Tuesday, March 31, 2009

Frequently Asked Questions: Protecting Your Ideas

If you have recently come up with a good idea, you may wonder if you can get legal protection in order to prevent others from using or stealing it. Protection for ideas falls under the category of Intellectual Property, which includes copyrights, patents, trademarks and trade secrets. Determining whether your idea or project qualifies for protection through copyright, patent or trademark law depends on the form your project or idea takes.

Copyright protection applies to creative expression, such as music, art, books, photography, movies and dances. It should be clarified that copyright does not cover ideas and information themselves, only the form or manner in which they are expressed.

Trademarks are marks that are used to show where a service or product comes from and to distinguish those products and services from others. Examples of trademarks include most brand names and logos.

Patents are used to protect inventions. A patent is a right given by a government which allows the inventor to prevent other people from using his idea for a certain period of time. In order to get the patent rights from the government, the inventor must disclose his idea.

Trade Secrets are formulas, processes, practices or compilations of information that companies seek to keep secret in order to obtain competitive advantages. Trade secrets are generally protected by private contracts and agreements.


Friday, March 27, 2009

Doing Business in Oman: Escrow Accounts

In Oman, an escrow account can be a useful tool in transactions involving the sale of property to ensure the safe and smooth closing of the sale.

The escrow account allows the purchase funds to be held separately until the satisfaction of some outside condition (such as the delivery of a title deed or other essential document). Once the condition is met, the funds are dispersed according to the terms of an escrow agreement.

The escrow agreement is an agreement that is entered into between a buyer, a seller and an escrow agent (such as a bank). The escrow agreement instructs the escrow agent when and under what conditions it should disperse the escrow funds to the seller, or return them to the buyer.


Thursday, March 26, 2009

Oman India Investment Fund

The Omani and Indian governments recently announced the upcoming launch of a US$100 million Joint Investment Fund. The fund will invest in core infrastructure and real estate sectors in both countries, and is meant to catalyze and encourage investment from the private sector.

Oman and India also have the option of inviting other entities to participate in the fund.

The investments are likely to be made in tourism, health, telecom and urban infrastructure projects. While the initial capital is set at US$100 million, it is
possible this can be expanded to up to US$1.5 billion.

The State General Reserve Fund of Oman has entered into a Memorandum of Understanding with State Bank of India in relation to the fund. A high-powered committee with representatives from both countries has been set up to ensure that the launch of the fund is on track and to ensure that investment proposals are not delayed in either country.

This is the first fund of its kind for both Oman and India, and reflects the strong ties between the two countries. Bilateral trade between Oman and India increased 24.2% to reach US$1.23 billion from US$990 million during January-August 2008 compared to the same period in 2007. In addition, progress on a Free Trade Agreement between India and Oman is expected this year.


Tuesday, March 24, 2009

New Law Alert: Real Estate Sector

Omani government officials are considering a new law governing the real estate sector. It is expected that the new law will address potential problems in the real estate industry arising as a result of the global financial crisis.

Although the law has not been published yet and few details are publicly available, we understand that it will include provisions requiring the establishment of escrow accounts for the sale of property by developers. The escrow accounts would protect buyers of property from developers that go bankrupt or abandon a project before it is complete by requiring the following:

  1. The developer must establish an escrow account into which the proceeds of a sale of off-plan property must be deposited;
  2. The developer may use the money in the escrow account only for developing the project;
  3. The developer must show completion certificates issued by government-authorized consultants in various stages of the project before the money in the escrow account will be released; and
  4. An escrow agreement between the developer, the government, an escrow agent and any other relevant parties will govern the management of the escrow account.
In addition, it is expected that the new law will include provisions that restrict developers from advertising or marketing the sale of units before obtaining written approval from government authorities. This restriction would allow the government to ensure that a development has sound financials before properties are offered to the public.

The new law may mean great news for buyers and, hopefully, it will help protect buyers from losing money on properties that are not completed.

