Wednesday, December 11, 2019

Misrepresentation under Omani Law


“Misrepresentation” is a concept of wide importance in common law jurisdictions.  In English contract law and tort law, a misrepresentation is a false statement of past or present fact made by one contracting party to another, which has the effect of inducing the other party to enter into a contract.
It is often used as an alternate cause of action to breach of contract, because the remedies for a successful claim for misrepresentation are different from those available for breach of contract.  Importantly, among the possible remedies for misrepresentation is rescission, where the contract is annulled and the parties restored to the position they were in before the contract was entered into.
Misrepresentation, under English law, does not necessarily require intent to deceive.  “Negligent” and even “innocent” statements may constitute misrepresentation if they are false and their effect was to induce the other party into the contract.
Entire agreement clauses in common law jurisdictions typically aim to exclude liability for misrepresentation, but carve out liability for fraudulent misrepresentation.  In other words, the parties agree not to claim for “negligent” or “innocent” misrepresentation in connection with the agreement, but also state expressly that they are not seeking to limit or exclude claims for fraudulent misrepresentation.
The Civil Code does not, then, on a literal interpretation, recognise negligent or innocent misrepresentation: there must be an intention to deceive. The onus is on the party alleging misrepresentation to establish that (a) they were deceived by the misrepresentation; and (b) the deception was intentional.
It must be borne in mind, however, that the Omani courts have a large degree of judicial discretion, with scant case law to reference, so it is not impossible to exclude the possibility that they could find misrepresentation without intent having conclusively been demonstrated.
Nevertheless, the wording relating to misrepresentation in standard entire agreement clauses should be drafted bearing in mind the more narrow definition of the term under Omani law. Any attempt to limit or exclude liability for negligent or innocent misrepresentation could be at best superfluous and at worst confusing; and any attempt to exclude liability for fraud would be void under Article 182 of the Civil Code.

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Tuesday, December 10, 2019

Centre for the Protection of Competition and Prevention of Monopoly

Under the Protection of Competition and the Prevention of Monopoly Law (the “Competition Law”), Sultani Decree 67/2014, the role of the Competition Authority was originally assigned to the Public Authority for Consumer Protection (the “PACP”) and specifically to the Department of Competition and Monopoly Prevention.  On 9 January 2018, the Centre for the Protection of Competition and Prevention of Monopoly (the “Centre”) was established by Sultani Decree 2/2018 (the “CPC Law”) and took over the role of the Competition Authority from PACP.  The establishment of a dedicated Centre emphasises the importance of competition in the Oman business landscape.  The main purpose of the Centre is to monitor the application and implementation of the Competition Law and to promote free competition in the Omani market.
The Centre falls under the supervision of the Ministry of Commerce and Industry and the CPC Law provides for the appointment of a Chairman, Board of Directors and CEO.  Accordingly, the Centre has recently appointed the Board of Directors under the Chairmanship of His Highness Dr Adham Al Said.
The Chairman of the Centre is appointed, inter alia, to draft the Executive Regulations of the Competition Law, which will clarify and determine the actual applicability of a number of provisions.  Such Regulations will be subject to approval of the Board of Directors of the Centre and of the Ministerial Cabinet.  Following the issue of the Regulations, the Centre will be able to pursue its objectives in a better defined legal framework.  The implementation of a number of procedures (including the temporary exemption which may be considered by the Board of the Centre whenever such exemption pursues higher interests by encouraging development and competition) is entrusted to the Regulations.  We have no indication of their envisaged content; therefore, in the current circumstances and pending the publication of the Regulations, the only procedure that appears sufficiently defined is the request of approval for acts leading to economic concentration.  We expect that until the Regulations (or other applicable legislation) are issued, the Centre would not be in a position to exercise some of its competences.
The objectives are set out in Chapter Two of the CPC Law and include:  protect the market from anti-competitive practices, publish and promote studies that focus on monopolistic practices that affect the free market, undertake measures regarding the prevention of practices that are in violation of competition, study the suggestions and recommendations received by the Centre with regards to the protection of competition and the prevention of monopoly, and represent the Sultanate of Oman in regional and international conferences and meetings related to the Centre’s scope of work.
To share information on its activities, the Centre has published an official website which sets out as the general goals of the Centre:  (a) supporting domestic companies in order to enable them to compete in the international market and (b) attracting foreign investment to Oman.
Article 17 of the Competition Law states that any person may report to the Centre any agreement, procedure or practice which may be in breach of the provisions of the Law.  The Centre is responsible for receiving complaints pertaining to anti-competition and monopoly practices and, in connection with each complaint, conduct research, investigations and evidence collection.  The penalties stated in Chapter Four of the Competition Law are enforced by the personnel appointed jointly by the competent authority and the Chairman of the Centre.
As of today, there is little information available on actual proceedings.  The most important indication of how competition laws are interpreted and implemented worldwide can be found in anti-trust judgment and other similar decisions, which are customarily published.  The Competition Law provides that in the event of a violation, “the final decisions and provisions shall be published in two daily newspapers, one of which shall be Arabic, or by any means of advertising at the expense of the violator.”  This implies that, over time, it should be possible to follow the evolution of the decisions of the Centre and possibly the courts where applicable.

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Monday, December 9, 2019

Enforcement of Arbitral Awards, Part 3: Enforcement of Awards That Have Been Set Aside

Introduction

As mentioned in a previous article, under certain circumstances if an award has been set aside (denied ratification) by the court where the award was rendered, in very limited instances that award may still be enforced by the courts in another country.  This is a particularly interesting occurrence as it goes against comity (the mutual recognition of legislative, executive, and judicial acts) as well as res judicata (a case in which there has been a final judgment and the matter is no longer subject to appeal).  When this takes place, it is the result of a court setting aside an award on spurious grounds.

