Oman Law Blog

Curtis Welcomes Linna Al Kendi

2023-08-28T16:11:00.000+03:00

Linna Al Kendi is a recent addition to Curtis’ Muscat office. Ms. Al Kendi is an associate in the Corporate International department and advises clients on general corporate and commercial matters.

Before joining Curtis, Ms. Al Kendi worked in private legal practice and most recently was Board Secretary and Legal Counsel at an Omani publicly listed company. She has extensive experience in commercial company law, corporate governance and Omani legal procedure. Ms. Al Kendi also has experience in commercial litigation, having advised clients in commercial, civil and labor matters.

Social Protection Law 52/2023

2023-08-25T16:23:00.001+03:00

Social Protection Law 52/2023 (the “SPL”) is heralded as a groundbreaking new law which will reshape the social protection framework within the Sultanate of Oman.

One of the notable provisions of the law is the establishment of a unified social protection system that integrates various existing programs and services under one umbrella, ensuring better coordination and efficiency. It introduces a comprehensive framework for social protection, covering areas such as income security, healthcare, workplace injury and disability, education, and housing. Importantly, it includes many protections that apply for both Omani citizens and expatriate residents alike.

For many businesses, and expatriate employees, Articles 138 and 139 of the new law will be of particular interest. These provisions will eventually amend the existing End of Service Benefit (“EOSB”) system provided for in the Labour Law. The SPL introduces a savings fund, into which 9% of an employee’s monthly salary is to be paid. Full details of how the fund will be implemented will be announced in due course. It is expected that the new EOSB system will be implemented over the next three years. Until that time, the current EOSB system will continue to be in place. These provisions are intended to bring greater certainty to employees in regard to EOSB payments, and streamline the process for employers.

Curtis will provide updates as further details on the implementation of the SPL are announced.

Introduction to the Key Changes in the New Oman Labour Law Rd 53/2023

2023-08-24T22:43:00.005+03:00

On 24 July 2023, Oman issued Royal Decree 53/2023 The Labour Law (the “New Labour Law”) introducing a raft of changes intended to modernize the existing law, encourage productivity and enhance and balance rights and duties in the work environment. The New Labour Law replaces the existing law that has been in place since 2003 and includes significant changes for business operating in Oman. The new law came into effect following publication in the Gazette on 30 July 2023, and regulations pursuant to the new law are expected to be issued in the coming months.

Importantly, employers in Oman must ensure compliance with the New Labour Law within six months, i.e., by 30 January 2024. Businesses should begin to review their employment contracts and manuals for compliance now, and discuss with employees how the New Labour Law will affect them.

Curtis sets out below a summary of the key changes that will be of interest to both employers and employees:

Sick Leave/ Paid Leave /Special Leave:

Sick leave: The new law increases maximum paid sick leave from 10 weeks to 182 days per year. Payment of salary while on sick leave is per a tier graduated throughout the 182-day period. The period of 100% paid sick leave is extended from two weeks to three weeks.

Special leave:

Increases the leave in the event of death of a spouse, son or daughter from three days to 10 days.
Introduces 14 days’ leave for non-Muslim women in the event of the death of a husband.
Increases maternity leave to 98 days, in addition to a maximum of one year of unpaid leave for childcare at the discretion of the employee. In a welcome change, introduces seven days of paternity leave.
Introduces special leave of 15 days to accompany a patient with material relationship or up to the second degree when seeking health care.
Removes emergency leave, and introduces unpaid special leave at the discretion of the employer without pay/PASI contributions.
Provides that up to 30 days’ annual leave may be carried over to the next year.

Working Hours:

Maximum reduced from 45 hours a week to 40 hours a week (i.e., from nine hours per day to eight hours per day). Increases minimum daily break timing from 30 minutes to one hour.
One-hour break per day for nursing mothers for a period of one year from the end of the maternity leave.
Ramadan working hours are not changed and remain at six hours per day/30 hours per week for Muslim employees.

Overtime:

Introduces a regime to govern circumstances in which an employee may be entitled to overtime or time in lieu.

Omanisation, Productivity, Redundancy and Termination:

In order for companies to meet Omanisation requirements, employers are permitted to terminate non-Omani employees. The replacement of the terminated expatriate worker must be an Omani citizen.
Employers are permitted to terminate an employee for poor performance if an employee fails to perform, and failed to improve its performance after notice, over a period of six months. There are strict conditions that must be complied with and, in practice, such procedure will need to be carefully managed and documented. If an Omani employee is terminated for poor performance, any replacement employee must be an Omani citizen.
Redundancy, or termination for economic reasons, is now recognized by law. However, in order for redundancy to be considered lawful, an employer must follow a strict procedure, which includes obtaining prior approval from a Ministry of Labour committee. The committee will consider the request for redundancy and take into consideration alternative measures such as reduction in working hours and salaries. It should be noted that non-profitability or failure to be successful in the market do not automatically qualify as evidence of financial loss and the ability to invoke redundancy.
Time limits for notifying the Ministry of Labour of an employee’s termination for actions that resulted in significant financial loss to the employer have been extended from three days to 30 days.

Compensation for Unjustified Termination:

In cases of unjustified termination, any court-ordered compensation is now capped at 12 months of gross salary. The previous Labour Law provided a minimum of three months’ compensation for unjustified termination, but did not set a maximum cap.

Project-specific and Fixed-term Contracts:

Fixed-term contracts no longer automatically become permanent or unlimited after the passing of two years’ continuous employment. However, they may do so after five years of continuous employment. This is also the case with project-specific contracts.

Restrictive Covenants:

Parties may agree to non-compete clauses in certain prescribed circumstances.
Such restriction is limited to an agreed period of not more than two years, and is to be limited to the geographic area of the business.
As previously, it is unlikely that a two-year restriction could be justified in most circumstances.

End of Service Benefit (“EOSB”):

The new law increases the expat gratuity payment, from 15 days per year for the first three years of service and 30 days after the third year, to 30 days for each year served from the first year of service in the new law. There are also new provisions governing when and how EOSB is to be paid.
Importantly, EOSB under the New Labour Law will eventually be impacted by the new Social Protection Law (RD 52/2023) that has also been issued in the past month. The Social Protection Law provides for the mandatory creation of a “savings fund” for expatriate workers. Details as to the commencement date for the fund will be released by way of a Ministerial Decision to be enacted within three years of August 2023. Once this fund is in place, we expect that it will replace the EOSB provisions currently prescribed in the New Labour Law.

Discriminatory Practices:

Termination based on discrimination regarding gender, race, disability, or labour union affiliation is expressly prohibited by the New Labour Law.

Non-payment of Salary/Constructive Dismissal:

Should an employer fail to pay an employee’s salary for two consecutive months, the employee has the right to terminate the employment contract without the need to serve the contractual notice period. This is akin to constructive dismissal laws in other jurisdictions.

Strikes and Collective Action:

The New Labour Law brings in a range of new provisions governing the settlement of collective labour disputes, strikes, and lockouts.

Essential Steps

As noted, all companies operating within Oman must comply with the new mandatory provisions of the New Labour Law by 30 January 2024. Now is a good time to review existing contracts, standard form employment contracts and company manuals to ensure compliance.

It is likely that existing employment contracts will need to be amended to take account of changes around emergency leave, sick leave, individual performance requirements, maternity and paternity policies, EOSB, and policies to account for new provisions regarding bullying, harassment and non-discrimination.

Please feel free to contact the Curtis team for assistance or to seek further details and clarification of the new law.

Omani Renewable Energy and Clean Hydrogen Law

2023-03-29T17:00:00.001+03:00

In a first of its kind, Oman has recently issued a royal decree (RD 10/2023: Allocating Some Lands for the Purposes of Renewable Energy and Clean Hydrogen Projects) in response to the fast-growing hydrogen power sector and the nation’s desire to become a global hydrogen export powerhouse.

The Royal Decree follows from the establishment of the state-backed hydrogen energy company in early 2022, Hydrogen Oman Company (Hydrom), and the directives from His Majesty Sultan Haitham bin Tarik, which called for effective institutional and regulatory foundations to be laid to support the growth of a future green hydrogen economy in Oman. Oman is targeting the production of around 1 million tonnes per annum of green hydrogen by 2030.

The Decree comes less than two months before Hydrom is set to award the first two land blocks at the end of the maiden round of a competitive auction process over land allocations for mega green energy projects. Final offers for a pair of land blocks currently being auctioned by Hydrom are due middle of March 2023, with an award likely by end of April 2023. The successful bidders in the auction process will secure a block each of 320 sq km in Duqm to develop all phases of their green hydrogen projects.

