2017 11 May

Investment Guide Cambodia : Dispute Resolution

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This is the chapter 18 out of 19 chapters of our Cambodia Investment Guide. Learn the best way to invest in Cambodia. Download the full publication here.


Chapter 18 : Dispute Resolution

Like much of the Mekong region, Cambodia’s system of dispute resolution has traditionally been based on conciliation and mediation rather than on adversarial conflict. Duties are often emphasized more than rights. Compromise solutions representing a balance between social duties and relationships, on one hand and legal rights on the other, are the norm, even where “right” and “wrong” are clear. This traditional approach to dispute resolution continues to have a significant influence on judicial dispute resolution in the courts of Cambodia, particularly in civil and domestic matters.

1. Structure of the Court System

At present, the judiciary consists of a number of courts of first instance located in each province and municipality, one Court of Appeal, and one Supreme Court. The Court of Appeal reviews both questions of law and fact, while the Supreme Court only hears questions of law, with some exceptions. A Constitutional Council which is not part of the judiciary has been established to decide the constitutionality of laws and regulations.

The Phnom Penh Municipal Court of First Instance is the court most frequently used by commercial litigants. This court is generally regarded as being overburdened and at times suffers from a lack of clerks, prosecutors, and magistrates with substantial knowledge and experience in adjudicating commercial matters. Other courts are similarly overburdened and understaffed.

The lower courts preside over all types of legal matters, including civil, criminal, insolvency and commercial disputes. A dissatisfied litigant may appeal a municipal court’s decision to the Court of Appeal, which will review both questions of law and fact. A final appeal may be taken to the Supreme Court, but generally only on questions of law. The Supreme Court will review questions of both law and fact only in exceptional and rare circumstances. Such a rare circumstance may occur when the Supreme Court sends a case back to the Court of Appeal for further action and the ensuing decision of the Court of Appeal is subsequently re-appealed to the Supreme Court.

A significant development that has provided much greater certainty as to civil proceedings in the courts of Cambodia was the adoption of the Code of Civil Procedures on 6 July 2006. Amongst other things, the Code of Civil Procedures contains provisions for the recovery of certain legal costs incurred during litigation and provides greater certainty on the rules of evidence including specific provisions relating to oral and documentary evidence, expert evidence and the discovery of evidence prior to trial.

Significantly, the Code of Civil Procedures also provides for legal recognition of sales in execution, enabling successful litigants to proceed against the assets of another party in settlement of the disputed claim.

Furthermore, rules relating to appeals are more specifically addressed. The Code of Civil Procedures provides for appeals from judgments of the court of first instance (uttor appeal), appeals from decisions of an appellate court (satuk appeal) and appeals from court rulings (chomtoah appeal). Court rulings are distinguished from judgments in that they are made by courts without reference to oral argument. The Code of Civil Procedures remains a relatively new body of legislation and the courts have yet to fully implement and interpret all of its provisions. Nonetheless, it represents a significant step forward in the development of Cambodia’s civil litigation procedures.

 

2. The Constitutional Council and Supreme Council of Magistracy

The Constitutional Council was established in April 1998 under the Law on the Organization and Functioning of the Constitutional Council. The main responsibilities of the Constitutional Council are to ensure respect for the constitution, interpret the constitution, determine whether laws and regulations comply with the constitution, review judicial rulings dealing with constitutional issues and rule on election-related issues.

The Supreme Council of Magistracy was established in December 1994 under the Law on the Organization and Execution of the Supreme Council of Magistracy. This body is established to guarantee the independence of the judiciary, to discipline judges and to ensure the proper functioning of the court system.

3. Mediation and Commercial Arbitration in Cambodia

Historically, the courts were the only judicial or quasi-judicial means available in Cambodia for the resolution of commercial disputes. Certain ministries will act as a mediator on a case-by-case basis, but such mediation lacks judicial authority and therefore execution, authority, and becomes binding only if accepted contractually by the disputing parties. Even when a ministry has the legal authority to mediate a dispute – such as the Ministry of Labour and Vocational Training (“MLVT”) in individual employment disputes or the Ministry of Land Management, Urban Planning, and Construction (“MLMUPC”) through different cadastral commissions in relation to unregistered land disputes – a party dissatisfied with the result may bring the matter to court.

