Considering Dispute Resolution Clauses in Oman Part 1: Courts or Arbitration

Often, when parties enter into a new agreement, the dispute resolution clause is not considered as carefully as other important terms of the contract.  There are numerous considerations that, depending on the context, both parties should bear in mind when drafting their dispute resolution clause.  This series of articles will take a look at a number of these considerations in the context of entering into contracts in Oman.

This first article considers the issue of whether parties should choose courts or arbitration to determine their disputes.  Some of the main considerations are as follows.

If parties decide that their dispute will be resolved by the Omani courts, the following will apply:

• Proceedings will be held in Arabic.
• Parties will have several rights of appeal of decisions.
• The costs paid to the court will be much lower than costs paid to a tribunal.
• A court decision will be enforceable in Oman as well as other countries that are party to the Riyadh Convention on Judicial Cooperation 1983.^[1]

If parties choose arbitration to resolve their disputes, some of the key characteristics are as follows:

• Proceedings will be held in the language agreed to by the parties, which is often English.
• There is no right of appeal; however, an application will need to be submitted to the court to have the award enforced, even if the arbitration is held in Oman and subsequently enforced in Oman.
• There are higher administrative costs related to arbitrations; however, a tribunal has the authority to award the successful party these costs, though it is not certain that a successful party will have all of its costs paid.
• An award is enforceable in the 161 countries that are party to the New York Convention.

Building on the points above, parties will need to consider many factors when deciding what type of dispute resolution mechanism they will choose.  If contracting with a counterparty that has little assets in Oman but significant assets in other countries, it will be critical that any award or decision can be enforced against the counterparty; therefore, where an award or judgment is going to be enforced also needs to be taken into consideration when choosing a dispute resolution mechanism.

Another key consideration is that the process in arbitration and in courts can be very different.  In Oman, all submissions are made through documents rather than through oral arguments and witness testimony.  If parties choose arbitration rather than courts, the parties will determine with the arbitrator what the arbitral process will entail, often a more common law style of proceeding with oral arguments and oral witness testimony being adopted.  However, some arbitrations, particularly those where the parties choose Arabic as the language of the arbitration, more often follow the procedures of Omani courts.

Overall it can be said that depending on the nature of the dealings between the parties as well as any potential dispute that may arise will determine whether courts or arbitration is most appropriate.  Unfortunately, it will not be possible for parties to opt for courts or arbitration at the time a dispute arises; therefore, careful consideration of a number of factors must be weighed up at the time of entering into a contract when deciding what dispute resolution mechanism the parties should choose.

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[1]  Algeria, Bahrain, Djibouti, Iraq, Jordan, Kuwait, Lebanon, Libya, Mauritania, Morocco, Oman, Palestine, Qatar, Saudi Arabia, Somalia, Sudan, Syria, Tunisia, UAE, Yemen.

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Employment Issues Relating to COVID-19 Under Omani Law

As more COVID-19 cases are detected in the Middle East, employers with international workforces in Oman will need to monitor the impact of the outbreak and take steps to protect their employees and workplace where necessary.

 

The outbreak of COVID-19 raises important points of Omani employment law with particular considerations for a predominately expat workforce. Specific legal advice should be sought where necessary, as the situation is changing daily.

 

Government announcements

 

Oman has a predominately expat workforce and many employees are following news reports in both Oman and their home countries with interest, often via reports shared on social media. It is easy for rumours and misinformation to spread quickly; therefore, employers should advise all employees to follow official government announcements and to avoid sharing rumours without verifying statements from official sources.

 

Employers should remind employees of the defamation laws that apply in Oman and consider updating and recirculating their internet use and social media policies to reflect this.

 

Employer measures

 

We are aware that some employers are taking steps to have their employees screened to confirm that they are healthy and not presenting any risks to other colleagues. Before implementing any such practices, employee consent should be obtained and consideration given to what steps the business will take if an employee is showing any symptoms.

 

Whether employers are entitled to require an employee to self-isolate and work from home is likely to depend on:

• whether the employee is symptomatic – in which case, it is likely that they should be on sick leave and therefore not working; or
• whether the employee is able to work from home.

Employers should now be considering whether they need to take any additional steps to facilitate home working and whether employees should ensure that they have the correct set-up at home to be able to work there, if required to do so.

Relevant considerations may include:

• ensuring that all employees have a way of logging on to secure systems from home;
• whether any employer liability insurance would cover a personal injury sustained by an employee while working from home;
• how the employee will be supervised while working from home;
• what measures need to be put in place to protect the confidential information of the business and personal data of employees and customers; and
• where there is no established company home working policy in place, recording the arrangement with relevant employees in writing.

Employers should review their employment contracts and policies to determine whether and to what extent they are able to require employees to work away from the office. Employers have a general obligation to maintain overall health and safety of all employees, and will understandably be keen to avoid the spread of illness through their staff as this could disrupt business for several weeks.

