One of the Firm's New York-based partners, Michael J.T. McMillen, who supports Curtis Oman's Islamic Finance practice, recently published an article in the New York Law Journal that might be of interest to our Omani and other GCC readers who are looking to invest in US real estate projects and corporate entities via a Shariah-compliant vehicle:
Islamic Finance and Investment in U.S. Expected to Grow
Friday, July 13, 2012
Article on Islamic Finance by Curtis Partner Michael J.T. McMillen Published in New York Law Journal
Wednesday, July 11, 2012
Land Law Update: Royal Decree Allows Expansion of Property Size
Over the last few years the Omani authorities have taken numerous steps toward liberalizing the rules for expatriate ownership of real estate in the Sultanate. Over the last few years the Omani authorities have taken numerous steps toward liberalizing the rules for expatriate ownership of real estate in the Sultanate.
Just two years ago, for example, the Government significantly relaxed the restrictions on landholding for Omani joint-stock companies with foreign ownership. Joint-stock stock companies with real estate development among their corporate objects and with foreign shareholding of up to 70 percent were granted the right to own land on a freehold basis for the purpose of real estate development. Prior to the change, only joint-stock companies with at least 51 percent Omani shareholding had been allowed to own land in Oman – and only for purposes subservient to the company’s business objects, such as for showroom, warehouse or administrative office space or for employee housing. This pivotal new rule made it possible for Omani real estate development companies with foreign shareholding to directly transfer freehold ownership to their purchasers or their units.
The Government has also broadened land ownership rights in Oman for expatriate individuals. GCC nationals have been granted land ownership rights within the Sultanate that are almost on par with those of Omani nationals. (Among the main distinctions is that non-Omani landowners are required to develop the land and not dispose of it before the lapse of a stipulated time period, and non-Omani landowners face more stringent conditions for minimum build requirements and for assigning their land ownership rights.) Even non-GCC expatriates are now able to own real estate within designated integrated tourism complexes (ITCs) in Oman.
Recently, the Government’s most recent addition to Omani real estate law, Royal Decree No. 43-2012, has taken land ownership rights one step further, by allowing for the “expansion or increase in land area [of a given plot of land]”. The new rule applies to Omanis, GCC nationals, and non-GCC expatriates alike. While this is more of an incremental change compared to some of the sweeping amendments of the past few years, it nevertheless is a promising sign that the Omani authorities are actively focused on reviewing and enhancing the legal framework for real estate ownership in the Sultanate.
Tuesday, July 3, 2012
Islamic Banking: A Brief Introduction
The Sultanate of Oman is in the process of establishing the legal and regulatory framework that will be applicable to Islamic banks and to the Islamic “windows” of conventional banks that are licensed to operate in Oman
This month, we begin with an introduction to general principles and structures applicable to Islamic banking around the globe. This introduction is not intended to indicate or imply that any Islamic bank or window licensed in Oman
Each Islamic bank or window will have a unique Shari `ah supervisory board that will guide that bank or window in designing and implementing its products and conducting its banking activities. While the relevant policies and regulations have not been finalized as yet, we understand it is proposed that each Islamic bank and window in Oman would be free to determine the composition of its Shari `ah board, subject to some minimal constraints. Examples of such constraints could include a requirement as to the number of scholars on a Shari`ah board (not less than three is currently being discussed), limitations on the number of boards on which an individual scholar may sit (no more than two boards in the Sultanate), and a requirement that boards include Omani Shari`ah scholars as well as internationally recognized scholars. At present, it does not appear that there would be a requirement for the scholars to be from specifically identified madhahib (schools of Islamic jurisprudence); the individual banks and windows would be accorded discretion to comprise their Shari`ah boards as they determine appropriate and prudent. We also understand that there will be no central Shari`ah board at the governmental level (such as a Shari`ah board at the Central Bank of Oman
Islamic banks and windows perform much the same intermediation functions in the banking system as conventional banks. They provide (a) asset transformation activities, (b) administration of payments systems, (c) brokerage services, and (d) risk transformation services. Asset transformation involves the matching the supply of, and the demand for, financial assets and liabilities (e.g., deposits, equity, credit, loans, insurance). Transformative activities relate to modifications in the scale, maturity and location of instruments and assets. Payments administration involves, primarily, check transfer activities, electronics funds transfers, settlement activities and clearing activities. Brokerage activities relate to linking sellers and purchasers of instruments to each other. Risk transformation pertains to facilitating the supply of, and demand for, intangible and contingent assets and liabilities, including guarantees, collateral, financial advice and custodial services.
