Enforcing Contracts in Myanmar

Enforcing Contracts in Myanmar (Myanmar lawyer Perspective) 1. Introduction Under the multi-party democratic system, the economic system of Myanmar is market economy system. Myanmar is now trying to develop its economy and to reengage with the global market. Accordingly, various laws which relate to political system and economic system have been enacted during the first parliamentary sessions. As contracts are very important for doing business and investment, in this report, the enforcement mechanism will be analyzed. 2. Myanmar Legal System Union of Myanmar had its own legal system and judicial system during the dynasty of Myanmar Kings. At that time, Yazathat, Damathat, and Phythtone were sources of laws. Yazathat means kings orders, Damathat means treatises and Phythtone means rulings (decision of judges). Myanmar Customary Law has been exercising until now, and it is mainly based upon Damathat. During the late 19th century, Myanmar was occupied by British Colonialist and they introduced common law system. Now we are practicing laws which are based upon common law principles, for example Civil Procedure Code, Criminal Procedure Code, Penal Code, and Evidence Act. Most of the laws are similar to other common law countries such as India laws. Contract Act, Specific Relief Act, Sale of Goods Act, Companies Act, Transfer of Property Act, and Registration Act are almost the same as Indian Acts. Therefore, Myanmar legal system is a unique system, a combination of its traditional legal system and common law system. 3. Contract Act The Contract Act was enacted by British Colonial Government in 1872. It contains 238 sections and categorized by XI chapters such as: (1) the communication, acceptance and revocation of proposals, (2) contracts, voidable contracts and void agreements, (3) contingent contracts, (4) the performance of contracts, (5) certain relations resembling those created by contract, (6) the

2 consequences of breach of contract, (7) indemnity and guarantee, (8) bailment, and (9) agency. It contains general principles of the law of contract. Out of XI chapters, chapter VII sale of goods and chapter XI partnership are enacted such a separate law as Sale of Goods Act 1930 and Partnership Act 1932. Current legal issues relating to Contracts are applicable law issue, governing law issue and choice of law issue. 3. 1 Application Law Applicable law is the law which will be applied for settlement of dispute arising from a contract. Currently, most foreign investors ask that the applicable law should be foreign laws. Myanmar people like local laws which they are familiar with. 3.2 Governing Law Governing law is the law which governs the contract. Sometimes, the contract is made outside Myanmar and therefore foreign investors ask their laws as a governing law. The legality, validity and enforceability of contract will be decided by Governing Laws. In principal, the governing law should be the law of the place where the contract is made, lex loci contractus. 3.3 Choice of Law (Conflict of Laws) Myanmar legal and judicial systems are based on common law system. Even though there is no decided case on choice of law, there is a tendency that Myanmar Courts will follow the practice of common law principals when a dispute involving foreign elements is brought before them. 4. Registration of Contracts 4.1 Contracts (JV contracts, Employment Contracts, Sale and Purchase Agreement) With regards to investment, the following contracts are mainly executed (i) Joint Venture Contract, (ii) Shareholder Contract, and (iii) Profit Sharing Contract. The Contract Act, 1872 applies primarily to those contracts. Other related contracts are Employment Contract and Sale and Purchase Contract. For those contracts, the specific laws for employment (Employment and Skill Labour Law, 2013) and Sale of Goods Act, 1930 apply to those matters.

