Wednesday, April 7, 2021

Joint Ventures in Oman

There are many different reasons why a business may seek to enter into a joint venture.  It may wish to access new markets, develop new products or benefit from the particular expertise of its joint venture partner or share risks and resources.  Curtis has worked on a diverse range of joint ventures in Oman across all industry sectors.  We understand the importance of ensuring that the joint venture structure and documentation encapsulate the underlying commercial objectives of the participants, whilst also being appropriate for the scale or complexity involved.

The phrase “joint venture” can have a number of different meanings.  Oman attracts significant foreign investment so it may involve the partnering of Omani and foreign investors.  The joint venture will typically involve the incorporation of a company to act as the joint venture vehicle.  This article will focus on corporate joint ventures since that is the most common approach, although the phrase “joint venture” may also be used to describe a contractual arrangement, for example, in the areas of commercial agency, franchise and (less commonly) a simple, unincorporated contractual co-operation agreement.

Structuring the joint venture

Curtis has been at the forefront of the Omani legal market in our understanding of corporate law, including Sultani Decree 19/2018 (the “Commercial Companies Law”) and its practical interpretation by the relevant government officials and legal departments, enabling us to devise and implement optimal corporate structures for our clients.

We work closely with the relevant licensing authorities to ensure that various corporate structures proposed by us for joint ventures are acceptable.  In our experience, such authorities are keen to engage with us to enable innovate corporate structures, given their objective of attracting and facilitating foreign investment into the country.

Our objective is to allow our clients to focus on their business and have a legal corporate structure that they know is robust and flexible enough for their short, medium and long term objectives.

Key provisions in joint venture or shareholders’ agreements

In addition to our structuring expertise, Curtis also has a wealth of experience in advising on the relevant joint venture documentation.  Various documents will be required depending on the circumstances of the joint venture, but typically the principal document will be the joint venture or shareholders’ agreement.

The following are key provisions in any joint venture agreement (although there are others which are not noted below):

  • The purpose and scope of the joint venture.
  • Board composition and management arrangements.
  • Financing of the joint venture company.
  • Reserved matters requiring consent of shareholders/directors and voting requirements.
  • Dividend policy.
  • Restrictive covenants.
  • Deadlock resolution.
  • Transferability of shares under different circumstances.
  • Termination or exit from the joint venture.

Certain of these matters are discussed in more detail below.

1.  Board composition and management arrangements

Board composition will usually be proportionate to each party’s shareholding.  In a 50:50 joint venture, it would be normal for the parties to be entitled to appoint an equal number of directors, although this is not always the case.  Any party that has minority representation on the board should require a number of issues to be reserved for shareholder approval, depending on the nature of control and veto rights which are appropriate to the joint venture.  The list of shareholder reserved matters will often be one of the more heavily negotiated aspects of a joint venture agreement.

Under joint venture agreements, it is common for the shareholdings of parties to be subject to mechanisms that change these, e.g., on a capital call, one shareholder may subscribe for shares whilst the other may not, so diluting the latter shareholder.  It is therefore important that board composition provisions cater for the possibility of change and enable board appointment rights to vary where a shareholder’s proportionate ownership has increased or decreased.

Day-to-day management of the business of the joint venture will often be delegated by the board to the general manager or CEO.  In a 50:50 joint venture, the board will normally be entitled to appoint the general manager or CEO, but this is not always the case and in certain instances this right could be given to one of the shareholders.  Whilst the general manager or CEO will have broad powers to operate the business on a day-to-day basis, it is important to ensure that certain key matters are reserved to the board or the shareholders.  This is of particular significance for a shareholder where the other shareholder has the right to appoint the general manager or CEO.

2.  Financing of the joint venture company

In any joint venture, the funding provisions need to be carefully tailored to reflect the parties’ chosen method or methods of funding the joint venture company.  There are various options available but a typical process would involve the board of the joint venture company (or senior management such as the CEO) deciding that funding is required.  Following this “funding call” an agreed mechanism will determine from whom funding should be procured (for example, loans from banks or other third parties or equity/shareholder loans from the shareholders).  This would often be subject to shareholder approval, with the deadlock resolution mechanism being invoked if the shareholders cannot agree on any relevant issues within a stipulated timeframe (see Deadlock resolution below for further details).

Where the shareholders are obliged to make contributions (typically pro rata to their shareholdings), the agreement should clearly state what happens if one of them defaults.  For example, should the other shareholder be able to fund the shortfall amount and receive additional shares, thereby further diluting the defaulting shareholder?  Or should the other shareholder be entitled to provide a shareholder loan equal to the shortfall amount and, if so, should this shareholder loan rank ahead of all other shareholder loans and attract a preferential rate of interest?  A failure to comply with a funding obligation would also typically constitute an event of default triggering the compulsory share transfer provisions, whereby the non-defaulting shareholder can elect to purchase the shares of the defaulting shareholder at a discount to market value (occasionally an option is also included for the non-defaulting shareholder to sell its shares to the defaulting shareholder at a premium to market value).  These types of clauses are designed to incentivise the shareholders to comply with their funding obligations, providing the joint venture company with the financing it needs to successfully operate its business.