However, some developers are claiming that the new law could make it more difficult for them to undertake and deliver projects. Developers’ main concern involves obtaining payments from escrow accounts for internal infrastructure. The internal infrastructure - including internal roads, lighting and sewage treatment - can represent up to one-third of the cost of the project, and the new law, as proposed, focuses solely on the development of the units themselves.

Similar laws were passed in Dubai to respond to problems with developers failing to deliver projects. Oman’s experience with these problems is so far very limited, and the new law will attempt to keep it that way.


Tuesday, March 17, 2009

Employment Law

The Omani Constitution guarantees Omani nationals the right to work, prohibits compulsory labour (except for the performance of public services for a fair wage), prohibits discrimination between citizens and generally addresses all employment issues. The Omani Labour Law (the Law) (Royal Decree 35), 2003, governs specific labour and employment-related issues. In addition to the Constitution and the Law, Ministerial Decisions issued by the ministry of manpower (the ministry) and the Social Insurance Law also apply to the private sector workforce.

The Law does not apply to civil servants, military, security or police personnel, or domestic service/household employees. Civil servants are covered by the Civil Service Law, and military and police personnel are covered by the Military Service Law. Domestic service/household employees are covered by Ministerial Decisions.

The Law aims to enhance and safeguard the interest of employees and regulate the relationship between employees and their employers in Oman. It contains various articles which provide for basic salary and associated minimum benefits, as well as gratuities, contractual and other rights. Employers may also offer additional benefits and generous terms of employment to their employees under individual contracts of employment.

Employee Rights
Article 35 of the Constitution provides that “every foreigner who is legally resident in the Sultanate of Oman shall have the right to protection of his person and his property in accordance with the constitution.” Additionally, in accordance with the laws and prevailing practice in Oman, employees are normally entitled to the following minimum benefits:

  • • basic salary;
  • • accommodation, housing allowance and transportation;
  • • paid leave, including annual, sick, special and maternity;
  • • end of service gratuity and social insurance benefits; and
  • • medical treatment.
Basic salary
This critical component of an employment contract is usually determined by the parties during negotiation. However, in the case of some expatriates, their respective governments may stipulate the minimum basic salary expected prior to their recruitment and employment in Oman. In the case of Omani nationals working in the private sector, the minimum basic salary and associated benefits for certain categories and positions are set out in various Ministerial Decisions released from time to time by the ministry.

The Law stipulates a maximum of nine working hours per working day, or 48 hours per week. In the event that any additional hours are worked, the employee is entitled to receive overtime pay.

Accommodation, housing allowance and transportation
Although the Law is silent on the amount of allowance or rates to be paid to expatriate employees with respect to accommodation and local transportation, there exists an established practice pursuant to which employers either pay housing allowances and local transportation allowances, or provide the necessary local transportation and accommodation. The manner and method of distributing such allowances is subject to mutual agreement between parties as set out in the employment contract.

Paid leave
All employees, regardless of their nationality, are entitled to an annual leave of at least 15working days with full basic salary after completion of one year of continuous service. This leave is then increased to 30 days for each subsequent year of service. They are also entitled to sick leave, provided that a certifying medical note is obtained from a physician or medical practitioner. Additionally, the employees are entitled to special leave for specific events or occasions, such as marriage, death of a close family member, or a pilgrimage. All female employees are entitled to a minimum of six weeks’ maternity leave, after the employee has completed one year of continuous service with the employer.

End of service gratuity and social insurance benefits
Pursuant to the Social Insurance Law, the Public Authority for Social Insurance (PASI) will pay social service benefit to Omani national employees who have subscribed to the national insurance scheme and have properly vested in the scheme. Private employers are required to make monthly contributions (currently about 10.5 per cent) towards the PASI Fund. Employees and the Omani government contribute the requisite balance into the insurance fund. At the end of their service, Omani employees are entitled to receive social service benefits based on their last drawn aggregate basic salary.

