Tuesday, March 21, 2017

Curtis welcomes Ali Arshad to its Middle East team

In March we welcomed  Ali Naveed Arshad to our Middle East team.  Ali is well known in the Omani market, having worked in Muscat for six years.  Based in Dubai, he will service both Oman and UAE based clients.

Ali is recommended by leading guide Chambers Global as an “Up and Coming” lawyer. The 2017 edition praises him as a “great lawyer” and notes "He is helpful, practical and commercially keen."

You can contact Ali in our Dubai office.

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Monday, March 20, 2017

The Laws Regarding Penalties, the Grievances System, and Labour Disputes in Oman

General Overview of the Grievance System in Oman

The Omani Labour Law (promulgated by Royal Decree 35 of 2003, as amended) (the “OLL”) is the primary law regulating the private sector employer-employee relationship and the rights and obligations of employees.  Additionally, Ministerial Decision 129 of 2005 contains the penalty code and conditions for implementing it on private sector employees (“2005 MD”).  The 2005 MD provides that an employer may add offences to the penalty code that are not included in the specimen penalty code, if the nature and type of the business of the organization require this.

The rights and obligations with respect to employer and employees have been set out in the OLL.  This article will discuss the rights of employers and employees respectively.

Employer’s Rights

The circumstances in which an employer may dismiss a worker

Although the OLL states that either the employer or the employee may terminate the employment relationship upon 30 days’ notice (or such longer notice period that the labour contract may state), this does not negate the ability of the employee to receive compensation.  In other words, the use by an employer of a notice provision to terminate an employee will normally be seen by the Omani Courts to be a “termination for convenience”, thereby requiring the employer to pay compensation to the employee.  The Omani courts only rule out the requirement to pay compensation when they believe that the termination was due to what they see as a “valid reason”.  It is not possible to list specifically and comprehensively all of the acts or circumstances that could constitute a “valid reason” for termination, as these are normally decided on a case-by-case basis by the Omani courts and subject to the relevant evidence on hand.

Under Article 40 of the OLL, an employer has the right to terminate its contract with an employee without prior notice, or paying any end-of-service benefit, where the employee has committed an act of gross misconduct, for example, where the employee:

a) assumes a false identity;
b) makes a mistake that results in a material financial loss to the employer;
c) is away from work for more than 10 consecutive days without reasonable cause;
d) discloses confidential information of the employer;
e) receives a final judgment against it for an offence or felony for breach of honour or trust; or
f) is in a state of drunkenness or under the influence of an intoxicating drug or mental stimulants whilst at work or during work hours.

What is the employer’s role and rights as far as the Grievance System is concerned? 

According to Article 106 of the OLL, the employer is required to display in a conspicuous place the procedure for complaints and grievances.  The procedure will provide the employee the right to submit his complaint or grievance to the employer or his representative.  Further, it is important to note that the Company is obliged under the OLL to obtain an approval on the procedures for complaints and grievances from the MOM prior to displaying it at the workplace.  Moreover, Article 106 of the OLL further provides that the employee has a time limit of fifteen days from the date on which he was dismissed by the Company, to apply to the MOM, for annulment of the dismissal decision.

Employees’ Rights

The circumstances in which an employee may abandon the work prior to the termination of the contract 

Under Article 41 of the OLL, an employee has the right to abandon work prior to the termination of his contract (after giving written notice to the employer) where there has been gross misconduct on the part of the employer, for example:

a) where the employer has defrauded the employee;
b) the employer commits an immoral act toward the employee;
c) the employer assaults the employee; or
d) the employer is aware of a danger that threatens the health or safety of the employees and does nothing to rectify the danger.

For matters other than Article 41 of the OLL, the employee will need to comply with Article 107 of OLL if they have any complaint at the workplace.

What are the employees’ rights regarding the Grievance System? 

Article 107 of OLL provides that if an employee has a complaint he shall first follow the procedures laid down by the employer and if such procedure does not exist or does not address the employee’s grievance, the employee is authorized to apply to MOM in order to endeavour to reach a settlement for the dispute.  The first step to settling a labour dispute is obviously to try to resolve the issue internally between the parties.  If the parties failed to resolve their differences or if the procedure does not exist, the parties are authorized to apply to the MOM in order to try to reach a settlement, failing which, the employee may proceed in filing a claim in the Primary Court.


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Monday, March 13, 2017

Takaful

Takaful originates from the Arabic word Kafalah, which means ‘guaranteeing each other’.  It is the Islamic counterpart of conventional insurance.

The concept of takaful is based on the principles of mutual cooperation and the separation between the takaful fund and the operations of its shareholders, covering the elements of shared responsibility, joint indemnity, common interest and solidarity.

In a takaful company, the policyholders are the joint investors with the takaful operator.  The profits or losses of the investment pool are shared amongst the policyholders according to a pre-determined ratio.

