Wednesday, October 19, 2016

Dispute Avoidance Processes in Oman - Friend or Foe

The costs associated with construction litigation are often disproportionate to the quantum in dispute due to their complex and technical nature, and the proliferation of associated documentation. Arbitration costs (often promoted as a less expensive and more expedient process as compared to the court process) often rival the costs associated with a court-adjudicated process.   Rarely does either party exit a litigious process unscathed.  A more collaborative philosophy of contracting and dispute resolution  may  be  helpful  in  this  region  to  effectively  resolve  construction  disputes  early  on, particularly if the relationship of the parties is ongoing and one that requires preservation.    Dispute review boards (“DRBs”) and dispute adjudication boards (“DABs”) are two dispute adjudication processes that have been effective in other jurisdictions at reducing the time and costs associated with resolving construction disputes.

What are DRBs and DABs?

DABs are designed to provide decisions in relation to matters arising between contracting parties throughout a project, and the parties are generally bound by these decisions if provided for by contract. However,  where  non-binding  recommendations  are  provided,  and  the  DAB  acts  in  an  advisory capacity, the DAB would generally be referred to as a DRB.  DRBs have the dual purpose of assisting the parties to avoid disputes and also resolving disputes, ensuring, as far as possible, that disputes do not escalate to a more adversarial and hostile forum.  DRBs and DABs are implemented at the outset of a project, rather than at the time of the dispute such as with an arbitration process.   The DRB has intimate knowledge of the project at all stages, attends site and meetings every few months and produces reports on an ongoing basis to the parties.  The board in each case is generally comprised of an engineer selected by each party and a third engineer, generally with dispute resolution and contractual interpretation experience selected by agreement of each party’s engineer.


DABs and DRBs have gained popularity in many jurisdictions over the years.  DABs are provided for in each of the FIDIC Red, Yellow, Silver and Gold Books and the International Chamber of Commerce (“ICC”) has released its own dispute board procedure in October 2014.     However, despite the significant success of dispute boards elsewhere in the world, neither DABs nor DRBs are popular in Oman.

Forms of dispute resolution in Oman have, to date, been primarily restricted to mediation and, more often, arbitration.  This, in part, is due to the prevalent use of the Oman Government Standard Form Construction Contracts that are based on a modified form of the standard forms of contract issued by FIDIC.  As standard, in the Oman Government Standard Form Construction Contract, provisions relating to resolution of disputes via arbitration are retained, and the clauses relating to DRBs/DABs are omitted.  It is normally not possible to amend these Standard Form Contracts.

Dispute adjudication processes

Currently, courts in Oman and across the Middle East are reluctant to enforce DAB or DRB decisions, particularly where an arbitration clause  is also in the contract  or  at  all.   Arbitrators are  likewise reluctant, or without jurisdiction, to enforce the decisions of a dispute board without hearing the issues in dispute afresh.  Additionally, during a DRB or DAB process, matters are not discussed on a “without prejudice” basis and information disclosed can be used if the matter proceeds to an arbitration or court- adjudicated process.  The absence of recognition of “without prejudice” negotiations is a major reason methods of alternative dispute resolution such as mediation or dispute boards are not used in the region.  Further, a contractually agreed confidentiality agreement does not afford reliable protection. The Oman courts may allow any evidence to be presented which sheds light on the matters before it. Further, and most importantly, dispute board decisions are not likely to be enforced by the courts in Oman.

Other jurisdictions have introduced a statutory framework to support the implementation of effective alternative dispute resolution methods, rather than simply a contractually agreed framework.  Such frameworks were introduced in the UK in 1996, followed by Australia in 1999, New Zealand in 2002 and Singapore in 2004 and have enabled alternative dispute resolution (particularly DABs and DRBs) to be a legitimate and enforceable means to resolve construction disputes.


It is advisable to seek legal advice before considering whether to contractually implement a dispute board to resolve contractual disputes at any stage of the dispute process.  There are considerable merits in that high-quality opinions from a DRB or DAB may provide the deep understanding and rational compass  for  construction  projects  necessary  to  keep  litigation  at  bay.  However,  the  lack  of enforceability of dispute board decisions continues to greatly detract from their usefulness in Oman.  If a statutory framework is developed in Oman such that dispute board decisions can be enforced, DRBs and DABs may become an attractive alternative to arbitration.


Wednesday, October 12, 2016

Oman's New Engineering Consultancy Law

The  May  edition  of  the  Client  Alert  contained  a  comprehensive  discussion  on  the  procedural formalities that must be met in order to establish an Engineering Consultancy firm under the new Engineering Consultancy Law, entitled “Issuing the Law Regulating the Work of Engineering Consultancy Offices” (“Engineering Consultancy Law”) (Royal Decree 27/2016).  The primary focus of this  article  is  to  identify  key  features  that  have  been  introduced  by  the  legislature  in  the  new Engineering Consultancy Law.

Engineering consultants play a vital role in administering large-scale infrastructure projects.  Broadly speaking, the engineering consultant is responsible for providing both technical and administrative support needed to ensure that a construction project runs smoothly.

The scope of an engineering consultant’s responsibilities may be classified into two distinct categories, namely as a project’s administrative manager and as a project’s technical expert:

a)   Administrative manager:  In its capacity as administrative manager, the engineering consultant’s responsibility may include administering the tendering process, managing contractors and sub- contractors on behalf of a project owner, as well as reviewing and approving contractor’s variation requests.   In some instances, engineering consultants may also be tasked with reviewing any potential disputes that arise between contracting parties.

b)  Technical expert:  Engineering consultants are often called upon to provide technical, engineering and/or quantum expertise on a specific project.   In this regard, the scope of an engineering consultant’s responsibilities may include conducting and interpreting feasibility studies, such as soil and/or rock investigation, producing the detailed project design, and resolving any potential design related issues that may arise.