Pursuant to Article 39 of the Law, expatriate employees are generally entitled to an end-of-service gratuity payment on the termination of their employment contract. The gratuities are calculated based on the final basic salary and consist of 15 days’ salary for each of the first three years of employment with the employer, and 30 days’ salary for each consecutive full year of employment thereafter. A pro-rata amount is calculated for any fraction of a full year worked after the initial year. If the employer establishes and operates a provident fund scheme approved by the ministry, then the expatriate employee may be entitled to receive the higher of the amounts payable under Article 39 referred to above or the provident fund payments, but not both.

Foreign companies operating in Oman or seconding employees to Oman should take steps to avoid possible “double dipping” by employees. This could happen to an unsuspecting employer if an employee attempted to take advantage of a pension scheme operated by the employer outside of Oman, as well as the benefits payable under Article 39.

Medical treatment
All employees, regardless of their nationality, are entitled to certain types of medical treatment at the employer’s expense. However, dental, ophthal- mic, and maternity treatments are excluded from the provision of free services to employees. Notwithstanding, all Omani nationals are entitled to receive free medical treatment at government-owned hospitals and clinics.

Termination of Employment Contracts
The Law specifies two types of employment contracts: an employment contract for a specified duration and an employment contract for an unspecified period (ie. a fixed-term or an indefinite term contract). In the case of a fixed-term contract, neither the employer nor the employee may terminate the contract before its natural expiry, except for the reasons listed under Articles 40 and 41 of the Law (generally, grave violations of conduct), or grave violations of the agreed terms of the employment contract.

If either party terminates an employment contract contrary to the provisions of the Law or the contract, that party may be held liable for payment of damages as a result of such unlawful or unjustifiable termination. For example, in the case of unlawful or unjustifiable termination of an employee, he/she may be entitled to recover damages for loss of salary for the remaining period of the employment contract plus compensation for the time when the employee was in the services of the employer.

Where an employment contract is for an indefinite term and the employee’s salary is paid on a monthly basis, either party may terminate the contract by serving 30 days’ notice in writing prior to the date on which the termination is to take effect. If the employee’s salary is paid on a basis other than a monthly salary, then 15 days’ written notice must be provided, unless a longer notice period has been mutually agreed. If a contract is terminated without regard to the notice requirement, the party terminating the contract may be required to pay compensation equivalent to the full salary payable but for the improper notice period.

Upon termination, an expatriate employee (an Omani employee would be governed by Social Insurance Law), would be entitled to receive end-of- service gratuities for the entire period of his/her services at the rates referred to above. If the period of employment service is less than one year, the expatriate employee may not be entitled to receive any end-of-service gratuities.

The end-of-service gratuity is usually paid in addition to any compensation which the local court may award to an employee whose employer’s action is adjudged to be unfair or abusive towards the employee.

Omani courts have jurisdiction to hear any employment related disputes which may arise between employees and employers. Initially, disputes are referred to the Labour Dispute Settlement Division, which acts as mediator for the employees and employers to reach an amicable settlement of the dispute. Failure to amicably settle could lead to litigation before the Primary Court.

Ancillary issues
The Law encourages the recruitment of Omani nationals to the maximum possible extent, and in furtherance of this objective, the ministry specifies the proportion of nationals that are required to be employed in each private sector. Subject to compliance by a company of its own targets, it may recruit and employ expatriates. In the event that a company fails to meet its targets, it is liable to the imposition of penalties and/or suspension of its rights to obtain employment clearances for expatriate employees.

Any person employed in Oman contrary to the provisions of the immigration laws could expose the concerned parties to imposition of monetary penalties and loss of residency rights. Expatriates may not be employed unless the employer has obtained both a residency permit and employment clearance for the employee.

The Law permits private sector employees to form a representative committee to protect their interests, defend their rights under the law, and represent them in all matters related to their employment affairs. A representative committee has the authority to resolve employment issues, to support issues related to the recruitment of a target number of Omani nationals, to develop and implement training plans, and to monitor company- level representative committees.

All employers are required to retain a file for each employee at their premises, containing a signed employment contract and other relevant legal documents, evidencing a proper employer-employee contractual relation- ship. The files should be available for examination by the ministry.

