Arbitration as a method of dispute resolution is not a new concept in Oman or, for that matter, the Middle East.
Arbitration (Tahkim) has deep historical roots in the region. In pre-Islamic times, arbitration was a well-known and widely used method of settling disputes with a great deal of similarities to the modern concept of arbitration, in particular, being an optional procedure left to the free choice of the parties involved in the dispute.
Such recognition and usage continued with the arrival of Islam with its validity as a dispute resolution procedure recognised by the four sources of Sharia’a law: the Koran, Sunna, Idjma and Qiyas. This was not without some modifications, however, and with a distinction arising as to the binding nature of the arbitrator’s decision.
This is an area which even today still receives a great deal of judicial and academic interest throughout the world in both civil and common law jurisdictions. For example, Islamic juristic scholars are still divided as to the correct interpretation and meaning of the word ‘hakam’ (or arbitrator) under Sharia’a law. One school of thought is that an arbitrator is merely authorised to assist in the settlement of a dispute (which is akin to conciliation and, therefore, non-binding) whereas the others argue that the arbitrator is actually authorised to issue a binding decision.
The Omani Arbitration Law has been promulgated by the Sultani Royal Decree No. 47 of 1997, issued on June 28, 1997
Agreement to arbitrate
The courts of Oman rarely refuse to enforce arbitration agreements but it does happen. Pursuant to article 10(3) of the Arbitration Law, any reference to arbitration in a contract will normally result in the courts declining to accept jurisdiction:
Any reference appearing in the contract to a text containing an arbitration clause shall be deemed to be an agreement to arbitrate, if the reference is clear in holding such clause to be part of the contract.
In Commercial Objection Case No. 197/2010, the Supreme Court refused to enforce an agreement to arbitrate on the basis that it was not clear as to the parties’ intention to arbitrate. This “pathological arbitration clause” was in the following terms:
This pay order is irrevocable and shall be governed by Omani laws. All possible disputes between the parties in this particular irrevocable fee protection agreement will be settled at the tribunals in Oman, in the event of dispute the arbitration laws of international chamber of commerce will apply…
Article 13 of the Arbitration Law governs the enforcement of arbitration proceedings. This article provides that the court will rule any action before it as inadmissible if the respondent pleads the existence of an arbitration agreement prior to seeking any relief, remedy or presenting its defence before the court. This means that on application by the respondent, at the correct time, the court will stay any proceedings brought before it in circumstances where a valid arbitration agreement exists.
Only agreements to arbitrate entered into by individuals or entities with the required capacity to dispose of their rights are permissible. Matters in which compromise is not permissible cannot be settled by way of arbitration. As such, it is not possible to arbitrate in matters of public order disputes, disputes regarding personal status, and labour disputes.
The agreement to arbitrate must be in writing, which covers all written means of communication between the parties including correspondence exchanged between them. The terms of the agreement to arbitrate can, therefore, be contained in more than one document. Article 10(2) of the Arbitration Law provides that the arbitration clause can be a part of the agreement to which the dispute relates or be in the form of a separate agreement made after the dispute has arisen.
The parties are free to choose the law relating to the arbitration agreement. In the absence of any expressed law the arbitral tribunal will determine the same, if so required (article 39(2)). The parties can choose to refer and execute the arbitration law of any country.
International arbitration
The provisions of the Arbitration Law also govern international arbitration proceedings as well as domestic. Article 3 of the Arbitration Law sets out the specific characteristics of an international arbitration, namely (as translated):
An arbitration shall be international in terms of this law if its subject-matter is a dispute relating to international commerce in the following cases:
First: If the principal place of business of each of the two parties to the arbitration is situated in two different states at the time of the making of the agreement to arbitrate. If either party has more than one place of business, the place most closely associated with the subject-matter of the agreement to arbitrate shall be what is material, and if either party to the arbitration has no place of business, his place of ordinary residence shall be what is material.
Second: If the two parties to the arbitration agree to have resort to a permanent arbitral institution or to an arbitration centre having its official seat within the Sultanate of Oman or abroad.
Third: If the subject matter of the dispute comprised within the agreement to arbitrate is associated with more than one state.
