How to Legally Terminate a Contracting Agreement Without Risking Litigation in Bahrain
In Bahrain’s contracting industry, there are times when a project cannot continue as planned,whether due to persistent breaches, non-performance, financial issues, or external circumstances. While termination may be legally justified, improperly ending a contract can trigger costly litigation, claims for damages, and reputational harm.
This blog explains the legal grounds, required procedures, and best practices for terminating a contracting agreement in Bahrain without escalating into a dispute.
Legal Grounds for Termination
Termination rights are usually set out in the contract and may include:
- Termination for Cause
- Breach of key contractual obligations (e.g., failure to meet deadlines, defective work, non-payment).
- Insolvency or bankruptcy of one party.
- Repeated safety violations or regulatory non-compliance.
- Termination for Convenience
- Some contracts allow the employer to terminate without cause, subject to notice and compensation.
- Less common in lump-sum construction contracts unless specifically negotiated.
- Force Majeure Termination
- Events beyond the control of the parties, such as natural disasters or government actions, making performance impossible.
Legal Framework in Bahrain
Under Bahraini contract law:
- Termination must follow the procedure agreed in the contract unless the parties mutually agree otherwise.
- Notice requirements must be strictly followed — including form, delivery method, and response deadlines.
- Wrongful termination (terminating without valid legal or contractual grounds) can result in damages against the terminating party.
Risks of Improper Termination
- Claims for wrongful termination and breach of contract.
- Loss of retention money or performance security.
- Delay damages if the termination causes project disruption.
- Reputational damage with clients, subcontractors, and suppliers.
Steps to Terminate a Contract Legally
- Review the Contract
- Identify termination clauses, grounds, and notice requirements.
- Gather Evidence
- Document breaches, delays, or other termination grounds with correspondence, inspection reports, and expert opinions.
- Issue a Formal Notice
- State the contractual grounds for termination and give the other party a chance to rectify (if required).
- Follow Notice Periods
- Comply with timelines specified in the contract to avoid invalid termination.
- Settle Outstanding Payments
- Pay for work done up to the termination date, unless contractually entitled to withhold.
- Engage Legal Counsel
- Seek advice to ensure all procedures comply with Bahraini law and the contract.
Example:
A developer in Bahrain engaged a contractor for a large residential project. The contractor repeatedly missed deadlines and failed to address defective works despite multiple warnings.
The employer issued a termination notice but failed to give the contractually required 14-day cure period. The contractor sued for wrongful termination, claiming lost profits.
A lawyer reviewing the case noted that the termination could have been valid if the proper notice procedure had been followed — instead, the procedural error gave the contractor strong grounds for legal action.
Best Practices
For Employers:
- Always follow the exact notice and cure procedures in the contract.
- Keep written records of all breaches and warnings.
- Seek legal review before issuing termination notices.
For Contractors:
- Respond promptly to notices to avoid giving grounds for termination.
- Keep proof of performance and compliance with contractual obligations.
- Negotiate alternative solutions before termination is triggered.