Monday, August 19, 2019

Latent Defects in Omani Construction Contracts

In Justin Sweet’s authoritative work Defects, the term “defect” is defined as “a failure of the completed project to satisfy the express or implied quality or quantity obligations of a construction contract.”

The question of whether a defect is patent or latent is determined objectively.  A latent defect is one that would not be apparent in the course of a reasonable inspection.  A particular defect may be latent to the casual observer, but patent to a construction professional, such as an architect or engineer.  In a commercial context, there are cases that suggest that a defect is patent if it is reasonably discoverable with the benefit of such skilled third-party advice.

The Omani perspective 

The Fédération Internationale des Ingénieurs-Conseils (FIDIC) Conditions of Contract for Construction, more commonly known as the FIDIC Red Book, is commonly used for building and engineering works designed by the employer in Oman.  (This article references the 1999 first edition.)

The provisions in the Red Book dealing with latent defects are generally consistent with the position under Omani law, essentially that contractors may be liable for latent defects discovered after the performance certificate has been issued by the employer.

Many of those familiar with the construction industry in the Middle East region will be familiar with the term “decennial liability.”  In particular, many will be familiar with a requirement that, in relation to works performed under a construction contract, a contractor and an architect remain legally liable for a period of 10 years after the completion of the works.

A number of countries in the Middle East have similar legal provisions in that regard.  Generally, neither a contractor nor an architect can contract out of the liability.  The liability is a form of strict liability.  There are some differences of opinion among the legal profession as to what extent (if any) a claimant needs to prove fault or causation against a contractor or architect, but it is clear that there is no obligation on a claimant to prove negligence, or a failure to achieve an industry standard, etc.  To put it another way, there is no requirement to demonstrate the contractor or architect was “negligent,” but there are some differing views as to what extent (if any) there is a need to show that some action or inaction by the contractor or architect caused or contributed to the loss and damage.

In most parts of the Middle East, where there is a law imposing decennial liability, it only applies where the relevant structure has collapsed or suffers a major structural defect.  The law in Oman is far more extensive.  The relevant provisions of Sultani Decree 29/2013 (the “Civil Code”) are typical of what might be found in other jurisdictions in the Middle East, in that liability is limited to total or partial collapse, and defects affecting the stability or safety of the works.

However, the Engineering Consultancy Law promulgated by Sultani Decree 27/2016 (the “Engineering Consultancy Law”) provides that decennial liability extends to any defect, not just defects leading to collapse or those affecting stability or safety.  This would suggest that the contractor and the engineer remain liable for ten years for even minor defects.

In summary, decennial liability is broader in Oman than elsewhere in the Middle East, and can cover defects, both patent and latent, that are neither structural nor safety-related.  It is important that, when drafting contracts, contractors and consultants consider how best to allocate risk and protect themselves from claims.  It is also critical that parties to construction contracts keep good records to protect themselves from such claims, including photographs of works, and any relevant warranties given by manufacturers and suppliers.

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Monday, August 12, 2019

New Foreign Capital Investment Law

His Majesty Sultan Qaboos issued Sultani Decree 50/2019 on 1 July 2019, issuing the much-awaited new Foreign Capital Investment Law (the “New FCIL”) that replaced the earlier Foreign Capital Investment Law issued by Sultani Decree 102/1994 (the “Old FCIL”).  The development of the New FCIL took over four years and involved assistance from the World Bank.  During the course of the development of the New FCIL, the comments and input from various stakeholders, and consultation sessions, were organised by the Ministry of Commerce and Industry (the “MOCI”).  The New FCIL comes into force six months after the date of its publication in Official Gazette issue 1300 on 7 July 2019.

Under the Old FCIL regime, foreigners could not undertake commercial activity in Oman unless they had a formal presence by way of a legal entity or an agent.  A legal entity would take the shape of either a commercial company under the Commercial Companies Law or a branch of a foreign company.