3 According to section 5 (b) of the Employment and Skill Development Law, 2013 the following particulars shall be included in the employment agreement: (1) Type of employment; (2) the probation period; (3) wage, salary; (4) location of the employment; (5) the term of the agreement; (6) working hour; (7) day off, holiday and leave; (8) overtime; (9) meal arrangement during the work hour; (10) accommodation; (11) medical treatment; (12) ferry arrangement to worksite and travelling; (13) regulations to be followed by the employees; (14) if the employee is sent to attend the training, the limited time agreed by the employee to continue to work after attending the training; (15) resigning and termination of service; (16) termination of agreement; (17) the obligations in accord with the stipulation of the agreement; (18) the cancellation of employment agreement mutually made between employer and employee; (19) other matters; (20) specifying the regulation of the agreement, amending and supplementing; and (21) miscellaneous. The enforcement mechanism for employment contract is provided in the Settlement of Labour Disputes Law, 2012. 4.2 Registration Act After execution of agreements, the next issues are registration of those agreements and proper stamp duty to be imposed. There is a list of documents which require compulsory registration (section 17). The documents of which registration is compulsory are as follows: (1) instruments of gift of immoveable property; (2) other non-testamentary instruments which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of one hundred kyats and upwards, to or in immoveable property; (3) non-testamentary instruments which acknowledge the receipt or payment of any consideration on account of the creation, declaration, assignment, limitation or extinction of any such right, title or interest; (4) leases of immoveable property from year to year, or for any term exceeding one year, or reserving a yearly rent; and

4 (5) non-testamentary instruments transferring or assigning any decree or order of a Court or any award when such decree or order or award purports or operates to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of one hundred kyats and upwards, to or in immoveable property. Generally, agreements which relate to immoveable property must be registered. 4.3 Stamp Act The Stamp Act provides the list of proper stamp duty for different documents in 1st Schedule. It might be stated that the rate is competitively high. Another issue is calculation of stamp duty in different currencies. When the value of contract is shown in foreign currency, the calculation of stamp duty is based upon exchange rate. It is daily reference rate announced by the Central Bank of Myanmar at the day of the date of documents. 5. Alternative Dispute Resolution For investment issues, section 43 of Foreign Investment Law expressly provides that it shall be complied and carried out in accordance with the dispute settlement mechanism if it is stipulated in the relevant agreement. Therefore dispute settlement clause is very important for foreign investors. However, there is no such a similar provision for commercial disputes. 5.1 Arbitration (1944 Arbitration Act, 1937 Arbitration Protocol and Convention Act) The 1944 Arbitration Act applies to all cases of civil nature including commercial disputes. But, court involvements can be found in each and every step. According to 1944 Act, parties can appoint a sole arbitrator or if parties agree to appoint 3 arbitrators, both parties can appoint one arbitrator for them and the arbitrators can appoint an umpire. The award shall be final and binding on the parties and for enforcement of arbitral award, it should be submitted to the competent Court. There are three types of arbitration under Arbitration Act, 1944; (a) Arbitration without intervention of a Court

5 (b) Arbitration with intervention of a Court where there is no suit pending, and (c) Arbitration in Suits. Arbitration with intervention of a Court where there is no suit pending Section 20 of Arbitration Act provides as follows: (1) Where any persons have entered into an arbitration agreement before the institution of any suit with respect to the subject-matter of the agreement or any part of it, and where a difference has arisen to which the agreement applies, they or any of them, instead of proceeding under Chapter II, may apply to a Court having jurisdiction in the matter to which the agreement relates that the agreement be filed in Court. (2) The application shall be in writing and shall be numbered and registered as a suit between one or more of the parties interested or claiming to be interested as plaintiff or plaintiffs and the remainder as defendant or defendants, if the application has been presented by all the parties, or, if otherwise, between the applicant as plaintiff and the other parties as defendants. (3) On such application being made the Court shall direct notice thereof to be given to all parties to the agreement other than the applicants, requiring them to show cause within the time specified in the notice why the agreement should not be filed. (4) Where no sufficient cause is shown, the Court shall order the agreement to be filed, and shall make an order of reference to the arbitrator appointed by the parties, whether in the agreement or otherwise, or, where the parties cannot agree upon an arbitrator, to an arbitrator appointed by the Court. (5) Thereafter the arbitration shall proceed in accordance with, and shall be governed by, the other provisions of this Act so far as they can be made applicable. Arbitration in suits Section 21 of Arbitration Act provides as follows: Where in any suit all the parties interested agree that any matter in difference between them in the suit shall be referred to arbitration, they may at any time before judgment is pronounced apply in writing to the Court for an order of reference.

