When entering into contracts in Oman, complications may arise when the parties begin performing the obligations under a “contract” while the final terms are still being negotiated. What happens under Omani law when a dispute arises over the incomplete “contract”? When does a contract become a contract that is binding on both parties?
In some cases, the Oman Court (or arbitrator, if there is an arbitration clause) will be willing to impute the existence of a contract even when the parties do not have a signed agreement. For example, if an employer in Oman does not sign a written contract with his employee, the Oman Courts would still impute a contractual relationship based on evidence such as pay slips, or transfers made regularly to the employee's bank account by the employer.
In a more standard commercial context where two parties have a substantially negotiated but unsigned agreement, or even a verbal agreement that is never fully formalized in writing, the answer is not as clear. In these cases, the Oman Courts will most likely look to any documentation pertaining to the deal in deciding whether there is a contract. This is in accordance with Oman’s Commercial Code which states that contracts “may be proven by all means of so doing...”, and not only through a signed agreement.
The Oman Courts may recognize the existence of a contract, even though there is no final written agreement signed by both parties. The Court should recognize the contract based on exchange of letters, or on verbal offer and acceptance, or on the mutual trading conduct of the parties.
The ability of an Oman Court to recognize a contract is supported by Article 89 of Egypt’s Civil Code, which states that a contract is created from the moment that two persons have exchanged two concordant intentions. Article 90 of Egypt’s Civil Code adds that an intention may be declared verbally, in writing, or by conduct. The Egyptian Civil Code is the bedrock of Arabic legal justice and is heavily influential in Oman.
Nonetheless, despite the ostensible security afforded by the Egyptian Civil Code, parties seeking to prove the existence of a contract or finalize an agreement should seek legal advice. At a minimum, it is important for the party seeking to prove the existence of a contract to detail in writing to the counterparty, on a contemporaneous basis, those elements which have been agreed upon. In this respect, it is noteworthy that Oman’s Supreme Court has ruled that silence can amount to consent. In other words, uncontested letters can prove vital in dispute resolution scenarios.
Wednesday, August 5, 2009
FAQ: When is a Contract Formed?
Monday, July 13, 2009
Doing business in Oman FAQ: Bankruptcy
The financial crisis has resulted in many companies encountering difficulties in maintaining profits and even staying solvent. In Oman, courts may declare a company facing financial difficulties as bankrupt or insolvent if (i) its financial state is in disorder; and (ii) it has ceased to discharge its commercial debts. The bankruptcy declaration may be ordered by the court based on the court’s own initiative, upon application by the debtor company, or by one of the company’s creditors. Omani courts often appoint an administrator for managing the debtor’s assets while the bankruptcy application is pending.
Once a company has been declared bankrupt by an Omani court, the company may be liquidated. The court will usually appoint a liquidator for effecting the transfer of the company’s remaining assets. The liquidation is usually effected by way of judicial sale or public auction.
In distributing the assets of a bankrupt company, all expenses of the administrator or liquidator, including compensation, must be paid from assets of the bankrupt company before any distribution is made to creditors. Thereafter, creditors are ranked pursuant to the Law on Recovery of Government Debts [RD 32/94] in the following order of priority:
As a general rule, debt of secured and unsecured private debts is subordinate to debt owed to the government even if the government debt arose later and is not secured. The Government is generally known to give up its priority ranking in favor of employees.
Unlike the bankruptcy law of some countries, the Omani laws for bankruptcy and liquidation are very straightforward. The focus of the law is to protect creditors as much as possible and ensure the insolvent company is liquidated efficiently.
Friday, May 22, 2009
Doing Business in Oman FAQ: Local Partners
Can a company, as opposed to an individual, satisfy the minimum 30% local shareholding requirement for an Omani limited liability companies (LLC)? This question arises when a foreign company wishes to establish an LLC in Oman, but must find a local partner in order to fulfill legal and procedural requirements.
Under the Foreign Capital Investment Law (Royal Decree 102/94) (the “FCIL”), there is a mandatory requirement that at least 51% of the shares of a limited liability or joint stock company be held by an Omani natural or juridical person. Although this provision of the FCIL has never been amended, pursuant to Oman’s WTO obligations, companies with only 30% Omani shareholdings are allowed to incorporate without the need for any special approval.
Typically, the 30% requirement is satisfied by an individual Omani owner, often one who offers local expertise to the new LLC.
The answer to whether a corporate entity could satisfy the requirement depends on whether the Omani company is 100% Omani owned or whether it has some non-Omani owners If the Omani company is 100% Omani owned, then it can satisfy the minimum 30% Omani shareholding requirement for the LLC. If it has a single non-Omani owner,
however, it cannot.