As a theoretical matter, there are three Islamic banking models. They are commonly referred to as (a) the two-tier mudaraba (service partnership) model, (b) the two windows model, and (c) the wakala (agency) model. Any given Islamic bank or window may utilize elements of more than one of these models.
Before considering these three models, it is conceptually important to recognize that there are two different types of deposit accounts in the Islamic banking models. These accounts are the sources of funds for Islamic banks and windows. Money deposited with a bank by a depositor may go into a demand deposit account or it may go into an investment account.
Generally speaking, there are two types of demand deposits: savings deposits and current deposits. In a savings deposit, the depositor may deposit and withdraw money at will, and some banks require minimum deposits. Structures used for savings deposits include qard hassan (non-interest-bearing loan), wadi`ayaddhamanah (guaranteed safekeeping), and, somewhat infrequently, mudaraba. In a current deposit, money can be deposited and withdrawn at any time and the account is accompanied by a checking capability or a multifunctional card. Structures used for current deposits include qard hassan, wadi`ayaddhamanah, and, somewhat infrequently, mudaraba. Generally, demand deposit accounts do not earn returns (unless a mudaraba structure is used).
Funds that go into investment accounts are invested, with the investments being managed or directed by the bank. The depositor may lose its deposit in the investment account and, as discussed below, the bank may not guarantee any return of the principal amount of the deposit or on the deposit. Generally speaking, there are two types of investment accounts: term deposits; and investment deposits. In a term deposit, money is deposited for a specified minimum period or term and may be withdrawn only at the end of the term. The maturities used for these accounts are frequently one month to a few years. The structures used for term accounts include mudaraba and wakala. An investment deposit is usually a profit and loss sharing account. Structures used for investment deposits include mudaraba and wakala.
The terms “deposit”, “deposit account”, “depositor” and similar terms are used in this Client Alert because of their familiarity in connection with conventional banking practices. However, under Islamic banking principles these are not deposits as conventionally conceived. In many instances they are more in the nature of capital contributions (in the case of monies placed in investment accounts) or loans or safekeeping deposits (in the case of demand deposits). Returns of and on investment deposits and returns on demand deposits cannot be assured under relevant Shari`ah principles, including by way of deposit insurance as conventionally conceived in most bank regulatory systems. We understand that the Central Bank of Oman Shari `ah-compliant depositors will be treated in respect of this deposit insurance. Possibly they will be permitted to decline any deposit insurance payments that may be tendered to them (such a resolution was effected in the United Kingdom
We begin our discussion of the core Islamic banking models by focusing on the two-tier mudaraba model and investment deposits. This requires, as background, a brief introduction to the mudaraba contract because that contract is used on both sides of the bank's balance sheet and integrates assets and liabilities. The first-tier mudaraba contract is between the investor or funds provider (the depositor) and the bank. The mudaraba agreement provides for a sharing of profits on investment of those deposited funds as between the depositor and the bank. The second-tier mudaraba contract is between the bank, as investor or funds provider, and third-party entrepreneurs who are seeking funds and agree to share profits with the bank according to the percentages stipulated in the second-tier mudaraba contract. In the two-tier mudaraba model, both the mobilization of funds (first-tier mudaraba) and the utilization of funds (second-tier mudaraba) are conducted on the basis of profit and loss sharing.
