Can a foreign judgment be enforced upon a branch of a multinational financial institution
Bahrain High Court Judgment
Fatema Sarhan Associate,Litigation
Bradley PriceAssociate,Litigation
The enforcement of foreign judgments is something which lawyers across the GCC deal with on a regular basis. However, the question which arises is, can a foreign judgment be enforced on a branch of a multinational entity which has its own unique legal personality? This question was determined in favour of one of our banking clients by the Civil High Court of the Kingdom of Bahrain in Judgment dated 27 July 2022 in case 02/2021/016181/9.
A Kuwaiti construction company obtained a judgment in Kuwait against a major European banking institution for 2 million Bahraini Dinars. The Kuwaiti entity was, however, unable to execute this judgment in Kuwait, as the banking institution had no assets or physical presence in Kuwait.
Accordingly, the Kuwaiti creditor sought to execute the judgment on the debtor’s branch in the Kingdom of Bahrain. It submitted the judgment directly to the Court of Execution in Bahrain under the Riyadh Convention for execution against the debtor’s branch there. The request for execution was granted by the Execution Court and execution steps were initiated against the local branch.
The debtor’s branch retained Al Tamimi & Company to act on its behalf in challenging the execution of Kuwaiti judgement. We immediately proceeded to file a claim challenging the enforcement of the judgment and applying to for an order for the discontinuation of any execution procedures.
The Bahraini Court of Cassation had previously held that a branch of a commercial company is not considered a separate legal entity from the parent company.
We argued, however, that the local Bahraini branch of the bank was in fact a separate legal entity from the parent bank, based in Europe, and submitted an expert report confirming that the local branch had financial independence from the parent bank. We were able to demonstrate that (a) the branch operated exclusively with its own budget, expenses, rights and obligations, profits and losses, (b) it was under no obligation to transfer its profits to the parent bank, and (c) its accounts were separate from the head office and were not consolidated with the accounts of the head office (and were audited by an independent auditor, appointed pursuant to the Central Bank of Bahrain).
Hence, we argued that considering that the branch and the parent company were separately capitalised, that they were indeed separate legal entities. We further submitted, in light of the expert report, that it is the intention of the Bahraini Central Bank Law that branches of banks and financial institutions are protected from being treated in the same manner as companies in Bahrain.
In support of the argument, we submitted precedents from the Egyptian Court of Cassation, which declared that an Egyptian Court has no jurisdiction over a foreign entity who is not physically present in Egypt.
The court held that the Kuwaiti judgment could not be enforced against the branch and that all related enforcement proceedings instituted against the local branch were to be stayed.
This judgment has established a new precedent. Hence, while there may be a presumption that a branch of a commercial company is not considered a separate legal entity from the parent company that presumption may be rebutted by evidence to the contrary of the kind Al Tamimi & Company presented to the Court. This is especially true for financial institutions, considering that it is the aim of the Bahraini Central Bank Law to protect branches of banks and financial institutions from being treated in the same manner as other companies in Bahrain.
For further information,please contact Fatema Sarhan or Bradley Price.
Published in October 2022