3.  Dividend policy

It is important for the parties to consider the dividend policy of the joint venture company at the outset.  This will often depend on the nature of the business, in particular on whether the joint venture’s purpose is intended primarily to be cash-generating or as a growth company.

The dividend policy will need to be clearly stated in the joint venture agreement in order to reduce the likelihood of a dispute arising in the future.  One option is to provide for the distribution of an annual dividend of a certain percentage of the joint venture company’s annual profits.  A more flexible option is to allow the board of the joint venture company to determine a reasonable level of dividend on an annual basis.  In either case, it is important to include certain caveats – for example, dividends should only be payable to the extent that they comply with applicable laws (for example, regarding distributable reserves or requirements to maintain a reserve) and do not result in the joint venture company being in breach of any of its banking covenants.  Where it is envisaged that the parties will make shareholder loans to the joint venture company, the joint venture agreement should make it clear that no dividends will be paid until all such shareholder loans have been repaid in full.  The payment of dividends would often be subject to shareholder approval, with the deadlock resolution mechanism being invoked if the shareholders cannot agree within the stipulated timeframe (see Deadlock resolution below for further details).

4.  Deadlock resolution

Deadlocks can arise in various circumstances, but the most common circumstance is when a board or shareholders’ resolution is not passed by the requisite majority of directors or shareholders, respectively.

It is usual to ensure that, as a first step, appropriate efforts are made by the parties and their representatives to resolve a deadlock.  There could be a “cooling off period” during which the parties are required to use reasonable endeavours to resolve the dispute within a certain period of time.  If they are unable to do so, referring the dispute to the chairman/CEO of each party can be a useful tool.  It is not uncommon to refer disputes to an independent expert, although it may not be sensible to have a third party adjudicate on a matter of commercial or financial significance.
Other, more extreme options can be included but these should be used with caution as they have the potential to bring the joint venture to an end and can be manipulated by an unscrupulous party.  However, such options include the following in a deadlock situation:
  • “Russian Roulette”:  Under this mechanism, any party may serve a notice on the other, either requiring the receiving party to purchase its entire holding from it, or for the receiving party to sell its entire holding to the initiating party, at the price set out in the notice.  The receiving party then has a period in which to accept the offer made in the notice or reject it, in which case the roles of “vendor” and “purchaser” are reversed.  This method ensures that a realistic price is set by the initiating party, as that party may either have to sell its holding, or buy the other's holding, at the price it states in the notice.
  • “Texas or Mexican Shoot Out”:  Under this mechanism, the initiating party may serve a purchase notice on the receiving party stating that it is willing to buy the other out and setting the price at which it is prepared to buy.  The receiving party then has a period in which to serve a counter notice, stating that it either (i) is prepared to sell at the price contained in the purchase notice; or (ii) wishes to buy the interest of the initiating party at a higher price.  If the latter situation occurs and both wish to buy, then a sealed bid system will be put into operation, with the person who bids highest being entitled to buy the other out.  Alternatively, this bidding process can be run as an auction with the parties raising their bids in competition with one another.  This is a starker mechanism than the “Russian Roulette” procedure.  It is more openly susceptible to misuse where one party does not have the resources or desire to buy, requiring a strong nerve in that case to increase a low opening price.
Naturally, these mechanisms and the points raised above will not be appropriate for all joint ventures so it is important that the parties carefully consider the relevance and applicability of these provisions at the outset.

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Thursday, February 18, 2021

International Chamber of Commerce's Revised Rules of Arbitration

The International Chamber of Commerce (“ICC”) has unveiled revised Rules of Arbitration which will come into force on 1 January 2021 and will be applicable to cases submitted to the International Court of Arbitration on or after the enforcement date (the “Rules”).

The significant changes introduced by the ICC to the Rules include the following points:

1. ICC Appointment of the Arbitral Tribunal

The amendment to Article 12(9) grants the ICC the authority to appoint all members of the arbitral tribunal when there is an innate inequality or unfairness in the parties’ arbitration agreement. The amendment was added to address specific situations in which implementing the parties’ arbitration agreement would result in an unequal treatment of the parties, and might consequently jeopardise the enforceability of any award.

2. Joinder for Additional Parties

Under the previous Rules, a party was only able to request the addition of an additional party before the confirmation or appointment of any arbitrator or if all the parties, including the additional party, agreed to the addition.

