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.