6 Now, Myanmar government is drafting a new arbitration law which is primarily based upon UNCITRAL Model Law on Commercial Arbitration. The new draft of Arbitration Law was published for public awareness in 2013. 5.2 New York Convention (enforcement of foreign arbitration awards) For enforcement of foreign arbitral awards, we have only 1937 Arbitral Protocol and Convention Act which can only applied to members of Geneva Convention. As Myanmar acceded to New York Convention in 2013, a new domestic law is necessarily required to give the legal affect to it. 5.3 Mediation/Conciliation There is no relevant law for mediation and conciliation process. However, disputes arisen between the disputed persons can be settled amicably. Myanmar people follow the settlement made by persons who have influence upon them. Accordingly, there is no mechanism for enforcement of decisions of mediators and conciliators. In terms of labour disputes, the coordinating committee, the conciliation body, arbitration body and arbitration council are empowered for settlement of labour disputes including individual dispute and collective disputes. 6. Enforcement of Contracts The regulatory authority for enforcement of general contracts is mainly the Court when the regulatory authority for enforcement of employment contract is above mention committee, body and council. This report emphasizes on the Court system. 6.1 Myanmar Judicial System 2008 Constitution lays down the democratic foundation for separation of powers and it confers the judicial power to the Union Supreme Court. Myanmar courts are established by the Union Judicial law, 2010. Judicial reform is carried out to be in line with democratic practices, which is laid down by 2008 Constitution. However, Judges are not familiar with investment issue and commercial issues. Therefore, a special court for those issues should be established in our countries.

7 On the other hand, we encourage people to sue alternative dispute resolution ADR and informal justice instead of litigation. In a civil suit for breach of contract or performance of contract, the plaintiff claims not only for contract values or damages, but he may claim for personal defect such as personal, moral or mental sufferings. 6.2 Constitution of Courts (Township Court, District Courts, High Courts and the Supreme Court) With regards to Myanmar Judicial System, the hierarchy of Myanmar Courts is as follows: (i) Township Courts other special courts (juvenile courts, motor vehicle courts and municipal courts) are Courts of first instance; (ii) District Courts are Courts of first appeal; (iii)high Courts are Courts of second appeal; and (iv) The Supreme Court is the highest court of the Union and the court of final appeal. There are many criticisms relating to judiciary, for example, judicial independence, corruption and accountability. 6.3 Civil Procedure Code (Steps of a Civil Suit) Civil Procedure Code has 153 Sections, 49 Orders and each order has different rules. A civil suit can be commenced by submission of a plaint in the Court of the lowest grade of competent jurisdiction. After the Court check whether it has jurisdiction; proper court fees is attached and the value of suit, and if the Court satisfies, it issue summons to the defendant. The defendant must present a written statement of his defense. Based upon pleading (plaint and written statement), the Court frames the issue. Issue arises when a material proposition of fact or law is affirmed by one party and denied by other party. The Court has power to examine the parties or their Attorneys when necessary before fixing issues. Suggested issues can be submitted by both parties on the case to decide. The Court then frames issue to decide.

8 6.3.1 Serving Summons When a suit has been duly instituted, a summons may be issued to the defendant to appear and answer the claim on a day to be therein specified. Every summons shall be accompanied by a copy of the plaint. There are (4) different modes of services of summons- (a) Physical delivery to the defendant or his agent, (b) physical delivery to the member of defendant s family, (c) If defendant refuses to accept the summons, affix a copy of the summons on the outer door or some other conspicuous part of the defendant s house, and (d) If summons cannot be served in the ordinary way mentioned above, publicly announce in the newspaper and affix a copy thereof in some conspicuous places in the Court-house [Order 5 of Civil Procedure Code]. The legal basis for public announcement in the newspaper is in Order V Rules 20 (1) under the manner as the Court thinks fit.relating to the Advertisement in newspapers of summon, Notice, etc., there is a notification issued by the Supreme Court (Notification No 8 of 11 April 1947). The extract of the notification are as follows: (1) The advertisement of certain Courts, requiring person to attend before a Court, at a certain time on a certain day, frequently appear in the newspapers concerned only one or two days before the Court. (2) Obviously such length of notice is too short. (3) All Courts must always bear in mind these delaying factors and should consequently take steps to overcome these difficulties by fixing, in cases where these advertisements are necessary, dates for appearance of the parties which dates are further ahead than they otherwise would be. (4) Not less than ten clear days should always be allowed to elapse between the last date on which the advertisement appears in any newspaper and the date therein specified for the appearance before the Court of the person(s) to whom the advertisement is directed.

