Oman Law Blog

Premier International Trade Group Joins Curtis

2012-01-30T13:31:00.000-05:00

Curtis, Mallet-Prevost, Colt & Mosle LLP announced the addition of a premier international trade group, including four partners, to its Washington, D.C. office.

Joining Curtis are partners William H. Barringer, Daniel L. Porter, James P. Durling, and Christopher A. Dunn; counsel Matthew P. McCullough; associates Ross E. Bidlingmaier and Yu Li; and trade analysts Michael Ferrier, Anya Naschak and Jonathan Leeman.

Most recently at Winston & Strawn LLP, the group is particularly noted for its work in trade remedies cases and WTO litigation, Including antidumping, countervailing duty, and safeguard investigations. Their extensive WTO experience includes counseling both governments and corporations in disputes, negotiations and various bilateral and regional trade issues.

Each of the four partners has earned recognition from Chambers and other legal industry directories as leaders in their field.

“The fit here was immediately obvious to both the group and us," said George Kahale III, Chairman of Curtis. "We have a longstanding reputation as an elite international firm, and this is an elite international practice group that shares our outlook on the practice. We are excited about the possibilities this move offers for expanding the services we provide to our international clientele."

“For us, the key was Curtis’ international reputation, orientation and vision," said Mr. Barringer. "We are excited to be joining a firm with such a strong international platform.”

• William Barringer, the most senior member of the team, has been a preeminent trade lawyer for decades. He has been involved in some of the most significant international trade disputes of the last quarter-century. He frequently leads multidisciplinary teams to tackle complex and contentious trade disputes. He earned his J.D. and L.L.M. from Georgetown University Law Center and his A.B. in economics from Brown University.

• Daniel Porter has played a leading role in the group’s trade remedy work, expanding its work to represent numerous Chinese and other foreign companies in trade remedy proceedings. He has also been active providing advice to companies confronting trade regulatory issues on their imports. Mr. Porter received his J.D. from Cornell Law School and his B.A. in Political Science from Columbia University.

• James Durling, in addition to his work on trade remedy cases, has been active in several WTO disputes across a range of issues. He also advises companies making submissions to CFIUS, and confronting international trade regulatory issues in their cross border M&A transactions. Mr. Durling graduated from New York University School of Law and Haverford College.

• Christopher Dunn has also played an active role in the group’s trade remedy work, focusing more on Brazil and Latin America. He has additionally worked with many companies on customs regulatory issues. Mr. Dunn earned his J.D. from Georgetown University Law Center and his A.B. in International Business from Brown University.

• Matthew McCullough, in addition to assisting on all aspects of trade remedy work, provides experience with customs matters, issues related to export controls, anti-boycott regulations, and the U.S. sanctions regime. Mr. McCullough received his J.D. from Catholic University Columbus School of Law and his B.A. from Austin College.

Curtis, Mallet-Prevost, Colt & Mosle LLP is a leading international law firm providing a broad range or services to clients around the world. Curtis has offices in the United States, Europe, Central Asia, the Middle East and Latin America. The firm’s international orientation has been a hallmark of its practice for nearly two centuries. For more information about Curtis, please visit www.curtis.com or follow Curtis on Twitter (twitter.com/curtislawfirm) and Facebook.com/Curtis.Careers).

International Law Focus: U.S. Anti-Dumping and Countervailing Duties

2012-01-27T12:13:00.003-05:00

With the rise of international trade, there has also been a movement by national governments to protect their domestic industries against what they deem to be unfair trade practices.

One common way to do this is through anti-dumping duties (ADD) and countervailing duties (CVD). The United States, in particular, has a robust framework for imposing such duties. On November 22, 2011, the U.S. Department of Commerce initiated ADD and CVD investigations in relation to carbon welded steel pipe imports from several countries – including the Sultanate of Oman, as well as the United Arab Emirates. This article summarizes what anti-dumping and countervailing duties are and how the U.S.’s ADD/CVD process works.

What is dumping?

“Dumping”, as defined by WTO Agreement, is when an exporting country sells goods abroad at a price which is lower than that in its home market or below its cost of production.

To combat dumping, authorities in the importing country may seek to charge anti-dumping duties on imports that they determine to be sold at “less than fair value” and which cause material injury or threat of injury to domestic producers. Such anti-dumping duties are levied in addition to normal customs duties to offset the price advantage that the dumped products would otherwise enjoy.

Countervailing duties

Countervailing duties are similar to anti-dumping duties, except that countervailing duties are particularly meant to offset the benefit of subsidies which injure a domestic industry in the importing country.

Pursuant to the WTO Agreement on Subsidies and Countervailing Measures, authorities must determine the following for each alleged subsidy:
• A financial contribution by the government of the exporting country;
• A benefit received by producers in the exporting country; and
• The government program in the exporting country meets the specificity test.

Overview of the U.S. ADD/CVD process

Under U.S. law, U.S. producers are entitled to have anti-dumping and countervailing duties imposed on foreign producers that export to the U.S. if:
• The U.S. Department of Commerce (DOC) finds that foreign exporters are dumping or receiving subsidies; and;
• The U.S. International Trade Commission (ITC) find that targeted imports have caused or threatened material harm to the domestic industry in the U.S..

AD/CVD proceedings typically proceed through the following stages:
• Filing of a petition by representatives of the U.S. domestic industry, and initiation by the U.S. government;
• ITC preliminary injury investigation and determination;
• DOC preliminary investigation of subsidies;
• DOC final investigation of subsidies and final determination;
• ITC final investigation and determination of injury; and
• If order is imposed, annual reviews to calculate specific dumping liability.

The foreign government perspective

These trade cases – particularly CVD cases – often have important implications for the home government of the foreign exporters. In most cases, the primary concern of the foreign government will be the defence of its subsidy programs throughout the U.S. authorities’ investigation process.

It should be noted that it is not possible for a company exporter itself to advance a legitimate defense to a CVD case. Under the law and practice, the Government is a “mandatory respondent” that is required to submit information AND to certify its accuracy. If a defense is to be advanced, it must include active government participation.

Beyond the specific case and products at issue, the government has a broader interest in defending its subsidy programs. The main risk which the Government of Oman should aim to avoid in the instance CVD case is the establishment of adverse precedent on the subsidy determinations which the U.S. authorities would apply in future ADD/CVD cases against that foreign country’s exporters. Naturally, this risk is particularly acute for countries that are newly exposed to ADD/CVD cases, for which precedent has not yet been formed.