In addition, all employers are required to maintain Personnel Policy Procedures (PPP) Manuals approved by the ministry. Among other things, PPP Manuals must contain procedures for the resolution of employee grievances.

This article was first published on GMB Research. GMB Research commissions material from a large and growing network of leading local experts and international professional firms. Now covering 30+ countries from South East Europe, CIS and the Middle East as well as parts of North Africa and Asia, GMB Research is a rapidly evolving global resource.


Wednesday, March 11, 2009

GCC - Singapore Free Trade Agreement

The recent signing and implementation of the landmark GCC-Singapore Free Trade Agreement (GSFTA) is poised to bolster trade and create business opportunities between Oman and Singapore.

The GSFTA provides a framework for integration of the Gulf economy with that of the Asian financial center by promoting and facilitating the greater flow of goods, services, investment, and people between the two regions.

The Agreement also represents a political milestone for the GCC as the first Free Trade Agreement (FTA) entered into by the organization comprised of member states Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.

The GCC is Singapore’s seventh largest trading partner, with bilateral trade reaching a record height of S$42.4 billion in 2007, up 127% since 2002. Total exports from the GCC to Singapore were worth S$34.8 billion, while Singapore exported an estimated S$7.5 billion worth of goods to the GCC. Singapore’s investments in the GCC totaled S$357 million in 2006. Oman’s primary exports to Singapore are petroleum crude, refined petroleum products, alcohols phenols and derive, lime cement stones, and heating and cooling equipment.

The GSFTA covers primarily Trade in Goods, Trade in Services, and Government Procurement. Additionally, it streamlines customs procedures, pledges ongoing cooperation in areas such as air services, Halal certification, and business visit cooperation, and commits the parties to complete negotiations on bilateral Investment Guarantee Agreements (IGAs) within two years.

Key elements of the GSFTA include:

  1. Trade in Goods. The Agreement provides for comprehensive tariff elimination that will make each party’s goods more competitive vis-à-vis other foreign imports.
  2. Customs. The GSFTA streamlines customs procedures for both countries, facilitating the flow of goods across borders. Under the Agreement, each party’s customs authorities will:
    • • Provide an advance ruling on the eligibility of originating goods for preferential tariffs and tariff classification. Such a ruling will provide traders with greater certainty on the status of goods at the country of import.
    • • Waive the requirement for a certificate of origin for low-value originating goods, allowing traders to save on time and cost.
    • • Enhance transparency in customs controls so that traders can be fully aware of the customs requirements and procedures in their respective countries.


Monday, March 9, 2009

Environmental Law

The United Nations (UN) Environment Programme has credited Oman with having one of the best records in environmental conservation, pollution control and maintenance of ecological balance. Oman is even stated as having one of the world’s most rigorously “green” governments. Oman’s biodiversity is catered for by varying topographic features, with vast arid deserts in the West, to a belt of grass and woodland in the mountainous region of the South, with the Arabian Sea in the East.

Oman has ratified many international treaties related to environmental protection, including the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and Their Disposal, the UN Convention on the Law of the Sea, the UN Framework Convention on Climatic Change, and the UN Agreement on Prevention of Desertification in Countries Facing Severe Arid Conditions.

Environmental problems currently faced by Oman include:

  • • high levels of soil and water salinity in the coastal plains;
  • • scarcity of water due to prolonged drought in certain areas;
  • • industrial effluents seeping into the water tables and aquifers; and
  • • desertification due to high winds driving desert sand into arable lands.
Legal Framework
Oman’s environmental regime is primarily regulated by the Law on the Conservation of the Environment and Combating of Pollution (Royal Decree No. 114/01), 2001. Although its forerunner (of the same name − Royal Decree No. 10/82) now stands repealed, it enabled the enactment of a series of environmental legislation, most of which continues to be in force today.

