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


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 ( 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 ( 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 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 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 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

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!


Monday, April 2, 2018

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

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


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.


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


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.

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.


Monday, March 5, 2018

Drafting Arbitration Clauses

It is common practice that commercial agreements contain clauses that provide for arbitration as the mechanism to resolve disputes.

There are a number of reasons why parties choose arbitration rather than court as the forum to resolve their disputes. One is that when parties from different countries enter into a contract, if a dispute arises they may not feel comfortable going to the court in the other party’s country. As an alternative, parties may choose arbitration as a neutral forum for resolving disputes. Another rationale for opting for arbitration rather than courts is that arbitration is a private dispute forum compared to courts which are public forums.

The most advantageous reason to include an arbitration clause in a contract is that arbitration awards are enforceable through the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”). The Sultanate of Oman is a signatory to the New York Convention, which was ratified into Omani law by virtue of Sultani Decree 36/1998. Under the New York Convention an award rendered in any of the 157 countries that are a party to the New York Convention should be legally enforceable in all other countries that are a party to the New York Convention. There is no comparable convention for the enforcement of court judgments.

Unclear drafting 
One common problem that parties face when including arbitration clauses in contracts is that the clause may be drafted poorly which can lead to a considerable amount of time spent by lawyers fighting about the clause. In the worst case scenario, errors in arbitration clauses can lead to the clauses being unenforceable.

Several common problems appear in poorly drafted arbitration clauses; one is that an arbitration clause names an arbitration center or arbitral rules that do not exist. Another problem that frequently occurs is that part of the clause is omitted altogether, for example the name of the arbitration rules is missing or where the arbitration will take place is missing.

These problems can be easily avoided by carefully drafting clear arbitration clauses.

Key considerations when drafting your clause 
There are a number of key considerations that should be kept in mind when drafting every arbitration clause.

1. Whether the arbitration will be administered or ad hoc This is the first and most fundamental consideration parties should take into account when drafting their clauses. If parties opt for an administered arbitration, this means that an arbitration center, for example the International Chamber of Commerce (“ICC”), will oversee the arbitral procedure and facilitate the proceedings. If parties choose ad hoc arbitration, this means that there will be no arbitration center in place to facilitate the proceedings and it will be up to the parties to decide on the dispute resolution procedures. Ad hoc arbitration will often be less expensive than administered arbitration but will lack an arbitration center guiding the proceedings.

2. Which arbitration rules will be used? 
There are various arbitration centers that administer arbitrations in the region and each has its own set of rules. When choosing a set of rules, only the arbitration center that has published those rules should administer arbitrations under those rules.***

Most regional centers typically administer arbitrations in the city where they are based; in comparison, larger arbitration centers such as the ICC and the London Court of International Arbitration administer arbitrations in cities throughout the world.

3. Where will the arbitration take place? Parties should choose a place that is mutually convenient for the parties involved and is located in a country that is a signatory to the New York Convention to ensure enforceability of the award.

4. How will the tribunal be selected? 
Tribunals are comprised of one or three arbitrators. Parties often include in their arbitration clause the number of arbitrators and how they will be selected. If parties fail to include this in their clauses, the default procedures included in the rules that the parties have selected will provide a default number of arbitrators and a procedure for their selection. When a tribunal is comprised of one arbitrator, the usual practice is that parties will have a certain number of days to agree on the arbitrator; if they fail to do so, an arbitration center will make the appointment for the parties. When a tribunal is comprised of three arbitrators, the most common procedure it that each party will appoint an arbitrator and the two party-appointed arbitrators will appoint the third.

5. Language of the arbitration
In particular in the Middle East, parties should give due consideration to the language of the arbitration and ensure that they include the language in each arbitration clause in order to avoid having the arbitration in a language with which they are not comfortable. For example, the default language under the rules of the Abu Dhabi Commercial Conciliation and Arbitration Center (“ADCCAC”) is Arabic unless the parties agree otherwise.

Takeaway points to consider when drafting your arbitration clauses 
• Parties should carefully draft clauses to ensure that they do not contain any errors.
• Parties should ensure that they have taken into account the considerations listed above when drafting their arbitration clauses.
• Parties may want to utilise Model Clauses published by arbitration centers.

***For example, Article 1(2) of the ICC Rules states that the ICC "is the only body authorized to administer arbitrations under the Rules."