New Amendments to Oman’s Labour Law

2012-01-26T11:34:00.002-05:00

The recently promulgated Royal Decree 113/2011 has made key amendments to some provisions of Oman’s Labour Law (the “Labour Law”). In general, the aim of these amendments is to improve working conditions in the Sultanate and to enhance the legal protections afforded to workers.

Weekends and annual leaves

The most significant of the recent amendments concerns providing workers with legally mandated time off. The Labour Law now guarantees workers two days off per week (compared to the previous one day minimum). Workers are also now entitled to annual leave of thirty days fully paid, which may be applied for after completing six months of service. Emergency leave was also increased from four to six days per year.

Special leave and working hours for female employees

Pursuant to the recent amendments, the Labour Law now entitles working women to a maternity leave of 50 days fully paid, to cover the pre- and post-maternity period. In addition, working hours for women have been amended to prohibit employers from requiring female employees to work between 9 p.m. and 6 a.m. (other than in places and on occasions authorized by the Minister of Manpower).

New overtime rules

The recent amendments to the Labour Law set the maximum working hours to be nine hours per day and forty-five hours per week. During Ramadhan, Muslim workers must not work for more than six hours per day and thirty hours per week.

However, workers may be asked to work overtime, if their work so requires, provided that the worker’s total working hours do not exceed 12 hours per day. Any worker who performs overtime work is entitled to either overtime payment equal to his basic salary per hour plus (i) 25% for extra hours during the day, and (ii) 50% for extra hours are during the night, or time off equal to the amount of overtime worked. In either case, the worker must agree in writing to perform overtime work and to the type of compensation he will receive therefor.

Compensation for unfair dismissal

Significantly, the recent amendments to the Labour Law removed the cap on unfair dismissal compensation that had previously been in force. Prior to the amendment, the maximum compensation that a worker could receive for unfair dismissal was 12 months’ salary. The Labour Law now gives the Omani courts the power to award the worker any amount not less than three months’ salary calculated on the basis of the worker’s last full salary, without a cap. The award should take into account the employee’s unique circumstances and the length of his service, and will be in addition to the end of service gratuity and any other entitlements provided for by Labour Law or in the contract of employment, whatever is greater.

Retention of Omani project workers

Another significant aspect of the recent amendments to the Labour Law relates to Omani workers on projects that change ownership. When a project, or part of one, is transferred to a new owner, the new owner will be required to retain all of the project’s Omani workers and to maintain their prior benefits and incentives for as long as such project remains ongoing.

Mechanic’s Lien

2012-01-24T13:15:00.001-05:00

Conceptually, a mechanic's lien is a security interest granted in a property by the owner of the property to the persons who have supplied labour, materials or services for the improvement or development of the underlying property. Based on the nature of the service supplied, the lien is variously characterised as a construction lien, design professional’s lien or supplier’s lien.

In the jurisdictions where a mechanic's lien is legally recognised, it is a legislative device to protect contractors, subcontractors, architects, civil engineers, labourers, carpenters, electricians, plumbers and any others contributing to the improvement of a property from non-payment for their work as a lien on the title to property is created automatically in their favour by the operation of law.

The statutory creation of a lien clearly offers a more effective remedy for contractors and suppliers than a mere right to sue after the work is completed, especially in the construction industry where the economics of the business could be heavily loaded against them.

A mechanic’s lien also would give the subcontractors and suppliers a direct right to claim against the owner of the property. Typically, the owner of a property contracts only with the prime contractor who, in turn, engages the subcontractors and the suppliers pursuant to various subcontract agreements. In the absence of a statutory lien, the subcontractors and the suppliers would essentially have a contractual right under the relevant subcontract agreement that would be enforceable only against the prime contractor.

Further, a pari passu statutory lien would remove the unequal competition among the contractors and suppliers of materials and services in the event that a construction project fails. As all claimants would have an equal right to payment, the aggrieved parties will not have to race each other to file a payment claim in order to claim priority for their payment.

In countries where a mechanic's lien exists, the procedure might simply be to file a claim in the competent court within a stipulated time from the triggering event. Additionally, the lien holder may have to comply with certain legal prerequisites for maintaining and enforcing the lien such as serving a notice of the lien on the owner.

Considering the recent upsurge in construction activity in Oman, the introduction of appropriate legislation for the statutory creation of a mechanic’s lien would go a long way to avoid unnecessary and often onerous construction litigation.

Hotel Management Agreements - Owner Approvals

2012-01-23T16:47:00.001-05:00

As discussed in previous posts, a common model for hotel development transactions in the Middle East is for the hotel to have a separate owner and a separate operator.

The owner is the investor or group of investors that provides (i) funding necessary for the construction, maintenance and operation of the hotel, and (ii) high-level (usually financial) oversight of the hotel's performance as a business. The owner typically hails from the country in which the hotel is located, or from elsewhere in the Middle East.

The operator, in turn, is a company that specialises in the planning, design and day-to-day management of hotels, and runs the hotel on the owner's behalf in exchange for fee-based compensation that is typically a percentage of the hotel's gross revenues and operating profits. Most major hotel operators are international companies based in North America, Europe or East Asia.

The owner and operator typically enter into a hotel management agreement that provides a framework to govern their working relationship, detailing their respective rights and responsibilities. One important aspect of this relationship is the owner's right to approve certain key actions by the operator. Such approval rights are obviously important to the owner as a way to help protect its investment in the hotel. However, the operator will resist owner approval rights that would hinder its ability to run the hotel in accordance with its own best judgment.

Typically, the owner will have approval rights with respect to items such as:
• The yearly budget for the hotel as projected by the operator;
• Capital improvements or renovations to the hotel over a certain dollar amount;
• Leases of concessions to third parties (e.g., retailers or spa operators) within the hotel over a certain dollar amount; and
• The appointment of key hotel personnel such as the general manager and financial controller.

Confidentiality Agreements

2012-01-19T13:50:00.000-05:00

A confidentiality agreement, also known as a non-disclosure agreement, is a legal contract between at least two parties that is designed to protect confidential information provided by one party to one or more parties.

