The Establishment of US Companies and Branches Under the Oman/United States Free Trade Agreement

The Free Trade Agreement (the “FTA”) between the Sultanate of Oman and the United States (the “US”) and entered into force on 1 January 2009 governs, inter alia, the establishment of legal entities in Oman by entities incorporated in the United States and vice versa.

In a previous article, we discussed the early stages of implementation of the FTA. The first meeting of the FTA Joint Committee, chaired jointly by the MOCI and the Office of US Trade Representative, took place in February 2010. Since then, officials of the two governments have been meeting on a regular basis within that framework to discuss various issues arising pursuant to the implementation of the FTA.

Below is an outline of three key issues that have been addressed concerning the establishment of companies and branches of companies in Oman.

Establishment

Under the FTA, only 100% US-owned entities are permitted to establish a company in Oman without the need for an Omani partner. However, the strict interpretation of this rule affected large US corporations, including the ones listed on the stock market, which, having a wide shareholder base that includes some non-US citizens, would not qualify. Accordingly, the MOCI has taken the view that, provided that the company which is seeking registration in Oman is a qualitatively “American” entity, there should be no problems registering it under the US FTA in Oman. The MOCI reviews whether a company should be considered as qualitatively “American” on case-by-case basis, looking at a variety of factors such as the activities and history of the company. In some cases, the MOCI will not delve into the nationalities of its shareholders.

The minimum capital requirement for a 100% US-owned entity to become established in Oman is OMR 20,000 as opposed to other foreign-owned companies, where the minimum share capital requirement is OMR 150,000. The registration process for a US-owned entity in Oman is straightforward and has been streamlined.

Equal treatment

One of the benefits for US companies under the FTA rule is that US companies shall be granted the same treatment in Oman as a wholly owned Omani company. However, there is an important exception to this rule. That is, an established US company is not permitted to act as the “local partner” of another foreign company wishing to set up a presence in Oman, i.e., a US company cannot be used to satisfy the minimum 30% local ownership requirement for a foreign company looking to establish in Oman. This requirement can only be satisfied by an Omani national or a 100% Omani-owned company.

Registration of a branch

As a general rule, a foreign company can only establish a branch office in Oman for the purpose of performing a contract with the Omani Government (including contracts with companies partly owned by the Omani Government).

However, a US company may register a branch office in Oman pursuant to Ministerial Decision 102/2008 and in accordance with the FTA prior to obtaining or entering into any contract with the Omani Government (including contracts with companies partly owned by the Omani government).

Benefits for US FTA companies operating in Oman

Further to the above, US companies established in Oman under the FTA have a number of other significant benefits for example, benefits regarding tariffs for importing and exporting, and in the way that US companies established in Oman are granted non-discriminatory rights to bid on contracts to supply Omani Government entities and Omani Government purchasers.

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An Overview of the Insolvency Regime under Omani Law

Key Legislation Governing Insolvency in Oman

As a general principle, in the Oman Civil Code, promulgated by RD 29/13, Article 277 provides that a restriction may be placed on a debtor by order of the court if his debts due exceed his assets. A restriction order has the following consequences:

• any debts due from the debtor shall become payable; and

• any disposal of his property by the debtor shall be void as against his creditors after the restriction order is issued and from the date the statement of claim is registered.

 

However, it is Book Five of the Oman Commercial Law issued by RD 55/90 (“OCL”) that contains the more detailed provisions governing bankruptcy and insolvency in the Sultanate of Oman.

Penalties for Directors or Business Owners Who Knowingly Trade While their Business is Insolvent

Article 604 of the OCL provides that a bankrupt entity may not dispose of any assets, nor make or receive any payment save where such receipt of payment is for a bona fide commercial purpose.

Article 614 of the OCL, however, permits a bankrupt entity to conduct a new trade with assets other than those of the estate in bankruptcy, provided that the creditors do not suffer detriment as a consequence.

