The Civil Transactions Law (the “Code”), enacted pursuant to Royal Decree 29 of 2013, and having come into force in Oman on August 13, 2013, is a codification of Omani (and to some degree Egyptian) jurisprudence, as developed over past decades. The Code contains a section on “Muqawala” (a contract to make a thing, or perform a task) which impacts directly on construction activities in Oman and is the focus of this article.
Application of the Code
The Code generally applies as follows:
- The Code is not retrospective. It does not amend or take precedence over existing laws. The Code applies where there is not already an existing specific law.
- Parties cannot “contract out” of these provisions and, therefore, all those operating in the construction industry must comply with the 25 construction-related Articles as set out in the Code.
- Parties are entitled to rely on agreed contractual terms, as long as those terms are not contrary to public order or decency, and do not conflict with mandatory laws.
- The application of Omani law will be determined by the Courts’ implementation of the Code, taking into account existing legislation (and to some degree, Supreme Court principles).
If notice of a claim or entitlement is not issued, a party may lose the right to enforce contractual rights (i.e., variations/increase in unit rates). Early notice therefore should be given.
Although not a specific Muqawala provision, Article 258 (1) contains a very significant new remedy in Oman which is the specific performance of contractual obligations. Previously, a claimant’s remedy for breach of contract was primarily limited to damages. Now a claimant may seek an order requiring a contract party to perform its contractual obligations.
However, we have yet to see if, and in what circumstances, the Courts will order specific performance. We note that Article 258 (2) illustrates that specific performance is a discretionary remedy, as it states that the Court may impose monetary damages in place of specific performance if in the circumstances specific performance would be “overly oppressive for the debtor.”
Force Majeure is the occurrence of unforeseeable events, outside of a contracting party’s control, which prevent the performance of a contract, and justify relieving that party from its contractual obligations.
Although Force Majeure has long been observed by the Omani Courts, Article 172 (1) of the Code now provides a legislative basis for this remedy. It is noted, and suggested appropriate, that the Code does not attempt to define what events constitute Force Majeure, but instead leaves this for the contract parties to determine.
The Muqawala provision usually of greatest concern to the construction industry (especially those new to the region) is “decennial liability.”
Article 634 of the Civil Code imposes strict and joint liability on the contractor and supervising architect/engineer for 10 years from “delivery” of the project work.
These provisions are already found and mirrored in the Engineering Consultancy Law. The Code clarifies that:
- this provision applies to all supervising designers/engineers and contractors;
- the parties cannot contract out of or limit the decennial liability provisions; and
- a claim is time barred three years after defect or discovery thereof. It should be noted that the decennial liability provisions, unlike the common law on limitation, make no reference to when defects will be deemed to have been discovered. “Discovery” in this context will likely mean actual discovery.
The Code also implies that if a defect or collapse occurs just prior to the expiry of the then-year period, an owner would still have three years to bring a claim.
Clearly, the parties should consider insurance and allocation of risk carefully, and take legal advice to ensure the maximum protection within the Code and existing law.
Retention of Property
Article 633 provides that if a contractor’s work produces a benefit to the property, the contractor may retain it until the compensation due is paid. Currently it is unclear how the Courts will enforce or give effect to this provision; however, we can see it being a useful tool in negotiations for release of payment. The UAE Civil Code contains a similar provision, and we are not aware of it being enforced by the Courts.
Although not a Muqawala provision, Article 267 specifically deals with the position as regards liquidated damages, and is relevant to construction:
Article 267 states that “… the contracting parties may determine an amount of compensation in advance by making provision for the same in the contract… In all cases, the court may, upon the application of either of the parties, amend such agreement to make the compensation equal to the damage, and any agreement to the contrary shall be null and void.”
Accordingly, Article 267 gives greater certainty to the generally accepted position that, if provided for by the contract, the Omani Courts may award liquidated damages, provided they are a reasonable assessment of the financial damages actually sustained by a party.
Importantly, it also clarifies that the Courts are specifically permitted to re-open liquidated damages clauses, and award increased/decreased damages commensurate with the value of the actual damage incurred.
Article 267 above mirrors the equivalent provision in the UAE Civil Code (Art 390 (2)). In the UAE, the Courts have also been prepared to increase or decrease the amount of contractual liquidated damages to reflect the actual loss sustained.
Article 647 is a controversial provision as it is at odds with specific provisions contained in many “standard forms” of contract. It provides that if any cause arises which prevents performance of the contract or completion thereof, either party may require that the contract be cancelled or terminated. We consider that the Courts will look closely at the contract wording and facts leading to any termination when assessing whether termination was lawful. Obviously, termination is normally a “lose/lose” proposition, and early legal advice should be taken.
Although the Muqawala provisions comprise only 25 of the Code’s 1086 Articles, they can be seen as being of assistance to the construction industry, whilst allowing the parties to continue to set the parameters of their respective rights, obligations and liabilities.
It is helpful that approximately one third of the Code mirrors corresponding Articles in the UAE Code, as contract parties may find guidance from UAE Court decisions. In addition, the Oman Courts may be prepared to apply or consider UAE decisions when interpreting the Code. The fact remains, however, that many construction disputes are resolved in Arbitration, a confidential form of dispute resolution, and so it will likely prove difficult to determine how the Code’s Muqawala provisions are being implemented.