Suspension may be an option where an employee who has been advised to self-isolate refuses to do so, but employers should consider whether they have the right to suspend in these circumstances. In the absence of a disciplinary sanction having been handed down as a consequence of a formal disciplinary procedure, the general position is that any period of suspension should be on full pay. Where no express contractual right to suspend exists, legal advice should be sought.

 

Should employees be placed on annual leave, paid sick leave or any other type of leave?

 

The position will depend on the employer’s contractual terms and policy, the position of the employee and any other material factors, such as the employee’s health. Options available to employers in Oman include:

• inviting employees to take a period of paid annual leave voluntarily;
• placing employees on a period of mandatory annual leave;
• for employees with symptoms, allowing them to take sick leave. Article 66 of the Oman Labour Law provides that, subject to the provisions of the Social Insurance Law, an employee is entitled to sick leave for one or more periods which shall not exceed ten weeks in a year regardless of whether the leave is divided or continuous. Sick leave salary entitlements will be granted in the following manner:
• First two weeks leave: full pay
• Following two weeks leave: paid ¾ of the full salary
• Following two weeks leave: paid ½ of the full salary
• Following four weeks leave: paid ¼ of the full salary

 The employee must produce a medical certificate to establish his/her sickness, and in the event of a dispute, the matter has to be referred to the medical committee, whose decision in matters of sickness is final.

 

Whilst the Oman Labour Law grants the employee the right to sick leave, Article 43 of the Oman Labour Law provides that the employment contract may be terminated if the sickness of an employee compels him/her to discontinue work for a continuous or an interrupted period of not less than ten weeks during a year;

• enabling employees to work remotely wherever possible; and
• where an employee voluntarily self-isolates and remains away from the workplace without discussing this with the employer, there may be more scope for considering such leave to be unpaid.

Legal advice should be sought before introducing any measures which seek to reduce employees’ statutory benefits, such as a mandatory period of unpaid leave or requesting that employees take a temporary pay cut.

Far-reaching privacy laws are in place in Oman. Any employee’s medical records therefore should be dealt with strictly confidentially and only shared with relevant personnel on a ‘need to know’ basis. Best practice is to obtain advance written consent from the employee before the details of any medical test or report are shared, even where there is a provision in the employment contract confirming how personal data will be processed within the organization.

 

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COVID-19 And Lease Agreements Under Oman Law

Contractual force majeure


Under Omani law, parties are generally free to agree the contractual terms that will govern their relationship, so long as there is no conflict with a mandatory provision of Omani law or any contravention of public order or morals. The concept of force majeure is recognised and judicially well understood in Oman, and force majeure provisions are commonly included in commercial contracts in the region. In general terms, parties should expect that express contractual force majeure provisions, which may include exhaustive or non-exhaustive definitions of the scope of a force majeure event (that could potentially encompass epidemic or pandemic scenarios), will be enforceable in contracts governed by Omani law. Similarly, contractual notice requirements that must be satisfied before force majeure can be relied on will usually be upheld.




As it pertains to COVID-19, any broad force majeure clause language should apply as it is unlikely any court would decide that any tenant caused COVID-19. Many force majeure clauses specifically include "epidemic" or "pandemic" in its laundry list of qualifying events. Even without that specific reference, COVID-19 should qualify under most force majeure clauses, owing to the government-imposed travel bans and quarantines.




Tenants could have trouble proving damages if business was already down. Omani courts require the party claiming force majeure to show that the event was (a) not foreseeable; and (b) directly caused the failure to meet its contractual obligations.




As in any lease matter, strict compliance with the technical requirements of the lease may be necessary for a tenant to invoke a force majeure clause. Typically a lease requires prompt notice of a claim of force majeure. Several courts have refused tenants’ force majeure claims when they failed to provide adequate notice under the lease.




A common and particularly controversial clause in situations such as the present is one that contains wording along the following lines:



"Nothing in this Section, however, shall excuse Tenant from the prompt payment of any Rent or the obligation to open for business on the Commencement Date."




The intention of the parties appears to be that a tenant may be excused by force majeure of complying with a continuous operation clause in the event of a pandemic, but it still must pay rent. Under the current circumstances, one could perhaps try to make an argument that these clauses are unenforceable because they are unconscionable and against public policy.




Statutory force majeure


In the absence of (or supplementing) express contractual force majeure provisions, Sultani Decree 29/2013 Enacting the Civil Transactions Law (the "Civil Code") contains several articles that provide for relief in the case of force majeure and other exceptional circumstances. Unlike common law jurisdictions, where force majeure may result in the suspension of contractual obligations, the default consequence of establishing force majeure in Oman is termination.



