The Law of Construction Contracts in the Sultanate of Oman and the MENA Region

The Law of Construction Contracts in the Sultanate of Oman and the MENA Region.

Mohammad Akhtar Beg.

B.E, LLM, FCIArb.

First published in 2022

This edition published in the Year 2022

© 2010 Mohammad Akhtar Beg

All rights reserved by the author of this book. No part of this book may be reprinted or reproduced, or utilized in any form or by any electronic, mechanical or other means, now known or hereafter invented, including photocopying and recording, or in any information storage and retrieval system, without permission in writing from the author.

About The Author

Mohammad Akhtar Beg is an expert in Construction Contracts in Oman and the MENA region. He has been working in the construction field, dealing with the practical and contractual sides for the past 26 years.

Mohammad has held senior commercial and project management positions with big contractors, including consulting services in India in the initial years. He has been involved in many projects, including high-rise buildings, residential developments, oil and gas projects, infrastructure projects, and STPs.

One of the most gratifying periods in Mohammad’s career was as the Head of Claims and Dispute Resolution for the Towell Engineering Group of Companies, a conglomerate of construction companies that deal in all construction fields. During this period, Mohammad’s practical experience allowed him to objectively look at contractual and legal issues and advise the management accordingly.

Also, Mohammad is an excellent Arabic speaker and knows Arabic fluently. This ability and knowledge of Arabic gave him the distinct advantage of researching the principles and doctrines of the laws of the MENA region, especially laws of Oman, UAE, Qatar, and Egypt which have ultimately resulted in this book.

Being an LLM in Construction Law and also a Fellow of the Chartered Institute of Arbitrators, Mohammad has managed many arbitrations. He has come face to face with different issues involved in contracts which contractors and employers sometimes cannot understand and recognize during the contracting phase or after that.

Mohammad has also been deeply involved in several high-value arbitrations. He has an impressive career working with various international firms throughout the globe, especially the Middle East and India.

He is now looking forward to working with high-value clients in advising them on resolving disputes and matters of arbitration in the MENA region and common law jurisdictions. 

Forward

The book is written with an intent to provide easy and practical explanation on the principles of law that apply to construction contracts in Oman and the MENA region.

The book has been well written, bringing together the most common problems faced in the construction contracts with a focus on the laws applicable in Oman and the MENA region. I have looked at the book as a construction claims practitioner and find it very helpful for the industry stakeholders. The list of matters discussed is sufficiently detailed to understand how the courts/tribunals in the MENA region analyze the construction issues.

Mohammad had done a lot of research and quoted civil code articles relevant to construction contracts for the countries, namely Oman, UAE, Qatar, and Egypt, which makes the book quite unique and relevant for the construction dispute practitioners.

Mohammad has more than 27 years of experience in the construction field having delivered some of the landmark projects in GCC. His experience in construction adds practicality in his interpretation of the construction laws. With his exceptional knowledge of Arabic, Mohammad has studied the principles from their sources and presented them professionally in this book. The book is a must-read.

I congratulate Mohammed for his efforts and wish him all the best.

