For telecommunications companies that have grappled with uncertainty over the handling of disputes between licensees, a recent Ministerial Decision provides some welcome clarity. Ministerial Decision No. 44/2010, issued by the Omani Telecommunications Regulatory Authority (“TRA”), has set out clearly the procedures for the resolution of such disputes, as well as the process whereby Licensees can appeal TRA decisions. Preliminary Settlement Attempt Required Prior to filing any case, a petitioning licensee must serve a notice on the other licensee. Within 14 days of this notice, senior executives of the respective licensees are required to meet and attempt to reach a settlement. If a settlement cannot be agreed, the matter must be escalated to the respective chairmen of the two licensees within 20 days of the original notice, and the two chairmen must attempt to reach a settlement within 30 days of the original notice (although the chairmen may agree to extend the settlement period). Minutes must be recorded for all meetings, but non-compliance by one licensee will not delay any of the procedures. TRA Disputes Hearings: Key Features If the settlement attempts described above have taken place and have failed to resolve the dispute, the petitioning licensee may file a claim with the TRA. Within 15 days of this filing, the TRA will perform preliminary scrutiny of the case and decide whether, prima facie, the dispute falls within the TRA's purview. If the TRA deems that it does, it will constitute a panel to hear the dispute. Perhaps the most important thing for companies to understand from the outset about the TRA dispute hearing process is that Ministerial Decision No. 44/2010 grants these panels very extensive powers, such as the discretion to: (i) introduce additional parties to the dispute; (ii) appoint an expert to provide an opinion; (iii) require any party to take measures or refrain from any action until the end of the dispute; or (iv) issue orders for interim or precautionary measures. Another noteworthy feature of TRA dispute resolution hearings is that the proceedings are required to take place in Arabic, although the chairman of the panel may at his discretion approve the use of a foreign language for all or part of the proceedings. Regardless of the languages used in the proceedings, the final decision will be rendered in Arabic (although if some of the proceedings have taken place in another language, there may be limited use of that foreign language in the decision). Panel Proceedings Once the TRA has constituted a panel to hear the dispute, the chairman of the panel will provide the defendant licensee with a copy of the petitioner licensee’s statement of claim, together with any decision the chairman has made concerning the language of the proceedings. The chairman shall grant the defendant licensee a period of at least 15 days to file a reply, and once the chairman receives this reply he shall provide a copy of it to the petitioner licensee. If either party requests a quasi-court hearing based on grounds deemed acceptable by the panel, then the panel must convene such a hearing, and the chairman of the panel will be responsible for the conduct of the hearing. The panel may also convene a quasi-court hearing on its own initiative, if it deems this necessary. When the panel has concluded its deliberations, the parties will be notified that the matter is reserved for a decision, which will be rendered within two weeks of such notice. This notice marks the cut-off point beyond which neither party may submit any further documentation. The panel’s decision will be given in writing and signed by the chairman. Appealing the Panel’s Decision Either party may appeal the panel’s decision by filing an appeal with the TRA within 30 days of being notified of the decision. Although the filing of an appeal does not automatically suspend the enforcement of the decision, enforcement may be suspended if deemed necessary by the TRA. Within 30 days of the appeal being filed, the TRA will issue a judgment to (i) uphold the decision, (ii) amend/revoke the decision or (iii) refer the dispute, or any part of it, back to the original panel, or to another panel, for resolution. Article 35(4) of Ministerial Decision No. 44/2010 states that the ultimate judgment on the appeal will be final and binding. In summary, this new Ministerial Decision promulgated by the TRA provides a helpful measure of clarity for understanding the dispute process for the telecommunications sector, yet it also prescribes a very lengthy and detailed set of rules to which the parties must adhere. We therefore suggest that companies consult legal advisors as early as possible in the process when a dispute arises.
Tuesday, July 13, 2010
Tuesday, June 15, 2010
Focus on Labour Law: Mediation Hearings
In Oman, as in other jurisdictions, labour disputes are a common occurrence. A key, but often overlooked, part of any labour dispute is the mediation process.
Under Omani law, labour disputes are first referred to mediation with a mediator from the Ministry of Manpower. The dispute may proceed only to the court system once the mediator takes the view that irreconcilable differences exist between the employer and the employee.