While foreigners could register a local commercial entity under the provisions of the Old FCIL and the Commercial Companies Law, their ability to establish a wholly owned commercial company was restricted.  Under the provisions of the Old FCIL, a foreigner could establish a commercial company in Oman, subject to a restriction on maximum foreign ownership in the share capital of the commercial company.  This restriction initially allowed up to a maximum foreign ownership of 49%.  Upon Oman’s accession to the World Trade Organisation (the “WTO”), this restriction was relaxed to a maximum of 70% of the share capital of a commercial company.  As an exception to the Old FCIL, complete foreign ownership was permitted in some exceptional circumstances.  The exceptions were as follows:

(i) establishment in one of the Free Zones;
(ii) establishment under the Gulf Co-operation Council (the “GCC Treaty”);
(iii) establishment under the one of the free trade agreements (“FTA”) ratified and in force in Oman; and
(iv) special projects (with a minimum capital of OMR 500,000) which contribute to the development of the national economy as approved by committee for foreign investment following a recommendation from the MOCI under the provisions set out in the Old FCIL.

The New FCIL removes the requirement for having an Omani partner and shareholding restrictions on foreigners, thereby effectively permitting wholly owned non-Omani companies.

Under the New FCIL, all benefits, incentives and guarantees granted to foreign investment projects under the Old FCIL shall continue until such time that those benefits expire.  The New FCIL is promulgated without prejudice to the regimes pertaining to GCC investment, the Special Economic Zone at Duqm, the Public Establishment for Industrial Estates and the Free Zones.  Article 3 prohibits foreigners from practicing investment activities in Oman save in accordance with the provisions of the New FCIL.  It further provides that foreign investment projects will be subject to the laws of Oman and subject to any international treaty in force in Oman in relation to investment and double taxation.  It appears that FTAs entered into by Oman will continue to be implemented in their usual course.

The New FCIL provides for establishment of an Investment Service Centre (the “Centre”) at the MOCI.  The Centre will be responsible for licensing and easing the procedures relating to grant of licences, permits and other consents required for an investment project.  The Centre will also be responsible for issuing foreign investment licences to foreign investors.  While the Old FCIL also provided for grant of a licence for foreign investment, in recent practice that licence was not issued separately and was considered deemed to have been granted with the company registration documents.

Article 7 of the New FCIL states that foreign investors will be required to abide by the timetables provided by them for the execution of the project and approved in accordance with the economic feasibility study.  It also restricts foreign investors from making substantial amendments to the project without the MOCI’s approval.  It appears that under the New FCIL the foreign investors will be required to submit a business plan.  We expect this to be similar to, although more detailed than, the foreign investment application form that the MOCI introduced few years ago.

In addition, the New FCIL provides that the Cabinet may grant a single approval based on a recommendation of the Minister of Commerce and Industry to establish, operate and manage strategic projects.  This approval will be effective on its own without the need for further procedures.  It appears that once the Cabinet’s single approval is granted as an umbrella approval, then the other project approvals from different governmental entities and authorities would not be required.  What this would entail in practice and how different it would be from the other approvals mentioned in the New FCIL is yet to be seen.

While the New FCIL is substantially different from the Old FCIL, there are a number of similarities.  Article 6 of the New FCIL provides that foreign investment projects may be carried out by an establishment or a company established under the law.  Furthermore, Article 14 provides for a negative list of activities, in other words activities that are not open to foreign investment.  The MOCI maintains a list a foreign investment negative list on the basis of the Old FCIL and following reservations made in its accession to the WTO.  Until such time that a new negative list is published we expect that the negative list currently implemented will continue in effect.

The executive regulations of the New FCIL are to be issued within six months of its effective date.  Until such time, the regulations under the Old FCIL will continue to the extent that they do not contradict the New FCIL.


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Friday, August 9, 2019

In the Pipeline - July 2019


The Foreign Capital Investment Law is promulgated by Sultani Decree 50/2019. It aims to boost and promote foreign capital investments in the Sultanate by expanding investment sectors. The Executive Regulations and implementing decisions shall be issued within six months. Sultani Decree 102/94 and any legislation that contradicts the new law shall be repealed. The Sultani Decree is to be published in the Official Gazette and implemented six months from the date of publication.

