Environmental Law Framework and Developments in Oman

Like the other member countries of the Gulf Cooperation Council (GCC), Oman faces many environmental challenges. Some are well known, such as water scarcity, land desertification, and pollution of soil and water by the oil and gas industry. The GCC countries also face emerging and less regulated challenges such as increased demands for energy and electricity, urbanisation, climate change, increased construction, and unprecedented amounts of debris.

However, among the GCC countries and in the region Oman is considered progressive and highly engaged in the protection of its environment. Oman has been working to preserve its diverse flora and fauna for several decades, being the first Arab state in 1974 to create a special government body dedicated to environmental issues.

These initiatives are vital to maintain, as Oman’s economy is heavily reliant on the extraction and production of hydrocarbons such as crude oil and natural gas and liquefied natural gas, both industries which carry significant risks to the surrounding environment. Oman’s increasing participation in the tourism and hospitality sector also introduces environmental stressors.

Oman has ratified many international treaties related to environmental protection, including the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and Their Disposal, the UN Convention on the Law of the Sea, the UN Framework Convention on Climatic Change, and the UN Agreement on Prevention of Desertification in Countries Facing Severe Arid Conditions. Oman has also confirmed its intention to sign the Paris Convention, adopted at the UN Framework Convention on Climate Change Conference held in Paris in December 2015. As part of this intention, Oman submitted an action plan to reduce greenhouse gas emissions by 2% from 2020 to 2030. 

Despite these international commitments, as a matter of law, industrial projects in Oman are not required to comply with international standards. Omani laws merely require that an activity must conform to the relevant domestic legislation, some of which may not necessarily conform to international standards. In the absence of domestic standards, the Ministry of Environment and Climate Affairs (Environment Ministry) can require compliance with international standards.

The Basic Law of Oman (Sultani Decree 101/1996, as amended by Sultani Decree 99/2011) sets out the protection of the environment and the prevention of pollution as a social principle, allocating it as a state responsibility. Oman’s environmental regime is primarily regulated by the Law on the Conservation of the Environment and Combating of Pollution (Sultani Decree 114/2001), while three Sultani Decrees and two Ministerial Decisions further regulate wildlife protection and nature conservation.

Oman’s laws mandate strict penalties for the release of environmental pollutants and discharge of effluents, both on the land and in the sea. Oman generally follows the “polluter pays” principle, with penalties imposed on the person or company directly causing environmental damage. For example, in 2012 the Oman Cement Company SAOG was required by the Ministry of Commerce and Industry to shut down a production line and to contribute OMR 2.25 million as compensation for villages that were environmentally affected by its operations.

It is noteworthy for companies that compensation may be ordered as a result of executive intervention, rather than through judicial determination, and that the Commercial Companies Law holds the directors and managers of a company personally liable for any infractions of the law by a company.

In May 2017, the Environment Ministry issued further rules governing its issuance of environmental permits, including provisions about the methods of securing environmental activity permits and the penalties for violators. The rules divide environmental activities into three categories:

• Category A: Activities of great environmental effect, including 255 activities. Obtaining a permit in this category requires the preparation of a study of environmental effects by an approved consultation office in accordance with certain principles and regulations.
• Category B: Activities located in industrial estates, industrial ports and free zones, comprising 504 activities. Obtaining a permit in this category also requires the preparation of a study of environmental effects.
• Category C: Activities of minor environmental effect. Permit applicants in this category may be able to self-certify regarding potential environmental effects, though implementation is still unclear. 

Oman has taken several clear steps towards good environmental governance over the past few decades. However, the allocation of authority between executive and judicial branches is unclear, as is the liability within Oman of individuals and companies in contravention of international environmental laws. Strengthening the role of various stakeholders (NGOs, the private sector, local communities, etc.) would also improve monitoring and reporting, important steps in achieving Oman’s national strategy of environmental preservation.

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Key Differences between English and Omani Contract Law

Introduction 

Many of the corporate lawyers advising on cross-border transactions in the Sultanate of Oman will have been trained in common law jurisdictions. Often such transactions will be governed by English or New York law, irrespective of the origin of the parties involved. Occasionally, however, the relative bargaining power of one of the parties may result in the contract being governed by Omani law. And certain contracts must, by law, be governed by Omani law.

Common law practitioners should be wary of a number of pitfalls regarding instances in which Omani law differs significantly from English law and that of other common law jurisdictions. Below we set out some of the more common examples:

1. Agreements to agree

Under English law, agreements to agree are not generally enforceable (Associated British Ports v. Tata Steel UK Limited [2017] EWHC 694 (Ch)).