The mediator’s role is to facilitate discussion and negotiation between the employer and the employee. He or she may encourage the parties to try to resolve their differences and may even express views regarding who is in the right and who is in the wrong. The mediator has no power to force a party to change its position or to bind the parties to a resolution of the dispute. However, it is important to bear in mind that the mediator wields influence by means of its reporting role. At the end of the mediation process, the mediator writes a private report to the Primary Court explaining what the dispute is about and what both parties' respective positions are, and may state who the mediator feels is the culpable party.
Accordingly, any company involved in a labour dispute would be well advised to take the mediation process seriously and to come to the mediation sessions well prepared, even if the company is convinced that mediation will not resolve the dispute. Ideally, both an HR staff member and a lawyer should be present to represent the company at the mediation sessions. Before the first session, the company should collate all paperwork relating to the employee and the dispute so that the company’s HR staff member and the lawyer can carefully analyze these materials, discuss the case in depth, and formulate their strategy for the mediation hearings.
Another reason for companies to approach the mediation process seriously and preparedly is that while the mediation will not necessarily be dispositive of the suit, it may raise information and lines of argument and defense that can carry through to and ultimately affect any subsequent court proceedings.
For example, one difficulty a company may have to contend with is when the employee fails to properly articulate his claim during the mediation process. In this event, the company generally should refrain from offering a detailed defense to the employee’s anticipated claim. Such a course of action may commit the company to a fact pattern or line of defense it may wish to avoid during any subsequent court proceedings. In other words, at the mediation stage, the company generally should respond only to the information presented by the employee and the mediator, and not go into further detail than necessary. The general principle to bear in mind is that a court will look unfavorably upon, and will be much more likely to find against, an employer that has set forth inconsistent information and defense arguments during the court proceedings compared with during the mediation process.
In sum, the mediation process in a labour dispute is an important step that a company must handle attentively and skillfully in order to best protect its interests. Companies involved in a labour dispute would be well advised to consult with a lawyer to help them navigate this process.
Wednesday, May 26, 2010
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.
Wednesday, May 12, 2010
Enhancing Public Private Partnerships in GCC
This article was written by Curtis partner Roger Stark and associate M. Adil Qureshi of the firm's Washington, D.C., office. It originally appeared in the April 2010 issue of Infrastructure Journal and is republished here with permission.
Current market conditions for infrastructure finance present numerous challenges. Government revenues are shrinking and private infrastructure investors are both scarce and risk averse, thereby creating an acute need for alternative sources of capital. Privatisations have become increasingly unpopular and difficult to execute, largely eliminating another source of government liquidity.
Despite declarations by some economists that emerging economies are no longer interdependent with developed ones, the countries of the Gulf Cooperation Council saw a drop of US$44.6 billion in project lending in the first quarter of 2009 as compared to the same period in 2008. Declining oil prices put additional pressure on GCC government budgets, while lenders tightened credit standards, increased spreads and shortened loan tenors. In this harsh environment, well-structured Public Private Partnerships are viable alternatives for implementing major infrastructure projects, and comprehensive legislation to support programmatic deployment of P3s is receiving increased attention.
a. P3s in the GCC
Over the past decade, members of the GCC (which includes Bahrain, Kuwait, Qatar, United Arab Emirates (UAE), Oman, and Saudi Arabia) have been at the forefront of global infrastructure spending as measured by volume of expenditures. A young and rapidly urbanising population combined with historical under-investment in infrastructure has created significant pressure on GCC governments to address pent up infrastructure demand. Governments in the region have responded decisively, undertaking projects valued at over US$2 trillion dollars through January 2010 (as cited in this presentation. However, significant additional infrastructure needs remain unmet.
The P3 model is directly responsive to these needs. When effectively managed, private sector involvement increases the likelihood that infrastructure projects will be completed on time and on budget and introduces efficiencies and innovations in complex projects. Skilful use of the P3 model can improve the quality and availability of public services and, where desirable, take expensive projects off the government's balance sheet. However, the opportunity to use a P3 model for a large volume of projects begs the question of how best to implement P3s quickly, effectively and in furtherance of applicable government policies.
b. Legislative vs. Ad Hoc Approach to P3s
P3s can be implemented using programmatic enabling legislation or ad hoc transactional documents. Programmatic enabling legislation facilitates uniform implementation of government polices, while ad hoc documentation only supplies terms for the specific deal at hand. Although such legislation is not a substitute for transactional documentation, it does provide a baseline of uniform guidelines that support and implement government policies and reduce the time and resources required to negotiate and document each transaction.