This answer may be different if the foreign shareholder is from a country that has a free trade agreement with Oman (such as the U.S. and Singapore). In that case, the result depends on the industry in which the company operates and other factors.
Tuesday, April 21, 2009
FAQ: What is a credit bureau?
Many recent news articles have reported on the opening of the first private credit bureau in Oman. These reports raise the questions of what exactly credit bureaus do and what does the opening mean for Oman?
Credit bureaus collect information about consumers and companies from various sources and sell it to other entities, such as financial institutions, that use it to assess risk and credit worthiness. For example, a credit bureau may collect information about a consumer’s payment history, total liabilities, and criminal background, compile this information into a report, and sell it to a bank. The bank will use the report to determine the level of risk involved with giving a loan or other credit to this consumer. Based on the risk level, the bank will determine what terms to offer the consumer on the loan.
Credit bureaus in Oman will enable banks to make more informed decisions in lending to consumers. Consumers with good credit should be able to obtain better loan terms and interest rates because the bank can be confident the risk is low and the loan will be repaid. Consumers with poor credit histories may receive less favorable terms because the risk to the bank that the consumer will default on the loan is higher.
Currently in Oman, information about a consumer’s credit history is not readily available and it is difficult for banks to gauge risk levels and customize the terms of the loan. Thus consumers with good credit share the risk of consumers with bad credit because banks simply do not have the information to make informed decisions about individuals and tailor loans accordingly.
Some consumers have raised concerns about the security of their information and potential confidentiality breaches. Credit bureaus in other parts of the world typically employ very high security standards with respect to the information they obtain in order to avoid the serious problems associated with such breaches, though breaches have occurred.
In addition, consumers have raised issues about how it is possible for a credit bureau to obtain the information for the credit report in the first place. Typically banks or other financial institutions provide information about consumer bank accounts, loans, liabilities, income, and payment history to the credit bureau. Publicly available court records may also be a source of information. The terms of individual agreements between consumers and banks or financial institutions determine what banks and financial institutions are permitted to do with the consumers’ information.
While these concerns are commonly raised in connection with credit bureaus, it is expected that the introduction of credit reporting to Oman will provide distinct advantages to both consumers and financial instructions.
Tuesday, March 31, 2009
Frequently Asked Questions: Protecting Your Ideas
If you have recently come up with a good idea, you may wonder if you can get legal protection in order to prevent others from using or stealing it. Protection for ideas falls under the category of Intellectual Property, which includes copyrights, patents, trademarks and trade secrets. Determining whether your idea or project qualifies for protection through copyright, patent or trademark law depends on the form your project or idea takes.
Copyright protection applies to creative expression, such as music, art, books, photography, movies and dances. It should be clarified that copyright does not cover ideas and information themselves, only the form or manner in which they are expressed.
Trademarks are marks that are used to show where a service or product comes from and to distinguish those products and services from others. Examples of trademarks include most brand names and logos.
Patents are used to protect inventions. A patent is a right given by a government which allows the inventor to prevent other people from using his idea for a certain period of time. In order to get the patent rights from the government, the inventor must disclose his idea.
Trade Secrets are formulas, processes, practices or compilations of information that companies seek to keep secret in order to obtain competitive advantages. Trade secrets are generally protected by private contracts and agreements.
Monday, February 23, 2009
Doing Business in Oman: Frequently Asked Questions
Q: In the current economic climate, some companies are having difficulty fulfilling their contractual obligations. Can a company that defaults on its obligations use the global economic crisis as a basis for declaring force majeure?
A: The answer depends on the language of the applicable contract and the jurisdiction, but in general the economic crisis is not considered an appropriate basis for declaring force majeure. Unless the agreement between the parties explicitly states otherwise, Omani courts are unlikely to excuse a company from performing its obligations based on a force majeure declaration due to the economic meltdown.
Thursday, January 22, 2009
Doing business in Oman: FAQs on Formation of LLCs
Can pre-incorporation expenses – specifically, the expenses incurred by the shareholders in forming a limited liability company (“LLC”) – be reimbursed by the LLC?
Shareholders may seek reimbursement from the LLC once it is formed for the reasonable expenses they incur during the incorporation process. These expenses may be subject to the approval of the shareholders.
Is the LLC required to have a board of directors or a board of mangers?
As LLCs are a less formal corporate structure than public companies, they are not required to have a board of managers or directors but theymust have at least one manager who may be nominated by one or more shareholders. However, depending on the activities of the company and the preferences of the shareholders, many LLCs do have a board of managers or directors. The constitutive contract and shareholders agreement will specify the powers and responsibilities of the board, as well as the number of board members.
