The Law of Commerce issued by Royal Decree 55/1990 and the Civil Transactions Law issued by Royal Decree 29/2013 set out various provisions relating to insolvency and bankruptcy in Oman. Under the laws of Oman, bankruptcy of a person must be declared by the Court. An application for bankruptcy may be made by the insolvent person him or herself, or by a creditor of the insolvent person.
Following the declaration of bankruptcy of an insolvent person, interest will cease to accrue on the debts of the bankrupt person. On declaration of bankruptcy, debts shall be settled in the following order of priority:
(i) salaries of employees;
(ii) government dues and taxes;
(iii) preferred or secured creditors; and
(iv) unsecured creditors.
Under the provisions of the Law of Commerce, upon being declared bankrupt, the bankrupt is required to relinquish, in favour of the appointed administrator in bankruptcy, the management of all his or her assets. The fact that a person has been declared bankrupt does not have the effect of vitiating, or automatically terminating, those contracts that were entered into by the bankrupt person prior to his or her declaration of bankruptcy. Any contract entered into by the bankrupt prior to the date of declaration of bankruptcy remains valid and continues to exist although certain obligations under those contacts may become suspended by reason of bankruptcy. It is common for commercial contracts to include a right of termination for a party in the event the other party under the contract is declared bankrupt.
Effect of bankruptcy on a company
The Commercial Companies Law issued pursuant to Royal Decree 4/1974 sets out the various grounds for dissolution or liquidation of a company. The declaration of bankruptcy of a company is one of the grounds for its dissolution. As a result of being declared bankrupt, a company is liable to be liquidated and struck off the Commercial Register.
Effect of bankruptcy on employees
Under the provisions of the Oman Labour Law issued by Royal Decree 35/2003, an employer is responsible for all obligations towards its employees arising under the contract of employment and the Labour Law. Article 47 of the Labour Law states that the liquidation, insolvency or bankruptcy and final authorised closure of an employer is valid ground for termination of the employment contract by that employer. To the extent that the employer terminates its employees on the ground of its insolvency, that would be considered a valid ground for termination of those employees.
Effect of bankruptcy on parties to a contract and third parties
As a general rule, a contract counterparty is not responsible or liable to third parties, including employees of the other party, if the other party to the contract becomes insolvent or bankrupt. Any obligation of the bankrupt or insolvent party towards its employees remains with that party. Nonetheless, it is important to consider the scenario in which the contract with the bankrupt party is terminated and the counterparty would like to replace the bankrupt party with another contractor (the “Replacement Contractor”).
Under Article 48 bis of the Labour Law, a Replacement Contractor is required to employ the national manpower which was employed on the same project that has passed, either in whole or in part, to that Replacement Contractor. Accordingly, when a contract comes to an end and the remaining scope under that contract passes to a Replacement Contractor, in that case the Replacement Contractor is required by law to take over the Omani employees of the last contractor who were involved in performing that contract. Furthermore, the Replacement Contractor is required by law to provide those employees with the same benefits and financial incentives they were receiving earlier as long as their work exists and continues.
Conclusion
The insolvency and bankruptcy of a contract counterparty can potentially affect other parties to the contract and third parties. The recent slump in oil prices has affected the economy as a whole. This has the effect of rendering various businesses and companies insolvent and potentially liable to be declared bankrupt. It is important to consider the risks involved in dealing with companies that are potentially liable to be declared bankrupt or projects that are taken over from those companies. This also signifies the need for proper due diligence of contract counterparties and companies from whom projects are being taken over and having in place a strategy to mitigate the risks involved.
Monday, June 26, 2017
Declaring Bankruptcy in Oman: What to Expect
Monday, June 19, 2017
Petition Orders: Oman's Injunctive Relief Mechanism
What are petition orders?
A petition order, or an application for injunctive relief, is a mechanism that allows a petitioner to seek a declaratory judgment on an emergency basis when irreversible harm is reasonably feared to be imminent.
Common examples of when a petition order would be appropriate are when a petitioner reasonably fears that key evidence is at risk of being physically destroyed or damaged and when there is reasonable belief that recoverable assets will be removed from a sovereign territory.
A petitioner’s right to seek interlocutory or injunctive relief is established in Chapter 10 of the Civil Procedure Law (promulgated by Royal Decree 29/2002). Article 190 thereof expressly provides:
“In cases where the law sets out the legal right of the litigant to bring about an injunction he shall apply by petition to the judge for the provisional matters or to chairman of the panel which examine the case. The said petition shall be of two counter parts and includes facts of the application and supporting documents besides stating a domicile of choice to the applicant at the city in which the court is located.”
The application for a petition order must be sufficiently detailed so as to enable the judge to review the file and to make an informed determination on its merits. Further, the application, and all assertions made therein, must be fully substantiated with evidence.
What is the process for filing a petition order?
A petition order should be filed with the Primary Court – Commercial Circuit. The Primary Court will have exclusive jurisdiction to review the application, and to determine whether to issue a petition order. There is a presumption that the petition order will be immediately enforceable in the event that a favourable decision is granted by the Primary Court.
