OABC News

On Monday, May 18, the OABC and members of the greater business community gathered virtually for a webinar in partnership with Amcham Bahrain and The Sedge Group.

There is immense interest in doing business with the U.S. Government. The United States government spends, on average, more than $4 trillion on goods and services each year. Everything from food supplies for ships, to office pens, and everything in between are acquired through contracts with global businesses. The session walked members through the various steps to put them on the right path to increasing revenue in this sector. One step included, ensuring one’s company is properly registered in the various government portals so attendees know where and how to bid for service contracts.

About the Author

Michael Sedge, writer, author, producer, entrepreneur and president of The Sedge Group, LLC as well as The Michael-Bruno Group of Companies (USA, Bahrain, Djibouti, Italy). Sedge is a global expert on working with the U.S. government, with 40 years experience. He is a former regional president of AMCHAM Italy, founder of the American Business Council of Djibouti, and a regional director of the Society of American Military Engineers. Mr. Sedge has lectured on doing business with the American government to groups around the world.

According to news reports, in a statement issued by the Saudi state news agency, Mohammed Al-Jadaan, the Finance Minister of Saudi Arabia, has announced an increase in the rate of VAT from 5% to 15% in Saudi Arabia from 1 July 2020.

The announcement comes after Saudi Arabia posted a budget deficit of USD 9.07 billion in the first quarter of 2020 and is reported to have cancelled/postponed certain operating and capital expenditure and also cut allocations on projects worth USD 26.6 billion.

The austerity measures are intended to help Saudi Arabia stabilize non-oil revenues and cope with public finances currently pressured by low oil prices and Covid-19. This, however, comes as an unexpected move after the recent tax announcements by the General Authority for Zakat and Tax easing tax return filing, tax payment and penalty provisions to help businesses navigate the impact of Covid-19.

The move also seems to be a deviation from the Common VAT Agreement of the States of the Gulf Cooperation Council (GCC Common VAT Framework Agreement) that only empowers member-states to levy VAT at the standard rate of 5% on taxable supplies that are not specifically exempt or zero rated (Article 25).

To access our detailed tax alert on the implications of the increase in the VAT rate in Saudi Arabia please click here.

Development in the UAE

The United Arab Emirates (UAE) introduced VAT on 1 January 2018, the same time as Saudi Arabia, and is faced by similar economic pressures. However, according to recent news reports, in an official statement issued after the announcement by Saudi Arabia, UAE’s Ministry of Finance has confirmed that they have no current intentions to increase the rate of VAT.

Budgetary Challenges in Oman

Oman, like many other countries in the region and outside, is significantly challenged with the sharp slump in international oil prices and the economic instability created by Covid-19 that continue to impact the country’s credit rating. Since the beginning of 2020, the Ministry of Finance has issued many circulars and a set of directives to government units to reduce the volume of spending. In April 2020, the Ministry of Finance announced a cut of OMR 500 million in the State Budget.

Oman has been preparing for the introduction of VAT for quite some time. This includes drafting the VAT law and executive regulations, as well as having systems in place to implement VAT when the government takes a decision on the implementation date. In an interview with Bloomberg at the World Economic Forum 2020 in Davos earlier in January this year, His Excellency Ali bin Masoud Al Sunaid, Minister of Commerce and Industry in Oman, confirmed that Oman would introduce VAT “sometime during the beginning of 2021”.

Given recent unexpected challenges, Oman may consider the possibility of implementing VAT more quickly, in a phased manner. In this case, businesses may not have a long period of time to prepare for implementation. 

OABC Premium Members attended an exclusive Online Roundtable with the Oman Chamber of Commerce and Industry on Tuesday, May 12, from 2 pm – 3 pm.

Representatives from OCCI, led by CEO Alfadhal Al Hinai, provided information about the Chamber’s recent work on behalf of the private sector during the COVID-19 crisis, and explained support channels the organization offers to businesses in Oman, with a closing discussion on the OCCI’s new transformation strategy.

Would you please tell us a bit about Azooz, and a bit about yourself as well, as a new member of the OABC?

