Law on Commercial Contracts

Chapter 1.  Provisions Relating to all Commercial Contracts

Part A.  General Provisions

Article 1.  Scope of Law

(1) This law applies to contracts made between merchants in the course of their commercial activities.
(2) This law does not apply to contracts made by a merchant for personal, family or household purposes unless the other party neither knew, nor should have known, before or at the conclusion of the contract, that the contract was for such non-commercial purposes.

Explanatory notes: 1. This law is solely applicable to transactions occurring between persons that are both involved in commercial activities.  Both parties to the commercial contract must be business persons. If there are more than two parties to the contract the same principle applies:  all parties have to be merchants. 

2.This Law provides for general provisions applicable to commercial contracts and regulates specifically some of the most encountered types of contracts concluded in a business environment such as contract of sale (articles: 21 to 32) and transportation (articles: 33 to 61).   With respect to these contracts the Law qualifies them, gives them a name and regulates them specifically. 

Other commercial contracts may be regulated specifically in other laws.   For examples: transfer of securities will be regulated by the Law of commercial enterprises of July 2000 (actually in draft form), loan will be regulated in the law of secured transactions (actually in draft form) and insurance contract are regulated in the Insurance Law of July 25, 2001. On the basis of the legal principle that is to the effect that specific provisions take precedence over general provisions: the particular provisions dealing with a particular commercial contract will have to apply first.  In this case, the general provisions of the Law on commercial contracts will only be applicable if they are consistent with the provisions of that other law. 

Furthermore, numerous commercial contracts are not qualified by the Law of commercial contract, nor by any other law.  We can refer to these contracts as sui generis (of his own kind or class; one of its own kind; peculiar). The general provisions found under Chapters 1 and 4 of this Law are applicable to all contracts -taking into account the comment in the preceding paragraph- concluded between merchants, including the sui generis ones.

3. Specific rules are provided under article 10 permitting to resolve jurisdictional issues that may arise when  a contract involves a merchant and a party that is not a merchant (“private party”).

Article 2.  Definition of merchant

(1) A merchant is a natural person carrying on business as a sole proprietor; two or more natural or legal persons carrying on business as a general or limited partnership; or a legal person carrying on business as a private limited company or a public limited company.

(2) Carrying on business means regularly engaging in a trade, occupation or profession with a view to profit.

Explanatory notes: 1.  The definition of merchant includes “merchant”, in the traditional sense of the word, as well as artisans and professionals.  The common denominator between the contracting parties who are subject to this Law is that:  they are carrying on business with a view to profit and that such activity is carried on a recurrent basis.  It is not an exceptional activity.

Cross-references: 1. Article 1 of the Law Bearing Upon Commercial Regulation and the Commercial Registered as amended by article 298 (a) of the Law of commercial enterprises of July 2000.

Article 3.  General rules of the law of obligation and law of contract

The general rules of the law of obligation and the law of contract apply to all commercial contracts, regardless of their nature except when special rules are found in this Law that complement or depart from them.  

Explanatory notes: 1. The purpose of this article is to ascertain the applicability of the general rules of the law of obligation and the law of contract to commercial contracts.  

2.  The definition of the concept of “obligation”, conditions of formation of a contract, rules permitting the determination of what constitute and offer and an acceptance, nullity of contract theory, remedies for non-performance of a contract, liability of the contracting parties, etc. are not found in this Law.  They are actually and partially found in Decree No.38 referring to contract and other liabilities of October 28, 1988 and will be later found in the Civil Code of Cambodia (partially drafted). 

The Law on commercial contracts does not create a new set of general rules of the law of obligation and law of contract.  General rules of the law of contract apply to all commercial contracts as long as they have not been modified by this Law.  This Law may add one or more conditions relating to the formation of a specific type of contract or may depart from it.  In these cases, the provisions of the Law on commercial contracts will take precedence over the general provisions of the law of contract.  Otherwise, the general provisions are applicable to commercial contracts.