It is important to note that petition orders are not ex parte applications, that is, the party against whom the petition order is filed (i.e., the respondent) must be served, and must respond. Notwithstanding this, the Primary Court still may issue an interim decision prior to considering the respondent’s rejoinder, if it believes the circumstances indeed warrant immediate action.
The respondent will have the right to appeal the Primary Court’s decision to the Appeal Court, and, if necessary, to appeal the Appeal Court’s decision to the Supreme Court. However, a petition order issued by the lower courts will remain enforceable even if the respondent elects to appeal. It is only if the respondent is successful upon appeal that the petition order will be lifted.
Under what circumstances will a petition order be granted by the Omani courts?
Article 190 of the Civil Procedure Law only permits the courts to consider injunctive application when the application itself is substantively grounded in a specific law. The legislature has chosen to regulate petition orders in this manner in order to prevent frivolous and groundless injunctive applications from being filed.
We touched on a few common examples as to when an injunctive order may be grounded in a specific law. Some further examples include:
- the right to arrest a ship, pursuant to the Omani Maritime Law (promulgated by Royal Decree 35/1981), when it is reasonably feared that a vessel may leave Omani territories when there is a commercial debt owed;
- potentially freezing assets when parties are in the midst of a financial dispute; or
- seeking a travel ban on an individual when a criminal investigation may be forthcoming, pursuant to the Omani Penal Code (Royal Decree 77/1974).
Monday, June 12, 2017
Drafting Practical Arbitration Clauses in Oman
In recent years, arbitration has become an increasingly popular vehicle for dispute resolution in Oman. However, when preparing an arbitration clause, there are key elements that must be considered to ensure that the clause itself is both comprehensive and operates as intended by the parties.
This article will explore some of the key features that should be considered when preparing an arbitration clause.
Scope of the arbitration clause
When preparing an arbitration clause, it is important to ensure that the clause decidedly covers all disputes that could potentially arise between contracting parties in connection with a specific contract. It is therefore recommended to construct the clause as broadly as possible, to ensure that certain types of disputes are not inadvertently excluded from the scope of the arbitration clause. Therefore, contracting parties may wish to include broad language in the arbitration clause to this effect.
Pre-dispute settlement
Disputing parties may prefer to undertake a “good faith” attempt to settle any dispute prior to referring the matter to arbitration. Generally, however, it is difficult to determine whether negotiations have truly been made in “good faith.” Thus, a “good faith” negotiation by itself, without any other qualifiers, may cast doubt as to when a party’s contractual right to refer a matter to arbitration has matured.
Therefore, it is recommended to set a time frame within which the parties must reach an amicable settlement, to ensure that there is no question as to whether a party’s right to refer a dispute to arbitration has crystallised.
Forum
Another important consideration is the forum for the arbitration. Essentially, the parties will have two options: (i) to select an international arbitral institution as the forum or, alternatively, (ii) for the arbitration to be administered as an Omani ad hoc arbitration, under the Omani Arbitration Law. It is important to note that if the parties’ contract does not specify a forum, the arbitration will then be administered as an Omani ad hoc arbitration, by default.
There are several prominent international forums from which contracting parties may select, including the International Chamber of Commerce (“ICC”), the London Court of International Arbitration (“LCIA”) as well as the Dubai International Financial Centre – London Court of International Arbitration (“DIFC-LCIA”).
There are many advantages to selecting an international forum when compared to an ad hoc arbitration, most notably the involvement of the court-appointed secretariat. The secretariat will be responsible for ensuring that all aspects of the arbitration, from commencement to the final award, are efficiently administered. In doing so, the secretariat will manage all pre-arbitral issues, including the tribunal selection process, and by crystallising the issues in dispute. The secretariat will also play a vital role during the course of the arbitration, as well as when the final award is rendered.
Formulation of the tribunal
The parties are free to determine whether they prefer a sole arbitrator or a three-member arbitral panel. It is recommended that the parties specify their preference in the arbitration clause itself.
If the arbitration clause provides for a sole arbitrator, the parties should be given a reasonable opportunity to mutually agree to the appointment of the sole arbitrator. However, either party may, at any point in time, apply to the President of the Commercial Court to seek the appointment of a sole arbitrator, pursuant to Article 17(1) of the Omani Arbitration Law (promulgated by Royal Decree 47/1997).
In arbitrations comprising three-member panels, it is customary for both parties to nominate an arbitrator to sit on the three-member tribunal, with the claimant nominating their preference first, and the respondent shortly thereafter. The two appointees would normally then be required to nominate the tribunal chair.
However, in the latter scenario, it is recommended to provide the respondent with a specific deadline for appointment of its nominee, after it has been formally notified that the dispute has been referred to arbitration. Likewise, the two appointed nominees should be given a specific time frame within which to appoint the tribunal chair.
It is important to note that under Article 17(2) of the Omani Arbitration Law, the respondent will be given 30 calendar days to make its selection from the date that it is requested by the claimant to do so. Similarly, the two appointed arbitrators will also have 30 calendar days to nominate the tribunal chair after they have been tasked with the assignment. If the time period lapses regarding the respondent’s appointment of arbitrator, or the appointment of the tribunal chair, an application may be made to the President of the Commercial Court seeking the appointment of the same.