Rohit Singhal

Founder & CEO-MASIN

www.masinproject.com

Contents

About The Author

Forward

Chapter 1

Introduction

Chapter 2

The Development of Courts and the Codification of Law in Oman

2.1 Introduction.

2.2 The Oman Judiciary and its Stages of Development.

2.3 The Guarantees of Independence of the Omani Courts.

2.4 Royal Decrees.

2.5 Ministerial Orders.

2.6 AL Majallat-el Ahkam al-Adaliya.

2.7 Shariah And Customs in Oman.

2.7.1 The Importance of Custom and Culture in Oman.

2.8 The Importance of the Judgments and the Principles Set by the Judgments of the Supreme Court of Oman.

Chapter 3

CONTRACTS IN OMAN

3.1 Introduction

3.2 Contracts.

3.3 Offer and Acceptance.

3.4 Consideration in a Construction Contract.

3.5 The Object (Objet) of the Contract.

3.5.1 The Requirements of the Object.

3.5.2 The Cause of the Contract.

3.6 Silence.

3.7 Intentions in a contract.

3.8 The Law Relating to Unjust Enrichment.

3.9 Duress and Coercion in a Contract.

3.9.1 Economic Duress in Contracts, Position in the MENA Region.

3.10 How are Contracts Interpreted.

3.11 Mistake in a Contract.

3.11.1 When is the Mistake Material.

3.12 Serious Mistakes.

3.13 Simple Mistakes or Calculation Errors in the Contract price.

3.14 Misrepresentation.

3.15 The Contra Proferentum Rule.

3.15.1 Unfair Contract Terms.

3.15.2 The Power of the Court to Determine the Scope of Contract.

3.16 Good Faith.

Chapter 4

Construction Contracts

4.1 Introduction.

4.2 Definition and Characteristics of Muqawala.

4.3 The Laws Applicable to Construction Contracts in Oman.

4.4 The obligation of the Parties.

4.5 Different Types of Obligations.

4.5.1 The obligation to give.

4.5.2 The Obligation to do.

4.5.3 The obligation not to do.

4.6 Material.

4.6.1 When the Contractor Provides the Materials.

4.6.2 When the Employer Provides the Materials for Construction.

4.7 The Obligation to Achieve a Result.

Chapter 5

The Obligations of the Contractor

5.1 Introduction.

5.2 The Obligation of the Contractor to Complete Works.

5.2.1 Duties Involved in Completing the Works.

5.3 The Obligation to Hand Over the Works after Completion.

5.4 The Guarantees of the contractor.

5.4.1 General Guarantees of the Materials supplied and installed.

5.4.2 The unknown defects.

5.4.3 The Guarantee of the Structure (Decennial Liability).

Chapter 6

The Obligations of the Employer

6.1 Introduction.

6.2 The Employer’s Obligation to Enable the Contractor to complete the Works.

6.2.1 Remedy for breach of duty of Cooperation.

6.3 The Obligation to Take over the Completed Works.

6.3.1 The Reception of the Works (Price de possession).

6.3.2 The Consequences of Taking Over.

6.4 The Remedies Available to the Contractor if Employer Breaches the Taking Over.

6.5 The Obligation to pay for the works.

6.5.1 The guarantee of payment and Remedies Available to the Contractor.

6.5.2 The payment, it’s time.

6.5.3 The Guarantee of Payment and the Remedies Available to the Contractor.

6.6 Conclusion.

Chapter 7

The Engineer and his Duties

7.1 Introduction.

7.2 Duty of the Engineer Under the Law.

7.2.1 The Engineer’s Duty towards Safety.

7.2.2 The Duty to the Environment under Law.

7.2.3 The Engineer’s Duty of Integrity, Credibility Towards the Parties.

7.3 Conclusion.

Chapter 8

Variations

8.1 Introduction.

8.2 Variations in General.

8.3 The Variation when Contract Price is Based on Unit Rate Basis.

8.3.1 The Position at Law.

8.3.2 The Conditions of Application of Article 640.

8.3.3 The Rights of the Employer in this Matter.

8.3.4 The Law and the Standard Clauses of Variation.

8.3.5 Conclusion.

8.4 The Variation when Contract Price is Lump-sum.

8.4.1 The Legal Position.