Pursuant to Article 590 of the OCL, the Commercial Court will specify in a judgement the date on which the bankrupt is deemed to have ceased making payments. Under Article 609 of the OCL, creditors may petition the Commercial Court to avoid transactions made by the bankrupt after the cessation date (a) if such a transaction is considered to be detrimental to them; and (b) where the third party to such a transaction is aware at the time that the bankrupt has ceased payment.

The following transactions may be avoided if carried out by the bankrupt after the cessation date:

• all donations, except customary small gifts;

• settlement of debts before their due date;

• settlement of debts by means other than those agreed upon; and

• creation of any security interest.

 

Any application to have a transaction declared void by the receiver must be made within twelve months of the declaration of bankruptcy. Creditors may in any event bring an action for restitution.

What Options Does a Business in Distress Have?

The only option available to a business in distress is to apply to the Commercial Court for a declaration of bankruptcy. On the adjudication of bankruptcy, the Commercial Court appoints a receiver to administer the bankrupt’s estate (Article 589).

What Options Do the Creditors of a Business in Distress Have?

Pursuant to Article 589 of the OCL, creditors may file an insolvency petition at the Commercial Court. As noted above, under Article 609 of the OCL, creditors may ask the Commercial Court to avoid transactions made by the bankrupt after the cessation date (a) if such a transaction is considered to be detrimental to them; and (b) where the third party to such a transaction is aware at the time that the bankrupt has ceased payment.

Priority of Creditors

On declaration of bankruptcy there is constituted, by operation of law, a group of creditors whose claims against the bankrupt were validly established before the declaration of bankruptcy. Secured creditors with mortgages do not form part of the group of creditors until they participate in the bankruptcy for the recovery of any amounts that have remained unpaid after the sale of the secured assets.

The Government has priority under RD 32/94 for sums it is owed, whether by way of taxation or otherwise. Such decree provides that debts owed to certain Government bodies have priority claim over all debts, secured or otherwise, owed by that debtor to any other person, and sets out specific mechanisms for precautionary attachment and execution of the debtor’s assets.

The Oman Labour Law safeguards employees’ rights to receive any salary and other benefits still owed to them upon the bankruptcy of a business and, accordingly, their dues will rank higher in priority to payments due to other creditors.

Restructuring the Debt

There is provision for judicial composition (akin to a restructuring or a scheme of settlement) in Chapter Two of Book Five of the OCL.

The commissioner in bankruptcy notifies the creditors whose debts have been finally or provisionally admitted to attend the deliberations on composition.

Where the debts are not contested, such notice is sent within the seven days following the drawing up of the final list of the debts, and, where the debts are contested, within fifteen days following the expiry of the time for appeal against the last decision of the judge commissioner in bankruptcy as to whether the debts are to be admitted or rejected.

No composition shall take place without the approval of a majority of the creditors whose debts were finally or provisionally admitted, and provided that they hold two thirds of such debts.

Article 708 (in Chapter Two of Book Five of the OCL) provides that the composition may grant additional time for the debtor to discharge its debts and may provide for the release of the debtor from part of the debt.

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Mining Law Oman

Introduction

The Public Authority of Mining (the “Authority”) is affiliated with the Ministry of Commerce and Industry (the “Ministry”) and aims to develop the mining sector, achieve optimal exploration of mineral resources and invest resources in such a way as to develop goals and economic diversification in Oman. As natural minerals in Oman are property of the state, the Authority is responsible for granting licences for exploration and mining activities as well as implementing and monitoring such activities. The scope of this article focuses on the Authority’s role in supervising all mining-related activities once a licence has been granted.

 

Powers of the Authority Where Mining is Concerned

The Authority was established in accordance with RD 49/14 giving extensive power to the Authority in the governance of mining activities. The powers and prerogatives, allocations and assets of the Ministry have been transferred to the Authority. Although not an exhaustive list, some of the Authority’s powers include the ability to:

• supervise all activities that are related to the exploration of minerals and develop resources; and

• preserve the geological landscape and set out the appropriate controls to protect it.