The newly introduced Article 7(5) of the Rules allows for a request for joinder to be made before the arbitral tribunal and after the confirmation or appointment of any arbitrator. The arbitral tribunal may, after considering all the relevant circumstances, and without the consent of the other party in the arbitration, accept the request for joinder.

3. Consolidation of Arbitrations

The 2021 Rules have amended Article 10(b) of the ICC Rules. From now on, consolidation is possible where “all of the claims in the arbitrations are made under the same arbitration agreement or agreements.” This new amendment permits the consolidation

4. Treaty-based Arbitrations

Article 13(6) of the Rules states that “Whenever the arbitration agreement upon which the arbitration is based arises from a treaty, and unless the parties agree otherwise, no arbitrator shall have the same nationality of any party to the arbitration.

The ICC added this provision to ensure the neutrality of the arbitral tribunal and to preserve the fairness of the arbitration process by establishing that no arbitrator in a treaty-based arbitration should have the same nationality of any party to the arbitration, unless otherwise agreed by the parties.

5. Changes in Party Representation

In accordance with the Article 17, if a party changes its representative it must immediately inform the ICC Secretariat, the arbitral tribunal, and the other parties. The arbitral tribunal may take any measure necessary to avoid a conflict of interest for an arbitrator arising from such a change. This includes excluding new counsel from participating in whole or in part in the proceedings.

6. Expedited Rules

After witnessing the results of the expedited procedures set out in the 2017 Rules of Arbitration, the threshold of US$2 million dollars has been raised to US$3 million dollars in the 2021 Rules. Cases that fall under the expedited procedures umbrella usually take less than six months to render the award. The procedure is also now more cost-effective.

As of date, in cases where the amount in dispute is less than the US$2 million threshold, the parties may opt out of the expedited procedure, and parties may agree to opt into this procedure where the amount in dispute is higher than this threshold.

7. Virtual Hearings

The modified Article 26(1) of the 2021 Rules introduces in clear terms the possibility of holding virtual hearings, which have become the new normal in light of the recent COVID-19 pandemic. The article sets out several possible modes of communication including, but not limited to, videoconferencing, telephone, or other appropriate means of communication.

Under the ICC Rules 2017, the videoconferencing and telephonic communications were limited to conducting case management conferences under Article 24 and expedited arbitration proceedings under Article 30. Now, under the ICC Rules 2021, the aforesaid modes have been further recognised so as to extend to the conduct of full arbitration hearings.

The new wording further clarifies that a hearing need no longer be held in person, unless any party so requests, or if the arbitral tribunal deems it necessary.

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Wednesday, December 9, 2020

The Marketing And Promotion of Banking, Insurance, and Investment Products and Services in Oman

We are often asked to advise on the restrictions on foreign entities marketing and promoting financial services in Oman. Below we set out the position with respect to marketing in three key areas.

Banking services

 Under article 52 of the Banking Law, promulgated by Sultani Decree 114/2000, as amended (the “Banking Law”):

“No person shall engage in banking business in the Sultanate as either a domestic or foreign bank, or practice any other banking activity whatsoever, unless such a person has been granted a licence by the Central Bank…”

 However, article 50 of the Banking Law provides that:

“… a foreign bank may use its name and publicize its business activities if such use and publicity clearly establish that such foreign bank does not engage in the banking business within the Sultanate.”

To the extent that a foreign bank’s contact with customers is restricted to servicing their accounts in the country where the bank is registered, or in the bank’s overseas branches or offices, this should not constitute a violation of Omani law.

When offering the foreign bank’s services or products to customers, so long as the bank makes clear to customers that it is not offering such products and/or services in Oman, this should not constitute a breach of Omani law.

Insurance

Insurance in Oman is regulated by Insurance Companies Law promulgated by Sultani Decree 12/1979, as amended (the “Insurance Law”). 

Except for the provision of life insurance to non-Omanis, the Insurance Law prohibits insurance contracts with foreign companies which are not commercially registered in Oman.

Therefore, a foreign entity may promote life insurance policies provided by third parties to nonresident expatriates in Oman. However, the entity may only promote third-party insurance products (other than life insurance) to non-resident expatriates in Oman if those policies do not cover risks that (a) are situated in Oman; (b) originate in Oman; or (c) are connected with property in Oman.

If such third-party insurance products (other than life insurance) cover risks that (a) are situated in Oman; (b) originate in Oman; or (c) are connected with property in Oman, then they may be offered or provided only by entities licensed to offer such products in Oman.

Securities

The main legislation that governs all forms of marketing and sale of foreign securities in Oman is the Capital Markets Law promulgated by Sultani Decree 80/1998 (the “CMAL”) and the Executive Regulations of the Capital Markets Law Decision 1/2009 (the “Executive Regulations”).