Fourth: If the principal place of business of each of the two parties to the arbitration is situated in the same state at the time of the making of the agreement to arbitrate, and one of the following places is situated outside such state:
(a) the place where the arbitration takes place, as the agreement to arbitrate has designated or has intimated the method of designating the same.
(b) the place of performance of an essential aspect of the obligations arising under the commercial relationship between the two parties.
(c) the place most closely associated with the subject-matter of the dispute.
The only distinction between domestic and international arbitrations made under the provisions of the Arbitration Law is in relation to which court has the power to intervene in the arbitration. In domestic arbitrations, pursuant to article 9 of the Arbitration Law, such power is vested in the Primary Court whereas for international arbitrations (whether taking place in Oman or abroad) the competent court is the Court of Appeal.
Selection of the arbitral tribunal
The essential requirements for constitution of an arbitral tribunal are prescribed in article 15 of the Arbitration Law. The number of arbitrators will be determined by agreement of the parties, failing which the number of the arbitral panel will be three (article 15(1) of the Arbitration Law).
Article 15(2) of the Arbitration Law provides that if the tribunal panel is to be made up of more than one arbitrator, it must be made up of an odd number otherwise the arbitration proceeding will be considered a nullity.
Minors, persons under judicial restriction or deprived of their civil rights (by reason of having been convicted of an offence involving a violation of honour or trust) and bankrupts are prohibited from being appointed as arbitrators (article 16(2) of the Arbitration Law).
Article 17 of the Arbitration Law provides the default position to be followed in circumstances where the parties cannot agree the appointment of an arbitrator or the constitution of an arbitral panel.
The arbitrator(s) appointed must be unbiased and independent from the subject matter of the dispute and the parties. Article 19 of the Arbitration Law sets out the procedure which is required to be followed in circumstances where one of the parties challenges the impartiality or independence of the arbitrator(s).
Article 16(3) of the Law provides that the appointed arbitrator(s) must disclose any circumstances which would give rise to any doubt as to their independence or impartiality. Further, if such circumstances arise post-appointment, or during the arbitration proceeding, the arbitrator must, of his or her own accord, declare the same to the parties and to the other members of the arbitral panel.
Choice of law governing the substance of the dispute
Article 6 of the Arbitration Law provides that the parties to the arbitration ‘shall have the autonomy to stipulate the law which the arbitrators are required to apply to the subject-matter of the dispute’.
Pursuant to article 39(1) of the Arbitration Law, the substantive rules of the law chosen are to be followed and not the rules as to the conflict of laws, unless otherwise agreed.
In the absence of an agreement between the parties regarding the applicability of legal rules for the subject matter, the tribunal will apply the substantive law which it considers most closely connected with the dispute (article 39(2) of the Arbitration Law).
Alternatively, if the parties authorise it to do so, the tribunal may settle the dispute according to the rules of justice and equity, without being bound by the provisions of any law.
Procedure
Part Four of the Arbitration Law entitled ‘Procedure in the Arbitration’ sets out the procedural rules to be followed in arbitral proceedings. The majority of these provisions provide a default position in the absence of agreement between the parties.
In particular, article 25 of the Arbitration Law provides that the parties are at liberty to agree the procedure to be adopted, including the right to adopt the rules of procedure of any domestic or foreign arbitral bodies. In the absence of such an agreement, the tribunal is at liberty to choose the arbitration procedure it deems appropriate, subject to the provisions of this part of the Arbitration Law.
This section of the Arbitration Law also sets out the procedure to be adopted in the absence of agreement between the parties (articles 25 to 32) and the rules relating to the conduct of the hearing (articles 33 to 38).
Preliminary relief and interim measures
Pursuant to article 24 of the Arbitration Law, upon application of either of them, the parties to the arbitration can agree to confer upon the tribunal the power to order any interim or conservatory measure ‘necessitated by the nature of the dispute’ and also to require the furnishing of adequate security in order to cover the costs of the measure so ordered.
Article 42 of the Arbitration Law provides the tribunal with the power, without the need of the agreement of the parties, to render interim or partial awards prior to the rendering of the award, which would conclude the arbitral process.
Evidence including the disclosure of documents
Article 25 of the Arbitration Law provides that the parties are free to agree on procedure, including the rules of evidence. In the absence of such agreement the tribunal, taking into account the provisions of the Arbitration Law, can choose the procedure it deems appropriate. As such, the Law of Evidence in Civil & Commercial Transactions, as promulgated by Sultani Decree 68/2008, could be applied if considered appropriate or, as is common in international arbitrations, the IBA Guidelines on the Taking of Evidence in International Commercial Arbitration.