Language
It is recommended that the arbitration clause specifies the language in which the parties wish for the arbitration to be conducted. If the parties do not specify a language for the arbitration (other than Arabic), and the arbitration is governed by Omani law, the arbitration will, by default, be conducted in Arabic.
However, it is important to note that the parties may agree for certain components of the arbitration to be in another language. A common example is when the parties wish for the arbitration to be conducted in Arabic, but prefer for the evidence and supporting documents to remain in their original language.
Governing law
It is recommended that the parties specify the governing law in the arbitration clause itself. When selecting the governing law, it is important to note that, generally, both the substantive and the relevant procedural laws of that specific country will be applicable.
Seat of the arbitration
Selecting the “seat” of the arbitration – not to be confused with “place” of the arbitration – is in direct reference to the jurisdiction in which the arbitral proceedings will be conducted. Therefore, the specified “seat” will enable the courts of that jurisdiction to review any procedural, emergency or interlocutory applications that could be filed from time to time. It also may be prudent to select a specific city within a sovereign territory, as certain international arbitration institutions often require a city as the “seat.”
To avoid any unnecessary confusion, it is recommended that the seat of the arbitration be a domicile within the same territory as the governing law. Therefore, if the parties wish to adopt Omani substantive law, the parties should consider agreeing to Oman (or a specific city in Oman) as the seat of the arbitration.
Monday, June 5, 2017
Bring in the Linguists: Common Arabic/English Legal Translation Issues
Introduction
Any legal practitioner who has been working for some time in the Sultanate of Oman – or in the wider Arab world - will be familiar with the pitfalls that can develop when legal documents are translated from English to Arabic or vice versa.
Much of the time, mistakes in translation are harmless enough either to pass unnoticed or to give rise to nothing more serious than wry amusement. But there are instances in which the consequences of mistranslation can be more serious.
Under Omani law, all documents, correspondence and agreements submitted to the Government must be in Arabic. Omani courts and tribunals will consider and construe only documents submitted in Arabic.
When issuing a prospectus for the offering of securities in Oman, the Arabic-language version approved by the Capital Markets Authority is, by law, the official version of the prospectus. If any difference or discrepancy arises between the Arabic and the English texts, the Arabic text prevails.
In practice, many of the above documents are first prepared in English, then translated into Arabic. Conversely, when non-Arabic speaking lawyers are advising clients on local legislation, they will be relying on translations from Arabic into English.
It is easy to see how, in the above examples, even an apparently small translation error could have regrettable repercussions.
Problems specific to translating legal documents between Arabic and English
In his 2002 article, “What is so Special about Legal Translation?” Malcolm Harvey describes the challenge of legal translation as “combining the inventiveness of literary translation with the terminological precision of technical translation.”
The challenge is compounded when translating legal English into Arabic or the other way around, not only because of the gulf between the English and Arabic languages, but because of the wide differences between English common law and the civil law system prevalent in the Arab world.
There are many technical terms in legal English that only make sense in a common law framework, and for which there are no direct equivalents in either Sharia or Arab civil law. Similarly, legal Arabic incorporates elements of both Sharia and Arabic civil law, many of whose concepts have no counterpart in English common law.
Such specialised legal terms often have fixed legal meanings and cannot be replaced by other words. In these cases, literal translation by the unwary is unlikely to offer a correct rendering of the term.
Further, in legal English, lawyers still use Old and Middle English terms such as “hereby,” “hereof,” “hereinafter,” “thereby” and “aforesaid.” To add to the mix, legal English employs many Latin terms and expressions, some of which date back to the Middle Ages, such as “contra proferentem,” “delegatus non potest delegare,” “res ipsa loquitur,” et cetera.
Archaic English or Latin terms can often be translated perfectly accurately into modern Arabic. Sometimes such terms can safely be omitted altogether when they do not affect the meaning of the whole text. However, in cases in which no accurate equivalent is available and the term cannot be safely ignored, the translator will need to act as a cultural intermediary. He may have to interpret the wording conceptually rather than literally, then paraphrase fully the intended effect of the term or expression to avoid losing vital meaning in translation.
There are numerous English legal terms of art which are almost invariably mistranslated into Arabic, such as “indemnity,” most often translated as تعويض, the typical back-translation of which would be “compensation.” To any lawyer trained in the common law tradition, this rendering is gravely deficient.
The Arabic word رهن is used for both “mortgage” and “pledge,” while “assignment” is translated into Arabic by (inter alia) the words احالة، نقل and تنازل, used seemingly interchangeably. Unfortunately, depending on context, each of the three can convey an entirely different meaning. Unless the translator has sufficient grasp of the legal purpose of the document to be able to determine in such cases which meaning is intended, confusion is inevitable.
Conclusion
To avoid the dangers posed by the specific problems inherent in translating legal documents between English and Arabic, practitioners need to ensure they are entrusting the business of legal translation to professionals with the necessary expertise.
Legal translators must have in-depth linguistic training and knowledge of the source language, and should ideally be native speakers of the target language. Finally, they must be steeped in the local culture and have a firm grasp of the applicable legal concepts and terminology.