Azooz is an online delivery app that was created with a vision to enable the Omani producers/manufacturers to sell their products directly to the consumers in Oman. For example, through Azooz,

1. A customer in Madinat Qaboos is able to order a fresh chicken from a farm in Ibra and get it delivered within few hours of ordering.
2. A home-based business lady is selling her spices directly to a customer in AL Mouj
3. And many more examples like this

Whether small or big, Omani manufacturers/producers have a direct reach to customer’s homes through Azooz and are benefitting by more volumes and margins.

As Managing Director of Al-Hathaifa (and AZOOZ), I have been in Oman for last 22 years and started my journey from the oilfield to now a business that is unconventional and challenging in many ways.  The vision of Azooz is shared by my Omani partner and a great set of advisors who always are trying to bring a new dimension in Azooz. We have plans to work very closely and develop home-based businesses, SMEs, and hopefully will create an ecosystem for better reach for their businesses. We also have plans to bring models based on subscriptions, that will bring next level of convenience to consumers in Oman.

What has the day-to-day work been like in the past few months, and how does it compare to the work before COVID19?

We had rolled out Azooz in the month of January among friends and relatives, and from there has been no looking back. We have had great response from our customers and people have reached out to us to help us develop Azooz. With COVID-19 reaching Oman in March, we did not blindly start delivering everything, we stuck to our core cause of supporting Omani products.

Adding new vendors, deliveries, and procurement during COVID-19 challenged us in various ways. One thing that we have been constantly doing is sticking to our core belief of enabling Omani companies and Omani manufacturers/SMEs. We have some large enterprises and some small producers but we can proudly say that we have been doing our part successfully. Our vision is not restricted to the COVID-19 situation, we are focused on enabling Local Producers/Manufacturers in the long run.

How do companies register with Azooz to begin offering their products via the platform?

For the companies who wish to be our partners, simply send us a message on help@azooz.online. Our Vendor Development Team will assist them in completing the listing process. For customers who wish to order, simply download the app available on iOS and android platforms or through our site www.azooz.online.

What is the biggest challenge you are facing during this Pandemic? 

We have been facing various challenges during this excruciating time. The biggest one is receiving goods that we need for our business. Like eco-friendly bags, we are unable to procure them currently due to the lockdown. Similarly, some vendors are unable to deliver products that are already listed on our site. Movement limitation, workforce restriction, lack of labor has impacted all of our vendors and their product availability. Despite these challenges, we are trying our best to deliver what we commit to our customers.

Do you have any advice to those looking to start something new in Oman?

At present, in my opinion, any new business should be started to solve a problem. Money should not be the only motivation when starting any business, one has to ask what impact the business will have on the country’s economy and to the people in general.  There is a tough competition outside and one must be prepared to compete with some very intelligent people who keep you alert and on your toes at all times.

Anything else you’d like to add?

We want support from our customers as Azooz belongs as much to the customers as it belongs to us. We will make mistakes like everyone else, but we promise to learn from them and try not to repeat those errors again. We want our customers to be patient with us and we will ensure that the money they spend goes to Omani producers/manufacturers. In the long term, everyone will reap the benefit of an app that truly supports the Omani economy.

