Resolving construction or oil & gas disputes in Oman – arbitration or courts

The construction sector in Oman continues to expand and evolve. With international funding inherently tied to new projects, the management of risks and dispute avoidance are key to ensuring a bankable project.

This article provides an overview of the key strategies for mitigating risks in these projects, drawing on Oman’s longstanding history of alternative dispute resolution.

 

1. Arbitration or local courts?

Parties to construction contracts may opt to resolve their disputes via the Omani Courts or through arbitration.

Historically, the Omani Standard Form construction contracts provided that arbitration was the default mechanism for resolving disputes. The latest version of the Standard Form Contract for Building and Civil Engineering Work (2019 edition) allows the parties to opt for local courts or (ad hoc) arbitration. Both processes have advantages and disadvantages. However, and on balance, arbitration is generally always the preferable of the two options for construction projects in Oman. That is consistent with the practice in other jurisdictions where construction disputes are commonly subject to adjudication or arbitration.  

Notably:

• Choice of law: Arbitration will be particularly suitable where the parties have opted for the governing law of the construction contract to be a law other than Omani, for example, English law. Indeed, it is not uncommon in Omani construction contracts for parties to opt for English law as the governing law.
• Confidentiality: Arbitral proceedings are confidential, which may be optimal for disputes that concern market sensitive technology and high-profile projects.
• Cross border enforcement: Arbitral awards issued in Oman (unlike court judgments) will be significantly more straightforward to enforce against overseas defendants. This is due to Oman having ratified the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (more commonly known as simply, the New York Convention). In 1999, Oman was one of the first GCC countries to ratify the New York Convention: a major milestone for arbitration in the Sultanate.
• Timeframes: The Oman court procedures (outlined below) provide a very limited timeframe for a defendant to file a defence and supporting evidence. For example, under the procedures of the recently established Court of Investment and Commerce, a defendant will have only fifteen days from the date of being notified of the claimant’s statement of claim to submit a defence submission (electronically). Such submission must be accompanied by all supporting documents, which must be translated into Arabic if in another language¹. This may create challenges for a defendant due to the large volume of documents involved in construction claims and oil and gas disputes.

Further and most crucially, unlike court decisions, arbitral awards cannot be appealed per se but only set aside (nullified) on narrow procedural grounds as set out in the Oman Arbitration Law (RD 47/97). The net result of this feature is that arbitral awards will, compared to appealable court decisions, generally have a much greater level of certainty and finality.

 

2. Ad hoc vs institutional arbitration

It is a common and longstanding practice in Oman for construction and infrastructure projects to be subject to arbitration via the International Chamber of Commerce (ICC) or Singapore International Arbitration Centre (SIAC), amongst other institutions. 

The ICC Rules of Arbitration are particularly widespread, given they feature in the default arbitration agreement contained in FIDIC Standard Contracts. The ICC has also opened a regional office based in Abu Dhabi to service GCC disputes (matters were previously administered via its Paris office). Further, since 2020 Oman has also had its own local arbitration centre in the form of the Oman Commercial Arbitration Centre (OCAC)². The establishment of OCAC has been a significant milestone for arbitration in Oman.

Parties are also free to opt for arbitration without an arbitral institution, such as the ICC, OCAC or SIAC. Such non-institutional arbitration is known as ‘ad hoc’ arbitration. In such case, the arbitrator(s) will simply conduct the arbitration via the provisions of the Oman Arbitration Law (RD 47/97) (Arbitration Law). This allows arbitrators in ad hoc proceedings a great degree of discretion and flexibility as to the procedural aspects of the arbitration, compared to institutional arbitration which has specified rules of procedure.

Whilst ad hoc arbitration avoids the need for administration fees to be paid to an arbitral institution, the downsides of ad hoc arbitration are material. These include:

• Arbitrators’ fees: Unlike institutional arbitration where the arbitrators’ fees are set to a transparent scale, under ad hoc arbitration, arbitrators have the discretion to set their own fees. This can cause difficulties in properly estimating fees and give rise to uncertainties with respect to costs. Both the ICC and OCAC, amongst other institutions, provide fee estimate ‘calculators’ on their respective websites: a critical tool for assessing potential costs exposure.
• Choosing the arbitrators: Arbitrations can have one or three arbitrators. If there is no agreement on the sole arbitrator or chairman, a deadlock arises. Most arbitration institutes provide a clear mechanism under their respective rules for such deadlock to be overcome without resorting to local courts. In ad hoc arbitration, parties must go to Omani courts to resolve deadlocks. This can cause added costs and delays and undermines the whole point of arbitration as an alternative to the court system.
• Quality control: Arbitral institutions provide a degree of oversight and quality control over the award writing process. They ensure arbitrators are mindful of deadlines and timeframes and review draft awards to ensure adherence to procedural formalities. This form of quality control reduces the risks of an arbitral award being delayed in terms of its issuing, or non-compliant with procedural requirements that could risk nullification of an arbitral award.  

