Charging
interest on a commercial loan or debt is an important part of any contractual
bargain. For the creditor, the interest
charged on a debt encourages quicker repayment by the debtor, and represents
the price at which the creditor is willing to lend. For the debtor, interest charged is important
as it is the amount for which he will be liable, in addition to the principal
debt.
Omani
courts have consistently upheld the payment of interest in commercial cases. Article 80 of Oman’s Commercial Code (issued
by Royal Decree 55/1990) states:
“A creditor shall be
entitled to levy interest in consideration of the debtor obtaining a commercial
loan or debt. The interest shall be
determined by the agreement of the two parties within such limits as the
Ministry of Commerce & Industry shall set in agreement with the Oman
Chamber of Commerce & Industry each year, having due regard to the term of
the loan, the purposes thereof, and the risks attendant thereon. If the debtor
is late in making payment on the due date, the creditor shall be entitled to
claim the agreed interest in respect of the period in arrears.”
The
Ministry of Commerce and Industry (the “MOCI”)
periodically issues a decision on the maximum interest rate chargeable for
commercial loans.
Starting
from 2001, the limit on the rate of interest set by the MOCI was 10%;
thereafter it has been tapered, whereby in 2006 it was set at 9%, in 2008 it
was set at 8% and by 2015 it was set at 6.5%.
Ministerial
Decision 172/2016 is the most recent decision issued by the MOCI in respect of
the maximum interest that can be charged on a commercial debt or commercial
loan given by a company that is neither a bank nor a finance and asset-leasing
company licensed by the Central Bank of Oman. MD 172/2016 set the maximum
interest rate chargeable on commercial loan or debt at 6.5% for a period of one
year starting from 20 July 2016.
Thus,
as the interest rate in Oman for commercial debts is currently set at 6.5%, any
final arbitral award or court decision will likewise apply this rate.
The
parties entering into a contract normally agree to a rate of interest
chargeable in case of default or delay in payment by one party to the other
party as per the contractual terms.
What
happens if the contract is silent in respect of the interest rates?
In
the event that a contract is silent as to the applicable interest rate regarding
a commercial debt or commercial loan, the Omani courts may still award the
claim of interest based on the applicable interest rate which is set out by the
MOCI’s most recent and applicable Ministerial Decision. The Omani courts are generally of the view
that a claim for interest cannot be denied on the ground that a contract is
silent on the subject.
What
happens if the parties agree to a higher rate of interest than the rate
specified by the Ministerial Decision?
While
entering into construction contracts, the parties usually adopt an edition of
the Sultanate of Oman’s Standard Conditions. The Standard Documents for
Building and Civil Engineering Works – Fourth Edition 1999 sets the rate of
interest at 7%. In general, the Omani courts,
or the arbitral tribunal, would award interest at 7% as stipulated in the
Standard Documents referred to above (although it is higher than the rate set
by the MOCI), unless the parties raise a dispute about the rate of interest in
the contract being higher than the rate of interest set by the MOCI.
In the event that litigation is pursued in
respect of the rate of interest in a contract being higher than the rate set by
the MOCI, the Omani courts would generally uphold those contractual terms each
party had agreed to, including the rate of interest. However, the Omani courts’ interpretation of
the issue of the contractual interest rate being higher than the interest rate
set by the MOCI is still not clear and will depend on the merits of each case.