By contrast, the absence of effective legislation may result in projects that fail to adhere to governmental objectives or, worse, end in disputes that diminish governmental credibility and exacerbate public scepticism about the transparency of P3s. In the current environment, where competition for capital extends beyond individual projects to entire markets, countries and regions, programmatic legislation is an important tool for managing costs, mitigating risks and securing competitive advantage.
This article focuses on recent P3 developments in GCC countries and the prospects for using legislation to increase the efficiency and effectiveness of P3 transactions. Part II of this article summarises the development of ad hoc P3s in various GCC countries. Part III of this article offers recommendations regarding key elements of a statutory approach to P3s, with an eye to addressing some of the shortcomings present in an ad hoc approach.
II. Ad Hoc P3s in the GCC
In the absence of enabling legislation, key elements of a P3 are memorialised in contracts among the parties. This ad hoc approach forces the parties to cover more ground in each contract, effectively 'starting from scratch' with every new P3 project. Ad hoc P3s also run a greater risk of interpretational ambiguities that may have to be resolved by regulators, arbitrators or courts. As a result, ad hoc projects may be less attractive to private partners than those implemented pursuant to a clearly articulated statutory framework.
A brief survey of P3s in the GCC reveals a region where benefits of P3s are recognised, but most projects are implemented on an ad hoc basis. While governments of the region have recognised the need to promote private sector participation in public services and infrastructure, there remains a considerable gap between rhetoric and results, particularly with regard to formalising a legal framework for P3s.
Of the six GCC nations, Oman, Bahrain and Kuwait have made the greatest strides toward formalising a programmatic legal approach to P3s. Both Oman and Bahrain have implemented P3-frameworks as part of privatisation programs aimed at encouraging private participation in government owned assets. In 2004, Oman promulgated a statute which authorised a broad range of P3 structures and created a high-level Ministerial Committee to oversee a national "privatisation" program that includes the use of P3s.
Bahrain enacted a similar law in 2002, contemplating "privatisations" in the tourism, communications, transportation, power and water, oil and gas, and municipal services sectors, as well as "any other service and production sectors." In 2004, the Bahraini government set out to develop an administrative and legal framework for P3s and has continued to pursue programmatic use of the model.
Kuwait has embraced a similar approach. After an extended period of deliberation, the Financial and Economic Affairs Committee of the National Assembly of Kuwait approved a "privatisation draft law," establishing a framework for private sector investment in power, education and telecommunications projects. This step was preceded by the passage of a Build Operate Transfer Law in 2008 and, more recently, the creation of an entity called the Partnerships Technical Bureau to implement its P3 program.
In the remainder of GCC countries, Qatar, the UAE and Saudi Arabia, the legislative framework for P3s is less developed. For example, Qatar only recently began to privatise its water and power sectors under a P3 format and, despite much discussion about the privatisation of port and municipal services, progress toward a formal P3-enabling framework remains in its early stages.
In the UAE, the governments of Abu Dhabi and Dubai have made sizable investments in power and desalination plants, airports, roads, schools, water facilities and hospitals, displaying a strong commitment to infrastructure development and creating a number of interesting prospects for private sector participation. Abu Dhabi also has implemented ad hoc P3s in the power, water and education sectors (including the Abu Dhabi campus of Zayed University and the Paris-Sorbonne P3 project on Reem Island). However, despite recent calls for further private sector participation, there does not appear to be any P3 legislation on the horizon for the UAE.
A similar situation prevails in Saudi Arabia where there is no formal P3 law and regulation of P3s is typically addressed in deal documentation. While there is no specialised P3 ministry in Saudi Arabia, the government has established a Supreme Economic Council (SEC) to supervise privatisation and monitor implementation of P3s and other structures involving private sector investments. The SEC has approved a nationwide strategy, authorising privatisation of the telecommunications, power, water, industrial parks, postal services, education, and air and rail transportation sectors. Under this mandate, P3s have been implemented in air transportation and desalination.
