Saturday, October 30, 2010

Focus on Litigation: The Importance of Specifying Your Counter-Party’s Physical Address

Much of the disputes process is centered on the usual elements of litigation: cogent legal arguments, meticulous gathering of evidence, and navigation of complex procedural requirements. Yet even after many years of practicing law in Oman, we are often reminded of how the actual day-to-day progress of a matter can turn on the most mundane of details – for example, ascertaining the physical addresses of the parties.

With the great urgency often surrounding the litigation process, such as filing a case or an injunction application with the Omani Courts, one small detail that sometimes gets lost in the shuffle – namely, omission of the actual physical addresses of the parties to the dispute – can inject considerable delay into the overall process.

The Omani Courts now require very exact information about the physical address of each party to a case. (If the party is a company with multiple physical addresses, the physical address of the company’s head office must be specified; if the party is an individual with multiple residences, the physical address of the individual’s primary residence must be specified.) A high level of detail is often required. It is, perhaps strangely, not enough to state that company X’s head office is in building Y. The Courts require us to state the exact floor of the building, the building number, and the way/street number, together with any nearby landmarks. If these details are not provided, the court will not allow the case to move forward.

Accordingly, it is very important for parties to know the exact physical address details of the entities in Oman with whom they do business. When doing transactions, one often knows only the other party’s postal address (typically a P.O. box). In Omani litigation, however, it is the physical address information which is of paramount importance. Whilst we can often help in finding out a physical address, it is prudent for companies to ascertain such information right at the beginning of their commercial relationship with a counter-party.

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Monday, October 25, 2010

Focus on Corporate Law: Personal Debts of Members of Commercial Companies

Many companies have a joint ownership structure. Indeed, many types of commercial companies – for example, limited liability companies or joint stock companies – are required by law to have multiple shareholders. However, joint ownership can make matters complicated when an individual shareholder of the company, whose assets include his interest in the company, is pursued by a creditor for personal debts (let us call this creditor the “personal creditor”).

The personal creditor will wish to access any of the shareholder’s assets that it can in order to claim payment of the member’s debts. However, if the personal creditor were able to withdraw the shareholder’s share of a company’s capital, this reduction in the company’s capital could adversely affect the company and its remaining shareholders. Likewise, if the creditor were able to accede to the shareholder’s interest in the company and become a shareholder in the company without the consent of the company’s remaining shareholders, this could adversely affect those other shareholders. Particularly in a privately held company (as opposed to a publicly traded joint-stock company), many shareholders are active in the company’s affairs – voting on key decisions; serving on the board and committees; even participating in day-to-day management – and are very selective about who they want to work with as fellow shareholders.

Fortunately, the Commercial Companies Law does prescribe rules for dealing with these types of issues. The statute provides that:

  • A personal creditor may not claim the shareholder’s share in the company’s capital as payment of the shareholder’s debt; however, upon dissolution of the company, the personal creditor may claim as payment the shareholder’s share of the company’s assets remaining after settlement of the company’s liabilities.
  • When the shareholder’s interest is in a company other than a joint stock company, a personal creditor may claim payment of the shareholder’s debt out of the shareholder’s share in the company’s profits.
  • When the shareholder’s interest is in a joint stock company, a personal creditor may claim payment only out of the shareholder’s share of the declared dividends; however, the personal creditor may also – subject to the company’s articles of association and applicable law – require the public sale of the shareholder’s shares and claim payment of the debt from the proceeds of this share sale.
In addition to these statutory requirements, companies can impose additional requirements – e.g., via the company’s commercial contract or a shareholders’ agreement – to govern such matters as shareholder composition and capital withdraw.

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Monday, October 18, 2010

Super-Majority Voting Requirements

Under the Commercial Companies Law, a number of corporate actions require approval by a “super-majority” vote – for example, 75% – of the company’s shareholders. (Similarly, some corporate actions require a unanimous vote of the company’s shareholders.)

Super-majority voting requirements can play an important role in protecting the rights of the company’s minority shareholders. Moreover, super-majority requirements can also help to promote the long-term stability of the company and harmony among its shareholders, by ensuring that the key corporate decisions are undertaken only with a larger consensus.