“Securities” are defined in the CMAL as “shares and bonds issued by joint stock companies and the bonds issued by the Government and its Public Authorities, treasury bonds and bills and other securities negotiable in the Market.” Despite the apparent restricted scope of this definition, the Capital Markets Authority (the “CMA”) in practice regulates any kind of investment product that is offered or marketed in Oman.

Article 117 of the Executive Regulations contains a general restriction on the offering and marketing of non-Omani securities within Oman without the approval of the CMA.

In our opinion, the marketing of mutual funds without the approval of the CMA would be a violation of Omani law.

Conclusion

In conclusion, a foreign bank may contact its customers in Oman to service their accounts and to offer products and services as long as in doing so it makes clear that the bank does not conduct any banking business in Oman. 

A foreign entity may promote third-party insurance policies (other than life insurance) to non-resident expatriates, provided it does not cover risks that (a) are situated in Oman; (b) originate in Oman; or (c) are connected with property in Oman.

The marketing of mutual funds is not permissible without the approval of the CMA.

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Tuesday, November 3, 2020

Income Tax Law

The provisions of the Income Tax Law (“ITL”) have been amended by Sultani Decree 118/2020. This change partially comes within the framework of the Sultanate’s accession to a number of international agreements on tax affairs related to information exchange, which were signed on 26 November 2019 at the OECD headquarters in Paris. Significant changes to the ITL include: introduction of a new section titled tax residency; the requirement to file only one tax return but within four months from the end of the relevant tax year or accounting period; and enabling provisions to facilitate Automatic Exchange of Information (“AEOI”) between tax jurisdictions. The general rule is that the financial information of an individual cannot be disclosed to anyone but the concerned person; however, Article 29 of the amended law specifies the cases wherein the appointed person in the Tax Authority can disclose financial information, data or documents:

  1. The concerned person explicitly consented to the disclosure,
  2. Implementation of a decision issued by the Income Tax Committee,
  3. Implementation of a decision or judgment issued by a competent judicial authority, and implementation of a fatwa request, or
  4. Decision issued by an official body legally authorised to do so.
In accordance with AEOI, the Tax Authority has the right to obtain any financial data, information or documents from any person for the purposes of implementing the provisions of international bilateral or multilateral treaties concerned with tax affairs, including requesting any information related to any person from any licensed bank in the Sultanate. Furthermore, the bank is legally not authorised to notify its client of the search, and refusal to oblige to the Tax Authority’s request may result in administrative penalties.

This provision comes as an exception to Article 70 of the Banking Law and Article 29 of the amended ITL. The Tax Authority is also authorised to conduct search proceedings at the concerned person’s residence to obtain any relevant information.

The tax residency was introduced in the amended ITL to define the persons subject to the provisions of the ITL. The amended law provides that the persons that are legally considered tax residents are:

  • Natural persons residing in the Sultanate who are present in the country for more than 183 continuous or intermittent days within a tax year.
  • Legal persons if they are either an established entity in the Sultanate or if their headquarters or actual place of management is in the Sultanate.
Furthermore, all appeals against the Tax Authority objection decisions shall now be filed with the Tax Grievance Committee. The appeal to a decision should be submitted in writing to the Committee, including the complainant’s request and the reasons on which the complaint are based, within 45 days from the date of his notification of the objection decision issuance or from the date of the expiration of the period specified for adjudication.

These measures will support the Sultanate’s participation in international efforts aimed at curbing tax evasion and tax fraud crimes.

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Wednesday, October 28, 2020

VAT To Be Introduced In Oman From April 2021

On 12 October 2020, Sultani Decree 121/2020 in relation to the implementation of value added tax (“VAT”) in Oman was issued (the “VAT Law”). Following the introduction of VAT in Saudi Arabia, the United Arab Emirates and Bahrain, Oman will be the fourth GCC country to implement VAT in the region.


The VAT Law will set out the general principles for the application of VAT in Oman in line with the Unified GCC Agreement for Value Added Tax. The VAT Law is expected to be published in the Official Gazette on 18 October 2020 with an effective date for the introduction of VAT in April 2021.

The VAT Executive Regulations will provide more detail on specific areas of the Law and are expected to be published by December 2020.

Although the information currently available is limited, the Oman Tax Authority has begun to issue some information on the VAT Law through its social media channels, including that the following categories will not be subject to VAT at the standard rate of 5%:
  1.  Basic food commodities.
  2. Medical care services and associated goods and services.
  3. Education services and associated goods and services
  4. Requirements for people with disabilities.
  5. Supplies for charities.
  6. Financial services.
  7. Undeveloped lands (vacant lands).
  8. Resale of residential properties.
  9. Passenger transport services.
  10. Renting out real estate for residential purposes.
  11. Supply of medicines and medical equipment.
  12.  Supply of investment gold, silver and platinum
  13. Supplies of international transport and interchange of goods or passengers, and the supply of associated services; the supply of marine, air and land transportation means intended for the transport of goods and passengers for commercial purposes, and the supply of goods and services associated with transport.
  14. Supply of rescue and aid aircraft and vessels
  15. Supply of crude oil, petroleum derivatives and natural gas.
The issue of the Royal Decree is a significant and long-awaited step in the introduction of VAT in Oman. Although further guidance is expected over the coming days and weeks, businesses should consider immediate steps on how to best prepare and assess the impact of VAT on their business activities in Oman.