8.4.2 Exclusions for Change in price in a Lump-sum Contract.

8.4.3 The BOQ and the Drawing in a Lump-Sum Contract.

8.4.4 Conclusion.

Chapter 9

Specific Performance

9.1 Introduction.

9.2 The obligation to give.

9.3 The Obligation to do.

9.4 The obligation not to do.

9.5 The Law Regarding Specific Performance.

9.6 The Conditions for Specific Performance.

9.6.1 Specific Performance Should be Possible.

9.6.2 Either the Claimant demands it or the Defendant Proposes it.

9.6.3 When Specific Performance is Burdensome but Non-Performance can Cause Serious Losses to the Claimant.

9.6.4 The Notice to the Debtor.

9.6.5 Where Specific Performance can be Imposed.

9.7 The Compulsion by Pecuniary Penalty Threat (Astreinte).

9.7.1 The Conditions when Pecuniary Penalty Applies.

9.7.2 Features of the order of Pecuniary Penalty.

9.7.3 Conversion of Penalty into order on Damages.

9.7.4 The Elements on which Damages are Decided.

9.8 Conclusion.

Chapter 10

Performance Through Damages

10.1 Introduction.

10.2 When Damages are Allowed In Place of Performance.

10.3 Payment of Damages replaces any Obligation Whatever its Source.

10.4 Features of an Award of Damages.

10.5 Judicial Compensation.

10.5.1 The Requirement of a Notice to the Debtor.

10.5.2 How The Judge Assesses Damages.

10.5.3 The Elements of Compensation of Damages.

10.5.4 The Direct Damage and the Indirect Damage.

10.6 The Agreed Damages Clause or the Delay Penalty Clause.

10.7 The Damages As per Law (Interest).

10.7.1 The Law on Interests.

Chapter 11

Time and Delay

11.1 Introduction.

11.2 The Obligation to Complete Works in Time Agreed or within a Reasonable Time.

11.3 The Agreed Penalty Condition for Breach- Article 267 of the Oman Civil Code.

11.3.1 When the Delay Damages Clause is Applicable.

11.3.2 Conditions of Eligibility of the Delay Damages Clause.

11.3.3 Delay Damages or Pecuniary Penalty.

11.3.4 The Effect of the Delay Damages Condition.

11.3.5 When it is Permissible to Decrease the Amount of Delay Damages.

11.3.6 When can the Delay Damages be Increased over the Agreed Cap?

11.4 Requirement of Notice by the Employer.

11.4.1 Meaning of the Notice.

11.4.2 The Notice its Type and Service.

11.5 Time Bar Clauses.

11.6 Time at Large.

11.6.1 When Time Can Become at Large

11.6.2 When there is no contract.

11.6.3 When there is a contract but no completion has been agreed.

11.6.4 When the contract does not provide for an extension of time for employer delays.

11.6.5 When the power to extend time is inoperable.

Chapter 12

Essential Provisions in the Civil Law of Oman and the MENA Region

12.1 Introduction.

12.2 The Defense By Non-Performance (Exceptio non adimpleti contractus).

12.2.1 The Legal Position in Oman and UAE.

12.2.2 When can the Remedy of Non-Performance be Adopted.

12.3 The Right of Retention. (Droit de Retention).

12.3.1 The Legal Position in Oman and MENA.

12.3.2 The Connection of the Retained Property with the Employer and the Contractor.

12.3.3 The Duty of the Retainer Towards the Property.

12.3.4 The Return of the Retained Property.

12.3.5 Expiry of the Right to Retention.

12.4 Article 159 of the Civil Code of Oman.

12.4.1 The Conditions of Application of This Article.

12.4.2 The Requital.

12.5 Conclusion.

Chapter 13

Termination of a Construction Contract

13.1 Introduction.

13.2 Termination Through a Court Order.

13.3 Conditions of Appeal for Termination.

13.4 The Condition of a Bilateral Contract.

13.5 Breach of Performance.

13.6 No Termination Unless the Claimant is not In Breach and Ready and Capable of Returning to the Original Position.

13.7 How is the Right to Terminate Used.

13.8The Principle of Time is of the Essence.

