the Arbitration did not create a new legal position nor correct a legal position already in existence, especially the parties capacity, the panel further confirmed that “what was agreed under the Terms of Reference could not be considered as a judicial admission in respect of the capacity of the Claimant”.( Arbitral Award issued  on 31 /12/2002 case 269 ) 
 
In her comments from a common law perspective, Ms Rita Bu Aoun (Lebanon) stated that “By not considering the Arbitration Clause in the Terms of Reference between the two parties, to settle the dispute by Arbitration, to prove and confirm the capacity and the interest of the Claimant, the tribunal    overrode the two principles of good faith and estoppel and both are basic principles of international public law and of substantive rules in Arbitration which should be considered as matters related to the public order .  
 
However, the jurisprudence in Egypt and the GCC dictates that capacity and interests are elements which fall under the sole discretion of judge in determination, otherwise, the judgment maybe subject to nullification, and therefore, merely stating the Terms of Reference is not enough to prove the capacity and the interests of the claim.
 
Another example where the capacity of the claimant was linked to the issue of time prescription, was in a case raised in Bahrain where the claimant raised a case in his capacity as the appointed administrator to run a company with his power by law to represent the company, its shareholders, creditors etc, however, since the administrator raised the case in his capacity as administrator appointed to run the company pursuant to the law, without specifying on the claim documents that the case was raised on behalf  the company, shareholders, creditors  (as he represent them by law), the Administrator was subjected to the prescription period applied to the company and the shareholders, which resulted in the claim being time-barred.  However, had the Administrator specified as aforementioned, since the creditor right was not time-barred, they would have benefited from this right accordingly.
 
The administrator, subsequently, raised a new case and inserted explicitly that the administrator represents the creditors of the company .
 
3. The details
As per civil law practice, when drafting statements of claim or statements of reply, it is important to submit the effective facts in the case with the relevant evidence and the legal grounds, consequently, any excessive facts should be avoided as this could invariably backfire on the claimant.
 
The judge with its discretionary power may draw from it conclusions that may hurt a party’s position in the case, as the judge has a wide discretionary power to interpret the facts.  For instance, a judge may consider the silence of a party to be an acceptance for an act according to the principle of “silence in the course of a need, is considered expression“.
 
Article 42 of Bahrain Civil Code provides that:
 
No utterance may be attributed to a person failing to make a reply. However, silence in the course of need is considered expression.  Failure to reply is equivalent to acceptance when the offer relates to dealings already existing between the contracting parties, or when the offer is solely in the interests of the offeree.
 
In civil law jurisdictions, it is important to be prudent and concise when stating the facts in order to not be considered as admissions.
 
Drafting and Interpreting Contracts
 
It is clearly noticeable that contracts drafted in common law jurisdictions are detailed to cover all presumptions of potential risks that may arise upon signing the contract and during the contract period, however, in civil law jurisdictions, contracts do not include general  details which do not relate to the law, the reason is that in the common law system  the interpretation of the contract is based on the form of the wording of the contract, however, in the civil law interpretation, the judge has a discretionary power to find the factual reason of the parties  and not the apparent reasons only.
 
Article 125 of the Bahrain Civil Code provides that:
 
“When the wording of a contract is clear, it cannot be deviated from it in order to ascertain by means of interpretation the intention of the parties  However, when a contract has to be construed, it is necessary to ascertain the common intention of the parties and to go beyond the literal meaning of the words, taking into account the nature of the transaction as well as that loyalty and confidence which should exist between the parties in accordance with commercial usage.”
 
The Bahraini court of cassation has established that:
 
“In the interpretation of contracts, consideration should be given to the common intention of the parties to the contract; understanding of such intention is under the capacity of the substantive judge.   Whenever, the court identifies the common intention of the parties , then the court can justify it with the proper legal justification without being limited by the justification of the parties‘’ 
 
It is important to take in consideration the rule of interpretation and application of the condition of the contract upon drafting the contract or the terms of reference in arbitration and upon the selection of the applicable law, since the common law applies an objective standard in interpretation and applying the terms of the contract , whilst civil law applies a subjective standard when determining the intention of the parties from the wording of a contract.
Another concept that one must be prudent in dealing with when interpreting a contract is the good faith principle.
 
Article 129 of the Bahraini Civil Law provides that:  
 
A contract must be performed in accordance with its provisions and in compliance with the requirements of good faith and ethics of dealing.
However, according to the common law application, the concept of good faith takes different forms, there are similar forms to that of the civil law, such as estoppels, and violating such principle will considered as a breach. 
 
Judicial interpretations  of  the text of law:
 
The judicial interpretation is accomplished through the judgments reasoning (ratio decidendi), most of the judicial interpretation is done when there is an ambiguity or if the application of the text in its literal form would lead to a breach of the spirit of justice and law, this was illustrated in the following judgment issued by the Bahrain court of cassation in its interpretation of article 252 of the law of civil and commercial procedure 1976.
 
