Wednesday, January 29, 2014

Construction Disputes in Oman - Here and Now

On 12 November 2013, Curtis, Mallet-Prevost, Colt & Mosle LLP was invited to speak at the Chartered Institute of Building Masterclass on Delay, Dispute Resolution, and Management of Construction Contracts held in association with Hill International.

The following are some of the areas which were covered by Curtis in its presentation to the delegates.

Most construction contracts entered into in the Sultanate of Oman use the Standard Documents for Building and Civil Engineering Works, usually referred to as the Standard Forms of Contract. The two editions in use are the Third Edition (which was issued in July 1981) and is in the English language and the Fourth Edition (issued in 1999) in the Arabic language.

The Standard Forms of Contract are FIDIC based with a traditional employer design/contractor build risk profile. The Employer bears risk for increase in costs arising from such matters as:

  • a change in law (Clause 70), the minimum wage legislation which was recently passed being a prime example of this; and
  • those arising from “Special Risks”, such as war, revolution, riot, commotion or disorder (Clause 65).
The Contractor bears risk for increase in costs arising from such matters as:
  • inflation/increase in materials, labour and/or consumable prices; and
  • adverse physical conditions (except weather, unless protected through the Clause 12 procedure therein).
The differences in content between the two issues of the Standard Forms of Contract are considered to be minimal. In the Fourth Edition:
  • the Form of Tender Performance Bond is reduced to 5% as are a change in days to submit (Clause 3, page 1; Clause 10, page 2; Clause 10, page 17); and
  • penalties for delay increased to 10% plus additional damages (Clause 47).
The Standard Forms of Contract are currently in the process of being updated and likely to be brought into line with FIDIC '99 in order to reflect changes over the last 13 years and, importantly, will be bilingual.

Recent developments in Oman jurisprudence

Probably the most singularly important development this year has been the introduction of the Royal Decree No. 29/2013 enacting the Civil Code. Issues such as liquidated damages, penalties and limitations of liability, time limits and even matters specifically relating to building contracts (Muqawala) have now been codified.

For example, Article 267 of the Civil Code specifically deals with the position regarding liquidated damages, as follows:

“(1) If the subject matter of obligation is not a sum of money, the contracting parties may determine the amount of compensation in advance by making a provision of same in the contract or in a subsequent agreement.

(2) In all cases, the court may, upon the application of either of the parties, amend such agreement to make the compensation equal to the damage, and any agreement to the contrary shall be null and void.”

Although we are not aware of any case law directly on this point since enactment of the Civil Code (in August this year), Article 267 gives greater certainty to the generally accepted position that, if provided for by contract, the Omani courts may award liquidated damages, provided they are a reasonable assessment of the financial damages actually sustained by a party. Importantly, it also clarifies that the Courts are specifically permitted to re-open liquidated damages clauses, and award increased damages commensurate with the value of the actual damage incurred.

Building contracts or Muqawala are covered in Articles 626 to 650 with important consideration being given to:
  • Article 633 – beneficial effect and right to retention;
  • 634 – decennial liability;
  • 640 – right to recover excess costs on unit prices;
  • 641 - no right to recover excess costs for lump sum price;
  • 646 - termination; and
  • 650 – recovery of damages upon termination.
Given the extent of the effect of the Civil Code, further articles will follow dealing with specific issues arising from the extensive codification principles.