Click here to read Drafting Arbitration Clauses - Part II: Ad Hoc or Administered Arbitration


Monday, February 26, 2018

Termination for Convenience under Omani Law

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

However, under Omani law, Article 133 of the Civil Transactions Law promulgated by Sultani Decree 29/2013 (the “Civil Code”) suggests that the inclusion of such a provision would render the contract voidable:

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

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

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

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

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

Practitioners have usually dealt with this issue by adding wording to the effect that a party terminating for convenience would undertake to pay the other party adequate compensation for any costs or losses incurred by them directly flowing from the termination.

This type of wording aimed to prevent disputes by effectively anticipating what a court would order by way of compensation to a party whose contract had been terminated in violation of Article 646.

However, in Article 258 (1), the Civil Code introduced a very significant new remedy in Oman, namely the specific performance of contractual obligations. Previously, a claimant’s remedy for breach of contract was primarily limited to damages. Now a claimant may seek an order requiring a contract party to perform its contractual obligations.

We have yet to see if, and in what circumstances, the Courts will order specific performance. We note that Article 258 (2) illustrates that specific performance is a discretionary remedy, as it states that the Court may impose monetary damages in place of specific performance if in the circumstances specific performance would be “overly oppressive for the debtor”.


Monday, February 19, 2018

Oman and the Law of the Sea - Part I

In October 2017, the Sultanate of Oman submitted a formal application to the United Nations to extend its continental shelf. This article is the first in a three part series exploring the Law of the Sea as relevant to Oman, the international legal process involved, and the dynamics behind and potential benefits arising from Oman’s recent application.

Oman’s application, submitted by United Nations Ambassador H E Shaikh Khalifa bin Ali al Harthy, marked the end of a decade-long process of exploration and research culminating in a formal submission to 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. A successful submission would allow Oman to exercise exclusive rights over a large area of seabed in the Arabian Sea, including the right to explore for oil and gas and other non-living resources.

The continental shelf is the underwater, or submarine, portion of a coastal state’s landmass extending to the outer edge of the relevant continent’s limits. The continental shelf falls under each relevant coastal state’s jurisdiction, and these coastal states have exclusive rights to explore and exploit the resources found therein. Coastal states also assume the duty to safeguard the ecosystem of their continental shelf, and an obligation to allow other states to use their shelf for certain purposes that do not diminish its resources, such as the laying of essential pipelines and cables.

The continental shelf is subject to a special international legal regime that has resulted from decades of development in customary international law and treaty law. The need for this legal regime arose at the turn of the 20th century, when the technology developed to enable the exploitation of submarine resources such as oil and gas. These technological advances inspired a spate of claims over seabed territory that had previously belonged to no one in particular, revealing a lacuna in international law. The first clear claim that the resources of the continental shelf belong to the adjacent coastal state is widely attributed to President Harry Truman of the United States in 1945, and over the following decade many states followed suit.

The legal regime governing the continental shelf developed after World War II, evolving through multilateral negotiations under the auspices of the United Nations. The First United Nations Conference on the Law of the Sea was held in 1958 and adopted the Geneva Convention on the Continental Shelf (the “Geneva Convention”). The Geneva Convention solidified the continental shelf regime in international law, but lacked a workable definition of what the continental shelf meant in practice. Ideas for defining the outer limits of the continental shelf were the subject of much debate over the next two decades, and culminated in the 1982 adoption of the UN Convention on the Law of the Sea (the “Law of the Sea Convention”) following the Third United Nations Conference on the Law of the Sea. Today, there are 159 signatories to Law of the Sea Convention. The most important principles however are considered to be customary international law, and thus also binding even on non-parties to the Law of the Sea Convention.

The modern definition of the continental shelf begins with the submarine territory stretching out 200 nautical miles from a state’s coastline (1 nautical mile is 1.852 kilometers). This minimum area coincides with a coastal state’s Exclusive Economic Zone (“EEZ”), and states have rights over living as well as non-living resources in the EEZ. The term “continental shelf” as used in the Law of the Sea Convention has a strictly legal connotation and is used as a juridical term. This is distinct from the geological term, which in scientific literature refers to that part of the continental margin which extends beyond the shoreline where there is no noticeable slope. This is also referred to in the scientific literature as the “natural prolongation” of the continent, and may often be either larger or smaller than the continental shelf as defined in the Law of the Sea Convention.

States that wish to extend the limits of their continental shelf beyond the EEZ must prepare and submit applications to the Commission, just as Oman has done in October 2017. However, any given continental shelf may not extend beyond 350 nautical miles from shore or alternatively, more than 100 nautical miles beyond the point at which the seabed measures at a depth of 2500 meters. The deep ocean floor outside of this maximum area belongs to no state, and as per Article 137 of the Law of the Sea Convention no state may claim jurisdiction over it.

