Monday, July 16, 2018

Requests to Stay the Implementation of Administrative Decisions

1. Introduction

The Administrative Judicature Court is the body charged with judicial oversight of the work of administrative bodies in the Sultanate of Oman.  One of its most important responsibilities is its competence to rule as invalid administrative decisions that are unlawful.

Although this oversight provides individuals with the protection they seek, such rulings are issued only after specific judicial procedures have been followed, and after the expiry of specified dates within which the ruling may be appealed, which extends the duration of the dispute.

If a decision is implemented before the issue of the ruling, such implementation in some cases may result in irreversible consequences, and proceeding with the case after that in order to obtain a ruling of invalidity will be useless.

Accordingly, various pieces of legislation, including the Omani Law Regulating the Requesting and Staying of the Implementation of Administrative Decisions, have attempted to balance the public interest, which requires the implementation of administrative decisions immediately after their issuance for the proper functioning of public utilities, and private interests, which require the provision of urgent judicial protection for individual rights if it is apparent from the case documents that the challenged decision is likely to be unlawful and that its implementation will cause irrevocable harm to these individuals.

2. The concept behind a request

The purpose of an emergency request is to give the claimant urgent judicial protection of his right to avoid negative consequences that may result from the implementation of an administrative decision.  This request must be submitted in a petition challenging the validity of the decision, or in a subsequent application submitted at the end of the first hearing.

3. Legal basis of the request

The legal basis for requesting the stay of an administrative decision is Article (19) of the Administrative Judicature Court  Law, which stipulates:

“The filing of the case with the court shall not lead to a stay of the decision against which the appeal is made.

However, the concerned party may seek the suspension of the execution of this decision in a plaint or by a subsequent application submitted on a date before the termination of the first pleading session.  The department to which the case is referred shall decide on such application within fifteen days from the date of reference or from the date of submission of application during the case proceedings as the case may be.  The department shall not rule on the suspension of the execution of the decision unless it believes on the basis of the papers that the case is based on serious grounds and that the results of such execution might be difficult to undo.”


The Administrative Judicature Court applies the provisions of this article when considering a request for suspension of execution, supported - if necessary - by the rules of expedited judicial procedures provided for in the Civil and Commercial Procedures Law issued by Royal Decree 29/2002, on condition that it does not contradict the nature of the administrative dispute in applying the provisions of Article (105) of the Administrative Judicature Court Law.

4. Appeal against the judgment issued in the application to stop implementation

The judgment issued in the application to stop implementation is characterised by being a final judgment, as other final judicial judgments.  The decision issued is considered final once issued and must be executed immediately.  Concerned parties may appeal against it before the Court of Appeal without waiting for the judgment to be rendered on the subject, because the court has already decided on the suspension application, so it is not permissible for it to reverse the ruling, even if the judgment does not restrict it when considering the invalidity of the contested decision.  Appeals must be filed within fifteen days from the day following the issuance of the judgment, according to Article (17) of the Administrative Judicature Court Law, which stipulates:

“The deadline for filing appeal shall be thirty days from the day after the date of issuance of judgment.

The period shall be fifteen days in respect of the judgment issued on an application for the suspension of the judgment.”

5. Practical applications of requesting that the implementation of a decision should be stayed by a court ruling

A number of recent cases have, in applying Article (19) of the Administrative Judicature Court Law, affirmed the principle that appealing an administrative decision does not in itself have the effect of staying its implementation.  In other words, simply challenging the decision and demanding its cancellation does not stop the implementation of the contested decision.  The purpose of this principle is not to allow individuals to obstruct the administrative work and paralyse the movement of administrative bodies that seek to achieve public interests through appeals against administrative decisions.

There are, however, exceptions to the principle, where stays of administrative decisions have been granted by the courts in order to protect the interests of individuals and to ensure that the administrative body in question is not being arbitrary in the implementation of its decisions.  In Judgment on Appeal No. (1) for the Judicial Year (4) dated 17 January 2004 the court ruled:

“It is established that administrative decisions are enforceable, except if their implementation entails irreversible results, whereupon the court may depart from this principle and order a stay of the implementation of the decision in following a request from the concerned party.  Ruling in such a matter of urgency requires the proceedings to be swift and simplified, and the job of the court at that time is to check the existence of two pillars concerning the request for a stay of implementation in order for it to issue a judgment:

First pillar:  The pillar of seriousness is an objective pillar which is present when it is established that the appeal against the appealed decision - according to what is stipulated in the documents - is based on serious reasons.


Second pillar:  The pillar of urgency which is present if the results of the implementation of the decision are irreversible should the decision not be taken to stay its implementation.”


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Monday, July 2, 2018

Arbitration in the GCC: An Overview of the Choices

When parties arbitrate in Oman, the most popular arbitral framework is ad hoc arbitration, usually using the Gulf Cooperation Council (“GCC”) arbitration rules or the United Nations Commission on International Trade Law (“UNCITRAL”) rules.  In other cases, parties agree to have arbitration in Oman that is administered by an outside arbitration centre; while there is no arbitration centre in Oman, there are quite a few arbitration centres throughout the GCC.  This article will provide an overview of some of the most popular arbitration centres in the region.

ICC

The International Chamber of Commerce (“ICC”) is the most established arbitration centre in the world.  The ICC is headquartered in Paris and has a number of branch offices throughout the world.  The ICC recently opened a representative office in Abu Dhabi for the Middle East and North Africa (“MENA”) region.  Prior to opening the new office in MENA, ICC arbitration had been long established in Oman.  The ICC secretariat is considerably sophisticated, and the ICC arbitration rules are highly regarded, widely used and considered a truly international set of arbitration rules.

DIFC-LCIA

The DIFC-LCIA was established in 2008.  It can be considered a joint venture between the Dubai International Financial Centre (“DIFC”) and the London Court of International Arbitration (“LCIA”) which is one of the most established arbitration centres in the world.  The DIFC-LCIA rules are modeled on the LCIA rules.  There are a number of notable features contained in the DIFC-LCIA; of particular importance is the fee structure.  In comparison to the other rules that are outlined in this article, the centre’s and arbitrator’s fees for a DIFC-LCIA administered arbitration are calculated on an hourly rate system rather than an ad valorum scale (fixed fee based on the amount in dispute).

DIAC

The Dubai International Arbitration Centre (“DIAC”) was first established in 1994 as the Centre for Commercial Conciliation and Arbitration.  DIAC, a popular arbitration centre in Dubai, uses rules that came into effect in 2007; however, notably, the DIAC has drafted a new set of rules that are waiting for Royal Decree in order to come into force.  The new rules contain a number of notable features, namely that the default seat of arbitration under the rules will be the DIFC, which is governed by common law rather than civil law.  The new rules are also anticipated to include provisions relating to the governing of third-party funding.  It is expected that the new DIAC rules will come into effect in 2018.  The new rules will significantly update the 2007 rules and will be the topic of a later blog post (once they come into effect).

ADCCAC

The Abu Dhabi Commercial Conciliation & Arbitration Centre (“ADCCAC”) is a local arbitration centre that mainly deals with domestic arbitrations.  Its arbitration clause is contained mainly in contracts that are entered into with United Arab Emirates (“UAE”) public entities.  The ADCCAC rules came into effect in 2013 and contain various modern provisions.  ADCCAC provides hearing facilities free of charge to parties conducting arbitrations on their premises.

BCDR-AAA

The Bahrain Chamber for Dispute Resolution (“BCDR”) was established by Legislative Decree No. 30 of 2009.  It operates in partnership with the American Arbitration Association (“AAA”).  The AAA is an international arbitration centre with various offices throughout the world.  In addition to administering arbitrations and appointing arbitrators, it administers mediations and runs various training services.  The BCDR-AAA has a modern set of arbitration rules that came into effect in 2017.

GCC Arbitration Centre

The GCC Commercial Arbitration Centre (“GCCCAC”) was established in March 1995 by the GCC Supreme Council and is based in Bahrain.  The centre is considered a regional arbitration authority which is independent from the six GCC member states, including the host state.  It has an independent legal entity and enjoys administrative, financial and technical independence.  Simultaneously, it is considered one of the GCC organs.  The GCCCAC rules came into effect in 1994 and were amended in 1999.  The GCCCAC administers arbitrations and its rules are commonly used in ad hoc arbitrations in Oman.

Cairo Regional Centre for Arbitration

The Cairo Regional Centre for International Commercial Arbitration (“CRCICA”) was established in 1979 by an international agreement signed between the Egyptian government and the Asian African Legal Consultative Organization (“AALCO”) making it the oldest centre in Africa and the Middle East.  The latest CRCICA rules came into force in 2011, and are based on the UNCITRAL rules with some minor amendments emanating mainly from the centre’s role as an arbitral institution and an appointing authority.  In addition to administering commercial arbitrations, CRCICA arbitration is provided for in a number of bilateral investment treaties, many of which do not involve Egypt as a party.