As summarised in this article, the enforcement of an award that has been set aside at the seat takes place through the New York Convention (the “NYC”) (or other comparable convention) and is a considerably complex situation.  This is a particularly noteworthy issue as courts in particular in the GCC have had a reputation for occasionally setting aside awards on grounds that are not internationally recognised, notably based on “unique” public policy grounds; this article will demonstrate that it is not the end of the road for those awards set aside.

When an award becomes binding

In order for an award to be enforceable under the NYC, that award needs to be binding.  However, interestingly, the time at which an award becomes binding is not uniform across all countries.

Notably, under Omani law, an award is binding and final after the 90-day period to challenge the award has elapsed (Article 58, Sultani Decree 47/1997, the "Arbitration Law").   In some jurisdictions an award is binding only after the award has been confirmed by a court; in others, it is considered final when it is rendered.  In light of the fact that under the NYC the enforcement of foreign awards must not be given more onerous treatment than domestic awards, there is an argument that those courts must also treat an award that is rendered in Oman as binding and final when rendered despite the fact that the 90-day period under Omani law has not elapsed.  This is a peculiar application of the NYC and international law, in that a foreign court would treat an Omani award as final before an Omani court.  The counterargument to this is an award cannot be enforced until it is binding under the laws where it is made.  Nonetheless, following the above, a foreign court could enforce an award that is binding in accordance with its domestic law and disregard the law of where it is rendered as to whether it is binding and final.

Article V(1)(e) hurdle

Article V of the NYC lists the grounds on which a court may refuse to enforce an award.  Article V(1)(e) provides that:  “The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.”

This article is noteworthy as it underpins that an award should be considered final or it may be denied enforcement.

Article V(1)

Even though an award is set aside by the courts where it is rendered, there is no obligation on a court in a foreign country to give comity to the decision to set the award aside.

In this respect, Article V(1) of the NYC provides that a court may, but not must, refuse enforcement of an award if it falls under one of the five grounds to set aside an award that are listed under Article V(1).

The wording of Article V(1) is as follows:

“Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought ….”

The use of the word “may” is particularly important as it provides courts the discretion as to whether it will refuse enforcement.  The drafters of the NYC intentionally included the word “may” in Article V(1) to provide this discretion to courts.  This is also supported by case law from a number of jurisdictions.

Article V(2)(b)

In addition to the above is the local standards annulment provision:  under the NYC an award may be set aside based on local standards that are unique to a particular jurisdiction; generally, this falls under public policy grounds that are unique to a certain country.  When this takes place, an award that is set aside based on these unique standards may then be enforced in another jurisdiction that does not apply the same grounds for nullifying awards.

For a more in-depth discussion of this topic, see M. Dunmore, Austrian Yearbook of International Arbitration, Chapter III:  The Award and the Courts, Enforcement of Awards Set Aside in their Jurisdiction of Origin, 2014.

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Sunday, December 8, 2019

In the Pipeline - November 2019

Sultani Decree 76/2019 promulgates the Civil Aviation Law.  The law applies to civil aircraft registered in the Sultanate of Oman, civil airports, commercial air transport and general aviation, air navigation services and any other activities related to civil aviation in the Sultanate.  Article 27 prohibits the use of remote-controlled aircraft, drones and any other flying object prior to obtaining approval from the competent authority.  In addition, Article 27 prohibits the transport of weaponry, explosives, ammunition and all hazardous or inflammable materials in a civil aircraft prior to obtaining consent/approval from the competent authority.  Sultani Decree 76/2019 repeals Sultani Decree 93/2004 and the law comes into force on the day following its publication.

The Law Governing the Practice of the Medical Profession and Associated Health Professions is promulgated by Sultani Decree 75/2019.  The Minister of Health is set to issue the Executive Regulations within a period not exceeding one year from the date of publication.  A technical committee shall be formed with the aim of preserving and maintaining the medical profession and to help it abide by its principles.  Medical practitioners and associated health practitioners are under an obligation to perform their duties with integrity as required by the profession, to comply with the rules and regulations governing the practice of medicine and to document patients’ diagnosis and treatment.  This law repeals Sultani Decree 22/1996 and comes into force on the day following its publication.

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


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Monday, November 18, 2019

Letters of Credit under Omani Law

Letters of credit are vital instruments in the financing of international trade.  Most letters of credit in international transactions are governed by the International Chamber of Commerce (ICC) Uniform Customs and Practice for Documentary Credits 500 and 600.  In the Sultanate of Oman (“Oman”) letters of credit are governed by the provisions contained in Chapter 6 [Documentary credit] of Sultani Decree 55/90 (the “Law of Commerce”).

A documentary credit, under the Law of Commerce, is a contract whereby the bank (the issuing bank) undertakes to open credit at the request of one of its customers (the applicant/buyer).  The consideration is set for a certain amount and a specified period, in favour of another person (the beneficiary/seller), secured by documents which represent the goods that have been shipped or are being prepared for shipment (Article 377).

Usually, four parties are involved in the context of documentary credit transactions, namely:  the applicant/buyer, the issuing bank, the beneficiary/seller, and the correspondent bank (confirming/advising and negotiating the letter of credit) (the correspondent bank).  The bank opening the credit is obligated to implement the terms as to payment, acceptance and discounting agreed in the contract that opens the credit, provided the documents comply with the particulars specified in such contract (Article 379).

