A few years ago, I had the opportunity of interacting with a gentleman whose family owns a mid-size business in Oman. Our discussions — whenever they occurred — would somehow end up on legal issues, perhaps due to my proclivity as a lawyer to discuss law. As we got to know each other more, he would seek my views on day-to-day legal issues relating to his business. I soon realised that he fell in the category of those individuals who prefer to “put out fires” ie act only when an urgent situation had arisen. When I would recommend to him to bring his house in order by having proper contractual documents in place to protect against some unforeseen eventuality he would cite cost of engaging legal services as a concern and would trust his instincts, and faith in his team, to do the job for him.
As they say, the only constant in the world is change and business fortunes are no exception. The above referred businessman — who would trust his good fortune to do the job for him — eventually ran into a contractual dispute with a counter party. It would be unfair on my part to attribute this to his failure to heed to my advice. However, I do feel that it partly had to do with his lack of appreciating the importance of having proper contractual documents in place and planning for unforeseen eventualities.
Unfortunately, the above trend — reducing cost at the risk of failing to properly document business transactions — is quite common among businesses in Oman.
This article and the next in the series of articles will offer some insight into the importance of documenting business transactions within the four corners of a detailed contract. Before that, it is important to provide some insight into the legal landscape relating to contracts, in particular, how contracts can be formed; what are the mandatory rules that apply to different aspects of contracts; what legal risks ought to be considered by contracting parties, and what are the practical steps that parties can take to mitigate against risk and liability.
Often, parties enter protracted negotiations when discussing sale and purchase of goods and services. In this era of technology, the most usual form of communication is through email and exchange of text messages.
During negotiations and discussions, parties exchange what is commonly known as offer and acceptance. If Party A wants to sell, say, a cell phone for RO 20 to Party B and Party B instead proposes to buy it for RO 15, then instead of accepting Party A’s offer, Party B has made what is known as a counter offer. In turn, if Party A were to accept the counter offer of Party B, ie to purchase the cell phone for RO 15, then a contract would be said to have come into existence.
The above exchange of offer and acceptance that transpires through parties “locking” on a certain price (RO 15 in this case) is referred under the Oman Commercial Code Royal Decree 55/90 (“Commercial Code”) as “congruence” (translated as “compatibility”). In other words, there is a meeting of minds in the form of an offer being accepted. Article 2 of the Commercial Code states that legally recognized contracts come into existence upon the congruence of offer and acceptance.
The fact that the coming into existence of contracts is no longer dependent on parties putting pen to paper is evident from another important Omani law: Electronic Transactions Law, Royal Decree 69/2008 (“ETL”).
ETL provides that contracts can be concluded electronically and the intention to enter into a contract expressed through the exchange of electronic messages will be binding on the parties. The ETL has been designed with view to ensuring that the law keeps pace with the introduction of new forms of exchange that are increasingly taking place in this digital era.
Parties negotiating commercial transactions therefore ought to be aware that their agreement on aspects of commercial dealings can be inferred through exchange of electronic messages unless the parties conclude a written contract that is specifically designed to supersede prior negotiations and discussions such as those that transpire through exchange of text messages.
The Code also contains another general rule that is important in the context of evidence required to prove the existence or absence of a contract. Article 3 provides that commercial contracts may be proved by any means, irrespective of their value. In other words, parties can adduce any evidence in support of their position to prove the existence of a contract.
An important Omani Law that contains detailed rules regulating all aspects of contracts is the Oman Civil Transactions Law, Royal Decree 27/ 2013 (“Civil Code”). The next in the series of articles on this topic will touch upon the Civil Code.
HASSAN SHAD
hassan.shad@arab-law.om
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