The Privatization Law is promulgated by Sultani Decree 51/2019. The law sets out procedures for the privatisation of government facilities so as to expand the role of the private sector. The former privatization Law, Sultani Decree 77/2004, and any legislation that contradicts the new law will be repealed. The Sultani Decree is to be published in the Official Gazette and implemented the day following the date of publication.

Sultani Decree 52/2019 promulgates the Law on Partnership between Public and Private Sector. The law encourages investments by the private sector in the public sector in order to encourage a diverse range of national income sources. Any legislation that contradicts the new law will be repealed. The Sultani Decree is to be published in the Official Gazette and implemented the day following the date of publication.

The objective of the Bankruptcy Law, Sultani Decree 53/2019, is to support businesses in resuming their economic activity while in distress by restructuring the business. Book Five of the Law of Commerce and any legislation that contradicts the new law will be repealed. The Sultani Decree is to be published in the Official Gazette and implemented one year after the date of publication.

The Public Authority for Privatization and Partnership and its system of governance has been established by Sultani Decree 54/2019. The newly established public authority will have a legal identity that will enjoy administrative and financial autonomy. All employees and assets of the Oman Authority of Partnership for Development and the Department of Privatization at the Directorate General under the Ministry of Finance shall be allocated and transferred to the new Public Authority.
Sultani Decree 9/2014 and any legislation that contradicts the new law shall be repealed. The Sultani Decree is to be published in the Official Gazette and implemented from the date of issuance.

Please contact us if you would like more detailed advice on the above.

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Monday, July 22, 2019

Oman Rolls Out Unified Health Insurance Policy - or 'Dhamani'

In March 2019, the Capital Markets Authority (“CMA”) introduced the Unified Health Insurance Policy (“UHIP”), also known as Dhamani, as part of the mandatory health insurance plans being rolled out by the government for expatriate and local workers employed in the private sector.

Under the policy, all persons employed by the private sector in Oman, as well as all visitors to the country, will be required to obtain health insurance through providers authorised by the CMA.  The policy will also provide coverage to the spouses of employees in the private sector, as well as to their children under the age of 21.  The policy does not apply to public sector employees and is distinct from the social health insurance currently in place which is partially or entirely funded by the government.  The premiums in respect of insurance coverage for private sector employees will be payable by their employers.  It is anticipated that health insurance coverage in the private sector will increase from around 470,000 workers to more than 2 million workers.  Domestic workers who are currently not usually provided with insurance coverage by their employers will mandatorily be covered under the provisions of the UHIP.

UHIP sets forth a minimum level of benefits that the insurance policy must provide, including doctors’ fees, diagnostic services, ambulatory services, and emergency services, but will not include treatment in connection with pre-existing conditions, self-inflicted injuries, drug or alcohol abuse, sexually transmitted diseases, or use of alternative medicine or therapies.  Medical treatment in connection with pregnancy and childbirth will not mandatorily be covered under the UHIP and will be left to the discretion of employers.

Under the terms of the policy, the maximum coverage in respect of inpatient treatment shall be OMR 3,000, which will include hospital stay, treatment, medicines, etc.  The maximum coverage in connection with outpatient treatment will be OMR 500, which will include the cost of consultation, diagnostics, medicines and laboratory fees.  The maximum amount payable in connection with the repatriation of a deceased expatriate’s remains will be OMR 1,000.

The CMA is currently in the process preparing the necessary regulations and legislation to implement the policy.  The CMA has indicated that the implementation of the UHIP will take place gradually over 2019 and 2020 and will be determined in accordance with the classification of the private sector companies, with the larger local companies and international companies being expected to comply with the policy initially, with smaller companies being required to comply at a later stage.

In connection with the implementation of the UHIP, the CMA announced a tender in April 2019 in connection with the creation of an electronic platform to enable the efficient rollout of the UHIP by conducting health insurance transactions online between insurance companies, private health service providers, third-party administrators, and the relevant regulators.