Our article on minority shareholder rights (September 3, 2010) discussed a number of corporate actions for which the Commercial Companies Law mandates super-majority or unanimous shareholder votes. However, there are a number of other important matters which, unless specified in a company’s charter or in a shareholders’ agreement, would be subject to a simple majority vote. Such key areas and actions, for which a company may wish to enshrine super-majority (or unanimous) voting requirements in its charter or in a shareholders’ agreement, include the following:

  • approval of the business plan and annual budget;
  • merger or acquisition transactions;
  • sale or purchase of assets that are material to the business;
  • investments in other companies;
  • commencement or settlement of legal actions;
  • related-party transactions; and
  • appropriate distribution of the company’s profits and bonus payments.
We note that while super-majority voting requirements, when prudently used, can promote minority shareholder rights and the stable and harmonious operation of the company, the injudicious or excessive use of super-majority voting requirements can potentially stymie the company’s ability to act nimbly and cause gridlock. We therefore recommend that you consult with legal advisors to help carefully craft the voting requirements in your company’s charter or shareholders’ agreement.

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Monday, October 11, 2010

Focus on Labor Law: Fixed-Term Employment Contracts

For most companies, entering into contracts that are well drafted and carefully negotiated is key to carrying out their business smoothly and successfully. Often, some of a company’s most important contracts are those with its own employees.

Employment contracts can be of indefinite duration or for a fixed term. As this article discusses, while employment contracts are typically of indefinite duration, fixed-term contracts can offer companies distinct advantages in some cases.

Employment Contracts of Indefinite Duration

In the Sultanate of Oman, as in other countries, employment contracts are typically entered into for an indefinite duration. This embodies the company’s and the employee’s shared good-faith intention to form a lasting relationship in which the employee is committed to the company, and the company is committed to the employee for the long term.

The difficulty for the company can be that, if the employment relationship sours or the economic viability of the business turns down, terminating an employee may often require more than simply providing the required notice. (The Omani Labor Law specifies that the notice period shall be a minimum of 30 days for workers employed on a monthly basis, or a minimum of 15 days for all other workers. The Labor Law further provides that if an employment contract specifies a longer notice period than the statutory minimum, the longer notice period specified in the contract shall apply). Beyond giving the required notice, companies may often find themselves facing unfair dismissal suits by the terminated employee.

There are a number of ways that the company can successfully defend against an unfair dismissal suit. If the employee has committed acts considered by the Omani Labor Law to be gross misconduct acts – including using a false identity, intoxication or assault at the workplace, or heavy absenteeism – the company may terminate the employee without having to pay damages (indeed, the Omani Labor Law provides that in the specified cases the company need not provide notice or pay end-of-service gratuity either). Furthermore, companies often succeed in defending against unfair dismissal claims by arguing that lay-offs in a money-losing division were economically necessary.

However, notwithstanding the foregoing, Omani courts are generally inclined to be highly protective of employees. And whether they would ultimately win or lose, most companies try to minimize the risk of unfair dismissal suits being brought against them in the first place. One way to mitigate this risk is by using fixed-term contracts.

Fixed-Term Employment Contracts

The Omani Labor Law allows for employment contracts to be for a fixed rather than unlimited duration, and explicitly provides that fixed-term contracts shall be effective, stating “The contract of work shall terminate [upon] … the expiry of its period or completion of the work agreed upon.” The Omani courts, in turn, are generally very respectful of fixed-term employment contracts. While the courts often hear unfair dismissal cases brought by employees whose contract of indefinite duration was terminated, the courts are unlikely to countenance unfair dismissal claims by employees who were asked to leave the company upon the expiration of their fixed-term contracts. Although the Omani Labor Law in general favors employees, its respect for fixed-term arrangements is one of the areas where the law is protective of employers.

Although they can be used in a variety of circumstances, fixed-term contracts are naturally most useful for hiring employees that will be working on a single, discrete project with a well-defined timeframe. Fixed-term contracts may also be especially useful to foreign companies that only plan to operate in Oman for a limited period of time. By lowering the risk of unfair dismissal claims, fixed-term contracts could help to protect against overhanging liabilities that could interfere with the company’s plans to smoothly conclude its affairs in the Sultanate.

There are subtle but important nuances to the Omani Labor Law, such as the requirement that a fixed-term employment relationship must be severed at the expiration of its term, lest a continuing relationship be deemed by the Labor Law to constitute a renewal of the employment contract for an indefinite period. In light of these complexities, we recommend that you consult with legal advisors in drafting your employment contracts, particularly for senior-level employees; employment contracts are truly a field where “an ounce of prevention is worth a pound of cure.”

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Tuesday, October 5, 2010

Jeremy Miocevic Joins Curtis as Corporate Partner in Dubai

Curtis, Mallet-Prevost, Colt & Mosle LLP has announced that Jeremy Miocevic has joined the international law firm as a partner in its Dubai office.

Mr. Miocevic's practice focuses on mergers and acquisitions, private equity, international funds, and general corporate advisory and structuring.

