A little-known fact of Omani law is that the jurisdiction has no concept of “without prejudice” negotiations. Interestingly, despite this fact, lawyers and/or litigants in the Sultanate do sometimes have “off the record” discussions with a view to a possible settlement. This normally happens when there is a high level of trust between the lawyers or litigants in question.
The problem, however, is that either lawyer or litigant could then write to his or her counterpart, thanking the latter for the offer which had been made. This may lead to a scenario where the Omani Courts are asked to infer that an admission of liability has been made.
In other jurisdictions, it is accepted that parties sometimes make a settlement offer even when they believe they are not liable at all. The offer might be made simply to negate the management time and lawyers’ fees otherwise incurred. When offers are made in this way, they are often termed “nuisance value offers”.
For claimants, the position is somewhat easier than for defendants. Under Omani law, the losing party in a court case is unlikely to have to pay more than RO 100 towards the winning party’s legal costs. This means that claimants can claim a large amount and, if their claim fails, they suffer hardly any impact. However, the situation is naturally somewhat different if the defendant files a sizeable counter-claim, because this could lead to the claimant having to pay a large sum to the defendant.
Claimants can also feel comfortable in Oman sending a letter which contains their time-limited offer to settle. They can write to the counter-party, saying that they have a claim of, say, RO 750,000, but adding that they will accept RO 500,000 provided the latter sum is received within, say, 21 days of the date of the letter. The Claimant will also state in the letter that the time-limited offer constitutes a mere suspension of their full legal rights, and that they will revert to claiming the full RO 750,000 if the RO 500,000 is not paid within the requisite 21 days.
To conclude, extreme care must be taken in Oman as regards settlement talks and negotiations. This is of course especially true when the quantum of the claim is high.
Tuesday, December 18, 2012
Settlement Talks and Negotiations
Tuesday, September 11, 2012
Share Pledges- Part II
In last month’s Client Alert, we discussed which kinds of shares can be pledged in Oman and the process for registering a share pledge in the Sultanate. This month, we conclude our introduction to share pledges by discussing how they are treated, released and enforced in Oman.
Dealing with pledged shares
Once the share pledge is registered, Muscat Depository treats such shares as blocked and will not allow the shares to be dealt with. For example, in practice it is not possible to sell shares which have been pledged. But it is possible, with the express written consent of the first pledgee, for a second priority pledge to be granted over the same shares.
In addition, Muscat Depository will contact the share pledgee each time a cash profit or free shares are issued, if such future profits are included in the share pledge, to obtain their instructions on how to deal with such cash profit or free shares.
Release of a share pledge
A share pledge can be released by the pledgee submitting a release letter allowing Muscat Depository to release the security. Again, such a release letter would need to be suitably authenticated if the pledgee is a foreign entity.
Enforcement of a share pledge
The enforcement process for a share pledge is set out in Articles 225-227 of the Omani Law of Commerce. Essentially the shares secured under the share pledge will, on a default, have to be enforced in the Omani courts pursuant to a judicially conducted process. The pledgee is required to serve formal notice requiring payment of the debt on the pledgor (and the borrower, if a different entity). Three days after service of such a notice, the pledgee may apply to the Omani courts for an order for the sale of all or part of the pledged shares. Once the default has been established, the Omani courts may then order the sale of some or all of the shares.
The court should order the sale of shares traded on the MSM through the brokerage system. The broker will auction the shares in accordance with the Omani Capital Markets Law and Regulations. The broker, after deducting commission, will remit the sales proceeds to the Omani court. The Omani court would then remit the amount of the sales proceeds, up to the value of the secured obligations (as determined by the Omani court) to the pledgee. Any surplus funds would be retained by the Omani court and returned to the pledgor.
The Omani Law of Commerce does allows the court, after the date a debt has fallen due, to vest charged assets up to the value of the secured obligations in the hands of the pledgee, however this is subject to the prior sanction of the court.
Approval requirements for certain percentages of share ownership
Please note that under Omani law, there are various notification and/or approval requirements which have to be met before certain percentage of shares can be held in an Omani joint stock company. In some cases, these requirements apply to both foreign and Omani entities. For example, if the security was over 10% or more of the voting shares of a licensed Omani bank, then any party seeking to buy the shares through the court auction or the pledgee (if it is seeking to have the shares transferred directly to it) would need to have obtained the prior approval of the Central Bank of Oman.
Tuesday, April 10, 2012
Taking Security: Commercial Mortgages - Part I
When an entity or individual borrows money, in addition to a contractual right of repayment under the lending contract, it is common for lenders to take security over the borrower’s assets as an additional form of protection to ensure repayment of the loan. One way of doing this in Oman is for the lender to take a commercial mortgage over some or all of the assets of the borrower, if the borrower is a company, partnership or sole proprietorship registered with the Ministry of Commerce and Industry (“MCI”).
