Mechanic’s Lien

Conceptually, a mechanic's lien is a security interest granted in a property by the owner of the property to the persons who have supplied labour, materials or services for the improvement or development of the underlying property. Based on the nature of the service supplied, the lien is variously characterised as a construction lien, design professional’s lien or supplier’s lien.

In the jurisdictions where a mechanic's lien is legally recognised, it is a legislative device to protect contractors, subcontractors, architects, civil engineers, labourers, carpenters, electricians, plumbers and any others contributing to the improvement of a property from non-payment for their work as a lien on the title to property is created automatically in their favour by the operation of law.

The statutory creation of a lien clearly offers a more effective remedy for contractors and suppliers than a mere right to sue after the work is completed, especially in the construction industry where the economics of the business could be heavily loaded against them.

A mechanic’s lien also would give the subcontractors and suppliers a direct right to claim against the owner of the property. Typically, the owner of a property contracts only with the prime contractor who, in turn, engages the subcontractors and the suppliers pursuant to various subcontract agreements. In the absence of a statutory lien, the subcontractors and the suppliers would essentially have a contractual right under the relevant subcontract agreement that would be enforceable only against the prime contractor.

Further, a pari passu statutory lien would remove the unequal competition among the contractors and suppliers of materials and services in the event that a construction project fails. As all claimants would have an equal right to payment, the aggrieved parties will not have to race each other to file a payment claim in order to claim priority for their payment.

In countries where a mechanic's lien exists, the procedure might simply be to file a claim in the competent court within a stipulated time from the triggering event. Additionally, the lien holder may have to comply with certain legal prerequisites for maintaining and enforcing the lien such as serving a notice of the lien on the owner.

Considering the recent upsurge in construction activity in Oman, the introduction of appropriate legislation for the statutory creation of a mechanic’s lien would go a long way to avoid unnecessary and often onerous construction litigation.

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The Basic Law

On 20 October 2011, His Majesty Sultan Qaboos issued Royal Decree 99/2011 introducing historical amendments to the Basic Law of the State. These amendments, which are seen as a significant milestone in the country’s legal and political development, include amending the succession process and expanding the role and duties of the Council of Oman.

Background to the Basic Law

The Basic Law is Oman’s first formal constitution which was introduced by His Majesty Sultan Qaboos in November 1996 to mark a new phase in the development of Oman’s system of government and to strengthen the State’s legal foundations.

The Basic Law consists of 81 Articles establishing the legal and political framework within which the State operates. It defines the roles and responsibilities of the State and provides for the political, economic and social principles guiding its policies. It also guarantees fundamental rights and freedoms, protects property rights and upholds the independence of the judiciary.

Among the main topics covered under the Basic Law are succession and the Council of Oman, which were the focus of the recent amendments.

Succession

Prior to the amendment of the Basic Law, the Ruling Family Council (RFC) was responsible for selecting a successor to the throne, within three days of the position of Sultan becoming vacant.

If the RFC does not agree upon a successor within three days, the Defence Council, composed of the highest ranking military officers, shall take over the process and confirm the appointment of the person designated by His Majesty the Sultan in his letter to the RFC.

According to Royal Decree 105/96, the Defence Council is headed by the Sultan, and composed of the Minister of Royal Office, the General Inspector of Police and Customs, the Head of Internal Security Services, the Commander of the Royal Navy, the Commander of the Royal Air Force, the Commander of the Royal Guards, the Commander of the Royal Army and the Commander of the Sultan’s Armed Forces. The composition of the RFC, on the other hand, is not known publicly.

This process was amended by Royal Decree 99/2011 to include the presidents of the State Council, the Shura Council, the Supreme Court and two of its oldest deputies, together with the Defence Council in taking over the process and appointing the person nominated by His Majesty the Sultan in his letter.

By including the presidents of the State Council and the Shura Council, this amendment allows some degree of public participation in the succession process, making it more transparent and enhancing its legitimacy. In addition, the presence of the president of the Supreme Court and two of its oldest deputies brings the process under judicial supervision, ensuring that due process is followed and preventing any potential manipulation or undue influence by one party.

The Council of Oman

The most significant changes introduced by Royal Decree 99/2011 are in relation to the Council of Oman.

Prior to the amendments, the Basic Law had only one Article on the Council of Oman establishing its two chambers: the appointed State Council and the publicly elected Shura Council. Power was given to the legislature to specify the powers of each of the Councils, the length of their terms, the frequency of their sessions, the number of members of each Council, the method of their selection and appointment, the reasons for their dismissal, and other regulatory provisions.