Coastal states seeking to extend the limits of their continental shelf may choose which of these limitations is most advantageous to apply. States must gather and submit to the Commission extensive documentation linking the desired extension of limits to the landmass of the continent comprising the state’s territory. Such submissions set out the coordinates of the outer limits of the relevant continental shelf and are accompanied by technical and scientific data in support of the claim.

Part II of this series will explore the process that states undergo in seeking to extend the limits of their continental shelves, and obstacles they may face along the way. Part III will examine Oman’s submission to the Commission and discuss the potential benefits to Oman of extending its continental shelf.

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


Monday, February 12, 2018

"Best," "Reasonable" and "All Reasonable Endeavours" Clauses: Key Considerations

Many commercial contracts include the terms “best endeavours”, “reasonable endeavours” or “all reasonable endeavours”, particularly in connection with obligations in respect of which a party is unwilling make an absolute commitment, but where that party is nevertheless expected to “try” to fulfil the obligations in question. The effect of using endeavours clauses is widely misunderstood. It is not always clear in practice what level of effort is required by each of the various permutations (the above three are merely the most commonly-used in a wide spectrum of similar phrases).

“Best Endeavours” 
The meaning of the term “best endeavours” has been modified significantly over the years, but the starting point is that the phrase “means what the words say; they do not mean second-best endeavours” (Sheffield District Railway Co v Great Central Railway Co [1911] 27 TLR 451).

In other judgments courts have ruled that best endeavours impose an obligation:

  • to do what can reasonably be done in the circumstances; 
  • to leave no stone unturned; but 
  • that does not require actions which would lead to financial ruin of the company or undermine its commercial standing or goodwill. 

Best endeavours clauses are now judged by standards of reasonableness. “All a reasonable person could do in the circumstances” has become a short way of stating the rule. Importantly, the best endeavours obligation does not extend to a situation where a company is required to put itself at the risk of ruinous financial loss to fulfill its obligation, nor does it require a party to undertake steps that have no likelihood of success.

In practice, a company subject to a best endeavours obligation:

  • must take all commercially-practicable action having regard to costs and the degree of difficulty; 
  • may be required to incur significant expenditure; and 
  • may be required to divert resources elsewhere within the business. 

In v Blackpool Airport Ltd [2012] EWCA Civ 417, the airport entered into a 15-year contact with, a low cost airline. The contract included a general provision which contained an obligation on both parties to “… cooperate together and use their best endeavours to promote’s low cost services from Blackpool Airport”. The Court of Appeal held that this obligation to use best efforts to promote an airline’s low cost services gave rise to a specific duty on the airport operator to accept arrival and departures outside the airport’s normal operating hours. This was the case even though the contract did not make reference to operating hours and the Court was aware the airport operator would lose money as a result.

In a more recent case, Astor Management AG v Atalaya Mining plc [2017], Atalaya tried to argue that an obligation to use reasonable endeavours was only enforceable if:

  • “the object of the endeavours is sufficiently certain”; and 
  • “there are sufficient objective criteria by which to evaluate the reasonableness of the endeavours”. 

The judge disagreed, ruling:

“The role of the court in a commercial dispute is to give legal effect to what the parties have agreed, not to throw its hands in the air and refuse to do so because the parties have not made its task easy.”

Reasonable Endeavours 
The obligations imposed by the term “reasonable endeavours” are less onerous than those of “best endeavours”. The contractual obligation to use reasonable endeavours requires the party:

  • to give it “an honest try” so as not to hinder the fulfilment of the objective; and
  • take all commercially practicable action, but only to the extent that such action is not detrimental to a party’s commercial interests. 

A party subject to a reasonable endeavours obligation may be required to incur limited expenditure, however as expressed above would not require the party to compromise its commercial interests. When determining what “reasonable endeavours” means the recent English case of Minerva (Wandsworth) Ltd v Greenland Ram (London Ltd [2017] EWHC 1457 suggested applying an objective approach where you should ask “what would a reasonable and prudent person acting properly in their own commercial interest and applying their minds to their contractual obligation have done to try?”

All Reasonable Endeavours 
The “all reasonable endeavours” clause is considered by the English Courts to sit somewhere between “best endeavours” and “reasonable endeavours”, implying something more than reasonable endeavours but less than best endeavours. In practice however, determining what is meant by “all reasonable endeavours” can be somewhat unclear. For instance, whether a party is obliged to incur expenditure in fulfilling its obligations or compromise its commercial interests, is invariably fact specific and determined on a case by case basis.