 

Article 19 of the Mining Law as promulgated by RD 27/03 also stipulates that officials designated by the Authority shall be entitled to:

• access, inspect and examine the mine or quarry at any time during duty hours, provided they do not interrupt or obstruct the operations flow; and

• investigate the mine or quarry status to assess the suitability of the adopted safety and other measures.

Mining Regulation No. 77 of 2010 (the “Regulations”) goes further to specify how officials may monitor mining activities. In accordance with Article 77 of the Regulations, relevant judicial inspectors may:

• enter into the area of the concession or licence at any time during the working hours for the purpose of physically inspecting the work progression and assessing steps taken to ensure the health and safety of workers;

• view and collect production details, mining operation records and accounts during the working hours;

• issue instructions and directions to employees in charge of the mining operations for the purpose of improving the work and specifying violations, if necessary;

• investigate violations committed by the holder of mining concession or licence; and

• review the production reports and the guaranteed and potential mining reserve of the extracted metal and compares the same with the reports submitted to the director as per conditions of the concession or licence.

 

Any failure to adhere to the provisions above shall be considered an explicit breach of the Mining Laws and Regulations and, as such, shall be referred to the relevant judicial department and is subject to penalty. If any licence holder causes obstruction to any official being able to perform their duties by rejecting or delaying their access to the mine or quarry or rejects or delays their required inspection, examination or investigations, they may be liable to a fine not exceeding OMR 5,000.

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Entire Agreement Clauses: An Omani Law Perspective

Introduction

Entire agreement clauses – sometimes referred to as merger or integration clauses – are common boilerplate provisions in many commercial contracts.

 

The purpose of such clauses is to prevent the parties from adducing evidence extrinsic to the written contract in order to show that the terms of the bargain were different from those recorded in the contract.

 

That is to say, the parties include an entire agreement clause to prevent statements and representations made either before or after the contract was entered into from having any contractual force (unless they were duly incorporated into the contract by amendment in accordance with its terms).

 

One reason for excluding evidence outside the written contract is that, particularly in the case of oral statements, it may take time to resolve what was said and agreed to by the parties. Secondly, the parties have greater certainty as to their contractual rights and obligations when they know these are all contained in one written agreement. Finally, written and oral statements made prior to entering into the final agreement may be misleading in that they are as likely to amount to mere aspirations as they are to evidence of any final consensus arrived at between the parties.

 

General Considerations

When reviewing an entire agreement clause, there are some important pitfalls to be aware of and to avoid:

 

Schedules and Attachments

If the contract includes schedules or other attachments, it is important to check that the definition of the “contract” includes these schedules or other attachments.

 

Multiple Contracts

If there are multiple contracts forming part of the same transaction, it is important to include them in the wording of the entire agreement clause, for example: “This agreement and [list other agreements] constitute the entire agreement between the parties….”

Special Considerations under Omani Law

Excluding Misrepresentation

Entire agreement clauses in common law jurisdictions typically aim to exclude liability for misrepresentation, but carve out liability for fraudulent misrepresentation. In other words, the parties agree not to claim for “negligent” or “innocent” misrepresentation in connection with the agreement, but also state expressly that they are not seeking to limit or exclude claims for fraudulent misrepresentation.

 

Such distinctions are not, however, meaningful under Omani law. Article 103 of the Omani Civil Transactions Law (Royal Decree (“RD”) 29/13) (the “Civil Code”) defines misrepresentation as follows:

Misrepresentation is when one of the two contracting parties deceives the other by means of trickery of word or deed which leads the other to consent to what he would not otherwise have consented to. Deliberate silence concerning a fact or set of circumstances shall be deemed to be a misrepresentation if it is proved that the person misled thereby would not have made the contract had he been aware of that fact or set of circumstances.

 

Omani law does not recognise negligent or innocent misrepresentation. On the contrary, there must be an intention to deceive by fraudulent means. The onus is on the party alleging misrepresentation to establish that (a) they were deceived by the misrepresentation; and (b) the deception was intentional.

 

Accordingly, the provisions relating to liability for misrepresentation in standard entire agreement clauses should be tailored to accord with the different treatment of the concept in Omani law. Any attempt to limit or exclude liability for negligent or innocent misrepresentation would be at best superfluous and at worst confusing.