Still, potential for more projects remains untapped and would likely benefit from programmatic P3 legislation. In summation, the countries of the GCC fall into one of two categories: those that have taken tentative steps toward well-developed P3 programs and those that have taken few if any such steps. Given the potential for increased use of the P3 model, the stage is set for a more comprehensive approach to P3s in the region.
III. Creating an Enabling Legal Framework for P3s
Statutory frameworks for P3s can encompass a wide variety of transactions, assets and public service sectors. For purposes of this article, the discussion below assumes projects with (1) expected useful lives in excess of 40 years, (2) capital costs in excess of US$100 million, and (3) at least partial ownership of the project by the relevant private parties. The assets of the P3s may revert to the sovereign government at the end of an established period, or may be transferred and conveyed to the private party. Thus, P3s may be viewed either as traditional "concession" contracts or as privatisation vehicles.
Effective statutory frameworks identify and implement key governmental objectives (typically focusing on the desire to attract private capital), while allowing flexibility to accommodate varied investor requirements regarding project structures, risk profiles and return of capital. Equally important, effective frameworks establish basic legal and structural paradigms that can be reused (not reinvented) in each successive P3 project. These considerations are especially important with regard to three key elements of the framework: delegation of public duties to private parties, procurement rules and procedures, and dispute resolution.
a. Key Elements of Legislation Authorising P3s
Effective P3 programs hinge on the ability of governmental entities to delegate some of their functions to one or more private parties. Thus, P3 legislation should unambiguously identify the governmental entities authorised to enter into P3s, the types of functions or services that may be delegated to private parties and the types of assets or facilities that may be developed, constructed, owned and operated under a P3 structure. These determinations require careful balancing of government policy objectives, the public interest and the need to incentivise private sector participation.
Legislation authorising government entities to enter into P3s also may specify categories of permissible transactions. For example, some jurisdictions may wish to limit P3 transactions to a build-lease-transfer format, while others may contemplate more long-term (or even more permanent) arrangements for private participation. At a minimum, the P3-enabling legislation should identify the sectors in which P3s are authorised and any limitations on the structure and duration of private sector participation.
Legislation also should designate, or create, a governmental entity to oversee and facilitate P3 development and implementation (P3 Entity). For example, a P3 Entity should be authorised to both receive P3 proposals from constituent government entities (e.g., authorities, municipalities, etc.) and propose P3 projects and issue "requests for proposals" (RFPs) for P3s.
In evaluating proposed projects, the P3 Entity should be required to perform an economic analysis (see "value for money" discussion, infra) and an initial risk/reward assessment of the proposed project. The P3 Entity also should have the authority to enter into P3 contracts (see infra) and ancillary arrangements including contracts to retain professional advisers (e.g., engineers, financial advisers, attorneys) and take other actions necessary or desirable to effectuate the goals of the P3 statute.
Finally, P3 legislation may authorise certain types of government financial support including credit enhancement instruments (e.g., bonds, letters of credit) and, in limited cases, sovereign guarantees. Other types of governmental support may be appropriate depending on the project and the government's objectives. At bottom, however, P3 legislation must answer the central question of whether the delegation of public functions will require the commitment of public credit to or on behalf of private parties and, if so, whether such commitments conflict with constitutional or public policy constraints in the relevant jurisdiction.
b. Procurement Rules and Procedures
P3s are often hindered by a lack of clarity regarding how existing procurement laws should be applied to the project at hand. Ambiguity in this area can lead to inefficiencies, increased costs, delays or even cancellations of projects. Where management of the P3 procurement process is tasked to a P3 Entity, such entity's responsibilities may include setting eligibility criteria and methodology for selecting and evaluating projects, preparing RFPs, and evaluating proposed projects with a view to prioritising those that should proceed and eliminating those that should not.
The P3 unit also should perform economic assessments and feasibility appraisals of potential projects. For example, the Private Finance Initiative implemented in the United Kingdom utilises the concept of "value for money" to determine whether a particular project is suitable for implementation through a P3. To ensure continuity and uniformity, it is advisable that value for money assessments within a particular sector be undertaken by a single governmental entity. In essence, the goal should be to create a degree of sector specialisation among the government officials that will be charged with reviewing, developing and implementing P3s.