Further, the notion of ad hoc arbitration being a cheaper alternative than institutional arbitration is debatable. 

Research undertaken by the Arbitration Institute of the Stockholm Chamber of Commerce of Arbitration conducted in Sweden as part of a 2023 study examined this issue. The study found that ad hoc arbitration was considerably more expensive in terms of arbitrators’ fees and awards took longer to be issued, compared to institutional arbitration³. The authors’ anecdotal experience leads them to believe a similar finding would arise in Oman were a similar study undertaken here.

 

3. Avoiding arbitration agreement mistakes

If parties are to opt for arbitration to resolve any disputes, the relevant arbitration agreement must be drafted with a high degree of precision. Otherwise, such arbitration agreement may be deemed void under Omani law, resulting in the dispute being heard in the Omani courts even if the parties intended otherwise.

At the outset, it is important to recognise that opting for arbitration is an important decision. It effectively means the parties have decided to ‘contract out of’ having their dispute being heard by the courts. The right to litigation before the courts is a key legal right in Oman, being enshrined in Oman’s constitution: being the Royal Decree 6/2021 Issuing the Basic Statute of the State (Basic Law)⁴. Hence, Omani courts, consistent with courts in other jurisdictions, interpret arbitration agreements strictly.

The Arbitration Law sets out the clear parameters for what constitutes a valid arbitration agreement.

Hence, arbitration agreements can be nullified due to particular errors in the underlying contract.  Such errors commonly include:

• Conflicting clauses: If an Omani construction contract provides that disputes are to be resolved via the Omani courts and, in another part of the contract, includes an arbitration agreement, the Omani Courts will generally accept jurisdiction if court proceedings are commenced. Given construction contracts are often lengthy and contain multiple annexures, it is paramount the parties review the contract carefully to avoid such conflicting clauses. Any conflicting or overlapping clauses may lead to uncertainty, increased costs, and delays in the resolution of the dispute.

• Lack of clear consent: Clear and unequivocal consent to arbitration is paramount. Article 10(1) of the Arbitration Law provides: ‘The arbitration agreement is the agreement whereby the parties agree to refer to arbitration for the settlement of all or some of the disputes which have arisen or may be arising between them in connection with specific legal relationship, whether such relationship is contractual or not (emphasis added)’. In a decision delivered in 2020, the Oman Supreme Court reiterated that: ‘A valid arbitration agreement shall clearly reflect both parties’ intent to resolve disputes through arbitration⁵’.

Practically, this means that any attempt to impose arbitration via correspondence or any document not signed by both parties will likely be unenforceable. For example, the assignment of a contract containing an arbitration agreement would not bind the assignee. Similarly, where a construction contract is based on FIDIC or the Omani Standard Forms, the arbitration agreement could be expressly outlined in the Form of Agreement or Particular Conditions, rather than simply incorporated by reference to the General Conditions.  

• Unequivocal wording: Parties sometimes draft bespoke dispute resolution clauses where it is stated that if a dispute arises, the parties may "agree" to refer the dispute to arbitration or the courts at that juncture. Of course, once a dispute has arisen, it is often difficult for the parties to agree on anything at all, let alone to opt for arbitration. That inevitably results in a deadlock, requiring proceedings to be commenced in the Omani courts to resolve such jurisdiction dispute, thus detracting from the actual core commercial issues in dispute and incurring additional time and costs for both parties.

 

4. Expert determination and dispute avoidance boards

Expert determination and dispute avoidance boards (DABs) are a common feature of construction and energy contracts globally.

A DAB proactively helps prevent disputes during a project, while expert determination involves an expert making a (notionally) binding decision on a specific issue after a dispute has arisen.  In the view of the authors, neither are of value for an Oman-based project.  