Endeavours Clauses in Omani Law Contracts 
In Oman, endeavours clauses frequently appear in a wide variety of contracts, including shareholders” agreements, joint venture agreements, agency agreements and supply agreements. When faced with an endeavours clause, the Omani Courts would probably interpret “best endeavours” as imposing more onerous requirements than a “reasonable endeavours” or “all reasonable endeavours” provision. All things considered, the facts and circumstances of a case are likely to take precedence in determining how an Omani court would interpret an endeavours clause in a contract governed by Omani law.

If a party has agreed to a “best endeavours”, “reasonable endeavours” or “all reasonable endeavours” obligation in a contract, they should not treat it as a non-obligation. Otherwise, the risk for non-performance remains. Instead, they should understand that some real efforts will be required of them particularly if a course of action has been prescribed as part of that obligation. Equally, the parties need to be clear about what it is that they are trying to achieve in order to avoid an endeavours clause being ignored by a court or arbitral tribunal for uncertainty.


Monday, February 5, 2018

Development of Real Estate Investment Funds in Oman

Real estate investment funds (hereinafter referred to as a “REIF”) are one of the primary ways to invest in real estate. A REIF owns income-producing real estate in a range of property sectors and is generally seen to have a number of benefits to investors. Investment in a REIF is now possible in Oman by virtue of the Capital Markets Authority (the “CMA”) Organisational Regulation of Real Estate Investment Funds No. 2 of 2018 (the “REIF Regulations”) and Ministerial Decision No. 95/2017 issued by the Ministry of Housing (“MD 95/2017”).

Prior to the enactment of the REIF Regulations and MD 95/2017, a fund wishing to invest in real estate was reliant solely on the CMA’s Executive Regulations of the Capital Markets Law promulgated by Decision No. 1 of 2009 (the “CML Executive Regulations”), which permitted funds to invest up to 30 per cent of their capital in real estate. The CML Executive Regulations however, proved unsatisfactory (as far as REIFs were concerned), and owing to the lack of regulatory framework for the governance of REIFs, the Ministry of Housing showed reluctance to approve funds investing in real estate.

In an effort to diversify the Sultanate’s economy, the REIF Regulations are seen to support the Sultanate’s National Program for Enhancing Economic Diversification or Tanfeedh, as it is better known. Such REIF Regulations are aimed to encourage both foreign and domestic investment in real estate in Oman. This aim is evidenced by the fact the REIF Regulations state that a REIF is required to offer at least 40 per cent of its capital to the public, upon issuing its investment units for public offering. In other words, at least 40 per cent of the investment units of a REIF must be available for public subscription and be traded on the Muscat Securities Market (“MSM”).

This article sets out: (a) the key points to establishing a REIF in Oman; (b) the key investment rules applicable to a REIF; and (c) the management responsibilities of a REIF.

Establishing a REIF 
Among other organisational requirements to set up a REIF, such as duly completing an application to CMA for initial approval and appointing a company licensed by CMA to be the REIF’s investment manager, the paid-up capital of the REIF must be no less than 10 million Omani rials (“OMR”). This requirement is a departure from the requirements set out in Part VI of the CML Executive Regulations, wherein it was stated that the capital of a fund at the time of establishment shall not be less than 2 million OMR.

Investment Rules 
The REIF Regulations set out parameters by which a REIF may operate in the Sultanate and have determined that a REIF is not permitted to: (a) provide loans of financial facilities; (b) develop properties, unless the development is to renovate, supply or expand existing properties within its investment portfolio; (c) buy a piece of land; or (d) invest more than 25 per cent of the total value of its assets outside of the Sultanate (unless otherwise approved by the CMA as explained further below).

A REIF is also prohibited from purchasing properties at an amount exceeding 110 per cent of amount stated in any property’s valuation report. A REIF is further prevented from selling any property for less than 90 per cent of the property’s valuation. All properties in the REIF’s investment portfolio are subject to an independent re-valuation at least once in every 3 years.

Conditions for Purchasing Properties 
It is specified by the REIF Regulations that 50 per cent of the total value of a REIF’s assets must be invested in income generating properties and/or special purpose vehicles (“SPV”). Any investments of the REIF in assets not related to real estate and/or cash, deposits and cash market instruments are not to exceed 25 per cent of the total value of the REIF’s assets.

Leased and non-leased properties 
When purchasing properties, a REIF is required to meet certain conditions, including that, subject to certain exceptions, a property be fully leased, have good historical records and/or promising prospects such that it will obtain a good level income; economical according to the MSM reports and be free from any obligations or rights of third parties at the time of purchase.

