Covid–19/Oman: Implications for business

By Mustafa Muayad - Head of Baghdad office in Salt & Associates - m.ridha@saltandassociates.com - 00964 78 050 10222

Al Yahyaei & Salt and Salt & Associates
Member of Grimaldi Alliance for Oman

Overview

In early March, Sultan Haitham bin Tariq formed a supreme committee tasked with dealing and responding to the developments resulting from the Covid-19 outbreak in the Sultanate of Oman. The supreme committee has implemented a number of strict measures to reduce Covid-19’s impact on the health and welfare of Omani citizens and residents. A brief chronology of the substantial measures introduced is as follows:

  • On 12 March 2020, the committee stopped the issuance of tourist visas to citizens of all countries and also stopped entry and docking of cruise ships in the Sultanate’s ports. Furthermore, all sports events were cancelled and court attendance limited to essential personnel. These measures were implemented on March 15 for a period of 30 days.
  • On 14 March 2020, the committee decided to suspend all classes in schools, universities and other educational institutions from 15 March for 30 days.
  • On 16 March 2020, the committee announced new restrictions on entry into Oman which included stopping the entry of foreigners, apart from Gulf Cooperation Council citizens and foreign residents, via all land and sea borders, quarantining all such arrivals for a minimum of 14 days.
  • Starting 18 March 2020, the Sultanate imposed further restrictions on entry into the country, with this being restricted only to Omani nationals, and nationals were not allowed to depart to other countries. In addition, the committee suspended all gatherings, events and conferences; shut down all souqs and shopping malls (except for pharmacies and supermarkets in shopping malls); and banned all restaurants from serving food and only allowed takeaway services.
  • Also on 18 March 2020, the Central Bank of Oman issued a number of directives to banks, exchanges and financing institutions operating in the Sultanate that it is expected to provide additional available liquidity in a range of RO8 billion, to overcome current economic conditions. This particular measure is quite encouraging and is covered in further detail below.
  • On 22 March 2020, the supreme committee reduced the number of employees present in workplaces in government agencies to not more than 30%.
  • On 29 March 2020, Oman Air effectively suspended all flights to and from the country until further notice as per decided by the Supreme Committee. The only exception to this was the domestic flights to and from Musandam and its cargo services.

 

Central Bank of Oman stimulus package

The RO8 billion incentive package referenced above has been effected through a series of directives issued to all banks, exchanges and financing institutions operating in the Sultanate. The directives include a set of incentivizing and precautionary measures that aim to contain the effects of Covid-19 on the national economy.

The Central Bank of Oman also reduced its repo rate to 0.5 per cent and ordered banks to cut fees, adjust their capital and credit ratios and be flexible with repayments for up to six months, especially for small and medium-sized businesses.  It is hoped that these measures will ensure easier lending to sectors that may be affected by the Covid-19 pandemic including health care, travel and tourism. The Central Bank is also raising the lending rate by 5 per cent to 92.5 per cent and reducing the capital requirement for financial institutions to 1.25 per cent from 2.5 per cent.

 

Force majeure-related issues

The primary legal source in respect of force majeure is Article 172 of the Oman Civil Code, as promulgated by Sultani Decree 29/2013 (the “Civil Code”), which states:

“In contracts binding on both parties, if force majeure supervenes which makes the performance of the contract impossible, the corresponding obligation shall cease, and the contract shall be automatically terminated.”

The use of “impossible” requires a high threshold to be established by the party asserting a force majeure event – the mere fact a contractual obligation has become more onerous due to an unforeseen event will not provide a basis to invoke Article 172.

As with other Gulf Cooperation Council jurisdiction, the Civil Code does not define what constitutes force majeure, and the Omani courts were previously reluctant to allow termination of a contract based on non-economic factors. However, the courts have recognized that natural disasters may constitute circumstances that result in frustration in the execution of a contract and, ultimately, force majeure will be as addressed and agreed in the express provisions of a contract.

Ultimately, parties are advised to obtain legal advice to ascertain what relief avenues are available under contract and the Civil Code; not assume force majeure clauses will give rise to automatic relief; and maintain detailed financial and works records to justify the financial consequences of any force majeure events (including but not limited to Covid-19).

 

Al Yahyaei & Salt