9 Service by registered post can be affected in the case where defendant resides within jurisdiction of another Court. Service of process on person residing in Foreign Territories should be affected through the Embassy concerned. In order to enable the Supreme Court to transmit such processes to the appropriate authorities, Judges of the lower Courts are directed that the processes for service on a person or persons residing in foreign territories should first be submitted to the Supreme Court. Email and facsimile are not allowed. 6.3.2 Adjournment, Hearing, Judgment and Decree The Court has to fix a date for hearing. Both parties examine their witnesses on the hearing date. The hearing of the suit should, if necessary, be continued from day to day until all the witnesses in attendance have been examined. After examination of witnesses, attorneys of both side offer final arguments. Then, the Court delivered judgment in written form. In every case, a formal decree must be drawn up and sealed with the seal of the Court. The Drawing up of the decree or order, which is the final and permanent expression of the relief to which the successful party is entitled, is one of the most important and difficult steps in the proceedings. 6.3.3 Interim Measures (arrest and attachment before judgement) Another important issue is Interim Measures. Order 38 of the Civil Procedure Code lays down rules for the arrest of a defendant and the attachment of his property before judgment. The object of these rules is to secure the plaintiff against any attempt on the part of the defendant to defeat the execution of any decree that may be passed against him. With regards to Arrest, the Court must be satisfied on two points; The plaintiff must have a cause of action which is prima facie unimpeachable, subject to his proving the allegation in his plaint, and that the Court should have reason to believe on adequate materials that unless jurisdiction is exercised there is real danger that the defendant will remove himself from the ambit of the powers of the Courts. With regards to Attachment, vague allegations are insufficient. The mare fact that the defendant is the past mortgage or disposed of his property is not sufficient ground for levying attachment. It is to be proved that The defendant is about to dispose of the whole or any part of his property,

10 or the defendant is about to remove the whole or any part of his property from the local limits of the jurisdiction of the Court. Attachment: Section 60 of the Civil Procedure Code provides as follows: (1) The following property is liable to attachment and sale in execution of a decree, namely lands, houses, or other buildings, goods, money, banknotes, cheques, bills of exchange, hundis, promissory notes, Government securities, bonds or other securities for money, debts, shares in a corporation and, save as hereinafter mentioned, all other saleable property, moveable or immoveable, belonging to the judgment-debtor, or over which, or the profits of which, he has a disposing power which he may exercise for his own benefit, whether the same be held in the name of the judgment-debtor or by another person in trust for him or on his behalf. Therefore, the attachment is granted as one mode of execution of money decree or other decrees compensable by money. Order 21 (Rules 41-57) deals with the arrest of a judgment-debtor and the attachment of his property in execution of a decree passed against him. Order 38 lays down rules for the arrest of a defendant and the attachment of his property before judgement. The object of these rules is to secure the plaintiff against any attempt on the part of the defendant to defeat the execution of any decree that may be passed against him. 6.3.4 Modes of Execution of Decree (Order 21 of Civil Procedure Code) Execution against person of judgment debtor is provided in Order 21 of the Civil Procedure Code and it can be categorized as; (i) Decree for the payment of money (ii) Decree other than those for the payment of money: The Court may make an order for the arrest and detention of judgment-debtor. With regard to execution against property of judgment-debtor, it can be categorized as (i) attachment of movable and immovable property, and (ii) Sale of attached property. Every decree for the payment of money, including a decree for the payment of money as the alternative to some other relief, many be executed by the detention in the civil prison of the judgment-debtor or by the attachment and sale of his property, or by both [Order 21 Rule 30]. Where the decree is for any specific moveable, or for any share in a specific moveable, it may be executed by the seizure, if practicable, of the moveable or share, and by the delivery thereof to the party to whom it has been adjudged, or to such person as he appoints to receive delivery on