“The addition of Jeremy Miocevic as a partner strengthens Curtis’ position in Dubai and the Middle East,” said Peter F. Stewart, Managing Partner of Curtis in Dubai. “Jeremy’s strong client relationships, both in the region and in specific sectors, will bolster Curtis' ability to help clients in the UAE and throughout the GCC region.”

Mr. Miocevic is moving to Curtis from a prominent UAE law firm, where he was involved in a wide range of local and regional M&A and private equity transactions and advised a number of clients on structuring, establishing and marketing private equity, real estate or other targeted investment funds.

Mr. Miocevic has counseled some of the largest investment banks and private equity firms in the United Arab Emirates, as well as multinational and regional companies. His work covers deals both inside the UAE as well as cross-border transactions within the GCC, Middle East and Africa.

Mr. Miocevic advises the full range of industry sectors, with particular experience in logistics and supply chain management, water treatment, food and beverage, media and publishing, financial services, and retail. He brings to Curtis more than four years of experience practicing in the UAE where he has a strong knowledge of local laws and regulations relating to his areas of practice.

He also previously served as group legal counsel for Ricardo Plc, a global automotive engineering consultancy. Prior to that, Jeremy was Sole Counsel at Kinsford Development Ltd., a UK-owned boutique venture capital company. He also has been a corporate and commercial solicitor at Allens Arthur Robinson, one of Australia’s largest law firms, where he was a member of the M&A team.

Mr. Miocevic received his B.A. in philosophy and his LL.B. with honors from the University of Auckland, New Zealand. He was admitted to the Bar as a barrister and solicitor of the High Court of New Zealand in 1999 and subsequently admitted as a barrister and solicitor of the Supreme Court of Victoria, Australia in 2001.

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International Law Update: UK Bribery Act Signals Increase in Anti-Corruption Clauses

Anti-corruption clauses in commercial contracts and other agreements have become commonplace in international transactions involving a US entity, due to the US Foreign Corrupt Practices Act (FCPA). Recently, the UK passed the Bribery Act, which is even broader in scope than the FCPA in a number of respects. With the Bribery Act expected to come into force in April 2011, we expect anti-corruption clauses to become even more widespread in international commercial contracts and other agreements.

Omani companies that carry out international business are already accustomed to seeing anti-corruption clauses in their contracts with US entities. With the passage of the Bribery Act, Omani companies can expect to also see anti-corruption clauses – and perhaps fuller-bodied ones – in their contracts with UK entities.

An anti-corruption clause could include the following wording:

The Contractor shall not:

(a) offer or agree to give any person working for or engaged by the Company any gift or other consideration, which could act as an inducement or a reward for any act or failure to act connected to this Agreement, or any other agreement between the Contractor and the Company, including its award to the Contractor and any of the rights and obligations contained within it; nor

(b) enter into this Agreement if it has knowledge that, in connection with it, any money has been, or will be, paid to any person working for or engaged by the Company by or for the Contractor, or that an agreement has been reached to that effect, unless details of any such arrangement have been disclosed in writing to the Company before execution of this Agreement.

The Bribery Act sets out four offences, namely:

  1. offering, promising or giving a bribe to another person to perform improperly a relevant function or activity, or to reward a person for the improper performance of such a function or activity (an active offence);
  2. requesting, agreeing to receive or accepting a bribe to perform a function or activity improperly (a passive offence);
  3. bribing a foreign public official; and
  4. failure of a commercial organisation to prevent bribery.
The Bribery Act applies to all commercial organisations that are registered in the UK or that have any operations in the UK. The Bribery Act also has extensive extra-territorial application – there are no territorial limits imposed in relation to the prosecution of UK companies, partnerships, citizens or residents, and non-UK persons can be prosecuted for offences of bribery where any part of the offence takes place in the UK.

The standards for determining bribery in relation to the first two offences listed above are based on what a reasonable person in the UK would expect in relation to the performance of the relevant function or activity. If such functions or activities are not subject to UK laws, local customs and practices will be disregarded when deciding what a reasonable person in the UK would expect unless such customs or practices are specifically permitted or required by the relevant local law. Unlike in the FCPA, there is no exception for small facilitation payments paid to officials to smooth official actions.

In relation to the offence of failing to prevent bribery, a commercial organisation will be guilty of this offence if it fails to prevent an “associated” person from bribing another person with the intention of obtaining business, or an advantage in the conduct of business, for that commercial organisation. This is a strict liability offence and applies to any UK-incorporated entity as well as to any company which carries on business in the UK.

A person is considered to be “associated” with a commercial organisation if that person performs services for or on behalf of that organization (e.g., employees, agents or subsidiaries). The associated person does not need to have any connection to the UK for its actions to be covered by the Bribery Act.

