Legal Requirements for Document Retention

In recent years, the rapid growth of the Omani economy has led to a significant increase in business activities and commercial transactions in the Sultanate. As companies have become bigger and more active, they unsurprisingly have tended to find themselves with an ever-growing amount of corporate documents and records.

Such documents were easily stored back in the days when companies were smaller and transactions were less frequent. Today, however, many companies have such high volumes of documents and data that they may look to store them outside of their own premises. Some companies also may look to discard old documents and records. The question thus arises: what, if any, legal obligations do Omani companies have to retain their business documents?

Many countries throughout the world impose legal obligations on companies to retain their documents for a certain period of time. While Omani law does not prescribe an overall regime of document retention requirements, several key statutes outline particular retention obligations that apply to companies in the Sultanate.


Commercial Companies

All organizations that are regulated under the Law of Commerce (Royal Decree No. 55/90) – which includes all types of commercial companies, regardless of corporate form – must look to the Law of Commerce to help them ascertain the record-keeping requirements that apply to them under Omani law.

For example, merchants should look to Article 28 of the Law of Commerce, which imposes on them a duty to retain the following types of records:

Day books, in which shall be entered day-by-day all transactions pertaining in any way to the merchant’s commercial undertaking, and month-by-month the total of his personal drawing;

Inventory books, which shall be updated at least once each year; and

Copies of all correspondence, as well as telegrams, invoices, and other essential documents sent and received by the merchant for the transactions of his trade.

Article 31 of the Law of Commerce obliges merchants to keep their day books and inventory books for a period of ten years. In addition, merchants must also keep the copies of their correspondence and telegrams for the transactions of their trade for a period of five years.

Financial Institutions

The Anti-Money Laundering Law (Royal Decree No. 34/02) imposes a legal obligation on financial institutions to retain their documents for a period of time. Article 1 of the Anti-Money Laundering Law defines ‘financial institutions’ to mean any establishment licensed to do business in the Sultanate as a bank or money exchange or as an investment, financing, insurance or a financial intermediary company (or any similar activity specified by the committee). Article 5 of the statute requires financial institutions to maintain and hold documents of identification and addresses of their customers and records of their transactions, and prohibits the destruction of the original paper documents during a period of not less than ten years.

Law Firms

There is no specific law concerning document retention obligations of law firms in the Sultanate; however, it could be presumed that law offices are subject to the Law of Commerce’s obligations regarding retention of documents.

Read More...

Time Bar Limitations Under Omani Law

Sometimes, little-known procedural points can be decisive, even trumping legal substance. Time bar limitations are a classic example of this.

What is a time bar limitation?

A time bar limitation is a maximum period of time established by law for the exercise of a claim, judgment, or right, such that the claim, judgment or right will lapse if it is not exercised within this time period. In other words, a person wishing to exercise a right that is subject to a time bar limitation must use this right within the period stated in the law, or else lose the right. Likewise, if a certain judgment that is subject to a time bar limitation is not carried out within the legally specified period, then that judgment lapses and is no longer applicable.

Omani law prescribes a variety of time bar periods in relation to different types of legal matters. This article highlights several of these time bar limitations which are relevant to businesses.

Under the Law of Commerce

The Law of Commerce (Royal Decree No. 55/90) includes numerous time bar limitations, particularly in relation to the carriage and delivery of goods. Some of these include:

A consignee, in case of damage to goods, must submit a contestation to the carrier immediately after he discovers the damage and no later than seven days from the date of delivery.

Where an item is delivered without reservation, the right to seek recourse against the carrier due to damage, partial destruction or delayed arrival shall lapse unless the consignee proves the condition of the goods and lodges an action against the carrier within thirty days from the date of delivery.

The limitation period for filing a court case in respect of a guarantee of the defect is one year as from the date of delivery of the item sold, unless a guarantee for a longer period has been given.

Any lawsuit in relation to a bill of exchange against the person that accepted it shall lapse after three years.

The limitation period for an action arising from a contract for the carriage of goods or persons or a contract of carriage commission agency shall be one year.

The limitation period for the obligation of merchants towards each other in relation to their commercial activates shall be ten years as from when the date for performance of such obligations lapses (unless the law provides for a shorter period).