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Tuesday, September 22, 2020

Overview of the Excise Tax Law

The Excise Tax Law (the “Excise Law”) was promulgated on 13 March 2019 by Sultani Decree 23/2019, and came into effect 90 days after its publication. The Sultanate is the fifth Gulf Cooperation Council (“GCC”) country to introduce an excise law, thereby implementing the unified GCC Excise Tax Agreement. 

The Tax Authority issued the Executive Regulations of the Excise Law on 19 July 2019. The regulations address details and rules of aspects of the Excise Law, including the process of registration, tax warehouse conditions of operation and procedures, tax suspension, tax exemption and penalty articles.

Excisable goods as defined by the Excise Law are “[g]oods that are harmful to human health or the environment; or luxury goods, whether such goods were produced locally or imported, and are subject to Tax in accordance with the provisions of this Law.” The broadness of the definition is narrowed down by Ministerial Decision 112/2019, published on 2 June 2019, which categorises excisable goods as: tobacco products, carbonated drinks, energy drinks, pork products and alcohol drinks. The rate applied on the excise goods is 50% on carbonated drinks and 100% on the rest. Currently there is a temporary reduction rate on alcohol drinks imposed by the Secretariat General of Taxation, Ministry of Finance. The Ministerial Decision has yet to be amended to reflect the change.  

The Excise Law differentiates between three types of persons:

  • Responsible Person: any individual that is associated with the person liable to tax, and shall replace the liable person in fulfilling his obligations related to the implementation of the provisions of this law.  
  • Registered Person: an individual registered with the Secretariat General. As an exception, importers who bring in excisable goods on an “irregular basis” (e.g., only once every two years or so) are exempted from the registration requirements. 
  • Person Liable to Tax: a registered person or any other person liable to pay tax. 
Registered Persons may appoint Responsible Persons and must notify the Secretariat General of the appointment in accordance with the Executive Regulations. Individuals required to be registered shall be subject to the Excise Law, even if they do not comply and register.

Examples of exemption from Excise Tax include excisable goods received by diplomatic bodies, consulate bodies, certain international organisations and the like, as well as excisable goods carried or transported for non-commercial purposes by individuals coming to Oman. 

Furthermore, the Excise Tax can be suspended if the excisable goods are stored or received in a tax warehouse, the transfer or movement of excisable goods is from one tax warehouse to another within Oman or across the GCC countries, and the transfer of excisable goods is to designated exit points for export. 

Administrative penalties imposed on individuals that do not comply with the Excise Law range from OMR 500 to OMR 20,000 and an imprisonment period of not less than two months and not exceeding three years.

The introduction of the Excise Law highlights the Sultanate’s shift in economic policy, specifically in the form of a growing appetite for imposing new taxes - a policy direction that the Sultanate’s neighbouring states have already taken. It is expected that the Sultanate may introduce other tax laws in the near future.  

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Wednesday, August 19, 2020

Executive Regulations of the Foreign Capital Investment Law

The Ministry of Commerce and Industry issued Ministerial Decision 72/2020 (“MD 72/2020”) issuing the Executive Regulations of the Foreign Capital Investment Law (Sultani Decree 50/2019). The Executive Regulations repeal all that previously contradicts MD 72/2020 and will be published in the Official Gazette and come into effect from the day following its publication date, 14 June 2020.

Sultani Decree 50/2019 promulgating the new Foreign Capital Investment Law (“FCIL”) came into force six months after the date of its publication, removing the requirement of an Omani partner and reducing shareholding limitations on foreign investors, thus allowing 100% foreign investor-owned companies. The FCIL and the Executive Regulations bring emphasis to the Sultanate’s commitment to further economic progress through permitting the establishment of wholly owned non-Omani companies, exemptions and incentives. 

The Executive Regulations introduce us to the investment license, defined under MD 72/2020 Article 1 as the approval issued by the competent authority for the foreign investor to establish the investment project; the foreign investor may only establish the investment project after obtaining the investment license. In order to obtain the investment license, an application must be submitted to the electronic system detailing and consisting of: the name of the investor and its nationality, its place of residency, bank details of the investor, the activities that the investor wishes to practice, previous experience of the foreign investor (if any), the total number of employees that are expected to be employed in the investment project, the expected time frame of the project, the date of commencement of the project, an economic feasibility study of the investment project, a certificate of approval that is issued by the bank/office pursuant to Article 7 and any other information or documents that the competent authority may deem necessary. 