The Decree with its eight articles identifies those lands, by way of masterplan attached to the Decree, that will be allocated for the purposes of renewable energy and clean hydrogen projects. The Decree also sets out the responsibilities and duties of Hydrom in the allocation and division of the lands, which include the grant of usufruct of the lands to Hydrom (Article III) and the responsibility and duty of Hydrom to contract with others to use the divided lands for the purposes of renewable energy and clean hydrogen projects by way of an auction (Article IV).

Such provisions are in confirmation and governance of the auction process that is currently underway. Supporting guidelines to the Decree in the form of Executive Regulations from the Ministry of Energy and Minerals are expected to follow.

With a leading and well-renowned Green Hydrogen legal team, both nationally and internationally, Curtis is well placed to provide any required legal support in the fast-paced and ever-evolving green hydrogen economy sector.

Curtis offers free seminars to interested clients on all aspects of the industry, and can tailor a seminar based on individual requirements. Please contact Curtis if this should be of interest.

Regulatory Framework for Virtual Assets

2023-03-27T17:00:00.001+03:00

As Oman’s financial market regulator, the Capital Market Authority (CMA) plays an important role in ensuring the stability of the country’s financial system. With the rise in popularity of virtual assets such as cryptocurrencies, the CMA has indicated its intention to establish a regulatory framework to address the unique risks and challenges presented by these new types of assets.

Establishing a regulatory framework for the virtual asset industry in Oman will likely provide greater clarity and certainty for investors and businesses operating in this space, and help prevent any fraudulent or illicit activities. The CMA’s efforts to regulate this industry will also likely attract more investment and promote innovation in the virtual asset sector.

Under the proposed framework, virtual asset service providers will be required to:

obtain a license from the Central Bank of Oman,
comply with anti-money laundering and counter-terrorism regulations,
implement robust security measures, and
maintain adequate levels of capital and insurance.

The proposed regulatory framework also includes provisions for investor protection, market integrity, and transparency, such as requirements for disclosure of information, fair treatment of investors, and measures to prevent market manipulation.

Overall, the establishment of a regulatory framework for virtual assets in Oman is a positive development. The framework will be welcomed by both investors and the sector if it strikes a balance between protecting investors, and ensuring the continued growth and development of this important and rapidly evolving industry, while also protecting the integrity of the financial system.

In the Pipeline: New Labour Law Moving Closer to Enactment

2023-03-20T16:14:00.003+03:00

The eagerly anticipated replacement for the current Labour Law, RD 35/2003 (enacted in 2003), is progressing closer to enactment. In early March 2023, the Majlis A’Shura completed its review of the law and submitted proposed amendments and additions to some articles of the draft law. The draft Labour Law is now with the State Council to be further considered and progressed. Curtis will keep its clients updated and provide a full summary and analysis of the new law once it comes into force.

Arbitration Time Limits

2022-10-06T09:00:00.001+03:00

Some well-known standard construction contracts used in Oman contain strict time limits on the process of taking a dispute to arbitration. In addition, there are time limits prescribed by Omani law regarding the commencement and duration of an arbitration. This article sets out issues regarding these additional time limits.

An English translation of Article 45 of the Law attached to Royal Decree 47/1997 (often referred to as the Oman Arbitration Law) provides:

The arbitration board shall have to pass the final award in respect of the dispute within the time period agreed upon by the parties. In the absence of any agreement, the award shall be required to be passed within 12 months effective from the date of commencement of the arbitration proceedings. In all circumstances, the arbitration board may decide to extend the period of the proceedings for a further period. However such extension shall not exceed six months, unless the parties agree to a period beyond six months.
In the event, the arbitration award has not been passed within the period referred to in the preceding paragraph, either party to the arbitration may request the President of the Commercial Court to pass orders prescribing an additional period or have the arbitration proceedings brought to an end. In such a case, either party may file his claims before the competent Court.

Note that:

Unless the period is extended in some way, the arbitral tribunal has only 12 months to issue an award;
The tribunal itself may grant itself an extension of six months (i.e., extending the 12 months to 18 months);
The parties may agree to any further extension; and
The President of the Commercial Court may grant a further extension, on the application of one party.

It is also worthwhile to note that potentially the Commercial Court may extend the time for arbitration, even after the time has expired. So, all is not necessarily lost if the tribunal fails to issue an award in time but, if you are in such a situation, you should urgently seek legal advice.

12 months, or even 18 months, is a short period for any arbitration of any complexity, so often parties agree to an extension, remind the tribunal to extend, or are ready to go to Court to get the extension if need be. Past experience suggests that the Court will tend to give an extension of six months, but naturally this depends on the case, the reasons for the delay, and so forth.

Of particular note for those unfamiliar with arbitration in Oman is Article 27. Article 27 (English translation) of the Oman Arbitration Law provides:

The arbitration proceedings shall commence on the day on which the defendant receives from the plaintiff the application for arbitration unless both the parties agree upon some other date.

Usually, the defendant is notified when they receive a document typically titled “Request for Arbitration” or “Notice of Arbitration.” Bear in mind that at this stage the tribunal members have usually not been selected. The appointment of the tribunal often takes months, and this will eat into the 12-month period. For this reason, in Oman, it is often agreed in writing between the parties that the commencement date for the arbitration is a later date (such as the date of the first hearing or meeting with the tribunal). Alternatively, a longer extension for the issuance of an award is agreed to compensate.

These procedural issues are all manageable, providing you receive advice from those experienced in handling them. However, they cannot be ignored, and you should be aware of the need to quickly and diligently proceed with any arbitration.

Dispute Resolution Provisions and Staged Processes – Issues to Consider

2022-10-03T09:00:00.001+03:00

When agreeing to the terms of a contract at the outset of a relationship, parties sometimes include explicit contractual provisions setting out steps that must be complied with should a dispute arise. Parties may choose to adopt a staged approach such as including service of a notice of dispute, an initial meeting of the parties or directors of those entities to engage in negotiations, formal mediation between the parties, and a period that should be allowed before a dispute can be referred to either the court or arbitration. Contractual provisions of that nature are known as dispute escalation clauses and are commonly seen in long-term agreements such as construction contracts. A failure by one party to comply with the exact process prescribed may give rise to arguments that the court or tribunal lacks jurisdiction to hear the dispute.

At the time of drafting such a clause, it is, therefore, important to consider the impact a dispute escalation clause may have later in the relationship should a dispute arise, and whether the contractual provisions accurately reflect the intention of the parties.

When enforcing a dispute escalation clause such factors to consider include whether the clause makes clear what steps must be taken by the parties, and that those steps are mandatory. When drafting this type of clause, it is therefore crucial to ensure that each step is clearly defined and there is no ambiguity as to the time period for completion of each step. To avoid potential deadlocks, it is essential to specify clear deadlines if parties are required to complete each step before moving on to the next, e.g., 30 days for a meeting of directors, 30 days for negotiation to take place thereafter, and 60 days for a mediation to take place. Regarding mediation in Oman-related disputes, it is important as well to consider whether to include any such provisions requiring parties to enter into a mediation, given the absence in Oman of the concept of “without prejudice” negotiations in a mediation.

Another issue to consider is whether such dispute contains all issues as currently between the parties. For example, if new issues and disputes arise between the parties during the course of the dispute resolution process, consideration should be given whether the new disputes form part of the current dispute or are separate, and whether a party needs to revert to the beginning of the dispute resolution process in order to comply with the dispute escalation provisions as agreed between the parties.

Failure to comply with the requirements

So, what is the effect of failing to meet the established pre-arbitral requirements? Failure to comply with dispute escalation provisions could result in a party facing a preliminary issue or jurisdiction challenges in an arbitration. Although a number of International Institutional Arbitration Center Rules (LCIA Rules 2020, DIAC Rules 2022, ICC Rules 2021) give a tribunal the power to rule on its own jurisdiction, a tribunal may nonetheless be reluctant to accept jurisdiction on the basis that the pre-arbitral stages in a dispute resolution procedure have not been complied with.

The New York Convention is important in the context of enforcement. Articles II.1 and II.3 provide that where there is an agreement in writing to submit a dispute to arbitration, and unless that agreement is null and void, inoperable or incapable of being performed, the court of a Contracting State shall recognise an arbitration agreement between the parties and, at the request of a party, refer the dispute to arbitration. Parties should therefore be mindful not to render the agreement “inoperable” on the basis that pre-arbitral stages in a dispute resolution procedure have not been complied with.

In summary, when agreeing to the terms of a contract at the outset of a relationship, parties should be mindful of the requirements and dispute escalation provisions as agreed in a dispute resolution clause in a contract. If a dispute arises between the parties, a party should also be mindful of accurately and fully complying with the escalation provisions as set out in the dispute resolution clause so as to avoid any potential issues and challenges to jurisdiction arising in any subsequent arbitration.