The government is making gradual progress on establishing other judicial and quasi-judicial forums, specifically for the resolution of commercial disputes. A law currently in draft form would create a commercial court having jurisdiction over commercial disputes.

Significant recent progress has resulted in the successful launch of the National Commercial Arbitration Center of Cambodia (“NCAC”). The Commercial Arbitration Law, adopted on 6 March 2006 mandated the establishment of the NCAC. The purpose of the Commercial Arbitration Law is to facilitate impartial and prompt resolution of economic disputes in accordance with the wishes of the parties.

Related to the Commercial Arbitration Law, a Sub-Decree on the organization and functioning of the NCAC was adopted on 12 August 2009, establishing a process for the selection of the first arbitrators, under the oversight of a special committee of the Ministry of Commerce (“MOC”) with the technical and financial support of the International Finance Corporation, a member of the World Bank Group. In accordance with Article 54 of the above-mentioned sub-decree, the NCAC has become a self-governing institution and complements the country’s already-successful Arbitration Council, which hears collective labour disputes (see Chapter 14 – Labour and Employment, for a discussion on employment dispute resolution).

The first group of arbitrators of the NCAC was initially selected in January 2013 and completed their initial training in 2014. The NCAC adopted its arbitration rules and internal working rules in July 2014 and its Code of Conduct of Arbitrators in April 2015.  The NCAC arbitration rules are generally aligned with the arbitration rules of many well-known, reputable arbitration institutions. Under the NCAC arbitration rules, the parties to a commercial dispute are free to select their arbitrators, decide on the applicable law, determine the number of arbitrators, the language of the arbitration proceedings and decide whether the arbitration proceedings are to be conducted with or without a hearing.

The awards of the NCAC are final and binding, and may only be reopened for reasons of correction, amplification, interpretation or addition. The proceedings are confidential and closed to the public unless the parties agree otherwise. The arbitral tribunal may publish redacted versions of its awards unless a party objects.

With respect to fees, the NCAC Arbitration Rules set forth a registration fee, an arbitrator appointment fee which applies if the parties request the NCAC to appoint arbitrators rather than appointing the arbitrators themselves, an administration fee and a tribunal fee. The registration fee and arbitrator appointment fee are fixed amounts regardless of the amount in dispute, whereas the administration fee and tribunal fee are based on a sliding fee scale, depending on the amount in dispute.

In addition to institutional arbitration through the NCAC, the Commercial Arbitration Law formally recognizes ad hoc arbitration as a form of dispute resolution. It closely mirrors the UNCITRAL model law and makes specific provision for the enforcement of ad hoc arbitration awards by the courts.

As a non-judicial body independent of any governmental entity, the NCAC does not have enforcement authority. As such, in order to enforce an arbitral award, the non-prevailing party must cooperate in such enforcement or failing such cooperation, the prevailing party may seek a court order to recognize and enforce the award. See section 18.5 below for a discussion on enforcement of arbitral awards.

4. Foreign Arbitration

Cambodia is a signatory to the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). Under the New York Convention, generally, arbitral awards properly issued by reputable arbitral tribunals in jurisdictions which are also parties to the New York Convention can be enforced in Cambodia. Prior to 2014 however, there had not been a successful attempt to enforce a foreign arbitral award in Cambodia. In 2014, the Supreme Court of Cambodia confirmed a decision of the Cambodian Court of Appeal which ruled in favor of recognition and enforcement of an arbitral award administered by the Korean Commercial Arbitration Board (“KCAB”) of Seoul, South Korea.

