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Chapter 13 : Contract Law and Enforcement

The Civil Code of Cambodia came into force on 21 December 2011 and has had a significant impact on contractual relationships and on Cambodia’s legal framework generally. With few exceptions, the Civil Code replaces prior laws and regulations regarding contracts and provides comprehensive provisions in relation to contracts.

The Civil Code enshrines and regulates the formation, performance, interpretation and enforcement of many types of contracts. It also deals in greater detail with specific types of contracts such as sales contracts, leases, loan contracts, personal property mortgages, labour contracts (which complements but does not replace Labour Law provisions regarding labour contracts) and secured transactions.

1. General Contract Formation

The Civil Code introduces the concept of contract formation based on oﬀer and acceptance. An oﬀer is simply defined as a proposal made with the intention of creating a binding contractual relationship, upon acceptance by a party to whom an oﬀer is made. The person making the oﬀer to enter into a contract may establish conditions regarding how and when an oﬀer may be accepted. Acceptance is otherwise an expression of intent to agree to the oﬀer and can take the form of either a notice of acceptance or actions tantamount to acceptance.

Unless specified otherwise, contracts can be validly formed in writing, orally or through the actions of the parties. However, the Civil Code specifies that certain contracts may only be formed in writing such as a loan with an interest rate exceeding the legal interest rate or in the case of the sale of immovable property (see Specific Types of Contracts below).

Once a contract is eﬀective the parties are obliged to adhere to its provisions and act in good faith in the performance of their contractual obligations.

A contract may be voided, amongst other reasons, if it is concluded as a result of; mistakes relating to substantial terms of the contract, abuse of circumstances, fraud, duress, misrepresentation or if it is contrary to law, public order and custom. In the case of a voided contract, the Civil Code allows the aggrieved party to rescind the contract.

2. Rules of Contract Interpretation

The Civil Code is silent on how contracts are to be interpreted. However, the prior Contract Law of 1988 provided that if a contract is not clear, the local customs and practice of the place where the contract is made will be relied upon to properly interpret the contract. However, such local customs and practice will not take precedence over the law. Any ambiguity will be interpreted in favor of the party bearing responsibility for performance.

3. Breach of Contract and Remedies

Under the Civil Code, a breach of contract occurs when a party fails to perform an obligation under a contract without having legal justification for such failure. Where a party fails to perform a contractual obligation and therefore breaches the contract, the other party may demand specific performance, damages or termination of the contract.

Damages may include compensation for the benefit of performance that would have been received under the contact if the breaching party had performed, expenditures incurred as a result of non-performance as well as compensation for mental harm.

The remedy of specific performance refers to compelling a party in breach of contractual obligations to actually perform in accordance with the terms of the contact. Such a remedy may not be awarded where an obligation is not suitable for specific performance. By example, a contract for the sale and purchase of a specific piece of real estate is a contract which often lends itself to a remedy of specific performance on the basis of an argument that there is no suitable substitute for a specific piece of real estate.

Notwithstanding the possibility of damages or specific performance, an aggrieved party may terminate a contract in case of material breach by the other party such as a failure to perform obligations within a specified time, where it is impossible to perform the contract or when the breach is so substantial that trust between the parties is destroyed and further performance cannot be expected.

Parties to a contract may agree in advance to establish the amount of damages and conditions for payment of damages in the event of breach. Such an agreement is known as liquidated damages.

A court may award damages in an amount higher or lower than the agreed liquidated damages if such agreed amount is grossly higher or grossly lower than actual damages incurred as a result of the breach.

4. Statute of Limitations

Claims for compensation for damages and right of termination of a contract are fixed at five years by the statute of limitations, contained within the Civil Code, for most types of contracts. Additionally, the statute of limitations period for a claim pertaining to the price of a product or service sold or provided by a manufacturer or merchant to a non-merchant is two years, but the right of a non-merchant to make a claim against a merchant or manufacturer is five years. Apart from the above, the statute of limitations period for property rights, other than claims and ownership, is 10 years.