Article 30(3) of the Arbitration Law provides the tribunal with a power to require sight of the documents relied upon by the parties.
Article 35 of the Arbitration Law further provides that the failure of either party to submit any document requested can result in the arbitral tribunal rendering an award based only on the evidence before it.
The award
Pursuant to article 43 of the Arbitration Law, the award must:
- be rendered in writing and signed by the arbitrator. If the arbitral tribunal is greater than one, the majority must sign with reasons being expressly provided as to why the minority did not sign (article 43(1));
- state the reasons for the award unless the parties have agreed otherwise or the law to be applied to the procedure does not require the reasons to be so stated (article 43(2)); and
- include:
- the names of the parties and their addresses;
- the names of the arbitrators and their addresses;
- their nationalities and their capacities;
- the text of the agreement to arbitrate;
- a summary of the relief sought by the parties and their submissions and documents;
- the operative words of the award;
- the date and place the award was rendered; and
- the reasons for the award (if so required) (article 43(3)).
In Commercial Objection Case No. 57/2005, the Supreme Court nullified an arbitration award because it was only signed by the chairman of the three-member arbitral tribunal and the secretary of the tribunal. The court ruled that, pursuant to article 43(1) of the Arbitration Law, the majority of members of the tribunal must sign and reasons as to why the minority did not sign must be shown in the award.
Confidentiality
Arbitration proceedings conducted in the Sultanate of Oman are generally considered to be confidential unless the parties agree otherwise. Article 44(2) of the Arbitration Law provides that an award may not be published, in whole or in part, except without the approval of the parties.
Appeal
No arbitral award rendered in accordance with the provisions of the Arbitration Law is capable of being appealed (article 52(1)). The only recourse of the parties is to seek to nullify the arbitral award as provided pursuant to article 52(2) and article 53 of the Arbitration Law.
Article 54(1) of the Arbitration Law provides that an action for annulment shall not be inadmissible by reason of the party so claiming having waived his right to bring such action prior to the rendering of the arbitral award.
Article 53 of the Arbitration Law prescribes certain grounds upon which annulment of an arbitral award may be allowed, namely:
(1) No action for annulment of an arbitral award shall be admissible save in the following cases:
(a) If there is no agreement to arbitrate, or such agreement is void or voidable, or has lapsed upon the expiry of its duration. (b) If the capacity of either of the two parties to the agreement to arbitrate at the time of the making thereof was lacking or defective in accordance with the law governing capacity.
(c) If either of the two parties to the arbitration was unable to present his case as a result of not being properly notified as to the appointment of an arbitrator or the arbitral proceedings, or for any other reason beyond his control.
(d) If the arbitral award failed to apply the law which the parties agreed to apply to the subject-matter of the dispute.
(e) If the composition of the arbitral tribunal or the appointment of the arbitrators took place in a manner contrary to law or the agreement of the two parties.
(f) If the arbitral award determined issues outside the scope of the agreement to arbitrate or exceeded the limits of such agreement. If, however, it is possible to sever the parts of the award relating to issues, which were subject to arbitration from the parts of it relating to, issues not subject thereto, the latter parts alone shall be annulled.
(g) If nullity is present in the arbitral award or the arbitral proceedings were void in a manner affecting the award.
(2) A court adjudicating upon an action for annulment shall of its own motion annul the arbitral award if there is anything in it contrary to public order in the Sultanate of Oman.
No provision is provided that would allow the parties to derogate from these prescribed circumstances.
Enforcement
Part Seven of the Arbitration Law entitled ‘Recognition and Enforcement of Arbitrator’s Awards’ provides that an award rendered in accordance with the Arbitration Law shall have the force of res judicata and shall be enforced in conformity with the provisions of the Arbitration Law (article 55).
However, article 58 of the Arbitration Law provides that an enforcement order of an arbitral award will not be made without first ascertaining that:
- it does not conflict with a judgment previously rendered by the Omani courts upon the subject matter of the dispute;
- the award is not contrary to public order in the Sultanate of Oman;and
- it was properly notified to the opposing party.