Article 252 of the law of procedure provides that:
 
“Courts judgments and orders passed in any foreign country may be ordered to be enforced on the same conditions as are laid down in the law of that country for enforcing court judgment and orders issued in Bahrain.
Application for issue of an enforcement order shall be filed with the High Court in accordance with the terms and conditions for filing court action after payment of the prescribed fees.
No enforcement order may be passed except after ascertaining the following:
 
1: that the Bahrain law courts are not competent to hear the case in respect of which the court judgment or order was passed and that the foreign courts which passed it, are competent in accordance with the international rules of jurisdiction set down in the laws thereof.
2: that the litigants to the case in respect of which the judgment was issued were duly summoned and properly represented.
3: that the court judgment or order has become final in accordance with the law of the court that passed it.
4 : that the court judgment is in no way inconsistent with any judgment or order previously passed by the Bahrain courts and does not provide for anything which constitutes a breach of public order or ethics.”
 
It appears from the above Article, that one of the reasons, on which the court, can deny the enforcement of a foreign judgment, is that the Bahrain courts are not competent to hear the disputes and that the foreign courts which passed the judgment are competent according to the rules of international judicial jurisdiction rules adopted by its internal laws.
In this respect, Bahrain courts resolved a dispute relating to the enforcement of a judgment issued in the State of Kuwait, where the claimant was a judgment creditor in a judgment issued in Kuwait and the defendant was a Bahraini company, this meant that Bahrain was competent to adjudicate the dispute, therefore, if we applied the literal text of Article 252 of the Civil and Commercial Procedural Law the enforcement should have been rejected as the courts of Bahrain had the competence.
 
However, the Bahrain court of cassation decided that such judgment should be enforced in Bahrain based on the following:
 
In spite of the provision of Article 252 which provides that the enforcement of the foreign judgment is not allowed if Bahrain courts are competent to resolve the dispute and the Bahrain courts in this case being competent, the Article did not deal with the”commune jurisdiction” between the court of enforcement and the foreign courts which issued the judgment such “commune jurisdiction“ is to be applied to this case.
 
The court therefore ordered the enforcement of the judgment and based its reasoning on “the judgment issued from a competent court and the consideration of the ‘forum conveniens’ and the needs of international transactions necessitate confirming the situation which was established by the judgment, and order the enforcement”. 
 
Such principle is adopted by the Egyptian courts.
 
TERMS :
There are certain terms used in a common law jurisdiction that may not be applied in a civil law country or under a different justification such as: 
 
Without prejudice: 
When a discussion or a document is issued on a “without prejudice” basis it means that the information should be considered confidential and the parties are not allowed to submit it before the court and even if it is submitted, the judge should not look at it and base its judgment on it i.e. it may not be considered as an admission of liability.  However, in a civil law jurisdiction, if it is a very dangerous discussion or document that the judge may rely on in his judgment in most of the cases it is considered may be admissible as an admission of liability.
 
Estoppels:
Estoppel is a common law concept, it is rule of evidence or a rule of law that prevents a person from denying the truth of a statement he has made or from denying facts that he has alleged to exist.  The denial must have been acted upon (probably to his disadvantage) by the person who wishes to take advantage of Estoppel or his position must have been altered as a result.
 
The civil law use of ‘Issue Estoppel’ in a different terminology and application such as the principal of res judicata (literally translated as "the fact has been decided") or (“Judgment is the title of the fact”)   is relatively uncontroversial.  It expresses a general public interest that the same issue should not be litigated more than once even when the parties are different.
 
Recently in Egypt, a judgment was issued  in the case no 57 dated 4/4/2012 that established its reasoning on the Estoppel principle, the judgment stated that: ”it is not permitted to any litigant to base his challenge on an arbitral award in contradiction of which he has already admitted or accepted it  during the arbitration procedure“ in replying to the challenger’s defense that” the person who signed the Terms of Reference  on behalf of the company had no power to sign on its behalf  as he is not the company CEO  or the authorized person“.
 
The judgment  further stated that “in arbitration the idea of Estoppel appeared to be determined based on the general principle of good faith in transactions and the  application of the theory is widely applied in common law countries, it is also known in similar and direct  forms in most of the legal systems under different names –according to the legal system in force –sometimes it is called the closing theory or the principle of non-contradiction for the reason to damage the other party, according to it – with the difference in  using a different terminology – it could be stop a party from the contradicting his admissions, actions, attitudes to obtain an interest on the basis of hurting his opponent or according to the Arabic legal  principle i.e. trying to act to the contrary to what one has already confirmed by ones action will not be valid ‘’ 
 
Recent Lebanese and French courts show an extensive application of the common law doctrine of Estoppel, the rulings are based upon various, but similar, legal rationales, such as the inadmissibility for a party to contradict itself to the detriment of another, or breach the duty of loyalty and good faith in Arbitration –relating to proceedings . 
 