Legislation for wildlife protection and nature conservation is mainly comprised of three Royal Decrees and two Ministerial Decisions:
  1. The Law on the Protection of National Heritage (Royal Decree No. 6/80), 1980;
  2. The Law on the Protection of Marine Biological Wealth (Royal Decree No. 53/81), 1981;
  3. The Law on the Conservation of the Environment and Combating Pollution;
  4. Ministerial Decision No. 4/76; and
  5. Ministerial Decision No. 128/93.
Proclamations on protected areas are to be found in three Royal Decrees:
  1. The Protection of Arabian Oryx (Royal Decree No. 4/94), 1994;
  2. Establishing the Turtle Sanctuary (Royal Decree No. 23/96), 1996; and
  3. Establishing Animal Reserves and Natural Parks (Royal Decree No. 48/97, No. 49/97, and No. 50/97), 1997.
Royal Decree No. 68/79 established the Council for Conservation of Environment and Prevention of Pollution, under the chairmanship of His Majesty the Sultan Qaboos ibn Sa’id. Royal Decree No. 45/84 established the ministry of environment − the first of its kind in the Arab world − which, pursuant to Royal Decree No. 90/07, is now called the ministry of environment and climate affairs (the ministry).

The Law on the Conservation of the Environment and Combating of Pollution
The Law on the Conservation of the Environment and Combating of Pollution defines terms such as “the environment”, “environmental protection”, “pollution/pollutants”, “hazardous material”, “dumping”, etc. This law makes it mandatory for an owner of a place of work to obtain a license before setting up an establishment, and to follow the procedure specified by the ministry to minimize waste at the source of pollution, thus preventing pollution. It also stipulates that such owners should refrain from carrying out or permitting any discharge and release of environmental pollutants in excess of the standards specified by the ministry, but excludes from its purview any emergency measures to save lives or to safeguard the place of work. The owner must maintain a register on the quantity, nature, and method of effluent discharge at the establishment.

This law prohibits the discharge of hazardous material, sewage and waste into wadis (dry riverbeds), aquifers, rain water disposal networks, falaj (water management systems) and their channels, and the use or disposal of treated sewage water without permission. Ships and vessels are barred from discharging oil and other environmental pollutants into the Exclusive Economic Zone of Oman. Penalties for the violation of this law range from OMR 200 to OMR 1 million, with imprisonment in certain instances. Annexure 1 of this law lists certain endangered species, the hunting of which results in penalties ranging from imprisonment for six months to five years, and/or a fine of OMR 1,000 to OMR 5,000. Annexure 2 details other animals the hunting of which attracts a penalty of OMR 100 to OMR 1,000, and/or imprisonment for not more than three months.

The Petroleum Law
The Petroleum Law (Royal Decree No. 42/74), 1974, makes it mandatory to obtain prior approval before engaging in the exploration, extraction, exploitation, storage or distribution of petroleum or mineral resources. Prior approval is also needed to undertake activities involving processing plants, pipelines, storage tanks, storage facilities, ports, jetties, offshore platforms or installations, sea and marine loading facilities, pumps or pumping stations.

This law requires licensed operators to conduct their operations in a manner that minimizes air and water pollution and, which is safe to the health and wellbeing of their employees and the public. Any person violating this law is liable for loss or damage suffered by a third party or the government, directly or indirectly as a consequence of the violation. The compensation for such loss or damage is not limited to the direct loss incurred and includes consequential and economic loss.

Terms such as “operator”, “due diligence”, “waste”, “unsafe act”, etc, are all defined in this law.

An application for an environmental license must be accompanied by a comprehensive environment feasibility report, assessing the benefits of granting the license as compared to the probable damage or adverse impact on the environment.

Ministerial Decision No. 209/95 on Environmental Permits for Industrial and Commercial Establishments provides that permit holders must comply with the conditions set out in their environmental permit. Notwithstanding the penalties prescribed in other environmental laws, a breach of this provision would be subject to an initial fine of 100 Omani Rials (OMR), with 15 days to rectify the breach, failing which a further fine of OMR 50 per day for three weeks is applicable, as well as the closure of the establishment for continued breach. This law empowers the relevant authority to suo moto (rectify any breach posing risk to the public and the environment), at the expense of the permit holder.