Confidential agreements are commonly signed when two parties, individuals or other entities are contemplating doing business together and disclosure of confidential information by at least one of the parties is required in order to evaluate the potential business relationship.

A confidentiality agreement can protect almost any type of information that is not generally known. Examples of this include:
• financial information;
• customer lists and identities;
• know-how;
• business plans, strategies and methods;
• new inventions while the filing of a patent is pending;
• technical information;
• trade secrets; and
• statistical information.

Under the terms of a confidentiality agreement, the recipient of the confidential information undertakes not to use the information except for the specified purpose (e.g., to evaluate a business proposal) and not to disclose it to third parties, subject to certain exceptions. These exceptions are typically where the information:
• is already in the public domain;
• is already known to the recipient and has been reduced to writing by the recipient prior to the date of the confidentiality agreement;
• has been received from a third party under circumstances which involve no breach of the confidentiality agreement; or
• has been independently developed by the recipient, again, in circumstances which involve no breach of the confidentiality agreement.

If one of the exceptions applies, then the recipient is free to use the confidential information as it chooses.

Confidentiality agreements often include a term that the recipient can disclose the information to certain parties such as their employees or professional advisers, subject to those parties agreeing to be bound by a confidentiality agreement on similar terms.

Confidentiality agreements can be mutual, where both parties will supply information they wish to keep confidential, or one-way, where only one party is providing information they wish the other party to keep secret.

The term of a confidentiality agreement can be extremely important and such agreements often include a provision that the information remains confidential for a period after the expiration or termination of the agreement.

Types of Bank Loans – Overdraft

2012-01-12T14:45:00.000-05:00

A bank loan should be drafted in a form that is specifically tailored to the borrower’s needs. This article considers the first type of bank loan which could be used, namely an overdraft. Other types of bank loans will be considered in subsequent articles, namely term loans and revolving facilities.

Overdraft Explained

The basic function of an overdraft is to solve short-term cash flow problems. It is sometimes referred to as a "working capital facility" as it provides access to cash to meet any temporary shortfalls in working capital.

An overdraft will generally be an uncommitted facility. (An uncommitted facility is one that allows the lender discretion for advancing money to the borrower or the lender can refuse to lend at all.)

An overdraft is repaid on demand, i.e., the lender can demand repayment at any time. This makes it an unsuitable form of borrowing for some transactions, for example, it would be inappropriate to use an overdraft to fund a major acquisition. One effect of the "on demand" nature of an overdraft is that it is a current liability for the purpose of the borrower’s balance sheet. The on demand nature of an overdraft is not as onerous as it may suggest as there generally will be an understanding that the lender will not demand repayment of the overdraft unless and until the borrower’s financial position or activities give it cause for concern.

Advantages of an Overdraft

An overdraft is usually available from a company’s existing lender. Interest rates on an overdraft are generally higher than those on a term loan but overall may be cheaper as interest is calculated on the basis of the overdraft at the end of each day rather than the maximum of the overdraft limit.

As it is an uncommitted facility, there is no commitment fee to pay. (A commitment fee may be required on “committed” facilities where once the facility agreement has been executed, the lender is under an obligation to advance money when requested by the borrower subject to compliance with certain pre-agreed conditions by the borrower. The commitment fee is calculated as a percentage of the undrawn funds that the lender has to keep committed to the borrower from time to time. The fee covers the costs incurred by the lender in committing funds to this loan which it cannot then lend to anyone else.)
An overdraft is usually evidenced by documents in the lender’s standard form.

Disadvantages of an Overdraft

The disadvantage of using the lender’s standard form documents is that there is little scope for amendment by the borrower. The basic flexibility of an overdraft is limited in that an overdraft will always have an upper limit.

In some cases, an overdraft facility may include a "clean-up" provision which requires the borrower to bring the overdraft down to an agreed sum at a specified time of year for a specified period (usually a number of consecutive days). The purpose of a clean-up provision is to ensure that the overdraft is used as intended, namely, to solve short-term cash flow problems.

The main disadvantages of an overdraft are that the lender’s charges are relatively high to reflect the administrative burden of an overdraft and that it is repayable on demand.

The Basic Law

2012-01-10T12:07:00.003-05:00

On 20 October 2011, His Majesty Sultan Qaboos issued Royal Decree 99/2011 introducing historical amendments to the Basic Law of the State. These amendments, which are seen as a significant milestone in the country’s legal and political development, include amending the succession process and expanding the role and duties of the Council of Oman.

Background to the Basic Law

The Basic Law is Oman’s first formal constitution which was introduced by His Majesty Sultan Qaboos in November 1996 to mark a new phase in the development of Oman’s system of government and to strengthen the State’s legal foundations.

The Basic Law consists of 81 Articles establishing the legal and political framework within which the State operates. It defines the roles and responsibilities of the State and provides for the political, economic and social principles guiding its policies. It also guarantees fundamental rights and freedoms, protects property rights and upholds the independence of the judiciary.

Among the main topics covered under the Basic Law are succession and the Council of Oman, which were the focus of the recent amendments.

Succession

Prior to the amendment of the Basic Law, the Ruling Family Council (RFC) was responsible for selecting a successor to the throne, within three days of the position of Sultan becoming vacant.

If the RFC does not agree upon a successor within three days, the Defence Council, composed of the highest ranking military officers, shall take over the process and confirm the appointment of the person designated by His Majesty the Sultan in his letter to the RFC.

According to Royal Decree 105/96, the Defence Council is headed by the Sultan, and composed of the Minister of Royal Office, the General Inspector of Police and Customs, the Head of Internal Security Services, the Commander of the Royal Navy, the Commander of the Royal Air Force, the Commander of the Royal Guards, the Commander of the Royal Army and the Commander of the Sultan’s Armed Forces. The composition of the RFC, on the other hand, is not known publicly.

This process was amended by Royal Decree 99/2011 to include the presidents of the State Council, the Shura Council, the Supreme Court and two of its oldest deputies, together with the Defence Council in taking over the process and appointing the person nominated by His Majesty the Sultan in his letter.

By including the presidents of the State Council and the Shura Council, this amendment allows some degree of public participation in the succession process, making it more transparent and enhancing its legitimacy. In addition, the presence of the president of the Supreme Court and two of its oldest deputies brings the process under judicial supervision, ensuring that due process is followed and preventing any potential manipulation or undue influence by one party.