Curtis Delivers More Firsts for the Government of Oman in its Defence Against U.S. Trade Measures

2022-09-13T09:00:00.001+03:00

On 16 August 2022, the U.S. Department of Commerce issued its final determination in its countervailing duty (“CVD”) investigation of steel nails from the Sultanate of Oman. A Curtis team led by partner Matt McCullough helped secure a favourable final result for the Government of the Sultanate of Oman (“GSO”), including a first-ever finding by the Commerce Department in an Oman CVD case that the provision of electricity conferred no subsidy benefit on the company respondent.

Relying on a team drawn from Washington, D.C., Paris and Geneva, and on the ground in its Muscat office, Curtis delivered a victory for the GSO, with the final CVD margin for the lone Omani company respondent, Oman Fasteners, set at just 2.49%. The low margin will help Oman to retain its competitive edge. This result follows two earlier Curtis wins for the GSO. A year ago, the same Curtis team secured a huge victory for the GSO in a case involving aluminum foil, in which the GSO successfully beat back allegations of government-directed lending to the respondent in that case. In 2016, another Curtis team also led by partner Matt McCullough delivered a de minimis CVD outcome, resulting in no CVD order on exports of PET resin from Oman.

“We are proud of what we have achieved for the GSO,” said partner Matt McCullough. “These are complex cases and the U.S. Department of Commerce investigation process requires careful attention under incredibly tight deadlines. I firmly believe that no other firm can deliver both the expertise and the commitment that Curtis brings to the table in Oman and elsewhere.” McCullough was recently identified in Legal 500 USA as regarded by many to be “the top countervailing duty lawyer in DC.”

The result “reflects Curtis’ position as market-leading counsel to sovereign clients in complex disputes,” said Muscat Managing Partner Simon Ward. “Our platform delivers high-level substantive experience, a deep understanding of the GCC region, and a committed team of experienced lawyers that can be called upon across our numerous global offices,” Ward added.

Mr. McCullough’s team included Geneva and Paris associates Arthad Kurlekar and Amrane Medjani, as well as Muscat associate Budoor Al Zadjali. Muscat partners Simon Ward and Mehdi Al Lawati were also instrumental in the defence.

Restarting Suspended Construction Projects – A Quick Guide to Preventing Disputes

2022-09-06T09:00:00.001+03:00

It is common for employers and contractors to fall into dispute over suspended projects and their recommencement, particularly in regards to time and costs, changes in design and scope of works. With many projects that were stalled during the Covid pandemic, and the period of lower oil prices, now being restarted, Curtis provides an overview of the key issues to consider together with the main causes of disputes and how to successfully navigate restarting suspended projects.

Pre-Suspension Losses

Contractors should consider what losses they may have incurred prior to a project being suspended. It is very common that, prior to receiving an instruction to suspend works, the employer will have slowed the contractor down in their works which will have caused a loss in productivity. A contractor should consider whether a claim for prolongation or disruption exists prior to suspension.

To establish disruption, a contractor would be required to undertake a review of its productivity in carrying out the works over the schedule in order to determine when lower productivity occurred and what work activities were impacted. It is likely expert analysis will be required to determine the loss of productivity arising out of the disruption events, and the resulting financial loss. As always, good records are essential.

Suspension

Costs incurred protecting the works against any deterioration, loss or damage.
Downtime/standing time of plant/equipment and labour.
Depreciation of equipment.
Prolongation costs – staff, insurance, bonds, extended warranties, accommodation, storage facilities.
Making good unavoidable deterioration of the works.
Loss of revenue.
Interest.
Other general damages suffered.

Extension of Time

A contractor should be careful to document the employer’s suspension of the works, and carefully maintain project documentation/evidence in order to support any claim for extension of time. It is almost certain that any claim for extension of time will need to be supported by a delay analysis, and therefore a contractor should collect and preserve evidence of progress and instructions to suspend work. This evidence will be critical to support a delay analysis. A contractor should ensure that the following are carefully maintained during execution of the works, and carefully stored and controlled during suspension:

Minutes of meetings.
Site inspection records.
Daily, weekly and monthly reports.
Schedules/programs.
Design documents.
Equipment logs.
Photographs of progress and key milestones.

Such documentation will be essential to undertake a helpful analysis examining the status of the works and the critical path prior to any slow down or disruption prior to suspension.

Project Restart – Practical Considerations and Costs

Key issues that a contractor should examine and consider prior to restarting suspended project works:

Is there an agreed and documented procedure for restarting?
Is the design still correct and/or viable?
Is the existing project execution plan still workable?
What project documentation/records are still in place?
Is it possible to jointly agree a condition survey with the employer?
Can variations be agreed prior to recommencement?
How are the project restart works priced?
Is timing, sequence and quantity agreed?
What is the basis of pricing the restart works?

Some cost considerations to be considered before restarting the project:

What is the impact of suspension/restart on the project’s material costs?
Has there been any impact by inflation, escalation, commodity prices, availability of material?
Have suppliers changed during the suspension period and, if so, does this impact time or cost?
Is it necessary to revisit BOQs and rates/prices?
Will there be a need to replace already installed material? There have been significant increases in prices during 2020-2022 of concrete, steel, cabling, timber. This should be factored in and agreed before restarting works.

Impact on Personnel and Rate of Progress

A review should be undertaken to consider what, if any, changes in personnel have occurred. Changes in personnel can result in a decrease of rates of progress and efficiency, due to loss of project and site knowledge. Any such losses should be taken into account and provided for. Some issues to consider:

Have there been any regulatory or procedural changes during the period of suspension that have increased costs during remobilization?
Any changes in regulation also may impact pricing if specified materials have changed or are no longer available due to supply chain restrictions, sanctions, or availability of materials produced overseas.
Are subcontractors still available?
Has the introduction of VAT had any impact on costs?

Key Takeaways

Prior to restarting a suspended project, both parties should give serious thought to the issues above, and be realistic and aligned: the original project schedule will unlikely still be suitable for the project. At a minimum, the parties need to undertake a review of the schedule, consider prolongation costs, and reconfirm the scope of works. The parties need to work together if restarting a suspended project is going to move successfully towards completion without disputes arising.

Sanctions Update - EU Sanctions

2022-08-30T09:00:00.000+03:00

Across the EU, almost every aspect of enforcement of sanctions varies from member state to member state. The EU publishes regulations, but then it is up to each member state to implement those into domestic law. The EU’s regulations do not deal with most aspects of enforcement; penalties, limitation periods, defences, ancillary offences, even the necessary mental element for the offence are all left to the domestic law of each member state. Indeed, in some member states the breaching of sanctions is not even a criminal offence, while in others the prosecution can choose between criminal or administrative enforcement.

The result is a legal patchwork across the EU. To address this,on 25 May 2022 the EU Commission issued a proposal that would add sanctions to the list of so-called “EU crimes.” The effect of this would be to place sanctions on the same level as crimes such as money laundering and mean that the EU itself could legislate via directives.

The European Parliament, the Council and the Commission are involved in the legislative process to adopt this proposal. In the coming weeks it is expected that the various required steps will be taken, and likely follow the Commission’s far-reaching proposals to bring about a fundamental change to almost every aspect of the enforcement of EU sanctions including:

