Firms in Cambodia are increasing their use of the National Commercial Arbitration Centre (NCAC) standards in their contracts, as awareness of these principle’s utility spreads among the country’s business community, according Linna Seangly, associate at law firm Sok Siphana & Associates.
Ms Seangly was speaking on a panel at a forum on commercial arbitration in Cambodia, hosted by the NCAC and European Chamber of Commerce (EuroCham), and she said that she had observed the increased use of arbitration clauses by firms in Cambodia as firms gained trust in the NCAC’s ability to resolve disputes.
“The main reason for this is the increased awareness of the NCAC’s ability to effectively handle and administer a case, and as a result legal practitioners are starting to incorporate the NCAC’s arbitration clause in their contracts because they now believe disputes can be resolved this way in Cambodia,” she said.
Advantages to using commercial arbitration
The NCAC was established in 2010 and updated its rulebook in 2021, and as of January 2023 it has administered 31 cases, with a total disputed value of over $90m across five different business sectors.
According to the NCAC president, Kiri San, there were a number of advantages to using commercial arbitration instead of litigation including; the ability to choose an arbitrator instead of having a court appointed judge, increased flexibility, and the option to use local languages.
“But the most important aspect is confidentiality which is supplied to everyone involved in the case. Because litigation is public any dispute can impact the perception of a company, its stock price and even require it to reveal commercially sensitive IP,” he said.
Cambodia is a signatory to the New York Convention on commercial arbitration and awards made at arbitration in the country can be enforced in any of the 172 countries which are signatories to the standard which Mr San said this was a major benefit to Cambodian firms dealing with foreign counterparties.
Robust independent commercial arbitration
“Last, but not least, is the possibility to enforce decisions cross border, via the New York Convention. So for example, if you win a dispute with a supplier from Germany and they don’t have any assets in Cambodia you can enforce the decision in over 170 countries. This is a very important feature of arbitration,” said Mr San.
Having a robust and independent commercial arbitration system also makes Cambodia a more attractive destination for foreign investors, according to Youdy Bun, managing partner at lawfirm Bun & Associates and a NCAC arbitrator.
Cambodia is ranked 143, out of 190 countries, assessed in the latest World Bank report on the ease of doing business globally, one place below Lebanon; a country which has effectively become bankrupt since the report was published in 2020, and way below regional peers Vietnam and Thailand (70 and 21, respectively).
Mr Bun said that this low ranking was despite the open nature of Cambodia’s economy relative to countries with a similar level of economic development and that a robust and independent commercial arbitration system was an important factor in improving investors’ perception of the country.
“There is a close relationship between how attractive a country is to investors and how easily those investors can access justice. There is a clear correlation between the two.
Important for economic development
Unfortunately Cambodia has a low ranking on the World Bank’s Doing business guide, despite it being an open economy with no foreign exchange controls, no capital investment requirements and no restrictions on foreign ownership, with the exception of land and property,” Mr Bun said.
The managing partner added that even Singapore, which the World Bank ranked as the second easiest country globally to do business, required foreign investors to appoint a local director when setting up a firm in the city state, a stipulation which is absent in Cambodian company law.
Even so, Mr Bun said that even while a robust arbitration system was important for Cambodia’s economic development it would not entirely replace the legal system in resolving business disputes.
“Arbitration plays an important role in contract enforcement. It will not replace the court system and courts still have a role to play but the business community much prefers to use arbitration”.