The Council of Oman

The most significant changes introduced by Royal Decree 99/2011 are in relation to the Council of Oman.

Prior to the amendments, the Basic Law had only one Article on the Council of Oman establishing its two chambers: the appointed State Council and the publicly elected Shura Council. Power was given to the legislature to specify the powers of each of the Councils, the length of their terms, the frequency of their sessions, the number of members of each Council, the method of their selection and appointment, the reasons for their dismissal, and other regulatory provisions.

The recent amendments, however, introduced 45 new Articles outlining in detail the composition, membership, and responsibilities of the Council of Oman.

The powers of the Shura Council were expanded to include legislative powers and the authority to scrutinise the government’s performance. Under the new provisions, any draft law prepared by the Government must be referred to both the Shura and the State Councils for their approval or amendment. It will then be submitted directly to the Sultan to be endorsed and promulgated. The Council also may propose draft laws and refer them to the Government for consideration.

Remarkably, the Shura Council may, at the request of at least 15 of its members, question any of the ‘public service’ ministers in relation to exceeding their powers and violating the law, and refer its conclusions to the Sultan. The ‘public service’ ministers also will have to submit an annual report to the Shura Council on the performance of their ministries.

Furthermore, the recent amendments give the Council of Oman the power to review and provide its recommendations in relation to development plans, annual budget and any proposal to accede to or conclude an economic or social agreement.

This clearly means that the status and significance of the Council of Oman has changed dramatically from being a mere consultative body to become a legislative power.

Contractual Set-off Clauses in Loan Agreements

2012-01-05T11:03:00.002-05:00

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

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

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

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

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

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

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

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

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

Focus on Litigation: Burden of Proof in Omani Court Cases

2012-01-04T10:58:00.001-05:00

We often are asked by clients what the burden of proof is in the Omani Courts. For example, some clients may be accustomed to the U.S. court system where the “preponderance of the evidence” standard commonly applies to civil cases, and the “beyond a reasonable doubt” standard typically applies to criminal cases.

However, the truth is that burden of proof is an undeveloped area of Omani law.

The general premise is that, in a civil or commercial case, the claimant has the burden of proof; but the reality is that defendants have to prove their lines of defence to the Court’s satisfaction.

Ultimately, each Omani case turns on its own idiosyncratic facts. The key to success is to be the most persuasive litigant in any given case. The Courts have to believe that your arguments are both legally sound and supported by the evidence.

Similarly, there is no codification regarding the burden of proof in Omani criminal cases. However, the reality is that the burden of proof is very high in a criminal matter – the case has to be proven beyond any reasonable doubt.

Oman’s Law of Engineering Consultancies – Part II

2012-01-03T13:18:00.002-05:00

In a previous post, we provided an overview of the role that engineering consultancies play in Oman’s many large-scale construction projects, as well as the Omani statute which governs the profession, the Law Regulating the Work of Engineering Consultancies (Royal Decree 120/94, as amended) (the “Engineering Consultancy Law”). This month, we discuss special requirements under the Engineering Consultancy Law that apply to foreign engineering consultancies.

While the Engineering Consultancy Law exempts foreign engineering consultancies from certain provisions of the Foreign Capital Investment Law, it stipulates several onerous conditions for foreign engineering consultancies.

Experience Requirements for Foreign Engineering Consultants

Foreign consultancy companies seeking to form an engineering consultancy in Oman are required to have at least ten years of experience in engineering consulting projects. This condition can pose difficulties for newer engineering consultancy companies, particularly those in cutting-edge sub-fields of engineering where length or experience is unavailable and expertise is in any case more crucial. As a practical matter, this condition can potentially restrict a newer foreign engineering consultancy’s ability to work for private-sector clients in Oman.

Setting up an Engineering Consultancy

The registration and licensing process for foreign engineering consultancy companies in Oman is often lengthy. Pursuant to the Engineering Consultancy Law, such registration and licensing must be approved by a committee headed by the Director-General of Commerce and comprised of representatives from nine distinct government departments. While this committee structure may provide the benefit of bringing together a broad base of expertise to decide on license applications, it often comes at the logistical cost that the time required to constitute the committee can lengthen the period necessary to establish the branch.

Although it theoretically may be possible for foreign entities with government or quasi-government contracts to bypass all or part of the above-described registration process based on protections implied in the Foreign Capital Investment Law, our recent experience suggests that a foreign engineering consultancy which has contracted with the government is also required to go through the licensing process in order to form a branch.

Omani Shareholding Requirement

Finally, we note that, for foreign engineering consultancies formed as companies (e.g., limited liability company or joint-stock company, as opposed to branches), at least 35% of the shares must be held by an Omani national authorized to carry on a similar type of engineering consultancy. Also, an Omani national cannot partner with more than one foreign consultant partner to form a local consultancy.

The GCC Railway Network – Opportunities and Challenges

2011-12-28T16:34:00.005-05:00

Even in a region where larger-than-life infrastructure projects have become almost commonplace, the proposed pan-GCC Railway network evokes a grandeur that stirs the imagination. Scheduled to be completed in 2019 at a cost of US$ 25 billion, the GCC Railway will connect the six GCC nations of Oman, Saudi Arabia, Kuwait, Bahrain, Qatar and the United Arab Emirates, helping to forge deeper economic and political ties within the Gulf as it transports people and goods across borders.

This article provides an overview of the GCC Railway scheme, and discusses some key legal issues which are likely to arise thereunder.

Initial Stages

The GCC Railway, will be created by the interconnection of each GCC country’s national rail network. These national railways are still in their early stages. Two countries, Saudi Arabia and the United Arab Emirates, already have a head start. The former operates a rail line between Riyadh and the Persian Gulf port city of Dammam, and has commenced construction on the North-South Rail which will connect Riyadh with the northwestern city of Al Hadeetha. The latter boasts the Dubai metro, and has begun building the Union Railway which will link the seven Emirates.

The other GCC countries, currently in the planning and design phases, are quickly getting up to speed. In the Sultanate of Oman, the current plan calls for the national railway to be designed in three phases. The first phase would be a 230-kilometer rail line from the northern industrial city of Sohar to the capital Muscat. The second phase would be a 560-kilometer line from Muscat to the port city of Duqm, and the third phase would involve extending the Duqm line to Salalah in southern Oman.