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Monday, July 15, 2019

What are the Likely Consequences of GDPR for Companies in Oman?

The EU’s General Data Protection Regulation (“GDPR”) replaces the Data Protection Directive 95/46/EC and is designed to safeguard people’s personal information by harmonising data privacy laws across the EU.

As of 25 May 2018, individuals now have the right to demand that a company reveals or deletes personal data that the company holds about them.  Regulators now have powers to enforce their decisions with penalties.

The GDPR also addresses the export of personal data outside the EU.  Even entities operating beyond the EU, such as those in Oman, could be affected.

The GDPR applies to personal data, including names, addresses, emails, etc. and also IP addresses.  Most companies of whatever description are likely to have databases of personal information relating to clients, employees, and suppliers - all of which information will potentially be covered by the GDPR.

The GDPR would apply to a company operating in Oman if the company:

(a) has a branch, subsidiary or any representative in the EU;

(b) offers any goods or services to persons located in the EU; and/or

(c) monitors the online behaviour of persons located in the EU.

The GDPR sets out how companies must deal with the data they collect.  Breaches of data confidentiality must be disclosed within 72 hours of discovery of the breach.  Sensitive data cannot be used by organisations when deciding on a course of action.  Sending out mass marketing emails to people that have not actively subscribed to receive them is also not permitted.

An organisation that violates the rules could face fines of up to 4% of their global annual revenue or €20 million (approximately OMR 8.77 million), whichever is greater.

Companies that may fall within the ambit of the GDPR should review their policies in relation to:

(a) protecting and managing personal data;

(b) reporting breach incidents within 72 hours; and

(c) determining who will take the lead role in data protection and privacy - the executive
management, the board, the chief information security officer or a data protection officer.

Companies that might be affected should:

(a) establish transparent and easily accessible privacy and data protection policies and procedures;

(b) review and update all existing contracts with data processors and customers to provide for more stringent data protection and consent clauses;

(c) create a framework for accountability by monitoring, reviewing and assessing data processing activities;

(d) evaluate insurance policies to ensure the company is adequately protected in the event of a data breach;

(e) conduct internal training sessions to ensure employee compliance with the new data protection obligations; and

(f) consider whether the employment of a data protection officer is required.

It will be important for businesses in Oman to assess all personal data processing activities.  This should include an audit of any activities likely to involve the processing of personal data relating to individuals in the EU, including information that indirectly identifies such individuals (such as IP addresses or customer reference numbers).


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Monday, July 8, 2019

Establishment of Companies by Sultani Decree

Typically, commercial companies in Oman are incorporated in accordance with, and governed by, the provisions of Sultani Decree 18/2019, promulgating the Commercial Companies Law (the “CCL”).

However, under the provisions of Sultani Decree 33/1974 concerning Companies Established by Sultani Decree, companies may be established by a Sultani Decree.  Establishing a company by Sultani Decree is most often required when a company is established by a governmental body to acquire public or exclusive functions.  These functions typically relate to a specific activity or economic/business sector and, up to the establishment of the company, form part of the competences of a ministry or other government entity.  Usually, a simultaneous and separate Sultani Decree is issued amending the list of competences of such ministry or public authority by deleting the matters delegated to the new company.  An outline of the main provisions in respect of the establishment of a company by Sultani Decree is set out below:


  • The entity proposing the establishment of the company must submit to His Majesty a written statement setting out the reasons preventing the new company’s incorporation in accordance with the CCL.
  • His Majesty shall then rule as to whether such reasons are sufficient for the situation to be considered exceptional.
  • If the company is set up and no explanatory statement has been submitted; or such statement contains material misrepresentations; or such statement omits material facts whose inclusion is necessary to prevent the statement from being misleading, the company shall be deemed void ab initio.  Any persons conducting activities in the name of the company shall be considered personally liable for the obligations arising out of such activities.
  • The new company must take one of the forms of company provided for in the CCL.  However, in practice, a company formed by Sultani Decree tends to take the form of a closed joint stock company.
  • The new company’s constitutive documents or regulations, its governing rules, and its activities must comply with the provisions of the CCL within one year of the issuance of the Sultani Decree establishing the company.
  • Failure to comply with the above shall render the new company void at the end of this period.  Any persons conducting activities in the name of the company thereafter shall be personally liable for the obligations arising out of such activities.
  • The new company must comply with the Commercial Registration Law.
  • The company must be managed in accordance with the provisions of the CCL.  Traditionally, government-owned companies formed by Sultani Decree have employed at the outset governmental staff drawn from the promoting ministry or government unit.  This is usually provided for in the relevant Sultani Decree.