There is no legislative definition of ‘public order’ in the Sultanate, but its meaning can be discerned from decisions of the courts. In a judgment dated 8 December 1993, the concept of public order was defined as follows:
laws which go to public order are those whereby it is intended to accomplish a public interest – political, social or economic – which goes to the higher order of society and which transcends the interest of individuals. All individuals must respect such interest and the accomplishing of it, and they may not negate it by agreements entered into between them, even where such agreements accomplish interest for them, because private interests cannot prevail over the public interest.
If a rule of law goes to public order, then:
- the rule will override any contractual stipulation to the contrary, and it will apply with immediate effect (contrary to the normal rule that a new law does not affect pre-existing contractual positions); and
- the judge must of his own motion set aside any contractual stipulation running contrary to public order, even if either party to a dispute does not raise the point.
An application for the enforcement of a local award is required to be made to the president of the court (or a judge delegated by him or her) and should include:
- the original award or a certified copy thereof;
- a copy of the agreement to arbitrate;
- a translation of the arbitral award into the Arabic language certified by an approved authority (if the award was not rendered in Arabic); and
- a copy of the minute produced by the registrar of the court evidencing the deposit of the award in the registry.
An application for the enforcement of an international award requires a judgment to be rendered in the Omani Enforcement Court.
There are few reciprocal arrangements in place between the Gulf Cooperation Council (GCC) States and other nations for the recognition and enforcement of foreign court judgments. This is an important distinction between arbitration and litigation which favours the former in Oman because of the Sultanate’s accession to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Accordingly, arbitration awards are recognised and enforceable in Oman whereas court judgments from countries outside the GCC without any reciprocal arrangements with Oman are not.
Accession to international conventions relating to the enforcement of arbitral awards and the settlement of disputes
The Sultanate of Oman is a member of the GCC. Membership of the GCC provides for enforcement of arbitral awards issued within other Member States.
As have the other members of the GCC, Oman ratified the New York Convention on 25 February 1999. The ratification included a reservation by Oman that the convention will only apply in relation to the recognition and enforcement of awards made in the territory of another contracting state.
The Sultanate of Oman has also signed a number of bilateral investment treaties providing recourse to arbitration under the auspices of the International Centre for the Settlement of Investment Disputes, having ratified the Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States 965 on 24 July 1995. Oman has entered into such bilateral agreements with Algeria, Austria, China, Croatia, Egypt, Finland, France, Germany, India, Iran, Italy, Lebanon, the Netherlands, Pakistan, Sweden, Switzerland, Tunisia, Ukraine and the UK.
Oman became the 139th country to join the World Trade Organisation on 9 November 2000 and entered into a free trade agreement with the United States on 1 January 2009. Both agreements contain arbitration procedures to be followed in order to deal with any trade disputes arising from the resulting increased economic activity and investment.
Recent developments
Agreement to arbitrate
In April 2010, the Muscat Court of Appeal rendered a judgment upholding the Primary Court’s acceptance of jurisdiction on the grounds that the arbitration clause in the agreement entered into between the parties was considered to be ambiguous.
Further, on 19 June 2010 the Muscat Primary Court accepted jurisdiction of a construction contract claim despite the existence of an arbitration clause in the FIDIC standard form of documents for construction contracts (arbitration clause article 67 of the FIDIC red book). The court stated that the intention to arbitrate must be clear, express and not implied or adopted by reference to any other document. Given that this would seem contrary to article 10(2) of the Arbitration Law, the said decision is currently under appeal.
If the appeal process is unsuccessful, however, then some drastic amendments will be required to be made to the standard form of documents.
Enforcement of a foreign arbitral award
Also in April 2010, overruling an earlier Primary Court judgment, the Muscat Court of Appeal recognised that an arbitration award rendered in Denmark against an Omani company was enforceable in Oman under the New York Convention.
Previously, the Primary Court had dismissed the application to recognise and enforce the foreign award on the basis that the plaintiff had failed to satisfy the conditions required when making the application pursuant to the terms of the convention and that the award itself was contrary to public order. The case is currently pending before the Supreme Court. This is the first time that enforcement of a foreign arbitral award has been sought in the Sultanate of Oman. The decision of the Supreme Court is likely, therefore, to attract a great deal of attention both at home and abroad.
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