After opening the credit, the issuing bank informs the beneficiary directly or through a correspondent bank in the country of the recipient.  The issuing bank may ask the correspondent bank either to advise the beneficiary (in which case the correspondent bank may not be obliged to make any payment to the recipient and is referred to as the advising bank); or advise the beneficiary and add its confirmation (in this case the correspondent bank can be held responsible for making payment to the beneficiary and is called the confirming bank).  Once the advising bank has confirmed the documentary credit, it must refuse to accept any instructions to the contrary from the buyer. 

Under the Law of Commerce, documentary credits may be either revocable or irrevocable (Article 380).

Revocable

In the case of a revocable documentary credit, the bank may, at any time, amend or cancel the documentary credit on its own initiative or at the request of the buyer and without incurring any liability towards the beneficiary (Article 381).

Irrevocable

An irrevocable documentary credit constitutes a categorical undertaking by the bank which is conclusive and direct in relation to the beneficiary, provided the conditions therein are complied with (Article 382).  An irrevocable documentary credit may not be cancelled or amended save by agreement of all the parties.

It thus represents a direct relationship between the beneficiary and the bank and the right of the beneficiary against the bank is not infringed by any dispute between the buyer and seller to the contract of sale.  An irrevocable documentary credit is therefore more advantageous to the seller as it gives more security in terms of payment.

Principle of autonomy

A documentary credit is considered a separate contract from the underlying sales contract under the principle of autonomy.  Accordingly, the bank remains independent of such sales contract.  The issuing bank assumes the liability of the buyer towards the beneficiary without involving itself in the underlying transaction between the buyer and the seller.

The issuing bank will pay the beneficiary unconditionally if the beneficiary fulfils the documentary obligations based on terms mentioned in the documentary credit, irrespective of any disputes connected to the underlying contract between the buyer and seller (Article 385).  Courts are reluctant to grant injunctions ordering banks to withhold payment unless there is a clear indication of fraud.

If the applicant does not pay to the bank the value of shipping documents complying with the terms of the opening of the credit within three months of the date of notice of the arrival of such documents, the bank may sell the goods pursuant to procedures specified by the court.

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Monday, November 11, 2019

Enforcement of Awards, Part 2: Enforcing an Arbitral Award

Introduction 

This article sets out the procedure under Omani law for enforcing an arbitral award, whether it be in Oman or abroad.

After an arbitration is concluded and an award is rendered by a tribunal, the award cannot be enforced immediately.  First, the party seeking enforcement will need to have the award executed by a court in Oman before it will be considered final and in turn enforceable in Oman.

Enforcement of an award in Oman

Under Omani law, once an award is rendered, the losing party has a 90-day period to commence proceedings to have an award annulled.  Once the 90-day period has lapsed without proceedings having been commenced to annul the award, or after the rejection by the court of the annulment application, an application can be made to the Oman courts to have the award executed.

The procedures for the annulment and the execution of an award are similar to the procedures in other countries that are party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 10 June 1958) (the “New York Convention”).

Enforcement is initiated by giving the debtor notice of the enforcement proceedings.  Notice can be effected by in-person service or service at the debtor’s domicile or place of business.  The notification must include the required particulars and the order to the debtor to pay within seven days as of date of the notification.

The whole process of enforcement can take from seven months to one year in court.

Enforcement of an Omani arbitration award abroad

If the party that the award is being enforced against does not have assets in Oman, the award may be enforced in a foreign country that is also a signatory to the New York Convention.  Currently there are 159 countries that are parties to the New York Convention, including Oman.  Below is a general procedure overview of how a foreign award is enforced under the New York Convention.

The New York Convention facilitates the enforcement of awards in countries that are signatories to the New York Convention.  Once an award is binding and enforceable in the country where it is rendered, the award is then enforceable in other signatories to the New York Convention.  Not only is the award enforceable but, owing to the reciprocal nature of the New York Convention, the award will not be subject to stringent confirmation procedures in the country of enforcement.  It should be noted that there is a general (rebuttable) presumption that, once an award is final where it is rendered, it will be enforceable in a foreign country.

When enforcing a foreign award, Article IV of the New York Convention requires several basic formal requirements to be met in order for a foreign court to enforce an award under the New York Convention.  This includes the submission of:  the original award, the arbitration agreement and translations if necessary.  These requirements have been universally transposed into domestic legislation of the parties to the New York Convention.

When an application for the enforcement of a foreign award is made, the court in the foreign country must apply the same grounds for the enforcement of the foreign award that it would apply to a domestic award.  Generally these follow the grounds in the New York Convention.  However, it is permissible for countries to adopt “local standards” so long as the process for enforcement of foreign awards is not more onerous then the enforcement of domestic awards.

The narrow grounds for setting aside an award are listed in Article V of the New York Convention.

It should be noted that the grounds for refusing to enforce an award are the same as denying execution.  In light of this, if an award has been granted execution/confirmation where it is rendered, it is unlikely to be refused enforcement elsewhere under the New York Convention.  In light of the above, it can be said that once an award has been executed in Oman, it is relatively straightforward to have that award enforced abroad.

Lastly, it should be noted that the enforcement of a foreign award in Oman follows the same process.

Conclusion

While arbitral awards in Oman are not enforceable immediately after they are rendered, the enforcement of awards in Oman is a relatively straightforward process.  Likewise, the process for the enforcement of an Omani award in a foreign country is a relatively straightforward process through the New York Convention.

