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Rule of Law

Rule of Law

O ne of the main purposes of this column is to challenge the notion held by

many that there is no law in Cambodia. While it is true that Cambodia's legal

infrastructure is far from complete, there are adequate laws in many sectors

that are applicable to free-market business relations.

A case in point is

Cambodia's Contract Law, which was promulgated in 1988. The Contract Law,

officially called the "Council of State Decree Regarding Contracts and other

Obligations" is a fairly complete, market oriented contract law. Its market

orientation and reliance on the principle of the "freedom of contract" are

particularly significant considering that the law was promulgated while Cambodia

was still economically and ideologically communist.

The Contract Law has

138 articles and covers topics from contract formation and performance, to

contract interpretation and enforcement. It also deals in greater detail with

certain types of contracts, such as the sale contract, leases, loan contracts,

personal property mortgages and suretyship. Finally, it briefly outlines,

non-contractual obligations arising, as a matter of law, from the relationship

between persons.

Although the law lacks needed detail, it establishes

certain basic principles that can be applied by business people and local

courts. A contract is defined as a "free will agreement between two or more

persons to create, change, or terminate one or more obligations..." In addition,

a contract is considered to be the law between the contracting parties.

Void and Voidable Contracts

The Contract Law draws a

distinction between "void" contracts and "voidable" contracts. Under general

contract law principles, a void contract is one that is automatically invalid

because of its nature or subject matter. A void contract is considered to never

have been in effect.

A voidable contract, on the other hand, usually

involves some problem with the capacity of the contracting parties to enter into

the contract (i.e. mistake, duress, fraud, etc.). A voidable contract can by

avoided - declared invalid - by one or more parties. The party causing the

problem usually does not have the right to avoid the contract. In other words if

Party A misleads Party B into executing a contract, Party A does not have the

right to claim that the contract is void because of the wrongdoing.

The

1988 Contract Law generally follows these basic principles. It also tackles such

perennial contract issues as mistake, fraud, coercion, duress,

misrepresentation, incapacity, minority and future events as subject

matter.

Fraud occurs when a contracting party would not have entered into

the contract if not for another party's deception, dishonesty or

misrepresentation.

One party's mistake about the subject matter of the

contract is grounds for voiding the contract. However, mistake about the

identity of the other contracting parties does not allow the mistaken party to

void the contract.

The age of minority is set at 18. Most contracts

entered into with persons under 18 must have the consent or ratification of that

person's legal guardian to be valid.

Written or Oral Contracts

Both written and oral contracts are

valid, except that a written contract is required where the subject matter is

money, or where the items exchanged have a value greater than 5,000 riel ($2).

(Obviously the monetary limit needs to be updated for the times).

Unequal

Bargaining Positions

The law contains a number of provisions that attempt

to protect a contracting party in a weak bargaining position from a party in a

strong position. A simple example of such in unequal situation is a lease

agreement. Usually the landlord has the ability to require the tenant to adhere

to a contract favorable to the landlord, and the tenant has little choice but to

sign or look elsewhere.

Under the Contract Law, if one party takes unfair

advantage of the other party in the form of "undue profit", the aggrieved party

may sue to rescind the contract. Moreover, if a contract is executed where the

value of the item offered is different than the consideration given for that

item, the aggrieved party may sue to rescind the contract on the grounds that it

never intended the difference in value be a gift to the other party.

Public Policy

The law contains certain public policy provisions

that allow and require the intrusion of the state into what would be considered

private commercial affairs in a market economy. For example, the Law requires

that "every contract shall link the personal interests of the contracting party

with the interests of the society". Also, "every contract shall be executed

according to the principles of social ethics...to establish the exploitation of

one party by another." Contracts are considered "void" if they are "not

consistent with social interests or principles of social ethics." These

provisions must be read in light of the Communist period in which they were

promulgated.

Rules of Interpretation

If the contract is not clear, the local

custom and practice of the place where the contract is made will be relied on to

properly interpret the contract. However, such local custom and practice shall

not take precedent over the law. Any ambiguity shall be interpreted in favor of

the party bearing the responsibility for performance.

Performance

All contract obligations shall be carried out on

time and according to the quality, price, place and duration stated in the

contract. Neither party is required to accept substitute goods or performance

(even if of greater value) or part performance (in most circumstances).

Statutes of Limitation

Any contracting party must bring a suit

arising from the contract within five years of the date defined in the contract,

or if no such date is defined, the date of execution of the contract. This

limitations period may be extended under certain circumstances.

While

this 1988 law has many gaps and focuses too strongly on "social ethics", it

contains basic principles that are readily applicable to free-market business

relationships in a functioning market economy.

- David Doran is the resident director of law firm Dirksen Flipse Doran and

Le.

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