Notable examples of government-owned companies established by Sultani Decree include Oman Post, Oman Fisheries, Oman Oil and Oman Aviation Services.

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Monday, July 1, 2019

In the Pipeline

Oman is to take measures in line with standards set by the European Union (“EU”) and the Organisation for Economic Co-operation and Development in order to tackle tax evasion.  It is currently drafting regulations governing the automatic exchange of information through Common Reporting Standards (“CRS”).  CRS is a global version of the Foreign Account Tax Compliance Act, which was introduced by the U.S. Congress to prevent offshore tax abuse.  The measures should pave the way for Oman’s removal from the EU tax blacklist, to which it was added in March 2019.

A new Bankruptcy and Insolvency Law is currently under consideration at the State Council.  The law is part of a suite of new statutes planned by the Government to boost investment in the Sultanate and improve the Sultanate’s ranking in the World Bank’s ‘Ease of Doing Business’ Index.  The proposed statute will set out the rights and responsibilities of an insolvent company’s creditors and the sequence of the settlement process to be followed.  It will also define the roles of the various parties involved in the process.  The law is expected to be enacted later in 2019.

Please contact us if you would like more detailed advice on the above.


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Monday, June 17, 2019

Access to Company Documents under the Old CCL and the New CCL

Introduction

Shareholders in a company do not always have automatic right of access to the company’s books and accounts.  This article compares the rights of shareholders in a limited liability company to inspect company documents under the old and new Commercial Companies Law.

The Old CCL 

The old law placed restrictions on the rights of minority shareholders’ access to company documents.  Article 160 of the Old CCL states:

“The managers shall send a copy of the company’s balance sheet, profit and loss statement and the reports of the managers and auditors, if any, concerning the expired financial year, together with a notice of a members’ meeting for the approval of these documents and the allocation of net profits, if any, to each member of the company within six months after the end of the company’s financial year.  The originals of these documents shall be available for inspection by the members of the company during business hours at the principal place of business of the company during a period of at least two weeks immediately preceding the date set for the members’ meeting for the approval of these documents.”

In addition, each member of the company had the right to inspect the original balance sheets, profit and loss statement, reports of the managers and auditors, if any, relating to the last five financial years of the company at any time during business hours at the principal place of business of the company.

The New CCL

However, under the New CCL, shareholders have been granted access to a wider range of company documents, and to documents going back twice as long.

Article 277 of the New CCL provides:

“Every partner may request – whenever he wishes – to inspect records and documents relating to business conducted in the previous ten (10) years, and any provision in the Constitutive Documents or any subsequent agreement that is inconsistent with the provisions of this article shall be void.”

Furthermore, article 270 of the New CCL states:

“Any partner who is not a manager may request, at any time, any information about the company and may examine, either by himself or with the help of a specialist expert appointed by him, the company’s books, records, accounts and other documents.” 

Conclusion

Investors in small corporations generally seek access to a company’s books and accounting records as a way of determining the value of their investments or because they suspect mismanagement.
By granting shareholders full access to all the company’s documents and records – and not just to the restricted categories set out in the Old CCL – it is hoped that the transparency of the management and operations of limited liability companies will be improved.

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Monday, June 10, 2019

The Board of Directors of an Omani Joint Stock Company under the New Commercial Companies Law

Sultani Decree 18/2019 issuing the Commercial Companies Law (the “New CCL”) replaced Sultani Decree 4/74 (the “Old CCL”) and became effective on 17 April 2019.  Executive regulations will be issued within one year to provide clarifications, particularly on the provisions introduced by the New CCL (the “Executive Regulations”).