13.9 The Effects of Termination.

13.10 The Effect of Termination on the Parties.

13.11 The Notice of Termination.

13.12 Termination By Agreement.

13.13 Termination By Law.

13.14 Conclusion.

Chapter 14

Tort Liability in Construction Contracts

14.1 Introduction.

14.2 The Difference Between Liability in tort and Liability in Contract.

14.3 Claims in Tort and under a Contract.

14.4 The Elements of Tort.

14.4.1 The Misconduct or the Wrong or the Breach.

14.4.2 The Harm or Damage.

14.4.3 The Causal Link Between the Damage and Misconduct.

14.4.4 Force Majeure or a Fortuitous Event (cas fortuit).

14.4.5 The Fault of the Claimant.

14.5 Concurrent Delays and the Contributory Fault.

14.5.1 The Fault of Others.

14.5.2 The Absence of the Causal Link Because the Cause is not the Producer or is Indirect.

14.6 The Sequence of Damages and Indirect Damages.

14.7 The Standard of a Direct Damage.

14.8 Conclusion.

Chapter 15

Unjust Enrichment or Enrichment without Cause

15.1 Introduction.

15.2 Unjust Enrichment/ Enrichment without Cause in Laws of Oman and the MENA region.

15.3 The Enrichment of the Defendant.

15.3.1 The Positive and the Negative Enrichment.

15.3.2 The Direct and the Indirect Enrichment.

15.4 The Enrichment at the Claimant’s Expense.

15.4.1 The Positive and Negative Expense.

15.4.2 The Direct and Indirect Loss.

15.4.3 The Material Loss and the Intangible Loss.

15.5 The Direct Causal Link Between the Loss and Enrichment.

15.5.1 The Cause as a Legal Source of Enrichment.

15.6 Conclusion.

Chapter 16

Subcontracting and Subcontracts

16.1 Introduction.

16.2 Subcontracting: the Condition in Law.

16.3 The Relationship of the Main Contractor with the Subcontractor.

16.4 The Duty of the Main Contractor towards the Subcontractor.

16.5 The Duty of the Subcontractor to the Main Contractor.

16.5.1 The Duty to Complete the Works.

16.5.2 The Duty to Handover.

16.5.3 The Guarantees of the Subcontractor.

16.6 The Relationship of the Subcontractor with the Employer.

16.7 The Indirect Relationship of the Employer with the Subcontractor.

16.7.1 The Right of the Subcontractor to Demand Payment from the Employer.

Chapter 17

The Expert Witness

17.1 Introduction.

17.2 The Importance of Expert Witness in Oman and the MENA region.

17.3 The Provision of Law.

17.4 Appointment of Experts.

17.5 The Requirement of the Independence of the Expert.

17.6 The Recusal of the Expert.

17.7 The Duties of the Expert.

17.8 The Powers of Discovery Granted to the Expert.

17.9 The Report of the Expert.

17.10 The Effect of the Expert’s Report.

17.11 The Fees of the Experts.

17.12 Conclusion.

Chapter 18

Dispute Resolution

18.1 Introduction.

18.2 Arbitration.

18.2.1 The Language of Arbitration in Oman.

18.3 Litigation.

18.4 The Contract for Reconciliation.

18.4.1 The Existence of a Dispute.

18.4.2 The intention to Resolve the Dispute.

18.4.3 Relinquish Part of the Claims by Both Parties.

18.5 The Difference of a Reconciliation Contract from Arbitration.

18.6 Conclusion.

Table Of Cases

Chapter 1

Introduction

Dealing with disputes in construction contracts in Oman or the MENA region requires expertise in the law and a good knowledge of the Arabic language. Professionals dealing with construction contracts and related disputes in these countries find that the principles and doctrines of law applicable in these countries are different from common law countries. Finding good books on construction law in the English language that explain the law and the courts’ position in sufficient detail are absent or are minimum in numbers.

The construction field in these regions, especially the Middle East, is dominated by expatriates of different origins. Their understanding of the applicable laws sometimes lacks the required understanding and awareness.

This book aims to reduce this shortcoming and bring awareness of the laws governing construction contracts focusing on the Sultanate of Oman with UAE, Qatar, Egypt, and the MENA region in general. It analyzes the various principles and doctrines which apply to construction contracts in these regions. Also, the author has conveniently included the position of the Supreme Court of Oman in multiple matters, and references to its judgments are given so readers can benefit from them. Articles from the different applicable laws are also included, and references of recognized texts on construction law have been given to assist readers.

The Supreme Court judgments are persuasive in the lower courts. The lower courts and arbitrators in Oman follow the Supreme Court judgments if the case is based on similar facts and circumstances.

The Sultanate of Oman is one of the countries in the Middle East which has robust laws in matters of contracts. The source of law in the Sultanate of Oman and GCC is, as in most Arab countries, is the French Law and the Sharia, together with that custom, play a crucial role. The civil code of Oman1 article ¹ clearly states that if there is no provision of the law,

The court shall rule under the Islamic Doctrine, then under the general principles of the Islamic Shariah, or else according to custom.

Custom is central to some cases which will be explored in this book. The laws of Oman and the MENA region strictly follow the principle of Pacta Suncta Servanda. The book quotes many judgments of the Honorable Supreme Court of Oman on this, exploring how Oman applies this doctrine.

In contrast to common law, the laws in the MENA region are based on set principles and codified law. Based on these principles and codes, the court evaluates the issue in question. The reasoning in the judgments connects the principles to the dispute and codified law, and then a conclusion is drawn. Although bound by statutes, common law courts can still deliver a judgment based on the judge’s understanding of the dispute. Therefore, a common law court judgment can be very lengthy, whereas decisions in the MENA region are concise and precise.

The laws in Oman are fresh, and Oman strives to update its and rules through the Royal Decrees promulgated from time to time.

This book also aims to spread knowledge about the laws in Oman in particular and MENA in general amongst the construction community so that parties are aware of their rights and entitlements. This awareness will assist in reducing disputes or resolving disputes which are prevalent in the construction field in this region.

However, this book is not a law book and is meant to be read by Contract Managers or Lawyers seeking to gain knowledge of the laws and principles applicable to contracts in Oman and GCC in general.