Conclusion

As noted, there are various arbitration centres in the region, many of which have experience administering arbitrations in Oman.  The fact that there is no arbitration centre in Oman is a particularly peculiar one which leads to the regional centres administering disputes related to Oman taking place both inside and outside of the country.  It should also be mentioned that all the centres noted above, including the ICC which is a representative office, have space to hold hearings.  The fact that there is no hearing centre in Oman is a disadvantage; when parties hold their hearings in Oman, this takes place in hotels or in law offices.

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Monday, June 18, 2018

Know your Business Partners - Part II: Basic Due Diligence Tips

In the first part of this article, we reviewed how a foreign company considering doing business in Oman can (and should) gather basic information on proposed clients, agents and business partners. This second part provides a brief outline of basic searches an Omani company should undertake when doing business with a foreign company.

Most countries have online commercial registry records that can be accessed and allow documents to be downloaded either for free or for a small fee. The first step is to identify the official website of the registry as opposed to private companies providing the same service at a premium. By way of example, if you are looking for information on an English company, Companies House (the beta service can be found at https://beta.companieshouse.gov.uk/) publishes an overview, the full filing history and details of the officers of each company.

The documents filed, which include annual returns, can be viewed or downloaded for free and will provide useful background information on the company. Also, you will be able to confirm whether the company representative with which you are interacting is officially authorised to act on behalf of the company.

A similar system is available in Australia and Italy. Access to the documents is subject to a fee payable online starting at as little as €4 and subject to (free) registration on the website. Wikipedia publishes and updates from time to time a list of the existing registries (https://en.wikipedia.org/wiki/List_of_company_registers) and is a useful starting point to identify the relevant registry. If the target company is registered in the United States of America, please note that you will need to consult a state-specific registry or, alternatively, for public companies you may utilise the search options provided by the U.S. Securities and Exchange Commission (https://www.sec.gov/edgar/searchedgar/companysearch.html). The website includes a guide and a tutorial on how to perform efficient searches. Generally and in most jurisdictions, listed companies are subject to disclosure requirements and there is a wealth of information available. Often useful documents can be found on the official website of the company in the “Investors’ Information” section.

Whenever the potential foreign partner does business in a regulated sector such as finance, banking or legal services, it likely will have to be registered with a regulator. It is often possible to consult the regulator’s registry to confirm that the proposed partner is duly registered and in good standing. Examples of such regulators include professional associations and financial conduct authorities.

Check the press: in many countries it is customary to disclose names in connection with court proceedings. The local press in the country/area of operations of your proposed business partner may have reported on the company or its officials. Any online translation tool will allow you to understand the general sense of a newspaper article regardless of its original language. In the past year, on three separate occasions, a simple internet search showed that a foreign individual who approached an Omani business person/company to propose a joint project or an investment had previous convictions for fraud or financial crimes in his home country or elsewhere. In one specific instance, the fraud that led to conviction in the home country had a structure identical to the business proposition presented to the Omani business man. Always remember that “if it’s too good to be true, then it probably is” or, in other words, be wary of people or situations that offer a large benefit for very little in return.

Check the proposed partner’s website, use scam alert and similar websites to search company names and persons’ names and to verify who owns the website/domain and for how long it has been registered.

Finally, when you are reasonably satisfied that the foreign company/individual you reviewed appears to satisfy the requirements for being a reliable business partner, ensure that you acquaint yourself with the basic rules applicable to foreigners doing business in Oman.

For instance, if you are planning to set up a limited liability company, the foreign corporate partner must be registered in the country of origin for at least three years (ten years if the project involves the establishment of a consultancy company). In foreign participated companies, requirements apply also to the Omani partner, in particular with reference to the financial status. Verify whether you, as local partner, and the prospective business partner, as foreign partner, actually qualify with respect to the requirements of the specific activity you are considering.

Evaluate whether you wish to be involved directly as an individual partner or through a corporate entity you may establish and, if the latter appears preferable, review the financial and compliance requirements applicable to the corporate vehicle.

Finally, consider the level of involvement you are planning to have in the business and the degree of liability and financial commitment that you are willing to take on.

Click here to read Know your Business Partners - Part I: Basic Due Diligence Tips

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Monday, June 4, 2018

Arresting a Vessel in Oman

Introduction

Oman has five ports: Al-Duqm Port, Sohar Port, Sultan Qaboos Port, Khasab Port and Salalah Port, all of which have been receiving an increase in traffic in the last several years.  Given the numerous ports and Oman’s strategic position in the Gulf, there are a considerable amount of vessels that pass through Oman’s ports every year.  In light of the number of vessels that visit Oman’s ports, it is worthwhile to consider the procedures involved in arresting a vessel.

The process


In order to arrest a vessel (also termed obtaining an attachment order), the vessel must physically be in an Oman port (1),  and not ready to sail from the Omani port.

Often, it is beneficial to approach a court to obtain the arrest order on an ex parte basis (where notice is not given to the ship owner/ charterer) just prior to the vessel arriving in Oman.  If the vessel owner or charterer is aware that there is a precautionary attachment issued against the vessel in Oman, the vessel will likely avoid calling to port in Oman.  In Oman, it is possible to approach a court to obtain the arrest order without having first issued a proceeding against the vessel owner, provided a proceeding (with formal pleadings) is issued within 10 days of the arrest order being granted.

Security/bond

There are several key points to note that relate to security and the arrest of a ship.  The first is that prior to a court issuing an arrest order the court will request security or bond from the party applying for the arrest.  The amount of security required can vary and is determined by the court at its discretion.  The second point in relation to security is that after the arrest of the vessel, if a bank guarantee or other form of security is provided by the ship owner, the court is obliged to release the ship (2).   Finally, if the arrest of a ship is found to have been without legal basis, the party that had the ship arrested may be ordered to pay compensation to the ship owner (3).

The right to arrest

Under Omani law an application for the arrest of a vessel must be made to a relevant circuit judge of the Primary Court.  The relevant court is the court at the port where the ship is berthed.
An application for arrest will be filed in accordance with Articles 190 and 191 of the Civil and Commercial Procedures Law, which provides that a court is competent to give provisional relief in the form of an injunction.  Further, Article 187 of the Maritime Law provides that a precautionary attachment may be imposed on vessels by marine mortgage creditors.
In order to establish that a party is a marine mortgage creditor, that party needs to establish that the marine debt is a claim of right arising out of one of the following:

1. Damage caused by the vessel following a collision or other reason.
2. Loss of lives or physical injuries caused by the vessel, or which originated from her utilisation.
3. Aid and rescue.
4. Contracts for utilising or chartering the vessel under a charter party or other contract.
5. Contracts for the carriage of goods under a charter party, bill of lading or other.
6. Complete loss or damage of goods and luggage carried by the vessel.
7. General average (i.e., the apportionment of financial liability for the loss arising from the jettisoning of cargo by dividing the costs among all those whose property (ship or cargo) was preserved by the action).
8. Towage of vessel.
9. Pilotage of vessels.
10. Supply of equipment and tools which are necessary for the vessel’s utilization or maintenance.
11. Building, repairing and equipping of the vessel as well as the expenses incurred therein while in docks.
12. Wages of masters, officers and seamen and others who work on the vessel under articles of agreement.
13. Sums expended by the master, shippers, charterers or agents for the vessel’s account.
14. Dispute over the ownership of a vessel or dispute over single ownership.
15. The rights in the profits resulting from her utilisation.
16. Marine mortgage, especially every mortgage the origin of which enables the applying of limitation of liability of the owner or her husband (an agent on land representing the owner of a ship, who attends to the ship’s provisioning, repairing, and general management).
The above is considerably expansive and permits various parties to apply for the arrest of a ship in Oman.

Sister ship arrest

If the ship that a party wishes to arrest does not frequently call port in Oman, an alternative remedy to arresting the ship is the arrest of a sister ship.  Article 189 of the Maritime Law provides that a vessel to which the debt relates may be arrested, and any other vessel on account of the same debt provided the other vessel was also “owned” by the same owner as the first vessel at the time the debt arose.
Article 190 of the Maritime Law provides that, if the vessel has been chartered out to a charterer who was given the right of navigational management and was solely responsible for a marine debt relating to the vessel, the creditor may impose attachment on this vessel or on any other vessel owned by the charterer himself.  In the case of a charterer being solely responsible for the ship, attachment may not be imposed on any other vessel owned by the owner of the ship in accordance with Article 189 above, only other vessels owned by the charterer.

Concluding remarks

In light of Oman’s geographic position in the Middle East and the number of ports in Oman, as well as amenable laws relating to arresting vessels, parties should evaluate Oman as a viable option as a jurisdiction in which to take action when they are considering arresting a vessel.

Footnotes:
(1) Article 191 of the Maritime Law.
(2) Article 192 of the Maritime Law.
(3) Article 377 of the Civil and Commercial Procedures Law.