Part I of this article explains what commercial mortgages are and how they are perfected. Next month, Part II will delve deeper into registration requirements and enforceability issues.
What is a commercial mortgage?
A commercial mortgage grants lenders rights over the assets of the borrower that may be exercised to ensure repayment of the debt. A commercial mortgage requires the consent of the borrower and it may be granted over a variety of the borrower’s assets including its business (including its commercial registration number and business name), machinery, equipment, trademarks, intellectual property (including goodwill), stock, vehicles, ships and aircrafts.
It is important that, on the date the commercial mortgage is signed, the assets secured by the commercial mortgage are (i) owned by the borrower, (ii) in existence and (iii) clearly set out in the commercial mortgage.
Regarding the first of these requirements, it is important to note that contractual rights which are contingent or which come into effect in the future cannot be mortgaged. This can have significant implications for structuring transactions. For example, if an asset is sold via a ‘lease-to-buy’ arrangement, under which title to the asset is only transferred to the buyer after the final payment has been made, the buyer will not be able to grant the seller a mortgage over the asset at the time of purchase; under Omani law, the buyer only can grant a mortgage over the asset once he has title to the asset.
The third requirement is typically achieved by attaching to the commercial mortgage a schedule of the assets with sufficient detail to ensure that the relevant assets are easily identifiable. If the assets covered by the commercial mortgage are not clearly set out, the commercial mortgage only will cover the business trade name, the right to lease, the right to contact clients and goodwill.
It is also important to note that a commercial mortgage is distinct from other similar-sounding kinds of interests. A commercial mortgage is distinct from a legal mortgage which is used to take security over land. In addition, there is no concept of a floating charge under Omani law.
In practice, in order for lenders to capture assets acquired by a borrower after the date of registration of the commercial mortgage, a new addendum is often added every six months, or after the acquisition of a major asset, listing those additional assets. In terms of priority, the mortgage over the additional assets takes effect upon the date of registration of the addendum listing the additional assets rather than the date of registration of the original mortgage.
Perfecting a commercial mortgage
To be enforceable in the Omani Courts a commercial mortgage needs to be perfected, meaning that it has been formally registered at the MCI in accordance with its procedures. For this to occur, the commercial mortgage in Arabic must be signed by both the borrower (the mortgagor) and the lender (the mortgagee) in the presence of the relevant official for the MCI. Where Arabic is not the primary language of one of the contracting parties, it is possible to have a dual language mortgage; however, in the event of any inconsistency, the Arabic language version will prevail. Finally, the commercial mortgage needs to be attested and registered at the MCI within thirty days of it being signed but typically this all done at the same time as the commercial mortgage is signed. Priority is established by the date and time of registration with the MCI. It is possible for more than one commercial mortgage to be granted over the same assets of the borrower.
Please see upcoming posts for a continued discussion of registration requirements, as well as key issues relating to enforceability of commercial mortgages in Oman.
Thursday, January 5, 2012
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.
Wednesday, January 4, 2012
Focus on Litigation: Burden of Proof in Omani Court Cases
We often are asked by clients what the burden of proof is in the Omani Courts. For example, some clients may be accustomed to the U.S. court system where the “preponderance of the evidence” standard commonly applies to civil cases, and the “beyond a reasonable doubt” standard typically applies to criminal cases.
However, the truth is that burden of proof is an undeveloped area of Omani law.
The general premise is that, in a civil or commercial case, the claimant has the burden of proof; but the reality is that defendants have to prove their lines of defence to the Court’s satisfaction.
Ultimately, each Omani case turns on its own idiosyncratic facts. The key to success is to be the most persuasive litigant in any given case. The Courts have to believe that your arguments are both legally sound and supported by the evidence.
Similarly, there is no codification regarding the burden of proof in Omani criminal cases. However, the reality is that the burden of proof is very high in a criminal matter – the case has to be proven beyond any reasonable doubt.
Tuesday, August 9, 2011
Focus on Litigation: Joining Co-Defendants
A defendant in an Omani court case always should consider whether the culpability in fact lies with a party who has not been named as a defendant by the Claimant.
The ability for a defendant in an Omani court case to join in co-defendants is more straight-forward than might be appreciated. This applies equally to joining in Omani and non-Omani parties.
The procedure for joining a co-defendant involves the named defendant making a paper application to the court, attaching copies of the commercial registration documents in respect of the prospective co-defendant(s). This corporate documentation should be obtained from the relevant public register in the country where the entity in question is incorporated.
The defendant also needs to provide the court with full addresses in respect of the co-defendants. Accordingly, we habitually advise that a written Defence always should start with procedural defences, and also should include substantive defences as well.
Provided that a prima facie case is made out, the Omani courts are usually willing to join the other parties into the existing court action as co-defendants.
As an important caveat, we should mention that joining a non-Omani entity may delay the case by some months, as the Omani courts serve such entities with the documentation via diplomatic, country-to-country channels.