Once it is determined that a given transaction is suitable for the P3 structure and a private partner is selected [procurement rules should specify whether private partners will be selected pursuant to an objective scoring system or whether the government will be permitted to exercise a degree of subjective discretion (e.g., by entering into "competitive negotiations" with multiple bidders). The former approach offers the benefits of clear-cut transparency, while the latter offers the potential for achieving better results for the government if pre-established rules and procedures for avoiding ex parte communications are observed.], the transactional details of the P3 will be set out in a P3 contract. The contract, among other things, should address the following matters:
c. Dispute Resolution Mechanisms
Dispute resolution provisions simultaneously present some of the most simple, and the most complex, issues encountered in negotiating public/private transactions. Some issues may be considered simple because the basic principles of transparency, impartiality of decision maker(s) and neutrality of fora are intuitive and widely understood. Nevertheless, different parties often will view these basic principles from vastly different perspectives. Even greater complexity arises where different dispute resolution processes apply depending on the type of transaction, the type of document, or even the particular contractual clause in dispute.
The basic elements of infrastructure projects consist of the operational components (i.e., hard assets) that comprise a project and capital investments necessary to bring them into existence. Generally speaking, debt (and sometimes equity) participants in capital intensive projects will require that investment disputes be litigated in the courts of a jurisdiction with a well-established reputation for predictable and consistent decisions on such matters. For commercial lenders and international financial institutions, New York or London are typically the jurisdictions of choice. This preference is heightened where, as in P3 transactions, the government participant is perceived to enjoy a "home-field" advantage in its own courts. Thus, a P3 program that fails to reasonably accommodate such lender preferences to the extent appropriate is at risk of reducing its pool of potential investors.
By contrast, a somewhat different analysis applies to issues arising in the context of "operational" aspects of a project. Although a detailed discussion of the topic is beyond the scope of this article, it may be said that some operational disputes where relatively small amounts are at issue may be made subject to binding arbitration under the aegis of an internationally recognized institution (e.g., ICSID, ICC, UNCITRAL) using impartial arbitrators in a neutral location.
Such arrangements may be structured consistent with the preferences of international sponsors and investors and should also serve the objectives of achieving an expedited hearing of the disputes by a panel of arbitrators/experts with specialised expertise in the matters at issue (e.g., allegedly defective construction materials). One area of particular concern to private investors is the enforceability of contracts against the government and the finality of judgments handed down by courts or arbitral tribunals outside the host country. Investors will desire certainty on this count, seeking waivers of sovereign immunity and assurances that foreign judgments and arbitral awards rendered in accordance with the P3 contract will not be litigated again in the courts of the host country.
To the extent, consistent with constitutional and public policy constraints, P3 legislation should provide an appropriate degree of certainty by authorising narrowly tailored waivers of sovereign immunity and allowing for the enforcement of foreign decisions against public or semi-public entities in the host country. Given the political sensitivity attached to such considerations, P3 statutes of various countries reflect a variety of approaches to achieving such certainty [For example, Brazil and India were for some time viewed as difficult jurisdictions in which to enforce foreign arbitral awards against public entities. However, in recent years, Brazil has adopted legislation that facilitates the enforcement of arbitral awards subject to the requirements that (a) the arbitration is held in Brazil; (b) the language of the arbitration is Portuguese; and (c) the proceeding is carried out in accordance with Brazilian arbitration law. India is said to be evaluating similar reforms. See Arnold Wald & Jean Kalicki, "The Settlement of Disputes Between the Public Administration and Private Companies by Arbitration under Brazilian Law." Journal of International Arbitration, August 2009.] Nevertheless, P3 legislation should make every effort to conform with best international practices in this area, to the extent consistent with local law and with the objectives of the P3 program.
IV. Conclusion
In light of the mounting population pressures confronting countries of the GCC, P3s have an important role to play in meeting long term public infrastructure needs. The implementation of a comprehensive P3 statute can improve the volume and efficiency of P3 transactions while mitigating the costs assigned to government balance sheets. Effective P3 statutes also will improve the ability of governments to compete for private sector partners and capital. Although natural resource wealth will mitigate the short term need for such capital, the GCC's long term infrastructure needs will require increased utilisation of P3s as a cost-effective vehicle for programmatic infrastructure development.