Takaful works with all the participants guaranteeing each other and making contributions to a mutual fund, as opposed to paying premiums.  The amount that each participant contributes is dependent upon the type of cover required and his/her personal circumstances.

A takaful operator manages and administers the takaful fund on behalf of the policyholders and is paid a fee for miscellaneous expenses such as the costs of sales and marketing, underwriting, and claims management etc.

From an operational perspective, a takaful company must maintain two funds, a policyholders’ fund and a shareholders’ fund.  The two funds cannot be mixed with each other.  The funds are invested on a profit and loss sharing basis, as approved by the takaful company’s Sharia Supervisory Board (“SSB”).

The policyholders’ fund is comprised of amounts corresponding to the insurance premiums received, re-insurer’s claims, investment profits, salvages and recoveries.  The said fund is utilized towards paying claims to the policyholders, reinsurance and administrative costs and technical reserves (but excluding the investment department expenses).

Any surplus amount after the aforesaid utilization is allocated to the policyholders’ special reserves and distributed amongst them.  In the event the policyholders’ fund is deficient to meet their expenses, the shortfall amount is funded from the shareholders’ fund.  The shareholders also guarantee to discharge all liabilities of the policyholders’ fund, proportionate to their respective shareholding in the takaful company.

The shareholders’ fund, on the other hand, consists of the paid-up capital and shareholders’ reserves, capital investment profit and subsequent equity injections.  The investment department’s administrative expenses are deducted from the said fund.  Any surplus amount is distributed amongst the shareholders on a pro-rata basis.

A takaful can be structured based on the nature of the relationship between the company and the participants.  Three kinds of structures are most widely used, namely, Wakalah, Mudarabah and a combination of the two.

Under the Wakalah structure, the takaful operator works as an agent on behalf of the participants.  The takaful operator manages the fund and receives a management fee (i.e., a Wakalah fee).  An incentive fee can also be charged by the takaful operator to manage the fund in the best way possible.  The fee is fixed in advance after consultation with the SSB.  Any surplus generated by the takaful fund or the investments goes to the policyholders.

Under the Mudarabah structure, the policyholders are the investing partner (i.e., the Rab-ul-Mal) and the takaful operator is the working partner (i.e., the Mudarib).  The policyholders put in their respective participations in the takaful fund and the takaful operator uses its expertise and knowledge to manage the said fund.  Profits are shared according to an agreed ratio whereas losses are borne by the policyholders only.

The third type of structure, namely, the Wakalah-cum-Mudarabah structure, is commonly used in the takaful industry.  This structure uses a hybrid of Wakalah and Mudarabah contracts.  Under the Wakalah contract, the takaful company is appointed as the agent for managing the fund and is given a fee for underwriting the fund.  Under the Mudarabah contract, the takaful company is appointed to act as the fund manager and shares any profit resulting from the investment of the fund.

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Monday, March 6, 2017

Sole Proprietorship and Conversion to a Limited Liability Company

General Overview of Sole Proprietorship

A sole proprietorship is a form of business available only to Omani or GCC nationals.  The minimum capital requirement for a sole proprietorship is relatively low, being OMR 3,000.  A sole proprietorship does not require the participation of other partners or stakeholders and the sole proprietor can undertake the business in his own name.

One of the main drawbacks of establishing a sole proprietorship is that the sole proprietor is considered to be the legal holder of the license.  Consequently, the sole proprietorship concern will not act as a separate legal entity whereby the partners or stakeholders are protected under its corporate veil.  The proprietor is therefore, personally liable for debts incurred by the sole proprietorship entity.

In Oman, it is common for Omani individuals to initially establish a sole proprietorship and later convert the business into a limited liability company (“LLC”), as the incorporation process of the sole proprietorship is swift and easy when compared to that of an LLC.  A sole proprietorship requires only one individual and the capital contribution is relatively less when compared to a limited liability company, which requires a minimum capital of OMR 20,000.

For the registration purposes, the individual would require to liaise with the Ministry of Commerce and Industry (“MOCI”).  The applicant is required to submit the MOCI standard form for registration of sole proprietorship, along with the individual’s identity card and the ROP good standing certificate. The name of the establishment will be the same as that of the sole proprietor (i.e., the owner).

The Conversion of Sole Proprietorship to a Limited Liability Company 

According to Article 13 Bis 1 of the Sultani Decree 4 of 1974 Commercial Companies Law (“CCL”) it is permissible to convert a company from one status to another by a decision issued in accordance with the rules made for amending the memorandum of incorporation of an existing company or its articles of association, in compliance with the procedures and conditions of the company of which conversion takes place.

