Judge’s Verdict: In Case of a Dispute

This article was written by Curtis partner James Harbridge of the firm’s Muscat office. It originally appeared in the Muscat Daily and is republished here with permission.

When an Omani entity signs a contract with an overseas entity, both sides are looking forward to a mutually beneficial relationship. At the time the contract is signed, neither party can imagine the possibility of being in a dispute in due course.

But the reality is that it is best to be prepared for trouble further down the line. Naturally, Omani companies will want to have their disputes heard locally in Oman’s courts. But is that always the best option?

Certainly, if the contractual courter-party is incorporated in a fellow GCC state, an Omani final court judgment is automatically enforceable against the counter-party by the courts. In such circumstances, the Omani entity may have a large monetary judgment in its favour, but how can it actually get the money if the English defendant refuses to pay up in accordance with the Omani courts’ final decision? The problem arises because Omani court judgments are not automatically enforceable in England.

First, the lawyer for the Omani company will apply to the Primary Court’s enforcement department if he or she knows that the defendant has assets in Oman or is owed any money by parties located in Oman. The enforcement department can then freeze such assets so that the Omani company can obtain the value of the judgment.

But often an overseas company will have no assets in Oman. Accordingly, the Omani company may have to file a fresh court case in England, where the final Omani court judgment may only have evidential value. In other words, the scenario can become a protracted and uncertain one.

To avoid complex, time-consuming and costly situations like this, the Omani party may, before signing the contract, look ahead and seek legal advice as to how best to ensure that there will be no enforcement issues.

One solution, in some circumstances, is for the contract to state that any dispute will be settled by the arbitration taking place in, say, Muscat. Both England and Oman are signatories to the New York Convention on arbitral awards, meaning that an arbitral award rendered in Oman should be automatically enforceable in England.

Before singing a contract, it always pays to think carefully about whether it should be governed by Omani law or a foreign law. Equally, the question of courts versus arbitration is a vital factor, as no one wants to get a court judgment which cannot be enforced. A short, pre-contract meeting with a lawyer can make all the difference as to whether you obtain an enforceable or non-enforceable decision on your dispute.

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Focus on Employment Law: Probation Periods

Probation periods are a well-known and basic feature of many employment arrangements in Oman. Sometimes, however, the Omani law provisions relating to probation periods can cause problems for companies.

Typically, an employer has the right to terminate an employee during the probation period and, in such circumstances, the employee is only paid for the actual days he or she has worked. Under Article 24 of the Omani Labor Law, the duration of probation cannot be longer than three months for those workers paid monthly, and cannot be longer than one month for employees paid other than monthly.

What is less commonly known is that Article 24 of the Labor Law also requires the giving of seven days notice for the termination in probation to be valid.

Companies that are unaware of this requirement often delay making a decision until too late in the probation period. In the past, Omani courts have had to consider the situation in which written notice was given four days before the end of a three-month probation period. The court held that the notice was invalid as, under the law, the seven-day notice period must expire before the end of the three-month period.

Similarly, in another case, an Omani court decided that a termination was unlawful even though Article 24 had been complied with in full. In that case, the court said it was unfair to terminate someone within the first week of a probation period. The judicial view was that the worker deserved a greater length of time in probation before it could be determined that he was not good enough at the work.

Another problem can arise in the situation in which a probation period is not detailed in the employment contract. There is a tendency for Omani courts to rule that the worker has a right to believe that there is no period of probation if the contract is silent about probation.

Finally, Article 24 also states that no employee can be subjected to more than one probationary period by the same employer. Therefore, an additional probation period cannot be imposed upon renewal of an employee’s employment contract or upon the employee’s change in position or status within the company.

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Enhancing Public Private Partnerships in GCC

This article was written by Curtis partner Roger Stark and associate M. Adil Qureshi of the firm's Washington, D.C., office. It originally appeared in the April 2010 issue of Infrastructure Journal and is republished here with permission.

Current market conditions for infrastructure finance present numerous challenges. Government revenues are shrinking and private infrastructure investors are both scarce and risk averse, thereby creating an acute need for alternative sources of capital. Privatisations have become increasingly unpopular and difficult to execute, largely eliminating another source of government liquidity.