The Omani press has reported that the Ministry of Transport and Communications recently floated a tender for a design and project supervision consultancy contract, with the goal of completing the design phase by 2013 and completing construction by 2018.

Inter-Country Coordination – Challenges, Opportunities and Legal Issues

Building the GCC rail network will naturally require an abundance of engineering skill and manual labor – but it will also require more: a common framework that will enable the six national rail networks to integrate and operate together as a single, unified GCC rail system. Such coordination should consider a number of issues, including the following:
• Technical issues – the various GCC national railways will need to have uniform standards for the gauge size of tracks and the locomotives which can run on these tracks, particularly along cross-border rail segments;
• Safety issues – of crucial importance, each railway’s signal and communication systems must be compatible and integrated;
• Commercial issues – for example, agreeing to a common fare structure across the GCC; and
• Legal and regulatory issues – implement a joint customs system to allow a single point of entry into the GCC and a uniform custom tariff for imported goods.

The Need for a Coordinated GCC-Level Regulatory Approach

Moreover, the six member nations would do well to provide a GCC-level regulatory and legal framework under which the respective national authorities could deliberate and agree on technical, safety, commercial and legal issues. Thus, the GCC Railway project will require not just capital and manpower, but also a large measure of political unity and skillful diplomacy over the coming years. But if the region’s successful development of large-scale air and sea transportation in recent years is any indication, the prospect of a pan-GCC Railway network is a goal that should be realized.

Oman’s Consumer Protection Law

2011-12-22T11:54:00.002-05:00

This article provides an introduction to the basic principles of Oman’s Consumer Protection Law, which was promulgated as Royal Decree 81/02 (with executive regulations issued by Ministerial Decision 49/07) (the “Consumer Protection Law”). It is particularly useful for tourists, business travelers and expatriates alike to be aware of the laws available to protect the consumer of goods or services, as it is possible for anyone to find themselves a victim of a rapacious supplier.

What is the Consumer Protection Law?

Fundamentally, the Consumer Protection Law is legislation intended to ensure that suppliers and advertisers abide by the principles of fair dealing and credibility when dealing with consumers. The law does not apply to ‘business-to-business’ commercial dealings between merchants. The Consumer Protection Law requires that every commercial establishment upholds the principle of protecting their consumers’ interests through providing quality services or products. Violations of this law include, but are not restricted to:
• knowingly supplying unsafe products without suitable warning to consumers;
• refusing to accept return of goods (excluding perishable products) that are within the minimum return period of 10 days from the purchase date;
• refusing to uphold an existing maintenance agreement with the consumer;
• intentionally misleading consumers with false advertising;
• refusing to provide compensation for an injury that the consumer sustained from normal use of the product or service;
• charging a higher price than advertised; and
• refusing to provide the consumer with proof of purchase (or a receipt) that at a minimum shows the date and value of the purchase.

It would be easy to believe that the Consumer Protection Law only applies to the purchase of products, i.e., a car or a mobile phone. However, it is important to understand that the law applies to all aspects of the commercial world, including where a commercial establishment provides a service to a consumer – for example, a dentist providing a filling or a mechanic servicing a car. Whenever a service or product is provided to a consumer by a supplier, the customer is protected by the Consumer Protection Law (provided that the consumer has not misused the service or product) and, should the supplier be found guilty of violating this law, the establishment can be fined up to RO 5,000.

Why is there a Consumer Protection Law?

The Consumer Protection Law is intended to promote a level playing field of fairness and equality between the supplier and the consumer, and to protect consumers against monopolistic companies and deceitful business practices. The Consumer Protection Law ensures that consumers are supplied with correct information about the products and services that they buy, prevents the companies from gaining unlawful profit through dishonest practices, and maintains a fertile market for new companies to enter by restricting the scope for dishonest or monopolistic business practices.

Career Corner: How to Become an Omani Lawyer

2011-12-15T12:23:00.004-05:00

With the Sultanate’s rapid economic development proceeding apace, Oman provides an abundance of opportunities for law firms and lawyers. Recognizing this trend, the Omani government has taken steps to increase the ability of young Omanis to participate in the legal field, by providing scholarships for the study of law domestically and abroad, and by tilting the legal system in ways to raise Omani participation in the legal field. For example, the Ministry of Justice took the decision in 2010 to reserve to Omanis the exclusive capacity to appear and present cases before the Primary Court.

However, in order to ensure that new Omani lawyers will have the requisite experience and expertise to carry out their duties, the Omani government has put in place certain restrictions on entry into the legal profession and qualification as an Omani lawyer. This article provides an overview of the process for becoming an Omani lawyer.

The registration process

The starting point for an Omani aspiring to become a lawyer is to obtain a university degree. Once they have their degree in hand, Omanis wishing to qualify as a lawyer in the Sultanate must go through several steps, the first of which is registration as a trainee with the Ministry of Justice. The applicant will need to present evidence that he or she meets the necessary criteria for registration, such as evidence of a University degree in law or a related discipline, as well as evidence of good conduct
from the Royal Omani Police.

Becoming a trainee

Once registered, the next step is to work in a local law firm as a trainee. A university graduate with an undergraduate degree is required to work a minimum of two years as a trainee, while those who hold a masters degree must work at least one year as a trainee. During this training period, the trainee may not open a law firm in his own name.

It is important to note that experience in an international law firm will not suffice to fulfill the Omani government’s training period requirement. As a practical matter, Omanis who work in international firms do essentially the same type of work, and often get exposed to a much broader range of experiences, than their counterparts at local firms. However, the current position of the Omani government is that only work performed at a local firm counts toward fulfilling the requisite two years of training to become an Omani-qualified lawyer.

Professional obligations and restrictions for qualified Omani lawyers

After completing the training period and qualifying as an Omani lawyer, every Omani lawyer must continue to heed the rules set out in the Advocates Law, promulgated by Royal Decree 108/96 (as amended). In particular, Article 6 of the Advocates Law requires that an Omani lawyer may not work as a minister or other government official, and may not start a business of his own or work for a company, bank or any other person or entity while working in the legal profession (subject to certain exceptions, for example that lawyers may serve in the Majlis al Shura or on the boards of directors of joint stock companies).