Article 13 Bis 2 further sets out certain limitation to conversion. According to Article 13 Bis 2 conversion of the company shall not result in the creation of a new juristic person, and the company, after conversion, shall retain all its previous rights and liabilities that preceded such conversion.  The conversion shall not release members from their joint liability with respect to the company preceding the conversion unless the creditors agree to such release.  Therefore, according to CCL, it is permissible for a sole proprietorship to convert to a limited liability company, provided that the applicant complies with the provisions of the CCL.

The procedures for conversion of a sole proprietorship company into a limited liability company are as follows:

1. The applicant is required to liaise with the MOCI and submit a contract of sale of percentage.  The contract for the sale of percentage is basically a share transfer process whereby the current owner sells a portion of his stake in the sole proprietorship concern to another Omani or a foreign partner. The contract for the sale of percentage will be executed and signed at the MOCI. All parties (sellers and buyers) are required to be present at the MOCI. If any of the parties are not able to attend the signing at the MOCI, such party will need to issue a power of attorney authorizing the power of attorney holder to sign on his behalf.

2. Once the sale of percentage is executed, the applicant is required to submit the following documents to the MOCI:

Name reservation: As an initial step, the applicant is required to reserve a name of the company. The proposed name of the company has to be reserved to reflect the words “LLC”;

a) Constitutive contract: The constitutive contract of the LLC will set out the Company’s activities, amount of capital, number of shares, the members’ nationalities, their respective shareholdings, their voting rights, partners’ meetings, etc.  This document is required to be prepared in Arabic and signed by the all the shareholders, including the sole proprietor;

b) Certificate of good standing: If the incoming partner is an individual, the new incoming partner(s) will also require to produce a certificate of good standing from their country of origin;

c) Constitutional documents and resolution of partner: in the event the partner is a corporate entity, it will need to provide its constitutional documents, i.e. certificate of incorporation, memorandum and articles of association, etc.  and a resolution approving its participation in the LLC;

d) Original copies of the commercial registration certificate, computer printout, and a Oman Chamber of Commerce certificate/card of the existing sole proprietorship; and

e) Copies of the ID card(s) for the local Omani partner and passport copy for the foreign partner.

Once all the above documents are submitted to the MOCI for conversion of the sole proprietorship to an LLC, the MOCI will review and assess the application and after approval, issue the new commercial registration documents in the name of the LLC.  The MOCI will also issue a letter confirming the conversion, based on which the LLC will be permitted to amend its name at the relevant ministries, banks and any other government bodies.  


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Wednesday, March 1, 2017

Effective Non-Competition Clauses

There are a number of reasons that an employer may wish to include a non-compete clause (otherwise known as a restrictive covenant) in an employment contract with an employee, for example, to protect goodwill and trade secrets.  Such provisions have been contemplated in the Civil Transactions Law issued by Sultani Decree 29/2013 (the “Civil Code”).  Under the Civil Code, if an employee has knowledge of the “secrets” of his/her employer in terms of how the entity conducts its business, or if the employer is familiar with the employer’s clients, the employment contract may contain a clause to prevent the employee from doing the following after termination of the employment contract:

• gaining employment at a competitor of the employer; or

• participating in competitive work.

However, it is important to note that a restrictive covenant, such as a non-compete clause (in accordance with Article 661) will only be effective if it is reasonable, such that it is “restricted in time, place and type of work to the extent necessary for the protection of the legitimate interests of the employer”.

How to draft non-compete clauses?

Omani court judgement (Case No. 426/2014) considered the issue of the validity of non-compete clauses.  In this case, the contract of employment stipulated that the employee (i.e., the defendant) would not assume any similar position in the Sultanate for 12 months after the termination of his service with the employer (i.e., the plaintiff).  It further stipulated that the employee would maintain the confidentiality of business secrets and the data/information related to the employer.  The plaintiff submitted that the defendant joined another firm (the second litigant) prior to the end of the 12 month term and disclosed such business secrets to that litigant.  Subsequently, the plaintiff sought to:

a) revoke the contract of employment between the defendant and the litigant and thereby revoke the residence visa of the defendant; and

b) obligate the defendant and the litigant to together pay the plaintiff compensation in damages incurred as a result of the alleged illegal competition.

With regard to whether the defendant had breached the relevant clause of his employment contract, the courts held that he had not.  The contract between the plaintiff and the defendant provided that the defendant could not accept any job or connect with any business activities inside the Sultanate that was similar to, or competitive with, any of the operations conducted by the plaintiff.  The non-compete provisions in the Civil Code can prevent a contracting party from undertaking a specific type of work within a certain period or area, however, such restriction should not be so broad as to include all types of work in every place and time.  Any provision aiming to do such a thing, would violate the principal of the freedom to work.  Accordingly, the court in this instance found the non-compete clause between employee and employer to be invalid, since the condition violated the public order of the principal of freedom to work.