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Tuesday, November 5, 2019

Oman Drives Privatization and PPP Initiatives

Introduction

A series of laws were passed earlier this year that signify Oman’s ambition to be more active in adopting PPP models and drive privatization.  These laws comprise:

(a) The Public Private Partnership Law (Sultani Decree 52/2019) (“PPP Law”);
(b) Privatization Law (Sultani Decree 51/2019) (“Privatization Law”); and
(c) Establishment of the Public Authority for Privatization and Partnership (Sultani Decree 54/2019) (“PAPP” or “Authority”).

During the recent PPP Oman Forum held in October 2019, it was reiterated that PPP is one of the cornerstones of Vision 2040 and that projects valued at approximately OMR 2.5 billion are envisaged for implementation during the current (ninth) five-year development plan spanning health, education, transportation and public services sectors.

In this article we highlight some of the key provisions of the PPP Law, Privatization Law and the role of the Authority.

PPP Law

The PPP Law was published in the Official Gazette on 7 July 2019 and came into force on 8 July 2019 with Executive Regulations (and related decisions) to be issued by 8 July 2020.  The PPP Law applies to Partnership Contracts and consultancy contracts relating to them.  Whilst the Tender Law and the Privatization Law are expressly carved out from such contracts, the PPP Law does not affect provisions of any other laws relating to management, lease, licensing, usufruct, or concession of any public facility.

The term “Partnership Contract” is broadly defined and is essentially the contract between the government (public) body and the private project company.

The key takeaways from the PPP Law are:

(a) Partnership Contracts must relate to partnership projects which have economic or social return and are in line with the strategy of the Sultanate and its development plan;

(b) Partnership Contracts are subject to competitive bidding, but direct award is possible with permission from the Council of Ministers;

(c) mandatory conditions and specifications for a partnership project (such as information and specifications about partnership project, value of temporary bond and calculation of final bond, technical, financial & legal principles on which bid will be evaluated, essential conditions of Partnership Contract along with statement of non-negotiable conditions);

(d) if a bid is submitted by a consortium, it is prohibited for any qualified candidate who is a member of the consortium to submit another bid (whether alone or in conjunction with another person (such as consortium or company in which he holds majority of capital or exercises control));

(e) the Authority is permitted to negotiate with a winning bidder and if negotiations fail, the Authority can negotiate with another bidder, but the Authority is not permitted to re-negotiate with a bidder with whom negotiations failed;

(f) requirement to establish a project company which may be 100% non-Omani owned;

(g) restrictions on project company during term of Partnership Contract (e.g., not permitted to sell shares, modify legal form, create encumbrances over shares (other than for the purposes of raising finance));

(h) mandatory content of Partnership Contract (ranging from identity of parties, insurance requirements, oversight, unilateral termination rights by public body and dispute resolution, amongst other requirements);

(i) step-in rights by public body (with consent from the Authority) to take over partnership project;

(j) mechanism for transfer of assets to State after expiration or termination of Partnership Contract;

(k) Partnership Contract must be subject to the laws of Oman;

(l) obligations on project company (such as prohibition to mortgage / sell land, compliance with Omani law, transfer of know-how, non-discrimination of products, preservation of assets, issuance of periodic reports); and

(m) the Authority can exercise control and oversight over partnership project.

Privatization Law

The Privatization Law was published in the Official Gazette on 7 July 2019 and came into force on 8 July 2019.  The Privatization Law contemplates the issuance of Executive Regulations by the Authority by 8 July 2020.  The Privatization Law expressly repeals the Privatization Law from 2004.

The key takeaways from the Privatization Law are:

(a) distinction between:

1. Privatization Project” (where a public project or a company wholly or partially owned by the government is transferred to a private person); and

2. Company Transformation Project” (where a public project is to be transformed into a joint stock company wholly owned by the government);

(b) definition of “Project Company,” which means:

1. in respect of a Privatization Project:  an Omani joint stock company which may be 100% non-Omani owned and whose rules and regulations in respect of capital etc. will be as set out in the Executive Regulations; and

2. in respect of a Company Transformation Project:  a joint stock company wholly owned by the government whose mechanism for appointing its board shall be specified by the Council of Ministers;

(c) Tender Law does not apply to Privatization Project or Company Transformation Project;

(d) public projects or companies which are wholly or partially owned by the government must only be privatized in the manner prescribed by the Privatization Law and such privatization must be part of the privatization programme; if not within privatization programme, the Council of Ministers to approve privatization;

(e) award procedures for a Privatization Project subject to rules of transparency, publicity, equal opportunity, non-discrimination and free competition;

(f) the Authority may negotiate with winning bidder on items which were not marked “non-negotiable”;

(g) if negotiations fail, the Authority may negotiate with next bidder, but the Authority may not re-negotiate with a bidder with whom negotiations previously failed;

(h) content of privatization contract to be stipulated in Executive Regulations;

(i) mechanism for Omani employees who are subject to the State law and who are affected by a Privatization Project or Company Transformation Project;

(j) if employees are transferred then they cannot be dismissed within a period of five years from date of transfer provided that these employees abide by work systems and other controls; and

(k) status of employees who are not absorbed by the Project Company shall be adjusted per the rules decided by the Council of Ministers.

Role of the Authority

The Authority assumes an important and active role. Both the Privatization Law and the PPP Law make frequent references to the Authority.  The law establishing the Authority lists the expansion of PPP, increased private sector activity and job creation as some of the Authority’s objectives as well as specifying the role of its Board and its CEO.  It will be interesting to observe the role of the Authority as PPPs and privatization projects get underway.