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Monday, May 21, 2018

Subcontracting under Omani Law

Subcontracting is common in the modern construction industry. It would almost certainly be unmanageable for one contractor to deliver a construction project, especially if the project involves a certain level of complexity, without contracting third parties having various expertise and capabilities to carry out specific portions of the works. On the other hand, from the project owner’s perspective, it does seem more desirable to engage one main contractor who remains responsible for all the subcontractors. That being said, it is not surprising that the main players in most construction projects are the project owner (client/employer), the main contractor and subcontractor(s). This interactive chain naturally gives rise to a number of contractual and legal issues.

There are no provisions in Omani law prohibiting the main contractor from subcontracting the whole or part of the works to a third party without the need to obtain a permission from the employer, unless otherwise stipulated in the contract, or if the performance of the works depends on the personal competence of the contractor.

However, in practice, employers tend to have an element of control over the main contractor in subcontracting the works and the selection of subcontractors. The degree of such control varies. The contract may restrict the scope of subcontracting by way of prohibiting subcontracting the whole of the works. This provision is quite common in standard forms of contract: for example, Clause 4.4 of the FIDIC Red Book 1999 states that “[t]he Contractor shall not subcontract the whole of the Works.” The contract may further require the main contractor to obtain the prior consent of the employer or the engineer to engage a proposed subcontractor if that subcontractor is not nominated by the employer. In this respect, it may be advisable in some instances to ensure that the contract contains a provision that “… [s]uch consent shall not be unreasonably delayed or withheld….”

The subcontractor may be nominated by the employer (nominated subcontractor) or selected by the main contractor (domestic subcontractor). In both cases, the subcontract agreement is to be concluded between the main contractor and the subcontractor. Hence, there is no direct contractual relationship between the employer and the subcontractor. As a result: i) the subcontractor is not contractually liable towards the employer for delayed delivery or defective works; and ii) the employer is not contractually liable towards the subcontractor for the payment of its entitlements under the subcontract agreement. These two issues will be dealt with in turn.

Subcontractor’s liability to the employer 

Privity of contract is a well-established doctrine under Omani law. The subcontractor, not being a party to a contract with the employer, it is not under any contractual obligation towards the employer or the subsequent owners under normal circumstances. The construction agreement between the employer and the main contractor may not impose an obligation on the subcontractor unless such obligation is accepted by the latter.

Accordingly, the main contractor remains liable to the employer for the subcontractor’s performance. Even in the case of a nominated subcontractor, the general rule is that the main contractor’s liability remains in place.

To minimise its scope of liability, the main contractor – especially if the contract does not provide for a right to object to nomination – may require the inclusion of an indemnity clause in the main contract whereby the employer indemnifies the main contractor against any damages that may occur as a consequence of the nomination.

Employer’s liability to the subcontractor 

As illustrated above, there is no direct contractual relationship between the employer and the subcontractor. Consequently, the employer is under no obligation whatsoever to the subcontractor.

The subcontractor therefore has no option but to seek the payment of its dues from the main contractor. Practical problems occur when the subcontract agreement contains a “pay-when-paid” clause, which is commonly imposed by main contractors. Pay-when-paid clauses are enforceable under Omani law. The effect of a pay-when-paid clause is that the subcontractor is not able to claim its dues from the main contractor until the latter has been paid by the employer. If the subcontractor brings legal proceedings against the main contractor before the latter has been paid, the court may dismiss the case on the ground of premature filing of the claim.

To reduce the harshness of “pay-when-paid” clauses, the subcontractor may attempt to obtain a direct payment obligation from the employer when negotiating the contract. However, in practice, this is rarely acceptable to employers.

In some cases the subcontractor may argue that the non-payment by the employer is solely attributable to the main contractor’s fault – for example, if the main contractor fails to provide the performance bond as required under the main contract. In other circumstances, the subcontractor may argue that the main contractor is in breach because of its failure to pursue its claim against the employer. In this connection, it may be advisable that the subcontractor tries to agree a contractual clause whereby the main contractor will be under an obligation to pursue its claims against the employer to the greatest possible extent.

Conclusions 

Subcontracting is permissible under Omani law and is prevalent in practice. Standard forms commonly provide for mechanisms restricting the scope of subcontracting. Under Omani law, subcontracting does not create a direct relationship between the employer and the subcontractor. Thus, the main contractor generally remains liable for the timely completion and quality of the subcontracted works. The main contractor may have grounds to defend itself against the liability for nominated subcontractors in particular circumstances. The subcontractor may not claim payments from the employer unless a direct payment obligation exists. Pay-when-paid clauses are commonly used in Oman. However, there are means to limit the effect of such clauses in particular cases.

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Tuesday, May 15, 2018

United States Withdraws from Iran Nuclear Deal and Reinstates Iranian Sanctions

On May 8, 2018, President Trump announced that the United States will withdraw from the Joint Comprehensive Plan of Action (“JCPOA”)1 and impose sweeping sanctions against Iran.  Forthcoming regulations will reinstate the sanctions in existence prior to the implementation of the JCPOA.   These sanctions will become effective on August 7 or November 5, 2018, depending on the type of activity involved.

Background
While the United States has levied sanctions against Iran for decades, it greatly increased its sanctions pressure during the Obama administration.  Congress passed the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (“CISADA”), the Iran Freedom and Counter-Proliferation Act of 2012 (“IFCA”), and the Iran Threat Reduction and Syria Human Rights Act of 2012 (“ITSR”).  The National Defense Authorization Act for Fiscal Year 2012 (“NDAA”) added additional sanctions to the Iran Sanctions Act of 1996 (“ISA”).  President Obama signed nine separate executive orders implementing Iran sanctions between 2010 and 2013.2
 
These sanctions placed substantial economic pressure on Iran.3   As a result, Iran negotiated with the United States, Russia, China, the United Kingdom, France and Germany (the “P5+1 Group”).4   On July 14, 2015, the parties finalized the agreement that became the JCPOA.5   Under the JCPOA, the P5+1 Group agreed to lift or waive numerous sanctions against Iran.  In exchange, Iran agreed to curtail its nuclear program.6   The International Atomic Energy Agency (“IAEA”) was tasked with confirming that Iran was in compliance with its commitments under the JCPOA.  On January 16, 2016, the IAEA verified Iran’s compliance, and the JCPOA was implemented.7

The JCPOA does not include a clear framework for any party to exit the agreement.8   Yet, given that the JCPOA was not signed by any party, was not ratified by the U.S. Senate, and consists of a series of voluntary commitments, the United States has held that the JCPOA is a non-binding “political commitment.”9 

Operation of Prior U.S. Sanctions 

Prior to the implementation of the JCPOA, the U.S. utilized both primary and secondary sanctions to target Iran.  As a general matter, primary sanctions apply to any “U.S. person,” which is defined in regulations promulgated by the Department of the Treasury's Office of Foreign Assets Control (“OFAC”) as “any United States citizen, permanent resident alien, entity organized under the laws of the United States (including foreign branches), or any person in the United States.”10   The Iran primary sanctions created a sweeping embargo that prohibited U.S. persons from engaging in transactions or dealings directly or indirectly with Iran or its government.11
 
Secondary sanctions apply worldwide, even to persons and entities not subject to U.S. jurisdiction.  Secondary sanctions render every person and entity anywhere in the world subject to U.S. sanctions for engaging in certain activities or transactions with (or for the benefit of) specified individuals or entities, or with (or through) specified countries or regions.  The mechanism by which the U.S. government enforces secondary sanctions is by restricting or excluding a violator’s access to the U.S. economic system.

A principal sanctions tool used by the U.S. government is designation of a targeted individual or entity as a Specially Designated National (“SDN”).  U.S. persons are prohibited from transacting with or for the benefit of any SDN, and must block any property or interest in property in their possession or under their control in which an SDN has an interest.  Prior to the implementation of the JCPOA, the United States had designated hundreds of Iranian individuals and entities as SDNs.

Separately, the United States targeted multiple sectors of the Iranian economy with secondary sanctions, including the financial, energy, insurance, shipping, automotive, precious metals, and industrial metals sectors.  These secondary sanctions evolved over a number of years.  While a detailed discussion of these multifaceted sanctions is beyond the scope of this alert, the following examples from the energy sector illustrate some of the secondary sanctions levied against sectors of the Iranian economy.