In light of the number of large-scale construction projects in Oman, engineering consultants, perhaps unbeknownst,   play   a   pivotal   role   in   the   Sultanate’s   long-term   economic   and   infrastructural development plans.  It is in this context that the Omani legislature considered it necessary to appraise and, ultimately, to modernize the Engineering Consultancy Law in Oman.

The new Engineering Consultancy Law – Royal Decree 27/2016

Until very recently, the primary legislation which regulated Engineering Consultancy profession was the Engineering Consultancy Law of 1994, promulgated by Royal Decree 120/1994 (“Previous Law”). However, on 22 May 2016, the Omani legislature issued a new, and more comprehensive, Engineering Consultancy Law, under Royal Decree 27/2016.   The Engineering Consultancy Law replaces the Previous Law, and thus provides a new and comprehensive framework to regulate the engineering consultancy profession.
The Engineering Consultancy Law in many ways resembles the Previous Law.   However, there are many new and noteworthy features in the new law, some of which we discuss below:

Credentials necessary to register an Engineering Consultancy Office

Significantly, Article 7 of the Engineering Consultancy Law has raised an applicant’s credentials required to establish an engineering consultancy office.

The legislature now draws an important distinction between an “Engineering Office” and an “Engineering ‘Consultancy’ Office” under the aforesaid Article 7.  In order to qualify to open an Engineering Consultancy Office, an applicant must first have a registered Engineering Office.  The applicant must also meet one of the following criteria: (i) gained a minimum of five years of specialized work experience after having obtained a BSC (Bachelors); (ii) gained three years of specialized work experience after having obtained an MSC (Masters); or (iii) gained two years of specialized work experience after having obtained a PhD in the same area of specialization.

However, as mentioned above, an applicant for an Engineering Consultancy Office must first have an established Engineering Office.  In order to establish an Engineering Office, Article 7 provides that the applicant must have either: (i) obtained at minimum three years of specialized work experience after having obtained a BSC (Bachelors); or (ii) gained one year of specialized work experience after having obtained a PhD in the same area of specialization.

The qualifications set out above are more stringent than what was provided under the Previous Law. Under Article 3(c) of the Previous Law, an applicant only needed to have either: (i) gained five years of specialized  work  experience;  (ii)  gained  three  years  of  specialized  work  experience  after  having obtained a BSC (Bachelors); or (iii) obtained a PhD in order to open an Engineering Consultancy Office.

Chapter 3 – “Working Engineer”

The Engineering Consultancy Law has introduced new provisions intended to elevate professional engineering standards under Chapter 3, Working Engineer.   For example, Article 17 restricts the right to sign off on key documents, including schemes, graphics, designs, specifications, project report samples, and supervision bonds, to only the licensee, and to engineers who: (i) are registered as authorized signatories with the MOCI; (ii) have met the requirements to obtain the professional degree from the authority; and (iii) work exclusively for the specific office.

Chapter 5 – Violations Committee

Chapter  5  of  the  new  Engineering  Consultancy  Law  has  introduced  a  formalized  Violations
Committee, to be chaired by the undersecretary of the MOCI.  Once formed, the Violations Committee will be comprised of four experienced engineers, with two of the four serving as representatives of the Omani Engineer’s Association, each for a five-year term.

The Violations Committee is to serve as a quasi-adjudicatory board, to consider any complaints and/or potential violations of the Engineering Consultancy Law.  The Violations Committee will be authorized to levy one of the following penalties: to issue warnings, to suspend a licence up to one year, or to cancel  a  licence  altogether.    Any  adverse  decisions  issued  by  the  Violations  Committee  may  be appealed to the Minister within 60 days from the date of the Violations Committee’s decision.

Chapter 6 – Penalties

Perhaps most notably, Article 29 of Chapter 6, Penalties, introduces criminal culpability for acts of “gross negligence,” or for having failed to “take necessary precaution which jeopardized the safety of the people or the properties or the environment” by an engineering consultant.  The Previous Law does expressly provide for criminal culpability for any violations of its provisions.

It is reasonable to assume that the legislature has included criminal penalties for gross misconduct, as perpetuation of its firm commitment to protecting those who may be unnecessarily placed in harm’s way due to any compromised or unsafe civil structures.


Wednesday, October 5, 2016

Extending the Period of Arbitral Proceedings in Oman

Arbitration is one of the most popular types of alternative dispute resolution methods used by parties to resolve a dispute, both in the private and public sectors in Oman.  An often-cited reason for selecting arbitration is to reach a final resolution of a dispute in a timely, inexpensive and less formal manner.

Under the Omani Arbitration Law issued by Royal Decree 47/1997 (as amended), Article 4 defines “Arbitration” as the arbitration agreed upon by both parties to the dispute at their own free will, irrespective of whether the body that would be attending to the arbitration proceedings, in accordance with  the  agreement  between  the  parties,  is  an  organization,  a  permanent  arbitration  centre,  or otherwise.

To  ensure  that  disputes  are  resolved  expeditiously,  the  Omani  Arbitration  Law  (Sultani  Decree
47/1997) sets time limits within which an award must be issued.