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In the Pipeline - October 2019


Law firms, audit firms and public joint stock companies have been invited to comment on the draft of the Executive Regulations of the Commercial Companies Law.  The Capital Market Authority hopes to collect feedback and comments on drafting regulations governing public joint stock companies.  All stakeholders have been asked to provide their feedback to the Capital Market Authority prior to 31 October 2019.
Sultani Decree 66/2019 establishes the “Tax Institution.”  Article (1) sets up an institution to be named “Tax Institution” that will have its own legal identity and will enjoy financial and administrative autonomy.  The Tax Institution will report to (be affiliated with) the Council of Ministers.
Article (3) transfers to the Tax Institution all the competences, powers, prerogatives, allocations and assets of the Secretariat General of Taxation at the Ministry of Finance.
Article (4) transfers to the Tax Institution employees of the Secretariat General of Taxation at the Ministry of Finance, along with their existing job statuses and financial allocations.
Article (5) states that the Head of the Tax Institution will be a member of the Financial Affairs and Energy Resources Council.
Article (6) provides that the phrases “Secretariat General of Taxation” and “Secretary General of Taxation,” wherever they recur in current laws and Sultani Decrees, will be replaced by “Tax Institution” and “Head of Tax Institution.”
The Comprehensive Agreement for Established Friendship and Bilateral Cooperation between the Government of the Sultanate of Oman and the Government of the United Kingdom has been ratified by Sultani Decree 59/2019.  The governments jointly wish to boost communication and collaboration in several sectors including health, science, innovation and technology.  The Agreement indicates both countries’ commitment to reinforcing a historic relationship.
Two new Ministries have been established.  The Ministry of Technology and Communications has been established by Sultani Decree 63/2019.  All the powers, assets and prerogatives of the Information Technology Authority; competences related to telecom policies at the Ministry of Transport and Communication; and competences of technology programs of the Technical Committee will be transferred to the Ministry of Technology and Communications.
Please contact us if you would like more detailed advice on the above.

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Monday, October 21, 2019

The New Oman Standard Conditions of Contract

Background

Since 1999, the standard form construction contract most commonly used in Oman has been the 4th edition of the Standard Documents for Building and Engineering Works, especially for large, government-led infrastructure works. This year the Ministry of Finance and the Ministry of Legal Affairs published a new edition, which contains some noteworthy changes.

The Standard Form Contract for Building and Civil Engineering Works (the “2019 Standard Form”) is based on the FIDIC Red Book (building and engineering works designed by the employer) in that it has an employer-design and contractor-build risk profile.

The 2019 Standard Form is based on the 1999 FIDIC Red Book, not the 2017 edition. Overall, this is a safer approach as the 2017 FIDIC Red Book is less used in the market than its 1999 counterpart.

Key changes

Defects liability

In relation to defects liability, the 1999 Standard Form provided for a ‘Period of Maintenance’ of 365 days, whereas the new ‘Defects Notification Period’ (“DNP”) under the 2019 Standard Form must now be agreed between the parties, and also allows the employer to extend the DNP. The engineer’s role in determining the condition of the works has been limited.

Dispute resolution

With regard to dispute resolution, the 1999 Standard Form contained provisions for referral of disputes or differences to the engineer and thereafter to ad hoc arbitration. The 2019 Standard Form allows, where positively elected, for court-based litigation. The provisions relating to the Dispute Adjudication Board (“DAB”), which appeared in the 1999 version, do not feature in the 2019 Standard Form.

Variations

The variations provisions have also been improved in the 2019 Standard Form, with value engineering built into the contract, providing greater scope for efficiencies and potential cost-savings to the employer.

Omanisation

There is also the option in the 2019 Standard Form for the contractor to undertake to engage Omani SME contractors in relation to supply and sub-contracts. Omanisation is also now explicitly referenced but with the details to be agreed between the parties.

Anti-bribery and corruption

Anti-bribery and corruption (“ABC”) provisions feature in the 2019 Standard Form, bringing Oman in line with international best practice. The ABC provisions oblige, for example, the contractor to operate effective ABC reporting and disclosure controls and procedures.

Intellectual and industrial property rights

There is a new clause governing intellectual and industrial property rights (“IP”), which places reciprocal obligations and indemnities on the parties in relation to IP infringements.

Force majeure

The ‘Special Risks’ regime has been replaced with ‘Force Majeure’ provisions and associated termination rights. Testing and Suspension mechanics, as well as Commencement, Delay and Extension of Time provisions, have also witnessed considerable changes.

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Tuesday, October 8, 2019

The New Oman Bankruptcy Law

(This article by Zainab Aziz, counsel in Curtis' Muscat office, appeared in the Lexis Nexis Middle East Legal Insight on 16 September 2019)


Prior to the issuance of Oman Sultani Decree No. 53/2019 (the “Bankruptcy Law”), Oman Sultani Decree No. 29/2013 promulgating the Civil Transactions Law (the “Civil Code”) set out various provisions relating to insolvency and bankruptcy in Oman. In addition, Oman Sultani Decree No. 18/2019 on the Issuance of the Commercial Companies Law (the “Commercial Companies Law”) also sets forth provisions with respect to the liquidation of companies. Under the aforementioned laws, bankruptcy must be declared by the relevant competent court with jurisdiction over the bankrupt person. An application for bankruptcy may be made by the insolvent person or by a creditor of the insolvent person.