The IFCA allowed the United States to “block” — meaning freeze — the assets that are in the United States or in the possession or control of a U.S. person of anyone who “knowingly provides significant financial, material, technological, or other support to, or goods or services in support of any activity or transaction on behalf of or for the benefit of” a “person determined . . . to” (i) “be a part of the energy, shipping, or shipbuilding sectors of Iran” or to “operate a port in Iran.”12   The IFCA also required the President to impose various types of exclusionary and blocking sanctions on any person found to have provided goods or services “used in connection with” the energy sector of Iran.13 

As another example, under Executive Order 13590, non-U.S. persons were subject to various types of exclusionary and blocking sanctions for engaging in transactions with a fair market value of greater than $5,000,000 in a single year “that could significantly contribute to the maintenance or enhancement of Iran’s ability to develop petroleum resources in Iran.”14   The same applied to individuals who engaged in transactions with a fair market value of over $1,000,000 “that could directly and significantly contribute to the maintenance or expansion of Iran’s domestic production of petrochemical products.”15 

Sanctions Lifted Under the JCPOA

On January 16, 2016, the U.S. government began implementing its commitments under the JCPOA.  Those commitments were chiefly focused on easing most secondary sanctions.16   The United States eased these sanctions by taking actions with respect to each of the underlying statutes and orders.  Many of the Obama-era executive orders were revoked.17   The U.S. government waived sanctions under certain programs and committed not to exercise its discretion to impose sanctions under others.18

The primary sanctions were left in place for the most part, but the United States committed to licensing foreign subsidiaries of U.S. entities to do business in Iran.19   OFAC accomplished this through the issuance of General License H (“GL H”).  With certain exceptions, GL H authorized foreign subsidiaries of U.S. companies to transact with Iranian entities, including the Iranian government.20

Finally, the United States agreed to remove numerous specified individuals and entities from the SDN List21,  as well as from other lists of wrongdoers maintained by the U.S. government, namely the list of Foreign Sanctions Evaders (“FSEs”) and the Non-SDN Iran Sanctions Act List.22

Actions Taken on May 8

On May 8, President Trump announced that the U.S. is withdrawing from the JCPOA,  and stated that the United States will implement the “highest level of economic sanctions” against Iran.23   All sanctions in place prior to January 16, 2016 will be reinstated.24   In conjunction with the President’s announcement, OFAC has published Frequently Asked Questions that explain in more detail how and when the sanctions will be reinstated.25 

President Trump did not issue any executive orders on May 8 that would “snap back” the sanctions at once.  To ease the burden of transitioning out of existing engagements with Iran, the U.S. government has provided for a wind-down period of either 90 or 180 days, depending on the type of transaction or sector involved.  The wind-down periods allow activities needed to exit existing relationships and contracts.

Although nothing announced on May 8 would appear, on its face, to prohibit entry into new short-term contracts to be completed within the wind-down period, such actions should be avoided based on strong signals from the U.S. government.  In his May 8 press conference, National Security Advisor John Bolton stated that “the decision that the President signed today puts sanctions back in place that existed at the time of the deal; it puts them in place immediately.  Now, what that means is that within the zone of economics covered by the sanctions, no new contracts are permitted.”26   Moreover, OFAC stated in its FAQs that entry into contracts after May 8, 2018 will be taken into account in any future sanctions determinations.27   While the legal status of this issue is therefore somewhat muddled, the reasonable take-away is that, regardless of whether it is technically prohibited to enter into such contracts, it is ill-advised because, at a minimum, it will be taken into account in any future sanctions determinations.

OFAC has advised that payments for pre-existing debts can be collected by non-U.S., non-Iranian persons after the end of the applicable wind-period, but only for contracts entered into prior to May 8, 2018.  So long as the agreement under which the debt arises existed prior to that date, if moneys are owed for goods or services provided before the end of the wind-down period, non-U.S., non-Iranian persons will be permitted to receive payment after the wind-down period according to the terms of the agreement.28   The same applies for payments related to loans extended prior to the end of the wind-down period under financing agreements entered into prior to May 8.29   These allowances will also be extended to U.S.-owned or -controlled foreign entities under a new general license, which will be issued in the near future.30

Applicable Wind-Down Periods

OFAC has stated that sanctions related to the following activities will be subject to a 180-day wind-down period, ending on November 4, 2018:

  • Sanctions on Iran’s port operators, and shipping and shipbuilding sectors, including on the Islamic Republic of Iran Shipping Lines (IRISL), South Shipping Line Iran, or their affiliates;
  • Sanctions on petroleum-related transactions with, among others, the National Iranian Oil Company (NIOC), Naftiran Intertrade Company (NICO), and National Iranian Tanker Company (NITC), including the purchase of petroleum, petroleum products, or petrochemical products from Iran;
  • Sanctions on transactions by foreign financial institutions with the Central Bank of Iran and designated Iranian financial institutions under Section 1245 of the [NDAA];
  • Sanctions on the provision of specialized financial messaging services to the Central Bank of Iran and Iranian financial institutions described in Section 104(c)(2)(E)(ii) of [CISADA];
  • Sanctions on the provision of underwriting services, insurance, or reinsurance; and
  • Sanctions on Iran’s energy sector.31  

OFAC also announced that it will take two additional steps in November 2018.  First, it will re-designate all those removed from the SDN List and FSE list “no later than November 5, 2018.”32   Second, “OFAC intends to revoke GL H,” and therefore any operations under this general license “must be completed by November 4, 2018.”33

The following activities will be subject to a 90-day wind-down period, ending on August 6, 2018, after which secondary sanctions will be reinstated:

  1. Sanctions on the purchase or acquisition of U.S. dollar banknotes by the Government of Iran;
  2. Sanctions on Iran’s trade in gold or precious metals;
  3. Sanctions on the direct or indirect sale, supply, or transfer to or from Iran of graphite, raw, or semi-finished metals such as aluminum and steel, coal, and software for integrating industrial processes;
  4. Sanctions on significant transactions related to the purchase or sale of Iranian rials, or the maintenance of significant funds or accounts outside the territory of Iran denominated in the Iranian rial;
  5. Sanctions on the purchase, subscription to, or facilitation of the issuance of Iranian sovereign debt; and
  6. Sanctions on Iran’s automotive sector.34 

Finally, the following primary sanctions will also be reinstated as of August 7:

  1. The importation into the United States of Iranian-origin carpets and foodstuffs and certain related financial transactions pursuant to general licenses under the [ITSR];
  2. Activities undertaken pursuant to specific licenses issued in connection with the Statement of Licensing Policy for Activities Related to the Export or Re-export to Iran of Commercial Passenger Aircraft and Related Parts and Services (JCPOA SLP); and
  3. Activities undertaken pursuant to General License I relating to contingent contracts for activities eligible for authorization under the JCPOA SLP.35 

What Non-U.S. Companies Must Start Doing Immediately 

Given the relatively short authorized wind-down periods, non-U.S. companies engaged in transactional or investment activities in, through, or for the benefit of Iran or an Iranian company must immediately assess whether those activities are now, or will soon be, prohibited.  In some cases, the answer will be manifest, while in other cases the answer may require careful analysis of the complex secondary sanctions laws that pre-date the JCPOA.

If an investment or the continued performance of a contract will be prohibited at the end of the applicable wind-down period, the non-Iranian party will need to determine the least costly means of withdrawing from the investment or terminating the contract, whether by exercising a put option, invoking a force majeure clause, or by other means.

The U.S. government is not likely to be sympathetic to anyone who refuses to comply with the sanctions on the grounds that compliance would be too costly or economically detrimental.  Being sanctioned by the U.S. government for non-compliance is likely to be far more costly and detrimental, and could result in complete exclusion from the U.S. economic system.

Individuals and entities should also ensure that they are not engaging in business with any of the entities listed on the SDN or other sanctions lists.  The U.S. government has already started restoring persons and entities to the SDN List, and is expected to continue to do so on an ongoing basis.  It is therefore critical to regularly monitor the SDN and other OFAC lists.  Depending on the specifics, impacted parties may need to block the assets of re-designated individuals and entities.  This requirement will also extend to entities at least 50% owned by designated individuals and entities.36

About Curtis

Curtis, Mallet-Prevost, Colt & Mosle LLP is a leading international law firm.  Headquartered in New York, Curtis has 17 offices in the United States, Latin America, Europe, the Middle East and Asia.  Curtis represents a wide range of clients, including multinational corporations and financial institutions, governments and state-owned companies, money managers, sovereign wealth funds, family-owned businesses, individuals and entrepreneurs.

For more information about Curtis, please visit www.curtis.com.

Attorney advertising.  The material contained in this Client Alert is only a general review of the subjects covered and does not constitute legal advice.  No legal or business decision should be based on its contents.

Please feel free to contact any of the persons listed below if you have any questions on this important development:

Jacques Semmelman, Partner
jsemmelman@curtis.com
New York: +1 212 696 6067

Daniel R. Lenihan, Partner
dlenihan@curtis.com
New York: +1 212 696 6949

Hyuna Yong, Associate
hyong@curtis.com
New York: +1 212 696 6123

Benjamin Woodruff, Associate
bwoodruff@curtis.com
New York: +1 212 696 6034

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Monday, May 14, 2018

Witholding Tax Update

The law relating to withholding tax in Oman was amended in February 2017, extending its applicability to specific categories of income realised in Oman, as explained in an article in the June 2017 edition of the Client Alert (Oman Introduces Withholding Tax for Foreign Investors).

Following the introduction of the new tax law, the tax authorities published a clarification on their website to the effect that withholding tax on services would apply only to services wholly or partly rendered in Oman, and not to services fully rendered from outside Oman.