Whether a non-compete clause is valid or not is up to the assessment of the judiciary.  What counts as a reasonable restrictive covenant is therefore likely to depend on the nature of an employer’s business and the level of restriction imposed on an employee as set out above.  As general guidance, the following points should be considered:

Time: As to the length of time, a non-compete clause is likely to be acceptable if it restricts an employee for working for a competitor for a defined period of time, although the acceptable period of time would likely be considered on the basis of the employee’s role and level of seniority.  A non-compete clause that sets out a prolonged period or for an indefinite period of time is likely to be invalid.

Place: As to geographical location preventing a former employee from working for a competitor, what is deemed acceptable will likely depend on whether the employer’s business is situated in one location, or multiple locations and/or regions. A non-compete clause restricting an individual from working for any competitor within the whole of the GCC region will likely be unenforceable if the said business is situated in Oman for example with no dealings in the GCC region.

• Type of work: As to type of work, a non-compete clause attempting to restrict an employee from working in the same industry which would prevent an employee from attaining a different role and function entirely; a role which could not possibly cause damage to the former employer’s business (e.g., by sharing secrets, business know-how, client information etc.) may be considered unreasonable.

A non-compete clause should be drafted so as to protect the legitimate interests of the employer.  The provisions should strike a balance between protecting the legitimate interests of the employer while permitting an employee to work and earn a living at another company.

Non-compete clauses and the expatriate visa ban

Given the Civil Code says that a non-compete clause must be proportionate to protect the legitimate interests of the employer it will be interesting to see how the Courts view what is and is not an acceptable restrictive covenant in light of the two year expatriate visa ban (the “Ban”).

By way of overview, the Ban, which was imposed by the Expatriate Residency Law (issued by Sultani Decree 16 of 1995 (as amended)) and reinforced by the Ministry of Manpower (“MOM”) in July 2014, effectively restricts expatriates from obtaining employment with a new employer in the Sultanate for a period of two years after termination of employment with their current employer in Oman. An expatriate is only eligible to join another company in the Sultanate prior to the expiry of two years from the date of termination of employment if he or she can obtain a Non Objection Certificate (“NOC”) from his or her current employer.

The Ban was part of the MOM’s objective to regulate the labour market.  For those employers willing to give an NOC, it is important therefore, to consider a carefully worded non-compete clause in this instance.

How a non-compete clause could be invalid?

An employer cannot seek to enforce a non-compete clause in an employment contract if the employee’s employment was terminated by the employer without just cause.  In addition, a restrictive covenant shall be deemed invalid if the employer commits an act that justifies the termination of the contract by the employee.

Pursuant to Article 662 of the Civil Code, in the event a former employee violates the terms of its non-compete provision, compensation may be payable to the employer for breach. However, where the compensation amount as set out in the non-compete clause is excessive and intended to force employees to remain employed by the employer, the said non-compete clause shall be void.


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Monday, February 20, 2017

Judicial Confession, Taping and Recorded Tapes

Anyone involved in a public prosecution or a commercial investigation should be aware of their rights (and the law) with regard to giving a confession.
Confessions in civil cases
Article 57 of the new Evidence Law defines “confession” as the admission by a person of [committing] a legal fact to another person, with the purpose of proving his commission of that fact by such person and such admission may be judicial or non-judicial.  Accordingly, a judicial confession is conclusive and absolute evidence against the confessor, confined to him, and binding to a court.  The confession may not be divisible, unless it has been made in respect of a number of events, and the existence of one of these events does not necessarily mean, or prove, the existence of the others.  Properly obtained judicial confessions are evidence against the confessor, and the confessor may not retract such a confession.
Confessions in criminal cases
Article 190 provides that if at any time the accused admits that he is guilty, the court shall hear his statements in detail and cross-examine him.  If it is satisfied that the confession is sound and sufficient, it may abandon the remaining proceedings, or some of them, and decide the case.  That is, the Supreme Court has confirmed that a confession in a criminal case may have a conclusive role in that case.  However, such evidence shall be subject to an assessment by the subject matter court, with no control or influence from the Supreme Court. The subject matter court may accept the confession of the accused following its investigations.  In respect of a confession, the subject matter court will seek to understand the motivation and grounds behind the giving of the confession, and assess whether or not it has been given based on evidence, liberty, perception and understanding, or, has been given subject to coercion. 
How is improperly obtained evidence treated?  Can such evidence be admissible?
A confession may be inadmissible if it was obtained illegally; however, any material evidence that is discovered as a result of such confession may still be admissible.  An accused may not avoid punishment simply for reasons of evidence having been obtained illegally.
A confession made under coercion is inadmissible, even if there is evidence confirming its accuracy.  If an accused maintained his confession after the coercion ceased to exist, it would be treated as a new confession.  In order to establish that a confession was obtained under coercion, the burden of proof lies with the claimant (i.e., the claimant must prove that his confession was obtained through coercion such as being tied up, restrained, arrested or guarded).  
Confessor’s retraction
A confession may, in certain circumstances, be retracted.  The retraction of a confession may be overlooked if the crime can be established with sufficient evidence supporting the confession.  It has been argued that with regard to major crimes, the retraction of a confession does not cancel the confession, but other evidence is required, even circumstantial evidence, in this regard.
Call recording and tapping and recorded tapes as evidence
Article 90 of the Criminal Procedures law states that Correspondence and cables may not be confiscated or perused, newspapers, publications and parcels may not be confiscated, conversation taking place at a private place may not be recorded, the telephone may not be tapped and the dialogue may not be recorded without the permission of the Public Prosecutor.  The permission specified in article 90 of this Law shall be issued if the Public Prosecutor is of the view that it would be useful evidence where there is a suspected offence or misdemeanor that would be punishable by imprisonment for a period exceeding three months.  The permission shall be substantiated and its period shall not exceed 30 days subject to renewal for similar periods, if required.
Moreover, article 30 of the Basic Law states that the freedom of correspondence by post, telegraph, telephone, or other means of communication is protected and its confidentiality guaranteed.  Hence it is unlawful to monitor, search, disclose the confidentiality, delay or confiscate the same except in cases specified by the law and in accordance with the procedures prescribed therein.
Any person involved in a public prosecution or commercial investigation should consult with a lawyer as soon as possible and, in any event, before giving a confession.