Although the Bankruptcy Law repeals the provisions of Book 5 of Oman Law No. 55/1990 (the “Law of Commerce”), Article 2 of the Bankruptcy Law states that for all matters not specifically provided for under the Bankruptcy Law, the provisions of the Commercial Companies Law, Oman Sultani Decree No. 68/2008 on the Promulgation of the Law of Evidence in Civil and Commercial Transactions, and Oman Sultani Decree No. 29/2002 Promulgating the Law on Civil and Commercial Procedures will continue to apply. In addition, the Bankruptcy Law states that regulations and decisions may be introduced by the Minister of Commerce and Industry in conjunction with the competent authorities to implement the legislation.

Applicability

The provisions of the Bankruptcy Law will apply to traders. The term “trader” is defined in the Law of Commerce as any person who effects a commercial act in their own name, is qualified in the requisite manner and who makes such commercial transactions an occupation. In addition, commercial companies are also considered traders. The Bankruptcy Law also applies to foreign agencies and branches of foreign companies established in Oman, even if the parent company has not been adjudicated to be bankrupt in a relevant foreign jurisdiction and is not subject to the jurisdiction of the Omani courts.

Entities licensed by the Central Bank of Oman and insurance companies licensed under Royal Decree No. 12/1970 Promulgating the Insurance Law are excluded from the applicability of the Bankruptcy Law.


Main provisions of the Bankruptcy Law

Roll of experts

The Bankruptcy Law prescribes that a roll of experts be established. The roll of experts will include individuals and companies specialising in restructuring, the management of assets during a bankruptcy proceeding, valuators, and all other experts as may be needed in connection with the provisions of the Bankruptcy Law.

Restructuring

The Bankruptcy Law introduces the concept of restructuring, which aims to assist traders to overcome financial and administrative challenges in settling debts by restructuring the traders’ outstanding obligations in accordance with a restructuring plan prepared by a restructuring committee comprising of experts registered on the roll of experts. Restructuring the debts will allow the trader to avoid liquidation, by reaching a compromise with its creditors. The Bankruptcy Law also provides timelines within which the restructuring plan needs to be prepared, and the time within which the court must decide on an appeal in order to make the process expeditious. Unlike in the case of preventive composition, traders are permitted to submit a petition for restructuring prior to reaching a position where they are unable to pay their debts – only a showing of financial and administrative disorder is required to submit a restructuring petition. The term “financial and administrative disorder” is not defined in the Bankruptcy Law, and it remains to be seen how it will be interpreted by the courts.

The petition for restructuring may be submitted by a trader who has been continuously engaged in business for the two years that precede the filing of the petition, provided that such trader has not committed any fraud. In addition, a petition for restructuring cannot be submitted until 3 years have lapsed from the date of refusal or stay of the previous petition. In the case of companies applying for a restructuring, the approval of a majority of the shareholders will be required.

The petition is required to be submitted to the Control and Inspection Department of Commercial Establishments at the Ministry of Commerce and Industry (the “Department”). Filing a petition for restructuring will result in the stay of a petition in bankruptcy and preventive composition, until the final adjudication of the petition for restructuring.

The petition for restructuring is required to include the reasons for the financial and administrative disorder, the date of the disorder, the steps taken by the trader to overcome or remedy such disorder, as well as the steps the trader deems necessary to overcome such disorder. The petition for restructuring is required to be submitted within six months from the date of the financial and administrative disorder.

The Department will hold meetings with all the concerned parties to mediate and the settle the issues detailed in the petition. The Department will also appoint a restructuring committee comprising of members of the roll of experts to review the petition, determine the reason of the disorder, and manage and assess the assets of the petitioner. The restructuring committee is required to a prepare a report including the reasons for the disorder, a restructuring feasibility study, and a restructuring plan to be submitted to the Department or the relevant court, as the case may be, within three months of the restructuring committee being appointed. Any proposed restructuring plan must be capable of being implemented within five years.

If the creditors agree to a settlement or the restructuring plan, the trader and the creditors will execute the settlement agreement or restructuring plan, which will then be submitted to the court and will be binding on all the signatories.

If the parties are unable to reach a settlement or agree to the restructuring plan, the petition for restructuring will be considered to be rejected. The petitioner is entitled to appeal such rejection before the court within 15 days of notification of rejection of the petition. The court is required to decide on such appeal within seven days of the date of referral, and such decision will be final.

If the parties agree on a restructuring plan, the court may appointment a person from the roll of experts to assist the trader in implementing the restructuring plan. Such person will be required to prepare a report every three months in respect of the implementation and compliance with restructuring plan and submit such report to the Department and the signatories to the restructuring plan.

During the implementation of the restructuring plan, unlike in the case of an insolvency proceeding, the trader will continue to administer its property, and will remain liable in respect of obligations that are not included in the restructuring plan, are subsequent to the accreditation date of the restructuring plan, or that are contrary to the terms of the restructuring plan.

Preventive composition

The concept of preventive composition under the Bankruptcy Law is similar to provisions in respect of preventive composition set forth in Book 5 of the Law of Commerce. By applying for a preventive composition, a trader seeks to achieve a settlement with creditors and avoid bankruptcy.

A trader is entitled to apply for a preventive composition if the trader is likely to cease payment of the trader’s debts. In order to be eligible to apply for preventive composition, the trader should have been engaged in business in the preceding two years and must not have committed any act of fraud or gross fault. All companies except for joint ventures are entitled to apply for preventive composition provided that they comply with the aforementioned requirements and obtain the approval of a majority of the shareholders. Unlike in bankruptcy proceedings, creditors cannot make an application for preventive composition.