In March 2018, however, the Oman tax authorities issued a further clarification modifying the original position. The latest clarification stipulates that withholding tax will now apply to income realised in Oman by foreign persons for the provision of services irrespective of where those services were performed.

Accordingly, payments to foreign service providers will be subject to tax deduction at a rate of 10% of the gross amounts due, wherever the services were rendered.

Potential taxpayers should check Oman’s tax treaty network to determine if a more favourable withholding tax position can be adopted. They are also advised to seek appropriate professional advice on the applicability of the withholding tax.

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Monday, May 7, 2018

Drafting Arbitration Clauses - Part III: Choice of Laws and Procedural Rules

Introduction 

When entering into a contract and drafting an arbitration clause there are a number of choice of law issues that parties must consider. Parties commonly include a clause that sets out the substantive law of the agreement, known as the governing law clause. Often the governing law of the contract is not the same law as where the contract is performed or where an arbitration takes place (the seat of the arbitration). This article will outline a number of key considerations related to the selection of law and procedural rules that should be taken into account when entering into a contract.

Governing law 

The governing law refers to the applicable law governing the contract. This is the main choice of law; it will govern the contract and be the law governing the substantive merits of any dispute arising from the contract. Commonly, parties will select a governing law that does not have any connection with the dispute or the parties entering into the contract. For example, parties entering into cross-border contracts frequently select the law of England and Wales as the law governing the contract as the law of England and Wales is perceived as a certain, stable law with reputable and independent courts.

It should also be mentioned that it is not common for parties to agree to a separate choice of law to apply to an arbitration clause which is different from the governing law of the contract. Having a law the governs the arbitration clause that is separate from the main contact is inadvisable as it would only add an unnecessary layer of complexity to an agreement.

Law of seat of the arbitration 

The seat of the arbitration is the physical place, or in other words juridical place, of the arbitration. Often the law of the seat is different from the governing law of the contract. This is noteworthy in a number of respects. First, the law governing the seat of the arbitration will be the procedural law governing the arbitration. Second, the award will be rendered at the seat of the arbitration and therefore the award will have to comply with legal requirements of that jurisdiction. Third and most importantly, if the award needs to be enforced in a foreign country, the country of the seat of the arbitration should be a signatory to the New York Convention (or other applicable convention) to ensure that it can be enforced. Therefore it is critical that the seat of the arbitration is located in a country that is signatory to the New York Convention to ensure that a potential award can be enforced in a multitude of foreign countries.

Applicable arbitral rules (forum selection) 

The applicable arbitration rules are the set of rules that will govern the dispute and the forum in which the dispute resolution procedure will take place. While this is not a choice of law per say, it is extremely important to select an appropriate set of arbitration rules. Typically parties select an institution to administer an arbitration, and each institution will apply its set of rules to the dispute. Therefore, when selecting an institution, parties must be clear as to the forum that they are selecting. In terms of the relationship between any applicable law and applicable rules, the applicable law will take precedence over any conflict with the rules; however, it is unlikely that a conflict between the law and rules will arise.

Practical drafting considerations 

Most of the time when parties choose multiple laws in a contract, for example, a substantive law that differs from the law of the seat, there are no conflict of law issues that arise. When problems do arise that relate to the selection of applicable laws and procedural rules, this occurs because the choices are not clear or contain errors. One common error is when parties select the “law of the United Kingdom” to govern their agreement: there are in fact four separate systems of law in the United Kingdom. Another common problem is parties naming the rules of a non-existent arbitration center to govern the procedure of a dispute. One last pitfall that seems to reoccur when drafting which is worth briefly mentioning is when parties give courts and an arbitration center overlapping concurrent jurisdiction. This is inadvisable as it creates the possibility of parallel proceedings being litigated at the same time. It is preferable to include a single forum when drafting an arbitration clause to avoid overlapping and parallel proceedings.

The types of errors highlighted above lead to unnecessary fighting, wasted time and unnecessary costs, all which can be avoided by clear drafting. When drafting an arbitration clause, always ensure that the clause is clear and carefully worded. When parties are endeavoring to draft a contract which includes an arbitration clause where there is the potential that multiple laws may conflict with one another, the parties should always seek legal advice before entering into the contract.

Click here to read Drafting Arbitration Clauses - Part I
Click here to read Drafting Arbitration Clauses - Part II

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Tuesday, May 1, 2018

Third-Party Funding - Questions and Answers

With the increase in the use of third-party funding (“TPF”) for litigations and arbitrations across the world, Curtis’ lawyers reached out to Harbour Litigation Funding to gain a better understanding of the workings of third-party funding from the perspective of funders. We had a chat with Ruth Stackpool-Moore, Director of Litigation Funding.

Q: When evaluating whether to fund the legal costs of a claim, what are the key considerations that Harbour takes into consideration? 

Having funded claims for over 10 years we have the experience to know that the following factors must be investigated in our initial review:

• the ability of the defendant or the respondent(s) to pay, including consideration of the value of their assets and where they are located – this is of primary importance since success is only success if an award is paid;
• strong legal merits;
• reasonable economics, which we assess by comparing the estimated costs to bring the proceedings, how realistic they are, and what proportion we are being asked to fund with the realistic value of the claim (which will include consideration of the client’s view on reasonable settlement) – we look for a significant gap between the two; and
• the legal team’s experience in the relevant area of law.

It is important to remember that a funder of a claim is taking all of the financial risk. If the claim is unsuccessful, the claimant does not need to repay the legal costs and Harbour’s investment is lost. You can therefore understand why we want to invest in the most experienced lawyers and specialists in the practice area(s) involved.

Q: What do you need to be able to assess the legal merits? 

One of our first questions will be: have you received written legal advice, and from whom? In that written advice we would expect to find answers to questions such as: is the case on liability good? Is there a clear basis to claim damages? How long will the case take to come to trial or final hearing? Is settlement a possibility, and how likely?

We focus on understanding the key issues, formulated by the lawyers who have reviewed the wider documentation.

Q: Is there a minimum claim amount that needs to be met in order to receive funding? 

We do not work on the basis of a minimum claim value for funding but, rather, we assess the overall economics in any particular case. That will involve a review of the funding required, the value of the claim and sensible settlement expectations. At Harbour, you work with an experienced team of dispute lawyers that has been funding for over a decade. It won’t take us long to talk through your case along the lines explained above. If we think Harbour could fund the dispute, we will immediately discuss the next steps. I would recommend that if you think your case would benefit from funding, the best thing is to contact us for a quick chat. After all, each case is unique.

Q: In our introductory article on TPF last year, concerns of an increase in frivolous claims were raised. What is your take on this? 

This is a misconception we hear often, but is simply not true: we don’t back cases unless we believe they will win. If a case is unsuccessful, we lose our investment and therefore it is not in our interest to fund cases that we don’t think will win.

Q: It has also been said that funders aggressively manage the cases they fund, or push for them to go all the way through to hearing or trial, because of the perceived need to deliver a certain return. Is that true? 

This is not the case at all at Harbour. We agree our return upfront with the claimant and do not interfere with strategy as the case progresses. It is the claimant and its legal team that run the case. Settlement should be considered at all times, if it is in the best interest of the claimant. As far as we are concerned, having a case determined at hearing or trial represents uncertainty; settlement does not, and is ultimately appealing to us. Ultimately the decision whether to settle or proceed rests with the claimant and its legal team.

Q: Could you offer some examples of the kinds of disputes you fund? 

Globally we have funded a wide range of commercial litigation such as breach of contract, breach of statute and competition law, IP and patent disputes, insolvency, fraud-related, tort and trust claims. We also fund international arbitration, both commercial and investor-state, under a number of different sets of arbitral rules in a variety of jurisdictions. In geographies such as Australia and the UK, class actions are another category of claims which receive funding. Such claims can include everything from shareholder claims to product defects to environmental issues causing economic loss or personal injury.

Q: What types of activity have you seen in the Middle East market in the last year? 

The team regularly visits the region. For example, in January 2018 one of my colleagues spoke at the World Litigation Forum in Dubai. We regularly receive requests for funding from the Middle East, including Oman, and we have seen interest increase in the last few years. Most of these contacts related to construction claims.

Q: What differentiates Harbour from other funders? 

One of the key differences is experience. Harbour has been funding for a long time and our team is made up of lawyers coming from first-class private practices and senior in-house positions. We are also a truly global funder. We have funded in 13 jurisdictions and under four sets of arbitral rules in relation to most areas of law.

This extensive experience, combined with a large amount of capital immediately available, means that when issues arise - as they do in the unpredictable world of dispute resolution - we have the expertise and the capital to deal with them.

Another significant advantage of working with Harbour, and which is not the same for all funders, is that when the Harbour funds invest in a claim, the entire budget is ring-fenced from day one. Our funds are not leveraged. So not only do we have a large amount of capital, immediately available, but we can also guarantee the full budget throughout the life of the case, offering the claimant peace of mind.