3.   Note on the conditions of formation of a contract. The general rules of the law of contract state that:  for a contract to be formed there are four conditions that need to be met: i) capacity: the parties to the contract have to be legally capable; ii) Consent: is the expression of the volition of the parties to enter into the contract; consent has to be free and given by a person who has the ability to discern iii) Object: the contract must have an object, that is to say a legal transaction foreseen by the parties and to which they will consent; the object has to be legal and respectful of the public order iv) Cause*:  that is the source of the consent or of the obligations flowing from the contract. 

These rules are applicable to commercial contracts. 

*Cause:  For purpose of clarity, the term “consideration “ has not been used here. “Consideration” does not carry the same significance as “cause”.  “Consideration” carries a particular technical meaning in common law where it forms a constituent element in the legal formation of a contract.  As Cambodia will have a Civil Code based on the civil law tradition, the concept of consideration as understood in common law is not applicable in states of the civil law tradition.

Cross-references: 1. Articles 1 to 120 of the Decree No.38 referring to contract and other liabilities 2. Chapter 4 of the Law on commercial contracts . 

Article 4.  Rules of Interpretation

(1) In determining any issue between the parties to a commercial contract, the tribunal shall apply the contract. 

(2) Where the contract is unclear or ambiguous, the tribunal shall construe the contract and determine the common intention of the parties.  In making its determination, the tribunal may rely on:

1. the law;

2. customs and usages and any practices which the parties  have established between themselves;

3. commercial customs and usages of the type of contract involved in the particular commercial activity in issue;

4. commercial customs and usages; and

5. the commercial character of the contract and the need to promote the observance of good faith in commercial activities.

Explanatory notes: 1. Rules of construction of contract are, by nature, supplementary.  That is to say, when a contract, verbal or written, is clear and not ambiguous, the judge does not have to construct it, he only has to apply it.  However, when the contract is ambiguous, it cannot be ascertained which type of contract the parties entered into.  In these circumstances, the judge needs to determine what was the common intention of the parties at the time of entering into the contract.  To help him in this task, the legislator may provide for rules of construction.  This is the sole purpose of this article. 

2. The expression “is ambiguous”, expresses a condition precedent to the applicability of this article.   Without having found that the common intention of the parties is ambiguous, the judge should not intervene or substitute his decision to the decision of the parties. 

3. The expression “common intention of the parties”. Contract law embodies the principle that the conclusion of a contract necessitates a common intention of both parties.  If it is not the case there is no contract.  Therefore in constructing an ambiguous contract the judge cannot solely look at the intention of the parties in their individuality.  

4. “Custom and usage” means “a usage or practice of the people, which, by common adoption and acquiescence, and by long and unvarying habit, has become compulsory, and has acquired the force of a law with respect to the place or subject-matter to which it relates.  It results from a long series of actions, constantly repeated, which have, by such repetition and by uninterrupted acquiescence, acquired the force of a tacit and common consent.  An habitual or customary practice, more or less widespread, which prevails within a geographical or sociological area; usage is a course of conduct based on a series of actual occurrences.” (Reference: Black’s Law Dictionary)

5.  Paragraph (b) that refers to the “customs and usages and any practices which the parties  have established between themselves” is there to permit the tribunal to look at the history of the commercial relationship between the parties.  The practice between two parties may not be a commercial custom or usage.  This can permit the judge to determine the intention and the nature of the obligations of the parties based on prior conduct that can be ascertained.

6.Proof of existence of customs and usages.  In all case, usages, customs, practices have to be proven.  In principle, the onus of proof  is on the party  who is claiming the existence of such usages, custom or practice.

Cross-references:  1.Articles 7 et 9 of the United Nations Convention on Contracts for the International Sale of Goods 1980.) 2. Québec and French law use this principles in the interpretation of commercial contracts.

Article 5.  Form of commercial contract

(1) A commercial contract need not be concluded in or evidenced by writing and is not subject to any other requirement as to form except as otherwise provided by law.  A contract may be proved by any means, including witnesses.

(2) For the purposes of this law "writing" includes telegram and telex.

Explanatory notes: 1. This article deals with the question of form of the commercial contract;  the form may be verbal or in writing.

2. The general theory of contract in both, civil and common law traditions, is to the effect that contracts can be verbal or in writing.  The obligation that a contract be in writing is the exception.  The requirement that a certain type of contract shall be in writing will be specified by law.  . 