5. Enforcement of Arbitral Awards

In the absence of enforcement of an arbitral award through voluntary cooperation of the non-prevailing party, a court order recognizing and enforcing an award is necessary. Article 353 of the Code of Civil Procedures provides the mechanism by which such a court order may be sought. For arbitral awards issued domestically by the NCAC or through ad-hoc arbitration, a party may file a motion with the court having territorial jurisdiction over the debtor, and if no court is determined to have such jurisdiction, then with the court of first instance having jurisdiction over the territory in which the property that is the object of the claim or that can be attached, is located. The Court of Appeal has sole jurisdiction over motions seeking recognition and enforcement of foreign arbitral awards.

A party seeking a court order to recognize and enforce an arbitral awards must submit a motion seeking the same along with an authenticated original arbitral award or certified copy thereof and the original arbitration agreement or a certified copy thereof.

Article 353, clauses (3) and (4) of the Code of Civil Procedures, which mirrors the relevant provision of the New York Convention, sets out the grounds upon which a court may deny a motion to recognize and enforce an arbitral award. Those grounds are;

  • A party to the arbitration was under some incapacity;
  • The party against whom the award is invoked was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings;
  • The award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration;
  • The composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or not in accordance with the law where the arbitral proceedings took place;
  • The award is not final;
  • The subject matter of the dispute cannot be settled by arbitration; or
  • Recognition or enforcement of the award would be contrary to public policy.

6. Investor-State Arbitration under the ASEAN Comprehensive Investment Agreement

Globally, under investment law, arbitration is often considered the primary option for foreign investors wishing to pursue claims against a host state. Provisions on investor-state dispute settlement mechanisms are incorporated within most international investment treaties and bilateral investment agreements.

The ASEAN member states have adopted the ASEAN Comprehensive Investment Agreement (ACIA) as part of the region’s ASEAN Economic Community (“AEC”), having a goal to transform ASEAN into a single market, highly competitive economic region and achieve regional economic integration by 2015. The ACIA offers a range of protections for entitled investments which are ensured by a number of obligations imposed on member states. These include the obligation to provide fair and equitable treatment, national and most-favored nation treatment as well as full protection and security and the obligation to offer protection from expropriation.

In order to benefit from the protections set out in the ACIA, an investment must be a “Covered Investment” as defined in Article 4 (a) of the ACIA. Specifically, a Covered Investment is an investment made by an investor of one member state in the territory of another member state which have been admitted to its laws, regulations, and national policies, and where applicable, specifically approved in writing by the competent authority of the member state.

To qualify as a “Covered Investment”, the investment must fall under the definition provided in Article 4 (c) of the ACIA which states; “every kind of asset, owned or controlled by an investor”, including but not limited to; movable and immovable property, shares, stocks, intellectual property rights and claims of money, etc.

ACIA benefits apply to investors from member states (including both natural and juridical persons) and extends its protection to investors from outside ASEAN who set up a juridical entity in any of the member states, provided, however, that such entity must carry out substantial business activities in the ASEAN member state. A juridical entity which is established in a member state but does not carry out substantial business activities in that member state, can be denied the protections of the ACIA in the event that such juridical entity invests in another member state (Article 19 of the ACIA). Benefits of the ACIA can also be denied if the investor is a juridical person of a member state but is controlled by an investor of a non-member state. According to Article 19 (3) of the ACIA, “a juridical person is “controlled” by an investor if the investor has the power to name a majority of its directors or otherwise to legally direct its actions.” These measures exist to deter the use of mere shell companies and to deter “treaty shopping” which consists of the use of a treaty contrary to its object or purpose.

The ACIA requires parties to an investment dispute to try to resolve the dispute by consultation and negotiation, prior to initiating a claim whether under local courts or arbitration. If the dispute has not been resolved within 180 days of the receipt by the member state of a request for consultations, the investor may submit their claim under host state courts or under arbitration

Under the ACIA, an investor may submit a dispute against a member state to the International Center for Settlement of Investment Disputes Convention (“ICSID Convention”), or in accordance with the United Nations Commission on International Trade Law (“UNCITRAL”) Arbitration Rules, or with the Regional Center for Arbitration at Kuala Lumpur, or to any other arbitration institutions agreed to by the parties.

Chapter 19 : Anti-Money Laundering

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