A mudaraba contract structures and defines a type of partnership arrangement in which (i) one or more persons (the “rabbul-mal”) contribute money (or other capital) and (ii) the other person (the “mudarib”) provides services, such as investment of the money provided by the rabbul-mal. In the banking context, each “depositor” that places funds as an investment deposit is a rabbul-mal. The mudarib is the bank that manages the investment of those deposited funds. Those funds are held in trust by the mudarib for the benefit of the depositor rabbul-mal and the bank must use its best efforts to accomplish the objectives of the mudaraba contract. Frequently, in Islamic banking, there are relatively few restrictions on how the bank may invest those funds.
A defining characteristic of the mudaraba is that losses from the operation of the mudaraba must be borne by the depositor (rabbul-mal) absent misconduct, default or breach of contract by, or negligence of, the mudarib. The mudarib suffers the loss of its services, and therefore no loss of capital.
Allocation of profits to the bank and the depositor is specified in the mudaraba contract, usually in terms of ratios or percentage allocations or on the basis of a points system that takes cognizance of the amount of the deposit and the time for which the deposit is maintained. As the investment of a depositor’s funds is usually effected jointly with funds from all depositors, these allocations take into consideration the respective amounts and timing of all investment deposits by all depositors. Profits earned by the depositors are often calculated as a percentage of total banking profits.
A generic two-tier mudaraba model is illustrated in Figure 1. At the first tier (between the investor (depositor) and the bank), the investors enter into a mudaraba contract with the bank to share profits accruing on the investment account in accordance with defined ratios, percentages or formulas. It is impermissible to guarantee a return to the depositor. The investors then deposit (or contribute) their funds in investment accounts. The liability and equity side of the bank’s balance sheet shows the deposits or contributions accepted on a mudaraba basis. These are not liabilities (the capital is not guaranteed).
They are a form of limited-term, non-voting equity.
At the second-tier, the mudaraba contract is between the bank (as the funds supplier and rabbul-mal) and entrepreneurs (mudarib), who share the profits from investment operations according to the terms of this contract and in accordance with specified ratios, allocations or formulas. Again, guaranteed returns to the rabbul-mal (the bank) are impermissible.
It is apparent from the foregoing description that the asset and liability sides of the bank's balance sheet are fully integrated, thereby minimizing the need for asset liability management, which, in turn, provides stability against economic shocks.
The two-tier mudaraba model has no reserve requirements for the investment accounts because these are profit and loss sharing accounts. Demand deposits may be accepted in the two-tier mudaraba model. These deposits provide no returns and are repayable to the depositor on demand, at par. Thus, they are treated as liabilities of the bank, but frequently have no specific reserve requirements.
The two windows model utilizes both demand deposits and investment deposits. The model divides the liability side of the bank’s balance sheet into (a) a demand deposits window and (b) an investment balances window. The choices regarding allocation of a depositor’s funds into each of the two windows are left to the depositor. The demand deposits yield no returns as the deposit is returnable on demand, at par. These amounts are treated as liabilities. The bank may earn a service fee for safekeeping services rendered by the bank in connection with the demand deposits.
As a regulatory matter, and quite differently from the two-tier mudaraba model, the reserves applicable to the demand deposits will be 100%. This is because the funds are treated as amanah safekeeping deposits and do not bear the right of the bank to use the funds to generate further profits on a fractional reserve basis. The reserve requirement applicable to the investment deposits will be 0% as these amounts are to be invested, are subject to losses, and may not be guaranteed.
In the wakala or agency model, the bank acts as an agent or wakeel for and on behalf of the investor-depositors and investment deposits on a fixed fee basis. A generic wakala-based deposit and investment model is graphically depicted in Figure 2. The bank generally has broad discretion as to how to invest the deposited funds (so long as the investments are Shari `ah compliant) and notifies the depositor of the profits and losses. Frequently, the bank will retain profits in excess of a specified rate of return as an incentive fee. The depositor, as principal (muwakkeel), is responsible for all risks associated with the transaction except for those relating to the agent’s misconduct, fraud, breach, default or negligence. Guarantees of the deposit are generally impermissible. The terms of the contract are determined by mutual agreement.