Per Article 45 of the Omani Arbitration Law, the arbitral tribunal shall have to pass a final award in respect of a dispute within the time period agreed upon by the parties.  Article 45 further says that if the parties fail to agree on the timeframe for adjudicating the dispute, then the award shall be required to be passed within 12 months from the date of commencement of the arbitration proceedings.

Once an arbitrator is appointed, for the purposes of these timeframes, the commencement date of the arbitration proceedings can either be a date agreed between the parties in an arbitration agreement, or a date determined by the arbitral tribunal (in which case it will often be the date of service of notice of arbitration by one party to the other party).

Period of extension under Oman Arbitration Law

If the dispute is not settled by the arbitral tribunal within the initial timeframe described above, Article 45 of the Omani Arbitration Law allows the arbitral tribunal to extend the period of the arbitration proceedings for a further period of six months from the date that the initial arbitration period expired. The arbitral tribunal’s decision for an extension of a further period of six months must be in writing.

However,  parties  to  a  dispute  must  keep  in  mind  that  any  further  extension  of  the  period  for arbitration proceedings beyond the above-referred six months requires consent of the parties as per Article 45 of the Omani Arbitration Law.

Article 45 (2) of the Omani Arbitration Law says that if the arbitration award has not been passed within the period specified above, either party to the arbitration may request the President of the Commercial Court to pass orders prescribing an additional period or have the arbitration proceedings brought to an end. In such a case, either party may file their claims before the competent court.

If the arbitration award is not issued within the initial timeframe plus the six-month extension period, the parties should send written notice to the Arbitrator requesting a further extension of the arbitration period proceedings.  This must occur before the initial arbitration period plus the six-month extension period expires.  In this way, the parties can avoid the premature closure of the proceedings, or an application to the courts.

In summary, the most important points to note are:

  • clearly record the date of commencement of the arbitration proceedings in writing at the start of the arbitration; and
  • both parties should communicate their consent for an extension beyond the initial arbitration period  plus the six-month extension  period  before  expiration  of the extension  period  to the arbitral tribunal.


Thursday, September 29, 2016

Regulations for Working in the Sohar Free Zone

In recent years, the Sultanate of Oman has established a number of free zones, predominantly to boost foreign investment as part of its wider diversification plan for the country.  The focus of this article is the Sohar Free Zone (“SFZ”), in particular, the regulations applicable to companies operating within the SFZ.

Earlier  this  year,  the  Ministry  of  Commerce  and  Industry  (“MOCI”)  issued  Ministerial Decision 35/2016, on the Governing Regulations for Operation of SFZ (“MD 35/2016”), which came into force on 8 February 2016.  MD 35/2016 is to be read in conjunction with the Establishment of the Sohar Free Zone Law issued by Royal Decree 123/2010 (“Sohar Free Zone Law”) and was implemented in order to set out how companies (or rather “Working Companies,” a term defined by MD 35/2016) are able to operate.  Such detail includes:

  • how to acquire licenses;
  • benefits and incentives for operating in the SFZ;
  • tax exemptions available in the SFZ;
  • rules governing the import and export of goods;
  • rules of responsibility relevant to Working Companies; and
  • incorporation fees (including license, permit and service fees) for setting up within the SFZ.


There are two categories of licenses for operators within the SFZ; the Working Company License and a Service Provider’s License.  Each license shall specify the activity permitted to be conducted by the licensee and, in the event that the licensee wishes to add activities, it must obtain an additional license for each additional activity.   Each license application must be submitted to the Operating Authority (the “Sohar Free Zone LLC” or “OA”) who is responsible for the management and development of SFZ.

If a license application is refused by the OA, a party may re-apply six months later.  However, there is an option to appeal against refusal within a period of 60 days from the date of notification or from the date that the Working Company first became aware of the refusal decision, whichever is earlier.

Benefits and incentives of the Working Company

Further to the incentives available under the Sohar Free Zone Law and the tax incentives below, provided certain measures are adhered to, the Working Company is permitted to sub-let plots of land by virtue of a sub-lease agreement. Measures include but are not limited to obtaining the OA’s written approval of the sub-lease, registering the tenant as a Working Company, and providing a written undertaking evidencing the responsibility of the Working Company jointly with the tenant for any liabilities to the OA.

Tax exemption

Working Companies are exempt from taxes for a period of ten years, provided they register within the SFZ,  obtain  a  license  (in  accordance  with  the  above  heading),  enter  into  a  lease  agreement  or investment agreement with the OA, conduct business within the SFZ, and have not less than 15% Omanisation of its total workforce.  In order to benefit from tax exemption after the first ten years, the following Omanisation percentages must be met:

  • 25% for years 11 to 15;
  • 35% for years 16 to 20; and
  • 50% for years 21 to 25.
To qualify for the tax exemption status, under Chapter 4 of MD 35/2016, each Working Company is required to present a tax statement at the end of each year, including a list of its employees and the achieved level of Omanisation to date.  In a situation where the Working Company has not achieved the required Omanisation percentages described above for any given year: (1) it shall not be permitted to extend the period of exemption for that year; (2) any profit mentioned during that tax year should be subject to the applicable income tax; (3) it shall not be possible to transfer any accumulated losses in the annual profit and loss statement; and (4) the tax exemption shall not be effective unless the OA has otherwise issued a tax exemption certificate.