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Monday, February 13, 2017

Environmental Law in Oman

The desire for a green and pollution-free environment in Oman grows every year, as the world seeks to tackle the ill effects of global warming and other environmental concerns.  As the world gears up to combat this threat, the Sultanate of Oman has put a series of laws in place to protect its land and territorial waters against pollution.  Protection of habitats has been achieved through the environmental permit system implemented under Sultani Decree 10/82 (now replaced by Sultani Decree 114/01).  The Sultanate has always sought to strike a balance between the needs of development and the environment.  Industrial construction projects must be reviewed and certified by the Ministry of Environment and Climate Affairs (the “MOECA”) before commencement.  When reviewing a proposed construction project, the MOECA examines the possibility of damage to the environment and ensures that all measures have been taken to minimise pollution from waste products prior to giving its approval.
Legislation for wildlife protection and nature conservation is mainly in the form of Sultani Decrees and Ministerial Decisions.  The management and action plans for all protected areas are strictly implemented.  Sultani Decree 34/74, issuing the Marine Pollution Control Law, seeks to ensure the safety of the marine environment.  Sultani Decree 68/79, establishing the Council for Conservation of Environment and Prevention of Pollution, was followed by Sultani Decree 10/82 (replaced by Sultani Decree 114/01), issuing the Law on Conservation of the Environment and Prevention of Pollution, which laid the practical and scientific basis for private and public practices in environmental fields.  This was further strengthened by the issue of Sultani Decree 45/84 establishing the Ministry of Regional Municipalities, Environment and Water Resources as the first ministry of its kind in the Arab world.
Marine pollution
One of the most significant laws concerning the protection of the environment in Oman is the law on the Control of Marine Pollution (Sultani Decree 34/74).  Under this law, no person has the right to discharge any pollutant in the pollution-free zone from a ship, shore location or oil transport facility.  
Moreover, no ship has the right to discharge any pollutant in the pollution-free zone and each day of a violation is considered as a separate violation.  No ship owner or any owner or operator of a shore location or oil transport facility has the right to disregard any of its obligations under the law.  Any owner or operator of the shore location or oil transport facility violating the law subsequent to a third offence may be liable to be deprived, either temporarily or permanently, of any or all of the rights granted by the Government.  The pollution control officer, or any other person appointed by the MOECA in charge of implementing this law, is empowered to arrest any person who has committed an offence punishable with imprisonment in accordance with this law, and to detain such person until the issue is resolved; the officer may also detain and seize any ship in violation of the law.  If a pollutant has been discharged in the pollution-free zone, the owner of that ship or the owner or operator of that shore location or oil transport facility, as the case may be, will be liable for, inter alia, costs borne by the Government in order to mitigate or eliminate the pollution, and the damages suffered by the Government and/or any other person.
Solid non-hazardous waste
The Regulations for the Management of Solid Non-Hazardous Waste (MD 17/93) deal with solid non-hazardous waste, including any solid or semi-solid material, which does not pose any danger to the environment or to the human health, if it is dealt with in a safe scientific way.  Household waste and solid materials from commercial and industrial establishments are included in non-hazardous waste.  The occupants of premises which are used for commercial or industrial purposes are required to store and dispose of solid non-hazardous waste in accordance with the provisions of these regulations, so that there is no nuisance or hazard to public health.
The user of a commercial or industrial site which produces solid non-hazardous waste is obliged to collect the waste and transport it in a safe manner to a site designated by the relevant authority for the purpose.  The law does not permit any person to dispose of solid non-hazardous waste in places other than designated places.  No solid non-hazardous waste should be mixed with any category of hazardous waste at any time.  Various authorities responsible for the day-to-day operation and management of the collection and disposal of solid non-hazardous waste need to obtain permits and licenses from the MOECA.
Hazardous waste
The Regulations for the Management of Hazardous Waste (MD 18/93) deal with hazardous waste, including any waste arising from commercial, industrial or any other activities, which due to its nature, composition, quantity or for any other reason is hazardous or threatens to be hazardous to the environment.  Any storage facility for hazardous waste must be duly licensed by the MOECA.  This law requires all hazardous waste to be labeled and packed according to the provisions stipulated in this respect.  Every hazardous waste generator should store the hazardous waste in approved storage facilities on its land, or at its premises, until it is removed in accordance with the terms of the license issued by the MOECA.  Hazardous waste must be transported by vehicles licensed by the MOECA to collect, handle, store and dispose of hazardous waste outside the waste generator’s premises. 
Waste water re-use and discharge
The Regulations for Wastewater Re-Use and Discharge were promulgated through MD 145/93 and provide that the discharge of any wastewater or sludge into the environment, in whatever form or conditions, is prohibited without a permit to discharge from the MOECA.  Further, this law provides for the regulation of the quality of wastewater and its re-use.  Before re-use, the wastewater or sludge is tested to determine the quantity of various metals in it and its pH value.  Those with high concentrations of metals must be disposed of in sanitary landfills with the prior approval of the MOECA.  Wastewater must be discharged only where re-use is not possible.  The MOECA may supervise the samples of wastewater at any place at any time.
Whilst there are many other laws that have been issued to ensure the safekeeping of the environment, the above laws are some of the most important in relation to wastewater, management of waste and marine pollution.