Islamic Insurance Comes to Oman

2011-12-14T10:43:00.005-05:00

Several months ago, in a ground breaking development, His Majesty Sultan Qaboos bin Said approved the establishment of Oman’s first Islamic bank. As the government authorities continue to work through the implementation of His Majesty’s instructions, it is becoming clear that changes and new opportunities are in store not only for the banking sector, but also for related financial sectors such as insurance.

Following His Majesty’s broad-based royal directive, many of the details of implementation have been carried out by government authorities such as the Capital Market Authority (CMA) and the Central Bank of Oman (CBO). For example, the local press recently reported that the CMA had issued important guidance in respect of Islamic insurance, or takaful. The CMA stipulated that conventional insurance companies would not be permitted to run takaful operations in the Sultanate alongside their conventional insurance businesses; any company wishing to offer takaful would be required to convert to a dedicated takaful company, or to open a new dedicated takaful entity.

This article provides a brief overview of takaful, as a basic primer on the Islamic insurance sector.

Insurance with Islamic principles

Essentially, takaful is designed to provide the same benefits to subscribers as conventional insurance –coverage against unexpected or catastrophic losses – while scrupulously adhering to the principles of Sharia (i.e., Islamic religious law). In particular, takaful is structured to comply with the core Sharia tenets prohibiting interest or unjust enrichment (riba), discouraging ambiguity in contractual terms (gharar), and minimizing the speculative nature of transactions (maysair).

Application of these principles to ‘takaful’ structures

In practice, there are two main ways that a takaful insurance scheme follows Islamic principles.

First, the takaful structures itself as a mudaraba (i.e., profit-sharing venture). The policy contract between the takaful operator (i.e., the insurance company) and the subscribers would specify how any operating surpluses that the takaful runs (e.g., excess of subscriber contributions received over monies paid out on claims) shall be divided between the operator and the subscribers. For example, the contract may state that any surpluses shall go 70 percent to the subscribers, as the providers of capital, and 30 percent to the operator, as the provider of services. This structure helps the takaful scheme avoid falling afoul of the prohibition on unjust enrichment.

Second, the takaful will seek to avoid prohibited elements of uncertainty by structuring its subscriber contributions as tabarru (from the Arabic “to donate, contribute or give away”). Under this concept, payments that the takaful makes on claims by a subscriber would be considered a partial donation by the other subscribers of the capital that they have contributed to the takaful.

Focus on Litigation: Settlements

2011-12-13T11:26:00.002-05:00

In the Sultanate of Oman, as in other jurisdictions, not every litigation matter proceeds all the way to a decision by the Court. What happens if the parties to an Omani court case reach a settlement in the middle of the litigation process?

Sadly, this rarely happens in Oman, primarily because the Omani system has no concept of “without prejudice” negotiations. Furthermore, the fact that the losing party does not have to pay the winner’s legal fees is another reason why Omani court cases often go the full distance to a Supreme Court judgment.

However, settlements can and do occur. The settlement is normally recorded in full detail in a settlement agreement which is in Arabic and signed by the parties. The respective lawyers of the litigant parties normally present the settlement agreement to the Court, and ask the latter to adopt the agreement as the terms of a “settlement judgment” between the parties. This means that the Court gives a judgment, stating that the parties have settled the dispute on the terms stated in the settlement agreement.

In this way, the terms of the settlement agreement become part of the actual text of the Court judgment. The result is that, if one party then breaches the settlement agreement, the innocent party can apply to the Enforcement Department to enforce the terms of the settlement agreement.

It also should be noted that the above mechanism requires that the advocates for both sides be in possession of powers of attorney from their respective clients which empower them to settle the dispute. This is necessary in order to make the request to the Court to adopt the agreement as the terms of a “settlement judgment.”

Transfers by Lenders under Syndicated Loan Agreements

2011-12-08T13:29:00.003-05:00

With the recent volatility in European financial markets, the importance of liquidity and flexibility within the banking sector has been the subject of renewed focus. During such times, some lenders may look to restructure their balance sheets by reducing exposure to certain sectors, countries and/or currencies under various existing transactions. The transfer provisions in a syndicated loan agreement provide a simple mechanism by which lenders can buy or sell interests in a syndicated loan agreement.

By way of background, a syndicated loan is one for which the funds are provided by a syndicate, or group, of lenders. A syndicated loan is often a useful way for the lenders to spread risk or to extend a larger loan than they would be able to do individually. In Oman, large syndicated loan agreements are typically governed by English law, or by the laws of another foreign jurisdiction as lenders tend to prefer the predictability of how such an agreement and the offshore security would be enforced in such a jurisdiction.

This article considers three ways in which a lender may sell all or part of its interests in a syndicated loan agreement, namely through novation, assignment or sub-participation.

Novation

Novation is the most effective way of transferring rights and obligations under a syndicated loan agreement from an original lender to a new lender. The existing agreement (including all outstanding commitments) between the original lender and the borrower is dissolved and replaced by a new agreement between the new lender and the borrower.

The new lender enters into a direct relationship with the borrower and other parties to the syndicated loan agreement. The loan agreement should include the form of transfer certificate used to effect the novation and a provision stating the borrower has no objections to the original lender selling his interest in the loan agreement to a new lender. Novation is typically used for revolving credit facilities in which the original lender still has outstanding obligations such as the obligation to make future loans.

The drawback of this method is that, if the loan is secured, the security is discharged and needs to be renewed each time a novation is executed and the priority of the security may be affected adversely. This, however, can be resolved by appointing a security trustee to hold the security granted under the loan for the benefit of all the lenders.

Assignment

Unlike novation, assignment involves the transfer of rights, but not obligations. For a legal assignment under English law, the assignment must be:
• absolute (i.e., the whole of the debt outstanding to the existing lender);
• in writing and signed by the existing lender; and
• notified in writing to the borrower.

A legal assignment will transfer all of the original lender's rights under the loan agreement, but none of the obligations. New security is not required on each assignment as the original lender retains his obligations under the loan agreement.

An assignment is not an appropriate option if there are outstanding lending obligations, since the original lender’s obligations are not transferred.

