Oman Office Update

Curtis is pleased to announce a new arrangement with expanding Omani litigation firm Mehdi Al Lawati Law Office (MALO). Effective from 2 June 2016, the new association is exclusive to Curtis.

The lawyers at Curtis and managing partner of MALO, Mehdi Al Lawati, know each other well, having already worked closely for over a decade. Experienced lawyer Mehdi Al Lawati has excellent relationships with the firm's clients in Muscat and is an integral part of Curtis' litigation and arbitration offering to clients.

Curtis' disputes capability will be further enhanced by the arrival at MALO of seasoned litigation lawyer Jamal Al Amri, who is licenced in the Primary and Appeal Courts in Oman.

News of Curtis' enhanced local litigation capability comes on the heels of the promotion of partner Simon Ward to Head of Disputes in the firm's Muscat office.

Bruce B. Palmer, Curtis' managing partner in Oman, commented "Running a market-leading disputes practice means constantly developing and growing the offering to clients. We are very happy with the arrangement and with Simon's promotion and look forward to Curtis' continuing excellence in the disputes field."

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The Complexity of Jurisdiction

The below article was featured in

http://www.oeronline.com/

An issue which is often overlooked when drafting a contract is the clause about jurisdiction.

“Jurisdiction” refers to the entity which will hear any dispute between the two parties. Dispute resolution is normally performed by the courts or via an arbitration panel. However, it is not uncommon to read legally inaccurate contractual provisions, which state something such as: “The Oman Courts will settle any dispute via arbitration.” Sentences such as these can lead to confusion as regards what the parties’ intention actually was; one party will argue that it is clear that the Oman Courts have jurisdiction to hear the dispute, whereas the other party might argue that the Oman Courts cannot hear the dispute, as the Oman Courts are only empowered by the clause to decide who will act as arbitrator. The confusion arises because resolution via the courts is something different to resolution via arbitration.

Strictly speaking, when the parties agree in a contract that the Courts of a certain country will have jurisdiction, the ensuing case is known as “litigation” and the ultimate decision by the judges is known as the Court’s “judgment”.

In contrast, when the parties agree in a contract that the dispute will be settled by arbitration, the ensuing proceedings are known as “arbitral proceedings”, and the ultimate decision of the arbitrator(s) is known as the “arbitral award”.

It is vital, before entering into a contract, to think very carefully about the entity which would have jurisdiction to hear any later dispute. Let us say that an Omani entity is considering entering into a contractual relationship with an English company. The Omani company may want the jurisdiction to be “Omani Courts”, on the basis that the procedures, etc of the courts here are well-known and familiar to that entity. However, what happens if the two entities later have a dispute which is settled by a final, non-appealable Omani court judgment? The difficulty may only be faced by the Omani entity at that juncture, because obtaining a court judgment is not the same as actually receiving the monetary damages/compensation in your company’s bank account.

The truth is that one has to think, before even entering a contract, as to what might happen if you have a dispute at a later date with your contractual counter-party. Let us say, in the example above, that the English company simply decides not to abide by the final Omani court judgment and, frankly, tries to disregard and avoid it. Let us also suppose that the English company has no assets in Oman and no presence in Oman.

The Omani company has a paper final Omani Court judgment in its favour, but how will it enforce that judgment (ie get the money which the English company has been ordered to pay)? The fact of the matter is that the Omani company may then have to start fresh court proceedings in England, where the Omani court judgment may only have evidential, rather than binding, weight. This could lead to extra cost and years of dispute, at the end of which the Omani company may not get what was decreed by the Omani Courts.

But what would have happened if the contract in question stated that any dispute between the Omani company and the English entity would be settled by arbitration in Muscat? The answer is that the Omani arbitral award would be automatically enforceable in England against the English entity. The reason for this is because both Oman and England have signed the New York Convention on the recognition of foreign arbitral awards. In the above specific circumstances, an Omani arbitral award would have much greater value to the Omani entity as compared with an Omani court judgment.

To conclude, legal advice is always recommended as regards the drafting of the jurisdiction clause. The decisions made pre-contract in this respect could be crucial to your business in a few years’ time.

-James Harbridge, Partner (Oman)

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Raising Counter-Claims in Construction Disputes

With the high level of construction activity taking place in Oman, it is unsurprising that construction disputes sometimes arise.  Because of the size, complexity, and large amounts of money often at stake, many construction disputes require the meticulous attention of legal advisors.