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Monday, February 6, 2017

The Right to Bring a Commercial Claim against a Non-Contractual Party under Omani Law

Similar to what is commonly referred to as a “tort” claim in many common law jurisdictions, Omani law principally recognises a party’s right to bring a commercial claim against a non-contracting party.
Specifically, it is an established principle in Omani law to allow a party to pursue a claim against a non-contracting party when an exchange or incident, and the resultant claim, involves only two entities.  However, in scenarios involving three parties, a party’s right to bring a claim against its non-contracting party may differ, particularly in construction contracts. 
This article will explore the circumstances under which a party is legally permitted to bring a claim against a non-contracting party.  It will also explore the circumstances in which it is impermissible for a party to bring a claim against a party with whom its relationship is not rooted in contract.
The right to file suit against a non-contractual party in a two-party transaction
The right to sue a non-contracting party, in scenarios involving two parties, was confirmed by the Supreme Court in its judgment number 160/2008.  In this case the Supreme Court held that a party may bring a claim against a non-contracting party seeking recompense for actual and reasonably foreseeable losses when its losses arise from a “wrongful act” or “harmful act. The Supreme Court further explained that “the basic rule followed in law is that anything done or said which causes harm to any other person is deemed to constitute a failure to observe the legal obligation incumbent upon all men not to inflict harm on any other person without lawful cause.
Naturally, the Supreme Court’s position is consistent with what was established by the Omani legislature in 2013 in the Omani Civil Code (“Civil Code”), promulgated by Royal Decree 29/2013.  Article 176 of the Civil Code, which is located under the chapter titled Harmful Acts, provides that a party shall be liable for “any harm to others” – that is, irrespective of whether the two parties have a contractual relationship.
Very importantly, the facts presented before the Supreme Court in Case No 160/2008 involved only two parties.  As we discuss below, the right to sue a non-contractual party in scenarios involving three parties may be different under Omani law.
The right to a sue a non-contracting party in scenarios involving three parties
Under Omani law, a party may be precluded from bringing a claim against a non-contracting party, specifically in commercial transactions involving three parties.  A common example in which this scenario arises is with construction-related contracts – such as when an employer (or project owner) has a contractual relationship with only a main contractor, and a sub-contractor also only has contractual relationship with the same main contractor.  Thus, although the employer and sub-contractor are both involved on the same transaction, they do not have a contractual relationship with one another; rather, both the employer and sub-contractor have mutually exclusive contracts with a third-party intermediary, the main contractor.
In the event that a sub-contractor believes that an employer’s conduct has caused the sub-contractor to sustain damages, the sub-contractor does not have the legal right to bring a claim against the employer under Omani law.  Again, this is irrespective of whether the sub-contractor considers the employer’s ‘harmful’ or ‘wrongful’ acts to be a direct cause for it having sustained losses.  The sub-contractor’s only right of recourse will be against its own contractual counterparty, the main contractor; not the employer.
This principle has been established by case law, most notably by the Supreme Court in Case No 364/1994.  Therein, the Supreme Court stated that the “general principles of independence of privity” precluded a sub-contractor from bringing a direct claim against the employer.  In other words, the lack of a contract between the employer and the sub-contractor meant that the sub-contractor could not bring a direct claim against the employer.
The Supreme Court’s position set out in its 364/1994 decision has also been confirmed by the Civil Code.  Article 645 of the Civil Code provides that “a sub-contractor shall have no claim against the employer for anything due to him from the first contractor…. Thus, a sub-contractor’s right for recourse is limited to claims only against its contractual counterparty, the main contractor.
Recoverable damages against non-contracting third parties
As discussed above, a party will be generally precluded from seeking recompense from a non-contracting party in commercial transactions involving three parties.  However, a party may be able to recover damages from a non-contracting party in scenarios or transactions involving only two parties.
Notwithstanding this, the amount of recoverable damages will be limited to actual, provable losses sustained, together with reasonably foreseeable losses.  Further, a claimant must demonstrate a direct, provable nexus between the losses incurred and the amount of compensation in which he seeks.
In its 65/2003 decision, the Supreme Court stated that all recoverable losses must be ‘direct’ and ‘natural’ arising from the alleged harmful or unlawful act.  Further, Article 181 of the Civil Code states that a party’s compensation for losses arising from a harmful act “shall be assessed on the basis the amount of harm suffered by the aggrieved, together with loss of profit, provided that that is a natural result of the harmful act.