1. Impact of COVID-19 on Middle East Economy – Projects’ Sector – March 25, 2020 

Video 

Slides

MENA Projects pre-launch offer

2. Impact of COVID-19 on Middle East Economy – Projects’ Sector – April 1, 2020 

Slides 

Poll results

Video 

MENA Projects report

3. Impact of COVID-19 on Middle East Economy – Projects’ Sector – April 8, 2020 

Slides

Video

MENA Projects report

Saudi Arabia 2020

1. Join the Conversation: Discuss business issues openly and honestly, and learn from the experience of other executives on OABC’s Business Community Forum. Click here to post a question or share your thoughts on member queries.
2. Quickly browse a list of helpful resources: Our Covid-19 Resource Center is being updated daily with essential information relevant to member companies and their employees affected by the ongoing novel coronavirus outbreak.
3. Share your current news in our weekly email blasts to all members.  Have you made changes to your business or service offerings? Let everyone know. Email Leanne at Leanne.george@oabc.org 
4. Be part of the community.  All additional updates are being shared on our social media channels, Follow us on Facebook | LinkedIn | Instagram | Twitter 
5. Add a channel to stay in-the-know. To join our one-way WhatsApp group save the OABC number (+968 9418 9500) and WhatsApp us with your name so we can add you to the group.
6. Share your (virtual) events and webinars with us.  Email Leanne at Leanne.george@oabc.org 
7. Promote any current offers on our social media pages.  Email Leanne at Leanne.george@oabc.org.
8. Attend a webinar or virtual meeting to learn new skills to implement in your business.  The OABC events page is constantly updated with relevant events and invitations from regional American chambers of commerce and international companies.
9. Connect with OABC members through the OABC Membership Directory, or email Rebecca.olson@oabc.org to be introduced to a fellow member.
10. Share ideas with us on how we can provide additional support for you and your business. Email Rebecca at Rebecca.olson@oabc.org

Remember: although we may be doing business differently these days, the OABC is still open for business!  We are here to be your professional community resource during and after this world-altering crisis, and will look forward to reconnecting everyone in our network together, face-to-face again soon.

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Spread of Corona Virus Disease (“COVID-19”) over the past couple of months at the global scale has coerced the governments to enforce certain drastic measures, including but not limited to, limiting the movement of citizens and residents, closure of international borders and suspension of trade to keep a check on further spread of COVID-19. While the said measures remain necessary in the wake of COVID-19, their impact on the economy and contractual obligations would be profound as the global economy comes to a standstill. International Monetary Fund has already hinted that the recession which will follow COVID-19 would be worse than the one that world witnessed in 2008.

In view of such bleak economic landscape, businesses are eagerly looking for legal solutions to either avoid or minimize the impact that non-fulfillment of contractual obligations would have on the health of their businesses and Omani commercial enterprises are no exception. While we look to explore various protections made available to the commercial enterprises against unforeseen situations rendering the performance of obligations either impossible or burdensome, readers are advised to seek legal opinion in respect of their specific situation and challenges.

Civil Transactions Law (Royal Decree 29/2013) (“CTL”) provides protection to the any contracting party where the obligations may either be rendered redundant or suspended, in some circumstances, mainly where:

1. performance of contractual obligations becomes impossible on account of circumstances which are beyond human control (Force Majeure); or
2. performance of contractual obligation is not impossible but unduly burdensome to the extent that the obligor faces severe loss through performance of the obligation concerned (Emergency Circumstances).

A requirement common to invocation of either of the foregoing scenarios is that the aggrieved party shall not have contributed to the circumstances which render the performance of an obligation either impossible or burdensome and that the event must be unforeseen.

FORCE MAJEURE:

Article 172 of the CTL lays down the principle of ‘force majeure’ which is a common feature of majority of the commercial contracts. Force majeure, in simple terms, means an unforeseen event which prevents the fulfillment of a contractual obligation. It is pertinent to note that the event must be one which does not exist at the time of conclusion of contract and does not arise, as held by the Supreme Court in Appeal No. 11/2003, out of the negligence or act of the aggrieved party. While Article 172 does not provide for specific instances or situations constitutive of a force majeure event, commercial contracts usually contain an elaborate list of events occurrence of which can be used by a party to either terminate the contract or evade performance of certain contractual obligations directly affected by the force majeure event. What is important to note here is that even where a commercial contract does not contain a force majeure provision, Article 172 would remain applicable by operation of law.

However, where force majeure is defined in a contract then it becomes imperative to discern whether the measures taken as a result of COVID-19 would fall within the set of circumstances listed in the contract and which would constitute force majeure event. A usual definition of force majeure includes references to, inter alia, ‘act of God’ or ‘epidemic/pandemic’ and COVID-19 would be covered under both set of circumstances. However, where a force majeure definition does not refer to an instance which may cover COVID-19, even by reference, or to the measures taken by the government then it would be difficult for the aggrieved party to invoke the application of force majeure on account of non-fulfillment of obligations as the competent court usually defers to the intention of the parties and would not go beyond the term of the contract to include by reference or otherwise such circumstances in the definition of force majeure which were not originally included.