Following the submission of a petition for a preventive composition that is accepted by the relevant court, all bankruptcy proceedings and other claims and enforcement actions relating to the trader are automatically stayed, which includes proceedings in respect of both secure and unsecured debts. The stay against secured claims is distinct from bankruptcy proceedings, where only unsecured claims are stayed. The court may also decide to take precautionary measures in order to preserve the trader’s assets. By preserving the assets of the trader, both from secure creditors and potentially from the trader, it is anticipated that the trader will be able to achieve a resolution whereby the business is preserved and able to settle the debts, as opposed to liquidating the business. During this time, the trader can continue to administer the property and undertake acts in the ordinary course of business.

A composition trustee is appointed by the court, and the trustee must, within five days of being notified of his appointment, notify the Commercial Registry of the commencement of the composition proceedings and publish the initial consent to commence composition proceedings in the Commercial Register and invite all creditors of the trader to a meeting. Such invitation is required to be published in a well-known daily newspaper or any other publication specified by the court. Within 15 days of such publication, all creditors of the trader are required to provide details in respect of their debts to the composition trustee to enable the composition trustee to prepare list of debts and creditors and submit the same to the relevant court within 40 days of the date of issuance of the decision opening the preventive composition proceedings. Once the list of creditors has been verified, the court will set a time within which the creditors are required to meet to decide on the terms of the preventive composition. Five days prior to such meeting of the creditors, the composition trustee is required to submit their report including their opinion on the terms of the preventive composition proposed by the trader.

A judge of the relevant competent court will preside over such meeting of creditors and an approval of a majority of the creditors whose debts have been accepted is required to approve the preventive composition, provided that such majority of creditors also holds two-thirds of the verified debts. In the case of a company that has issued bonds or sukuks, where the value of the outstanding bonds or sukuks exceeds one-third of the total outstanding debts, the composition will require the approval of a general assembly of the holders of such bonds or sukuks. Secured creditors are prevented from participating in voting unless they waive their rights as secured creditors.

Once the preventive composition is approved by the requisite majority and is ratified by the court, the terms of the composition will apply to all unsecured creditors, including those who voted against it.

The rights of secured creditors are not impacted by the preventive composition, and they remain entitled to enforce their securities against the trader.

A preventive composition may be annulled by the court after ratification if it is later discovered that the trader acted in a fraudulent or misleading way, such as by concealing assets or over estimating debts etc.

Bankruptcy

The provisions relating to insolvency proceedings under the Bankruptcy Law are similar to provisions previously set forth in Book 5 of the Law of Commerce.

A trader may submit a bankruptcy petition if the trader has suspended payment of commercial debts due to a disruption in the trader’s business. The petition is required to be submitted within 15 days from the date of cessation of payment. Unlike in the case of preventive compositions, creditors owed commercial debts are also entitled to submit a bankruptcy petition to declare a debtor trader bankrupt.
In addition, a court may, on its own initiative, adjudicate a trader bankrupt. With respect to companies, submission of a bankruptcy petition by the trader company requires the approval of majority of its shareholders.

Bankruptcy claims will be examined by the court on a summary basis and the court may order precautionary measures against the assets of the trader debtors to preserve the assets of the trader prior to the adjudication of bankruptcy. The court will also determine a date for the cessation of payments by the trader, and appoint a liquidator and appoint a judge as the official receiver to oversee the insolvency proceedings. The liquidator takes over the management of the assets of the bankrupt person and acts on behalf of the bankrupt person during the liquidation process. The fees and expenses of the liquidator are determined by the official receiver.

Following the adjudication of bankruptcy by the court, the liquidator will enter the adjudication in the Commercial Register and publish a summary of the adjudication in the official gazette, which should include an invitation to creditors to submit details of their debts. The bankrupt person will no longer be entitled to administer, dispose of any property, pay any debts or recover any amounts owed to him. The management of the assets and liabilities of the bankrupt person rests with the liquidator.

If a partnership is adjudicated to be bankrupt, all the partners will also be declared bankrupt, regardless of whether the court adjudicating the bankruptcy has jurisdiction over such partners. In addition, former partners of a partnership who withdrew from the partnership after the cessation of payment of debts but prior to the adjudication of bankruptcy will also be declared bankrupt when the partnership is declared bankrupt.

The fact that a person has been declared bankrupt does not have the effect of vitiating, or automatically terminating, those contracts that were entered into by the bankrupt person prior to the declaration of bankruptcy. Any contract entered into by the bankrupt person prior to the date of declaration of bankruptcy remains valid and continues to exist although certain obligations under those contracts may become suspended by reason of bankruptcy.

Following the declaration of bankruptcy of an insolvent person, interest will cease to accrue on the debts of the bankrupt person and creditors will not be entitled to initiate or continue any legal proceedings against the bankrupt person. Secured creditors may however, continue or initiate proceedings against the liquidator for the sale of the securities securing the amounts owed to the secured creditors.

Upon the declaration of bankruptcy, the bankrupt person’s debts will be settled in the following order of priority:

  • salaries of employees;
  • government dues and taxes;
  • preferred or secured creditors; and
  • unsecured creditors.

In the event that the assets of a company adjudicated bankrupt are not sufficient to settle at least 20% of the debts, the court may, at the request of the liquidator, oblige all or some members of the board of directors of the company to jointly or severally settle the debts of the company, unless the directors are able to prove that they exercised due care and diligence in the management of the company. The liquidator may also request that the bankruptcy judge require shareholders to settle outstanding debts of the bankrupt company from their shares in the company or the remainder of the value of their shares in the company.