Q: Are there any upcoming developments we should be aware of? 

We see new users and new uses of funding. TPF has moved from financing impecunious claimants otherwise unable to access justice to well-resourced corporates who are interested in the risk management or hedging qualities of third-party funding.

The positive developments in Singapore, Hong Kong and Dubai related to third-party funding have consolidated its global acceptance. Singapore’s Ministry of Law recently launched a public consultation to seek feedback on the third-party framework they introduced in early 2017 to understand how the system has been received and whether or not its expansion beyond arbitration should be considered, and Hong Kong is expected to clear the final hurdle, implementation of its code of conduct, in Q3 2018.

From Harbour’s own point of view, we launched our fourth fund, with £350 million of additional capital, in March 2018 bringing our total funds raised to £760 million. This new fund gives Harbour even greater flexibility in relation to the cases it can fund, as we are able to address every type of dispute funding from seed money for investigations, single case or portfolio funding to support for even the largest class action and single case budgets.

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Monday, April 23, 2018

Assignment as a Form of Security under Omani Law

Introduction 
There are a number of different ways in which lenders in Oman can take security over a borrower’s assets so as to help ensure repayment of a loan. These include mortgages over land, commercial mortgages, pledges over shares or bank accounts, and various different types of assignment. Lenders should be aware, however, of the restrictions under Oman law that might affect the nature and enforceability of the available forms of security.

Assignment of rights under Oman law 
Neither the assignment of rights nor the assignment of debts (or obligations) had been expressly regulated in Oman until the introduction of the Civil Transactions Law by Sultani Decree 29/2013 (the “Code”). The Code now has provisions governing the assignment of debts, but it still does not address the assignment of rights directly, nor does it set out the requirements for such an assignment. 

While the requirements for the assignment of debts are clear under the Code, care must be taken when attempting to assign rights by way of security - and special caution is required when considering the creation of security by way of a purported conditional assignment.

In practice, the assignment of contractual rights is recognised in Oman - based on current commercial custom and comparative law - subject to the terms and conditions of an assignment agreement entered into between the assignor and the assignee, and provided the assignor notifies the debtor of the assignment.

As assignee, the lender should, as a matter of best practice, obtain from the debtor an acknowledgement of the assignment in order to perfect the assignment as a contractual arrangement. 

Lenders should note that Oman law does not recognise an assignment as true security, so the assignment need not, indeed cannot, be registered. Accordingly, an assignment of rights will not give a creditor security that can be enforced against other creditors. The assignment is only enforceable against the assignor in contract, and the assignee will rank only as an unsecured creditor in the event of the assignor’s bankruptcy.

Conditional assignment 
Under Oman law an assignment must be absolute. Full legal ownership is transferred to the assignee on the effective date of the assignment. A conditional assignment - whereby the secured asset would be transferred to the creditor only in the event of a default by the assignor - might be respected as between the contracting parties, but would be unenforceable against third parties in the event the condition, i.e., default on the obligation secured by the assignment, had not yet been fulfilled. 

Lenders should beware the possibility that, in such circumstances, there is at least a theoretical risk that the Oman courts could consider a conditional assignment agreement to be void, notwithstanding the intention of the parties, because its effect would be to transfer title to the secured asset to the creditor before the debt is due to be repaid.

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Monday, April 16, 2018

Oman and the Law of the Sea: Part III

In October 2017, the Sultanate of Oman submitted a formal application to the United Nations to extend its continental shelf. The first and second articles in this three-part series outlined the framework of the international Law of the Sea as relevant to Oman and the international legal process involved when a country seeks to expand its marine territory. This third and final article in the series will explore the dynamics behind and potential benefits arising from Oman’s recent application. 

While Oman’s formal submission marked only the beginning of the process of review and determination by the United Nations Commission on the Limits of the Continental Shelf (the “Commission”), the submission was the culmination of a decade-long process of exploration and research by Oman into the possibilities of extending its continental shelf, which requires a detailed science-based submission to be compiled and then presented to the United Nations demonstrating the link between Oman’s landmass and its offshore continental shelf area beyond 200 nautical miles from its coastline.

In 2008, Oman formed its Continental Shelf Boundaries Extension Committee (the “Committee”) following a decision of the Council of Ministers to prioritise the issue. The multidisciplinary Committee spearheaded the application to the Commission and received support from many institutions in Oman, including the Ministries of Foreign Affairs, Defence, Oil and Gas, Commerce and Industry, Legal Affairs, Agriculture and Fisheries, the Interior, Environment and Climate Affairs, Transport and Communication, the Royal Oman Police, the Royal Oman Navy, and Sultan Qaboos University, among others.

In 2013, Oman signed a consultancy and supervision services contract with New Zealand-based hydrocarbons research and exploration company GNS Science. In 2015, Oman awarded a contract to Singapore-based joint venture Gardline CGG to facilitate a marine geotechnical survey which consisted of three technical phases: bathymetry, gravity, and magnetic data acquisition; detailed bathymetry and sub-bottom profiling; and deep water rock dredging. The survey formed the basis of the technical data gathered to inform Oman’s application to the Commission.

While applications to the Commission are incredibly technical and extensive, an Executive Summary of Oman’s application may be viewed on the Commission’s website. The Executive Summary discussed what it terms the “Owen Terrace,” the area of continental shelf comprising the subject matter of the application. The Executive Summary describes the Owen Terrace as being composed of continental crust and rocks that are “by nature and origin the same as those of the landmass of Oman,” but importantly are distinct from the materials found on the deep ocean floor and in the nearby Gulf of Aden.

It is probable that Oman’s investment into the extension of its continental shelf will prove worthwhile. In 2014, after being invited by Oman’s Ministry of Oil and Gas to test within offshore oil and gas exploration blocks, Masirah Oil Limited announced the first offshore oil discovery in the east of Oman after more than three decades of exploration activities. The discovery of the presence of oil off the eastern seaboard has lifted hopes for new hydrocarbon finds in Oman’s largely unexplored offshore domain, which stands to be further enlarged if Oman’s application to the Commission succeeds.

While the timeline of the determination of Oman’s application to the Commission remains unclear, a successful submission would greatly benefit Oman as it would allow the Sultanate to exercise exclusive rights over a large area of seabed in the northern Arabian Sea, including the right to explore for and claim oil and gas and other non-living resources.

Click here to read Oman and the Law of the Sea: Part I
Click here to read Oman and the Law of the Sea: Part II

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Monday, April 9, 2018

Know your Business Partners - Part I: Basic Due Diligence Tips

Due diligence, in the legal context, means research and analysis of a company or organisation done in preparation for a business transaction. It normally involves data rooms and complex documents to be analysed and interpreted by a variety of professional consultants to establish assets and liabilities and evaluate the commercial potential of the business.

A full due diligence is a time-consuming and expensive undertaking, usually reserved to major business transactions and not of practical use in the day-to-day business of a company. Nonetheless, in a simpler form, some research and analysis should be part of every company’s process whenever it is considering a new business partner, a new agent or any third party with which it looks to contract. A basic level of information can avoid a number of unpleasant surprises but companies, more often than not, neglect this simple task entirely.

Modern technology enables remote access to public records all over the world and this opportunity should be taken advantage of. In this article we will look at what information can and should be gathered by a foreign company considering doing business with an Omani company. A second article will focus on what information can and should be gathered by an Omani company with respect to a potential foreign business partner.

1. Ministry of Commerce and Industry (“MOCI”) 
All Omani legal entities have a unique identification number, the Commercial Registration (“CR”) number. This number may be found in the company’s letterhead, in the company seal and sometimes on the website. If you have the CR number, you can gather basic information about the entity by using the “Search Commercial Registration” section on the MOCI website (business.gov.om). If you don’t have the CR number, you may attempt a search of the entity’s name, bearing in mind that some Omani entities are registered only under their Arabic name and therefore the English name may not return results.

This search will provide basic details, including the form of legal entity, the registration date, the branches/offices of the entity and their locations and the registered activities. It will also show if the entity is “active” or “in liquidation.” The registered activities are identified by the relevant ISIC Codes i.e., the numeric codes set out in International Standard Industrial Classification of all Economic Activities, the international reference classification of productive activities. To verify what the relevant ISIC Codes correspond to and what activities the Omani company is actually authorised to carry out, the same website (business.gov.om) includes a searchable database of the ISIC Codes under Services → Find Business Information → Business Activities List (ISIC).

The information so gathered will provide a preliminary overview of the company’s experience, the existence of offices/shops in various locations, and the business activities the company is licensed to carry out. Further information, including the share capital, the names of the partners and the names of the authorised signatories are set out in the entity’s CR Certificate, which can be obtained from the MOCI. As online access from abroad is difficult, the Omani entity directly or, if preferable, another locally established contact person may be asked to procure a copy of the Certificate.