It is also usually a requirement that a REIF have a majority ownership and control over the purchased property. However, in certain instances, a REIF may purchase properties without having a controlling majority on the basis that:

  • the total value of the REIF’s non majority owned properties shall not exceed 25 per cent of the total value of the REIF’s assets after the acquisition;
  • the acquisition is in the best interest of the holders of a REIF’s investment units; and 
  • there is a clear disclosure in the REIF’s prospectus regarding the risks associated with its ownership of properties without having a controlling majority. 
A REIF may only purchase unleased properties on the condition that:
  • there is a strong probability of obtaining a tenant; 
  • any disbursements of capital to enhance the condition of the property will not materially affect the proceeds of the holders of the REIF’s investment units; and 
  • within a reasonable period of time, the holders of the REIF’s investment units will attain reasonable proceeds. 
Properties under construction 
A REIF is only permitted to purchase properties under construction if the criteria under Article 125 of the REIF Regulations are satisfied. By way of overview, some of these Article 125 conditions include that:
  • the REIF’s portfolio must be sufficient to ensure there is no significant decrease in the fund’s revenues during the construction period of the property in question; 
  • the purchase agreement is conditional upon the completion of the property construction; 
  • the total value of the properties under construction that are purchased by the REIF will not exceed 10 per cent of the total value of the REIF’s assets after purchase; and 
  • the REIF is prevented from selling the property under construction for at least 2 years from its completion. 
Properties with a usufruct contract 
As far as usufruct contracts are concerned, a REIF may purchase the rights from a usufruct contract. However, this is only permissible if the REIF has obtained the requisite consent of the competent authorities to transfer the usufruct contract to the REIF prior making the units available on the MSM. 

Special Purpose Vehicles 
In order to acquire a SPV with interest in property, an investment manager is required to consider, among other things, the following:
  • whether the acquisition is in the interest of the holders of an REIF’s investment units; 
  • whether there a valid commercial reason for the acquisition of the SPV rather than the properties; and 
  • whether the property owned by the SPV will be compliant with the conditions for purchasing properties, some of which are outlined under the relevant heading above. 
A REIF should purchase the entire SPV or otherwise must acquire ownership rights that guarantee the REIF majority ownership and control over the SPV.

Properties Outside the Sultanate 
As referred above, a REIF is permitted to purchase property outside the Sultanate, however investment abroad must not exceed 25 per cent of the total value of the REIF’s assets. Investment in property outside the Sultanate is further only permitted on the basis that it is considered in the best interest of holders of the REIF’s investment units. In assessing whether investment abroad is/is not in the best interest of holders of investment units some of the factors that must be considered include whether there are any:
  • contradictions imposed on foreign ownership, restrictions on foreign exchange, transfers and provisions relating to competition and monopoly; 
  • economic, political, legal, judicial and accounting factors including the real estate market; 
  • operational restrictions including the level of transparency with respect to accounting and financial reporting; or 
  • restrictions or barriers to tax, in those countries where the REIF is looking to purchase property. 
Loans and Debt 
It should be noted that a REIF is permitted to take a loan(s) for the purchase of properties and SPVs. Under the CML Executive Regulations, a REIF was not permitted to borrow more than 30 per cent of its net asset value, whereas the REIF Regulations state that the total debt of a REIF is not to exceed 6o per cent of the total value of the REIF’s assets at the time of borrowing. However that percentage may be exceeded if approved at an extraordinary general meeting of the holders of a REIF’s investment units.

Other Controls 
MD 95/2017 has further specified controls, including that a REIF is permitted to own property only if it is used in connection to commercial, residential, industrial and tourism purposes. Further, a residential complex may only be purchased by a REIF if the complex is 10,000 square meters or more in size. A REIF is prevented however from owning empty spaces and properties used for agricultural use.

Management of a REIF 
A REIF’s investment manager is required to ensure there is suitable and duly appointed fund management to supervise and control the work of the REIF and its service providers. Subject to certain restrictions as to who may serve as a member of fund management, management is to comprise of at least 3 but no more than 7 members, including 2 independent members. As part of the responsibilities of the REIF’s management, fund managers are required to ensure that a fair and accurate assessment of all REIF assets and liabilities are made.