Import and export of goods

Chapter 5 of MD 35/2016 describes the arrangement of the import and export of goods into and out of the  SFZ.    For  example,  goods  shall  freely  enter  into  the  SFZ  (and may  remain  for  an  unlimited duration) and goods exported out of Oman or to another free zone are not subject to customs duty.

Certain goods, however, are prohibited from entering the SFZ including but not limited to, narcotics, arms and ammunitions and explosives, chemical materials or radioactive substances, toxic waste that is harmful  to  the  environment  and  any  goods  which  shall  violate  the  laws  protecting  intellectual property, commercial, industrial, literary and artistic property rights.

Procedures must be adhered to for importing and exporting goods into the SFZ, for instance:

 Goods imported into the SFZ from outside of Oman

a)   Customs officers shall prepare a statement of transit addressed to the SFZ at the border crossing point (i.e., the point of entry where the goods enter the SFZ). The goods are treated as goods passing the “Customs Territory” (defined by MD 35/2016 as any territory within Oman) provided that the owner of the goods submits a guarantee equal to the value of customs taxes, in accordance with the Unified Customs Law.

b)  Customs officers in the SFZ shall verify the statement of transit and record the detail in the relevant register.

c)   The OA or the Working Company shall take delivery of the goods, after a preliminary inspection of the goods has been carried out by customs and the inspection form is duly completed.

Foreign goods that are imported from the Customs Territory must enter the SFZ through customs by virtue of a certificate of origin and a bill from the exporter together with an export or re-export customs statement.

Goods exported out of the SFZ

a)   The owner of goods shall submit an application to the OA together with payment of any fees and relevant invoice.

b)  Upon the request of customs in the SFZ, the owner of the goods shall arrange for the goods’

c)   A customs statement shall be prepared by the owner of the goods. d)  The OA’s approval must be acquired before goods can be exported.

Any goods taken out of the SFZ and into the Customs Territory are treated as foreign goods, regardless of whether the goods contain domestic primary materials.  Any goods manufactured or assembled within  the  SFZ  shall  be  treated  as  goods  of domestic  origin  with  the  purpose  of being  exported overseas.


In addition, Chapter 7 of MD 35/2016 sets out the penalties that may apply to Working Companies where the OA may withdraw a license or terminate a lease if any of the following circumstances apply:

a)   failure to start building, construct works and prepare the site within six months from the issuance of a license without a justifiable reason;

b)   failure to carry out the activity provided for in the license for six months from the date of issuance without a justifiable reason;

c)   if the licensed activity is suspended for six months;

d)   if rent is delayed by a period of six months from its due date;

e)   bringing prohibited goods into the SFZ; and

f)   a violation of the provisions of MD 35/2016.

Penalties  for  non-compliance  with  MD  35/2016  and  the  Sohar  Free  Zone  Law  include  written
warnings, fines amounting to no more than 5,000 Omani Rials, prohibition from entering the SFZ for a period of one year, suspension from working for a period of three months, or prevention from conducting business within the SFZ, including being prevented from removing goods out of the SFZ until such violation is rectified.


Wednesday, September 21, 2016

Oman Officially Ratifies the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions

Royal Decree 41 of 2016 (“RD 41/16”), was issued on the 18th of August 2016 in relation to approving the Sultanate of Oman joining and becoming a party to the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the “Convention”).  The Organisation for Economic Co-operation and Development (the “OECD”) created the anti-bribery convention as a means of establishing certain legally binding standards to criminalise the bribery of foreign public officials in international business transactions and to allow the nations who join the convention to have effective measures in this regard.  RD 41/16 comes in the wake of the Sultanate of Oman’s recent focus on combating bribery, money laundering, fraud and other financial crimes.

The Convention was drafted in a manner to give parties a certain amount of flexibility in applying its articles, as it generally makes recommendations regarding the measures that parties should implement rather than forcing the parties to implement them.  The Convention deals with offences committed by persons who promise or give bribes, as opposed to dealing with the offence committed by the official who receives the bribe.   The Convention is the first international anti-corruption mechanism that focuses on this side of bribery transactions and it allows parties to implement the recommendations contained within the Convention without the need to initiate changes in the fundamental principles of the laws of any given party.  It also seeks to maintain efficient uniformity among the measures taken by all the parties in deterring bribery of foreign public officials.

In essence, the Convention allows the parties to implement penalties that they deem fit which would normally apply within their own legal systems. This was illustrated in article three of the Convention which states that the bribery of a foreign public official shall be punishable by effective, proportionate and dissuasive criminal penalties which are comparable to the penalties applicable to the bribery of the party’s own public officials in a manner that allows effective mutual legal assistance and even extradition if the case calls for it.

In order to achieve its main purpose, the convention clearly outlines the required measures needed to be taken by the “accounting” department in order to combat bribery. These measures include the prevention of establishing off the books accounts, recording non-existent transactions, keeping false expenditure records. The Convention strongly urges members that such methods should result in either a civil, administrative or criminal penalisation.

The Convention includes several recommendations for member countries regarding reporting foreign bribery, maintaining external audits and compliance.  Moreover, in order to raise awareness in the public and private sectors for the purpose of preventing foreign bribery, the Convention includes numerous recommendations for parties to have strong ethics and compliance regulations as well as obliging companies to maintain external auditing. Business organisations should be encouraged by the member countries to assist companies in developing internal controls, ethics, and compliance programmes or measures.

Additionally, member countries should necessitate that companies reveal the full scope of material liabilities within their financial statements.   Furthermore, the convention encourages a company’s management to disclose in their annual reports or otherwise publicly disclose their internal controls, ethics and compliance measures, including those measures which contribute to detecting bribery.