Despite declarations by some economists that emerging economies are no longer interdependent with developed ones, the countries of the Gulf Cooperation Council saw a drop of US$44.6 billion in project lending in the first quarter of 2009 as compared to the same period in 2008. Declining oil prices put additional pressure on GCC government budgets, while lenders tightened credit standards, increased spreads and shortened loan tenors. In this harsh environment, well-structured Public Private Partnerships are viable alternatives for implementing major infrastructure projects, and comprehensive legislation to support programmatic deployment of P3s is receiving increased attention.

a. P3s in the GCC
Over the past decade, members of the GCC (which includes Bahrain, Kuwait, Qatar, United Arab Emirates (UAE), Oman, and Saudi Arabia) have been at the forefront of global infrastructure spending as measured by volume of expenditures. A young and rapidly urbanising population combined with historical under-investment in infrastructure has created significant pressure on GCC governments to address pent up infrastructure demand. Governments in the region have responded decisively, undertaking projects valued at over US$2 trillion dollars through January 2010 (as cited in this presentation. However, significant additional infrastructure needs remain unmet.

The P3 model is directly responsive to these needs. When effectively managed, private sector involvement increases the likelihood that infrastructure projects will be completed on time and on budget and introduces efficiencies and innovations in complex projects. Skilful use of the P3 model can improve the quality and availability of public services and, where desirable, take expensive projects off the government's balance sheet. However, the opportunity to use a P3 model for a large volume of projects begs the question of how best to implement P3s quickly, effectively and in furtherance of applicable government policies.

b. Legislative vs. Ad Hoc Approach to P3s
P3s can be implemented using programmatic enabling legislation or ad hoc transactional documents. Programmatic enabling legislation facilitates uniform implementation of government polices, while ad hoc documentation only supplies terms for the specific deal at hand. Although such legislation is not a substitute for transactional documentation, it does provide a baseline of uniform guidelines that support and implement government policies and reduce the time and resources required to negotiate and document each transaction.

By contrast, the absence of effective legislation may result in projects that fail to adhere to governmental objectives or, worse, end in disputes that diminish governmental credibility and exacerbate public scepticism about the transparency of P3s. In the current environment, where competition for capital extends beyond individual projects to entire markets, countries and regions, programmatic legislation is an important tool for managing costs, mitigating risks and securing competitive advantage.

This article focuses on recent P3 developments in GCC countries and the prospects for using legislation to increase the efficiency and effectiveness of P3 transactions. Part II of this article summarises the development of ad hoc P3s in various GCC countries. Part III of this article offers recommendations regarding key elements of a statutory approach to P3s, with an eye to addressing some of the shortcomings present in an ad hoc approach.

II. Ad Hoc P3s in the GCC
In the absence of enabling legislation, key elements of a P3 are memorialised in contracts among the parties. This ad hoc approach forces the parties to cover more ground in each contract, effectively 'starting from scratch' with every new P3 project. Ad hoc P3s also run a greater risk of interpretational ambiguities that may have to be resolved by regulators, arbitrators or courts. As a result, ad hoc projects may be less attractive to private partners than those implemented pursuant to a clearly articulated statutory framework.

A brief survey of P3s in the GCC reveals a region where benefits of P3s are recognised, but most projects are implemented on an ad hoc basis. While governments of the region have recognised the need to promote private sector participation in public services and infrastructure, there remains a considerable gap between rhetoric and results, particularly with regard to formalising a legal framework for P3s.

Of the six GCC nations, Oman, Bahrain and Kuwait have made the greatest strides toward formalising a programmatic legal approach to P3s. Both Oman and Bahrain have implemented P3-frameworks as part of privatisation programs aimed at encouraging private participation in government owned assets. In 2004, Oman promulgated a statute which authorised a broad range of P3 structures and created a high-level Ministerial Committee to oversee a national "privatisation" program that includes the use of P3s.

Bahrain enacted a similar law in 2002, contemplating "privatisations" in the tourism, communications, transportation, power and water, oil and gas, and municipal services sectors, as well as "any other service and production sectors." In 2004, the Bahraini government set out to develop an administrative and legal framework for P3s and has continued to pursue programmatic use of the model.