A Shari’ah committee must also be formed of at least 3 members all of whom must be independent from the investment manager and whose functions include, but are not limited to:
  • providing real estate investment and fund management advice in accordance with the principles of Islamic Shari’ah and ensuring the REIF is in compliance with principles of Islamic Shar’iah and the CMA Regulations; 
  • providing expertise and legal advice on all matters, in particular on the REIF’s articles of association, prospectus, investment decisions and other operational matters of the REIF; 
  • reviewing the report of the investment manager regarding the REIF's compliance with its investment transactions in accordance with the principles of Islamic Shari’ah; and 
  • preparing a report to be included in the annual or interim report of the REIF that includes its opinion as to whether the operation of the REIF is conducted in accordance with the principles of the Islamic Shari’ah for the relevant financial period. 
In accordance with the REIF Regulations, an investment manager of a REIF must appoint an individual with suitable experience and knowledge in real estate investment and the investment strategy of the REIF in order to responsibly manage the REIF’s portfolio. If the REIF’s investments include properties situated outside the Sultanate, the investment manager must further have the requisite capabilities to manage the legal and regulatory requirements of the relevant state in which such properties are located.

Although the concept of funds investing in real estate is not entirely new in Oman, it is understood that the comprehensive REIF Regulations will encourage the establishment of REIFs and be beneficial for the overall development of the real estate sector in the Sultanate. Investors of REIFs will see high returns of 90 per cent of any annual net profit on their investment and have access to a diverse portfolio of real estate which, prior to the REIF Regulations, had previously been largely unavailable to both foreign and domestic investors.


Monday, January 29, 2018

Taking and Enforcing Security under Omani Law

Most financing transactions will involve the grant of a security or collateral by the borrower to secure the finance amount.  This involves the execution, registration, perfection and enforcement of security. Generally speaking, tangible and intangible assets, moveable and immoveable property, shares, securities and bank accounts are capable of forming collateral under Omani law.  The concept of a floating corporate charge comparable to the English system does not exist as such under Omani law.  Nonetheless it is possible to create a hypothecated charge over a company and its assets by way of a commercial mortgage excluding real estate rights and assets.  The difference between a commercial mortgage and a floating charge is that the corporate assets forming the subject matter of the charge must be identified.  It is also possible to provide real estate rights and assets as collateral to secure financing by creating a separate charge over those rights and assets.  Real estate assets owned or leased, including usufruct rights, can be charged as security by creating a legal mortgage over them.

Under Omani law, a commercial mortgage would be registered in the commercial register of the Ministry of Commerce and Industry (the “MOCI”).  A noting of the charge appears on its commercial registration information print-out.  A legal mortgage is registered with the Ministry of Housing (the “MOH”).  Accordingly, a noting of the charge will be marked on the title document of the real estate asset or the instrument establishing the right in rem.

In addition, banks and financial institutions may require the borrower to assign certain rights in their favour as part of the security package.  It is also possible to provide bank accounts as security.  The usual form of providing security over bank accounts is by assignment or creating a pledge.  A pledge may also be created over securities comprising shares in a company.  A share pledge in respect of a closed or public joint stock company is capable of registration with the Muscat Clearing and Depository Company (the “MCDC”).  Under Omani law, security cannot be created by granting a power of attorney.

As stated above, a commercial mortgage or a legal mortgage must be registered with the MOCI or the MOH, respectively, in order for it to be valid and enforceable.  A share pledge in relation to a joint stock company must be registered with the MCDC.  The MOCI, MOH and MCDC would require that the charge documents are signed before their designated officials, in addition to filing of prescribed forms and payment of fees.  In order to register a commercial mortgage, a fee of OMR 130 is payable.  A commercial mortgage is registered for a period of five years and is renewable for further periods on payment of a renewal fee.  A legal mortgage is subject to payment of a registration fee of 0.5% of the mortgage value subject to a cap of OMR 100,000.

Under the laws of Oman, if a particular charge is required to be registered in order to constitute valid security, that security must be registered in order for it to be enforceable as security.  An unregistered charge does not amount to creation of valid security.  It is hence unlikely that an unregistered charge would be enforced by the courts as security.

In order to enforce the collateral, the lenders would firstly be required to make a formal demand with the borrower.  The borrower’s failure to answer the demand would require the lenders to obtain an order or judgment from the court by filing a lawsuit.  Once a judgment has been obtained on the debt, the lenders would be required to seek the enforcement or execution of the judgment.  In respect of the collateral, the judgment would be executed by carrying out a sale of the charged asset or property by public auction.  Under the provisions of the Law of Commerce of Oman, issued pursuant to Royal Decree 55/1990 (as amended), an agreement between a creditor entitling the creditor to acquire the ownership or to dispose of the collateral without the intervention of the courts is null and void.  Accordingly, self-help remedies are not available under the law and are unenforceable.  The lender may not make recourse without the intervention of the court notwithstanding the fact that the borrower has granted a power of attorney to the lender to unconditionally enforce the collateral.