Fundamentally, companies should consider visible policies in prohibiting bribery. Clear and strong support from senior management to maintain high standards in ethics and compliance can be considered as one of the expected recommendations from the articles of the Convention. Likewise, a financial and accounting procedural system with internal controls which are reasonably designed to ensure the maintenance of fair and accurate records are required under the Convention. The guideline encourages companies to provide positive support for the observance of ethics and compliance programmes or measures against foreign bribery. Companies should ensure that they have periodical reviews of the ethics and compliance programmes in a manner designed to assess their efficiency in avoiding foreign bribery, taking into account related developments in the field.

With regards to reporting foreign bribery, members should ensure having easily accessible channels in place for the reporting of suspected acts in international business transactions to law enforcement authorities. In addition, appropriate measures should be in place to facilitate the reporting of public officials, in particular those posted abroad. In accordance with Article 8 of this Convention, Members shall provide effective and proportionate civil, administrative or criminal penalties for such omissions in respect of the books, records, accounts and financial statements of such companies.

Therefore, being a member to this Convention and adhering to the articles of the Convention enables companies to avoid financial crimes especially those in relation to bribery. Joining in the Convention does not necessarily mean that the country has been given new regulations. Rather, the Convention reaffirms the regulations that the Sultanate already has in place such as the Code of Corporate Governance for Public Joint Stock Companies, the Law on Anti-Money Laundering issued through Royal Decree 30 of 2016 as well as other laws and regulations which relate to compliance, ethics and avoiding financial crimes.


Wednesday, September 14, 2016

Islamic Finance - Part 3

This is the third part of a series of articles discussing Shari’ah compliant structures used in project financing  transactions.  In  the  second  part  of  this  series,  we  discussed  two  Sukuk  (i.e.,  Shari’ah compliant capital markets instruments) structures used to finance particular projects. In this article, we will discuss the third structure, namely, the Sukuk al-Musharakah structure and the different ways in which it can be used in project financing transactions.

Sukuk al-Musharakah

The term Musharakah literally means sharing. This term is derived from the Arabic word Shirkah, which means partnership. In Shari’ah, Musharakah means a partnership arrangement formed between two or more partners for some business purpose where each partner makes a contribution (in cash or in kind) to the Musharakah (i.e., the partnership). The profits of the Musharakah are shared amongst the partners according to an agreed ratio whereas the losses are shared according to the ratio of their respective contributions.

Musharakah can be divided into two structures, namely, the Shirkat-ul-Aqd structure and the Shirkat- ul-Milk  structure  for  the  purposes  of  Sukuk  issuance  for  financing  a  particular  project.  We  are discussing below the salient features of the said structures and the key principles involved in their utilization in project financing transactions.

A. Shirkat-ul-Aqd (Partnership by contract)

In this type of Shirkah, Musharakah is created by a mutual contract between the originator and the trustee where the originator and the trustee agree to contribute their efforts and resources towards achieving a common business purpose.

For the purposes of structuring a Sukuk issuance based on the Shirkat-ul-Aqd structure, a special purpose vehicle (“SPV”) is established to hold the Sukuk holders’ interest in the Musharakah. The SPV issues Sukuk certificates representing an undivided ownership interest in the underlying Musharakah and the Sukuk holders contribute towards the capital of the Musharakah by contributing cash to the SPV in exchange for Sukuk certificates.

A trust is declared by the SPV over the proceeds and any asset(s) acquired therefrom.  The SPV acts as a trustee for and on behalf of the Sukuk holders. Subsequently, the trustee enters into a Musharakah agreement with the originator where both the trustee and the originator contribute towards the capital of the Musharakah. In return, both the trustee and the originator receive a proportionate number of units in the Musharakah. Contribution from the trustee comes in the form of proceeds from the Sukuk issuance. The respective contributions of the trustee and the originator are used for the purposes of the Musharakah.

The profits generated from the Musharakah are shared between the originator and the trustee in an agreed proportion. The said proportion may not necessarily be the same as the proportion of their respective contributions to the Musharakah. The trustee’s share of the profits is calculated in such a manner so as to be enough to pay the periodic distribution amounts to the Sukuk holders.

The losses, on the other hand, are shared strictly in proportion to the respective contributions of the trustee and the originator to the Musharakah.

The trustee and the originator also enter into a purchase undertaking pursuant to which the trustee is granted the right to require the originator to purchase the Musharakah asset at an agreed exercise price on the maturity of the Sukuk or upon the occurrence of an event of default; thereby dissolving the Musharakah. The exercise price is equal to the Sukuk holders’ subscription amount plus any accrued but unpaid periodic distribution amounts.

In some cases, the originator is granted a call option by the trustee under a sale undertaking pursuant to which the originator can require the trustee to sell the Musharakah asset to the originator prior to the maturity  of  the  Sukuk.  The  sale  price  in  such  cases  is  equal  to  the  Sukuk  holders’  amount  of contribution to the Musharakah plus any accrued but unpaid periodic distribution amounts.

Under a management agreement, the trustee appoints the originator as the managing agent to manage the joint venture according to an agreed business plan. In consideration for its services, the originator is paid a nominal management fee.

B. Shirkat-ul-Milk (Partnership by joint ownership)

Under this structure, Musharakah is created by the joint ownership of the originator and the trustee in a particular asset. This joint ownership can be created in two ways, either by both the originator and the trustee making cash contributions to the Musharakah for jointly acquiring an asset, or by the originator selling its ownership interest in an asset to the trustee.