5. Specific Types of Contracts

The Civil Code provides detailed provisions in relation to certain specific types of contracts including sale and purchase contracts which addresses issues such as transfer of title to goods sold, obligations of sellers and buyers, sellers’ warranties, non-conforming goods and seller’s right to remedy non-conformance, amongst other things.

Additional specific types of contracts addressed by the Civil Code include interest bearing loans, loans for consumption, loans for use, contractor contracts, leases, personal guarantees, gifts, mandates, bailments, partnerships, life annuities and compromises. In addition to this, the Civil Code provides comprehensive provisions in relation to secured transactions, which complements the Law on Secured Transactions.

6. Real Estate Transactions under the Civil Code

Sale and Purchase Agreements; Other than the consent of the seller and the buyer regarding the terms and conditions of an agreement, in order to transfer ownership over immovable property, a sale purchase agreement becomes an authentic act and can be registered with the Cadastral Administration when the agreement is made by a notary or authenticated by a notary or made by a competent official for the purpose of transfer registration.

Leases: The Civil Code distinguishes between two types of leases; leases having a term of less than 15 years; and those having a term of 15 years or greater, referred to as long term or “perpetual leases.” A perpetual lease may not have an initial term exceeding 50 years. However, this initial term is renewable for up to a further 50 years. A perpetual lease must be in writing and can be registered. Perpetual leasehold rights may be assigned, sub-leased and may be subject to succession.

7. Agency

The Civil Code contains specific provisions on agency, providing certain obligations and liabilities in relation to agent-principal relationships. Agency authorization can be created by contract or by law and as long as the agent acts within the agreed scope of agency authorization, the acts of the agent and contractual obligations arising from such acts, are imputed directly to the principal. Generally, where an agent acts outside the scope of the agency authorization, the agent can be held liable for damages or for actually performing the contractual arrangements entered into while purportedly acting as an agent for another. However, in some circumstances, where an agent executes a contract outside the scope of their agency authorization, and the other party to the contract believed, without negligence, that the agent was authorized to enter into the contract by a principal, the principal can be responsible for performing the contract. Such a circumstance may occur, for example, where an agency authorization has been extinguished but the principal continued to give the impression or allowed another person to give the impression that the agency authorization was continuing.

8. Other Liabilities

The Civil Code includes torts in the same section as contracts, and under this category captures a number of different legal liabilities. These include the management of aﬀairs without a mandate, unjust enrichment, intentional and negligent acts and product liability.

An intentional or negligent act is an act which harms another where the actor has foreseen that a particular result would occur and accepted such an occurrence or an act for which a person in a similar position as the actor could have foreseen that a particular result would occur.

In the area of product liability, where an unreasonably dangerous defect exists in a manufactured movable and such a defect causes harm, the manufacturer is liable if the defect could have been discovered based on scientific standards existing at the time of manufacture. The Civil Code extends this same liability to importers of manufactured movables regardless of whether the importer actually manufactured the goods.

Under the Civil Code, where a thing is destroyed or damaged as a result of a tortious act, the injured party may seek compensation for the price of the damaged or destroyed thing – the cost of repair, etc. However, in the event where the injured party dies as the result of a tortious act, such an injured party’s successors shall acquire the right to demand damages for economic harm and emotional distress suﬀered prior to death. Additionally, where an injured party suﬀers bodily harm as the result of a tortious act, the injured party may demand damages for economic harm and emotional distress suﬀered thereby. Furthermore, where one’s honor or reputation is damaged by a tortious act, the injured party may seek damages for mental or emotional distress accompanying the loss in social standing.

The Civil Code provides a number of grounds for a defense against liability for tortious acts, including:

a tortfeasor shall be excused from responsibility for harm caused by the tortfeasor where the injured party consented to or assumed the risk of such harm.
a person who causes harm while engaged in justifiable, self-defense or emergency escape will not be held responsible for harm that results therefrom.
a person who commits an act deemed reasonable and acceptable under prevalent social standards shall not be held responsible for the harm caused thereby.