11 his behalf, or by the detention in the civil prison of the judgement-debtor, or by the attachment of his property or by both [Order 21 Rule 31]. Where the party against whom a decree for the specific performance of a contract, or for restitution of conjugal rights, or for an injunction, has been passed, has had an opportunity of obeying the decree and has willfully failed to obey it, the decree may be enforced by his detention in the civil prison, or by the attachment of his property or by both [Order 21 Rules 32]. Where a decree is for the execution of a document or for the endorsement of a negotiable instrument and the judgment-debtor neglects or refuses to obey the decree, the decree-holder may prepare a draft of the document or endorsement in accordance with the term of the decree and deliver the same to the Court. The decree-holder shall deliver to the Court a copy of the draft as the Court may have directed upon the proper stamp-paper if a stamp is required by the law; and the Judge or such officer as may be appointed in this behalf shall execute the document [Order 21 Rule 34]. Where a decree is for the delivery of any immoveable property, possession thereof shall be delivered to the party to whom it has been adjudged, or to such person as he may appoint to receive delivery on his behalf, and, if necessary, by removing any person bound by the decree who refuses to vacate the property [Order 21 Rule 35]. Where a decree is for the delivery of any immoveable property in the occupancy of a tenant or other person entitled to occupy the same and not bound by the decree to relinquish such occupancy, the Court shall order delivery to be made by affixing a copy of the warrant in some conspicuous place on the property, and proclaiming to the occupant by beat of dram or other customary mode, at some convenient place, the substance of the decree in regard to the property [Order 21 Rule 36]. 6.3.5.1 The Role of Bailiff/Commissioner/Receiver in Execution of Decree Bailiff, commissioner and receiver play an important role for civil proceedings respectively. Bailiff is an officer of the court who has to physically person arrest of judgment-debtor, attach of the property of judgment-debtor and sale of the attached property. There is no private bailiff in Myanmar to enforce judgments.

12 Commissioner is also an officer of the court who can examine the parties, can call for and examine documents and other things relevant to subject of inquiry and can enter into any land or building mentioned in the order. The Court may appoint a receiver of any property. Every receiver shall furnish such security (if any) as the Court thinks fit, submit his accounts as such period as the Court directs, pay the amount due from his and be responsible for any loss accessioned to the property by his willful default or gross negligence. 6.3.5.2 Garnishee Order Another execution of judgment is attachment of debt, share and other property not in possession of judgement debtor. Payment of debt into court is, we call, Garnishee Order (Rules 63 A to 63 G). Where a debt has been attached, the debtor may pay the amount of the debt due from him to the judgment-debtor into Court and such payment shall discharge him as effectually as payment to the party entitled to receive the same. 6.3.6 Appellate Procedure Right of appeal An appeal shall lie from every decree passed by any Court exercising original jurisdiction to the Court authorized to hear appeals. An appeal may lie from an original decree passed ex parte. No appeal shall lie from a decree passed by the Court with the consent of parties. Forum of Appeal The value of a suit (the amount or value of the subject-matter) determines the forum of suit (the Court in which the suit is to be filed). It also determines the forum of appeal (the Court to which the appeal lies). Who may appeal? (i) Any party to the suit adversely affected by the decree, and (ii) Any transferee of the interest of such party.

13 (iii)an auction-purchaser may appeal from an order in execution setting aside the sale on the ground of fraud. No person, unless he is party the suit, is entitled to appeal. 6.3.7 Small Claims There is no procedure for small claim in Civil Procedure Code. Small Cause Courts had been established during colonial period, but no court exists now. Burma Small Cause Court Act was repealed in 1974. 7. Enforcement of Foreign Judgments/Arbitral Awards The Civil Procedure Code provides the statutory framework for the enforcement of judgments and the execution of decrees passed by competent courts in foreign countries. Under Section 44- A of the Code, a judgement-creditor with a certified copy of a foreign judgement can apply to an Indian district court for enforcement of the judgement as if it were passed by the district court itself. To be enforceable in Myanmar, foreign judgments must be passed by superior courts in reciprocating territories notified in the official gazette by the Government of Myanmar. there is no such notification. 7.1 Enforcement of Foreign Judgments The expression foreign judgement is defined in section 2 of Civil Procedure Code, as meaning the judgment of a foreign court, that is, a Court situate beyond the limit of Myanmar. Conditions for Execution of Foreign Judgment are provided in Civil Procedure Code. it must meet the following prerequisites of Section 13 of the Code: (i) the judgement must be pronounced by a court of competent jurisdiction; (ii) it must be decided on merits; (iii)it must not be obtained by fraud; (iv) it must not be against the principles of natural justice; (v) it must be in accordance with the principles of international law, and