Monday, January 15, 2018

Effect of VAT Law on Long-Term Contracts

While a value added tax law (“VAT Law”) was originally anticipated to be introduced at the beginning of January 2018, to date Oman has not issued the relevant Royal Decree or law.  It is widely anticipated, however, following a regional framework agreed by the Member States of the GCC that such a law will come into force in the near future.

The UAE has enacted a VAT Law effective from 1 January 2018 and, given the volume of trade between the states, it is difficult to see how trade and commerce will operate efficiently if other GCC members do not enact a similar law prudently.

The Ministry of Finance and Ministry of Legal Affairs (“MOLA”) are expected to draft, amend and review a VAT Law together. Other government bodies may be involved in the consultation process.  Upon approval by the MOLA, the State Consultative Council will add any additional amendments it deems necessary.  The amended draft is subsequently sent to the Cabinet of Ministers who further review and alter as it sees fit.  A final version is sent to the Sultan for his approval and, if granted, the Sultani Decree is published in the Official Gazette.  The law would come into effect upon publication.

VAT is a tax imposed on most transactions in the production and distribution process.  This consumption-based tax is ultimately paid by the customer in the final price for goods and services.  Applicable businesses are assigned the responsibility of collecting the tax when the good or service is produced and/or distributed.

It might be easy to think that the consequences of such a law can be dealt with once it has been promulgated.  Unfortunately, when it comes to entering into any long-term contracts, the time to act is now, if not before.

Before entering into any long-term contract that might span the date a VAT Law might come into force, it would be foolish not to ensure it contained provisions prescribing how to deal with VAT.  In simple terms, VAT provisions would typically allow the party that invoices for goods or services to charge an additional amount for the relevant VAT.  However, this can be complicated in practice, particularly where goods or services are provided over a period that spans the date a VAT Law came into force.  This is because the amount of VAT payable might depend on what proportion of such goods or services were supplied before or after the relevant date.  It becomes even more difficult where there is no draft of the VAT Law available for guidance.

Construction contracts are an example of a type of contract where careful consideration needs to be given.  Related contracts with subcontractors and suppliers may or may not contain clauses in relation to VAT.  Ideally, a head contractor should ensure that its contracts with each of its subcontractors and suppliers have substantially similar VAT clauses in order to enable VAT to be calculated in the same manner, and passed through.  Such a head contractor would of course need to ensure it had the appropriate clause in its head contract to enable the VAT to be claimed from the project owner.


Tuesday, January 2, 2018

Time Limitations - Don't Allow Your Rights to be Extinguished!

Like most jurisdictions, Oman imposes time limitations within which parties must bring any claims before the courts or arbitral tribunals.  Also, as in most jurisdictions the strength of a claim is irrelevant if it has been brought out of time.  Generally, the courts will not examine the merits of a claim if it has been filed or notified outside of statutory or contractually prescribed timeframes.  It is therefore important to gather evidence and speak with legal advisors as soon as a potential claim has crystalised.

What is a time bar limitation?

A time bar limitation is a maximum period of time established by law or contract within which a party may bring a claim or enforce a judgment or right.  Any legal claim will lapse if it is not exercised within this time period.  Time bar limitations exist for reasons of business efficacy and certainty.

Omani law prescribes a variety of time bar limitations in relation to different types of legal matters.  A unique aspect of Omani law is that time limitations are hidden within many different laws, with the Civil Code providing an overall umbrella.  This article highlights several of these time bar limitations which are relevant to businesses, and discusses potential relief to the strict application of time bars by reference to the Civil Code.

The Law of Commerce

Many of the key time bars applicable to business-related claims in Oman are found under the Law of Commerce (Royal Decree 55/90).  Some examples include:
Carriage of goods claims

In case of damage to goods, a consignee must submit a contestation to the carrier immediately after discovering the damage and no later than seven days from the date of delivery.

The right to seek recourse against a carrier due to damage, partial destruction or delayed arrival shall lapse unless the consignee proves the condition of the goods and lodges an action against the carrier within 30 days from the date of delivery.

The time limitation to bring an action arising from a contract for the carriage of goods or persons or a contract of carriage commission agency shall be one year.  This is known as a long stop limitation.

Any claim in respect of a guarantee/warranty of defect-free goods is one year from the date of delivery of the item sold, unless a guarantee for a longer period has been given by the seller.

Bills of exchange
Claims against the person that accepted a bill of exchange must be brought within three years of acceptance.