Main Areas of Environmental Concern
Hazardous and non-hazardous waste and substances

Ministerial Decision No. 17/93 on the Management of Solid Non-Hazardous Waste deals with solid or semi-solid material, such as household waste and solid materials from commercial and industrial establishments, which does not pose any danger to the environment or public health if its disposal is effected in a safe and scientific way. Solid non-hazardous wastes must be stored, collected and transported to a site designated by the relevant authority for this purpose. The relevant authority is the relevant municipality that falls under the ministry of regional municipalities and water resources.

Ministerial Decision No. 18/93 on the Management of Hazardous Waste includes in its definition of “hazardous waste” any waste from commercial, industrial or other activities, which by nature, composition or quantity or for any other reason is hazardous, or threatens to be hazardous to the
environment. All hazardous waste must be labeled and packed according to the relevant regulations, and stored in approved storage facilities until it is removed in accordance with the terms of the license issued by the ministry.

The Law Regulating the Circulation and Use of Chemicals (Royal Decree No. 46/95), 1995, defines a “chemical substance” as a substance listed as “dangerous” in the international classification standards of dangerous substances that have an effect on public health and the environment. However, this law excludes “explosives”, the use and circulation of which is
governed by separate legislation. A license is mandatory for the use, manufacture, import, export, transport, storage and circulation of a chemical substance.

Ministerial Decision No. 145/93 on Wastewater Re-Use and Discharge prohibits the discharge of wastewater or sludge into the environment, in whatever form or condition, without a permit to do so. It also provides for regulating the quality of wastewater and its reuse. Before reuse, the
wastewater or the sludge is required to be tested to determine its pH value and the quantity of various metals in it. Those with high concentration of metals are disposed of in landfills with prior approval of the ministry. Wastewater may only be discharged where its re-use is not possible.

Royal Oman Police Civil Defence Regulations deals with public protection and safety in commercial establishments, addressing the following:
  • • Specific and detailed requirements applicable to establishments involved in the use and storage of petrochemical products and the production of gas;
  • • Protection of personnel and safety requirements in work places;
  • • Transportation for dangerous chemicals; and
  • • Training to deal with fire and emergencies.
The Civil Defence Law (Royal Decree No. 76/91), 1991, provides for:
  • • Chalking out contingency plans for disaster management;
  • • Measures to be undertaken during emergencies;
  • • The conditions for import, manufacture, storage, sale and transport of radioactive or other substances which are dangerous to public safety; and
  • • Safety and rescue rules and plans to be adopted during land, sea and air
Marine pollution
The Law on Marine Pollution Control (Royal Decree No. 34/74), 1974, brought to light Oman’s early concern for the safety of its marine environment. This law prohibits the discharge or release of any pollutant from a ship, shore location or oil transport facility in the Pollution Free Zone of Oman. This zone is the belt of water around Oman’s territorial waters, which stretched for a distance of 38 miles. Any person violating the provisions of this law is subject to a maximum penalty of OMR 25,000 for a single violation, and of OMR 4 million for multiple violations, and may also be deprived, either temporarily or permanently, of all environmental rights granted by the government. Terms such as “operator”, “oil transport facility”, “pollutant”, “pollution control officer”, etc, are all defined in this law.

Air pollution
Ministerial Decision No. 118/04 on the Control of Air Pollution from Stationary Sources stipulates that owners must employ scientific methods specified by the ministry for the prevention of the emission of pollutants, and for their treatment and disposal. This law prohibits the emission of smoke over a specified density, and burning of organic or agricultural waste in the open. Approval must be obtained before installing a chimney, which must conform to the height specifications stipulated depending on its intended use.