3.  It is generally assumed that business people have a certain degree of sophistication in the field of commerce and they have knowledge of the “business world”  in which they are evolving.  Considering the above, transactions between business people do not need the same type of safeguards as transactions where non-business people are involved. The intent behind this rule is  to facilitate and make less stringent the exchange of goods and services in the country commercial environment.

Cross-references: 1. Articles 11 and 13 of the United Nations Convention on Contracts for the International Sale of Goods 1980.) 2. Principles to the same effect are found in the Québec and French law applicable to different type of commercial contracts.

Article 6.  Applicable law

(1) The parties to a commercial contract may elect the law applicable to the contract.

(2) In a contract that does not involve any foreign element, and where the parties have not elected the law applicable to the contract, the laws of the Kingdom of Cambodia shall apply. 

(3) In a contract that does not involve any foreign element, and where the parties have elected the law of a different country, the rules of law relating to public order of the Kingdom of Cambodia shall apply to that contract. 

Explanatory notes: 1. This article permits the parties to a commercial contact to choose the legal system that will be applicable to the contract.  That is to say that parties to a commercial contract may agree that the laws of Cambodia will not apply and that the laws of another country will apply instead.

2.  In practice, this type of clause is commonly used in Cambodia in the conclusion of significant contract and international ones.  This rule solely recognized the actual practice follow in the business community.

3. “Laws relating to public order” include, among other things,  laws and regulations that tend to prevent the commission of fraud and crime, and secure generally the comfort, safety, morals, health, and prosperity of the citizens of a state. In some civil law jurisdictions the expression “lois de police” (“laws of police”) is used to refer to these laws and regulations.  However, in English, the expression “public order” embodies this principle.

Article 7.  Several liability of debtors

Where there is more than one debtor of an obligation resulting from the conclusion of a commercial contract, the debtors are presumed to be severally liable to the creditor. 

Explanatory notes: 1. This rule is deviating from the rules applicable to contract in general where the several liability of the debtors is not presumed. In the case of a commercial contract where there is more than one debtor, the creditor of the contractual obligation will have to bring a prima facie evidence that there is more than one debtor and the court will have to presume that they are severally liable.  Then the debtors will have to onus of proof of showing the tribunal that the debtors are not severally liable.

Article 8. Clause limiting liability of a party to a commercial contract

Parties to a commercial contract may include a clause in their contract that limits their liability.  A clause limiting liability of the parties has no effect against a third party to the contract.

The parties to the contract may not waive this provision.

Explanatory notes: 1. This provision permits the parties to a commercial contract to restrict in whole or in part their respective liability with respect to the contract.  Such a provision is prohibited in the case of civil contract and contract involving a merchant and non-merchant.

Furthermore, such a clause in a commercial contract limiting the liability will not have effect against a third party whose claim may involve the different parties to a commercial contract.

2. Example:  

1. a manufacturer and a distributor conclude a commercial contract of sale of goods where they provide that the  manufacture ‘s liability will be limited to a certain sum of money in case of defect of the product.

2. the distributor is selling the goods to a store

3. a consumer is purchasing the good from the store

4. the good purchased by the consumer is defective and the consumer is suing the store, the distributor and the manufacturer

Based on article 8 the manufacturer will not be able to rely on the provision of the contract that restrict his liability.  This clause is only valid vis-à-vis the distributor and cannot be used against the consumer.

Article 9.  Limitation Period

(1) Obligations resulting from a commercial contract shall expire 5 years from the date defined in the contract, or where the date is not defined in the contract, 5 years from the date the contract was concluded.

(2) The following actions shall toll the limitation period

(a) filing an action to enforce the contract

(b) commencing an arbitration

(c) bankruptcy of the obligor

Article 10.  Court’s jurisdiction

(a) Except where there is an arbitration agreement, the Commercial Court shall have jurisdiction to resolve commercial contract disputes. 

(b) Pending the creation of the Commerce Court, the court of general jurisdiction shall resolve commercial contract disputes.