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Tuesday, January 31, 2017

Tanfeedh

At the beginning of January 2016, Sultani Decree 1/2016 was issued approving the Ninth Five-Year Plan (2016-2020), i.e., the last of the Five-Year Plans included in the Government policy named Vision for Oman’s Economy (Oman 2020), which, in due course, will be followed by Vision Oman 2040.

Due to the economic and financial challenges caused by oil price volatility, the National Program for Enhancing Economic Diversification (“Tanfeedh”) was announced as one of the fundamental elements in the Ninth Five-Year Plan. Tanfeedh is an Arabic word that can be translated into English as “execution” (referring to execution of a project or of a plan). The aim of the programme is to accelerate diversification and reduce dependence on the oil and gas sector, both by developing a series of projects in five crucial business sectors and by reforming some aspects of the local legal framework in order to facilitate the establishment and operation of businesses in the private sector.

The five business sectors the Sultanate elected to focus on are manufacturing, transportation and logistics, tourism, fisheries and mining. The two parallel “community and sustainability enablers,” aimed at improving the ease of doing business, relate to finance and the labour market. The Tanfeedh initiatives will initially focus on three of the five business sectors, namely manufacturing, transportation and logistics and tourism, with fisheries and mining projects to be developed at a later stage due also to the need of suitable logistics and transport facilities, particularly in connection with large mining projects.

A comprehensive list of the main projects proposed in the three initial business sectors is available in the official Tanfeedh website at the following link: http://tanfeedh.gov.om/en/overview.php. This article will not focus on the specific projects being implemented but on the proposed changes in the legal framework which should enable the implementation of these and other projects and generally encourage private-sector initiative and foreign investments. The information utilised derives from the documentation outlining the outcome of the Tanfeedh labs, discussion ‘labs’ which formed part of the Tanfeedh process and were attended by approximately two hundred decision-makers from the public and private sectors. The Tanfeedh labs represented the second of the eight steps of the process and were followed by open days, during which the general public was invited to express its opinion on the Tanfeedh proposals.

The two main issues addressed by the research relating to the finance sector were: (a) the need to increase the participation of the private sector in funding large projects; and (b) the best way to improve the business environment and attract investors. In 2016, the Sultanate ranked 70th overall in the Ease of Doing Business Index (The World Bank – Doing Business Report 2016) and such ranking must improve in order to attract foreign investors. The initiatives envisaged in this respect include new legislation on foreign investments, the integration of all Government entities in the ‘Invest Easy Platform’ and the unification of the national investment promotion efforts.

In particular, the new Foreign Capital Investment Law, which, in accordance with the Tanfeedh recommendations, should be issued during the course of 2017, should allow for 100% foreign ownership of companies in Oman, subject to the power of the Ministry of Commerce and Industry to restrict certain business sectors by reasons of national interest.  This, once implemented, will represent a radical change in the Omani business environment. Other measures include the establishment of a Credit Bureau and the integration of all Government entities in one tendering platform, which will allow a full overview of all aspects of public procurement, the latter to be coupled with more incisive intervention in order to increase accountability and transparency.  In this respect, it has been proposed that all Government-owned companies will be subject to the Code of Corporate Governance (the “Code”) issued in 2016.  The Code, for the time being, applies only to publicly listed companies. Finally, Tanfeedh proposes that a number of Government-owned enterprises be privatised and listed on the stock market.