Reporting obligations.
Adding the violation of Union restrictive measures to the areas of crime.
Directive on criminal penalties for the violation of Union restrictive measures.
Requirement to supply immediately any information which would facilitate compliance with this regulation, such as information on accounts and amounts frozen.
Create new failure to report offences for (amongst others) not reporting a sanctions breach, or not reporting activities that seek to circumvent sanctions. This would align the EU with the position in the UK where, since 2017, there has been a positive reporting obligation in relation to breaches of sanctions, and since Brexit a wider reporting obligation in relation to frozen assets and to entities owned or controlled by a designated person.
Offences for Legal Persons - The Commission’s proposal also includes wholly new criminal offences for legal persons which would significantly expand the exposure for companies and other businesses. The proposal appears to be designed to address issues of criminal attribution to companies. If implemented, it could create a “failure to prevent” offence. A company would commit this offence if, through a lack of supervision or control by those in leading positions within the company, an offence was committed by others.
Penalties and Sentencing Powers - The proposal would also mean the imposition of standardised penalties, and the adoption of a broad range of significant sentencing powers; penalties could potentially be calculated as an unspecified percentage of worldwide turnover in the previous financial year. More wide-ranging still are some of the proposed non-monetary penalties which range from the winding-up or liquidation of the defendant, through the temporary or permanent closure of local subsidiaries or branches that were involved in the commission of the particular offence, to the temporary or permanent disqualification from continuing a business line involved in the offence, and public procurement and public funding debarment.
Limitation Periods - The Commission’s proposal seeks to standardise the limitation periods for the commencement of a prosecution and for the enforcement of penalties.
Jurisdiction - The proposal would also see a significant expansion of the jurisdictional reach of the EU’s sanctions, as well as giving to member states the option to expand their jurisdiction yet further. Currently EU sanctions regulations apply to a non-EU business “in respect of” any part of that business done within the EU. Under the proposal, member states would be “required to extend their criminal jurisdiction to non-EU persons outside EU territory insofar as their business has an EU nexus (which may, by extension, also concern their assets).” This would mean that an Omani company could be prosecuted for breaches of EU sanctions committed say, in Thailand, if the Omani company has assets in the EU. This would be a significant change. Moreover, the proposal also states that criminal jurisdiction could be exercised if an offence was committed “in whole or in part” within the EU. Again, this would be a significant extension of EU jurisdiction where despite some part of the offence being committed outside the EU, the member state would still have jurisdiction. The proposal would also allow member states to further expand their criminal jurisdiction over offences committed globally by those habitually resident in a member state (as opposed to the current rules which are limited to nationals), as well as over offences committed globally for the benefit of an EU legal person.
Asset Confiscation - The EU proposal also seeks to ensure that asset seizure powers are more readily available for sanctions breaches. The Commission’s proposal seeks to achieve this by use of the existing confiscation and civil recovery powers under the relevant anti-money laundering legislation, with any funds obtained or retained through sanctions breaches being “criminal property.” In addition, however, the Commission has put forward a proposal for a separate directive on asset recovery and confiscation.

Conclusions

The proposal, if adopted, represents a complete overhaul and reform of the legal basis for the criminal enforcement of sanctions across the EU. There is no doubt that this is timed in response to, and as part of, the unprecedented range and number of restrictive measures imposed against Russia and, to a lesser extent, Belarus. Curtis will provide updates on these reforms to friends and clients as they progress.

US, EU, AND UK Sanctions and Export Controls Imposed Against Russia: What Every Business Should Know

2022-06-16T08:00:00.002+03:00

On 12 April 2022, the Curtis Sanctions and Export Controls Committee hosted a webinar titled “US, EU, and UK Sanctions and Export Controls Imposed Against Russia: What Every Business Should Know Right Now.”

Curtis’ sanctions experts presented a comprehensive outline of the recent and escalating sanctions and export controls imposed on Russia by the United States, the United Kingdom, and the European Union, starting in mid-February 2022. The presentation details how these measures affect the operations of any business that intersects with Russian entities, Russian economic sectors, and designated Russian persons. Issues covered in the presentation include:

Compliance programs and other safeguards in place
Types of international sanctions
Embargoes
Financial sanctions and asset freezes
Prohibition on transacting with listed persons
Trade restrictions (export/import)
Travel restrictions
US Office of Foreign Assets Control (OFAC) penalties for sanctions violations
Penalties can include imprisonment and fines
UK Office of Financial Sanctions Implementation penalties for sanctions violations
EU penalties for sanctions violations

The key takeaway is that all companies operating in this complex and rapidly evolving legal environment should:

Monitor the rapidly changing sanctions landscape
Establish and maintain a robust compliance program including

Written compliance materials
Employee training

Screen all transactions diligently
Be alert for red flags

Geographic
Counterparty-specific
Transaction-specific

Draft protective contractual provisions

Representations and warranties
Force majeure

Consider application to agency

Clarification
Specific license

Developments in sanctions laws are sudden and fast-moving, and Curtis would be happy to provide advice and assistance as required. If you would like to watch a recording of the webinar, please click here. The access code is: S@nctions2022.

To download a copy of the presentation, please click here.

The Advance on Costs in Arbitration – Issues to Consider

2022-06-14T08:00:00.001+03:00

The payment of advances on costs in arbitration aims to ensure that an arbitral institution has sufficient funds to cover the payment of arbitrators’ fees and expenses, as well as costs incurred in the administration of arbitral proceedings. The advances on costs paid to arbitral institutions do not include party costs, such as legal fees and expert fees. Each of the major arbitral institutions requires that parties furnish some form of advance on costs before an arbitration can proceed.

Whilst payment of the advances on costs is often perceived as one of the more perfunctory steps in an arbitration, in practice it can give rise to strategic considerations, and can have the effect of bringing an arbitration to a standstill.

Certainly in Oman and other countries in the Middle East, respondents often treat the payment of the advances on costs as the claimant’s financial burden to discharge if the claimant wishes to obtain a final award. As such, it is not unusual to encounter a respondent who is unwilling to pay its share of the advances on costs.

The option of simply waiting for the defaulting party to pay its share of the advances on costs should be approached with caution. The arbitration will not proceed where the advances on costs remains unpaid. Aside from causing delays to the timetable and frustrating busy arbitrators, the Court will eventually dismiss the reference without prejudice to either party’s right to bring fresh proceedings concerning the same claims at a later stage. Whilst this may sound superficially appealing to some respondents, thought should be given to the consequences of having a reference dismissed without any conclusion. Where disputes really do need to be fully and finally resolved (such as where the employer is withholding certificates and/or performance security after completion), this uncertainty may not be a satisfactory outcome for either party.

The parties’ obligations to make payment of the advances on costs are an extension of the parties’ obligations in the arbitration agreement. Accordingly, a refusal by either party to pay the advances on costs will constitute a breach of contract. The usual remedies for breach of contract are available against a party failing to pay its portion of the advances on costs.

However, the Court or tribunal will not levy any sanction against a party for failing to pay its portion of the advances on costs. The Court is, at that stage, concerned only with securing payment of its own costs and the costs of the tribunal. Usually, the Court will ask the compliant party whether it wishes to pay in substitution for the defaulting party. A party that elects to pay in substitution has the option of seeking reimbursement.

Unlike in litigation, where public resources are finite and there is less tolerance for non-compliance, institutional Courts and tribunals often demonstrate more patience to parties who fail to satisfy their obligations to pay the advances on costs.

It is not uncommon in the Middle East to encounter a party who refuses to pay its portion of the advances on costs, at times receiving reminders from the Court or tribunal for several months to make payment, given multiple warnings before the tribunal is finally instructed to suspend work. Alternatively, a tribunal in Oman may allow the arbitration to proceed, and deal with payment of tribunal costs in its final award. It may therefore fall to the parties, rather than to the Court or tribunal, to be proactive in ensuring the expeditious resolution of disagreements about payment of the advances on costs, where this is achievable.

Parties arbitrating in the Middle East should be prepared for non-paying respondents, and should be aware of the important strategic considerations of the options available under the relevant institutional rules – whether paying by substitution, splitting the advances on costs, or raising the issue in a related security for costs application.

In short, issues on the advances of costs in an arbitration should be given careful consideration and the appropriate legal advice obtained at an early stage to resolve any issues that might arise.

Partial and Interim Arbitral Awards in Oman

2022-05-09T09:00:00.000+03:00

It is relatively common in arbitration proceedings for a party to seek an interim or partial award on a discrete issue. The issue may concern fundamental matters such as the tribunal’s jurisdiction, time bars on proceeding, and so forth, or preliminary points which may limit the need for certain evidence to be heard. There are a variety of reasons why an interim or partial award may be sought.

A key issue arises in relation to interim awards in which the governing law is Oman. The Law accompanying Royal Decree 47/1997 (also known as the Oman Arbitration Law) does not contain any procedure for partial or interim awards. That would not prevent an arbitral tribunal from issuing an arbitral award, but questions arise about what a party may do to challenge an interim or partial award.

Some interim or partial awards may have the effect of concluding a matter in favour of one party or another. In such cases, the interim award is in effect a final award, and (depending on the details of the proceeding) could most likely be challenged in the same way and to the same extent that a final award might be challenged, pursuant to Articles 52 to 54 of Royal Decree 47/1997.

However, where a partial or interim award only concludes certain aspects of an arbitration proceeding, and the arbitration continues, or where the issue had the potential to conclude the arbitration, but the award as issued did not, then any party wishing to challenge the award has a problem. Article 54 provides that a party seeking to set aside an award must do so within 90 days. However, because the Oman Arbitration Law does not allow for interim or partial awards, there is some uncertainty whether the 90 days commences from the receipt of the interim or partial award, or from receipt of the final award, which will in part reflect the earlier award. To date there appears to be no case law on the issue. If a party is placed in such a situation, and thinks it has good grounds, it may be prudent to at least apply to set aside an unfavourable interim award within 90 days of its receipt, but this is a matter that should be carefully considered by a party in conjunction with its legal advisors.