Upon the submission of the application, the competent authority is responsible for reviewing and examining the submitted application in regards to obtaining the license required for the establishment of the investment project, and is required to reach a decision within 14 working days from the date of submission. If there is no feedback/response within this period, this would indicate approval of the application. Following this, the competent authority will issue the license within a period of three days from the date of obtaining/satisfying all approvals, permits and licenses that are required for the investment project. 

In addition to the further clarifications that the Executive Regulations have provided of the FCIL application and submission process, they also provide incentives and benefits for foreign investors wishing to establish wholly owned non-Omani companies. Such incentives include exemptions that are permitted through a decision from the council of ministers for investment projects that are to be establishment in less-developed regions in Oman. The exceptions are as follows: 

(i) Exemption from the rental value or the return of the right to use the land and real estate that is necessary for the investment project, for a period not exceeding five years from the date of the operation of the project. 

(ii) An exemption from the current Omanisation requirements for a period of two years from the date of the operation of the project. 

(iii) Exemption from all or part of the fees. 

While the new FCIL and Executive Regulations aim to enhance and promote foreign investment in the Sultanate of Oman, there is a negative list of activities that restricts foreign investors from practising activities in those areas, typically small-scale industrial activities. 

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Tuesday, July 21, 2020

Oman Abolishes the No-Objection Certificate

The Sultanate has announced its decision to abolish the No-Objection Certificate (“NOC”) for expat workers who wish to transfer their services to different sponsors upon the termination of their services with existing sponsors. The decision to cancel NOCs will be enforced from the start of 2021 with the aim of making the labour market more attractive and competitive, as well as correcting its conditions.

The cancellation of the NOC is largely due to the Sultanate’s accession to the International Covenant on Social, Economic and Cultural Rights, which the Sultanate agreed to join on 7 April 2020 in accordance with Royal Decree 46/2020 issued by his Majesty Sultan Haitham Bin Tarik.

Article (6) of the Covenant states that countries that are party to the Covenant shall recognise “the right to work,” which reserves to every individual a right to earn a living by practicing a work of his/her choice or accept it freely. The same article requires signatories of the Covenant to take necessary action to guarantee this right.

Article (7) of the Covenant states that the signatory countries that are party to the Covenant shall recognise the right of every individual to enjoy fair and satisfactory terms of employment.

The decision of the Royal Oman Police (ROP) amended some provisions of the Executive Regulations of the Foreigners Residence Law, issued by Royal Decree 40/15. Article (1) replaces the text of Article (24) of the Executive Regulations. The repealed article stated that an expatriate employee shall not be granted an employment visa if he or she has worked in Oman but has not completed two years from the date of his or her last departure; the employee can return to the same employer anytime within two years or he can join a new company, provided there is a NOC from the last employer. The new article states that “expatriate resident visas may be transferred from one employer to another who has a license to recruit workers, provided the evidence of the expiry of contract or termination of the employment contract is presented with proof.” There should be an approval of the competent government authority on the second employer’s contract with the expatriate, per the rules. The transfer of residence permits belonging to the expat’s family members to the new employer will be allowed.

It is hoped that this decision will achieve many positives for business owners, including the adoption of the principle of labour contracts that will regulate contractual relations between employers and workers in a manner that guarantees the rights and duties of both parties. Also, such contracts will provide an aspect of protection for employers in terms of keeping the confidentiality of their data with them, and to ensure that there is no competition if the employer wishes to leave.

One of the main advantages of implementing this decision is to enhance the competitiveness of the Omani workforce.  In addition, the decision will result in reducing costs and administrative burdens resulting from deportation procedures and the settlement of legal status.

It is expected that this decision will support the Sultanate’s efforts to combat black market trade, as it will reduce the ability of some employers to exploit the issuing of NOCs. Also, this decision will result in a local market for talents that enjoys the dynamics of supply and demand.

A grace period has been provided for the application of this decision extending until the beginning of 2021. As for the rights to confidentiality of the information the worker accesses during the contracting period, the law allows employers to conclude non-disclosure agreements to preserve confidential information even after the worker has moved to work with another employer. With regard to the possibilities of the worker moving to a direct competitor, employers may conclude a non-competition agreement to ensure that the worker does not move to a direct competitor after the end of the contractual period between them.


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Tuesday, June 9, 2020

Coronavirus (COVID-19) and the Force Majeure Event: The English Law Perspective

The spread of coronavirus (COVID-19), which was declared a pandemic by the World Health Organization on 11 March 2020, is impacting business relationships around the world and has created novel legal issues which affect various areas of law from contracts to banking, regulatory issues, taxation, employment matters, disputes and many others.