Noise pollution
Ministerial Decision No. 79/94 on the Control of Noise Pollution in Public Places prescribes noise levels based on the classification of public places, and identifies the following as external sources of noise:
  • • Industrial plants and construction sites;
  • • Road traffic; and
  • • Airports and the operation of commercial and other aircrafts.
Variations in noise levels during the day on weekdays and holidays are measured in accordance with the prevailing international standards, taking into account wind velocity direction, temperature and humidity.

Ministerial Decision No. 80/94 on Noise Pollution Control in the Work Place prescribes noise limits in places of work. Machines, equipment and other noise generating installations are required to be checked for noise emission levels during operation and installation.

Health and Safety in Workplaces
Oman Labour Law (Royal Decree No. 35/04), 2004, has certain health, safety and environment provisions in place, including the provision by employers of first aid facilities to employees in the workplace, and provision of a generally hazard-free workplace. The employee must be apprised of potential hazards in their role, as well as mandatory safety measures. The employers must ensure that a generally hazard-free workplace is maintained, particularly ensuring that:
  • • Adequate safety and hygienic conditions prevail in both the workplace and in the places that a worker must visit by reason of his work;
  • • Safety checks are done on machinery and equipment in the workplace, ensuring they are in safe conditions; and
  • • The stipulated safety measures are followed by their employees.
Specific safety measures for women, juveniles in employment, and persons working in industries and mines are also listed in this law. Employers hiring employees for roles that involve working with lighting equipment, ventilation, air circulation, drinking water, toilet facilities, electricity, and the storage of dangerous materials have to abide by additional regulations in force for the employees safety and occupational health.

This article was first published on GMB Research. GMB Research commissions material from a large and growing network of leading local experts and international professional firms. Now covering 30+ countries from South East Europe, CIS and the Middle East as well as parts of North Africa and Asia, GMB Research is a rapidly evolving global resource.


Tuesday, March 3, 2009

Agency and Distribution

Omani law governing agency relationships contains provisions which are favourable to local agents and which may lead to unexpected results for uninformed foreign companies. The Commercial Agency Law was last amended by Royal Decree in 1995. Although these amendments reduced the previous “choke hold” that Omani agents had on overseas principals, the amended law retained the right of agents to claim for compensatory damages upon termination and non-extension in certain circumstances. It is therefore advisable to only appoint an agent after extensive due diligence has been conducted on the proposed agent’s business activities and reputation, and a detailed agency agreement negotiated and put in place. The big issues to consider in any agency agreement in Oman are exclusivity, registration, termination and dispute settlement.explicit sales targets in the territory, specifying cut off dates for achieving them;

Legal framework
Three separate laws govern the relationship between a foreign principal and a commercial agent in Oman:

  1. the Law of Commerce (Royal Decree 55/90);
  2. the Commercial Agency Law (Royal Decree 26/77, as amended by Royal Decree 82/84, 73/96 and 66/05); and
  3. the Commercial Register Law (Royal Decree 3/74, as amended by Royal Decree 88/86).
The Commercial Agency Law defines a “commercial agency” as:“Any agreement through which a merchant or a commercial company in the Sultanate is assigned to promote or distribute the products or services of a foreign person or entity in consideration for profit or commission.”

The law does not draw a distinction between a commercial agent, representative, distributor or any other type of intermediary. An agent may be a natural or legal person. If a natural person, the agent must be an Omani citizen who is 18 years or older and who is registered with the Oman Chamber of Commerce. If a legal entity, the company must be established in accordance the laws of Oman and with a minimum of 51 per cent Omani shareholding. However, Omani companies with up to 70 per cent foreign shareholding have been permitted to be agents following Oman’s accession to the World Trade Organization in October 2000.

A foreign principal cannot sell products directly to a customer in Oman without the participation of an agent, except in respect of products destined for the ministry of defence. A duly appointed and registered agent is entitled to commission, notwithstanding direct sales of the products or services by the principal to the customer in Oman.