Omani Personal Data Protection Law

2022-03-31T09:00:00.002+03:00

Oman has recently issued a national privacy legislation with the publication of a new Personal Data Protection Law, promulgated by Sultani Decree 6/2022 (the “Law”). The Law was issued on 9 February 2022, and will come into effect on 13 February 2023. The Law will repeal Chapter Seven of the Electronic Transactions Law that limited obligations related to the protection of private data in the field of electronic transactions. The issuance of this Law in Oman follows the recurring trend of data protection regulations in the Middle East.

Who It Applies To

The Law applies to the processing of personal data, which is defined as “data that identifies a natural person or makes him identifiable, directly or indirectly, by reference to one or more identifiers.” This consists of the name of the person, ID number, location data or data relating to their genetic, physical, mental, psychological, social, cultural or economic identity.

Who It Does Not Apply To

The Law includes a substantial list of excluded categories to which the provisions of the Law will not be applicable:
Protection of national security or public interest.
Implementation of the units of the administrative apparatus of the state and other public legal persons of the competences prescribed to them by law.
Implementation of a legal obligation imposed on the controller by virtue of any law, judgment, or decision by the court.
Protection of the economic and financial interests of the state. • Protection of a vital interest of the individual to whom personal data relates (data subject).
Detection or prevention of a crime on the basis of a formal written request by the investigation entities.
Execution of a contract to which the data subject is a party. • If the processing is within the personal or family sphere.
For the purposes of historical, statistical, scientific, literary, or economic research, by entities authorised to carry out such works, provided that no indication or reference relating to the data subject is used in the published research and statistics, to guarantee that the personal data is not attributed to an identified or identifiable natural person.
If the data is available to the public in a manner that does not impose any violations against the provisions of the Law.

Main Features

Organisations are under the obligation to process personal data within the framework of transparency,

honesty, and respect for human dignity and to grant individuals the right to revoke consent to processing of their personal data, the right to request for their personal data to be amended or erased, the right to have a copy of their personal data and the right to have personal data transferred to another party.

Controllers are required to identify a personal data protection officer. In addition, there will be controls

on transfers of personal data outside of Oman. Controllers and all third parties that are appointed to process the personal data may be required by the Ministry of Transport, Communications and Information Technology to appoint an external auditor in order to verify their compliance.

A general restriction is placed on the processing of sensitive personal data (genetic and biometric data,

health data, ethnic origin, sex life, political/religious opinions or beliefs, criminal convictions, security measures) without initially obtaining an approval from the Ministry of Transport, Communications and Information Technology. Furthermore, the processing of a child’s personal data will not permitted without the express consent from the guardian unless the processing of such data is in the best interest of the child.

The executive regulations that will be published in due course will provide further clarifications to the

extent of the requirements and restrictions.

Consequences of Breach

Data subjects hold the right to file an official complaint to the Ministry of Transport, Communications

and Information Technology if they believe that the processing of their personal data is in breach of the Law. Furthermore, the Ministry of Transport, Communications and Information Technology has the discretion, in the case that it suspects a violation of the Law, to order rectification and erasure of personal data.

The penalties in relation to the disclosure of secrets or any other applicable privacy offence under the

Oman Penal Law and other laws will continue to be in effect.

Major Changes To Dubai Arbitration Landscape

2022-01-26T10:00:00.003+03:00

In recent years, many Oman-based companies have included DIFC/LCIA arbitration clauses in their contracts. It has been a popular choice for dispute resolution as it combined the certainty of the well-known and trusted LCIA rules, with the convenience of locally administered institutional arbitration within the DIFC. Dubai Decree No. 34 of 2021 - Dubai International Arbitration (the “Decree”), accompanied by a new statute (the “Statute”), reforms the framework for arbitration in the Emirate of Dubai, and carries important changes for those negotiating and administering contracts.

The Decree dissolves the DIFC arbitration institution and the Emirates Maritime Arbitration Centre

(“EMAC”), and provides for a framework under which the existing Dubai International Arbitration Centre (“DIAC”) will become the default center for arbitration in Dubai. This is an important change to note for companies with existing DIFC/LCIA clauses, or those accustomed to including such clauses by default. The following is a summary of the key changes:

Centralisation of Arbitration in the Emirates: The Decree abolishes the EMAC and the DIFC arbitration institutions. Both institutions’ operations shall be transferred to DIAC.
Amended Management Structure for DIAC and Introduction of the Court of Arbitration: DIAC is now composed of three main bodies: (1) Board of Directors; (2) the Court of Arbitration; and (3) the Administrative Body. The DIAC Court of Arbitration will consist of 13 members. The President of the Court will be appointed by the Board of Directors. The DIAC Court of Arbitration is charged with supervising and reviewing draft arbitral awards prior to tribunals issuing the same. It is hoped that this will reduce any issues faced during enforcement.
Supervisory Jurisdiction of the Dubai Courts and DIFC Courts: Determination of the place or seat of arbitration and the Court with supervisory jurisdiction is intended to be clarified. There has been in the past uncertainty as to whether the Dubai Courts or the DIFC Court is the competent supervisory court with jurisdiction over enforcement and/or nullification of DIAC awards or arbitral awards generally in Dubai. Article 4 of the Statute clarifies this uncertainty. The Dubai Courts are bound to accept jurisdiction as a supervisory court if the DIAC arbitration is seated in Dubai, and the DIFC Courts are required to deny jurisdiction in those circumstances (i.e., if the arbitration is not seated within the DIFC). It should be noted that the DIFC is the default seat of DIAC arbitration proceedings if the parties do not agree otherwise.
Arbitration Funding: Article 8.4 of the Statute permits the DIAC Board of Directors to establish rules concerning funders of arbitration.
Publication of Revised DIAC Rules: These have been in the pipeline for some time and, with the expanded and prominent role of DIAC, are expected to be released soon.

In short, now is a good time to review your contracts, and seek legal advice as to how best tailor your arbitration clauses to ensure that they reflect these changes, and continue to meet the needs and intentions of the parties and the subject matter/value of the contract involved.

Curtis Successfully Defends The Sultanate of Oman and Oman Aluminium Rolling Company LLC in U.S. Department of Commerce Trade Case

2021-12-02T10:00:00.004+03:00

Curtis’ International Trade practice delivered a significant victory for the Government of the Sultanate of Oman and local aluminum sheet and foil producer Oman Aluminium Rolling Company LLC (OARC) in a year-long investigation by the U.S. Department of Commerce into allegations that the Sultanate unfairly subsidised OARC’s operations.

The pivotal issue in the case was the charge that the Sultanate directed banks in Oman to provide OARC with preferential lending. An international Curtis team, comprising lawyers in Muscat, Geneva, and Washington, successfully beat back the allegations. The result was a “negative” finding on the banking issue by the U.S. Commerce Department and only minimal duties for OARC, preserving its access to the U.S. market.

This is Curtis’ second major victory in Oman involving allegations of unfair subsidies led by partner Matthew McCullough, who specialises in U.S. countervailing duty law. In 2015, Mr. McCullough directed a Sultanate defense representing both the Government and a local PET resin producer to a complete victory in a similar U.S. proceeding.

“Such cases give a government the opportunity to demonstrate internationally that its economy works on competitive, transparent, market-oriented terms,” commented lead partner Matthew McCullough. “A successful result like this helps to preserve and attract inward investment and deters new cases by showing the allegations to be baseless.”

Muscat Managing Partner Simon Ward added, “This case also demonstrates Curtis’ ability to provide immediate legal support in Oman, while drawing on our international team to deliver effective, practical, and efficient legal services in highly specialised areas of international and commercial law such as U.S. countervailing duty law.”

The Curtis team was led by partners Matt McCullough (Geneva/Washington) and Mehdi Mohamed Al Lawati (Muscat), and included associates James Beatty (Washington), Arthad Kurlekar (Geneva), Amrane Medjani (Geneva) and Reem Al Mahrizi (Muscat).

Minority Shareholders’ Rights Under Omani Law

2021-11-23T09:00:00.002+03:00

It is common for Omani companies to have at least one minority shareholder – i.e., a shareholder that owns less than 50% of the company’s shares. Some companies are formed with minority shareholders as part of the original ownership structure, such as a joint venture company in which the majority partner owns 70% of the shares and the minority partner owns 30% of the shares. Other companies add minority shareholders at a later stage, for example by granting a minority interest to a new investor in exchange for an infusion of capital.

For any such company, minority shareholder rights represent a key corporate governance issue. The minority shareholder will desire legal protections to ensure that the majority shareholder cannot use its voting control over the company to abuse the minority shareholder’s interests. Protections for minority shareholders not only promote fair and responsible governance, but also encourage investment by giving parties comfort to invest in companies in which they will not be able to exert voting control.