General long stop limitation for claims between merchants
Ten years as from when the date for performance of such obligations lapses (unless the law provides for a shorter period).

Other Omani statutes

Certain key time bar limitations are prescribed by other Omani statutes.  Most frequently a subject of concern is liability under the Engineering Consultancy Law (Royal Decree 120/94) and the Labor Law (Royal Decree 35/2003) which impose strict decennial liability provisions.  An oft-overlooked issue is that all claims for defects shall lapse after three years from the time of discovery of the defect.

Engineering, procurement, and construction (EPC) contracts

It is a common for EPC contracts to contain time limitations applicable to related claims.  Some contracts will state that a claim must be brought within 28 or 90 days of having a request for an engineer’s decision refused or ignored.

It is all too common for a contractor to neglect to bring a claim in respect of delay and prolongation costs within contractually prescribed periods.  The question then arises as to whether a contractor's failure to notify claims in time in compliance with the EPC contract results in the contractor losing its right to claim.  The answer to this question is that the courts will carefully examine the facts and the course of dealing between the parties. 

When considering how the courts (or an arbitral tribunal properly informed under Omani law) will approach the issue of a claim brought out of time, it is useful to first understand the principles that the Omani courts must apply when interpreting contracts and the enforcement of contractual conditions.  The courts adopt the following hierarchy when deciding a dispute:

(i) Legislative provisions.
(ii) The terms of the contract.
(iii) Rules of custom and practice.
(iv) The provisions of Sharia law (however, usually only in the absence of provisions (i), (ii) and (iii) above is Sharia law considered in any dispute before the Omani courts).

Therefore, when interpreting a contract and its time limitations on related claims, a court or tribunal must examine the express terms of the subject contract.  However, where these are absent, their meaning is inadequate, or the parties’ course of dealing diverges from the contractual terms, the custom and practices established between the parties may also be taken into account.

The Omani courts will normally consider the enforcement of contractual time limits on a case-by-case basis, bearing in mind all the relevant facts and the exact wording of the clause.

The starting point as stated above and under Article 2 of the Law of Commerce is that the courts must recognise and give effect to agreed contractual terms.  However, the courts are prepared to examine whether any prejudice is caused by a failure to comply with contractual time limits.  If the court considered that there was no loss or prejudice caused by failing to comply with a time limit, or that the prejudice of applying the time limit outweighed the prejudice of allowing a claim, then it may decide to allow the claim despite the lapse of a contractual time limit.

The Civil Code makes specific reference to contracts of adhesion, which are standard form contracts that cannot be negotiated; Article 83 thereof provides that contracts of adhesion are to be treated differently.  Article 158 of the Civil Code (Royal Decree 29/2013) is relevant and provides:

If the contract is made by way of adhesion and contains unfair provisions, the court may amend those provisions or exempt the adhering party therefrom in accordance with the requirements of justice, and any agreement to the contrary shall be void.

Standard form construction contracts can potentially be considered contracts of adhesion as they are standard form contracts drafted by one party (the employer) and signed by a relatively weaker contract party (the contractor), who must adhere to the contract and does not have the power to negotiate or modify the terms of the contract.  In these circumstances, the Omani courts (and therefore an arbitrator properly instructed under Oman law) would potentially be entitled to conclude that the prejudice caused to the contractor by applying the strict time limits outweighs the employer’s right to impose the time limits, and apply Article 158, in order to allow justice to be done between the contract parties.  However, each case will be decided on its own merits, which again emphasises the importance of careful project record keeping.  The contractor would be assisted for example if it could identify and evidence instances where the employer has waived contractual time limitations during the course of the life of the contract.

We note that the issue of contractual time limits within contracts is not settled in Oman.  In certain circumstances, Article 158 of the Civil Code permits the court to amend or ignore the time limits if it considers this to be in the interest of justice.  The court may also examine the parties’ conduct during the life of the contract, and if a party has waived its rights or remained silent, then the court can deem this to be an amendment of the contract (Article 74 of the Civil Code).

The courts will however analyse the impact of the limitation, and may ignore a limitation if it leads to a miscarriage of justice, or if there is no prejudice to the parties by ignoring the reduced time limitation.  Finally, it should be noted that there is also a general reluctance under Sharia law to allow a party to benefit from a contractual time limitation.

Time limits underpin all commercial claims, and it is essential to comply with statutory or agreed limits.  Given that time limits are often hidden throughout contracts and legislation, it is a small but very important investment to seek advice from your legal advisor as soon as an issue is encountered which may give rise to legal recourse.