Commercial agencies need not be exclusive. This means that a principal is free to appoint more than one agent in Oman. The September 1995 amendments to the Commercial Agency Law eliminated the requirement of “exclusivity” in agency agreements. This significant change made it easier for foreign principals to terminate non-performing agents for cause and to do business in Oman with a new agent. It also allowed foreign principals to appoint other agents simultaneously for different projects or services. Moreover, the amendment rendered the existing agent unable to prevent the registration of new agents by the same foreign principal. Most agency agreements in Oman are non-exclusive, but this is a point of negotiation
between the parties.

To be enforceable, all agency agreements must be in writing and registered with the ministry of commerce and industry. Without registration, the agent may not be able to enforce any of the rights contained in the agreement and may not be provided the various protections available to him arising under the Commercial Agency Law. This is reaffirmed by the Commercial Agency
Law, which states that a claim may not be heard regarding any agency that is not duly registered.

The agreement must be duly certified and authenticated by an Omani embassy if it is signed abroad. If the agreement is not in Arabic, a duly certified and authenticated translation must be provided and registered with the ministry of commerce and industry. The registration must be renewed every three years.

Omani law and practice provides significant protection to agents, especially in the context of termination. If an agency agreement is for an unlimited term and the principal cancels the agreement without cause, the principal must compensate the agent. With regards to fixed-term agency agreements the principal may cancel the agreement upon the expiration of its term. In
such instances, the agent will normally seek compensation where the agent feels that the principal has unjustly terminated the agreement or failed to renew it. Unilateral termination of an agency in Oman will almost always result in a compensation claim by the agent. Termination of a fixed-term agency before its expiration and without the agent’s mutual consent will undoubtedly require the payment of compensation to the agent.

Omani courts and the Dispute Resolution Authority have the sole discretion to decide compensation. They will take into account the totality of the circumstances when considering compensation claims. Each case is treated on its own facts and merits, but a court often makes its calculation by taking into account past sales (often for the last three years) or an average of the past annual commission or profit received by the agent.

Termination of a fixed-term agency can be justifiable in many circumstances. Therefore, it is advisable for the agency agreement to contain clear and unequivocal provisions setting out standards to justify termination in the event such standards or performance targets are not met by the agent during the term of the agreement. Such provisions could include:

  • Employee hiring targets or quotas for sales, or other management personnel;
  • Monthly or regular reporting on market opportunities or upcoming projects;
  • Provision of regular information on all enquiries, orders and prospective customers;
  • Prohibition on dealing with competitor products or a competitor in any way;
  • Prohibition on circumvention of the agreement in any tangible way;
  • Non-disclosure of confidential information to third parties; and
  • Anti-bribery language (ie. Foreign Corrupt Practices Act clauses for American principals).
Dispute resolution
The governing law in agency agreements must be Omani to be registered and enforceable. However, the parties are free to decide on the dispute resolution forum. Omani courts are bound to accept foreign arbitration awards because Oman is a member of the 1958 New York Convention on the Enforcement of Foreign Arbitral Awards. In practice, this means that the
parties may choose arbitration as a means of settling disputes arising under the agency agreement outside of Oman, and subject to recognized rules of arbitration and conciliation, such as the International Chamber of Commerce in Paris, the London Court of International Arbitration in London, etc. Having a dispute decided by one or more arbitrators chosen by the parties would certainly be more beneficial to the foreign principal and devoid of the delays and politics of “home court” advantages for Omani agents. Under the New York Convention, any such award would be enforceable in Oman.

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Monday, March 2, 2009

The Global Crisis and Impact on the Real Estate Sector

Bruce Palmer, managing partner of Curtis' Muscat office, was a speaker at a recent program titled "The Global Crisis and Its Impact on the Real Estate Sector". The seminar, which was held on Saturday, February 28, 2009, was the first in a planned series known as the Oman Investment Forum. The goal of this seminar was to address vital issues that concern the Oman economy, the regional landscape and the personal holdings of individual investors. Palmer's presentation focused on the weaknesses that the GCC governments must address in light of the current financial crisis. More specifically, he examined some of the loopholes in the real estate regulatory regimes in the UAE and Oman which need to be corrected.