Minority shareholder rights mainly come in two forms: (i) rights conferred by statute, and (ii) contractual rights between the minority shareholder and the company’s other shareholders, enshrined either in the company’s charter or in a shareholders’ agreement.

Double Tax Treaty with the United Kingdom

2021-11-16T09:00:00.002+03:00

On 14 October 2021, Her Majesty’s Revenue and Customs (a non-ministerial department of the United Kingdom’s Government responsible for the collection of taxes) (“HMRC”) published the “synthesized” text of the UK’s double tax treaty with Oman, reflecting the changes made to the treaty by the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, known as the Multilateral Instrument (“MLI”). This document results from the UK and Oman each depositing with the Organisation for Economic Co-operation and Development (the “OECD”) its instrument of ratification of the MLI, and reflects the modifications each of those jurisdictions submitted to the depositary on ratification.

The MLI entered into force in the UK on 1 October 2018 and in Oman on 1 November 2020.

The revised treaty, as modified by the MLI, applies:

For withholding tax purposes, from 1 January 2021.
For other UK income and capital gains tax purposes, from 6 April 2022, and for UK corporation tax purposes, from 1 April 2022.
For other Oman tax purposes, for taxable periods beginning on or after 1 May 2021.

This follows other synthesised texts published by HMRC. However, this synthesised text does not take precedence over either the UK’s original double tax treaty with Oman or the MLI, which remain the applicable legal texts (for example, in the event of any dispute).

Rules Organising Investments by the Public Authority for Social Securities and Pension Funds

2021-07-13T09:00:00.003+03:00

The long-awaited consolidation of the pension funds has come into effect by virtue of Sultani Decree 33/2021 regarding the Systems for Retirement and Social Security, consolidating the management and operation of Oman’s various pension funds into two funds: a fund named the “Social Security Fund” and a fund named the “Military and Security Services Pension Fund.” Both funds shall have a legal personality, enjoy financial and administrative independence and shall be subordinate to the Council of Ministers. The systems of both funds shall be issued by a Sultani Decree.

Prior to the consolidation of the funds, there were nine funds that were subject to the limitations set forth by Sultani Decree 31/1996 on the Rules Organizing Investment of the Funds of each of the Public Authority for Social Securities and Pension and Retirement Funds, and this was further amended by Sultani Decree 12/2009.

The amendments issued the updated list of entities that such provisions are applicable to:

1. The Sultan’s Special Force Pension Fund;

2. Internal Security Service Pension Fund;

3. Royal Guard of Oman Pension Fund;

4. Royal Oman Police Pension Fund;

5. Royal Office Employees Pension Fund;

6. Public Authority for Social Insurance;

7. Civil Service Employees Pension Fund;

8. Diwan of Royal Court Employees Pension Fund;

9. Defence Ministry Pension Fund; and

10. Any other pension funds that may be established per Sultani Decrees.

The investment of the capital of the aforementioned funds shall be in the fields listed in the amendment, specifically: (i) real estate properties in the Sultanate and outside; (ii) shares and bonds issued by foreign companies listed in stock markets in foreign countries; (iii) bonds issued by the Sultanate’s government and foreign countries’ governments; (iv) shares and bonds issued by Omani stock companies; and (v) the deposits a local and foreign banks.

Pension funds are a central component of the financial sector in the Sultanate of Oman. The consolidation into the Social Security Fund and the Military and Security Services Pension Fund is a reflection of Oman’s continuous efforts to boost and develop the government sector.

Good Faith: English Law v the Oman Civil Code

2021-05-05T09:00:00.002+03:00

Introduction

The English courts’ historic reluctance to imply a term of good faith into agreements negotiated between two commercial parties at arm’s length is well known and is based on the long-established doctrine of freedom of contract. In contrast, in civil law countries, such as Oman, performing obligations in a manner consistent with good faith is a fundamental part of the contract.

Those working with international contracts, particularly construction standard forms such as those in the FIDIC suite, need to keep these very real differences in mind as they can have a significant impact on how some provisions operate in practice.

Summary of recent English case law on good faith

A series of English cases on good faith in early 2013, notably a High Court judgment in Yam Seng Pte Ltd v International Trade Corporation Limited, had raised the prospect that the English courts may be on their way to recognising an overarching duty of good faith, but this prospect now seems to have receded.

Several subsequent judgments have made it very clear that the English courts are not ready to imply a general doctrine of good faith. The judgment of the High Court in Yam Seng appears to have been sidelined (if not directly overruled) by the Court of Appeal, and in later cases.

If the parties want to have an express duty of good faith, they need to create one and they should think very carefully about its scope. The English courts will not allow good-faith-type wording to overrule an absolute contractual right such as the right to terminate for convenience. The parties will need to expressly provide that a good-faith obligation operates in relation to such a provision.

Good faith in Omani contracts

In most jurisdictions in this region, including Bahrain, Kuwait, Qatar and the UAE, the parties to a contract are expressly required by terms of their respective civil codes to perform their contractual duties towards each other with good faith. For example, article 246 of the UAE Civil Code provides:

“The contract must be performed in accordance with its contents and in a manner consistent with the requirements of good faith.”

This in effect is a requirement not to use the terms of a contract to abuse the rights of the other contracting party, not to cause unjustified damage to the other party and to act reasonably and moderately.

Even though the Oman Civil Code (Sultani Decree 29/2013) contains no equivalent provision, Omani lawyers generally accept that, as a matter of Omani jurisprudence, an identical principle applies in the Sultanate.

So, can the doctrine of good faith be used as a tool to adjust, erode or dilute the effect of clear contract terms? Simply put, no. If good faith could override contractual terms, that could leave parties uncertain as to whether or not adherence to an agreed (but onerous) term is mandatory. It would undermine the fundamental principle of contract law that the contract means what it says. Article 155 of the Oman Civil Code provides that a contract is the law of the parties and (except in very limited circumstances) prevails over all else. As such, parties are bound by the terms to which they have agreed, and the duty of good faith does not alter their contractual rights or obligations. Indeed, it could be argued that a party seeking to circumvent agreed terms through the application of a good-faith argument may itself not be acting in good faith in seeking to do so!

An act of bad faith by one contracting party may provide a cause of action for the other, and the duty of good faith is therefore overarching, unlike at English law. In deciding whether an act constitutes bad faith the court may also look at article 59 of the Oman Civil Code which provides that a party is prohibited from exercising its rights if:

it is intended to infringe the rights of another party;
the desired interest is unlawful;
the gain is disproportionate to the harm that will be suffered by the other party; or
it exceeds the bounds of custom or practice.

There are some potentially wide-ranging ramifications of this, including:

Good faith is most likely to be applied to evidence, or to support, an allegation of breach. Where, for example, building materials are found to be defective a breach will be easier to establish if there has been some attempt to conceal this or cover up the materials once incorporated into the works.
Reliance on a time bar notice (e.g., FIDIC’s clause 20.1) is likely to be restricted where a party seeking to rely on it knew about that breach previously (for example, if notification of the claim was made informally and is recorded in meeting minutes or similar but was never formally made). In other words, denying a claim due to the time bar when it had already been communicated, albeit informally, would be an act of bad faith.
Avoiding liability for a very substantial claim due to a time bar may also be unlawful where the losses were serious and unequal with the employer’s contractual claim to be notified in a required time period (for example, 28 days under clause 20.1 of the 1999 FIDIC contracts). Article 59(1) of the Oman Civil Code provides that “a person shall be held liable for an unlawful exercise of his rights” and this, together with the good-faith obligation, may be used to challenge the effectiveness of a time bar in such circumstances.

Whilst the Oman Civil Code does provide (in article 267) that parties may fix a pre-agreed compensation mechanism or amount in their contract, the court may also vary the pre-agreed amount of compensation or damages to equal the actual loss in any event, regardless of whether there was any “act of prevention” on the part of the employer.

Good faith is also applicable in relation to termination for convenience clauses although it is worth noting that the duty of good faith is not applicable to the obligation itself but to the performance of the obligation. Accordingly, the parties’ agreement that the employer may terminate the contract for convenience is a valid agreement and the Oman courts will normally uphold this. Although this employer’s right might be looked at as contradicting the good-faith principle, it would be an enforceable contract term as it was freely entered into.

However, if the employer relies on this contract provision to terminate the contract in circumstances that give rise to performing the contract in a manner that is inconsistent with good faith, then the court might have a different view.

For example, if the contract provides for termination for convenience and limits the liability of the employer to compensate the contractor for the work done until the date of termination, but excluding mobilisation cost, the employer who terminates the contract for convenience immediately after mobilisation and before the contractor has done any work is performing the contract in bad faith. In this case, the contractor might rely on article 59 (abuse of right) and 267(2) (claiming actual loss) of the Oman Civil Code to recoup its losses.