The position is very different under Omani law. Under Article 79 of the Civil Transactions Law promulgated by Sultani Decree 29/2013 (the “Civil Code”), the parties may agree on the essential elements of the contract, but leave matters of detail to be decided later.

However, in the event of a dispute the court may, unless the parties have stipulated that the contract shall not be regarded as having been entered into in the absence of agreement upon such matters, rule that the contract has been concluded.

Further, the court may adjudicate on any missing terms in accordance with the nature of the transaction, the provisions of the law, and custom.

In Oman, the matter is further complicated in that the courts may rule that a party has failed in its obligation to perform in good faith if it hasn’t taken sufficient steps to reach final agreement with the other party.

In contracts to be governed by Omani law, the parties would be advised to include terms clearly providing that Article 79 of the Civil Code is not intended to apply until the agreement has been duly executed.

2. Misrepresentation in Omani law must involve fraud

“Misrepresentation” is a concept of wide importance in common law jurisdictions. In English contract law and tort law, a misrepresentation is a false statement of past or present fact made by one contracting party to another, which has the effect of inducing the other party to enter into a contract. 

It is often used as an alternate cause of action to breach of contract, because the remedies for a successful claim for misrepresentation are different from those available for breach of contract. Importantly, among the possible remedies for misrepresentation is rescission, where the contract is annulled and the parties restored to the position they were in before the contract was entered into.

Misrepresentation, under English law, does not necessarily require intent to deceive. “Negligent” and even “innocent” statements may constitute misrepresentation if they are false and their effect was to induce the other party into the contract.

Entire agreement clauses in common law jurisdictions typically aim to exclude liability for misrepresentation, but carve out liability for fraudulent misrepresentation. In other words, the parties agree not to claim for “negligent” or “innocent” misrepresentation in connection with the agreement, but also state expressly that they are not seeking to limit or exclude claims for fraudulent misrepresentation.

Such distinctions are not, however, meaningful under Omani law. Article 103 of the Civil Code defines misrepresentation as follows:

Misrepresentation is when one of the two contracting parties deceives the other by means of trickery of word or deed which leads the other to consent to what he would not otherwise have consented to. Deliberate silence concerning a fact or set of circumstances shall be deemed to be a misrepresentation if it is proved that the person misled thereby would not have made the contract had he been aware of that fact or set of circumstances.

Omani law does not recognise negligent or innocent misrepresentation: there must be an intention to deceive. The onus is on the party alleging misrepresentation to establish that (a) they were deceived by the misrepresentation; and (b) the deception was intentional.

Accordingly, the wording relating to misrepresentation in standard entire agreement clauses should be drafted bearing in mind the more narrow definition of the term under Omani law. Any attempt to limit or exclude liability for negligent or innocent misrepresentation would be at best superfluous and at worst confusing; and any attempt to exclude liability for fraud would be void under Article 183 of the Civil Code.

3. Liquidated damages 

Liquidated damages clauses are used in common law jurisdictions to protect a party’s “legitimate interests” and are generally enforceable so long as the “penalty” stipulated is not exorbitant or out of proportion to the interests the party is trying to protect (Cavendish Square Holding BV v Talal El Makdessi [2015] UKSC 67).

Article 267 of the Civil Code deals with 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.

Article 267(1) determines that the contracting parties may agree to a liquidated damages amount but Article 267(2) gives certainty to the generally accepted position that, regardless of the liquidated damages amount included in the contract, the Omani courts are specifically permitted to re-open liquidated damages clauses and adjust the amounts so that they are commensurate with the value of the actual damage incurred.

 Article 267(2) is obviously in direct conflict with the freedom to contract for which Oman has previously been well known. However, this provision of the Civil Code merely follows established precedent applied by courts of the UAE, Qatar and Saudi Arabia who all take a similar position in that they are also not opposed to re-opening pre-agreed liquidated damages clauses.

4. Good faith 

Good faith under Omani contract law can be interpreted as a requirement to act reasonably and moderately, not to use the terms of a contract to abuse the rights of the other contracting party, and not to cause unjustified damage to the other party.

In Omani law an act of bad faith by one party may constitute a cause of action for the other party to the contract. Accordingly, the duty of good faith is overarching, in contrast with the position at English law.

Under English law the extent of the obligation depends on the context and how explicitly it is defined. However, it is clear that the English courts are reluctant to construe a good faith obligation as imposing a positive obligation on a party to act against its commercial interest, or to give precedence to such an obligation over an express contractual right.

5. Indemnity 

The Arabic language – and consequently Omani law – does not distinguish between the terms “indemnity” and “compensation.” Consequently, an obligation on one party to a contract to indemnify the other in specified circumstances is not likely to provide a full indemnity in the English law sense of the term.