Another important factor to bear in mind before seeking application of force majeure on contractual obligations is to specifically determine the obligations which are affected by a force majeure event. It is pertinent to note that one can only avoid performance of obligations which are rendered redundant by a force majeure event whereas the rest of the responsibilities listed in the contract would remain enforceable.

EMERGENCY CIRCUMSTANCES:

Where the impact of COVID-19 is such that it does not render the performance of a contractual obligation impossible but rather burdensome on account of rescheduling or for any other reason which increases the cost for meeting the contractual obligation to an extent that the obligor faces severe loss through performance of the obligation concerned, then in terms of Article 159 of the CTL, competent court would be inclined to reduce the burden of obligation in manner so that the same becomes reasonable and does not result in undue losses for the aggrieved party. It is important to note that to invoke the protection provided by Article 159, aggrieved party must prove to the satisfaction of the court that the emergency circumstances were not foreseen and have occurred during the currency of the contract as observed by Ministry of Legal Affairs in Fatwa  No. 2/28 of 2018.

However, determination as to whether a contractual obligation has become burdensome or not is a matter of fact and hence, a causal link needs to be established between the unforeseen situation, arising in consequence of measures adopted by the government to tackle COVID-19, and the obligation which stands effected by the unforeseen situation.

CONCLUSION

In the current set of circumstances, it is evident that the measures taken by the government in the wake of COVID-19 have either restricted or made it impossible to perform obligations for certain sectors of the economy and it is only a matter of time that parties would have to either renegotiate the terms of the contracts or invoke dispute resolution mechanism to avoid adverse consequences to the maximum extent. Where the parties choose the latter, Articles 172 and 159 of CTL would inevitably be involved. However, the party seeking refuge in either force majeure or the concept of burdensome obligation must remain wary of the terms of the concluded contract particularly the requirement to put the other party on notice where the performance of obligation becomes impossible or burdensome.

Since the Sultanate is facing the current epidemic as a new challenge, we believe that the current situation will be deeply assessed by the Judicial bodies and authorities through their judgments to be issued in the relevant contractual disputes. Subsequently, such judgments would serve as a resource for comprehending force majeure or emergency circumstances for times to come.

Co-authored by:

Abdulredha Al Lawati,  Partner/Muscat:

Email: Abdulredha.allawati@globaladvocates.net

Muhammad Bilal Ramzan, Associate/Muscat

Email: Muhammad.Ramzan@globaladvocates.net

Khadija Al Adawi, Trainee/Muscat

Email: Khdija.aladawi@globaladvocates.net

Retrieved from: Trowers & Hamlins

Among these are banning all travel to and from Oman, shutting down schools, malls, shops and cinemas and ordering the private sector to reduce its workforce to the minimum required and put in place IT systems allowing staff to work from home. These are indeed difficult times for everyone, and in particular businesses who have been forced to close or reduce their operations.

Given the restrictions on operations,  some businesses have looked at their work force and are asking us questions on what they can or cannot do under the current circumstances.

In this Article, we will address some of your key employment related questions. The government of Oman has yet to release any specific employment related legislative changes to deal with the effects of the pandemic and so this article will therefore address this subject based on the regulations in place and guidance issued by the Omani government.

Can employers reduce or withhold pay?

Any closure of a business or reduction in staff in light of the Omani Supreme Committee’s orders will be treated as the employer’s decision and so, in accordance with the usual legal position, all wages must be paid in full. Oman’s Ministry of Manpower has also recently issued guidelines to employers confirming that during these unprecedented times, employers are required to pay its staff their wages in full. While we can confirm that this is the stance taken in respect of national employees, we are yet to see the position the Ministry will take towards expatriate employees. To date however, these guidelines apply to both.

Can employers force employees to take annual leave with or without pay?