Kuwait has embraced a similar approach. After an extended period of deliberation, the Financial and Economic Affairs Committee of the National Assembly of Kuwait approved a "privatisation draft law," establishing a framework for private sector investment in power, education and telecommunications projects. This step was preceded by the passage of a Build Operate Transfer Law in 2008 and, more recently, the creation of an entity called the Partnerships Technical Bureau to implement its P3 program.

In the remainder of GCC countries, Qatar, the UAE and Saudi Arabia, the legislative framework for P3s is less developed. For example, Qatar only recently began to privatise its water and power sectors under a P3 format and, despite much discussion about the privatisation of port and municipal services, progress toward a formal P3-enabling framework remains in its early stages.

In the UAE, the governments of Abu Dhabi and Dubai have made sizable investments in power and desalination plants, airports, roads, schools, water facilities and hospitals, displaying a strong commitment to infrastructure development and creating a number of interesting prospects for private sector participation. Abu Dhabi also has implemented ad hoc P3s in the power, water and education sectors (including the Abu Dhabi campus of Zayed University and the Paris-Sorbonne P3 project on Reem Island). However, despite recent calls for further private sector participation, there does not appear to be any P3 legislation on the horizon for the UAE.

A similar situation prevails in Saudi Arabia where there is no formal P3 law and regulation of P3s is typically addressed in deal documentation. While there is no specialised P3 ministry in Saudi Arabia, the government has established a Supreme Economic Council (SEC) to supervise privatisation and monitor implementation of P3s and other structures involving private sector investments. The SEC has approved a nationwide strategy, authorising privatisation of the telecommunications, power, water, industrial parks, postal services, education, and air and rail transportation sectors. Under this mandate, P3s have been implemented in air transportation and desalination.

Still, potential for more projects remains untapped and would likely benefit from programmatic P3 legislation. In summation, the countries of the GCC fall into one of two categories: those that have taken tentative steps toward well-developed P3 programs and those that have taken few if any such steps. Given the potential for increased use of the P3 model, the stage is set for a more comprehensive approach to P3s in the region.

III. Creating an Enabling Legal Framework for P3s
Statutory frameworks for P3s can encompass a wide variety of transactions, assets and public service sectors. For purposes of this article, the discussion below assumes projects with (1) expected useful lives in excess of 40 years, (2) capital costs in excess of US$100 million, and (3) at least partial ownership of the project by the relevant private parties. The assets of the P3s may revert to the sovereign government at the end of an established period, or may be transferred and conveyed to the private party. Thus, P3s may be viewed either as traditional "concession" contracts or as privatisation vehicles.

Effective statutory frameworks identify and implement key governmental objectives (typically focusing on the desire to attract private capital), while allowing flexibility to accommodate varied investor requirements regarding project structures, risk profiles and return of capital. Equally important, effective frameworks establish basic legal and structural paradigms that can be reused (not reinvented) in each successive P3 project. These considerations are especially important with regard to three key elements of the framework: delegation of public duties to private parties, procurement rules and procedures, and dispute resolution.

a. Key Elements of Legislation Authorising P3s
Effective P3 programs hinge on the ability of governmental entities to delegate some of their functions to one or more private parties. Thus, P3 legislation should unambiguously identify the governmental entities authorised to enter into P3s, the types of functions or services that may be delegated to private parties and the types of assets or facilities that may be developed, constructed, owned and operated under a P3 structure. These determinations require careful balancing of government policy objectives, the public interest and the need to incentivise private sector participation.

Legislation authorising government entities to enter into P3s also may specify categories of permissible transactions. For example, some jurisdictions may wish to limit P3 transactions to a build-lease-transfer format, while others may contemplate more long-term (or even more permanent) arrangements for private participation. At a minimum, the P3-enabling legislation should identify the sectors in which P3s are authorised and any limitations on the structure and duration of private sector participation.

Legislation also should designate, or create, a governmental entity to oversee and facilitate P3 development and implementation (P3 Entity). For example, a P3 Entity should be authorised to both receive P3 proposals from constituent government entities (e.g., authorities, municipalities, etc.) and propose P3 projects and issue "requests for proposals" (RFPs) for P3s.