This difficulty should not be insurmountable, however, and it ought to be possible to achieve the effect of an indemnity by explaining carefully how the concept is intended to work in the relevant provisions of the contract.

6. Termination for convenience 

Typically, under English law there are no restrictions on one or more parties being allowed to terminate a contract “for convenience” or “without cause.”

However, under Omani law, Article 133 of the Civil Code suggests that the inclusion of such a provision would render the contract voidable:

A contract shall not be binding on one or both of the contracting parties despite its validity and enforceability if it contained a condition that such party may terminate it without mutual consent or legal proceedings. Either party may act unilaterally in terminating the contract if by its nature the contract is not binding on him or if he reserved to himself the right to terminate it.

In the UAE, there is an exception to this principle, but only in relation to “muqawala,” or construction, contracts.

A recent UAE Court of Appeal judgment, citing the Egyptian Civil Code, ruled that employers in construction cases could be entitled unilaterally to terminate a contract, on the grounds that “muqawala contracts often take a long time to complete and circumstances may change in the period between contract formation and completion of the contract work.”

No such exception exists in Omani jurisprudence. In the section of the Civil Code dealing specifically with muqawala contracts, Article 646 provides:

A contract of muqawala shall terminate upon the completion of the work agreed or upon the cancellation of the contract by consent or by order of the court.

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Counterparts Clauses and Virtual Signing

The possibility of all parties to a contract being available in the same place at the same time for signing and execution of an agreement is increasingly limited, especially where transactions involve multiple parties. Accordingly, the practice of “virtual signing” has developed in recent years. In light of this, a joint working party of the Law Society Company Law Committee and the Company Law and Financial Law Committees of the City of London Law Society has published a guidance note (the “Guidance”) to overcome some of the practical hurdles of virtual signing.

Virtual signings 

Practically, it may be both: (a) problematic for everyone who is required to sign an agreement to be physically present for signing; and (b) difficult to post an agreement due to time constraints. Accordingly, the practice of “virtual signings” has developed whereby an agreement can be executed without the parties meeting and in which signature pages to a relevant agreement are executed in advance of the final agreement and subsequently transferred to the final form. As English case law has shown, in the case of R (on the Application of Mercury Tax Group Limited and another) v HMRC [2008] EWHC 2721 (“Mercury”), a signature on an incomplete draft deed or contract, as the case may be, cannot be transferred to execute the final form. Following the decision in Mercury, the Guidance provides various options for effectively executing English law-governed agreements at virtual signings. Such options are non-exhaustive, however, and each transaction should be considered according to its own facts. By way of example, some of the options included in the Guidance provide as follows:

1. Where a document is signed in counterparts by each party, the following steps may be taken:

• parties should make arrangements for signing ahead of finalising the document; 
• when the documents are finalised, the final execution copies of the documents are emailed (as pdf or Word attachments) to all absent parties; 
• each absent signatory prints and signs the signature page only; 
• each absent party then returns a single email attaching (a) the finalised document; and (b) the signed signature page or, in the absence of attaching the final document, the absent party should give authority to attach the signed signature page to the final approved version of the document; and 
• a final version of the document, together with copies of the executed signature pages, may be circulated to the parties to evidence the execution of the final document. The printed execution version of the document with the attached signed signature pages will constitute an original signed document. 

2. Where the signature pages of a document are pre-signed before the document is finalised, the following steps may be taken:

• parties should make arrangements for signing ahead of finalising the document; 
• before signing, the signature pages relating to the document still being negotiated should be circulated to each absent party; 
• the absent signatories sign the signature page which should be returned and subsequently held until authority is given for it to be attached to the document; 
• the finalised document should be emailed to each absent party and confirmation should be sought from the party (or its advisors) that the final version is agreed; the pre-signed signature page may be attached to the final document once authorisation has been given by the absent party (or its advisors) and the document may be released and dated. 

The printed final agreed document with the attached pre-signed signature pages will constitute the original signed document.

Counterparts clause 

As referred in option 1 above, it is possible to sign a contract in counterparts. An English law-governed agreement may not be invalidated by the fact that it does not contain a counterparts clause, although a contract that does contain one clarifies that separate copies of an agreement may be executed by different parties and each copy will be considered to be an original. It is considered prudent to include a counterparts clause if there is a possibility that the agreement will be executed by counterparts. Including such a clause will limit a party claiming that an agreement is not binding because there is no one copy of the agreement that is signed by all parties.

