Cambodia Introduces New Civil Code.

 

7 February, 2011
 
 
A new Civil Code that will significantly change Cambodia's legal framework for a wide range of civil and commercial matters has recently come into force. 
 
How does it affect you?
 
The Civil Code came into effect on 21 December 2011. It will apply to all relevant transactions and activities occurring after its introduction, and to the enforcement of continuing legal relations created before its introduction, including contracts that have not yet completed, property rights and security over property.
 
Accordingly:
 
  • companies with existing projects or business in Cambodia should promptly assess and, if required, update their contracts, policies and other legal arrangements to take into account the Civil Code's provisions;

  • companies with existing property rights or security over property in Cambodia should promptly seek advice regarding whether they should revise, restructure and/or re-register their rights, to ensure that they remain valid, enforceable and have the intended priority over other rights;

  • companies contemplating new projects or transactions in Cambodia should be aware of the Civil Code, and take it into consideration when entering into contracts or taking security (including considering if they should be governed by Cambodian law or the law of another jurisdiction); and

  • companies that have previously received advice on legal matters connected with Cambodia should not rely on that advice in relation to any future activities or transactions but instead seek updated advice. 
 
Background
 
Cambodia is a relatively liberal free-market economy that is a member of the World Trade Organization and operates under a civil law system. Its legal framework combines customary law, codes influenced by a number of jurisdictions, and modern international business principles.
 
Over the past decade, Cambodia has been following a steady program of legal reform and development. Key commercial laws adopted during this period have included laws on commercial enterprises, secured transactions, concessions, land, intellectual property, arbitration, insolvency and anti-corruption, and numerous sector-specific laws.
 
The Civil Code is one of the most significant new laws introduced in Cambodia in recent years. It contains more than 1300 provisions on a wide range of civil and commercial matters, including contracts, torts, property rights, security, legal persons and family matters. It introduces provisions on many subjects for which there was previously no clear law and makes some significant changes to the existing law on a number of matters.
 
Impact on business
 
The Civil Code will have a major legal and commercial impact on companies undertaking transactions in Cambodia or with Cambodian counterparties. Examples include the following.
 

Finance

 
An obligation to pay money may be satisfied in any currency, including Cambodian currency, unless expressly agreed otherwise (loans in US dollars and other foreign currency are common in Cambodia, and lenders will need to ensure that their loan contracts are properly drafted to ensure they are repaid in the correct currency).
 
Interest may be charged on loans up to a prescribed maximum rate of between 10 per cent and 30 per cent (previously, the legal maximum interest rate was 5 per cent other than for banks licensed by the National Bank of Cambodia, which has been an issue for foreign lenders). For this purpose, all amounts paid other than principal will be deemed to constitute interest, with limited exceptions (this will be relevant to loans that characterise certain repayment obligations as fees rather than interest).
 
Construction
 
Although parties may agree a contractual regime on liquidated damages, a court may adjust the damages payable if the liquidated damages are grossly higher or lower than actual damages incurred (this may introduce uncertainty for construction contracts and similar contracts that rely on liquidated damages regimes).
 
Commodities
 
A purchaser may demand delivery of substitute goods, reduce the purchase price or terminate the contract in the event of delivery of nonconforming goods.
 
Telecoms and hotels
 
The maximum duration of a lease of land or buildings is now 50 years (lease terms of 70 and 99 years have been common in Cambodia).
 
A lessee may cancel a long-term lease if no profit can be derived from it for three years due to unforeseeable circumstances or force majeure.
 
All businesses
 
A general obligation has been imposed to exercise all rights, and perform all duties, in good faith.
 
A contract is formed by offer and acceptance, and acceptance may occur by conduct – the general requirement for all contracts with a value in excess of KHR5000 to be in writing has been removed (it was previously unclear whether contracts concluded via the Internet or other forms of e-commerce would satisfy the requirement to be 'in writing').
 
Conclusion
 
The Civil Code will significantly expand Cambodia's written legal framework for a range of important civil and commercial matters. Investors and financiers will particularly welcome the introduction of written laws on matters where there was previously no clear law.
 
However, in the short term there will be considerable uncertainty about many legal issues, as parties seek to interpret and apply the broad provisions of the Civil Code to a range of specific legal issues and matters. There will be particular uncertainty regarding matters that will now be regulated by both the Civil Code and other existing laws: for example, real property and security. A number of common legal arrangements and structures that are currently used in Cambodia will also need to be reconsidered, leading to some uncertainty until established practices are developed under the Civil Code. 
 
 
For further information, please contact:
 
Marae Ciantar, Partner, Allens Arthur Robinson,