With reference to the labour market and generally to employment, Tanfeedh includes various strategies to create employment opportunities in the private sector and, in particular, the manufacturing, logistics and tourism sectors.  The Tanfeedh reports quote restrictive labour regulations and low productivity of the labour force as two key areas that require improvement.  The keyword appears to be flexibility: part-time work, temporary work and flexible movement of employees (in particular between companies belonging to the same group) are some of the proposed new initiatives.

From an educational point of view, the Government wishes to form a closer relationship between the business environment and the education providers and to improve the quality of the training programmes proposed to the Omani youth.  At the same time, measures shall be taken to attract young Omanis to seek employment in the private sector and to encourage the establishment and operation of small and medium enterprises.

The following has been proposed to assist entrepreneurs and employees alike and to encourage employers, inter alia, to invest on the local workforce:

  • The creation of a specialised and dedicated Labour Court, which should assist in reducing the duration of lengthy and expensive court proceedings.

  • One-window process for obtaining Labour clearances, i.e., the permission to employ a foreign employee in a specified position.  This bureaucratic process involves different Government authorities and can be extremely time-consuming; the proposed new process is aimed at reducing the total time required to five working days.

  • Dedicated Labour Solution Packages for specific sectors such as the construction sector.
The proposed measures arising from the Tanfeedh process do not have force of law; however, many appear to be on track for swift implementation as shown, for instance, by recent articles appearing in the media on the establishment of a dedicated Labour Court.  Certainly, entrepreneurs and investors are looking with great interest at the developments which have the potential to change to a great extent the Omani business environment.

We will provide further updates as to any changes of law or proposals that are implemented throughout the year.


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Monday, January 16, 2017

A Ceiling on the Charging of Interest?


Charging interest on a commercial loan or debt is an important part of any contractual bargain.  For the creditor, the interest charged on a debt encourages quicker repayment by the debtor, and represents the price at which the creditor is willing to lend.  For the debtor, interest charged is important as it is the amount for which he will be liable, in addition to the principal debt.

Omani courts have consistently upheld the payment of interest in commercial cases.  Article 80 of Oman’s Commercial Code (issued by Royal Decree 55/1990) states:

“A creditor shall be entitled to levy interest in consideration of the debtor obtaining a commercial loan or debt.  The interest shall be determined by the agreement of the two parties within such limits as the Ministry of Commerce & Industry shall set in agreement with the Oman Chamber of Commerce & Industry each year, having due regard to the term of the loan, the purposes thereof, and the risks attendant thereon. If the debtor is late in making payment on the due date, the creditor shall be entitled to claim the agreed interest in respect of the period in arrears.”

The Ministry of Commerce and Industry (the “MOCI”) periodically issues a decision on the maximum interest rate chargeable for commercial loans.

Starting from 2001, the limit on the rate of interest set by the MOCI was 10%; thereafter it has been tapered, whereby in 2006 it was set at 9%, in 2008 it was set at 8% and by 2015 it was set at 6.5%.

Ministerial Decision 172/2016 is the most recent decision issued by the MOCI in respect of the maximum interest that can be charged on a commercial debt or commercial loan given by a company that is neither a bank nor a finance and asset-leasing company licensed by the Central Bank of Oman. MD 172/2016 set the maximum interest rate chargeable on commercial loan or debt at 6.5% for a period of one year starting from 20 July 2016.

Thus, as the interest rate in Oman for commercial debts is currently set at 6.5%, any final arbitral award or court decision will likewise apply this rate.

The parties entering into a contract normally agree to a rate of interest chargeable in case of default or delay in payment by one party to the other party as per the contractual terms.

What happens if the contract is silent in respect of the interest rates?

In the event that a contract is silent as to the applicable interest rate regarding a commercial debt or commercial loan, the Omani courts may still award the claim of interest based on the applicable interest rate which is set out by the MOCI’s most recent and applicable Ministerial Decision.  The Omani courts are generally of the view that a claim for interest cannot be denied on the ground that a contract is silent on the subject.

What happens if the parties agree to a higher rate of interest than the rate specified by the Ministerial Decision?

While entering into construction contracts, the parties usually adopt an edition of the Sultanate of Oman’s Standard Conditions. The Standard Documents for Building and Civil Engineering Works – Fourth Edition 1999 sets the rate of interest at 7%.  In general, the Omani courts, or the arbitral tribunal, would award interest at 7% as stipulated in the Standard Documents referred to above (although it is higher than the rate set by the MOCI), unless the parties raise a dispute about the rate of interest in the contract being higher than the rate of interest set by the MOCI.
In the event that litigation is pursued in respect of the rate of interest in a contract being higher than the rate set by the MOCI, the Omani courts would generally uphold those contractual terms each party had agreed to, including the rate of interest.  However, the Omani courts’ interpretation of the issue of the contractual interest rate being higher than the interest rate set by the MOCI is still not clear and will depend on the merits of each case.

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