(c) In the case where a contract occurs between a merchant and a non-merchant, the non-merchant may elect to submit the dispute to the Commercial Court or to the court of general jurisdiction, and the merchant has to follow the non-merchant’s choice.  The parties to a contract may not waive this rule

Explanatory notes: 1. When a dispute arises from a commercial contract, the Commercial Court will have exclusive jurisdiction.  Rights of appeal will be provided in the law creating the Commercial Court.  As there is no Commercial Court actually, the general jurisdiction will have jurisdiction. 

2.  Paragraph (c) does not involve a dispute arising from a commercial contract since there is one party that is not a merchant.  However, it is necessary to provide for a specific rule that will be applicable in such a case.  The non-merchant will have the choice to proceed before the Commercial Court or the court of general jurisdiction.  It is important to give the choice to the non-merchant as we can assume that the Commercial Court will have the power to determine the issues on the basis of commercial practice, customs and usages that may be unknown to the non-merchant. The non-merchant may prefer to go to the common court of general jurisdiction.

Article 11.  Suppletive character of these rules

Except as otherwise provided, the provisions of this law are suppletive. 

Part B – Arbitration Agreements

Cross-references: 1. Articles 2638 to 2643 of the Civil Code of Québec  2. With respect to the arbitration procedure, see : Law of commercial arbitration.

Article 12.  Definition of arbitration agreement

An arbitration agreement is a contract by which the parties undertake to submit a present or future dispute to the decision of one or more arbitrators, to the exclusion of the courts.

Explanatory notes: 1.  This article permits the parties to a commercial contract to agree to submit a dispute that may arise between them in the future or that has already arisen to one or more arbitrators instead of going to the courts.  The parties to a commercial contract may provide for such a clause in the original commercial contract, or in a different contract concluded at the initial stage of their legal relationship.  In this case, the object of the arbitration agreement will be that “future dispute” that may arise between them will be submitted to arbitration.  The parties may also agree to arbitration once an actual dispute has arisen between them; in this case it will be said that the parties are submitting “a present” dispute. 

Article13.  Form of arbitration agreement

An arbitration agreement shall be evidenced in writing.  An agreement is deemed to be evidenced in writing if it is contained in an exchange of communications that attest to its existence or in an exchange of communications in which its existence is alleged by one party and is not contested by the other party.

Explanatory notes: 1. This article imposes a condition of form (by opposition to a substantive condition): the arbitration agreement has to be evidenced in writing. Written exchange of communications or exchange of proceedings between the parties will constituted evidence of the arbitration agreement if they “attest to its existence”.  If there are such communications or proceedings the arbitrators and the courts will have to conclude that the parties have agreed to send their disputes to an arbitrators.

In the case where a court would have to determine whether the parties have agreed to arbitration and that the answer to this question is affirmative, the court will have to decide that it doesn’t have jurisdiction over this matter. 

Article 14.  Matters not subject to arbitration

Disputes over the status and capacity of persons or other matters of public order may not be submitted to arbitration. 

Explanatory notes: 1. This article is to ensure that the rules of public order that are applicable to the contract cannot be counteracted by the parties.  In the case where the commercial contract is not an international contract, and that the laws of Cambodia apply in their entirety or partially, the rules of public order of the laws of Cambodia will apply even if the parties to the agreement have provided (expressly or implicitly) for the non applicability of the rules relating to “ status and capacity of persons, family matters or other matters of public order “. Where the contract is an international contract, the determination of the applicable rules relating to status, capacity, etc., will be made by the arbitrator in accordance with the contract or the rules of private international laws (see: articles 18 to 20 and 31 and 32  for the rules of private international law applicable to commercial contracts).    

2.  This article has to be read in conjunction with article 15 of the Law.

Article 15.  Invalid provisions

(1) Any provision in an arbitration agreement that has the purpose of avoiding the applicability of the rules of public order is invalid.  The remaining provisions of the arbitration agreement shall be applied. 

(2) A provision of the arbitration agreement that places one party in a privileged position with respect to the designation of the arbitrators is null.