2. Muscat Securities Market (“MSM”) 
Omani companies are generally not required to publish their financial statements. An exception to this general rule relates to listed joint stock companies, locally identified by the acronym SAOG (the full company name will be “Company XYZ SAOG”). If you are considering contracting with a “SAOG,” the MSM website will provide a wealth of information, including mandatory disclosures, composition of the board and financial statements. Through the search box of msm.gov.om you will find the company’s dedicated page, where you can browse the “News” section and the “Financial Reports” section.

3. Tender Board 
If you are interested in business opportunities involving government contracts, it is recommended that you make yourself familiar with the rules applicable to public tendering in Oman. To simplify, the Omani government and its entities may issue international or local tenders. International tenders, usually for either massive projects or highly specialised contracts, are open to foreign companies regardless of the presence of an entity registered in Oman. Conversely, local tenders are reserved to companies incorporated in Oman and registered with the Oman Tender Board. If your proposed Omani partner is being selected with a view to participating together in government tenders, you should check if such partner is actually registered with the Tender Board and, if so, for which activities and with what grade. This will ensure that the partner will actually be able to purchase the tender documents and participate in the tender, usually with your company as joint venture partner or sub-contractor. Contractors, for example, may be classified in descending order from Excellent Grade to Fourth Grade; only Excellent Grade companies have access to all tenders.

The website etendering.tenderboard.gov.om publishes a list of the registered companies. It also publishes and updates a list of tenders.

4. OPAL If your interest is in the Oil & Gas sector, you may consider checking whether your proposed business partner is a member of OPAL, the Oman Society for Petroleum Services, which has, among its members, the most reputable companies of the sector. Please note that membership in OPAL is required in order to be awarded certain projects; therefore, it is useful to know whether your local partner is a member. A members’ list is available at opaloman.org. In the same sector, one should ascertain that all applicable procedures in respect of the Oil & Gas Joint Supplier Registration System are complied with (more information on this can be found on businessgateways.com).

As part of the ongoing e-government initiative, all websites mentioned in this article have an English version and are rather modern and user-friendly. Still, always allow for spelling issues (names are often transliterated between English and Arabic with variable results) and provide for assistance as some documents, such as CR Certificates, are not entirely translated into English.

Finally, from the very beginning of negotiations with a potential local partner, if you cannot find the information you need or some of your findings raise questions, do not be afraid to ask questions!

Click here to read Know your Business Partners - Part II: Basic Due Diligence Tips

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Monday, April 2, 2018

Drafting Arbitration Clauses - Part II: Ad Hoc or Administered Arbitration

Introduction 
When drafting an arbitration clause, the choice of “ad hoc” or “administered” arbitration (also known as institutional arbitration) is a critical issue that parties should consider. Both ad hoc and administered arbitrations have their own advantages. This article will outline some of the key characteristics of each of them.

Ad hoc 
Ad hoc arbitration is an arbitration framework that is defined by the agreement between the parties (subject to the law of the place of the arbitration). Ad hoc arbitration is more flexible than administered arbitration as the arbitral framework is based on party autonomy rather than institutional rules. Ad hoc arbitration is also less expensive than institutional arbitration as there is no institution to which fees need to be paid, which is a major reason many people opt for ad hoc arbitration. In ad hoc arbitration the parties must agree on all facets of the arbitral framework that are otherwise provided for under institutional arbitration, including tribunal fees and procedural deadlines.

When parties agree to ad hoc arbitration, they often also agree to a certain set of arbitral rules that will apply and can be used as guidance for the framework for the arbitration, but this is not always the case. When the parties do not agree to a set of arbitral rules to govern the procedure or the parties agree to a set of rules that does not address a particular aspect of an arbitration, the law of the seat of arbitration (the legal jurisdiction to which the arbitration is tied) will be used in conjunction with the agreement of the parties. For example, in Oman if parties fail to agree on an arbitrator, the statutory appointing authority is the Oman courts. Much can be said for the flexibility and party autonomy to define the procedural framework of each arbitration.

Administered arbitration
Administered arbitrations are arbitrations that are administered by an arbitration centre. Arbitration centres play a number of roles when administering arbitrations and offer various services to the parties aimed at providing efficiency to the arbitral process. Each arbitration centre has its own set of rules that guide the arbitral procedure. Each centre has a secretariat in place to assist with administrative and logistical tasks, as well as a body which deals with high-level issues such as challenges to the appointment of arbitrators when parties cannot agree on who will be appointed. 

Most sets of arbitral rules provide a fee scale or other mechanism setting out how much tribunals are to be paid.** Often, the fixed fees for arbitrators are calculated based on the amount in dispute. These fees can be advantageous to parties in terms of the certainty of the costs of arbitration. Similarly, ad hoc arbitrations in Oman are often based on fixed fees.

Another important role that the arbitration centres fulfil is the mechanism for collection of fees for arbitrators. At various stages throughout the arbitration, a centre will ask the parties for advances on arbitrator fees that are held in escrow and paid to the arbitrators. Collecting these fees removes the burdensome administrative task of collecting and holding funds from the jurisdiction of the arbitrators in an ad hoc arbitration.

Another major advantage of administered arbitration is the scrutiny of arbitral awards, which is a service provided by some arbitration centres including the International Chamber of Commerce and the Singapore International Arbitration Centre. Following the tribunal issuing its award, the secretariat of the arbitration centre will review the award for any major errors. This is done for various reasons including quality control and to ensure that an award is not set aside. While this may seem to be a minor feature that is provided by an arbitration centre, it drastically reduces the likelihood that an award will be unenforceable.

Further considerations 
One of the most significant factors parties ought to consider when deciding whether to opt for ad hoc or administered arbitration is the degree of supervision that may be required over the arbitration. 

While ad hoc arbitration provides for a greater degree of party autonomy and flexibility, this can also lead to a higher risk of the arbitration proceedings getting derailed by a party that does not want to participate in the proceedings. For example, in institutional arbitration, if a party is engaging in dilatory tactics the arbitration centre in its supervisory capacity will be able to step in and ensure that the arbitration stays on track. This does not always hold true in ad hoc arbitration. It can be said that administered arbitration follows a tried and tested framework while ad hoc arbitration is based on flexibility, and relies to a greater degree on party consent. In most cases administered arbitration is preferred over ad hoc arbitration.

In Oman both ad hoc and institutional arbitration are used. Given the significant differences between the two, parties should carefully consider whether to choose ad hoc or administered arbitration when drafting their arbitration clauses, having regard to each contract’s circumstances and nature.

**The London Court of International Arbitration Rules use hourly rates, and under the Hong Kong International Arbitration Center Rules parties can opt for hourly rates or fixed fees.

Click here to read Drafting Arbitration Clauses - Part I
Click here to read Drafting Arbitration Clauses - Part III

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Monday, March 26, 2018

New Register for Overseas Companies Owning UK Property or Bidding for UK Government Contracts

The UK government is to establish a register to show the true beneficial ownership of overseas companies that own, or propose to own, UK property in order to bolster the reputation and integrity of the UK property market. The register will be the first of its kind in the world and will require overseas companies that own or buy property in the UK, or who wish to participate in UK government procurement, to provide details of their ultimate owners.

Generally speaking, these include shareholders with more than 25% of the shares or voting rights in a corporate entity; or individuals, such as directors or managers, who otherwise exercise significant influence or control over the entity.

The UK has already taken major steps to increase corporate transparency, with the introduction of the “people with significant control” (PSC) register, a public register of those who control UK companies. Now UK property is being brought into play in the battle against money laundering. It is hoped that the register will minimise opportunities for criminals to use anonymous shell companies to launder criminal proceeds via UK properties, and will make it easier for law enforcement agencies to track illegal funds.

The new register will apply to both existing and future property ownership, and to freehold and leasehold properties of more than 21 years. Overseas entities that have not been registered will not be able to charge or grant, let alone buy or sell, a long lease of UK property. Entities that already own UK property when the legislation comes into effect will be given a year to comply with its requirements, or to sell if they do not want to do so. At the end of the year, any such entities will be prevented from selling their property or from creating a long lease or charge if they have not registered, and a restriction will be put on the title accordingly.

Further, overseas entities which have not provided information about their beneficial owners to the UK’s Companies House will not be able to bid for UK government contracts. Bids for UK government contracts by overseas entities which fail to include information on the bidder’s beneficial ownership will be excluded and, if received, will be rejected as incomplete or non-compliant.

The proposals are also intended to apply across the UK, in England, Scotland, Wales and Northern Ireland. While Scotland has set forth similar proposals separately, the UK government indicates that it will work with the devolved administrations as the proposals develop.

The new register will be held by Companies House. Once registered, overseas entities will be given a registration number. The Land Registry will not register the title of an overseas company without a valid registration number. Anyone will be able to check the register free of charge.

The government has committed to publishing a draft bill this summer and introducing it in Parliament by next summer.