Joint Ventures in Oman - April 2021

2021-04-07T16:00:00.002+03:00

There are many different reasons why a business may seek to enter into a joint venture. It may wish to access new markets, develop new products or benefit from the particular expertise of its joint venture partner or share risks and resources. Curtis has worked on a diverse range of joint ventures in Oman across all industry sectors. We understand the importance of ensuring that the joint venture structure and documentation encapsulate the underlying commercial objectives of the participants, whilst also being appropriate for the scale or complexity involved.

The phrase “joint venture” can have a number of different meanings. Oman attracts significant foreign investment so it may involve the partnering of Omani and foreign investors. The joint venture will typically involve the incorporation of a company to act as the joint venture vehicle. This article will focus on corporate joint ventures since that is the most common approach, although the phrase “joint venture” may also be used to describe a contractual arrangement, for example, in the areas of commercial agency, franchise and (less commonly) a simple, unincorporated contractual co-operation agreement.

Structuring the joint venture

Curtis has been at the forefront of the Omani legal market in our understanding of corporate law, including Sultani Decree 19/2018 (the “Commercial Companies Law”) and its practical interpretation by the relevant government officials and legal departments, enabling us to devise and implement optimal corporate structures for our clients.

We work closely with the relevant licensing authorities to ensure that various corporate structures proposed by us for joint ventures are acceptable. In our experience, such authorities are keen to engage with us to enable innovate corporate structures, given their objective of attracting and facilitating foreign investment into the country.

Our objective is to allow our clients to focus on their business and have a legal corporate structure that they know is robust and flexible enough for their short, medium and long term objectives.

Key provisions in joint venture or shareholders’ agreements

In addition to our structuring expertise, Curtis also has a wealth of experience in advising on the relevant joint venture documentation. Various documents will be required depending on the circumstances of the joint venture, but typically the principal document will be the joint venture or shareholders’ agreement.

The following are key provisions in any joint venture agreement (although there are others which are not noted below):

The purpose and scope of the joint venture.
Board composition and management arrangements.
Financing of the joint venture company.
Reserved matters requiring consent of shareholders/directors and voting requirements.
Dividend policy.
Restrictive covenants.
Deadlock resolution.
Transferability of shares under different circumstances.
Termination or exit from the joint venture.

Certain of these matters are discussed in more detail below.

1. Board composition and management arrangements

Board composition will usually be proportionate to each party’s shareholding. In a 50:50 joint venture, it would be normal for the parties to be entitled to appoint an equal number of directors, although this is not always the case. Any party that has minority representation on the board should require a number of issues to be reserved for shareholder approval, depending on the nature of control and veto rights which are appropriate to the joint venture. The list of shareholder reserved matters will often be one of the more heavily negotiated aspects of a joint venture agreement.

Under joint venture agreements, it is common for the shareholdings of parties to be subject to mechanisms that change these, e.g., on a capital call, one shareholder may subscribe for shares whilst the other may not, so diluting the latter shareholder. It is therefore important that board composition provisions cater for the possibility of change and enable board appointment rights to vary where a shareholder’s proportionate ownership has increased or decreased.

Day-to-day management of the business of the joint venture will often be delegated by the board to the general manager or CEO. In a 50:50 joint venture, the board will normally be entitled to appoint the general manager or CEO, but this is not always the case and in certain instances this right could be given to one of the shareholders. Whilst the general manager or CEO will have broad powers to operate the business on a day-to-day basis, it is important to ensure that certain key matters are reserved to the board or the shareholders. This is of particular significance for a shareholder where the other shareholder has the right to appoint the general manager or CEO.

2. Financing of the joint venture company

In any joint venture, the funding provisions need to be carefully tailored to reflect the parties’ chosen method or methods of funding the joint venture company. There are various options available but a typical process would involve the board of the joint venture company (or senior management such as the CEO) deciding that funding is required. Following this “funding call” an agreed mechanism will determine from whom funding should be procured (for example, loans from banks or other third parties or equity/shareholder loans from the shareholders). This would often be subject to shareholder approval, with the deadlock resolution mechanism being invoked if the shareholders cannot agree on any relevant issues within a stipulated timeframe (see Deadlock resolution below for further details).

Where the shareholders are obliged to make contributions (typically pro rata to their shareholdings), the agreement should clearly state what happens if one of them defaults. For example, should the other shareholder be able to fund the shortfall amount and receive additional shares, thereby further diluting the defaulting shareholder? Or should the other shareholder be entitled to provide a shareholder loan equal to the shortfall amount and, if so, should this shareholder loan rank ahead of all other shareholder loans and attract a preferential rate of interest? A failure to comply with a funding obligation would also typically constitute an event of default triggering the compulsory share transfer provisions, whereby the non-defaulting shareholder can elect to purchase the shares of the defaulting shareholder at a discount to market value (occasionally an option is also included for the non-defaulting shareholder to sell its shares to the defaulting shareholder at a premium to market value). These types of clauses are designed to incentivise the shareholders to comply with their funding obligations, providing the joint venture company with the financing it needs to successfully operate its business.

3. Dividend policy

It is important for the parties to consider the dividend policy of the joint venture company at the outset. This will often depend on the nature of the business, in particular on whether the joint venture’s purpose is intended primarily to be cash-generating or as a growth company.

The dividend policy will need to be clearly stated in the joint venture agreement in order to reduce the likelihood of a dispute arising in the future. One option is to provide for the distribution of an annual dividend of a certain percentage of the joint venture company’s annual profits. A more flexible option is to allow the board of the joint venture company to determine a reasonable level of dividend on an annual basis. In either case, it is important to include certain caveats – for example, dividends should only be payable to the extent that they comply with applicable laws (for example, regarding distributable reserves or requirements to maintain a reserve) and do not result in the joint venture company being in breach of any of its banking covenants. Where it is envisaged that the parties will make shareholder loans to the joint venture company, the joint venture agreement should make it clear that no dividends will be paid until all such shareholder loans have been repaid in full. The payment of dividends would often be subject to shareholder approval, with the deadlock resolution mechanism being invoked if the shareholders cannot agree within the stipulated timeframe (see Deadlock resolution below for further details).

4. Deadlock resolution

Deadlocks can arise in various circumstances, but the most common circumstance is when a board or shareholders’ resolution is not passed by the requisite majority of directors or shareholders, respectively.

It is usual to ensure that, as a first step, appropriate efforts are made by the parties and their representatives to resolve a deadlock. There could be a “cooling off period” during which the parties are required to use reasonable endeavours to resolve the dispute within a certain period of time. If they are unable to do so, referring the dispute to the chairman/CEO of each party can be a useful tool. It is not uncommon to refer disputes to an independent expert, although it may not be sensible to have a third party adjudicate on a matter of commercial or financial significance.

Other, more extreme options can be included but these should be used with caution as they have the potential to bring the joint venture to an end and can be manipulated by an unscrupulous party. However, such options include the following in a deadlock situation:

“Russian Roulette”: Under this mechanism, any party may serve a notice on the other, either requiring the receiving party to purchase its entire holding from it, or for the receiving party to sell its entire holding to the initiating party, at the price set out in the notice. The receiving party then has a period in which to accept the offer made in the notice or reject it, in which case the roles of “vendor” and “purchaser” are reversed. This method ensures that a realistic price is set by the initiating party, as that party may either have to sell its holding, or buy the other's holding, at the price it states in the notice.
“Texas or Mexican Shoot Out”: Under this mechanism, the initiating party may serve a purchase notice on the receiving party stating that it is willing to buy the other out and setting the price at which it is prepared to buy. The receiving party then has a period in which to serve a counter notice, stating that it either (i) is prepared to sell at the price contained in the purchase notice; or (ii) wishes to buy the interest of the initiating party at a higher price. If the latter situation occurs and both wish to buy, then a sealed bid system will be put into operation, with the person who bids highest being entitled to buy the other out. Alternatively, this bidding process can be run as an auction with the parties raising their bids in competition with one another. This is a starker mechanism than the “Russian Roulette” procedure. It is more openly susceptible to misuse where one party does not have the resources or desire to buy, requiring a strong nerve in that case to increase a low opening price.

Naturally, these mechanisms and the points raised above will not be appropriate for all joint ventures so it is important that the parties carefully consider the relevance and applicability of these provisions at the outset.

International Chamber of Commerce's Revised Rules of Arbitration

2021-02-18T09:00:00.002+03:00

The International Chamber of Commerce (“ICC”) has unveiled revised Rules of Arbitration which will come into force on 1 January 2021 and will be applicable to cases submitted to the International Court of Arbitration on or after the enforcement date (the “Rules”).