The recent amendments, however, introduced 45 new Articles outlining in detail the composition, membership, and responsibilities of the Council of Oman.

The powers of the Shura Council were expanded to include legislative powers and the authority to scrutinise the government’s performance. Under the new provisions, any draft law prepared by the Government must be referred to both the Shura and the State Councils for their approval or amendment. It will then be submitted directly to the Sultan to be endorsed and promulgated. The Council also may propose draft laws and refer them to the Government for consideration.

Remarkably, the Shura Council may, at the request of at least 15 of its members, question any of the ‘public service’ ministers in relation to exceeding their powers and violating the law, and refer its conclusions to the Sultan. The ‘public service’ ministers also will have to submit an annual report to the Shura Council on the performance of their ministries.

Furthermore, the recent amendments give the Council of Oman the power to review and provide its recommendations in relation to development plans, annual budget and any proposal to accede to or conclude an economic or social agreement.

This clearly means that the status and significance of the Council of Oman has changed dramatically from being a mere consultative body to become a legislative power.

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Career Corner: How to Become an Omani Lawyer

With the Sultanate’s rapid economic development proceeding apace, Oman provides an abundance of opportunities for law firms and lawyers. Recognizing this trend, the Omani government has taken steps to increase the ability of young Omanis to participate in the legal field, by providing scholarships for the study of law domestically and abroad, and by tilting the legal system in ways to raise Omani participation in the legal field. For example, the Ministry of Justice took the decision in 2010 to reserve to Omanis the exclusive capacity to appear and present cases before the Primary Court.

However, in order to ensure that new Omani lawyers will have the requisite experience and expertise to carry out their duties, the Omani government has put in place certain restrictions on entry into the legal profession and qualification as an Omani lawyer. This article provides an overview of the process for becoming an Omani lawyer.


The registration process

The starting point for an Omani aspiring to become a lawyer is to obtain a university degree. Once they have their degree in hand, Omanis wishing to qualify as a lawyer in the Sultanate must go through several steps, the first of which is registration as a trainee with the Ministry of Justice. The applicant will need to present evidence that he or she meets the necessary criteria for registration, such as evidence of a University degree in law or a related discipline, as well as evidence of good conduct
from the Royal Omani Police.

Becoming a trainee

Once registered, the next step is to work in a local law firm as a trainee. A university graduate with an undergraduate degree is required to work a minimum of two years as a trainee, while those who hold a masters degree must work at least one year as a trainee. During this training period, the trainee may not open a law firm in his own name.

It is important to note that experience in an international law firm will not suffice to fulfill the Omani government’s training period requirement. As a practical matter, Omanis who work in international firms do essentially the same type of work, and often get exposed to a much broader range of experiences, than their counterparts at local firms. However, the current position of the Omani government is that only work performed at a local firm counts toward fulfilling the requisite two years of training to become an Omani-qualified lawyer.

Professional obligations and restrictions for qualified Omani lawyers

After completing the training period and qualifying as an Omani lawyer, every Omani lawyer must continue to heed the rules set out in the Advocates Law, promulgated by Royal Decree 108/96 (as amended). In particular, Article 6 of the Advocates Law requires that an Omani lawyer may not work as a minister or other government official, and may not start a business of his own or work for a company, bank or any other person or entity while working in the legal profession (subject to certain exceptions, for example that lawyers may serve in the Majlis al Shura or on the boards of directors of joint stock companies).

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Focus on Litigation: Settlements

In the Sultanate of Oman, as in other jurisdictions, not every litigation matter proceeds all the way to a decision by the Court. What happens if the parties to an Omani court case reach a settlement in the middle of the litigation process?

Sadly, this rarely happens in Oman, primarily because the Omani system has no concept of “without prejudice” negotiations. Furthermore, the fact that the losing party does not have to pay the winner’s legal fees is another reason why Omani court cases often go the full distance to a Supreme Court judgment.

However, settlements can and do occur. The settlement is normally recorded in full detail in a settlement agreement which is in Arabic and signed by the parties. The respective lawyers of the litigant parties normally present the settlement agreement to the Court, and ask the latter to adopt the agreement as the terms of a “settlement judgment” between the parties. This means that the Court gives a judgment, stating that the parties have settled the dispute on the terms stated in the settlement agreement.

In this way, the terms of the settlement agreement become part of the actual text of the Court judgment. The result is that, if one party then breaches the settlement agreement, the innocent party can apply to the Enforcement Department to enforce the terms of the settlement agreement.