This note focuses on the relevance of force majeure on contracts under English law.

i. Force majeure 

In general terms, force majeure refers to events outside the control of the parties, for example, natural disasters or the outbreak of hostilities, which render performance under the contract impracticable or impossible, or which delay performance. It is common for the parties to a contract to provide that such force majeure events will not make the defaulting party liable if they prevent it from performing its obligations.

The concept of force majeure is derived from civil law, and under English law it is wholly a creation of contract. There is no statute establishing the ability to rely on force majeure, and no statute which defines what will constitute a force majeure event. Instead, force majeure relies on the provisions specific to a particular contract. Therefore, under English law a party can only claim force majeure if the terms of the contract allow it. The details of the agreed contract are particularly important in this context.

Many contracts include force majeure clauses which contain a list of events beyond the control of the parties, such as wars, riots and other civil emergencies, as well as natural disasters such as floods, earthquakes and hurricanes. Parties can also agree to include a pandemic or epidemic as a force majeure event.

Whether COVID-19 falls within the scope of a force majeure clause will depend, therefore, on the language of the clause itself. Clearly, if the force majeure clause relieves a party from performing its obligations in the event of a pandemic or epidemic or government-imposed quarantine, COVID-19 is likely to be a qualifying event. Subject to the specifics of the clause, it may also be necessary to show that the contractual performance is actually being impacted or delayed by COVID-19.

 Even without an express reference to an epidemic or pandemic, the current situation may still be covered by other language in a clause. For example, it is common to have “an Act of God” as a force majeure event. In such a case, it will be important to properly evaluate the entire language of the clause and its specific contractual context in order to assess whether COVID-19 is covered by this term. Currently, the English case law provides little guidance on the point. As such, we consider it likely that there will be significant litigation on this issue in the coming months and years.

ii. How is performance affected?

There must be a fundamental causal nexus between the force majeure event and the ability to perform the contractual obligation. Most clauses operate such that the performance must be prevented, hindered, or delayed. It will usually not be possible to invoke force majeure just because the performance has been made more difficult or less profitable.

In addition, a party invoking force majeure will usually have to show the attempts it has made to mitigate the non-performance and reduce, for example, the damages or the delay in performance. As a matter of evidence, the burden of proof is with the party invoking force majeure.

iii. Consequences of force majeure

The precise effect of successfully invoking force majeure will vary from contract to contract. Often the successful invocation will result in some form of relief from the complete or timely performance of the contract. As well as being relieved from its obligations, the successful party may not be liable for damages as a consequence of its non-performance, or may get an extension of time to perform, or a suspension of certain other contractual terms.

iv. Other considerations

Adequate notices should be provided to the other party in accordance with the contractual provisions. Notices may have to be given within a certain period, and may require complying with certain formalities. The English courts strictly police compliance with such formalities.

In addition, going forward, businesses may consider including “pandemic” or “epidemic” in their force majeure clauses.

v. Compliance with law

It is common for contracts to have a general provision requiring compliance with the applicable law. It is possible that such clauses will provide protection to a party which has had its ability to perform the contract hindered by government-ordered action, even where there is no force majeure clause.

vi. Doctrine of frustration

When the contract is silent and does not contain any force majeure provision, it may be possible under certain circumstances to rely on the common law doctrine of frustration. For a contract to be frustrated, there must be a significant change in circumstances which is not the fault of either party, and which make the contract impossible to perform. In these circumstances, COVID-19 could be invoked as the supervening event.

For example, depending on the type of contract, it may be possible to argue that either one or both of the government lockdown or the COVID-19 virus itself has frustrated the contract. Long-term contracts are less amenable to claims of frustration where the impact of COVID-19 may be severe but temporary. The consequence of frustration is that the contract comes to an end and the parties’ future contractual obligations are automatically discharged.

vii. Conclusion

Businesses which have been impacted by COVID-19 would be advised to carefully:

  • review their contracts;
  • review the force majeure clauses, if there are any, to determine whether the current situation falls within them;
  • analyse the notice provisions for invoking force majeure;
  • consider any compliance with applicable law provisions; and
  • consider whether the contract has been frustrated. 
In all cases the analysis should be targeted on the specific contracts and will have to be applied on a case-by-case basis. 

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Wednesday, June 3, 2020

eSignatures under Omani Law

In 2008 the Electronic Transactions Law (the “Law”) was promulgated by Sultani Decree 29/2008 in order to regulate electronic commerce in Oman. Since then, eSignatures have become increasingly accepted and used by businesses in Oman.

eSignatures are valid, admissible in court and enforceable, subject to the conditions set out below.

The Law recognises three types of eSignatures:

1. Secure eSignatures (Article 22)

This category of eSignatures is best protected under the Law because reliance on such signatures is presumed to be reasonable. Consequently, protected eSignatures are accepted as valid and have probative value unless otherwise established.