1 Royal Decree 29/2013 Omani Civil Transactions Law.

Chapter 2

The Development of Courts and the Codification of Law in Oman

2.1 Introduction.

By its natural character, humankind is social and cannot dispense with its fellow humans. As a result of this distinct characteristic, interests and desires overlap, sometimes leading to discord and disagreement, which calls for resolution to keep the social fabric of the society intact. History has shown that conflict resolution through a neutral and independent body, based on justice, is a characteristic of humankind and the preferred method.

Justice is the basis of governance of a country and the source of security and safety of its population. With it, nations prosper, and economies flourish. No doubt humanity has sought justice and the means to achieve it since ancient times. For these reasons, society has been familiar with the judiciary and dispute resolution for ages, with the source of legislation being the principles of natural justice, custom, and local traditions.

After Islam in many parts of the world, the Islamic Shariah became the primary source of legislation and law in the Islamic world. Muslim scholars worked hard to interpret and implement the rules of the Islamic Shariah to resolve and rule on contretemps and other more severe matters of justice. In those times, life was a lot simpler. The judiciary was confined to wise men appointed by the Rulers to act as the judge and rule on disputes; there was no big organization or judicial codification of the law. Justice was simple and imparted to the rules of Shariah in the Muslim-ruled countries and based on custom and natural justice in others.

As the civilization developed, it produced complex issues in every aspect of life, including commerce, trade, and political issues. With its traditional approach, the judiciary could not cope and satisfy these needs and became a need to modernize to keep pace with the contemporary reality. Similarly, Oman, one of the many Arab countries, also updated its judicial system to cope and satisfy society’s needs.

2.2 The Oman Judiciary and its Stages of Development.

The Sultanate of Oman is the oldest independent country in the Middle East. It is a monarchy ruled by His Majesty Sultan Qaboos Bin Saeed from 1970 until 2020, who was succeeded by His Majesty Sultan Haitham Bin Tariq in 2020.

Since the dawn of the renaissance in 1970 at the hands of His Majesty Sultan Qaboos Bin Saeed, Oman has kept pace with other developed countries in developing its judicial system to a robust, just, and workable system accommodating the needs of the modern society.

This development, however, did not come at once; instead, it was progressive in stages according to the requirements and the necessities of the time. Oman followed a policy of gradualism in developing its judiciary, which gradually modernized the court benefitting from the experiences of different countries while keeping pace with the modern requirements and demands of a developing nation. In line with the efforts of modernization and development, the Ministry of Justice was formed and was one of the first ministries to be formed in Oman.

The initial judicial system comprised Shariah courts distributed over the various Wilayats of Oman. The hierarchy of the courts was that the judgments of the Shariah courts could be appealed to the Appeals court in Muscat. The Appeals court’s rulings could then be challenged in a Grievance Committee. There was no codified law of Oman, and the courts gave their judgments based on Shariah. They adopted the procedures according to decisions and circulars issued by the Ministry of Justice from time to time. Modernization created a demand for more regularized procedures and knowledge of administrative matters of the court. Accordingly, specialized committees and bodies like the local committees to look into land affairs, rent dispute committees, and committees like the Sunan-Al Bahr committees were formed.

A Police Criminal Court was established under the Royal Decree 7/74, which later was transformed to the Criminal Court by the Royal Decree 25/84. According to the requirements of time and as the effect of the impact of contemporary civilization was felt in Oman, a need for specialized knowledge in further administrative procedures was felt. So, and in line with this requirement, Oman formed technical committees to look into land disputes, rent disputes, and regulations of seas. The Police Criminal Court became the center for Oman’s penal law; these courts were transformed into Oman’s Criminal court through Royal Decree 25/84. Similarly, a Commercial Dispute Resolution Committee was established, becoming the Commercial Dispute Resolution Authority by Royal Decree 13/97.

Yet, these bodies did not follow a proper hierarchy. For example, the Land Dispute Committee reported to the Ministry of Housing, while the committee formed for resolving rent disputes was under Muscat Municipality. Whereas the Shariah courts reported to the Ministry of Justice, and State Advisor for Criminal Affairs oversaw the Criminal procedures. The Ministry of Trade and Industry supervised the Commercial Dispute Resolution Authority before it became a court; the judicial system was present but not aligned with a unique entity.

With the enactment of committees, the State also took measures and enacted laws for the public good. It issued