This article focuses on the changes affecting the composition, elections and functions of the board of directors.

Article 3 of the New CCL provides that:

“Commercial companies in existence on the date of enforcement of this Law shall comply with its provisions within one year of the date of its enforcement.”

Most joint stock companies will be required to amend their articles of association and, if applicable, their shareholders’ agreement before 17 April 2020 to comply with the New CCL.

Number of board members 

The New CCL provides that closed joint stock companies must have at least three directors; and listed joint stock companies at least five.  In both cases the number of directors cannot exceed eleven.  The main change is that there must be an odd number of directors.  An existing company with an even number of directors constituting its board will, in order to comply with these provisions, have to decide whether to add a new director or remove an existing one.

Board meetings

The board of directors may hold meetings by audio and video conferencing, provided that the board secretary is able to identify each of the members and record the discussion.  The number of meetings that may be held via video conference during a certain timeframe is not restricted to a certain maximum number.

Quorum and majority

Under the Old CCL, board meetings required a quorum of 50%.  Such quorum has been increased in the New CCL to two thirds.  Resolutions have to be approved by absolute majority unless the articles of association provide for a higher percentage.  This appears to imply that the majority of directors (as opposed to the majority of the directors attending the meeting) must express a positive vote.  The Executive Regulations may provide further clarifications on this.

Removal of directors

The New CCL provides that any director who does not attend three consecutive board meetings without an acceptable reason is deemed to have resigned by law.  It is interesting to note that the New CCL no longer includes provisions whereby directors appointed by the Government cannot be removed in any circumstances.

Conflict of interest

Under the Old CCL, members of the board of directors were not allowed to participate in the management of any business competitive with that of the company, except with the approval of the ordinary general meeting, with such approval to be renewed annually.  Under the New CCL, instead, a director may not participate in the management of another company engaged in similar business.  No approval can be given to authorise such participation.

In the event of violation, the director concerned will be held liable for damages incurred by the company.  Directors are forbidden from entering into related party transactions.  The Executive Regulations will define the meaning of related party and the applicable rules on recording and disclosure of such transactions.

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Thursday, June 6, 2019

In the Pipeline - June 2019

The Capital Market Authority issued a directive on 15 May 2019 suspending the 10% withholding tax that is applicable on dividends and interest, with the aim of boosting foreign investments.  The suspension period is three years and may be extended.

Following the success of compulsory medical insurance policies in other Gulf states, Oman has initiated the rollout of its own national mandate.  The Unified Health Insurance Policy (UHIP), also referred to as Dhamani, is expected to grant approximately two million workers in the private sector and their dependents access to health care.  Implementation will gradually take place in 2019 and throughout 2020.

The establishment of the Oman Credit and Financial Information Centre is promulgated by Sultani Decree 38/2019, and the Centre shall be affiliated with the Central Bank of Oman.  The Oman Credit and Financial Information Centre will enjoy administrative and financial independence in addition to acquiring its own legal identity.  The data, systems and assets shall be transferred from the Banking Credit Information Statistics Department of the Central Bank of Oman to the newly established Centre.  The Board of Governors of the Central Bank of Oman shall issue regulations regarding the enforcement of the provisions. All contravening provisions will be repealed.

The Oman-UK Joint Defence Agreement has been ratified by Sultani Decree 42/2019.  The Agreement was signed in Muscat on 21 February 2019.  It will be published in the Official Gazette and will be enforced from the date it is issued.

Sultani Decree 39/2019 promulgates the regulations enforcing the Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and their Destruction.  This shall apply to the Chemical Weapons Convention and it will require the banning of the development, production, stockpiling and use of chemical weapons.  The Minister Responsible for Foreign Affairs shall issue the necessary decisions.  The new law replaces Sultani Decree 21/97 and repeals all contravening provisions.  It will be published in the Official Gazette and will be enforced 90 days from the date of publication.

Please contact us if you would like more detailed advice on the above.


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