Thursday, October 6, 2022

Arbitration Time Limits

Some well-known standard construction contracts used in Oman contain strict time limits on the process of taking a dispute to arbitration.  In addition, there are time limits prescribed by Omani law regarding the commencement and duration of an arbitration.  This article sets out issues regarding these additional time limits.

An English translation of Article 45 of the Law attached to Royal Decree 47/1997 (often referred to as the Oman Arbitration Law) provides:

  1. The arbitration board shall have to pass the final award in respect of the dispute within the time period agreed upon by the parties.  In the absence of any agreement, the award shall be required to be passed within 12 months effective from the date of commencement of the arbitration proceedings.  In all circumstances, the arbitration board may decide to extend the period of the proceedings for a further period.  However such extension shall not exceed six months, unless the parties agree to a period beyond six months.
  2. In the event, the arbitration award has not been passed within the period referred to in the preceding paragraph, either party to the arbitration may request the President of the Commercial Court to pass orders prescribing an additional period or have the arbitration proceedings brought to an end.  In such a case, either party may file his claims before the competent Court.

Note that:
  1. Unless the period is extended in some way, the arbitral tribunal has only 12 months to issue an award;
  2. The tribunal itself may grant itself an extension of six months (i.e., extending the 12 months to 18 months);
  3. The parties may agree to any further extension; and
  4. The President of the Commercial Court may grant a further extension, on the application of one party.
It is also worthwhile to note that potentially the Commercial Court may extend the time for arbitration, even after the time has expired.  So, all is not necessarily lost if the tribunal fails to issue an award in time but, if you are in such a situation, you should urgently seek legal advice. 

12 months, or even 18 months, is a short period for any arbitration of any complexity, so often parties agree to an extension, remind the tribunal to extend, or are ready to go to Court to get the extension if need be.  Past experience suggests that the Court will tend to give an extension of six months, but naturally this depends on the case, the reasons for the delay, and so forth.

Of particular note for those unfamiliar with arbitration in Oman is Article 27.  Article 27 (English translation) of the Oman Arbitration Law provides:

The arbitration proceedings shall commence on the day on which the defendant receives from the plaintiff the application for arbitration unless both the parties agree upon some other date.

Usually, the defendant is notified when they receive a document typically titled “Request for Arbitration” or “Notice of Arbitration.”  Bear in mind that at this stage the tribunal members have usually not been selected.  The appointment of the tribunal often takes months, and this will eat into the 12-month period.  For this reason, in Oman, it is often agreed in writing between the parties that the commencement date for the arbitration is a later date (such as the date of the first hearing or meeting with the tribunal).  Alternatively, a longer extension for the issuance of an award is agreed to compensate.

These procedural issues are all manageable, providing you receive advice from those experienced in handling them.  However, they cannot be ignored, and you should be aware of the need to quickly and diligently proceed with any arbitration.


Monday, October 3, 2022

Dispute Resolution Provisions and Staged Processes – Issues to Consider

When agreeing to the terms of a contract at the outset of a relationship, parties sometimes include explicit contractual provisions setting out steps that must be complied with should a dispute arise.  Parties may choose to adopt a staged approach such as including service of a notice of dispute, an initial meeting of the parties or directors of those entities to engage in negotiations, formal mediation between the parties, and a period that should be allowed before a dispute can be referred to either the court or arbitration.  Contractual provisions of that nature are known as dispute escalation clauses and are commonly seen in long-term agreements such as construction contracts.  A failure by one party to comply with the exact process prescribed may give rise to arguments that the court or tribunal lacks jurisdiction to hear the dispute.

At the time of drafting such a clause, it is, therefore, important to consider the impact a dispute escalation clause may have later in the relationship should a dispute arise, and whether the contractual provisions accurately reflect the intention of the parties.

When enforcing a dispute escalation clause such factors to consider include whether the clause makes clear what steps must be taken by the parties, and that those steps are mandatory.  When drafting this type of clause, it is therefore crucial to ensure that each step is clearly defined and there is no ambiguity as to the time period for completion of each step.  To avoid potential deadlocks, it is essential to specify clear deadlines if parties are required to complete each step before moving on to the next, e.g., 30 days for a meeting of directors, 30 days for negotiation to take place thereafter, and 60 days for a mediation to take place.  Regarding mediation in Oman-related disputes, it is important as well to consider whether to include any such provisions requiring parties to enter into a mediation, given the absence in Oman of the concept of “without prejudice” negotiations in a mediation. 

Another issue to consider is whether such dispute contains all issues as currently between the parties.  For example, if new issues and disputes arise between the parties during the course of the dispute resolution process, consideration should be given whether the new disputes form part of the current dispute or are separate, and whether a party needs to revert to the beginning of the dispute resolution process in order to comply with the dispute escalation provisions as agreed between the parties. 

Failure to comply with the requirements

So, what is the effect of failing to meet the established pre-arbitral requirements?  Failure to comply with dispute escalation provisions could result in a party facing a preliminary issue or jurisdiction challenges in an arbitration.  Although a number of International Institutional Arbitration Center Rules (LCIA Rules 2020, DIAC Rules 2022, ICC Rules 2021) give a tribunal the power to rule on its own jurisdiction, a tribunal may nonetheless be reluctant to accept jurisdiction on the basis that the pre-arbitral stages in a dispute resolution procedure have not been complied with. 

The New York Convention is important in the context of enforcement.  Articles II.1 and II.3 provide that where there is an agreement in writing to submit a dispute to arbitration, and unless that agreement is null and void, inoperable or incapable of being performed, the court of a Contracting State shall recognise an arbitration agreement between the parties and, at the request of a party, refer the dispute to arbitration.  Parties should therefore be mindful not to render the agreement “inoperable” on the basis that pre-arbitral stages in a dispute resolution procedure have not been complied with.

In summary, when agreeing to the terms of a contract at the outset of a relationship, parties should be mindful of the requirements and dispute escalation provisions as agreed in a dispute resolution clause in a contract.  If a dispute arises between the parties, a party should also be mindful of accurately and fully complying with the escalation provisions as set out in the dispute resolution clause so as to avoid any potential issues and challenges to jurisdiction arising in any subsequent arbitration.