Tuesday, May 11, 2010
Strata Law & Benefits for Integrated Tourist Complexes
Focus on Real Estate Series
Complex legal issues can arise with respect to integrated real estate developments where parcels of real estate are owned individually while the land and common areas such as lobbies, hallways, stairways, driveways, elevators and recreation areas are jointly owned. Such issues are particularly relevant in respect of Oman’s Integrated Tourist Complexes (ITCs), where there is a legal requirement for integrating commercial, residential and tourist components. In an ITC, residential dwellings, commercial complexes, tourist hotels and common areas likely are to be included within the same complex. This combination can lead to disputes – and uncertainty – relating to the enforcement of by-laws, due to differences in the by-laws applicable to the residential, commercial and touristic components of the complex. Disputes and uncertainty may arise, for example, in the following areas:- Landscaping;
- Air and noise pollution;
- Alterations or repairs to common areas;
- Fencing and boundaries;
- Management of common funds;
- Use of and access to leisure facilities;
- Vehicle parking on common property;
- Storage and collection of garbage;
- Pets and pet management;
- Enforcement of restrictions on use of common areas; and
- Appointment and dismissal of the owners’ association members.
- The developer’s ability to manage and operate the development post-completion;
- Joint ownership of common areas;
- Establishment of a building owners’ association;
- Formulation of by-laws;
- Distinctions relating to commercial and residential components of the development;
- Management of common facilities;
- Creation and management of a sinking fund;
- Transparency to investors; and
- Disclosure obligations of the developers.
Tuesday, March 3, 2009
Agency and Distribution
Omani law governing agency relationships contains provisions which are favourable to local agents and which may lead to unexpected results for uninformed foreign companies. The Commercial Agency Law was last amended by Royal Decree in 1995. Although these amendments reduced the previous “choke hold” that Omani agents had on overseas principals, the amended law retained the right of agents to claim for compensatory damages upon termination and non-extension in certain circumstances. It is therefore advisable to only appoint an agent after extensive due diligence has been conducted on the proposed agent’s business activities and reputation, and a detailed agency agreement negotiated and put in place. The big issues to consider in any agency agreement in Oman are exclusivity, registration, termination and dispute settlement.explicit sales targets in the territory, specifying cut off dates for achieving them;
Legal framework
Three separate laws govern the relationship between a foreign principal and a commercial agent in Oman:
The Commercial Agency Law defines a “commercial agency” as:“Any agreement through which a merchant or a commercial company in the Sultanate is assigned to promote or distribute the products or services of a foreign person or entity in consideration for profit or commission.”
The law does not draw a distinction between a commercial agent, representative, distributor or any other type of intermediary. An agent may be a natural or legal person. If a natural person, the agent must be an Omani citizen who is 18 years or older and who is registered with the Oman Chamber of Commerce. If a legal entity, the company must be established in accordance the laws of Oman and with a minimum of 51 per cent Omani shareholding. However, Omani companies with up to 70 per cent foreign shareholding have been permitted to be agents following Oman’s accession to the World Trade Organization in October 2000.
A foreign principal cannot sell products directly to a customer in Oman without the participation of an agent, except in respect of products destined for the ministry of defence. A duly appointed and registered agent is entitled to commission, notwithstanding direct sales of the products or services by the principal to the customer in Oman.
Exclusivity
Commercial agencies need not be exclusive. This means that a principal is free to appoint more than one agent in Oman. The September 1995 amendments to the Commercial Agency Law eliminated the requirement of “exclusivity” in agency agreements. This significant change made it easier for foreign principals to terminate non-performing agents for cause and to do business in Oman with a new agent. It also allowed foreign principals to appoint other agents simultaneously for different projects or services. Moreover, the amendment rendered the existing agent unable to prevent the registration of new agents by the same foreign principal. Most agency agreements in Oman are non-exclusive, but this is a point of negotiation
between the parties.
Registration
To be enforceable, all agency agreements must be in writing and registered with the ministry of commerce and industry. Without registration, the agent may not be able to enforce any of the rights contained in the agreement and may not be provided the various protections available to him arising under the Commercial Agency Law. This is reaffirmed by the Commercial Agency
Law, which states that a claim may not be heard regarding any agency that is not duly registered.
The agreement must be duly certified and authenticated by an Omani embassy if it is signed abroad. If the agreement is not in Arabic, a duly certified and authenticated translation must be provided and registered with the ministry of commerce and industry. The registration must be renewed every three years.