In evaluating proposed projects, the P3 Entity should be required to perform an economic analysis (see "value for money" discussion, infra) and an initial risk/reward assessment of the proposed project. The P3 Entity also should have the authority to enter into P3 contracts (see infra) and ancillary arrangements including contracts to retain professional advisers (e.g., engineers, financial advisers, attorneys) and take other actions necessary or desirable to effectuate the goals of the P3 statute.

Finally, P3 legislation may authorise certain types of government financial support including credit enhancement instruments (e.g., bonds, letters of credit) and, in limited cases, sovereign guarantees. Other types of governmental support may be appropriate depending on the project and the government's objectives. At bottom, however, P3 legislation must answer the central question of whether the delegation of public functions will require the commitment of public credit to or on behalf of private parties and, if so, whether such commitments conflict with constitutional or public policy constraints in the relevant jurisdiction.

b. Procurement Rules and Procedures
P3s are often hindered by a lack of clarity regarding how existing procurement laws should be applied to the project at hand. Ambiguity in this area can lead to inefficiencies, increased costs, delays or even cancellations of projects. Where management of the P3 procurement process is tasked to a P3 Entity, such entity's responsibilities may include setting eligibility criteria and methodology for selecting and evaluating projects, preparing RFPs, and evaluating proposed projects with a view to prioritising those that should proceed and eliminating those that should not.

The P3 unit also should perform economic assessments and feasibility appraisals of potential projects. For example, the Private Finance Initiative implemented in the United Kingdom utilises the concept of "value for money" to determine whether a particular project is suitable for implementation through a P3. To ensure continuity and uniformity, it is advisable that value for money assessments within a particular sector be undertaken by a single governmental entity. In essence, the goal should be to create a degree of sector specialisation among the government officials that will be charged with reviewing, developing and implementing P3s.

Once it is determined that a given transaction is suitable for the P3 structure and a private partner is selected [procurement rules should specify whether private partners will be selected pursuant to an objective scoring system or whether the government will be permitted to exercise a degree of subjective discretion (e.g., by entering into "competitive negotiations" with multiple bidders). The former approach offers the benefits of clear-cut transparency, while the latter offers the potential for achieving better results for the government if pre-established rules and procedures for avoiding ex parte communications are observed.], the transactional details of the P3 will be set out in a P3 contract. The contract, among other things, should address the following matters:

• A detailed description of the project and/or services;
• A description of the respective commitments of the public and private partners regarding project financing and project completion (in particular government actions necessary to achieve financial closing and commencement of construction, as well as conditions to the private partner's receipt of project revenues);
• A description of the government commitments (if any) regarding credit support for the project;
• The respective rights of the government and private partners regarding the property and income of the project before, during and after the execution of the P3 contract;
• In cases where the project will be charging fees to citizens, or to the government itself, the terms and provisions for establishing and adjusting such fees; The term of the contract;
• The extent to which the government will have ongoing rights to regulate the project (including, where appropriate, "step-in" rights structured to co-exist with, rather than supervene, the rights of senior project lenders);
• Tax matters, including tax holidays and/or income or property tax incentives granted to the private partner; Dispute resolution procedures; and
• "Standard" legal provisions relating to, for example, a narrowly-tailored waiver of the government's sovereign immunity, assignments, indemnification, liquidated damages (if and as applicable), choice of law, events of default and termination.

c. Dispute Resolution Mechanisms
Dispute resolution provisions simultaneously present some of the most simple, and the most complex, issues encountered in negotiating public/private transactions. Some issues may be considered simple because the basic principles of transparency, impartiality of decision maker(s) and neutrality of fora are intuitive and widely understood. Nevertheless, different parties often will view these basic principles from vastly different perspectives. Even greater complexity arises where different dispute resolution processes apply depending on the type of transaction, the type of document, or even the particular contractual clause in dispute.

The basic elements of infrastructure projects consist of the operational components (i.e., hard assets) that comprise a project and capital investments necessary to bring them into existence. Generally speaking, debt (and sometimes equity) participants in capital intensive projects will require that investment disputes be litigated in the courts of a jurisdiction with a well-established reputation for predictable and consistent decisions on such matters. For commercial lenders and international financial institutions, New York or London are typically the jurisdictions of choice. This preference is heightened where, as in P3 transactions, the government participant is perceived to enjoy a "home-field" advantage in its own courts. Thus, a P3 program that fails to reasonably accommodate such lender preferences to the extent appropriate is at risk of reducing its pool of potential investors.