On the liabilities and equity side of the bank’s balance sheet, the bank's relationship with the investor-depositors might be based on a mudaraba, amanah, wakala or wadi`a. On the assets side of the bank’s balance sheet, the bank has more choices and freedom to invest the depositor’s investments. There is a broad range of asset investment possibilities, including mudaraba, ijara (lease), istisna` (construction or manufacture financing), murabaha (cost-plus sale), salam (forward sale), and musharaka (partnership).
A wakala is a non-binding contract. The principal or the agent may withdraw at any time by (a) mutual agreement, (b) unilateral termination, (c) discharging of the obligation, (d) destruction of the subject matter, or (e) death or loss of legal capacity of the contracting parties. There are some exceptions to the non-binding nature of the contract. The contract may become binding where (i) the agent is paid, (ii) the rights of third parties are implicated or involved, (iii) the agent starts a task that cannot be stopped without causing damage or injury to the agent or the principal, or (iv) either the principal or the agent promises not to revoke the contract for a specified period.
Agency arrangements can be general and comprehensive or specific and restricted (although the Ḥanafīs and Mālikī, as a classical matter, have ruled general wakala arrangements invalid as they may lead to excessive uncertainty (gharar)). The agent can be paid or unpaid. Where the agent is paid, the rules of ijara (for services) are applicable.
The qard hassan structure applicable to savings and current account deposits builds upon the concepts set forth in AAOIFI Shari`a Standard No. (19), Loan (Qard) (“Standard 19”). That standard defines a qard as the transfer of ownership in fungible wealth to a person upon whom it is binding to return wealth similar to it. The aim of the qard hassan structure is to provide depositors with guaranteed safekeeping of deposits and to allow banks to use the deposits for its banking and business activities.
The deposited amount is treated as a benevolent loan. The bank is entitled to use the deposited funds without authorization from the depositor. The bank has an obligation to repay the principal amount of the loan and the principal amount of the loan is guaranteed. No dividends or returns are due in respect of the deposits. However, the bank is permitted, in its discretion, to provide, as a gift (hibah) to the depositors, a return on the deposits, although that gift may not be pre-agreed in the deposit contract.
Wadi`a-based deposit structures are also used for savings and current deposits. A wadi`a (or ida - deposit) is a deposit for safekeeping. The deposited property must be owned and deliverable and a form of property that can be possessed physically.
Wadi`ayaddhamanah is the more common type of wadi`a in Islamic banking circumstances. It involves guaranteed safe custody in which the custodian guarantees the return of the property. It is a combination of two contracts: wadi`a, or safekeeping, and dhaman, or guarantee. This arrangement may arise if the custodian uses the property for business purposes, destroys the property, or mixes the property with other property in a manner in which the original property cannot be differentiated. The custodian is entitled to use the deposited property for trading or other business purposes. The custodian has a right to income derived from the utilization of the deposited property and, at the same time, is liable for any damage or loss to the disk deposited property. The custodian owns the profit and therefore has no obligation to give a portion of the profit on the property to the depositor, but may do so as a matter of gift (hiba) so long as that is not pre-agreed. The gift concept, in both forms of wadi`a, is controversial among Shari `ah scholars. The custodian must return the deposited property to the owners at upon the request of the depositor.
Future Client Alert articles will address various types of retail and wholesale products used by Islamic banks and windows and various types of financing and investment products used in the Islamic finance and investment industry.
As the Sultanate of Oman New York office who provides support to our Islamic banking practice in Oman and throughout the Middle East region.
Monday, June 4, 2012
Material Adverse Change Clauses
Material adverse change (“MAC”) clauses (or material adverse effect clauses, as they are also known) are provisions often found in loan and other financing documents which allow lenders to refuse to fund or continue funding a transaction if such a change occurs.