The Supreme Committee recently ordered private business to reduce its staff to the bare minimum and put in place systems that allow for its staff to work from home. Many business, for example in the construction industry, cannot put in place any work from home systems as the nature of the business means its staff (many of whom are blue collar workers), cannot conduct their work at home. And so, any forced reduction in staff will mean that staff will be at home, with no work and yet still get paid.

Oman’s Labour Law (RD 35/2003 as amended) provides that all employees are entitled to 30 days annual leave with full pay each year. The wording in the Labour Law indicates that while employers can dictate when an employee can take annual leave, in accordance with the requirements of the work, it does not expressly make any allowances for employers to place employees on annual leave without the employee’s consent. We are aware of some businesses that have placed employees on annual leave with full pay, with the support of the Ministry of Manpower, during this period.

It is very likely that a business’s ability to enforce any annual leave will depend on a number of different factors, including the terms of any leave policies in place. This will include any attempt to impose salary reductions during leave. It is important that any change in an annual leave policy is discussed with the Ministry beforehand. Justifications for changing the policy and how this will help support the business and the staff will need to be provided to the Ministry with supporting documents or evidence if available. The current reduced staffing levels at all government offices is likely to increase the time taken for any such approvals.
As it currently stands, pursuant to Oman’s labour laws, employers cannot force employees to take leave without pay.

Can employers make people redundant or terminate?

The Ministry of Manpower recently issued guidelines to all private sector companies to refrain from mass termination of national employees, even where projects have been terminated or in the event of closure or bankruptcy. The Ministry has also stated that business must communicate, three months in advance, with the Ministry if there is impeding bankruptcy or closure due to the spread of Covid-19, in order for the Ministry to take measures to relocate the national employees to alternative employers. Aside from that, the Ministry has not issued any further guidelines and we are yet to see whether any guidelines will be issued in relation to expatriate employees. Accordingly, the status quo remains in place.

Further, Oman does not recognise the concept of redundancy, and so any reduction in staff or redundancy of jobs will be treated as individual terminations. Any termination due to the Supreme Committee’s decision, may not be deemed a justifiable ground for any termination. Termination under Oman’s Labour Law can only be made under specific exclusive grounds., such as grave violations of the terms of the employment contract, unauthorised absence for ten (10) consecutive day or health conditions which prevent the employee from doing his work.

Force Majeure does not apply as a principle to employment contracts and employers are not permitted to unilaterally terminate an employment contract unless for the reasons and grounds provided in the Labour Law. The spread of Covid-19 does not fall under any of the grounds provided in the Labour Law. There are certain exceptions, for instance, where an employee is engaged for a specific project, and that project ends or is cancelled due to Covid-19, termination in this instance would potentially be valid. Although the Ministry has also issued directives to the private sector to refrain from terminating national employees, the same may not be applicable to expatriate employees.

Historically, economic difficulty has not been accepted as a reasonable ground for termination by the Omani authorities. In some rare instances however, the courts have accepted some businesses’ decisions to reduce staff as a management decision to avoid collapse of the business. In these rare instances, the authorities require paper trail evidence on the decision process, including proof of efforts to mitigate the reduction/termination of staff. The courts in general will want to see that any decision to terminate due to economic and financial difficulty was a last resort to prevent the business from collapsing. However, in light of the Ministry of Manpower’s recent decisions, businesses must communicate with the Ministry in the event of economic difficulty, as mass terminations or terminations of any kind due of national employees to economic difficulty is currently not permitted. It remains to be seen whether the same will be applied to expatriate employees.

Conclusions

The current legal position with regards to employment in Oman has not changed from the standard position as the authorities have not yet made any changes to employment law to allow employers more flexibility in their approach to battling the Covid-19 crisis.

It extremely important that records are kept of discussions and decisions which are taken as a result of the Supreme Committee’s decisions.  Being able to demonstrate the steps that were taken, and their justifications, will be essential in any subsequent courts cases which are brought by employees.
It is also important during this time to keep communication open with staff and with the Ministry where possible. And before taking any steps in terms of staffing, it may be best to seek guidance from legal experts as well as the Ministry.

