Cambodia has taken a major step towards furnishing its commercial legal infrastructure. The Southeast Asian country’s Ministry of Justice has finalised a draft law that could see the country’s first commercial court up and running in Phnom Penh as soon as the end of 2023.

A spokesperson for the Ministry confirmed that all business disputes will be resolved by the commercial court, separately from the criminal courts where serious business disputes are being adjudicated at the moment.

Although the details of the draft law are still under seal, lawyers believe the new commercial court will promote trade flow and other commercial activities by enhancing transparency of its already investor-friendly legal framework.

AGAINST WHAT BACKDROP WILL THE COMMERCIAL COURT BE ESTABLISHED?

The establishment of a commercial court in Cambodia is a decades-long vision that has finally come into fruition. “Cambodia has been considering the establishment of commercial courts since at least 2003, when it stated its desire to do so upon joining the WTO. In 2007, a draft Commercial Court Law was released, but apparently momentum on establishing the court was lost,” explains Jay Cohen, a partner at Tilleke & Gibbins in Cambodia.

Fast forward to February this year, the Justice Ministry signed a memorandum of understanding (MoU) with the Asian Development Bank (ADB), the Manila-headquartered development bank aimed at supporting social and economic development in Asia, to establish a commercial court in Cambodia to facilitate all trade-related disputes. In November, the Ministry put the plan into action by completing a draft law to operationalise the court.

Cohen notes that even before this breakthrough, Cambodia has been enjoying favours from foreign investors. “Cambodia’s main investment laws, being the Law on Commercial Enterprises and the Law on Investment, do not discriminate against foreign investors,” says Cohen.

“In particular, Cambodia does not prohibit foreign investors from investing in any sectors in Cambodia. As such, Cambodia is one of the easiest countries in Southeast Asia for a foreign investor to incorporate a company, obtain licenses and permits and remit profits back to its shareholders,” he adds.

WHAT ARE THE MOST NOTABLE CHANGES?

There have been long-running concerns from the investor community about “transparency and predictability in the Cambodian court system and the length of time necessary to resolve disputes,” Cohen admits, stressing that an improved commercial legal mechanism is expected to boost confidence among foreign businesses.

The draft law has not been released by the time of writing, but Cohen expects the new court to bolster Cambodia’s commercial standing by improving the sophistication, efficiency, and predictability of the process of resolving trade- and investment-related disputes.

In particular, “it is hoped that the commercial court will publish its judgements so that the public can understand how the Cambodian courts are interpreting Cambodian law. At present, court decisions are not routinely published, which leads to concerns about transparency and arbitrariness of decisions and leads to significant ambiguity as to how Cambodian law is interpreted by the courts,” notes Cohen.

On top of that, Cohen believes timelines for hearings and obtaining a final judgment are likely to be compressed compared to the regular court system. “There may also be a more limited range of grounds for making an appeal, which may curtail the ability of parties to appeal decisions to the appellate court and the supreme court when there is no firm legal basis for doing so,” he adds.

Other positive changes likely include the addition of homegrown judges with substantial commercial experiences and deep understanding of the Cambodian court systems, as well as permitting court documents to be submitted in English or other foreign languages. Even hearings could possibly be conducted in English, Cohen anticipates.

IN WHAT WAYS WILL THE COURT BOLSTER ARBITRATION RELATED TO CAMBODIA?

Looking back on how Cambodia’s arbitration landscape has evolved along the way, Cohen recalls 2009, when he first came to the country whose GDP still ranks eighth in the ten-nation ASEAN region today.

At that point in time, “many parties who inserted foreign arbitration clauses into their contracts learned that it was not financially worth it to commence arbitration even if they felt their cases were relatively strong and straightforward,” Cohen recalls, citing the high costs to arbitration in preferred destinations including Singapore and Hong Kong.

But the game has changed now. “With the addition of a commercial court, assuming that it achieves its goals of transparency and efficiency, it is likely to result in more cases involving foreign investors to be adjudicated in Cambodia as opposed to abroad,” says Cohen.

“Further, as the commercial court develops, and if cases are published and accessible, it would lead to more predictability in the Cambodian legal system, which would bolster the confidence of foreign investors,” he adds.