The enforceability of simulated (or sham) contracts in the Bahraini courts
Bahraini Court of Cassation Judgment
This article discusses a recent Bahraini Court of Cassation judgment No. 28/2022/00445/9 and the courts’ approach with respect to simulated contracts.
Law Update: Issue 357 - Retail
Fatema SarhanSenior Associate,Dispute Resolution
The enforceability of simulated or sham contracts is a common issue which lawyers frequently encounter in Bahrain. A simulated contract has the appearance of a contract but a legal relationship is not created. Article 131, 132 of the Bahraini Civil Code addresses the issue of simulated contracts. This article discusses a recent Bahraini Court of Cassation judgment No. 28/2022/00445/9 and the courts’ approach with respect to simulated contracts.
A former employee (the Claimant) of a KSA branch of a global architectural and engineering company (the Defendant), filed a labour case against the Defendant’s Bahrain branch to claim an amount of approximately BHD 60,000 (Sixty Thousand Bahraini Dinars) which represented unpaid salary and end of service entitlements for his alleged employment with the Employer’s Bahrain branch.
In reality, there was no employment relationship between Employer's Bahrain branch and the former employee. Hence, the former employee’s claims were based on the simulated contract which was submitted as evidence of an employment relationship with the Employer’s Bahrain branch.
It was argued by the Defendant that it did not have an employment relationship with the Claimant because the employment contract of record was simulated and of no legal effect as its sole and true purpose was to allow the Claimant to secure a residence visa in Bahrain. The Claimant did not undertake any work for the Defendant as would entitle him to the claimed amounts. The Claimant’s employment relationship was with the Defendant’s Dammam, KSA branch and spanned the period from 2016 to 2021, the date his services were terminated. The Claimant received his monthly salary and entitlements from the company’s KSA branch.
In support of its defence, the Defendant submitted copies of the true employment contract executed between the former employee and the Employer’s KSA branch and email correspondence between the former employee and the Employer’s KSA and Bahrain branches. Further, precedents from the Egyptian Court of Cassation in addition to the Bahrain Court of Cassation Court were submitted to prove that a simulated contract could be disproved by written evidence which proved the contrary.
The High Labour Court in Bahrain held that the employment contract by the former employee was a sham/simulated contract and therefore did not establish any rights nor obligations between the parties. Therefore, the High Labour Court rejected the former employee’s claims in full and ordered him to pay legal expenses.
The former employee appealed the decision. The Court of Cassation upheld the High Labour Court decision. The Court of Cassation noted that the trial court had full discretion to find the facts and to weigh the evidence in the case, including witness testimony, and deduce the existence, or otherwise, of an employment relationship in a sound exercise of discretion.
The Court of Appeal agreed with the findings of the trial court that the employment contract underlying the Claimant’s claim was concluded to allow him to secure a residence visa in Bahrain, his preferred country of residence, and that he exercised his employment for the account of the Defendant’s KSA branch from which he received all his entitlements according to the evidence from the Respondent’s witnesses. The Court preferred that evidence over the evidence given by the Claimant’s witness.
The Court of Cassation thus upheld High Labour Court decision and its reasoning and consequently decided to dismiss the action.
The judgment confirms that the courts in Bahrain may and will look at all the facts and evidence surrounding alleged simulated/sham contracts and will dismiss claims for relief sought thereunder.
For further information, please contact Fatema Sahran.
Published in April 2023.