For any questions on the above article please contact Thomas Wigley, Partner at twigley@trowers.com

Retrieved from: Trowers & Hamlins

As you read this article you are likely to have been impacted by Covid-19 (also known as the Coronavirus) in some way, whether personally or professionally. The infection is spreading and the Government response is also evolving. It is clear that the outbreak, now officially classed as a pandemic, is having real and significant affects on businesses and the people working in them.

Whilst there have been many updates on this topic already, in this article we will highlight some of the issues that we are currently advising businesses on in Oman related to the outbreak, with specific reference to relevant Omani legislation. We appreciate that most people are looking for ways to deal with suppliers, customers and employees fairly but also have a need to protect the business from supply problems and cash flow issues.  As you read this please bear in mind that everyone’s situation is different and as events unfold there may be other options and issues that are not covered here. We are not able to provide specific legal advice in this article but our contact details appear at the end of the article so please do contact us if you would like advice on any of the matters covered.

The main concern that we are being asked about is the impact of Covid-19 on contractual obligations, particularly where a drop in customer demand is being experienced or anticipated. In this note we particularly address how these contractual issues can be dealt with.

Force majeure

The pandemic is having a variety of adverse consequences for business including interruption in supplies, rising costs and unforeseen changes in demand. If your customers or suppliers are experiencing difficulties in meeting contractual obligations they may have mentioned ‘force majeure’ to you. Of course this may also be relevant to you if your business is struggling to meet a contractual obligation.

Force majeure is not defined under Omani Law, and so the scope and effect of a force majeure depends on how it is drafted in a contract (if indeed it is included at all).  Article 172 of Oman’s Civil Transactions Law (RD 29/2013) confirms that “in bilateral contracts, if force majeure occurs rendering the performance of the obligation impossible to complete, the corresponding obligation shall be extinguished, and the contract shall automatically be revoked“. While the provision states that the remedy for a force majeure event is termination, in practice, the rescission by operation of law will not be applicable unless it is absolutely impossible to perform the obligations of the contract specifically by reason of force majeure . In the event that that parties have anticipated and made contractual provisions for force majeure, the contractual arrangements ought to prevail over the statutory provisions.

Force majeure provisions usually excuse a party from delay or failure to perform any of its obligations where it is unable to do so due to an event outside of its control. Clauses differ but generally they include the following concepts:

1. A description of what amounts to a ‘force majeure’ event, such as epidemic, natural disaster, severe adverse weather, industrial action, embargo, government action etc. The fact that economic circumstances have changed is unlikely to be considered as force majeure but the causes of that change might be. It is important to check whether the clause provides an exhaustive list of events  or whether they are examples but other matters could apply;
2. That the event must prevent, impede or hinder a party from performing its contractual obligations. It would not usually assist where performance is possible but simply more difficult or expensive; and
3. The party seeking to rely on the clause must use some efforts (e.g. reasonable / all reasonable  / best endeavours) to overcome the events.

It is for the party seeking to claim force majeure to prove that it applies; i.e. it is not for the other party to have to disprove it.

Force majeure clauses often refer to ‘disease, epidemic or pandemic’ as possible relief events; in which case we would expect this to apply in the case of Covid-19. If the clause that you are looking at does not, the effects of Covid-19 may still fall within the clause if, for example, it refers to ‘acts of God’ (which one would consider to be a natural phenomena not caused by human action and a court may accept Covid-19 to be an example of), or due to government action (for example forcing businesses to close or preventing the export or import of goods). Many clauses also have some form of ‘catch-all’ wording such as ‘or any other event outside the reasonable control of the affected party and which could not have been avoided with reasonable foresight‘. Again, it depends on the drafting of the clause as to what is caught and whether the specified events are a conclusive list or by way of example only.

