These questions often come up frequently during our discussions with investors and their legal counsel: (1) whether their contractual relationships in Cambodia can be governed by foreign law, such as English law or Singapore law?; and (2) will Cambodian courts enforce such agreements?
The Kingdom of Cambodia is a constitutional monarchy that has been influenced by the continental civil law tradition. The Constitution recognizes and provides for the implementation of a legal order that is conducive for the functioning of the “market economy system”1, recognizing the right of individuals to “freely sell and exchange their products”,2 providing for protection of private property rights,3 while placing restrictions on the State’s power of expropriation.4 The Constitution, however, also obliges the State to regulate the market in order to achieve “a suitable living standard for citizens”.5
The drafters of the Civil Code (2011) sought to bring about an equitable balance between the rights of the individuals and the State’s obligation to secure the rights of the citizens by providing for the principle of “private autonomy”,6 respecting the free intentions of the transacting parties, including legal persons, and at the same time prohibiting the “abuse of rights”.7 The Civil Code also emphasizes that all rights shall be exercised and all duties performed in “good faith”.8
(1) Whether their contractual relationships in Cambodia can be governed by foreign law, such as English law or Singapore law?
Individuals and legal entities can choose to have the law of a foreign country govern their contractual relationships in Cambodia even in the case of purely domestic transactions, subject to some qualifications. Transacting parties generally retain a high degree of flexibility to formulate their contractual relationships in the manner they deem suitable, with minimal interference from the State. Exceptionally, the law provides that in the case of any acts or agreements repugnant to Cambodia’s public policy (‘public order’ or ‘good customs’),9 the choice of foreign law may be vitiated if this dispute is heard in Cambodia. Similarly, ‘mandatory provisions’ as specified in the Civil Code (2011) also preclude and supersede choice of law provisions applying foreign law, in favor of Cambodian law.
For example, the Constitution mandates that only natural persons and legal entities of Khmer nationality are eligible to exercise the right to ownership of land within the territory of Cambodia.10 The Land Law (2001) gives effect to the aforesaid provision of the Constitution and further clarifies that in respect of legal entities, only those entities with fifty-one percent (51%) ownership interest with natural persons or legal entities possessing Khmer nationality shall be eligible to own land within the Kingdom. The law further states that, in the case of legal entities such as limited liability companies, only the ownership structure reflected in the Memorandum and Articles of Association (or the articles of incorporation) registered with the Ministry of Commerce (MoC) shall have validity under the law, and any other private agreements among the shareholders to the contrary shall be deemed null and void.11 All legal provisions pertaining to real rights in movable and immovable property situated in Cambodia are generally understood to be mandatory provisions.12
Further, another illustrative case is that of the Labour Law (1997), which governs the relationship between employers and employees resulting from employment contracts to be performed within the territory of Cambodia.13 The section on ‘public order’ contained therein expressly prohibits the derogation of the provisions of the statute. It states that “all rules resulting from a unilateral decision, a contract or a convention that do not comply with the provisions of this law or any legal text for its enforcement, are null and void.14 While this requires strict adherence to the letter of the law, it does not prohibit the grant of benefits greater in magnitude than what has been provided for in the statute.
Additionally, other mandatory provisions contained in the Civil Code include: (i) provisions concerning declarations of intent15 and legal capacity,16 (ii) prohibition against forfeiture agreements,17 and (iii) the limits placed on the interest rates.18
(2) Will Cambodian courts enforce such agreements?
Our understanding with regard to the prevailing practice within the Cambodian judiciary is that the local courts will generally not apply foreign law for determining controversies and adjudicating disputes. Cambodian law does provide for the recognition of legal instruments issued by foreign governments,19 and where necessary, it treats foreign law as ‘fact’ requiring evidence to establish proof.
In the event you determine that having foreign law govern your contractual relationship comports with your legal strategy, we would recommend that you ideally choose commercial arbitration as the primary dispute resolution mechanism. As a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), Cambodia is bound under the terms of the convention to enforce foreign arbitral awards. Correspondingly, the Commercial Arbitration Law (2006) also lays down the process with which domestic arbitral awards are enforced.
At the same time, in the absence of a treaty conferring jurisdiction on to foreign courts and guaranteeing reciprocal respect for the Cambodian judiciary among other conditions, orders and judgments of foreign courts will not have the force of law and may not be enforceable.20 To the best of our knowledge, there are no treaties in existence that confer recognition and jurisdiction to the acts and decisions of the courts of a foreign country in Cambodia.
If you have any questions or comments, please feel free to drop me a message either in the section below or contact me via email: anirudhsbh [at] gmail [dot] com.
Anirudh S. Bhati is an India-qualified lawyer based in Phnom Penh, Cambodia. This text simply comprises of research and personal opinion, and should not be construed as legal opinion or advice.
1 Article 56 of the Constitution of the Kingdom of Cambodia (1993)
2 Article 60 of the Constitution of the Kingdom of Cambodia (1993)
3 Article 50 of the Constitution of the Kingdom of Cambodia (1993)
4 Article 44 of the Constitution of the Kingdom of Cambodia (1993)
5 Article 63 of the Constitution of the Kingdom of Cambodia (1993)
6 Article 3 of the Civil Code (2011)
7 Article 4 of the Civil Code (2011)
8 Article 5 of the Civil Code (2011)
9Article 354 of the Civil Code (2011)
10 Article 44 of the Constitution of the Kingdom of Cambodia (1993)
11Article 9 of the Land Law (2001)
12Article 131 of the Civil Code (2011)
13Article 1 of the Labour Law (1997)
14Article 13 of the Labour Law (1997)
15Chapter Two: Declaration of Intention and Contract of the Civil Code (2011)
16Chapter One of the Civil Code (2011)
17Article 827 of the Civil Code (2011)
18Article 585 of the Civil Code (2011)
19Article 155 of the Code of Civil Procedure (2006)
20Article 199 of the Code of Civil Procedure (2006)