It also should be noted that the above mechanism requires that the advocates for both sides be in possession of powers of attorney from their respective clients which empower them to settle the dispute. This is necessary in order to make the request to the Court to adopt the agreement as the terms of a “settlement judgment.”

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Government Directors in a Joint Stock Company

Following the recent changes to the composition of the cabinet of Ministers in the Sultanate of Oman, a number of joint stock companies which are partially or fully owned by the government have been essentially paralysed, from the perspective of corporate action, by the lack of a functioning board; the existing government directors were removed without any new directors having been appointed.

It goes without saying that the board of directors plays a fundamental role in corporate governance. Where the joint stock company is partially or fully owned by the government, the government appoints directors to represent the government’s interests, objectives and goals on the board. Such joint stock companies specify in their articles of association the number of directors who represent the interests of the Sultanate of Oman or any of its administrative units that own shares in the company.

The procedure for appointing a government director is both simple and straightforward. Article 132 of the Commercial Companies Law requires that the appointment of government directors is a decision taken by the Council of Ministers pursuant to the nomination of the Ministry of Finance and the relevant minister.

Furthermore, the law specifies that government directors cannot be removed from their offices except by approval of the Council of Ministers. This clearly indicates that the government is the only party which is able to appoint or remove its directors, without any constraints. The appointment and removal of directors is effective once the ministerial decision from the minister supervising the Ministry of Finance is issued. Upon issuance of this decision, the company then can appoint or remove the director by submitting the ministerial decision to the commercial registry in the Ministry of Commerce and Industry along with the revised list of authorised signatories and other relevant documents.

As a final point, we note that the government directors’ powers are similar to the powers of any other directors. However, the law points out that acts performed by government directors shall not subject the government directors, the Sultanate of Oman or the public entity to liability under Omani company law.

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Oman’s Anti Money Laundering and Combating Terrorist Financing Law

As a bastion of stability and security in a sometimes volatile region, and with a robust regulatory and business environment, the Sultanate of Oman tends not to experience major problems with respect to money laundering or terrorist financing. However, as noted in a report by the U.S. Department of State, Oman’s long, rugged coastline remains susceptible to regional criminal activity including terrorism, maritime piracy, smuggling and the traffic and sale of illegal drugs.

Oman’s Anti Money Laundering and Combating Terrorist Financing Law (the “AML-CTFL”), which was promulgated as Royal Decree No. 79/2010, has established a framework for classifying, investigating and punishing money laundering and terrorist financing offences.

What is ‘money laundering’?

Under the AML-CTFL, a money laundering offence will be deemed to have taken place when a person handles funds knowing that such funds are derived, directly or indirectly, from the proceeds of a crime or from participation in criminal activity.

Acts of money laundering could include the conversion, transfer or deposit of such proceeds, with the intent to conceal or disguise the origin of the proceeds, or the possession or use of such proceeds.


What are ‘proceeds of crime’?

For the purposes of the AML-CTFL, proceeds can encompass a wide variety of assets, including currencies, commercial paper, securities and any property or tangible or intangible asset that has financial value.

When we talk about the ‘proceeds of crime’ in connection with money laundering, we are referring to proceeds which were derived – even indirectly – from crimes, including terrorism, illegal drugs, piracy, bribery, corruption, kidnapping, human trafficking and embezzlement.

Terrorist financing

The AML-CTFL singles out terrorist financing, which is deemed to take place when a person raises funds or provides funds, directly or indirectly, knowing that such funds will be used, wholly or partly, to finance terrorist activity or a terrorist organization. This financing can take place in Oman or abroad.

With both money laundering and terrorist financing, it is interesting to note that the links to the activity do not need to be direct in order for the offence to be convictable; however, the person committing the offence must have knowledge of the underlying illegal action.

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Sharia Law in Oman

Companies that are new to Oman often ask us about Sharia law (Islamic religious law) and its influences on Omani law. This article provides a brief introduction to Sharia law and highlights some key points that companies doing business in the Sultanate should bear in mind.

What is Sharia law?

Sharia law is the divine law of Islam. The Arabic word sharia literally means ‘way’ or ‘path’.

Traditionally, there are two primary sources of Sharia law. The first is the Qur'an, the holy book of the Islamic religion. The second is the Sunnah, which records the sayings and deeds of Islam’s founder, the Prophet Mohammed.