The purpose of the MAC clause is to provide the lender with protection such that if a major adverse change occurs from the date a loan or other financing agreement is signed – and such a change may relate to any number of factors (see below) – then an event of default is triggered and the lender can essentially pull out of the transaction and often demand immediate repayment of any funds already lent to the borrower, together with interest and any other costs payable.
What do MAC clauses cover?
The definition of MAC clauses and their use in documents vary widely, depending on the type of transaction, the market standards at the time of negotiation, the bargaining powers of the parties and a number of external factors including political stability and the economy itself. It is common to see a more aggressive use of MAC clauses from lenders when there is a downturn in the economy and therefore borrowers are forced to accept terms that they would otherwise refuse.
In facility agreements, for example, it is common to see a MAC clause in relation to the following types of changes, among others:
This means that if a material adverse change occurs in relation to any of the above – this determination is often made at the lender’s sole discretion – then an event of default is triggered and the lender can stop the financing and demand repayment of all borrowings and costs to date.
How are MAC clauses defined?
The definition of the MAC clause is one of the most important and heavily negotiated definitions in any finance documentation.
Lenders typically seek to keep the definition as wide as possible and may require that an event of default is triggered if an event has a material adverse effect on the borrower’s ability to perform any of its obligations under the finance documents. Conversely, borrowers seek to keep the definition as narrow as possible and will seek to agree that an event of default is only triggered if a material adverse change affects its ability to comply with its financial covenants or payment obligations under the finance documents.
While many of the negotiations surrounding finance documents often seem more theoretical, or point-scoring, than practically applicable, the MAC clause is, in fact, a clause which can and is invoked. Most recently, we have seen two cases in Oman where Omani banks have invoked the clause, causing the relevant borrowers to have to refinance their loans as a result.
Where a lender has successfully negotiated that it will determine the occurrence of a material adverse change “in its sole discretion”, it is usual for borrowers to negotiate that the lender “act reasonably”. Borrowers also seek to negotiate materiality qualifications, i.e., that if a material adverse change has occurred that it will have a material effect on a material obligation. This is to avoid an event of default being triggered over a trivial breach or the breach of a trivial term.
Tuesday, May 22, 2012
Labor Law Update: New Ministerial Decision Requires Private-Sector Salary Increases
In a development of importance to private-sector employers and employees throughout the Sultanate, the Ministry of Manpower has recently issued Ministerial Decision No. 32/2012, which mandates annual salary increases for private-sector workers in Oman. MD No. 32/2012, which applies to all employees in the private-sector and became effective on 30 January 2012, entitles employees to a salary increase of at least 3% each year.
MD No. 32/2012 provides that, each year, every employee who has been working for his employer for at least six months as of January 1st of such year shall be entitled to receive an annual increase to his basic salary for such year equal to at least 3% of his previous year’s basic salary, with effect from January 1st of such year. However, employees who have been rated as underperforming in their annual appraisal for the previous year may not be eligible to receive such an annual salary increase for the new year. Please note that MD No. 32/2012 sets 3% as the minimum threshold for an employee’s annual salary increase, and is without prejudice to any terms more favourable to the employee stated in his employment contract.
Thursday, May 17, 2012
Franchise Agreements
The Sultanate of Oman features an array of international goods and services providers, many of which are operated as franchises. Eateries such as McDonald’s and Starbucks, retailers such as H&M and Zara are just a few examples of Oman’s thriving franchise sector. Such franchises represent not only an important segment of the Sultanate’s existing commercial landscape, but also a significant opportunity for Omani entrepreneurs to start new businesses.
This article provides an overview of what franchises are and discusses key legal and commercial issues relevant to entrepreneurs looking to start a franchise in Oman, particularly with US franchisors.
What is a Franchise?
Although the word “franchise” often conjures images of particular kinds of businesses – such as fast food restaurants or budget hotel chains – franchising is actually used across a broad spectrum of enterprises. What all franchises have in common are (i) a branded line of products and/or services, (ii) an operating system prescribed by the franchisor, and (iii) one or more fees charged to franchisees for the right to participate in the business system by selling the branded products and/or services and by utilizing the franchisor’s operating system. Franchisors and franchisees are independent business entities, and franchisors typically derive their income from initial and ongoing fees paid by their franchisees. Sometimes franchisors also sell items to franchisees or collect fees from franchisees’ suppliers.