One key aspect of construction disputes that is often overlooked is the potential for a party to raise counter-claims against the initiating party.  For instance, if a general contractor terminates a subcontractor, the subcontractor may bring certain legal claims against the general contractor, such as for costs incurred or work forgone.  However, if the subcontractor brings such a claim, the general contractor itself may have a wide range of counter-claims that it can raise against the subcontractor in a judicial forum, such as for costs incurred as a result of shoddy work or regulatory violations.

Counterclaims may be raised in many types of disputes, but when it comes to construction disputes they often must be raised in accordance with a unique set of procedures.

As readers familiar with the construction sector may know, many construction contracts – for example, the oft-used Oman Standard Conditions of July 1981 (Third Edition) - contain a clause which states that any dispute will be settled by arbitration.  This arbitration clause usually states that, before any arbitration can take place, it is a mandatory requirement that “any dispute or difference of any kind whatsoever” must be referred to the project’s engineer for a decision.  In many Omani construction contracts, the arbitration clause further states that the engineer must give his written decision “within a period of ninety days after being requested by either party to do so….”  It is only after compliance with this step involving the engineer that a party can commence an actual arbitration proceeding.

The type of arbitration clause described above is simple and non-controversial from a claimant's perspective.  Clearly, the claimant should request a decision from the engineer as regards all the claims which the claimant wants to make against the counter-party.

However, the counter-party may not realize that it too should request a decision from the engineer as regards all the counter-claims it would wish to make against the claimant.  Failing to do this could give rise to difficulties for the counter-party when it responds to the claimant's statement of claim during the arbitration proceedings.  In its reply, the counter-party may wish to raise counter-claims.  However, when the counter-party does so, the claimant then may retaliate by arguing that the counter-party has fallen foul of the procedural requirement in the contract’s arbitration clause for obtaining a written decision from the project engineer in relation to any dispute or difference.  The claimant may assert that the arbitral panel has no capacity to hear the counter-claims because the engineer first must make a written decision on those counter-claims before they can form part of the subject matter of the arbitration proceedings.

Accordingly, we strongly advise our clients, who may wish to assert counter-claims in the arbitration, to  seek first an engineer's decision as regards all of those counter-claims.  In this way, we can negate the claimant's ability to argue in the arbitration that the arbitral panel cannot hear, or adjudicate upon, such counter-claims.

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Judge’s Verdict: In Case of a Dispute

This article was written by Curtis partner James Harbridge of the firm’s Muscat office. It originally appeared in the Muscat Daily and is republished here with permission.

When an Omani entity signs a contract with an overseas entity, both sides are looking forward to a mutually beneficial relationship. At the time the contract is signed, neither party can imagine the possibility of being in a dispute in due course.

But the reality is that it is best to be prepared for trouble further down the line. Naturally, Omani companies will want to have their disputes heard locally in Oman’s courts. But is that always the best option?

Certainly, if the contractual courter-party is incorporated in a fellow GCC state, an Omani final court judgment is automatically enforceable against the counter-party by the courts. In such circumstances, the Omani entity may have a large monetary judgment in its favour, but how can it actually get the money if the English defendant refuses to pay up in accordance with the Omani courts’ final decision? The problem arises because Omani court judgments are not automatically enforceable in England.

First, the lawyer for the Omani company will apply to the Primary Court’s enforcement department if he or she knows that the defendant has assets in Oman or is owed any money by parties located in Oman. The enforcement department can then freeze such assets so that the Omani company can obtain the value of the judgment.

But often an overseas company will have no assets in Oman. Accordingly, the Omani company may have to file a fresh court case in England, where the final Omani court judgment may only have evidential value. In other words, the scenario can become a protracted and uncertain one.

To avoid complex, time-consuming and costly situations like this, the Omani party may, before signing the contract, look ahead and seek legal advice as to how best to ensure that there will be no enforcement issues.

One solution, in some circumstances, is for the contract to state that any dispute will be settled by the arbitration taking place in, say, Muscat. Both England and Oman are signatories to the New York Convention on arbitral awards, meaning that an arbitral award rendered in Oman should be automatically enforceable in England.