The significant changes introduced by the ICC to the Rules include the following points:

1. ICC Appointment of the Arbitral Tribunal

The amendment to Article 12(9) grants the ICC the authority to appoint all members of the arbitral tribunal when there is an innate inequality or unfairness in the parties’ arbitration agreement. The amendment was added to address specific situations in which implementing the parties’ arbitration agreement would result in an unequal treatment of the parties, and might consequently jeopardise the enforceability of any award.

2. Joinder for Additional Parties

Under the previous Rules, a party was only able to request the addition of an additional party before the confirmation or appointment of any arbitrator or if all the parties, including the additional party, agreed to the addition.

The newly introduced Article 7(5) of the Rules allows for a request for joinder to be made before the arbitral tribunal and after the confirmation or appointment of any arbitrator. The arbitral tribunal may, after considering all the relevant circumstances, and without the consent of the other party in the arbitration, accept the request for joinder.

3. Consolidation of Arbitrations

The 2021 Rules have amended Article 10(b) of the ICC Rules. From now on, consolidation is possible where “all of the claims in the arbitrations are made under the same arbitration agreement or agreements.” This new amendment permits the consolidation

4. Treaty-based Arbitrations

Article 13(6) of the Rules states that “Whenever the arbitration agreement upon which the arbitration is based arises from a treaty, and unless the parties agree otherwise, no arbitrator shall have the same nationality of any party to the arbitration.”

The ICC added this provision to ensure the neutrality of the arbitral tribunal and to preserve the fairness of the arbitration process by establishing that no arbitrator in a treaty-based arbitration should have the same nationality of any party to the arbitration, unless otherwise agreed by the parties.

5. Changes in Party Representation

In accordance with the Article 17, if a party changes its representative it must immediately inform the ICC Secretariat, the arbitral tribunal, and the other parties. The arbitral tribunal may take any measure necessary to avoid a conflict of interest for an arbitrator arising from such a change. This includes excluding new counsel from participating in whole or in part in the proceedings.

6. Expedited Rules

After witnessing the results of the expedited procedures set out in the 2017 Rules of Arbitration, the threshold of US$2 million dollars has been raised to US$3 million dollars in the 2021 Rules. Cases that fall under the expedited procedures umbrella usually take less than six months to render the award. The procedure is also now more cost-effective.

As of date, in cases where the amount in dispute is less than the US$2 million threshold, the parties may opt out of the expedited procedure, and parties may agree to opt into this procedure where the amount in dispute is higher than this threshold.

7. Virtual Hearings

The modified Article 26(1) of the 2021 Rules introduces in clear terms the possibility of holding virtual hearings, which have become the new normal in light of the recent COVID-19 pandemic. The article sets out several possible modes of communication including, but not limited to, videoconferencing, telephone, or other appropriate means of communication.

Under the ICC Rules 2017, the videoconferencing and telephonic communications were limited to conducting case management conferences under Article 24 and expedited arbitration proceedings under Article 30. Now, under the ICC Rules 2021, the aforesaid modes have been further recognised so as to extend to the conduct of full arbitration hearings.

The new wording further clarifies that a hearing need no longer be held in person, unless any party so requests, or if the arbitral tribunal deems it necessary.

The Marketing And Promotion of Banking, Insurance, and Investment Products and Services in Oman

2020-12-09T09:00:00.001+03:00

We are often asked to advise on the restrictions on foreign entities marketing and promoting financial services in Oman. Below we set out the position with respect to marketing in three key areas.

Banking services

Under article 52 of the Banking Law, promulgated by Sultani Decree 114/2000, as amended (the “Banking Law”):

“No person shall engage in banking business in the Sultanate as either a domestic or foreign bank, or practice any other banking activity whatsoever, unless such a person has been granted a licence by the Central Bank…”

However, article 50 of the Banking Law provides that:

“… a foreign bank may use its name and publicize its business activities if such use and publicity clearly establish that such foreign bank does not engage in the banking business within the Sultanate.”

To the extent that a foreign bank’s contact with customers is restricted to servicing their accounts in the country where the bank is registered, or in the bank’s overseas branches or offices, this should not constitute a violation of Omani law.

When offering the foreign bank’s services or products to customers, so long as the bank makes clear to customers that it is not offering such products and/or services in Oman, this should not constitute a breach of Omani law.

Insurance

Insurance in Oman is regulated by Insurance Companies Law promulgated by Sultani Decree 12/1979, as amended (the “Insurance Law”).

Except for the provision of life insurance to non-Omanis, the Insurance Law prohibits insurance contracts with foreign companies which are not commercially registered in Oman.

Therefore, a foreign entity may promote life insurance policies provided by third parties to nonresident expatriates in Oman. However, the entity may only promote third-party insurance products (other than life insurance) to non-resident expatriates in Oman if those policies do not cover risks that (a) are situated in Oman; (b) originate in Oman; or (c) are connected with property in Oman.

If such third-party insurance products (other than life insurance) cover risks that (a) are situated in Oman; (b) originate in Oman; or (c) are connected with property in Oman, then they may be offered or provided only by entities licensed to offer such products in Oman.

Securities

The main legislation that governs all forms of marketing and sale of foreign securities in Oman is the Capital Markets Law promulgated by Sultani Decree 80/1998 (the “CMAL”) and the Executive Regulations of the Capital Markets Law Decision 1/2009 (the “Executive Regulations”).

“Securities” are defined in the CMAL as “shares and bonds issued by joint stock companies and the bonds issued by the Government and its Public Authorities, treasury bonds and bills and other securities negotiable in the Market.” Despite the apparent restricted scope of this definition, the Capital Markets Authority (the “CMA”) in practice regulates any kind of investment product that is offered or marketed in Oman.

Article 117 of the Executive Regulations contains a general restriction on the offering and marketing of non-Omani securities within Oman without the approval of the CMA.

In our opinion, the marketing of mutual funds without the approval of the CMA would be a violation of Omani law.

Conclusion

In conclusion, a foreign bank may contact its customers in Oman to service their accounts and to offer products and services as long as in doing so it makes clear that the bank does not conduct any banking business in Oman.

A foreign entity may promote third-party insurance policies (other than life insurance) to non-resident expatriates, provided it does not cover risks that (a) are situated in Oman; (b) originate in Oman; or (c) are connected with property in Oman.

The marketing of mutual funds is not permissible without the approval of the CMA.

Changes to Income Tax Law by Sultani Decree 118/2020

2020-11-03T16:00:00.001+03:00

The provisions of the Income Tax Law (“ITL”) have been amended by Sultani Decree 118/2020. This change partially comes within the framework of the Sultanate’s accession to a number of international agreements on tax affairs related to information exchange, which were signed on 26 November 2019 at the OECD headquarters in Paris.

Significant changes to the ITL include:

introduction of a new section titled tax residency
requirement to file only one tax return but within four months from the end of the relevant tax year or accounting period; and
enabling provisions to facilitate Automatic Exchange of Information (“AEOI”) between tax jurisdictions.

The general rule is that the financial information of an individual cannot be disclosed to anyone but the concerned person; however, Article 29 of the amended law specifies the cases wherein the appointed person in the Tax Authority can disclose financial information, data or documents:

The concerned person explicitly consented to the disclosure,
Implementation of a decision issued by the Income Tax Committee,
Implementation of a decision or judgment issued by a competent judicial authority, and implementation of a fatwa request, or
Decision issued by an official body legally authorised to do so.

In accordance with AEOI, the Tax Authority has the right to obtain any financial data, information or documents from any person for the purposes of implementing the provisions of international bilateral or multilateral treaties concerned with tax affairs, including requesting any information related to any person from any licensed bank in the Sultanate. Furthermore, the bank is legally not authorised to notify its client of the search, and refusal to oblige to the Tax Authority’s request may result in administrative penalties.

This provision comes as an exception to Article 70 of the Banking Law and Article 29 of the amended ITL. The Tax Authority is also authorised to conduct search proceedings at the concerned person’s residence to obtain any relevant information.

The tax residency was introduced in the amended ITL to define the persons subject to the provisions of the ITL. The amended law provides that the persons that are legally considered tax residents are:

Natural persons residing in the Sultanate who are present in the country for more than 183 continuous or intermittent days within a tax year
Legal persons if they are either an established entity in the Sultanate or if their headquarters or actual place of management is in the Sultanate

Furthermore, all appeals against the Tax Authority objection decisions shall now be filed with the Tax Grievance Committee. The appeal to a decision should be submitted in writing to the Committee, including the complainant’s request and the reasons on which the complaint are based, within 45 days from the date of his notification of the objection decision issuance or from the date of the expiration of the period specified for adjudication.

These measures will support the Sultanate’s participation in international efforts aimed at curbing tax evasion and tax fraud crimes.