Some jurisdictions also refer to more specific legal theories such as the theory ‘de l’apparence’ , abuse of right (abus de droit ) and the lex mercatoria rule of non concedit venire  contra factum proprium ( No one may set himself in contradiction to his own previous conduct) or other similar theories in Germany , Belgium , and Dutch laws .  Swiss case law has also developed a special category of liability under Article 3 of the Civil Code. Nevertheless, the direct reference to Estoppel by the courts is becoming a growing trend in Lebanon and France .
 
The Bahrain legal system is based on Civil law, Estoppel as a terminology does not exist in the Bahrain legal system, however, Estoppel as a concept is known and applied in the Kingdom of Bahrain under a different characterization and justification. 
 
Accordingly, Article 640 of Civil Code provides that Agency is a contract by which the principal appoints another person to represent him in carrying out legal acts.  The agent responsibility is to represent the principal within the terms and limitations of the agency agreement. However, the Bahraini courts, following Egyptian courts, go further in the interpretation of the agency or the representation which the jurisprudence refers to as “the apparent representation “, the courts based its interpretation on equity principles.
 
In the absence of legal representation and if the agent exceeds the limits of his agency agreement , the responsibility for the act committed by him will not be referred to the principal, even if the third party deals with him in a good faith, however, there are  circumstances  when  the good faith of the third party accompanied by outside appearance, justify his assumption that  person (agent)  is duly authorized  in his representation and the courts have confirmed that his representation is valid vis-à-vis the principle of ”apparent representation“ which is similar to the Equity concept  of Estoppel by Representation.
 
The Bahrain Court of Cassation  adopted the above principle and confirmed that although a contract for the purchase of vehicles concluded by the Bahrain Ambassador in Riyadh is not considered as an administrative contract, but, merely a civil contract governed by general contractual principles and although the nature of the job of the Ambassador is diplomatic  representation  of his country and the protection of his nation’s interest’s in the receiving state (i.e. which does not include concluding private contracts for the purchase of cars), according to the general contractual  principle, responsibility for such an act could  not be referred  to the principal (i.e. Bahrain) and would not be subject to its effects , however, if the third party who did the transaction with the Ambassador did so in a good faith and had a good reason to lead him to believe that the Ambassador was dealing with him within the limitation of his agency (and the defendant  confirmed its good faith  with regard to the contractual circumstances, further to the position of the Ambassador and dealing with him through the administrative  body of the  Embassy), the challenged judgment ruling that the principal (Bahrain) is responsible of the effect of the contract based on the above reason is correct and in conformity with the Law .   This case adopted an approach that clearly illustrated the ‘Apparent Representation Principle’, thereby applying the Estoppel concept.
 
Another illustration is found in Article 104 of the Law of Evidence that provides that a judicial admission constitutes a conclusive proof against the person making such admission and shall be restricted thereto but it shall be binding upon the judge……”.  Judicial admission is the acknowledgment by a party to a dispute before the court of a fact alleged against him during the pursuit of the case relating to such a fact.  Accordingly, judicial admissions prevent a person who acknowledges an admission from alleging another fact to contradict this admission, in other words, he is estopped from alleging the contrary. 
 
Also, Article 99 of Law of Evidence provides that final judgments are absolute proof of the rights established by such judgments, and no proof is admitted against the legal presumption resulting there from, provided that such judgments shall serve as an absolute proof in a dispute that has taken place among the same litigants without the occurrence of a change affecting their capacity and relate to the same right in terms of relevance and ground.  This presumption shall be raised by the court of its own initiative”.   This Article is an application of the Estoppel-res judicata.
 
Conclusion 
 
Therefore in conclusion, it is important to understand the nature of the differences between the common law and the civil law system in order to avoid, infringements, breach or contravention of the law or the public order, which may be experienced by the parties in the disputes, who bear the cost and time in their bid to reach a fair judgment to preserve their rights and achieve their enforcement.
 
In the civil law system there are binding legal provisions and parties cannot agree otherwise, as these relate to the public order.  Notwithstanding the aforementioned, general substantive provisions are based on the principles of justice, fairness and good faith.  As a caveat,  each system has its own provisions relating to form that need to be considered and adhered to. 
 
As you are all aware, the New York Convention of 1958 for the enforcement of the foreign arbitral awards, provided for the reason for the challenges and that setting aside of arbitral awards on the basis of public order and other substantive or procedural considerations.
 
It is therefore important to be aware of the binding provisions of the applicable law, in the seat of arbitration or place of enforcement, in order to avoid any challenge or enforcement denial.