This will be a significant consideration for overseas companies investing in UK property or bidding for UK government contracts, so that the registration process does not end up causing delay, or preventing a purchase from being registered. Evidence of registration will need to be sought early on, and before the exchange of contracts.

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Monday, March 19, 2018

Oman and the Law of the Sea: Part II

In October 2017, the Sultanate of Oman submitted a formal application to the United Nations to extend its continental shelf. The first article in this three-part series outlined the framework of the international Law of the Sea as relevant to Oman. This second installment outlines the international legal process involved when a country seeks to expand its marine territory.

While Oman’s formal submission marked the end of a decade-long process of exploration and research, it marked only the beginning of the process of review and determination by the United Nations Commission on the Limits of the Continental Shelf (the “Commission”), part of the United Nations Division for Ocean Affairs and Law of the Sea. Established in 1997, the Commission is neither a judicial nor a political body, but rather an advisory group that gives technical guidance to states seeking to expand their continental shelves. The advice given by the Commission is based on the technical and objective criteria set out in the UN Convention on the Law of the Sea (the “Convention”).

The Commission is comprised of 21 experts from the fields of geology, geophysics or hydrography, who are elected by state parties to the Convention. The Commissioners serve five-year terms and volunteer significant time to assess the scientific and technical validity of the applications and data submitted by each coastal state. Among the Commission’s current members is an Omani, Dr. Adnan Rashid Al-Azri. The Commission holds two sessions per year at the United Nations headquarters in New York.

The Commission’s purpose is to consider the documentation submitted by the coastal state and to make recommendations regarding the outer limits of the continental shelf. After the state submits its application, the Commission waits three months to begin review to give interested parties, such as bordering states, time to consider any responses. After the three-month period, the Commission meets with a delegation from the submitting state, during which the state presents its submission and answers any preliminary questions from the Commission. The Commission then appoints a sub-commission of seven members to carry out a detailed review. Commission members from the concerned coastal state or its bordering states may not sit on the sub-commission. The sub-commission then meets as many times as necessary to complete a full technical and scientific review, which is not constrained by any time limits. During this process, the sub-commission may request further information or clarification from the submitting state or from outside legal or technical experts. The sub-commission considers each of the criteria established by the Convention and determines whether the state has submitted data sufficient to lay claim to an extension of its continental shelf. After completing its review, the sub-commission drafts recommendations on the proposed limits and passes these along to the full Commission.

After in-depth consideration and discussion by the Commission during its biannual sessions, the Commission decides whether to adopt the sub-commission’s recommendations regarding the delineation of the relevant state’s continental shelf. The process of consideration, requests for more information, and reconsideration can take years, depending on the technical complexity of the determination. After the Commission makes a formal recommendation, it is then incumbent upon the applicant state to promulgate national law effectuating the Commission’s recommendations. If the state disagrees with the Commission’s recommendations, it can resubmit its claim to the Commission for a new set of recommendations.

Although the extension of a state’s continental shelf limits is a matter of sovereign state law, the need for the Commission’s consideration and recommendation is twofold. First, the assessment and determination of submarine geographical bounds is a complex scientific and technical process requiring expert investigation, information gathering, and data analyses, and the Commission serves as a vital resource for coastal states which may not otherwise have access to such expertise. Second, the Commission acts as a safeguard of what the Convention has termed the “common heritage of mankind” – the seabed, ocean floor, subsoil, and resources beyond the outer limit of the continental shelf.

Coastal states do not have an unlimited right to submit applications expanding their continental shelf. Rather, the Convention provides that each coastal state seeking to expand its continental shelf must submit an application within ten years of the Convention coming into force for the state in question. However, given the technical complexity and financial demands of gathering data and forming a submission, many countries pushed for an extension of that deadline, at least for developing countries. Collectively, the parties to the Convention decided that applicant states could satisfy the ten-year deadline by submitting preliminary findings on their outer limits, a description of the status of their progress, and an intended final submission date. This decision spurred a raft of new placeholder applications, making it likely that the Commission will be reviewing submissions and resubmissions for at least the next decade.

The Commission is restricted to giving advice to determine the outer limits of a state’s continental shelf, and by its own procedural rules is not permitted to influence any potential dispute related to the delimitation of the shelf between two or more states. All recommendations of the Commission are made without prejudice to maritime boundary delimitation between states themselves. As this is often a sensitive area, applicant states are permitted to classify as confidential any data and other material forming part of its application.

 An example of the sensitive and high-stakes nature of these issues can be seen in the outcry following the very first submission to the Commission, which was the Russian Federation’s 2001 claim over extensive portions of the Arctic Circle. This raised the ire and concern of countries such as Canada and Norway who also had claims over the Arctic but had not yet submitted applications to the Commission. Ultimately, the Commission rejected large portions of Russia’s claims over the Arctic and the contentious issue remains unresolved.

The third and final installment in this series will examine Oman’s recent submission to the Commission and will discuss the potential benefits to Oman of extending its continental shelf, which include the right to explore for oil and gas and other non-living resources.

Click here to read Oman and the Law of the Sea: Part I
Click here to read Oman and the Law of the Sea: Part III

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Monday, March 12, 2018

U.S. Customs and Border Protection: Search of Electronic Devices

On 4 January 2018, the United States (“U.S.”) Customs and Border Protection (“CBP”) issued Directive No. 3340-049A superseding Directive 3340-049 to standardise procedures its officers use during border searches, which include searches of all persons entering the U.S. through airports (the “Directive”). Pursuant to the Directive, the CBP has authority to conduct “routine searches of the persons and effects of entrants [into the U.S. which] are not subject to any requirement of reasonable suspicion, probable cause, or warrant.” In effect, this means the CDP may conduct border searches of electronic devices, such as laptops, tablets, and mobile phones.

This article outlines why business travellers should be aware of the Directive, and sets out the steps a business traveller can take to protect information they store on their digital devices when entering the U.S.

Privileged material 
Entrants into the U.S. should be particularly aware of Section 5.2 of the Directive, which covers privileged material. Section 5.2 sets procedures for CBP officers to follow when encountering material asserted to be protected by the attorney-client privilege or the attorney work product doctrine. Officers should first clarify with the owner of the electronic device which files are specifically protected by a privilege. Officers cannot search any privileged material without first contacting the CBP Chief Counsel office and establishing a Filter Team, composed of both legal and non-legal CBP personnel, to assist in segregating privileged materials from other files.

Searches can be basic or advanced. Basic searches are those conducted without the aid of external equipment CBP personnel use to review, copy, or analyse the device’s contents. They should be conducted in the presence of the device’s owner unless there are safety concerns rendering the owner’s presence inappropriate. Advanced searches are searches requiring external equipment to review the device. They require reasonable suspicion of unlawful activity.

Once CBP officers complete their search of an electronic device, they must destroy any privileged materials that they have copied. Business or commercial information should be treated similarly and protected from unauthorised disclosure.

Business travellers 
Business travellers who are stopped by CBP while entering the U.S. may consider taking the following steps:

• insist that any basic searches be conducted in their presence;

• tell the CBP officers that they do not want the device to leave their sight;

• call a legal adviser if necessary to ensure compliance with the Directive;

• ask the purpose and authority for a border search;

• ask to report concerns and seek redress from the CBP, if necessary;

• ask for a receipt if a device is detained by CBP officers who are entitled to detain devices for up to five days; and

• enter their own passcode or encryption key into a device instead of divulging it to CBP officers.

If a business traveller has on them any privileged, confidential, or trade secret information contained on the device or devices subject to search by CBP officers, they should advise CBP personnel performing the search.

How can sensitive information be protected? 
In order to facilitate the protection of sensitive information, it may prove helpful to segregate privileged, confidential, or trade secret information to a single, clearly labeled folder or directory when traveling internationally, so that the information can be easily identified to CBP and treated in accordance with the Directive.

As the Directive requires entrants to provide log-in and password information, encryption or password protection will not be a useful tactic for protecting sensitive information. One possible method of protection is not to store any privileged materials on your electronic devices at all. Retaining privileged documents in a password-protected secure cloud server or a remote file-saving system ensures that CBP, when searching your device, cannot access any protected material.

Section 5.1 of the Directive permits officers to search “only the information that is resident upon the device and accessible through the device’s operating system or through other software, tools, or applications.” This means that CBP officers cannot access information that is solely stored remotely, and must either enable airplane mode or disable internet connectivity before searching a device. Any person travelling to the U.S. should themselves ensure their devices are in airplane mode, or insist that CBP personnel disable their devices’ connectivity before conducting a search. This both protects remote files and prevents downloading of harmful malware. Any remotely stored information that is synced with the device’s operating system is, however, accessible; only remote information that is not downloaded will be protected.

Conclusion 
In an effort to respond to the evolving world of information technology, the Directive aims to enhance the transparency, accountability and oversight of electronic device border searches performed by CBP. Business travellers who frequently participate in international travel may wish to consider the scope of the Directive, especially if the traveller’s electronic device(s) contain confidential or sensitive work-related information.

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