Under the Bribery Act, a commercial organisation would have a defence to prosecution if it can show that it has in place “adequate procedures” designed to prevent bribery. The practical effect of this new offence is that all businesses will be well advised to have (i) a clear and comprehensive anti-bribery policy; (ii) clear policies on corporate gifts and hospitality; (iii) regular training and updates for employees at all levels on anti-corruption measures; and (iv) anti-corruption clauses in all of their commercial contracts. These measures are likely to be critical for a commercial organisation seeking to use the “adequate procedures” defence, however, the actual measures will need to be tailored to each commercial organisation, taking into consideration the nature of the business, the size of the organisation and the degree to which it operates in high-risk markets.

The UK Ministry of Justice has recently published its consultation on the meaning of “adequate procedures,” which highlights six high-level general principles: risk assessment; top level commitment; due diligence; clear, practical and accessible policies and procedures; effective implementation; and monitoring and review. The Ministry of Justice has highlighted in the consultation that the guidance is not prescriptive or exhaustive and it envisages a risk-based compliance regime.

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Monday, October 4, 2010

Mary Allan Joins Curtis as Infrastructure Partner in Muscat

International law firm Curtis, Mallet-Prevost, Colt & Mosle LLP has enhanced its Infrastructure practice by adding Mary Allan as a partner based in Muscat, Oman.

Ms. Allan comes to Curtis from the Oman office of Denton Wilde Sapte, where she was head of infrastructure/projects. She has focused her work on projects in utilities and general mandate work for energy clients in utilities and the energy sectors. She has done much of her work on behalf of governments, particularly regarding regulatory issues for new power and water projects.

Ms. Allan has spent almost her entire career within the Middle East. She has been based most of the time in Muscat. She was in the Oman capital first from 1996 until 2002 and then, after a four-year stint in Denton’s Dubai office, she returned to Muscat in 2006 where she has been ever since.

“Mary Allan is well-connected within the Middle East and has represented a number of major clients in the energy and infrastructure sectors,” said Bruce Palmer, managing partner of Curtis’ Muscat office. “Her experience in Oman and across the GCC region will enable Curtis to establish itself further as one of the area’s leading international law firms.”

Ms. Allan has been recognized as one of the top practitioners in Projects and Energy by Chambers & Partners Global Directories which quoted sources praising her "excellent experience in the projects area" and by Legal 500 which called her “an excellent lawyer, extremely good in relation to project work and knowledge of the Oman legal system.”

The Curtis Infrastructure Development practice handles a broad range of domestic and international transactions, including some of the world's largest and best known project finance transactions and projects in the international petroleum and power industries. Our lawyers counsel infrastructure clients on the full range of corporate, financial and regulatory issues they face, representing project sponsors, investors, lenders, developers and state entities operating in a wide array of industries. The firm has particular expertise within the Energy sector, covering every segment of the industry – power plants, oil and gas exploration and development, refineries, substations, greenfield facilities, terminals, tankers, pipelines, transmission lines and mining – and spanning the generation, transmission and distribution aspects of electric energy development, regulation and financing.

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Judges' Verdict

The following article by Curtis partner James Harbridge appeared in the October 3, 2010 Muscat Daily newspaper.

Judges' Verdict

The issue of interest on late payments often causes problems in Oman.

An interesting judgment on this topic was made by the Omani Supreme Court on 29 March 2006.

The facts of the dispute related to a 2002 rock blasting contract. The Claimant performed the services and the Defendant failed to pay. The contract between the parties was absolutely silent on the subject of interest on late payments.

The Claimant filed a court case in March 2003, and requested the principal sum owing - plus interest at 10% per annum.

The Primary Court ordered the Defendant to pay the principal sum, but rejected the claim for interest.

The Claimant appealed to the Appeal Court, as he wanted to obtain the interest he had claimed.

But the Appeal Court ruled against him, and upheld the validity of the Primary Court's ruling.

The matter moved to the Supreme Court. The Claimant argued that, as a matter of public policy, interest should always be applied to late payments. However, the Defendant said no interest should be payable, as the parties' contract did not grant any right to claim interest.

The Claimant also relied on:

Ministerial Decision 151/2002 which stated that the interest on commercial loans - other than for loans granted by CBO-licensed entities - would be 10% per annum, unless a lower rate had been agreed; and

Article 80 of Oman's Commercial Code, which states that a creditor is entitled to levy interest on a commercial debt.

The Supreme Court ruled that the Claimant was entitled to interest at 10% per annum, and that interest was definitely applicable even in the absence of an agreement on the point.

This judgment is an important one, as it shows that a claim for interest cannot be denied on the grounds that a contract is silent on the subject.

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