Construction Disputes in Oman - Here and Now

On 12 November 2013, Curtis, Mallet-Prevost, Colt & Mosle LLP was invited to
speak at the Chartered Institute of Building Masterclass on Delay, Dispute
Resolution, and Management of Construction Contracts held in association with Hill
International.
The following are some of the areas which were covered by Curtis in its
presentation to the delegates.
Most construction contracts entered into in the Sultanate of Oman use the Standard
Documents for Building and Civil Engineering Works, usually referred to as the
Standard Forms of Contract. The two editions in use are the Third Edition (which
was issued in July 1981) and is in the English language and the Fourth Edition
(issued in 1999) in the Arabic language.
The Standard Forms of Contract are FIDIC based with a traditional employer
design/contractor build risk profle. The Employer bears risk for increase in costs
arising from such matters as:
a change in law (Clause 70), the minimum wage legislation which was recently
passed being a prime example of this; and
those arising from Special Risks, such as war, revolution, riot, commotion or
disorder (Clause 65).
The Contractor bears risk for increase in costs arising from such matters as:
infation/increase in materials, labour and/or consumable prices; and
adverse physical conditions (except weather, unless protected through the
Clause 12 procedure therein).
The diferences in content between the two issues of the Standard Forms of
Contract are considered to be minimal. In the Fourth Edition:
the Form of Tender Performance Bond is reduced to 5% as are a change in
days to submit (Clause 3, page 1; Clause 10, page 2; Clause 10, page 17);
and
penalties for delay increased to 10% plus additional damages (Clause 47).
The Standard Forms of Contract are currently in the process of being updated and
likely to be brought into line with FIDIC '99 in order to refect changes over the last
13 years and, importantly, will be bilingual.
Recent developments in Oman jurisprudence
Probably the most singularly important development this year has been the
introduction of the Royal Decree No. 29/2013 enacting the Civil Code. Issues such
as liquidated damages, penalties and limitations of liability, time limits and even
matters specifcally relating to building contracts (Muqawala) have now been
codifed.
For example, Article 267 of the Civil Code specifcally deals with the position
regarding liquidated damages, as follows:
(1) If the subject matter of obligation is not a sum of money, the contracting parties
may determine the amount of compensation in advance by making a provision of
same in the contract or in a subsequent agreement.
(2) In all cases, the court may, upon the application of either of the parties, amend
such agreement to make the compensation equal to the damage, and any
agreement to the contrary shall be null and void.
Although we are not aware of any case law directly on this point since enactment of
the Civil Code (in August this year), Article 267 gives greater certainty to the
generally accepted position that, if provided for by contract, the Omani courts may
award liquidated damages, provided they are a reasonable assessment of the
fnancial damages actually sustained by a party. Importantly, it also clarifes that the
Courts are specifcally permitted to re-open liquidated damages clauses, and award
increased damages commensurate with the value of the actual damage incurred.
Building contracts or Muqawala are covered in Articles 626 to 650 with important
consideration being given to:
Article 633 benefcial efect and right to retention;
634 decennial liability;
640 right to recover excess costs on unit prices;
641 - no right to recover excess costs for lump sum price;
646 - termination; and
650 recovery of damages upon termination.
Given the extent of the efect of the Civil Code, further articles will follow dealing
with specifc issues arising from the extensive codifcation principles.