Omani legislation 

Omani legislation provides for the legal formalities of the signing and execution of contracts in Oman. In particular, Sultani Decree 48/76 on the Signing Foreign and Domestic Financial Deals in the Sultanate of Oman (as amended), for example, sets out which individuals may sign and execute an agreement concluded in the name of His Majesty the Sultan or on his behalf or in the name of the Government of the Sultanate. However, in the absence of any note from the relevant Omani authorities detailing options for the signing and execution of Omani law-governed contracts in counterparts, it may be worth consulting with the Guidelines.

Conclusion 

Executing an agreement in counterparts involves the various parties to the agreement signing separate (but matching) copies of the same document. Together, the various signed copies will form a single binding agreement, without the need for all the parties to sign the same copy of the agreement. Although not essential, it is usual practice to include a boilerplate clause specifically providing for an agreement to be executed in this way. Further, in order to avoid a similar situation as in the case of Mercury, where agreements are executed by “virtual” signing, it is useful to reflect upon the Guidelines.

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Does State Audit Law or the Law for Safeguarding State Property Apply to You?

The State Audit Law promulgated by Sultani Decree 111/2011 (the “State Audit Law”) is applicable to:

• all companies wholly owned by the Government of the Sultanate of Oman (the “Government”); and

• companies in which the Government holds more than 40% of the share capital.

Each such entity is deemed to be a “Supervised Company.” It should be noted that, pursuant to the law on safeguarding of public property and preventing of conflict of interest promulgated by Sultani Decree 112/2001 (the “Law for Safeguarding State Property”), all employees of companies in which the Government holds more than 40% of the share capital would be considered government officials.

What does being a Supervised Company mean? 

Any entity which falls within the meaning of a Supervised Company should carefully consider the provisions of the State Audit Law. A Supervised Company, for example, has certain obligations including, pursuant to Article 5 of the State Audit Law, to provide State Audit with all draft regulations and systems prepared by it in relation to the Supervised Company’s financial and accounting affairs, taxes and charges.

State Audit also has the right, by virtue of Article 9 of the State Audit Law, to conduct financial and administrative control in all areas including control over investments and all accounts of a Supervised Company. In exercise of this right, under Article 10 of the State Audit Law, State Audit may review without prior notice:

(i) the investments of the Supervised Company;

(ii) any financial irregularities of its employees; and

(iii) any documents or records of the Supervised Company.

A Supervised Company is further under an obligation under Article 21 of the State Audit Law to provide State Audit with the following:

(1) its balance sheets and financial statements;

(2) final accounts and any adjustments or amendments thereto; and

(3) board and auditor reports and management letters approving them.

It should be noted that a Supervised Company has certain reporting obligations including to inform State Audit within one week of any discovery of any financial or administrative irregularity or occurrence of an incident that results in financial loss to the State or any matter than may lead to such loss without prejudice to the other legal procedures that shall be taken.

A Supervised Company should further be aware of the penalties for non-compliance with the State Audit Law. By Article 32 of the State Audit Law, anyone restricting the State Audit from reviewing any of the accounts, papers, documents or other things that State Audit has a right to review or anyone concealing the information, data or documents or submitting incorrect ones shall be penalised by imprisonment for between six to 12 months and/or a fine of between OMR 1,000 and OMR 2,000.

What does being a government official mean? 

A government official has certain responsibilities to prevent misuse of public property (i.e., any property or moveable assets owned by a Supervised Company), as provided by Article 5 of the Law for Safeguarding State Property, and is under a duty to inform State Audit immediately of any violations related to such public property.

Specifically, government officials should be aware that they are prohibited from the following:

(i) using their positions of work to realise a benefit for themselves or others or using their influence to facilitate others obtaining any interest or preferential treatment – this is particularly important when considering the awarding of tenders or contracts;

(ii) using public properties for personal reasons or in ways not intended for such property;

(iii) combining their positions or work and any other work in the private sector which relates to their positions or work; and

(iv) having any share in any company, establishment or profit-generating business directly or indirectly related to their positions or work (this prohibition extends to such government official’s minor children).

Further, government officials should be aware that, pursuant to Articles 12 and 13 of the Law for Safeguarding State Property, if requested by State Audit, they shall be required to disclose to State Audit all moveable monies and properties owned by them and their spouses and minor children and the monetary source of such ownership; and if they become aware of any secrets by virtue of their positions, they undertake not to disclose such secrets, even after the end of the employment relationship with the Supervised Company.

Any failure by a government official to comply with the abovementioned provisions or any other article as may apply under the Law for Safeguarding State Property could result in a government official being imprisoned for up to three years as well as being sacked from his/her position and confiscation of any amounts received in violation of the Law for Safeguarding State Property.

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