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!

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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

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