Explanatory notes: 1. This article is to ensure that the rules of public order that are applicable to the contract can not be counteracted by the parties.  In the case where the commercial contract is not an international contract, and that the laws of Cambodia apply in their entirety or partially, the rules of public order of the laws of Cambodia will apply even if the parties to the agreement have provided (expressly or implicitly) for the non applicability of the rules relating to “ status and capacity of persons, family matters or other matters of public order “. Where the contract is an international contract, the determination of the applicable rules relating to status, capacity, etc., will be made by the arbitrator in accordance with the contract or the rules of private international laws (see: articles 18 to 20 for the rules of private international law applicable to commercial contracts) .  

2.  The provision found in paragraph (2)  is to ensure that at the time of the conclusion of the arbitration agreement, both parties have equivalent powers to designate the arbitrators.  The nullity of a provision violating this article doesn’t nullify the entire arbitration agreement.  It is the specific provision that is null. 

3.  This article has to be read in conjunction with article 14 of the Law.

Article 16.  Arbitration agreement separate from contract

An arbitration agreement contained in a commercial contract is considered to be an agreement separate from the other clauses of the contract.  The determination by the arbitrators that the contract is null does not nullify the arbitration agreement.

Explanatory notes: 1. This provision is there to ensure that in the case where the parties have provided for an arbitration agreement in the commercial contract as such, that the nullity of the commercial contract doesn’t entail the nullity of the arbitration agreement contained therein. 

2. This article is there to ensure that the following situation doesn’t occur:  the declaration of the nullity of the contract that causes the nullity of the arbitration agreement with the result that the arbitrator did not have jurisdiction to determine the issue between the parties.  The arbitrator’s jurisdiction to decide the issues being only based on the arbitration agreement.

Article 17.  Arbitration procedures

Subject to the peremptory provisions of law, the procedure of arbitration is governed by the contract or, failing that, by the Law of Commercial Arbitration.

PART C – Conflict of laws

Explanatory notes: 1. The provisions contained in this Part are general conflict of laws rules.  Conflict of laws rules are used when there is an international element to the contract and that the parties have not determined which law will be applicable to their contract.  Be it that the contract was formed outside of the Cambodian territory, one of the party’s establishment or place of business is not on the Cambodian territory, that the property is issue is located outside of Cambodia, etc.

Conflict of laws rules are needed when a dispute between the parties to the contract  is brought before the Cambodian court.  In this case, the court has to decide and to do so, the court has to look at the rules of law.  But what will be the law applicable to the contract if there is an international aspect to it and that the parties have not provided for the applicable law?

In such a case, the first issue for the court to decided will be: what is the law applicable to the contract; is it the laws of Cambodia or the laws of another country.  In determining this question the court will apply the rules provided in this Part. 

In applying the conflict of laws rule, if the court concludes that the laws of Cambodia apply, then it will apply the laws of Cambodia to determine the issue raised by the parties.  Or, if the court concludes that the laws of another country apply, it will have to use these other laws to resolve the dispute between the parties. 

Cross-references:

1. Articles 31 and 32 of this Law that provides for a specific conflict of laws rule in the case of a contract of sale.                                   

Article 18.  Scope

This Part applies to a commercial contract involving a foreign element and where the parties have not made an election of the law applicable to the contract. 

Article 19.  Form of the contract

(1) The form of the contract is governed by the law of the place where it is made.

(2) A contract is nevertheless valid if it is made in the form prescribed by:

1. the law applicable to the content of the contract;

2. the law of the place where the property which is the object of the contract is situated at the time of the conclusion of the contract: or

3. the law of the domicile of one of the parties when the contract is made.

Article 20.  Content of the contract

(1) The contract is governed by the law designated in the contract.

(2) If no law is designated by the parties, the court shall apply the law of the country with which the act is most closely connected, in view of its nature and surrounding circumstances.

(3) A contract is presumed to be mostly connected with the law of the country where the party who has to perform the obligation has his establishment or place of business. 

Cross-references: 1. Article 6 permitting the parties to designate the law applicable to the contract

Chapter 2.  Contract of sale

Article 21.  General rules of the law of contract of sale

The general rules of the law of contract of sale apply to all commercial contracts of sale, except when special rules are found in this Chapter complement or depart from them.