There are three essential ingredients of this structure. The first is that both the originator and the trustee are the joint owners of the relevant Musharakah asset. Secondly, the originator (in the capacity of a lessee) utilizes the share of the trustee (in the capacity of a lessor) in the Musharakah asset. Lastly, the originator buys back the share of the trustee in the Musharakah asset.

To begin with, the SPV issues Sukuk into the capital markets. The Sukuk holders subscribe to the Sukuk by contributing cash to the SPV in return for Sukuk certificates. The Sukuk certificates represent the proportionate ownership of the Sukuk holders in the underlying Musharakah asset.

The SPV declares trust over the Sukuk issuance proceeds and acts as a trustee for and on behalf of the
Sukuk holders.

The trustee and the originator then enter into a Musharakah agreement pursuant to which they jointly acquire the Musharakah asset or the trustee acquires the ownership interest of the originator in the Musharakah asset (as the case may be). Following such acquisition, the originator and the trustee become co-owners of the Musharakah asset.

Under a rental agreement, the originator (in the capacity of a lessee) uses the trustee’s share in the Musharakah asset against periodic rental payments. Such rental payments are then passed on by the trustee to the Sukuk holders as periodic distribution amounts.

The originator, pursuant to a purchase undertaking, purchases the units or the ownership interest of the trustee in the Musharakah asset on specified dates. Such purchase can be either during the tenor of the Sukuk or at maturity.

Where the Sukuk is structured on a diminishing Musharakah basis, the units are purchased during the term of the Sukuk. With each such purchase, the ownership interest of the trustee in the Musharakah asset decreases with corresponding increase in the originator’s ownership interest.

The originator and the trustee also enter into a management agreement under which the trustee appoints the originator as its agent to manage the Musharakah asset and to carry out the services pertaining to the major maintenance, takaful and payment of ownership-related taxes and expenses in
respect of the Musharakah asset.


Wednesday, September 7, 2016

Commercial Name Reservations

The Ministry of Commerce and Industry (“MOCI”) has recently issued a Ministerial Decision No. 124 of 2016 on issuing the regulation regulating to Commercial Names (“MD 124/16”).

In order for an investor (i.e., a company or individual) to set up a new company in Oman, the investor shall first identify and seek approval on the proposed name of the new company. Previously, whilst the MOCI permitted investors to include the foreign investor’s name, it has generally prevented the investors from including the word “Oman” in the new company name, unless the minimum capital invested in the company was RO 500,000 or more.   However, under the new MD 124/16 only joint stock companies have the right to include the word “Oman” in the commercial name.  This means that limited liability companies would not be able to include the word “Oman” in the commercial name, regardless of whether the limited liability company has a capital investment of RO 500,000.

The  MOCI  has  recently  taken  the  initiative  in  implementing  rules  and  regulations  relating  to company’s name reservation.  MD 124/16 cancels all provisions or rules that contradict the regulations. Article 4 of MD 124/16 provides that the investor is not permitted to reserve or register the company name unless the name has a meaning or expression in Arabic, and must not include a term or a word that cannot be translated into Arabic.  Such rule however does not apply to foreign branches that are registered in Oman or Omani companies that have joint foreign ownership or foreign companies that have full ownership.

Further, it is not permitted for any branch of a company to hold an independent commercial name different to that of the name of the company.  Any trademark of the establishment or its branches may be registered as per the Intellectual Property Law.

MD 124/16 provides that any names that fall under the following categories are not permitted to be registered:

  • plural of a tribe name, which includes the two letters (AL);
  • a name that is identical to a commercial name of an establishment which has a local and an international reputation;
  • a name which may indicate or include a religious, political, military meaning or content;
  • a demonstrative pronoun, an honorary sign or a special character in any of the regional, Arab or international organizations or one of its institutions;
  • a name that resembles a name of an authority or organisation, a social institution, local charities or international institutions;
  • a name that resembles a registered trademark or its name, or contains one of its components;
  • a  name  that  carries  a  synonymous  meaning  to  the  commercial  name  of  an  establishment  or pluralizes or singularizes the name of a registered establishment;
  • a name that carries the word “Oman” or “Omani” or one of its derivatives or implications, except for the joint stock companies; and
  • a name that indicates an incorrect geographical division of the Sultanate.

Article 8 of MD 124/16 grants the MOCI the power to cancel, or request an applicant to change or amend  the  commercial  name  of  the  establishment  if  it  does  not  comply  with  these  rules  and regulations.   The applicant will bear its costs and expenses associated in amending or changing the name.

An applicant may appeal the MOCI’s decision to cancel the registration or its request to amend the name by submitting a written request to the undersecretary of the MOCI within sixty (60) days from the date of notification of its decision.  The MOCI shall decide on the appeal within thirty (30) days from the date of submission. If no decision is made within thirty (30) days, the decision shall be deemed to have been rejected.

Therefore, in light of the new MD 124/16, it is important for an investor to understand the rules relating to name reservation.  The investor must ensure that they comply with MD 124/16 prior to forming a company in Oman, as it will clearly mitigate any additional expenses (and time) that may be incurred by the investor if it is required to amend or change its proposed name.


Wednesday, August 31, 2016

The Competition Protection and Monopoly Prevention Law

Few people are aware of the Competition Protection and Monopoly Prevention Law, RD 67 of 2014 (“CPMPL”).   Yet its scope of operation is very broad, and the consequences of being in breach are severe.  It is particularly important that any chairman, CEO, director or authorised senior manager of any major company be aware of the CPMPL and its potential consequences.