If you think the force majeure clause in your contract might apply to the consequences of this pandemic, it is important to check how it applies to the particular circumstances that have arisen. The event might be covered by the definition but has the event stopped a party from performing their contractual obligation? For example, a supplier unable to get products to its customers due to a government prohibition on movement of goods could claim force majeure to excuse it from a failure to deliver on time. However, a customer may struggle to rely on the same clause (even if pandemic is expressly included) as in many cases its obligation is to pay for the goods and take delivery (which may not be impossible as a result of the force majeure event). The fact that demand for the goods has dried-up is unlikely to trigger the protection of a force majeure clause for the customer (but see further below for other possible remedies).

If force majeure does apply the clause will usually require the affected party to give notice of the issue to the other party. It is important to ensure that any notice requirements set out in the contract are strictly followed, as failure to do so may mean that the notice is not valid. It is also important to check what obligations the affected party has. Usually these would include endeavouring to overcome the issue and to perform as soon as the force majeure event ends. Such a clause generally suspends the obligation but may not end it. However, the contract’s termination clause will often allow the other party to terminate it if the force majeure event continues for an extended period of time.

Changes to pricing

If a contract is possible to perform, but has become more expensive, it is worth checking any pricing clause to see whether it is possible to increase the price to take account of the unforeseen costs. This will not always be the case but sometimes price increases can be passed on if there is an increase in underlying costs of materials or shipping costs.

Impossibility

If the contract lacks a force majeure clause, or if the situation falls outside of the force majeure clause, then it may be possible to say that the performance of the contract has become ‘impossible’.

This principle is pursuant to Article 647 Civil Transactions Law which provides that “if an excuse hinders the execution of the contract or the completion of such execution, it may be rescinded or terminated by either of the parties, as the case may be”. It is not a provision which is often used, but if it does apply it is important to understand that, unlike force majeure which may keep the contract in place but suspended, the remedy for impossibility is termination of the contract and discharge of each of the parties from their obligations.

Broadly, an impossibility event is where:

1. A contingency has occurred, i.e., something unexpected and unavoidable;
2. It is not a result of the negligence of either party; and
3. The circumstances have rendered performance under the contract impossible.

For example, an agreement for the hire of a particular event space for an event on a particular date may be discharged if the Government were to ban public gatherings. However, in the current circumstance it may not necessarily apply to discharge a construction contract if performing the contract just becomes harder or more expensive.

Change in law / material adverse change

While not as common as force majeure clauses, some contracts contain a similar provision which provides for the effects of a change in law. The relief is usually to allow either a variation or renegotiation of the price or to allow one of both parties to terminate the agreement.

With regard to Covid-19 we would consider that any new legislation brought in to ameliorate the effects of the pandemic, such as the restrictions on movement or requisition of certain supplies, could trigger a change in law clause. However, if your contract contains such a provision do check that changes having a general affect on all businesses are covered and it is not confined to matters affecting only the sector that the parties operate in.

Some contracts address the issue of a change in economic circumstances through a material adverse change or effect clause. Broadly these can give one party relief of some sort if their circumstances have changed or allow the other party to terminate the arrangement.

If you do not have the benefit of a contractual provision, Article 159 of Oman’s Civil Transactions Law imposes a statutory term that cannot be contracted out of, which allows a party in “exceptional public events” to seek relief from the court from its obligation under a contract where harsh consequences would arise and lead to grave loss.  Article 159 provides the judiciary with the discretion to adjust the effect of the contract so as to balance the respective interests of both parties, where an unforeseen event occurs disrupting this balance. The term “public events” can either pertain to an act of state affecting the public (e.g. change in legislation), or a circumstance having a far reaching or an unintended adverse effect.  The current pressures bought about by Covid-19 would seem to fall within the ambit of this provision, however it is also a rarely used mechanism and it is hard to determine how the courts will treat any such claim.  As for impossibility, the application of this provision will vary from situation to situation and no general conclusion can be drawn.

Summary

Now is the time to look at any contracts which your business is party to if you have any concerns that you or your counterparty might experience difficulty in performing the contract. In many cases the parties will come to a commercial arrangement rather than jump to termination or initiate a formal dispute, but those discussions are much easier to prepare for once you understand your contractual options.

For any questions on the above article please contact Thomas Wigley, Partner at twigley@trowers.com