Article 172(1) of the Civil Code provides that if a force majeure event supervenes that renders performance of a contract impossible, all contractual obligations will cease and the contract will be automatically cancelled. Under Article 172(2), in cases where the force majeure event renders only part of the obligations impossible to perform, only that part of the contract will be extinguished and the remainder will continue in effect. Article 172(2) permits the obligor, in respect of the partially impossible obligation, to cancel the entire contract on giving notice to the obligee. If a contract is cancelled under either Article 172(1) or 172(2), the parties are to be restored to the position they were in before they entered into the contract; if that is not possible, damages may be awarded by way of compensation to a party that has suffered a loss as a result of the inability to unwind the contract.

Even though Articles 172(1) and 172(2) of the Civil Code do not require notice to be given to effect cancellation of a contract (and Article 549 is silent on notice), a party seeking to rely on the Civil Code in force majeure circumstances would be well advised to provide notice of cancellation to its counterparty in order to avoid any allegation of breach of the general obligation under the Civil Code to perform the contract consistent with the requirements of good faith.

Article 177 of the Civil Code provides that:



"If a person can prove that a loss proceeded from an extraneous cause in which he played no part, such as a natural disaster, an unforeseeable accident, force majeure, an act by a third party, or an act by the injured party, he shall not be liable for compensation...."




In other words, a defendant will not be liable to compensate a claimant if he can show that the loss at issue was the result of an external cause in which he had no hand, such as an unforeseeable accident, or an act of (a) God, (b) a third party, (c) force majeure, or (d) the claimant himself.



Article 159 of the Civil Code provides that if exceptional circumstances of a public nature that could not have been foreseen occur, as a result of which performance of a contract becomes oppressive for a party, but not necessarily impossible, the judge (or arbitral tribunal in an arbitration) has discretion, after weighing the interests of each party, to reduce the obligation to a reasonable level if justice requires it. It is necessary for a party to commence court or arbitral proceedings if it seeks to obtain relief under Article 159. Unlike the Civil Code provisions that concern force majeure, the operation of Article 159, which is equivalent to the hardship doctrine available in other jurisdictions, does not result in the termination of the contract.




Although the Civil Code refers to force majeure and exceptional circumstances as the basis for relief from performance of contractual obligations, it does not provide any definition of what constitutes force majeure or exceptional circumstances. The starting point for any analysis of whether COVID-19 may constitute a force majeure event or exceptional circumstance is the contract in question and, in particular, whether there are any definitions that could encompass an epidemic or pandemic scenario. If the contract is silent or unclear, then it will be for the court or arbitral tribunal to determine whether the existence and effects of an epidemic or pandemic constitute force majeure or exceptional circumstances in the context of the Civil Code.



Omani courts have held that it was a settled principle that the determination of whether an “extraneous cause” (i.e., an event that was not caused by the parties) could permit a party to a contract to avoid liability was within the sole discretion of the court (or arbitral tribunal). To the extent that the effect of an epidemic or pandemic could be said to be a normal commercial risk that could be caused by other, less serious circumstances, this might be said to tend against a finding of force majeure. However, while a finding of force majeure can be a close call in, for example, weather-related natural disasters, it is hard to imagine a pandemic resulting in mass closures of all public events and schools being considered to be a close call. This is not a normal “risk of doing business.”




Summary




If the lease agreement in question does not contain a force majeure clause that could be invoked by the tenant in respect of COVID-19, it will be necessary to fall back on the statutory provisions in the Civil Code dealing with force majeure and/or "exceptional and unforeseeable circumstances of a public nature."



Omani courts have interpreted force majeure clauses very narrowly, stipulating that for an event to qualify as force majeure it must make performance of the contract literally impossible, unforeseeable and uncontrollable. An event judged to constitute mere hardship or uneconomic balance between the parties to a contract would not be sufficient.




Should the tenant be unable to argue that COVID-19 constitutes force majeure for the purposes of Article 172, it may be able to fall back on either Article 177 or Article 159, each of which provides for more nuanced relief than restitutio in integrum (as provided for by Article 172, set out above). If the tenant can show that its inability to pay a part of the rent owing to COVID-19, whether it qualifies as an "extraneous cause" for the purposes of Article 177 or as an "exceptional and unforeseeable circumstance of a public nature" for the purposes of Article 159, then the courts have the discretion either (a) to write off the loss to the landlord, if applying Article 177; or (b) to reduce the tenant’s obligation to a reasonable level, if applying Article 159.




At this stage, it is difficult to predict how the courts in Oman (or arbitrators considering contracts governed by Omani law) will deal with force majeure and the exceptional issues raised by COVID-19.




A key issue will be when the impact of COVID-19 is deemed to have become foreseeable. Was it 31 December 2019 when the WHO first warned of the threat of COVID-19? 30 January 2020, when the Director-General of WHO determined the outbreak of COVID-19 to be a Public Health Emergency of International Concern? Or 11 March 2020, when the WHO declared it a pandemic?


Tenants who entered into leases after the effects of the virus became foreseeable – whenever the courts deem that to be - will find it harder, if not impossible, to rely on the statutory provisions above.

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