By contrast, a somewhat different analysis applies to issues arising in the context of "operational" aspects of a project. Although a detailed discussion of the topic is beyond the scope of this article, it may be said that some operational disputes where relatively small amounts are at issue may be made subject to binding arbitration under the aegis of an internationally recognized institution (e.g., ICSID, ICC, UNCITRAL) using impartial arbitrators in a neutral location.

Such arrangements may be structured consistent with the preferences of international sponsors and investors and should also serve the objectives of achieving an expedited hearing of the disputes by a panel of arbitrators/experts with specialised expertise in the matters at issue (e.g., allegedly defective construction materials). One area of particular concern to private investors is the enforceability of contracts against the government and the finality of judgments handed down by courts or arbitral tribunals outside the host country. Investors will desire certainty on this count, seeking waivers of sovereign immunity and assurances that foreign judgments and arbitral awards rendered in accordance with the P3 contract will not be litigated again in the courts of the host country.

To the extent, consistent with constitutional and public policy constraints, P3 legislation should provide an appropriate degree of certainty by authorising narrowly tailored waivers of sovereign immunity and allowing for the enforcement of foreign decisions against public or semi-public entities in the host country. Given the political sensitivity attached to such considerations, P3 statutes of various countries reflect a variety of approaches to achieving such certainty [For example, Brazil and India were for some time viewed as difficult jurisdictions in which to enforce foreign arbitral awards against public entities. However, in recent years, Brazil has adopted legislation that facilitates the enforcement of arbitral awards subject to the requirements that (a) the arbitration is held in Brazil; (b) the language of the arbitration is Portuguese; and (c) the proceeding is carried out in accordance with Brazilian arbitration law. India is said to be evaluating similar reforms. See Arnold Wald & Jean Kalicki, "The Settlement of Disputes Between the Public Administration and Private Companies by Arbitration under Brazilian Law." Journal of International Arbitration, August 2009.] Nevertheless, P3 legislation should make every effort to conform with best international practices in this area, to the extent consistent with local law and with the objectives of the P3 program.

IV. Conclusion
In light of the mounting population pressures confronting countries of the GCC, P3s have an important role to play in meeting long term public infrastructure needs. The implementation of a comprehensive P3 statute can improve the volume and efficiency of P3 transactions while mitigating the costs assigned to government balance sheets. Effective P3 statutes also will improve the ability of governments to compete for private sector partners and capital. Although natural resource wealth will mitigate the short term need for such capital, the GCC's long term infrastructure needs will require increased utilisation of P3s as a cost-effective vehicle for programmatic infrastructure development.

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Strata Law & Benefits for Integrated Tourist Complexes

Focus on Real Estate Series

Complex legal issues can arise with respect to integrated real estate developments where parcels of real estate are owned individually while the land and common areas such as lobbies, hallways, stairways, driveways, elevators and recreation areas are jointly owned. Such issues are particularly relevant in respect of Oman’s Integrated Tourist Complexes (ITCs), where there is a legal requirement for integrating commercial, residential and tourist components. In an ITC, residential dwellings, commercial complexes, tourist hotels and common areas likely are to be included within the same complex. This combination can lead to disputes – and uncertainty – relating to the enforcement of by-laws, due to differences in the by-laws applicable to the residential, commercial and touristic components of the complex. Disputes and uncertainty may arise, for example, in the following areas:

• Landscaping;
• Air and noise pollution;
• Alterations or repairs to common areas;
• Fencing and boundaries;
• Management of common funds;
• Use of and access to leisure facilities;
• Vehicle parking on common property;
• Storage and collection of garbage;
• Pets and pet management;
• Enforcement of restrictions on use of common areas; and
• Appointment and dismissal of the owners’ association members.