Under other Omani statutes

Certain key time bar limitations are prescribed by other Omani statutes as well, including the Engineering Consultancy Law (Royal Decree No. 120/94) and the Labor Law (Royal Decree No. 35/2003). These limitations include:

In the Engineering Consultancy Law, if the engineering consultancy office’s duties are restricted to design and do not include supervision or execution, the engineering consultant shall only be responsible for design defects and all security cases shall lapse after three years from the time of discovering the defect without taking action.

In the Engineering Consultancy Law, the project owner of the engineering consultancy office and the supervisor shall be jointly responsible with the contractor for the defects in the projects designed by them or executed under his supervision for ten years from the date of handover of the project; provided that a claim in respect of any defect must be filed within three years of when such defect is discovered (as noted in the preceding bullet).

In the Labor Law, the employee’s rights to bring an action shall lapse after one year of the facts and circumstances that gave rise to such an action.

Read More...

Contractual Set-off Clauses in Loan Agreements

Where two parties owe each other money, it often makes sense for one of the parties to employ the concept of ‘set-off’ to reduce or eliminate its liability to the other party.

For example, assume that Party A owes RO 100 to Party B under a loan agreement; but that Party B also owes RO 60 to Party A under a separate (and perhaps unrelated) arrangement. In this scenario, Party A could in theory ‘set-off’ the RO 60 that Party B owes to him against the RO 100 that he owes to Party B – with the result that Party A now owes RO 40 to Party A (original debt of RO 100 minus set off of RO60 equals remaining debt of RO 40) and Party B no longer owes anything to Party A (original debt of RO 60 minus set-off of RO 60 equals zero).


Of course, for this to work in practice, Party A also must have the legal right to employ such a set-off mechanism. Such a right can arise by force of law, or by contract.

In the United Kingdom and certain other jurisdictions, there is detailed legislation and case law specifying various types of set-off available, for example:
• Legal set-off – a defence to a court action where more than at least one claim and cross-claim is being contested;
• Banker’s set-off – where a customer has more than one account with a bank, at least one of which is in debit and one in credit;
• Equitable set-off – available to a debtor where his cross-claim arises from the same or a closely related transaction;
• Insolvency set-off – often triggered by a party’s entry into liquidation; and
• Contractual set-off – where set-off is included as a provision of a contract.

In Oman, while the Law of Commerce (Royal Decree 55/90) does contemplate the set-off concept, as a practical matter set-off rights frequently arise as contractual rights – e.g., via set-off clauses in loan agreements governed by English law, or by the laws of another foreign jurisdiction.

The contractual set-off rights often found in loan agreements typically will allow the lender to set off a matured obligation due from a borrower against any matured obligation owed by the lender to that borrower, regardless of the place of payment or currency of either obligation. If the obligations are in different currencies, the lender often may negotiate the right to convert either obligation at a market rate of exchange in its usual course of business for the purpose of the set-off.

The result of exercising a contractual right of set-off is similar to enforcing security. However, set-off is a personal right rather than a proprietary right; unlike a security right, it does not grant an interest in the counterparty’s property.

It should also be noted the Omani Courts are unlikely to apply a set-off unless a contractual set-off scenario exists.

Finally, it is important to note that set-off provisions in loan agreements often favor the lender over the borrower. While set-off clauses in commercial contracts often will apply symmetrically (e.g., permit or prohibit set-off altogether), in many loan agreements the right of set-off is accorded only the lender, with the borrower prohibited from setting off any amounts owed to it by the lender.

Read More...

The Need for a Dedicated Construction Law in Oman

For construction contracts with the Omani government, the typical standard terms and conditions are modeled broadly on the early 1980s version of the International Federation of Consulting Engineers (FIDIC) terms and conditions. In light of the prevalence of such off-the-shelf standard terms in government-sponsored construction projects, there has historically been little focus or effort toward enacting a comprehensive legal framework for the construction sector.

However, this lack of a comprehensive legal framework sometimes can pose difficulties in relation to private sector construction contracts. Private parties often eschew standard terms like those used by the government, and instead prefer bespoke, project-specific construction contracts. The problem is that, in the absence of a specific, construction-focused law in Oman, the parties to these customized private construction contracts may find themselves in a legal vacuum in the event of a dispute. While private construction contracts may be well negotiated, it becomes difficult to form a view on the enforceability of certain crucial terms under Omani law. Although most construction contracts are subject to arbitration, it is critical to ascertain the enforceability of certain provisions such as limitation of liability, allocation of risks, exclusion of or caps on liability, consequential damages, and liquidated damages.