 

Construction of the Contract

There are other considerations to be borne in mind when drafting entire agreement clauses under Omani law. The Civil Code provides, in Article 165, guidance in the construction of contract terms:

If the wording of a contract is clear, it may not be departed from by way of interpretation to ascertain the intention of the parties. If there is scope for an interpretative construction of the contract, an enquiry shall be made into the mutual intentions of the parties beyond the literal meaning of the words, and guidance may be sought in so doing from the nature of the course of dealings, current trade custom, and the trust and confidence which should exist between the parties.

Further, the Omani courts have long applied the civil law principle of ‘pacta sunt servanda,’ the Arabic rendering of which is equivalent to ‘the contract is the law governing the parties.’ A recent Omani Supreme Court judgement held that the parties to a contract are obliged to fulfil their respective obligations under the contract in good faith, and the terms of the contract may not be amended or invalidated by the court seized of the matter save where there is manifest ambiguity in their construction.

 

The principle is codified in Article 156 of the Civil Code, which provides that a contract must be performed in accordance with its contents. However, the article goes on to state that the parties’ obligations go beyond those contained in the contract, and include their obligations under the law, custom, justice and normal conduct.

 

A generic entire agreement clause will not exclude any of the above, but an express and specific term of the contract could arguably prevail over trade usage. Even specific clauses would, however, be unlikely to be effective in excluding the requirement to act in good faith, or legislative provisions considered to go to public order.

 

Elements of an Entire Agreement Clause

An entire agreement clause in an agreement expressed to be subject to Omani law should contain the following elements:

An Entire Agreement Statement

A statement in the contract that the parties agree that all the terms of the contract between them are to be found within the text of the contract document and nowhere else, and these terms supersede any prior written or oral agreement between the parties.

 

Non-reliance on Representations Not Contained in the Agreement

A statement that the parties have not relied on any statements or representations other than those contained in the written contract.

 

Summary

Entire agreement clauses seek to prevent a party to a contract from citing evidence not contained in the body of that contract to support a claim that the agreement between the parties was in fact different from that set down in the written contract. Such claims are often brought in connection with alleged misrepresentation.


Under Omani law, misrepresentation must involve an intention to deceive by fraudulent means. It goes to the root of the contract and gives the victim of the misrepresentation the right to rescind the contract. It follows that the provisions in standard entire agreement clauses relating to misrepresentation, and the remedies therefor, are redundant under Omani law.

Negligent and innocent misrepresentation are not recognised concepts in Omani law; and the remedy for (fraudulent) misrepresentation is provided for at law and cannot be limited or excluded by contract.

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Legal Updates - April 4, 2016

Capital Market Authority Decision No. 2016/2 – Amending the Regulation of Capital Market Authority Law

This decision was issued on 25 February 2016. It amends the Regulation of the Capital Market Authority Law by formalising the requirement for a listed company to disclose the initial quarterly unaudited financial results in addition to the annual, as opposed to just the initial annual unaudited financial results as set out in the original legislation. It also reduces the period of time allowed to disclose the results from thirty days to fifteen days.

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Sultanate Becomes Signatory to Multilateral Memorandum of Understanding with IOSCO

It was recently announced that the Sultanate of Oman, represented by the Capital Markets Authority (CMA), has become a signatory to the Multilateral Memorandum of Understanding (MMOU) on cross-border information sharing of the International Organization of Securities Commissions (IOSCO).  IOSCO, the worldwide association of national securities markets regulators from over 115 countries, first adopted the MMOU as a means for national regulators to promote unified global standards and benchmarks for securities regulation and to facilitate the cross-border sharing of information amongst national regulators in order to combat cross-border violations of securities laws.  Oman joins over 80 other countries which have signed up to the IOSCO MMOU.  This important development affirms the Sultanate’s commitment to further integrate itself in the global economy, and also should provide the CMA with further resources as it continues to refine Oman’s capital markets regulations to best promote and protect the needs of the national economy.

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