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The general position with regard to contracts in Oman is that if the terms and conditions of a contract are clear and such contractual provisions are not seen to be contrary to Omani law, the Omani courts will uphold the terms of the contract and enforce the same amongst the parties.

Exclusion of Liability Clauses

Contractual provisions which seek to exclude all liability are prohibited by Article 183 of the Civil Transactions Law (Royal Decree No. 29/2013) (“CTL”) which provides as follows:

“Any condition purporting to provide exemption from liability for a harmful act shall be void”

There is some debate regarding whether or not Article 183 applies to contracts as it may be argued that Chapter 3 of the CTL, within which Article 183 falls, deals with tortious liability. The language of the provisions of Chapter 3 suggests that it may equally apply to contracts. Article 177 of the CTL (also a part of Chapter 3) provides as follows:

“If a person proves that the loss arose out of an external cause in which he played no part such as an act of God, unforeseen accident, force majeure, act of a third party, or act of an aggrieved person, he shall not be obligated to pay indemnity unless the law or the agreement otherwise provides”

Reference to the words “condition” in Article 183 and “agreement” in Article 177 clearly suggests that these provisions apply to contracts as well. The harm suffered by a party may include loss of profits, as provided in Article 181 of the CTL. In view of the above, any clause that outrightly excludes liability for a harmful act is void under Omani law.

Limitation of Liability Clauses

In respect of limitation of liability clauses, Article 267(1) of the CTL provides that:

“(1) If the subject matter of the obligation is not a sum of money, the contracting parties may determine in advance the amount of compensation by stipulating a provision of same in the contract or in a subsequent agreement.”

Based on Article 267 (1) of the CTL, parties are permitted to contractually predetermine the compensation to which an aggrieved party may become entitled in case the contract counterparty fails to perform or delays the performance of its obligation(s) and thereby limit its liability up to the agreed sum. Such clauses are commonly found in construction contracts providing for liquidated damages pursuant to which the contractor is required to pay a specific amount of money to the employer in case of delay in performance of the works.

Nonetheless, the existence of a limitation of liability clause does not negate the fundamental legal requirement that the entitlement to compensation depends on the fulfilment of the conditions of contractual liability: (i) breach, (ii) damage, (iii) causality between the breach and damage, and (iv) a notice, if required. This is because the liquidated damages clause is a mere prior agreement on the quantum of the due compensation. Thus, liquidated damages may not be levied if the debtor has not suffered damage even if the other party commits a breach or if the damage suffered is not caused by the breach.   

Notwithstanding the above, even if contractual liability is established, Omani courts are vested with the power to adjust the amount of the agreed upon compensation in order to equate the same to the actually incurred damage, pursuant to Article 267(2) of the CTL which reads:

“(2) In all cases, the court may, upon the application of either of the parties, amend such agreement to make the compensation equal to the damage, and any agreement to the contrary shall be null and void.”

Article 267 (2) of the CTL, grants a discretion to Omani courts to moderate the amount of compensation agreed upon by parties and to increase or reduce the same where the damage suffered is greater or less than the damages provided for by contract. Therefore, even if contractual liability is established, the court may adjust the amount of the agreed upon liquidated damages in order to equate it to the actually incurred loss.

Given the wording of Article 267 (2), Omani courts may find it difficult to uphold limitation clauses provided for by contract if the discretion under Article 267 (2) is to be exercised.  Notwithstanding a contract providing for any limitation on the damages likely to be recoverable such provision may be held to be unenforceable by the Omani Courts. Article 267 of the CTL, whilst allowing in its first paragraph for the parties to specify in advance the quantum of compensation that may become payable upon the occurrence of certain circumstances, expressly provides in the second paragraph that upon the application of either of the parties the court may, in all cases, amend or modify the parties’ agreement so as to compensate the aggrieved party to the extent of the full loss suffered by it thereby setting aside the limitation of liability clause.

Article 267 (2) with reference to its content further provides that any agreement to the contrary between the parties shall be null and void; the implication of this being that this Article constitutes a mandatory rule of law which the parties are not at liberty to agree to disregard.  Consequently, it is difficult to maintain that the courts may on the one hand set aside any agreement with respect to agreed upon damages and instead award the actual damages suffered whilst on the other hand hold that the parties must remain bound by limitation of liability clauses. 

Additionally, and in the more-specific context of construction contracting/engineering consultancy agreements, Article 636 of the CTL provides that any agreement as to exemption or limitation of a contractor and/or an engineer/architect’s liability from the decennial warranty (the subject matter of which is described in Article 634 of the CTL) shall be null and void as follows:

 “Any agreement the purport of which is to exempt the contractor or the architect from liability, or to limit such liability, shall be void.”

Article 634 of the CTL provides the following in relation to decennial warranty:

 “1 – Both the engineer and the contractor shall be jointly liable for a period of ten years for any total or partial collapse of the buildings or other fixed structures constructed by them. This shall apply even if such collapse has resulted from a defect in the land, or even if the employer has authorised the construction of defective structures, unless the contracting parties in such event had intended for the installations to remain for a period of less than ten years.

2- The warranty mentioned in the preceding paragraph shall extend to defects within buildings and installations which threaten the structural integrity and safety of the same.

3- The ten years warranty period shall commence from the date of handover of the works.”

To conclude, though the law is silent on whether or not parties can insert limitation of liability clauses in contracts, it may be argued that limitation of liability clauses may be permissible under Omani law as the law does not expressly prohibit the same as it does in the case of exclusion of liability clauses under Article 183 of CTL. In any event, limitation of liability clauses are subject to the courts discretionary powers to disregard any such provision and award damages to compensate the actual loss suffered by a party even if such loss is in excess of the quantum agreed by the parties in the limitation of liability clause.

For further information, contact Zarrar Mir, Associate, zarrar.mir@amjoman.com