For this reason, the relevant authorities would do well to consider enacting a dedicated construction law for Oman.

In the meantime, the most viable approach is to reason by analogy and extrapolate from existing laws to various scenarios specific to the construction industry. This article highlights a few such principles from the Law of Commerce (Royal Decree No. 55/1990), the Consumer Protection Law (Royal Decree No. 81/2002) and the Law Regulating the Establishment and Functioning of Engineering Consultancies (the “Engineering Consultancy Law”) (Royal Decree No. 120/1994), which are often cited as bearing most relevance to the construction industry. While the foregoing laws offer limited guidance in interpreting contractual terms of construction contracts, this of course does not vitiate the need for a robust, construction-specific law to provide greater clarity in one of Oman’s most critical industries.

From the Law of Commerce

The Law of Commerce embodies the fundamental principles for doing business in Oman and contains many implicit terms for sale-and-purchase-of-goods transactions that would apply in the absence of a contract, and that could also be extended by analogy to the sale and purchase of services, including construction services. Thus, in the construction context, generally applicable principles from the Law of Commerce could be cited to argue for the enforcement of milestone requirements, termination provisions or other commercially important clauses of the contract.

From the Consumer Protection Law

Unlike the Law of Commerce, which broadly encompasses all commercial transactions, the Consumer Protection Law applies only to business-to-consumer transactions. However, certain principles from the Consumer Protection Law, such as the obligation to provide defect-free service (failing which the consumer is entitled to compensation), could be cited in the business-to-consumer construction context, for example to argue for the enforcement of warranty clauses.

From the Engineering Consultancy Law

The Engineering Consultancy Law is specific in its approach and applies directly to certain key aspects of construction, such as providing for the joint liability on the engineering consultant and the contractor for defects in the construction of a building or structure even if such defect is attributable to the land upon which such structure is constructed. The ten-year liability period of the engineering consultant and the contractor runs from the date of delivery of the structure; however, any legal action must be brought forth by the owner within three years of detection of the defect.

Read More...

Limited Recourse to Guarantors in Personal Bank Loans

Guarantees (along with their cousins, indemnities) are an important feature of banking law, which we have discussed in previous issues of the Client Alert. Conceptually, the main purpose of having a guarantor is to give the lender the comfort of having a reliable third party stand behind the obligations of the borrower, so that the lender may have recourse against the guarantor in the event that the borrower breaches its obligations to the lender. As a practical matter, the question often arises: if the borrower defaults, at what point may the guarantor be forced to satisfy the borrower’s obligations?

Until recently, Oman’s Law of Commerce (Royal Decree No. 55/1990) provided that a lender could always claim payment from a guarantor upon default by a borrower, without the lender having to first attempt to recover payment from the borrower. This rule meant that the borrower could effectively walk away from a default situation unscathed, while the guarantor would be left obligated to pay the borrower’s debt without having any defence that the borrower should be pursued first, or at least joined with the guarantor in any proceedings relating to the payment of the debt.

However, in June 2010 an amendment was made to the Law of Commerce to provide an exception to this rule in relation to guarantees of personal loans from banks. The practical effect of this amendment is that a guarantor of a personal loan from a bank may now request the inclusion of language in the guarantee stating that, in the event of a default by the borrower, the bank may not pursue the guarantor unless and until it has (i) obtained judgment against the borrower for the debt and (ii) enforced that judgment to the point where it has recovered all it can from the borrower to repay the debt. The purpose of such a clause is to ensure that all means of recovery against the borrower have been exhausted before the guarantor is called upon to pay the debt or any sums owing in relation thereto.

Please note that the aforementioned amendment does not apply to loans by institutions other than banks or to loans other than personal loans from banks. The amendment also does not go so far as to obligate banks to accept the guarantor’s request to include language requiring first recourse to the borrower.

Yet, at least this amendment does open the door to a more protected position for guarantors. Previously, any such provision in a guarantee requiring that a bank first obtain and enforce judgment against a principal would likely have been declared void by courts on grounds that it was against public policy. Now, if negotiations are sufficiently well-balanced, a guarantor may find it can obtain the bank’s agreement to incorporate language that will provide the guarantor with a certain level of protection.

Read More...