For example, in the case of a fast food restaurant such as McDonald’s, the franchisor, McDonald’s Incorporated, has created and maintains (i) a brand together with intellectual property (e.g., the golden arches logo) and products (e.g., the Big Mac hamburger) associated with the brand, and (ii) a system for operating McDonald’s restaurants, which likely includes detailed guidelines for restaurant layout and decoration, food preparation guidelines, customer service guidelines, and many other requirements. McDonald’s franchisees, namely the businessmen and companies that own and operate McDonald’s restaurants throughout the world, pay franchise fees to McDonald’s Incorporated in exchange for the right to use McDonald’s Incorporated’s brand and operating system.
The legal framework for franchising in Oman
In some jurisdictions, there is a separate legal framework that governs franchises. However, in Oman franchises are simply considered another form of commercial agency. Accordingly, franchise agreements, like any agency or distribution agreement, are governed by Oman’s Commercial Agency Law, unless the agreement is expressed to be governed by the laws of a country other than Oman, coupled with an arbitration clause.
To form a legally valid franchise relationship in Oman, it is necessary for the franchisor and franchisee to enter into a franchise agreement and to register in the Commercial Agents Registry at the Ministry of Commerce & Industry.
The franchise agreement is naturally a very important document to the franchisor and the franchisee alike. Although the franchise agreement will usually be based on the franchisor’s standard form, it is important for the franchisee (and, we recommend, the franchisees legal advisors) to review the franchise agreement carefully and negotiate its key points with the franchisor. From the perspective of an Omani franchisee, the key issues are likely to be:
Franchise Disclosure Documents (FDDs)
Every prospective franchisee would do well to obtain detailed information about the franchisors that interest him. Fortunately, when it comes to US franchisors, this information is fairly easy to come by.
US franchisors are required to deliver Franchise Disclosure Documents (FDDs) to prospective franchisees for locations within the US, although this requirement does not apply abroad. Franchise laws in twenty other countries also require franchisors to prepare FDDs. FDDs contain invaluable information about the experience of the franchisors and their executives, including the number of units of the franchise opened and closed in recent years, litigation and bankruptcy history, initial investment estimates, audited financial statements of the franchisor, and contact information for the franchisor’s current franchisees, as well as those who have left the brand during the franchisor’s last fiscal year.
Every prospective franchisee should study the information required to be included in the FDD, however US franchisors are often advised by their lawyers not to provide the FDD to foreign franchisee prospects because international franchise agreements usually differ from the US domestic agreements, and the laws of most countries, such as Oman, do not require them to make such detailed disclosures. Franchisors may also fear that if they have no experience in operating businesses in a new market, such as Oman, that a US-oriented FDD could mislead prospective Omani franchisees. Nevertheless, we strongly recommend that an Omani franchisee should demand and examine the franchisor’s FDDs prepared for the US market, as these documents will contain useful information that the prospective franchisee can use in evaluating specific franchise opportunities.
Other recommendations
In order to take advantage of the best available franchising opportunities and to avoid problems with inexperienced or undercapitalized franchisors, prospective Omani franchisees should consider the following:
Thursday, May 10, 2012
Taking Security: Commercial Mortgages
In Part I of this article, which was featured in a previous post, we provided an overview of what commercial mortgages are and the fundamental legal concepts that govern them in Oman. This month we conclude by discussing further the registration requirements for commercial mortgages, along with potential enforcement issues.
Further details on commercial mortgage registration
For a commercial mortgage to remain valid, its registration must be renewed every five years at the Ministry of Commerce & Industry (MCI). A commercial mortgage can be released and removed from the register of the MCI by the expiry of the mortgage after five years, i.e., without its renewal. It can also be released and removed by virtue of a court order or written agreement of the borrower and the lender.