In addition to these two primary sources, Islamic jurisprudence (figh) recognises a number of secondary sources, which may include consensus analogical deduction and reasoning by religious scholars. As there are a number of schools of Islamic jurisprudence, the selection, weight and prioritisation of secondary sources vary across Islamic religious communities.

How does Sharia law influence Omani law?

In principle, Sharia law is the bedrock foundation for all Omani law. The Basic Law of the Sultanate of Oman (Sultani Decree No. 101/1996), which serves as a form of national constitution, sets forth the fundamental principles which guide the Sultanate’s laws and policies. In Article 2, the Basic Law states that “The religion of the State is Islam and the Islamic Sharia is the basis of legislation”.

At a practical level, however, Sharia law in Oman is manifested principally in family law matters such as marriage, divorce and inheritance (Miraath). In family law, Sharia law actively governs and all matters are carried out strictly in accordance with Sharia principles.

When it comes to the Omani law governing commercial matters, however, Sharia law typically supplies guiding background principles rather than specific rules.

Indeed, Article 5 of the Law of Commerce (Sultani Decree No. 55/1990) provides that the following hierarchy – placing Oman’s explicit commercial law provisions at the top – shall apply to commercial transactions:

“If there is no legal provision then custom shall have effect and special or local custom shall take precedence over general custom. If there is no custom then the provisions of the noble Islamic Shari’a shall apply, and after that the principles of equity.”

A number of Omani Supreme Court decisions, the latest of which was issued in 2008, have confirmed that the role Sharia law plays in commercial transactions is different to that which it plays in other areas such as family law. In commercial matters, Sharia law will typically not come into play, except perhaps to fill in gaps among the explicit provisions of Oman’s commercial laws.

What does Sharia law mean for businesses in Oman?

The main takeaway for businesses is that Oman takes a strictly Sharia-based approach to family law matters, but takes a more secular and capitalistic approach to most commercial law matters. This means that Omani companies are usually free to follow standard international commercial practices without restriction from Sharia law. For example, while other countries may require the use of traditional Islamic financing methods such as Sukuk, Murabaha and Mudharaba, Oman typically does not require this.

The key caveat, however, is that businesses should be mindful of areas where family law can intersect with commercial law. The prime example of this is that inheritance issues – a family law matter adjudicated by Sharia law – can affect a company’s succession planning or shareholder composition. Navigating these intricacies is yet another way in which legal professionals can assist companies in crafting their corporate structures.

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The Basic Law of Oman: Principles for Business

The Basic Law of the Sultanate of Oman, promulgated as Royal Decree 101 of 1996, holds a unique place in Oman’s pantheon of laws.

All other royal decrees are statutes that govern a particular area of law, setting out specific rules and providing guidance for governmental authorities to enact further regulations.

The Basic Law is different. It forms the bedrock of all Omani law. As its name suggests, the Basic Law is a foundational document that is very broad in scope. Although the Basic Law does contain specific directives, such as on succession procedures for the position of Sultan, it mainly addresses the overall structure of Omani government, including the legislative and judicial framework. The Basic Law enshrines the fundamental rights of the citizens and the guiding principles of the State.

Several of these principles, in particular, can be illuminating to companies that seek to do business in Oman:

“The basis of the national economy is justice and the principles of a free economy … constructive, fruitful co-operation between public and private activity … to achieve economic and social development that will lead to increased production and a higher standard of living for citizens ….”

The above-quoted text, from the first of the Economic Principles listed in Article 11 of the Basic Law, is perhaps the most important to companies, because it embodies the Sultanate’s economic approach. The Omani government views foreign investment and cooperation between the public and private sectors as key to increasing the nation’s workforce skills, economic development and living standards. As we have seen in our own work, most Omani businessmen and government officials are very welcoming, professional and helpful because they truly want Oman to be ‘Open for Business’.

“Freedom of economic activity is guaranteed within the limits of the Law and the public interest, in a manner that will ensure the well-being of the national economy.”

This principle sums up another key feature of the Sultanate’s approach to business: Oman has not let its zeal for further economic development cause it to abandon prudent and upstanding business practices. We have often heard Omani businessmen and government officials make clear that they want long-term, responsible development, not the ‘fast buck’ or ‘hit-and-run profits’. Oman is most interested in long-term, conservative and sustainable business.

“The State encourages saving and oversees the regulation of credit.”

This principle, in some ways, may be the best sign of all for companies seeking to do business in Oman. It reflects Oman’s culture of financial conservatism, which has helped the Sultanate avoid the excesses that have put some of its neighbors under severe stress. Omanis plan carefully not just to be open for business today, but for generations to come.

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