The CPMCL applies to all activities of production, trade, services, intellectual property rights and other economic activities that may have a damaging effect on competition.

What is unlawful?

The CPMCL sets out a new merger control regime and prohibits restrictive agreements and abuse of market dominance. Private sector businesses with a position of dominance in the market are prohibited from engaging in practices that would undermine, lessen or prevent competition.

The new law does not apply to wholly owned government entities.   However, it otherwise has significant implications for private sector businesses that have a dominant market share. In broad terms, any of the following behaviour is likely to be prohibited:

  • entering into an agreement to create a monopoly in the importation, production, distribution, sale or purchase of any commodity (Art 8);
  • engaging in monopolistic behaviour (Art 8);
  • entering into an agreement concluded with the intent to prevent, limit or weaken competition (Art 9); and
  • any act to reduce or limit competition by a person or company that is in a “dominant position” (Art10).

Each of these activities is separately defined as a criminal offence, although there is considerable potential overlap between them.   For the purposes of the CPMPL, a person or company is in a “dominant position” if it has control, or has an influence over, the relevant market, including the acquisition of the market volume by more than 35%.

Articles 9 and 10 of the CPMPL give a series of examples of what may constitute limiting, weakening competition or reducing competition.  The examples are very broad, and include things such as:

  • predatory pricing;
  • refusing to deal with specific people to prevent market entry;
  • creating artificial shortages by reducing quantities;
  • suddenly increasing the quantities of products available;
  • fixing prices or conditions of resale;
  • colluding in tenders;
  • making it a condition that a purchaser also purchase another commodity or service; and
  • forcing a manufacturer to not deal with a competitor.

The effect is that the CPMPL could have an operation in relation to a whole range of businesses, from selling basic goods, providing transport, providing labour, construction, pharmaceuticals, quoting for services or even consultancy services.

Criminal Penalties

Penalties for breach of Articles 8, 9 or 10 include:

  • imprisonment for between 3 months and 3 years;
  • a fine equivalent to the profits on the sales of the relevant products;  and
  • fines of between 5% and 10% of total annual sales.

Where a corporation is involved, the Chairman, members of the Board of Directors, the Chief Executive Officer and authorized managers can all be potentially penalized if they are aware of the breach.

In any of these violations a court may also require the company or individual to rectify the violation, dispose of shares or assets or make the payment of OMR 100 – 1,000 until the violation has been stopped.

In the case of a second offence, the above penalties may be doubled, and the business may be closed for up to 30 days.  The CPMPL includes other penalties relating to procedural issues as well.


If a person or corporation wishes to carry out any step or enter into any agreement that may potentially be in breach of the CPMPL, there is a procedure available under the CPMPL to apply to the Public Authority for Consumer Protection for permission to do so under Article 11.  The Authority must issue a decision within 90 days.  The Authority can not permit any procedure that would result in an acquisition of more than 50% of a relevant market.


The primary rationale for laws of this type is to protect the consumer from unfair market practices that exist in many countries.  For example, Federal Law 4 of 2012 (also known as the “UAE Competition Law”) performs a similar function in the United Arab Emirates.  The CPMPL is broader than the laws in some countries, as it protects other businesses, not just consumers. We are not aware of any prosecutions so far, under the CPMPL, but we are aware of one case where an Omani Court held that an agreement was void as it breached the CPMPL.

The most important point to note is that if your business is proposing to enter into any agreement or carry out any act which may lessen competition, you should seek legal advice and consider applying to the Public Authority for Consumer Protection for permission.


Monday, August 22, 2016

Health and Safety in Oman

What is the main legislation governing health and safety in Oman?
Generally, the laws concerning health and safety in Oman are contained in:
(i) Royal Decree 35/2003 promulgating the Oman Labour Law; and