Details of the commercial mortgage are set out in the commercial registration papers of the borrower. These details include the name of the mortgagee, the date of the charge and the assets mortgaged. In practice, the MCI require the consent of the lender to make any changes to the commercial registration of the borrower once the commercial mortgage has been registered even if only one asset, such as a rig, has been mortgaged.
The registration of a commercial mortgage at the MCI requires the assets to be located in Oman and the borrower to be incorporated in Oman. For moveable property such as ships and aircraft, the vessel must be registered in Oman as the mortgage will be registered against the title to the ship or, as the case may be, the aircraft. Such registrations will be with the relevant authority and not with the MCI.
Potential enforceability issues
If the borrower fails to pay its debt, then a court order is required by the lender to enforce the commercial mortgage against the assets of the borrower (unless the borrower otherwise cooperates with the lender’s enforcement against its assets). This can be a long process and it can take up to two years to obtain the court order. The assets will then be sold by public auction administered by the Omani courts and the lender only will be entitled to the proceeds of sale of the asset sufficient to discharge the secured loan. It is not possible for a lender to simply take physical possession of any secured assets and sell them without the involvement of the Omani courts.
In practice, in relation to limited recourse projects and other transactions, commercial mortgages have been granted and registered by the MCI over a wide range of contracts and government licences. But in our view, there is serious doubt about the ability to mortgage and enforce a mortgage over contracts and government licences. The fact that such commercial mortgages have been registered by the MCI does not mean that they will automatically be enforceable in the Omani courts. In relation to contracts, many of the borrower’s rights under contracts are contingent or come into effect in the future. In addition, many contracts, by their very terms, are not capable of being sold in the manner that mortgaged assets are sold by the Omani courts on enforcement, and consent of the counterparty to any transfer of obligations is likely to be required. In a similar manner, most government licences are not capable of being sold and as a matter of law are generally personal to the borrower.
Friday, May 4, 2012
Preliminary Attachment
In the Civil & Commercial Procedures Law issued by Royal Decree 29/2002, creditors are granted a legal remedy known as “provisional attachment” which serves to protect the creditor’s rights against his debtor.
As per the prescribed methodology, a creditor may request the Primary Court to issue an order of provisional attachment over the properties of his debtor.
The Civil & Commercial Procedures Law has specified the cases in which a creditor may exercise such a right against his debtor. These cases are (a) if the creditor is a bearer of a bill of exchange or promissory note and the debtor is a merchant and the said instrument obligates him to adhere to it in accordance with the Commercial Law, and (b) in any case in which the creditor fears he may lose his rights, provided that the creditor must prove to the Primary Court that such fear is justified.
The Civil & Commercial Procedures Law specifies certain additional conditions which must be met before a provisional attachment order can be granted. First, the creditor’s right must be definite, meaning the debt upon which the creditor is relying on (x) is in existence and (y) is not based on a probability or subject to a condition. (However, the debt can be subject of a dispute.) Second, the creditor’s right must be matured, meaning that the debt is due and payable at the time of filing of the request for the provisional attachment.
In addition, if the creditor does not possess an “executive deed” (such as a final non-appealable Court judgment), or if the debt sum is not specific (meaning the specific numerical amount of the indebtedness sum is not known), then the Judge issuing the provisional attachment order should provide a temporary estimation of the debt.
Once the provisional attachment order has been signed by the Judge, the Court must notify the debtor within the following ten days; otherwise, the provisional attachment order shall be considered null and void.
Furthermore, the creditor is required, within the above ten days, to file a court case, requesting the “validation” of the provisional attachment order.
Wednesday, May 2, 2012
Applications of the Copyright Law to Art in Oman
As anyone who has visited the recently inaugurated Royal Opera House Muscat can attest, the fine arts are coming to play an increasingly prominent role in the Sultanate. The economic and social advances achieved under Oman’s ‘Renaissance’ of the past decades have laid the foundations for artistic and cultural activities to flourish, with exhibitions and galleries featuring the work of both renowned international artists and a growing corps of Omani artists.