An eSignature is considered “protected” if it is possible to verify, through (1) the implementation of precise authentication procedures as required by the Law (such as by way of an electronic authentication certificate); or (2) as commercially acceptable and agreed upon between the parties, that at the time of its execution, the eSignature is attributable only to the person who used it, and:

  • the signature-generating apparatus is used only by the signatory;
  • the signature-generating apparatus was, at the time of signing, under the control of the signatory and no other;
  • any alteration to the electronic signature after the time of signing is discoverable; and
  • any alteration to the information relating to the signature after the time of signing is discoverable. However, any concerned person may adduce evidence to prove that the electronic signature is reliable or not.

2. eSignatures which do not fall into the “protected” category (Articles 11 and 23)

eSignatures which are not considered “protected” pursuant to Article 22 may nevertheless also be recognised as having legal force and effect, as long as reliance on the eSignature is reasonable.

Reasonableness is not presumed in such cases; the court will, in order to determine whether reliance on an eSignature is reasonable, take into account several factors, including the following:

  • the nature, value and importance of the concerned transaction;
  • whether the person relying on the eSignature took appropriate steps to determine whether the eSignature or certificate is reliable;
  • any previous agreement or transaction between the originator and the approved party; and
  • any other relevant factor.
Reliance is not considered reasonable where the eSignature is enhanced with an electronic authentication certificate and the relying party fails to verify the validity, applicability and restrictions of the certificate. In such cases, the relying party will be responsible for all risks resulting from the invalidity of the signature unless otherwise established.

3. Foreign eSignatures (Article 42)

In determining whether a foreign eSignature is valid, any agreement between the parties in respect of the transaction in which that signature is used shall be considered, provided that it is not contrary to Omani law.

The Omani courts accept eSignatures as having legal force and effect as long as they meet the requirements of the Law. For example, in order to consider an eSignature valid, Omani courts will determine whether the eSignature is protected and/or the reasonableness of the reliance a person may have on the eSignature. The Omani courts will also consider available evidence including electronic evidence.

eSignatures in connection with electronic transactions and commerce have probative force. Article 2 of the Law provides that the Omani courts will not, however, accept eSignatures with respect to the following documents:
  1. transactions and matters concerning civil status such as marriage, divorce, and wills and endowments;
  2. court proceedings, judicial summons, proclamations, summons, search orders, arrest orders and judicial decrees; and
  3. any document required by law to be authenticated by a notary public.
With respect to the incorporation of the use of eSignatures, ‘protected signatures’ are the best protected type of eSignature under the Law. In order to avail the benefit of this protection, it is important to ensure the requirements in Article 22 (as listed above) are satisfied.

Steps to adopt in order to incorporate the use of eSignatures include:
  1. Determining a duly accredited person which issues electronic authentication certificates and any services or tasks related to it and to eSignatures as regulated under the Law. In order to be duly accredited, this person must hold a certification services provider license in Oman;
  2. Engaging this person to issue an eSignature tool and electronic authentication certificates for your use; and
  3. Implementing all due care and diligence in your use of the eSignature tool, in line with the directions provided by the certification service provider.
It is also important to ensure, when incorporating the use of eSignatures, that such eSignatures are not used with respect to the classes of documents excluded by Article 2 (listed above).

In summary, when deciding whether the use of an electronic signature will be recognised and enforceable, it is important to consider the following:
  1. Whether the type of document with respect to which the eSignature is used may be signed by way of eSignature under the Law.
  2. Whether the signature qualifies as a protected signature under Article 22;
  3. Where an eSignature is being relied on, other than pursuant to Article 22, whether such reliance would be considered reasonable by the courts; and
  4. The jurisdiction in which the agreement or document will need to be recognised and/or enforced. If a jurisdiction other than Oman is involved, it is important to consider its laws regarding eSignatures.
The use of eSignatures also imposes additional duties on a signatory, set out under Article 19. There may be repercussions if these duties are not fulfilled. These duties include notifying concerned persons, without any unjustifiable delay, in the instance of finding out the signatory’s signature tool was or may have been exposed to safety risks based on circumstances or facts made known to him/her.

What would be the risks of proceeding with eSignatures in the event that the law is vague or does not permit/recognise them?

As long as the requirements set out above are fulfilled, there should be no significant risk that the Omani courts will not consider the eSignatures valid.

That said, certain non-legal concerns that must be addressed, in particular with respect to the possible vulnerability of eSignature tools to cyber-attacks, security breaches or misuse. Misuse of an eSignature may result in significant damage to the authorised person to whom the eSignature is linked.

It is therefore extremely important, in order to protect the signatory from any external or internal misuse, to implement high security measures to ensure only the authorised person to whom the eSignature is linked may access and use the eSignature. Measures that may be undertaken include secure storage of the eSignature and authentication certificate, and not sharing access to the eSignature or authentication certificate with any other person.

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