Resolving Business Disputes In The Kingdom

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Cambodia’s National Commercial Arbitration Centre was launched in March 2013 as a way to resolve commercial conflicts outside of the Kingdom’s court system. The NCAC builds on Cambodia’s 2006 law on commercial arbitration which the country adopted following its accession to the World Trade Organization in 2004. The Centre was set up with the assistance of the Asian Development Bank and the International Finance Corporation, who helped to draft its rules and code of ethics. Crucially, Cambodia has the legal framework in place to enforce arbitration awards, including those in cases of foreign arbitration.

“Cambodia is a member of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and it adopted its own law on approving and enforcing the standards agreed upon in the convention,” says NCAC’s Secretary General Khan Sereyvuthy. “Based on these legal frameworks in place, I believe that NCAC can handle intense arbitration cases in the Kingdom. The arbitrators at the NCAC are well trained and ready to serve the need of the public.”

Khan Sereyvuthy, NCAC

How does arbitration work?

It is standard practice in many countries to include arbitration clauses in contracts in order to avoid court proceedings in the event of a dispute. Arbitration uses an independently trained arbitrator to resolve a conflict and concludes with a legally binding agreement. This method of resolution is most commonly used for commercial disputes such as leasing or investment disagreements.

Conflicts are resolved by an agreed-upon arbitrator, but if someone cannot be chosen, then they resort to an independent third party to choose the arbitrator, says Peter Mewes, Senior Consultant and Foreign Client Liaison at HBS Law in Phnom Penh. “If the parties cannot agree on the arbitrator then the arbitrator is selected by the Chairman of whatever tribunal you use. This way you have an independent third party that selects the arbitrator for this particular dispute, making the resolution clause effective and allowing the arbitration to go ahead,” he says.

Peter Mewes, HBS Law

In addition to arbitration, two other useful conflict resolution processes include mediation, which allows both parties to negotiate a contractual settlement, and adjudication, which allows an expert to rule on a conflict. Adjudication is a particularly useful means of conflict resolution in areas such as construction and engineering because an independent expert or engineer can rule on what is often a highly technical conflict.

Early challenges for NCAC

The NCAC has only heard one case so far, which was not resolved, says Sereyvuthy. “So far we received one case in late 2015 and this case was closed as the parties failed to submit their arbitration agreement [according to] NCAC’s requirement in the rules,” he says, adding that the case focused on a dispute over a “lease and construction of a factory.”

However, the NCAC has worked diligently in the past few years to ensure that all the key players are in place, should more clients opt for arbitration. “It took some years to make the centre operational and functioning. We recruited the first 52 arbitrators, who were trained by experts from the Singapore Institute of Arbitrators,” says Sereyvuthy, also adding, “the NCAC adopted its arbitration rules in July 2014 and code of ethics in April 2015.”

The NCAC has also held a number of seminars to keep staff and arbitrators up to date with the latest training. With funding from the Trade Development support Program and the Department of International Cooperation of the Ministry of Commerce, the NCAC has plans to host 18 training workshops and seminars in the near future. “The target groups included are lawyers, judges, prosecutors, government officials, businessmen, engineers, entrepreneurs and students,” says Sereyvuthy. Past events have also featured legal experts from Hong Kong and Singapore, he added.

Advantages of arbitration

While the NCAC is still in its formative years, it does present some advantages to the Cambodian court system. The greatest challenge for the NCAC, however, will be convincing local companies to trust arbitration as a means of resolving commercial disputes.

“In spite of the existence of the Law, anecdotal evidence suggests that it is not uncommon for parties to sidestep an arbitration agreement and commence court proceedings instead. In fact, a day after the official launch of the NCAC, the writers understand that a provincial court refused a party’s application to stay a court proceeding in favour of arbitration even though there was a binding arbitration agreement,” writes Guy Spooner, a Singapore-based partner at legal firm Norton Rose Fulbright, in a 2013 article on Cambodia’s NCAC.

Foreign companies will likely find Cambodia’s court system to be problematic compared to legal hubs like Hong Kong and Singapore. For instance, the World Bank ranked Cambodia 127th out of 189 countries in its 2016 Ease of Doing Business Report, three slots above India but below the Philippines, Vietnam, and Thailand. Cambodia received one of the worst rankings, 174th, for enforcement of contracts, placing it two slots behind Afghanistan. Its judicial system scored 6/18 points as it typically takes 483 days to resolve an issue and 170 days to enforce a judgement.

Choosing Cambodia over other centres

With these statistics in mind, it’s easy to see why many members of the business community may seek an alternative venue in which to resolve conflicts, such as arbitration. A key benefit is that Cambodia has signed international agreements such as the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, says HBS Law’s Mewes.

“One of the merits of arbitration in Cambodia is that we have arbitration law to recognise and enforce arbitral awards. This includes foreign arbitration. Again, if you have an award in Singapore or Hong Kong, there is law to recognise and enforce it in Cambodia,” he says.

For companies that do choose arbitration in Cambodia, they will find themselves with many financial advantages, says Sereyvuthy. These include lower fees for arbitrators and the entire arbitration process, while meanwhile arbitrators are familiar with law outside of Cambodia, and arbitral awards can be enforced outside of the country.

Phnom Penh vs. Singapore and Hong Kong

The NCAC aims to set up Cambodia as a hub for commercial arbitration outside of Hong Kong and Singapore’s international arbitration centres. The need to resolve international conflicts, especially in cross-border trade, is expected to increase alongside regional trade as ASEAN integration takes off.

While the NCAC is inexperienced compared to other centres, there are some advantages to trying out the new centre. For many companies, the main advantage will be cost, says Mewes.  Hong Kong and Singapore are two of the most expensive cities in the world, and arbitration there can come with a lot of hidden expenses.

“Arbitration here in Phnom Penh may save a lot on costs if there’s a number of witnesses or senior management involved who require transporting and need to stay in hotels. You would have to pay the arbitrator’s fees as well, and a per diem allowance,” he says.

Sereyvuthy says additional benefits include the fact that local arbitrators are much more familiar with the laws of Cambodia. Allowing an arbitrator in Hong Kong or Singapore time to catch up with legal precedents in a cause can create delays in the conflict resolution process.