Without a mechanism to properly manage the complex dynamics among a large group of diverse owners with divergent interests, these issues could potentially snowball into cumbersome problems. Oman currently has in force a law – the Flat and Floor Alienation Law, Royal Decree No. 48/89 – that deals with ownership issues relating to apartments and common areas within apartment buildings. However, this law does not address many of the issues cited above, and it is difficult to extrapolate the terms of this law to apply to multi-use real estate developments. Therefore, in light of the growing importance of ITCs in Oman’s development plans, the Sultanate would be well advised to consider enhancing its legal framework to specifically address multi-use real estate development complexes. A common way to address multi-use developments is through a strata law. Typically, a strata law would include provisions covering the following areas:

• The developer’s ability to manage and operate the development post-completion;
• Joint ownership of common areas;
• Establishment of a building owners’ association;
• Formulation of by-laws;
• Distinctions relating to commercial and residential components of the development;
• Management of common facilities;
• Creation and management of a sinking fund;
• Transparency to investors; and
• Disclosure obligations of the developers.

With the real estate market showing signs of recovery and previously suspended real estate projects coming back online, now is an opportune time for the Sultanate to consider the benefits that an enhanced legal framework for multi-use developments could provide for Oman’s fast-growing ITC sector.

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Nuclear Energy Development Series (Part 2)

Potential Ownership Structures

Oman’s plans to develop a peaceful nuclear energy program remain an exciting prospect and hold great potential for the Sultanate’s future. In this series of articles on nuclear energy development, we highlight some of the key issues that aspiring nuclear nations typically encounter along the road to developing a nuclear energy program. The past two posts have explored international treaties (such as the Treaty on the Non-Proliferation of Nuclear Weapons) and supportive legal and regulatory frameworks (such as safety and liability measures) that aspiring nuclear nations tend to implement. This article covers another key consideration for developing a nuclear energy program: potential ownership structures for nuclear facilities. The Importance of Ownership Structure Ownership structure is an important consideration for any large infrastructure project, as the proper structure helps to attract private investors and to incentivize the facility operators to run the project efficiently. For nuclear facilities, ownership structure can be especially important. First, the highly sensitive nature of nuclear facilities makes it particularly vital that the facilities be operated efficiently, responsibly and in accordance with the highest standards. Second, the high level of international cooperation typically involved in nuclear programs makes it important for nuclear facilities to be transparent in their operations and their ownership structure; this consideration is particularly crucial for new and aspiring nuclear nations seeking access to other nations’ nuclear technology. The Public-Private Model In considering potential ownership structures for its nuclear facilities, Oman could gain valuable insight from the ownership structure it has already put forward for the privatization and restructuring of the Sultanate’s electricity and related water (i.e., desalination) facilities. Pursuant to the Sultanate’s plan, the sector is divided into three primary functions: generation, transmission and distribution. For generation and distribution, there are multiple companies performing the function. The companies feature partial or full private ownership, but operate under the supervision of the government’s electricity holding company. Such a structure provides several key benefits. First, the combination of government and private-sector involvement facilitates access to the best available equipment and management, both from within Oman and from foreign countries, while allowing the government to maintain high-level supervision over, and responsibility for strategic planning for, the sector. Second, the segmentation of the sector into separate functional areas, and the presence of multiple companies in given functional areas, promotes competition, efficiency and high standards. Segmentation and competition also have two important corollary benefits: (i) promoting transparency and (ii) preventing any one private company from becoming too powerful in relation to the government – an important control in a sector that provides basic public services. Potential Benefits of the Public-Private Model for Aspiring Nuclear Nations Following on its public-private model for the electricity and desalination sector, the Sultanate would be well advised to consider the potential benefits of applying a similar model to its nuclear energy development plans. In particular:

• Offering private companies the opportunity to participate in the ownership and operation of nuclear facilities could help attract investment capital and encourage leading international providers of nuclear technology to develop Oman’s nuclear energy projects.
• Segmenting the nuclear energy program into distinct functional areas (e.g., generation and distribution), and allowing multiple companies to operate in each functional area, could help spur the respective companies to operate more efficiently and to higher standards.
• Introducing segmentation and competition into the nuclear energy sector could help the Sultanate harness the benefits of private sector involvement while maintaining government control over a sector that would be both vital to national security and a provider of basic public services.
• A robust public-private ownership model could help promote transparency in Oman’s nuclear energy program, which could facilitate access to international nuclear technology.

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