Friday, April 29, 2011

Courts versus Arbitration

The below article was featured in

There is often a lack of understanding about how Oman’s Arbitration Law (Royal Decree 47/97 as amended) works. The truth is that this law provides a viable alternative to having a dispute heard by the Omani courts.

The fundamental difference between the Omani court system as opposed to the Omani arbitration system is that an Omani court case may go through three tiers of justice (Primary, Appeal and Supreme), whereas an arbitral award is final, with no right of appeal, and it is extremely unlikely that the Omani Courts would nullify an arbitral award. This means that almost certainly an arbitral award will lead to the end of the dispute, without any ability to appeal or overturn the arbitral award.

The best time to agree on arbitration is in the contract at the start of the relationship with your counter-party. For instance, if party A desired to have any dispute heard by an arbitral panel, using Omani Arbitration Law as the procedure for such arbitration, it is best for the contract to state: “Any dispute will be finally settled via arbitration in accordance with Omani Arbitration Law (Royal Decree 47/97 as amended).”

However, the above clause can be further fine-tuned to states how many arbitrators will be on the arbitral panel. Article 15 of Oman’s Arbitration Law states that if the parties have not agreed on the number of arbitrators, the number of them will be three. Accordingly, if the parties wanted a sole arbitrator to hear any dispute, they should say so in the contract.

It is worth bearing in mind that with a panel of three arbitrators, a majority 2-1 decision is sufficient, unless the parties had agreed otherwise in writing before the commencement of the arbitration.

Article 17 states that the Court would decide the identity of the sole arbitrator, if the parties cannot agree on whom it should be. If the panel is to consist of three arbitrators, one party states his nominee as arbitrator, and the other party must then state his nominated arbitrator within the following 30 days. The two arbitrators thus chosen should select a third arbitrator within 30 days after the nomination of the second arbitrator. However, either party can apply to Court if these 30 day deadlines are breached.

An important part of the Omani Arbitration Law is what it states about the time procedural framework for an arbitration case. It is often forgotten that Article 27 says that – unless the parties have agreed otherwise - the arbitration clock starts ticking on the day the defendant receives a letter from the claimant stating that a dispute exists and that, as per the contract, it must be resolved via the agreed arbitration procedures. Article 45 requires that the arbitral award must be forthcoming within 18 months after the clock started to tick, unless the arbitral panel and the parties agree otherwise.

Another salient aspect of Omani arbitration is that the arbitral panel can appoint one expert or more to present a written or verbal report. The Law states that the parties will be afforded the opportunity to present their views on the expert reports. In addition, each party has the right to examine the documentation upon which the expert based his report. The parties are also granted the right to bring their own experts to an arbitral hearing, to present their views on the contents of the reports prepared by the expert appointed by the arbitral panel.

As mentioned at the start of this article, an arbitral award should be viewed as final as there are no rights of appeal and very limited scenarios where an application can be made to the Omani courts to try to have the arbitral award nullified. To the best of my knowledge, the Oman courts have never nullified an Omani arbitral award.

What, then, drives certain parties to agree in their contract to arbitration? The decision may be due to enforceability issues or due to a desire to have the dispute heard by specific arbitrators. The time frame is perhaps also more certain in arbitration as compared with Omani court cases. But weighing up the advantages and disadvantages of the courts as opposed to arbitration is always a complex matter which can only be determined after careful legal study of the specific facts in question at the time of contract preparation.

-James Harbirdge, Partner (Oman)