Termination
Omani law and practice provides significant protection to agents, especially in the context of termination. If an agency agreement is for an unlimited term and the principal cancels the agreement without cause, the principal must compensate the agent. With regards to fixed-term agency agreements the principal may cancel the agreement upon the expiration of its term. In
such instances, the agent will normally seek compensation where the agent feels that the principal has unjustly terminated the agreement or failed to renew it. Unilateral termination of an agency in Oman will almost always result in a compensation claim by the agent. Termination of a fixed-term agency before its expiration and without the agent’s mutual consent will undoubtedly require the payment of compensation to the agent.
Omani courts and the Dispute Resolution Authority have the sole discretion to decide compensation. They will take into account the totality of the circumstances when considering compensation claims. Each case is treated on its own facts and merits, but a court often makes its calculation by taking into account past sales (often for the last three years) or an average of the past annual commission or profit received by the agent.
Termination of a fixed-term agency can be justifiable in many circumstances. Therefore, it is advisable for the agency agreement to contain clear and unequivocal provisions setting out standards to justify termination in the event such standards or performance targets are not met by the agent during the term of the agreement. Such provisions could include:
Dispute resolution
The governing law in agency agreements must be Omani to be registered and enforceable. However, the parties are free to decide on the dispute resolution forum. Omani courts are bound to accept foreign arbitration awards because Oman is a member of the 1958 New York Convention on the Enforcement of Foreign Arbitral Awards. In practice, this means that the
parties may choose arbitration as a means of settling disputes arising under the agency agreement outside of Oman, and subject to recognized rules of arbitration and conciliation, such as the International Chamber of Commerce in Paris, the London Court of International Arbitration in London, etc. Having a dispute decided by one or more arbitrators chosen by the parties would certainly be more beneficial to the foreign principal and devoid of the delays and politics of “home court” advantages for Omani agents. Under the New York Convention, any such award would be enforceable in Oman.
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Thursday, January 15, 2009
What is the best way to resolve a dispute in Oman?
Companies entering into agreements in Oman may wonder what the best mechanism is for resolving disputes. Companies have two options for dispute resolution: they may either resolve the matter in courts or provide for arbitration in their agreement. There are advantages and disadvantages for both options, and the needs and priorities of each company will dictate which option is most attractive. In some cases, local companies may favor Omani courts as the dispute resolution forum because the Omani company may be more familiar with Omani procedural rules and practice. Similarly, foreign companies doing business in Oman may prefer arbitration because they are not familiar with Omani procedural rules and practice. If the parties elect to resolve disputes through arbitration in their agreement, this is sufficient to remove the matter from the Omani courts. In the arbitration clause of the agreement, the parties must specify the following:
- Location of the arbitration: This can be any location agreed to between the parties, and is usually a matter of convenience. Considerations should include the pro-arbitration attitude of the courts of the place of arbitration since they will have jurisdiction over a possible request for annulment of the award, and the ability of the parties to reach the location and the availability of arbitration facilities.
- Language of the arbitration: The parties must be specify the official language of the arbitration. The arbitration will be conducted in this language and the decision of the arbitrators will be issued in this language.
- Applicable law: The parties must specify the substantive law that the arbitrator applies in issuing the decision. The applicable law should be well developed in relation to the subject matter of the agreement.
- Arbitration rules: The parties must specify the applicable rules that govern the procedures of the arbitration. This should not be confused with the substantive law that will be applied to resolve the dispute. Example rules include the UNCITRAL Model Law on International Commercial Arbitration in the case of ad hoc arbitration, i.e., without the auspices of an institution; and in the case of institutional arbitration, i.e., within the auspices of an institution, the Rules of Conciliation and Arbitration of the International Chamber of Commerce and the DIFC Rules of Arbitration.
- Number of Arbitrators: Usually it is either one arbitrator or a panel of three arbitrators. Electing for a single arbitrator can reduce costs.
- Finality: Language should be included in the arbitration clause stating that the decision of the arbitrator(s) shall be final and binding upon the parties. This ensures that neither party may try to circumvent or avoid the decision of the arbitrator. It is advisable to use the model clauses proposed by the institution corresponding to the chosen set of arbitration rules, e.g. the ICC model clause for an ICC arbitration, and to seek specialized professional advice for the drafting of arbitration clauses.