Sub-Participation

The distinguishing feature of a sub-participation arrangement is that the original lender remains the "lender of record" to the borrower, and there is no direct contractual relationship between the sub-participant and the borrower. No borrower consent is required, so this process can be confidential.

A funded sub-participation creates new contractual rights between the existing lender and the sub-participant on the same terms as the contract between the existing lender and borrower. The existing lender becomes an intermediary between the borrower and the sub-participant. The sub-participant puts up funds which the existing lender loans to the borrower. The sub-participant is only repaid by the existing lender when the borrower repays the existing lender. Unlike novation, there is no transfer of existing rights and the borrower is often unaware of the contract between the existing lender and the sub-participant.

Oman’s Law of Engineering Consultancies – Part I

2011-12-07T10:33:00.001-05:00

With Oman’s rapid pace of economic expansion and multitude of large-scale construction projects, engineering consultancies play a key role in the Sultanate’s development plans. This article provides an overview of what engineering consultants do and the Omani legal framework that regulates their profession. In forthcoming posts, we shall discuss key aspects of Oman’s Law of Engineering Consultancies which apply in particular to foreign engineering consultancies.

Engineering Consultants: Technical Experts and Project Managers

The work of engineering consultants broadly encompasses the planning, designing, managing, and supervising of engineering projects. As project managers, the engineering consultants are responsible for ensuring that a project is completed on time and within the specified budget.

The tasks assigned to engineering consultancies typically include:
• undertaking technical and feasibility studies and site investigations, including assessing the potential risks of the project;
• developing detailed designs, and resolving design and development issues;
• supervising the tendering process for selecting a contracting engineer, and coordinating amongst the contractors, the subcontractors and the client;
• managing and scheduling the purchase and delivery of project resources, as well as any variations to the project contract;
• reviewing and approving project reports and drawings; and
• ensuring health, safety and environment (HSE) regulatory compliance.

Oman’s Engineering Consultancy Law

Clearly, the technical complexity and high level of responsibility associated with engineering consultancy work calls for rigorous standards to ensure the quality of firms and individuals working in the field. In Oman, the Law Regulating the Work of Engineering Consultancies issued by Royal Decree 120/94, as amended (the “Engineering Consultancy Law”), provides such a regulatory framework.

The Engineering Consultancy Law sets forth general requirements for all engineering consultants, such as a ten-year liability on the engineering consultant and the contracting engineer for defects in construction. However, some of the most interesting aspects of the Engineering Consultancy Law relate to the requirements for foreign engineering consultants.

The Need for a Dedicated Construction Law in Oman

2011-10-05T17:40:00.003-04:00

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

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

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

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

From the Law of Commerce

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

From the Consumer Protection Law

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

From the Engineering Consultancy Law

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

Limited Recourse to Guarantors in Personal Bank Loans

2011-09-29T17:17:00.001-04:00

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

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

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

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

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

Construction Disputes and Negligent Supervision Claims

2011-09-21T13:24:00.002-04:00

Many construction disputes in the Middle East arise out of the alleged negligent supervision of a project. There can be a tendency for judges and arbitrators in the region to assume that, by undertaking to “supervise” a project, an entity is assuming wholesale responsibility for everything that happens in relation to the project – and anything that goes wrong.

But what if the “supervisor” had no role or responsibility in the design of the project? What if the “supervisor” was only being paid to supervise two days per week? What if the constructing/installing entity deliberately ignores or overrides the recommendations of the “supervisor”?

The upshot of all this is that, from the point of view of the so-called “supervisor”, it is important to precisely define and caveat in every contract what exactly is meant by “supervision.”

In many cases, the word “supervision” should probably be left out of the contract entirely, given that “supervise” can be a loaded word in the Middle East construction sector and may connote to some of the region’s judges and arbitrators an unreasonably heightened standard of responsibility.

Instead, it might be preferable for the supervising entity to describe itself in the contract using a different term, such as “monitor” or “compliance monitor”. This would be particularly appropriate when the entity is merely monitoring the other parties on the project and providing suggestions, with no power to bind those other parties or control their actions.

More importantly, the contract should clearly state:
(i) what the monitor’s/supervisor’s responsibilities are;
(ii) how these responsibilities are to be fulfilled (e.g., by maintaining a log noting observed instances of non-compliance); and
(iii) any limitations on the powers to carry out these responsibilities (e.g., if the monitor/supervisor has been granted no powers to bind the other entities involved in the project, this should be explicitly stated in the contract).

In sum, given the tendency of some tribunals to assume that “supervisors” bear wholesale responsibility for the project, it behooves supervising and monitoring entities to negotiate a contract that clearly states what their mandate includes – and explicitly carves out what their mandate does not include.

Hotel Management Agreements – Operator Fees

2011-09-14T11:23:00.007-04:00

In a previous post we presented an overview of what hotel management agreements are and why they are crucially important to hotel development transactions. Now we shall discuss one of the key specific issues that hotel management agreements cover: operator fees.

The fees that the hotel owner pays to the operating company for managing the hotel, which can be thought of as the contract price of the hotel management agreement, are naturally of paramount importance. Indeed, operator fees are one of the critical issues that are often agreed by the hotel owner and the operator up front via an initial letter of intent or memorandum of understanding, before the parties even begin to negotiate the hotel management agreement in earnest.

Operator fees typically consist of the following:
• the base fee;
• the incentive fee; and
• other fees and/or reimbursements.

Base fees
Under most hotel management agreements, the operator receives an annual base fee equal to a percentage of the hotel’s gross revenues for that year. The base fee percentage is heavily negotiated between the hotel owner and the operator. Although base fees for large, international-grade hotels frequently range between 1 to 2 percent of the hotel’s gross revenues, the figure which the owner and operator arrive at will depend on a variety of factors, including:
• current market conditions;
• the parties’ relative bargaining power; and
• the unique characteristics of the hotel in question.

Incentive fees
In addition to base fees, many hotel management agreements also provide for the operator to receive an annual incentive fee equal to a percentage of the hotel’s operating profits for that year. The percentage level of the incentive fee often will be keyed to a sliding scale based on the hotel’s profit margin (e.g., operating profits divided by gross revenues) – the higher the hotel’s profit margin for the year, the higher the percentage of that year’s profits the operator will be entitled to receive as its incentive fee. This structure, of course, is designed to encourage the operator to run the hotel efficiently and to achieve a high profit margin as well as a high level of gross revenue.