Before singing a contract, it always pays to think carefully about whether it should be governed by Omani law or a foreign law. Equally, the question of courts versus arbitration is a vital factor, as no one wants to get a court judgment which cannot be enforced. A short, pre-contract meeting with a lawyer can make all the difference as to whether you obtain an enforceable or non-enforceable decision on your dispute.

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Concession Agreements - Legal Issues

Concession agreements are commonly used to implement public-private partnership projects in the infrastructure sector and are commonly used in Oman. For example, concession agreements are often used for the following types of projects:

• airports and sea ports;
• toll roads, highways and bridges;
• railroads;
• power and water production projects; and
• waste water and sewage projects.

Concession agreements provide a mechanism for making public infrastructure projects more competitive and effective without privatizing the projects. In contrast to a management agreement, under which the government pays the operator a fixed fee to operate the project, a concession agreement allows the operator to keep the profits it generates by building and managing the project, in exchange for paying concession fees to the government. This compensation structure incentivizes the concession holder to develop, operate and maintain the project efficiently.

This article provides an overview of some of the key legal issues relating to concession agreements.

Grant of Rights
In the concession agreement, the government transfers to the private concession holder certain rights relating to the project for a defined period of time, for example the right to operate an airport for a period of thirty years. The government, however, will retain ownership of the project. Customarily, governmental authorities will provide administrative support to the concession holder, for example in helping to file applications and secure required licenses. The right to use the land on which the project is located is generally provided to the concession holder via a separate arrangement, such as a lease or a license. In Oman, the concession holder would be given a usufruct for fifty years which is renewable for a like period.

Financing and Duration
Since the typical project developed using a concession agreement requires a high level of investment, financing the project is an important issue. A transaction structure that is clear and takes into account potential lenders’ interests will help promote the availability of the necessary financing for the project. For example, the concession agreement should allow for the assignment of the concession agreement as security under financing arrangements.

The term of the concession is also very important from a financing perspective, as the concession holder must be able to operate the project long enough to recover the funds invested in the project. For this reason, concession agreements for major infrastructure projects usually last for a term of at least fifteen years or more.

Finally, it is important for the concession holder to work with the government to provide financial backing for the project. Governments often will enter into financial support agreements directly with the lenders.

Profits and Development
Under concession agreements, the concession holder is allowed to keep the profits it generates from the use and operation of the concession project. In the case of an airport, for example, such profits include passenger fees, landing fees, security fees and various other fees. In addition to operating the concession project, the concession holder usually also is required to maintain and further develop the project. The concession holder will typically subcontract some or all of its design and construction responsibilities to third parties under separate engineering, procurement and construction agreements.

Concession Fees
As consideration for the right to retain the profits it generates from the operation of the project, the concession holder pays a concession fee to the government. Concession fee arrangements usually take into account the need for the concession holder’s profits to be guaranteed in some form by the government, as the concession holder will require a reliable future income stream in order to undertake the long-term operational and financial risks associated with concession projects. The concession agreement should set forth in detail the concession fees to be paid by the concession holder to the government.

Force Majeure
Concession agreements should always include force majeure provisions, since concession projects are often vulnerable to events such as earthquakes, floods or terrorist attacks. The agreement should provide detail on how to handle force majeure events, including a possible early termination following such an event.

Exclusivity and Competition
The concession holder also should be sure the concession agreement includes appropriate exclusivity or non-competition clauses to protect its investment. For example, a concession holder operating a civil airport typically would be interested in ensuring that neither the government nor any other party operates another civil airport within a clearly defined radius. Otherwise, the concession holder would be in danger of suffering a loss of profit and a reduction of the value of its investment.

Quality Control and Standards
The concession holder and the government will agree on quality standards applicable to the concession project as well as the corresponding monitoring and control mechanisms, and they will jointly develop an appropriate action plan to be followed in case of non-conformities or quality complaints.

Insurance
Concession agreements often address liabilities for environmental damages (particularly when the concession project is a major infrastructure project) and insurance. Insurance usually is obtained and maintained by the concession holder on his own account. The concession agreement should specify any uninsurable risks separately.

Arbitration
Finally, the concession agreement should include arbitration provisions. The types of major infrastructure projects usually covered in concession agreements are complex matters involving many expert parties and a large amount of interdisciplinary work. Consequently, the disputes that arise under concession agreements are often complex and involve substantial amounts of money.