14 (vi) it must not sustain a claim founded on breach of any law in force in Myanmar. This section provides that a foreign judgment may operate as res judicata except in the six cases mentioned above. 7.2 Enforcement of Foreign Arbitral Awards During the colonial period (1885-1948), the UK government signed Geneva Convention and Protocol for enforcement of foreign arbitral awards. It enacted Arbitration (Protocol and Convention) Act in 1937. Now, all members of those convention move to members of New York Convention and our country also singed/acceded into New York Convention. Myanmar has acceded into the New York Convention in 2013. The parliament (Hluttaws) is drafting a new single law for arbitration proceeding and enforcement of arbitral awards. 7.3 Enforcement of Contract in Criminal Proceeding Another enforcement mechanism for breach of contract is criminal proceeding. As civil trial takes a long time, people prefer to use criminal litigation for effective enforcement. If a person dishonestly induces to execute a contract, he will be accused of Cheating. Section 420 of the Penal Code provides that whoever cheats and thereby dishonestly induces the person deceived to deliver any property to any person, or to make, alter or destroy the whole or any part of a valuable security, or anything which is signed or sealed and which is capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine. Moreover, whoever dishonestly or fraudulently sings, executes or becomes a party to any deed or instrument which contains any false statement relating to consideration, can be punished with imprisonment. Section 423 of the Penal Code provides that whoever dishonestly or fraudulently signs, executes or becomes a party to any deed or instrument which purports to transfer of subject to any charge any property, or any interest therein, and which contains any false statement relating to the consideration for such transfer or charge, or relating to the person or persons for whose use or benefit it is really intended to operate, shall be punished with imprisonment of either description for a term which may extend to two years, or with fine, or with both.

15 But, criminal enforcement can get benefit of punishment, not award. Anyhow, the contract must be legal and possible. 7.4 Court Liquidation Another one is Court Liquidation under Companies Act. The winding-up or liquidation of a company is a proceeding, and the claims of its creditors paid off out of the assets of the company including the contributions by its members to the extent to which they may be necessary. A company may be wound up by the Court when (i) it has passed a special resolution to be wound up by the Court; (ii) default is made in delivering the statutory report to the Registrar or in holding the statutory meeting; or (iii) it does not commence business within a year from its incorporation or suspends business for a year; or (iv) the number of its members falls below seven (in case of private company, below two); or (v) t is unable to pay its debts; or (vi) the Court is of opinion that it is just and equitable that it should be wound up. If a company refuses to pay the amount stated in the contract, creditor can sue at the Court for management of liquidation. The Court is usually bound to make an order for winding up on the petition of a creditor if he can prove that he claims an undisputed debt. The Court shall take into account the contingent or prospective liabilities of the company. Therefore, non-performance of contract can be enforced by Court liquidation. 8. Conclusion / Recommendation In conclusion, the challenges for enforcement of contract in Myanmar can be summarized as follows: (i) (ii) Myanmar Courts do not have enough exposure for effective enforcement of contract. There is no specific procedure for effective enforcement of contract. To establish a special Court for small claims is recommended and to upgrade the judiciary for the development of judicial and administrative skill is required. On the other hand, legal framework for contract should be upgraded to be in line with the development of contract law and global practice. It is urgently necessary to enact Arbitration Law and Law relating to Enforcement of Arbitral Award, which includes not only domestic awards but also foreign awards.