Other fees and/or reimbursements
Although base fees and incentive fees comprise the core compensation for hotel operators, the owner might also need to pay additional amounts to the operator (or its affiliates) pursuant either to the hotel management agreement or to a related agreement. These additional amounts, which are sometimes characterized as fees and other times characterized as cost reimbursements, may include payments for such things as (i) technical assistance by the operator or its affiliates in designing or renovating the hotel, or (ii) marketing efforts for the hotel or training programs for staff provided by the operator or its affiliates.

Focus on Real Estate: Rental Bonds

2011-08-30T10:06:00.002-04:00

Striking a balance in affording statutory protections to both landlords and tenants can be a thorny affair for real estate regulators. In most jurisdictions, the laws tend to shield tenants more than landlords due to the perceived unequal bargaining power between the parties. Certain market-driven measures, such as rent control restrictions and severe constraints on eviction of tenants, often are directed against and work to the disadvantage of the landlords.

Further, in a less regulated market, the breach of a tenancy agreement or loss or damage caused to the leased premises by the tenants can leave the landlords with little legal recourse. This article seeks to shed light on the ‘rental bond’ or ‘rental deposit’ practice used in some jurisdictions to protect landlords against a potential breach of the tenancy agreement by tenants.

A rental bond is the money paid by a tenant as security deposit which the landlord can claim in the event that the tenant causes damage or loss to the premises or otherwise violates the terms of the lease. The legally stipulated value of the rental bond seldom exceeds one month’s rent. A rental bond is not the same as the payment of rent in advance. It is typically lodged with a rental authority when the landlord and the tenant sign the tenancy agreement. At the end of the tenancy, the rental authority inspects the premises to determine whether any amount from the deposit can be claimed by the landlord as compensation for any loss or damage caused by the tenant. A tenant also can transfer the bond from previous tenancy to a new tenancy with the relevant authority holding the bond money until the expiry of the new tenancy.

In the absence of specific regulations governing rental bonds (such as in Oman), the landlord and the tenant may agree in a lease agreement to place the rental deposit in an escrow account. The account may be interest-bearing with the tenant named as the beneficiary for the interest from the deposit. The agreement could provide for the landlord to return the security deposit to the tenant at the end of the lease if no violation of the lease terms has occurred. The landlord, however, may seek to be reimbursed from the deposit for any loss or damage caused to the premises by the tenant as may be assessed by an independent assessor upon expiry of the lease.

The furnishing of rental bonds can ensure proper upkeep of the leased premises. Although there is no specific legislation addressing this area in Oman, the practice of seeking rental bonds is becoming increasingly common among landlords. An appropriate legislative framework for rental bonds can aid in minimising the potential for arbitrary behavior and in streamlining the real estate rental market.

Foreign Community Clubs in Oman

2011-08-24T11:50:00.002-04:00

In a post last month, we discussed local Omani associations, which are groups formed to carry out not-for-profit social, cultural or charity activities and are registered with the Ministry of Social Affairs, Labour and Vocational Training (the “Ministry”).

This month, we cover a related topic: foreign community clubs. A foreign community club (or a foreign association) is similar, regarding its function and formation, to a local Omani association. However, there are some additional legal requirements for a foreign community club.

As with local associations, the Ministry supervises all foreign community clubs in the Sultanate of Oman. This includes monitoring their activities and issuing instructions and directives to them to maintain the purpose for which they were set up.

Eligibility for foreign community clubs

Each foreign community may establish only one club in the Sultanate of Oman and only one branch thereof in a region (provided that the number of community members is not less than five hundred in that region). Terms and conditions for the establishment of a foreign community club include:

• the number of the foreign community members working in the Sultanate of Oman is not less than two thousand;
• the number of founders is not less than one hundred (excluding those involved in diplomatic missions);
• each founder is above the age of twenty-five years; and
• a fee of OR 200 for the license is paid on establishment and renewal of the foreign community’s club or any of its branches.

Establishing a club

Applications are to be submitted to the relevant department at the Ministry along with the proposed articles of association. The articles of association are then approved by the Ministry and must be signed by all the founders and accompanied by a profile stating the founders’ names, community and professions.

The Ministry then reviews the application to ensure the foreign community club fulfills the necessary requirements to allow the granting of a license. Licenses are valid for two years, and may be renewed via the same process as the original application (except for the signature of the founders), provided approval of the renewal from the annual meeting of such club is submitted by the chairman together with other documents. The renewal application must be submitted to the Ministry at least two months prior the end of the license period.

The name, headquarters, purposes, financial year, number of directors and name of the chairman shall be recorded for each foreign community club at the Ministry. Any amendments must be approved by the Ministry.

Government Directors in a Joint Stock Company

2011-08-15T15:08:00.001-04:00

Following the recent changes to the composition of the cabinet of Ministers in the Sultanate of Oman, a number of joint stock companies which are partially or fully owned by the government have been essentially paralysed, from the perspective of corporate action, by the lack of a functioning board; the existing government directors were removed without any new directors having been appointed.

It goes without saying that the board of directors plays a fundamental role in corporate governance. Where the joint stock company is partially or fully owned by the government, the government appoints directors to represent the government’s interests, objectives and goals on the board. Such joint stock companies specify in their articles of association the number of directors who represent the interests of the Sultanate of Oman or any of its administrative units that own shares in the company.

The procedure for appointing a government director is both simple and straightforward. Article 132 of the Commercial Companies Law requires that the appointment of government directors is a decision taken by the Council of Ministers pursuant to the nomination of the Ministry of Finance and the relevant minister.

Furthermore, the law specifies that government directors cannot be removed from their offices except by approval of the Council of Ministers. This clearly indicates that the government is the only party which is able to appoint or remove its directors, without any constraints. The appointment and removal of directors is effective once the ministerial decision from the minister supervising the Ministry of Finance is issued. Upon issuance of this decision, the company then can appoint or remove the director by submitting the ministerial decision to the commercial registry in the Ministry of Commerce and Industry along with the revised list of authorised signatories and other relevant documents.

As a final point, we note that the government directors’ powers are similar to the powers of any other directors. However, the law points out that acts performed by government directors shall not subject the government directors, the Sultanate of Oman or the public entity to liability under Omani company law.