For these reasons, the parties to the concession agreements usually provide for arbitration so that disputes will be decided by arbitrators experienced in the relevant technical matters, rather than by the courts of a particular country. The concession should specify the jurisdiction and the rules of arbitration to be applied. Oman is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which means that Omani courts would decline jurisdiction over a concession agreement that provides for dispute resolution through arbitration.

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Enforcement of Court Judgments and Arbitral Awards

There is often a lot of confusion about the effects of Oman Court judgments and Oman arbitral awards rendered in Oman. This post should provide some clarity.

First, there is a distinction between court judgments and arbitral awards.

A final, non-appealable Oman Court judgment should be automatically enforced in any of the other GCC states, by virtue of the 1996 Treaty for the Enforcement of Judgments, Judicial Delegation, and Courts Summons between the Arab Gulf Countries Cooperative Council (AGCC).

Outside the GCC, it is unlikely that a final Omani court judgment would be automatically enforceable. Almost certainly, the case would have to be heard again by the courts of that country.

Second, there are two relevant types of arbitral awards in Oman. The first type is an arbitral award rendered in Oman. This award should be automatically enforced in any country which, like Oman, has signed the 1958 New York Convention on the Enforcement of Foreign Arbitral Awards (the “NY Convention”). Under the requirements of the NY Convention, any country that is a member of the convention is required to give effect to private agreements to arbitrate disputes. In addition, member countries are required to recognize and enforce arbitration awards made in another contracting country. Oman signed the NY Convention in 1999 and currently there are 144 member countries worldwide.

A second type of arbitral award involves those awards rendered in a fellow member state of the NY Convention. If the respondent to the claim fails to pay the award, the claimant may seek to enforce the award in an Omani court.

This particular scenario has not yet been tested in Omani courts, but the terms of the NY Convention would require the Omani court to enforce the arbitral award, just as the courts of all signatories to the NY Convention.

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Clause 67 Still Causing Issues in Engineering Sector

It is over 28 years since the Standard Documents for Building and Civil Engineering Works (Third Edition) were introduced - and yet, after all these years, they still create legal issues which necessitate analysis and discussion. For parties who have differences of opinion in respect of a contract governed by the Third Edition, it is inevitably clause 67 which is scrutinized. Clause 67 states that any issue shall be referred to the Engineer who must give a written decision to the Employer and Contractor within 90 days of being requested to do so by either party. The Engineer's written decision is final if the aggrieved party fails, within 90 days from receipt of the Engineer's decision, to state in writing (to the Engineer and the other party) that it requires arbitration. Moreover, if the Engineer fails to render his written decision within 90 days of being requested to do so, the aggrieved party must write to the Engineer and the other party in the 90 days following the expiry of the first 90-day period, stating that arbitration is required. The above sounds straightforward but - in reality - things move less smoothly. Before writing to the Engineer for a decision, the aggrieved party should draft in detail all the arguments for its position, and the request should be very precise and state exactly that which is sought from the Engineer. A failure in this regard would make it all too easy for an Engineer to make a decision refusing the request, especially as clause 67 does not require the Engineer to give reasons for his decision. It should also be noted that clause 67 does not give room for maneuver, or for friendly talks between the parties. Basically, once you request an Engineer's decision, you are under the auspices of the procedural machinery set out in clause 67. You really have no option but to adhere to that contractual machinery. Having said that, there is nothing to stop an aggrieved party from trying to find an amicable settlement after having rendered a notice requiring arbitration. Clause 67 does not specify any time-frames beyond the time when the aggrieved party renders its written notice requiring arbitration, although of course the aggrieved party cannot delay indefinitely. This scenario inevitably gives a window of opportunity for the parties to negotiate after the arbitral notice has come into existence. In essence, an aggrieved party invoking clause 67 should remember the following:

a) do not violate any of the time periods stated in clause 67, b) make sure that the requests to the Engineer give all the detailed reasoning and documents underpinning the request, c) the requests themselves must be precise and very well-drafted, and d) the time to hold friendly talks is only after you have rendered an arbitral notice.

In all of the above, lawyers can give cost-effective advice as the chances of avoiding a full-blown arbitration are much higher if legal input is obtained (behind the scenes, without the other party's knowledge) right from the start of the clause 67 process. The friendly talks after the arbitration notice of course also can take place without involvement of lawyers.

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