Whilst both processes differ in form and substance, the underlying notion is the same: a mechanism of dispute resolution before the commencement of a full-scale arbitration.  The intention behind such processes is laudable, being to allow disputes to be resolved without the cost and time of a full-scale arbitration or court proceeding.  DABs are a standard feature of FIDIC construction contracts but commonly deleted from Omani construction contracts: with good reason.

Expert determination and/or DABs can be problematic for the following reasons:

• Duplication: While expert determination and DABs aim to be more efficient and less costly than arbitration, they remain adversarial and often involve lawyers, experts, and witnesses. In many respects, both processes have evolved to closely resemble the more complex arbitration procedures they were originally designed to avoid. Hence, rather than simply proceeding straight to arbitration, parties are compelled to engage in a pre-arbitration procedure, leading to added costs and duplication.

• Enforceability: In several legal systems, including the UK, a party ignoring an expert determination can be sued for breach of contract if they had agreed to be bound by it. In Oman, private expert determination is not legally recognised, so such decisions are unenforceable. While theoretically possible, it’s unlikely an Omani tribunal or court would entertain a claim against a party ignoring an expert determination, even if contractually agreed.

• Timeframes: Contracts requiring DAB or expert determination before arbitration can prolong disputes. Delayed arbitration means delayed awards and enforcement. This extended timeframe can jeopardise recovery, especially if the losing party restructures assets or owes other creditors, reducing available funds to satisfy the award.

Accordingly, and whilst each contract must be considered on a case-by-case basis, DABs or expert determination procedures are generally not recommended for Oman construction (nor oil and gas) projects.

 

5. Mandatory Omani laws

Under Omani law, parties are generally free to agree on contract terms and conditions, if such provisions do not conflict with Omani law.  This principle is a cornerstone of Oman’s civil law system and codified in the Omani Civil Code⁶.

Notably, whilst Omani law is broadly supportive of arbitration, certain arbitration agreements will be deemed null and void in the following circumstances:

• Employment contracts: Royal Decree No. 53/2023 (Labour Law) states that employment disputes between an individual and their employer fall under the jurisdiction of Omani courts. While arbitration is allowed for collective bargaining and union-related disputes, Article 4 renders any clause in an individual employment contract void if it conflicts with the Labour Law (unless the clause is more favorable to the employee). Given the upfront costs of arbitration, it could not be argued arbitration benefits an individual employee. In that vein, the Oman Supreme Court has confirmed that arbitration agreements in individual employment contracts are invalid, and any resulting arbitral award would be subject to annulment⁷.

• Insurance contracts: For over four decades, Omani law via Royal Decree 12/1979 (Insurance Law) has imposed strict formalities for the inclusion of arbitration agreements in insurance contracts. Arbitration agreements must be displayed in separate agreements and not the general conditions of the policy. Omani courts have repeatedly applied these provisions strictly. Such formalities are common in civil law jurisdictions and very similar provisions are found in the civil codes of other GCC jurisdictions.

However, for typical construction contracts, no specific formalities arise in respect of arbitration agreements, except as outlined under the Arbitration Law.

 

6. Key points

In summary:

• Institutional (as opposed to ad hoc) arbitration is the most effective mechanism for resolving construction (as well as oil and gas disputes) in Oman, offering confidentiality, cross border enforceability, and finality.

• The Omani legal system has a strong pro arbitration stance, as evidenced by the Sultanate ratifying the New York Convention over 25 years ago.

• To safeguard certainty and avoid costly jurisdictional challenges, arbitration agreements must be drafted with precision, ensuring clear consent and unequivocal wording.

 For further information, please contact Nic Henrikson or Faisal Al Hinai.

 

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¹Royal Decree No. 35/2025 On the Establishment of the Investment and Trade Court and the Issuance of its Law (Article 24).
²Via the Oman Commercial Arbitration Centre (OCAC).
³Arbitration Institute of the Stockholm Chamber of Commerce, SCC Analytics: Ad hoc vs. Institutional Arbitration in Construction Disputes (2023)
⁴Article 30.
⁵Oman Supreme Court, Challenge No. 439/2018 session dated 24/02/2020.
⁶Oman Civil Code, Article 155.
⁷Oman Supreme Court, Challenge No. 790/2017 session dated 16/01/2019.