Pursuant to the Commercial Companies Law, insolvency of a company is one of the reasons for which it may be dissolved and be struck off from the Commercial Register. The Bankruptcy Law states that a company may be dissolved if it is established that the remaining assets after liquidation are not sufficient to proceed with its activities.

Under the provisions of Oman Sultani Decree No. 35/2003 on the Promulgation of the Labour Law, an employer is responsible for all obligations towards its employees arising under the contract of employment and Oman Sultani Decree No. 35/2003. Article 47 of Oman Sultani Decree No. 35/2003 states that the liquidation, insolvency or bankruptcy and final authorised closure of an employer are valid grounds for termination of an employment contract by that employer. To the extent that the employer terminates its employees on the ground of its insolvency, that would be considered a valid ground for termination of such employees.

Judicial composition

A judicial composition may be initiated by a bankruptcy judge after a declaration of bankruptcy at the request of an interested party. The liquidator will be asked to provide an opinion on the terms of the proposed composition, and similar to a preventive composition, approval of a majority of creditors (whose debts have been approved in the bankruptcy) is required, provided that the amounts owed to such creditors comprise of two-thirds of the total outstanding amount.

Once the creditors and the bankrupt person have agreed the terms of the judicial composition, it will be ratified by the judge and all effects of the person being adjudicated bankrupt will be removed. Upon ratification of the judicial composition, the liquidator must resign and the bankrupt person will be entitled to manage their assets.

A bankrupt person will not be entitled to enter into a judicial composition if they have been sentenced for committing fraud during the bankruptcy proceedings, and a ratified judicial composition may be annulled if the bankrupt person is later convicted a committing fraud during the bankruptcy proceeding.

Creditors’ union

If a bankrupt person does not apply for a judicial composition or the composition is rejected or annulled, the creditors will be ipso jure in a state of union.

Following the establishment of the union of creditors, the bankruptcy judge will convene a meeting of the union of creditors to appoint a trustee of the union of creditors and to determine whether to retain or change the liquidator, as may be determined by a majority of the creditors.

The trustee is not entitled to continue the business of the bankrupt person without the prior approval of three-quarters of the total number of creditors forming the union and the bankruptcy judge. The trustee may, however, be entitled to sell moveable and immoveable assets of the bankrupt person, the amount of which may be deposited into a designated bank account. The fees associated with the bankruptcy proceeding, the cost of administration of the estate, and any amounts to be paid to the bankrupt individual will be deducted from amounts realized from the insolvency, followed by amounts due to secured creditors. The remaining amount will be distributed amongst the unsecured creditors on a pro-rata basis based on the debts verified by the liquidator.

The official receiver may terminate the bankruptcy proceedings under the following conditions:


  • no debts were accepted in the bankruptcy proceedings or debts were owed to one creditor; 
  • the payment of all debts accepted under the bankruptcy proceedings; 
  • entering into a composition with creditors;
  • non-availability of property belonging to the bankrupt person that may be subject to the execution; and 
  • liquidating all the property of the bankrupt person and ratifying the final accounts.

Rehabilitation

A bankrupt debtor may be rehabilitated if such person has paid all due amounts and expenses owed to the creditors. In any event, all rights extinguished by virtue of a person being declared bankrupt will be restored three years from the date of the termination of the bankruptcy proceedings.

A bankrupt debtor who has been sentenced for fraudulent or negligent bankruptcies may not be rehabilitated unless in accordance with the provisions of Royal Decree No. 97/1999 on the Penal Procedures Law.

Penalties

If a trader submits a bankruptcy petition that it rejected by the court, and if the court believes that the trader had deliberately alleged bankruptcy, the court may sentence the trader to a fine of no less than OMR 200 and not exceeding OMR 500. A court may impose a similar fine on a creditor whose bankruptcy petition in respect of a trader is rejected by the court.

The Bankruptcy Law provides that a trader will be sentenced to imprisonment for a period of not less than six months and not exceeding three years, or a fine of not less than OMR 1,000 and not more than OMR 5000, or both, in the event that a trader:

  • in bad faith conceals all or some their property with the aim of achieving a restructuring or a preventive composition;
  • induces or enables a creditor to unlawfully participate in a restructuring or preventive composition; or
  • in bad faith neglects to include the name of certain creditors in the list of creditors.
Similarly, any creditor who takes part in a composition fraudulently or has conspired with the trader to vote for a composition in return for a benefit will be sentenced to imprisonment for a period of not less than three months and not exceeding two years or to a fine of not less than OMR 500 and not exceeding OMR 2000, or both. The composition trustee may be sentenced to the same penalty if they have provided, in bad faith, false information about the debtor.

The Bankruptcy Law prescribes penalties for experts, supervisors and liquidators who act in bad faith, and any person who provides false information in connection with the procedures set out in the Bankruptcy Law.

Conclusion

The Bankruptcy Law is part of the Omani government’s ongoing efforts to encourage investment in the Sultanate and to provide comfort to both foreign and domestic investors. The introduction of the concept of restructuring, as well the inclusion of strict time lines within which procedures are required to be completed will hopefully be beneficial both to businesses and investors in avoiding liquidation, and in the event a liquidation is required, managing the liquidation in a timely manner.

Given that the Bankruptcy Law will go into force in July 2020, it is hoped that the interim time will be used to identify the experts who will be listed in the roll of experts and that proper training is provided to all the relevant stakeholders for smooth implementation once the law goes into force. In addition, the Bankruptcy Law mentions that implementing regulations will be issued.

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