However, it is important not just to create art, but also to protect the artists, their works, and the rightful use of those works. Legal statutes, particularly Oman
Inalienable rights of the artist as creator
The Copyright Law provides that the following rights of the artist as creator of the artwork are inalienable:
· the right to decide to publish his work for the first time;
· the right to have the work attributed to him in the manner he decides; and
· the right to object to any distortion, deformation or any other modification of his work.
Thus, even when an artist relinquishes economic rights in his work (described below), such as by licensing the work to a gallery, the licensee’s use of the artwork shall be limited so as to respect to the artist’s inalienable rights – for example, the licensee gallery would be prohibited from deforming the artist’s work without the artist’s permission.
Economic rights in works of art
The Copyright Law also provides that certain economic rights in a work of art, such as the following rights, are transferable by a written agreement:
· reproduction of the artwork;
· disposal of the original artwork or copies of it to the public, by sale or by any other assignment that transfers the ownership;
· public display of the artwork; and
· publication of the artwork by any means.
Just as economic rights holders such as licensees must respect the artist’s rights as creator of the work, the artist is likewise obligated under the Copyright Law to respect the licensee’s rights in the artwork. Without prejudice to the artist’s inalienable rights as creator, the artist is prohibited from obstructing the use of the licensed rights in the artwork by the holder of such rights.
Monday, April 30, 2012
Mou in Hotel Development Transactions - Part I
By the time a major transaction is finalized, its terms typically will be enshrined in a lengthy legal agreement – or, indeed, in multiple agreements (sometimes enough of them to fill a conference room table). Hotel development transactions, for example, may include a management agreement, a technical assistance agreement, and centralized cost reimbursement agreements, among others.
Yet many large deals, including those that ultimately end up with an array of lengthy documents, will begin with a single short agreement between the parties, such as a memorandum of understanding (MOU).
This article discusses MOUs in the context of hotel development transactions, in which they play a particularly important role. However, it is important to note that many different types of transactions make use of MOUs, so a number of the principles described in this article are likely to apply beyond the hotel project setting to deal-making in general. Part I of this article discusses what MOUs are and why they are so important. Next month, Part II will cover particular deal points that are typically addressed in MOUs for hotel development transactions.
What is an MOU?
In different jurisdictions and different sectors, an MOU (or a “letter of intent” or “heads of terms”) might take on a slightly different meaning, as far as the terms it includes, the parties to it, and its enforceability as a legal document.
For purposes of this article, however, we shall use a simplifying approach and take “MOU” just to mean a short, preliminary agreement entered into by the parties to the agreement at an early stage of the transaction process. Some MOUs are longer versus shorter, and more detailed versus less detailed, but the basic point is that MOUs outline the key terms that the parties will use as the foundation for their final agreements.
In the hotel development context, the MOU will reflect the key terms between the owner and the operator – such as management fees, term of the agreement, and certain key operational issues – that both sides consider necessary to agree up front before they invest the time, energy and costs to negotiate a suite of lengthy, detailed agreements.
Why is the MOU important? The MOU is typically very important to the deal because it will shape the negotiations over the final transaction agreements. Many or most of the key terms in the final agreements will be obliged to follow the way such terms are treated in the MOU.
As mentioned above, the MOU may or may not specify that its terms shall be legally binding between the parties. However, whether or not the MOU is legally binding, it will often carry significant weight as a practical matter; if one party attempts to deviate from the MOU, the other party can accuse of it of not acting in good faith or of backtracking from a position already discussed and agreed.
Thus, it is important for the parties to take the negotiation of an MOU as seriously as the negotiation of the final agreements. Indeed, the MOU might be the most crucial stage of the entire negotiation process. With this in mind, the parties often will be well advised to engage any third-party advisors (including commercial consultants, technical advisors, or lawyers) early in the negotiation process to assist with the MOU, rather than waiting until the MOU already has been signed.
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