Omani Courts' Stance on the Employer's Role as Engineer and its Effect on Arbitration Clause
This article explores the legality of designating the employer as the engineer in a contract that follows the Standard Conditions for Building and Civil Engineering Works 1999 edition. While most government projects involve the appointment of an independent engineer by the employer, there are some cases where the parties agree to have the employer's workers supervise the construction work instead of hiring an independent engineer.
The contract documents contain an arbitration clause in Clause 67, which requires any disputes to be referred to the engineer before starting arbitration proceedings. Since the employer and the engineer are one entity in this case, a question arises as to whether the contractor is still bound to refer the dispute to the engineer, who is also the employer. If this procedure is no longer necessary, can the contractor go directly to arbitration, or is the clause no longer valid?
Ordinary Court Opinion
In case number 515/88, the court has ruled that the arbitration clause mentioned in Clause 67 is invalid. The court stated that the engineer mentioned in the contract must be an independent entity separate from the parties involved. The court says that it is not permissible for one party to hold the power and authority of both the opposing party and the judge in the contract. Therefore, designating one of the parties as the "engineer" goes against the principles of fairness and justice, violating the rule of public order. As a result, the arbitration clause in clause 67 cannot be enforced, and objections to the case's admissibility cannot be dismissed based on the presence of the arbitration clause, and the court has the authority to handle the dispute.
Opinion of the Administrative Court
The Administrative Court recently disagreed with the Commercial Court's ruling that the arbitration clause was invalid due to the employer's role as the engineer. According to the court, the employer can act as the engineer, as stated in the contract. Although the engineer is expected to remain impartial when resolving disputes under Clause 67, the court believed this could be difficult in practice for two reasons: the engineer is appointed by and represents the employer, who is responsible for their payment. Second, most construction disputes between the contractor and employer often arise due to the engineer's actions as the employer's representative; nevertheless, a dispute between the contractor and employer must first be referred to the engineer before proceeding to arbitration as required by Clause 67. Therefore, the court found it challenging to claim the engineer's neutrality when making decisions, and this explains the lack of cases in which the contractor accepted the engineer's decision without objecting to it and requesting that the dispute be referred to arbitration. Finally, the court ruled in favour of the employer's plea to dismiss the case because the agreement included an arbitration clause.
Understanding the Significance of the Administrative Court's Ruling
Although the ordinary court and Administrative Court have different opinions on the validity of agreements appointing a party as an engineer, the recent decision by the Administrative Court could bring consistency in outcomes and influence future interpretations. It's worth noting that Oman's legal system doesn't follow the practice of judicial precedent; however, the Supreme Court has previously emphasized that lower courts must adhere to its verdicts concerning legal matters. Therefore, the recent decision by the administrative judiciary could set a precedent for future rulings. However, to get precise legal advice, seeking a lawyer specializing in construction disputes is recommended.
Originally published January 18, 2024.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