(ii) Ministerial Decision 286/2008 – the Regulation of Occupational Safety and Health for the Establishments.
Are there any material differences between health and safety legislation in Oman and other major jurisdictions?
There are no material differences. Oman’s health and safety regime is similar to other jurisdictions.
What are the main bodies responsible for health and safety monitoring, regulation and prosecution in Oman?
What are their key powers?
The main body responsible for health and safety monitoring in Oman is the Ministry of Manpower, and its various departments including the Department of Vocational Safety and Health (the “Department”).
The Ministry of Manpower has a number of powers with regard to health and safety, including the power to:
  • investigate any breach;
  • impose penalties on entities in breach of the Law;
  • take necessary measures for the closure of the place of work, fully or partially, or the suspension of the use of equipment until it is satisfied that the causes of the risk have disappeared; and
  • refer violations to the Royal Oman Police.
Following an accident or a fatality - what reporting is required? What investigations may follow?
The owner of an enterprise must notify the Directorate General of Labour Welfare at the Department in writing within 24 hours of any major incident taking place and of every industrial accident or vocational disease that has been established. The owner must also notify the Public Authority for Social Insurance of any industrial accident involving workers with relevant insurance cover.
What are the core health and safety records that companies must keep?
The core health and safety records that a company is required to keep will depend upon the nature of the work it is undertaking, for example:
(i) if a company uses scaffolding for the purpose of building, the scaffolding must be installed by a competent person who shall test them at least once every week and the test must be recorded in a special register maintained for such purpose;
(ii) regarding the use of boilers and steam and air stores, the boilers must be tested every 12 months and the steam and air stores every 24 months by a competent technician and a special register shall be maintained to record the date of the test and the technician’s name and remarks;
(iii) regarding the use of chemical substances, a special register shall be opened for hazardous chemical substances to immediately record information related to the safety of their circulation and use and the movement of such substances;
(iv) where relevant, equipment for measuring chemical agents in the work environment shall be provided according to the nature of the business conducted; necessary periodical measurements must be taken, recorded in a special register and compared periodically to ascertain that they are within the secure limits fixed by the competent authorities; and
(v) fire devices must also be tested at least once every six months by a specialist and recorded in a special register.
What are the obligations of an employer to report health and safety breaches?
The owner of an enterprise employing 50 or more workers must provide the Department with periodical statistics on major incidents, industrial accidents and vocational diseases that have occurred. The statistics must be submitted in the months of January and July of each year.
Additionally, the owner of an enterprise must notify the Department or the section in writing within 24 hours of every major incident taking place in the enterprise, every industrial accident or vocational disease that has been established. He must notify the Public Authority for Social Insurance of an industrial accident involving workers carrying insurance cover.
Are there any specific rules governing working time?
Workers must not work on construction sites or open uncovered areas of high temperatures between the hours of 12.30 pm to 3.30 pm throughout the months of June, July and August, subject to certain exemptions to those establishments providing essential public services.
What are the potential penalties an employer may face for breach?
With regard to any breach or alleged breach of any law regarding health and safety, inspectors have authority to take the following measures:
(i) issue the necessary orders for rectification within a specified period of time; and
(ii) immediately suspend work fully or partly, or require discontinuation of the operation of one or more machines in cases of an imminent danger, including seeking the assistance of the Royal Oman Police, if required.
The law also provides for penalties for violation of industrial security. In the event of a violation relating to industrial security, without prejudice to a harsher punishment stipulated in Oman Labour Law or any other law, an employer or his representative shall be penalized by a minimum fine of OMR 100 and a maximum of OMR 500 and/or imprisonment for a period not exceeding one month. The penalty can be doubled for repeat offences.
Are there any specific rules regarding health and safety in different work areas?
Further to the above, there are specific rules regarding health and safety in relation to the following:
  • working in extreme temperatures;
  • working at heights;
  • working in confined spaces;
  • working with dangerous substances, radiation and chemicals;
  • manual handling of heavy goods;
  • noise, vibration and lighting;
  • equipment and machinery; and
  • transportation of dangerous goods and substances.


Monday, August 15, 2016

The MOCI Invest Easy System

Seen as integral in promoting investments and improving the future of the economy, the Invest Easy service is the culmination of a decade-long plan to create an innovative, open, and reliable business environment.
The early 2000s saw a rethink, by the MOCI, of the commercial registration process. The passing of Executive Regulation 121/86 on the Commercial Register Law sparked the first wave of integration in a One-Stop Shop system (the “OSS”). The OSS allows those requiring access to various governmental departments to come to one place for the majority of their dealings. Moreover, 2003 saw an initiative to incorporate technology into this process and a system streamlining certain business aspects was rolled out in 2006. Despite being limited in accessibility and in substance, it resulted in an increase in the number of commercial registrations. Following further regulation and planning, the beginning of 2014 marked the introduction of the Invest Easy portal, allowing a number of essential business tasks to be completed online 24/7.
In order to improve and simplify the user experience, the MOCI keeps a constant dialogue with entrepreneurs, law firms, and companies and, term by term, the user has seen an expansion in the capabilities of the system as well as the streamlining of the administrative processes. Recent improvements are a result of this dialogue and have included the possibility for law firms and other registered users to pay for transactions online without a point of sale system, and to access commercial registration information and certificates for free.
Fundamentally, the online portal allows investors to quickly and securely register a new business in the Commercial Register. Upon establishment, businesses can complete a number of tasks including but not limited to: updating company information (name, share capital, shareholders, etc.), accessing information about other commercial entities, submitting license applications and including in their registrations over 210 different unlicensed commercial activities. Moreover, the portal also provides clear and simplified information on numerous procedures, and enables users to update all their new data online. New additions relating to the registration and management of commercial agencies are expected by the end of July 2016.
Following the general intention to simplify the management of businesses in Oman, the MOCI has taken the decision to consolidate the Certificate of Incorporation and the Commercial Registration Information of all registered companies in a new document, the Commercial Registration Certificate, and has abolished, effective 1 June 2016, the authorised signatories form, i.e., the form setting out the specimen signatures of the persons authorised to act on behalf of the company. The details of the authorised signatories are now set out in the Commercial Registration Certificate, which now is a Digitally Signed Form, signed and certified using a Digital Signature Certificate as per the Electronic Transactions Law (Royal Decree 69/2008).
Currently, the portal is working in cooperation with Ministry of Manpower, Royal Oman Police, Ministry of Environment and Climate Affairs, Muscat Municipality, Oman Chamber of Commerce and Industry and many other government entities.
Nortal, the software architects of the portal, have noted that in the first six months of the new commercial registration service implemented in Oman, of the over twelve thousand new companies which were registered, 1,000 were registered using the portal, with that proportion increasing month by month. In September of 2015, 16.7% of the total company registrations came through Invest Easy.
If diversification is to come into the economy, systems such as Invest Easy are instrumental in attracting new investment into Oman. Despite its long teething problems, the system is a drastic improvement from having to attend various ministerial departments costing time and money to investors and firms.