Breach Of Trust In Cambodia

PRIVATE SECTOR DISCUSSIONS

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BREACH OF TRUST Its Improper Use and Impact on the Cambodian Economy

Table of Contents Acknowledgements Executive Summary

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Chapter 1: Introduction 1. Purpose of Study 2. What is Breach of Trust 3. Why does Cambodia have a Breach of Trust Law 4. Why Application of the Breach of Trust Law is a Problem in Cambodia

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Chapter 2: Criminal Breach of Trust 1. Elements of Criminal Breach of Trust 2. Physical Elements of Breach of Trust 3. The Mental Element – Intent to Commit the Crime 4. The New Criminal Code

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Chapter 3: Misapplication of Breach of Trust in Cambodia 1. Misapplication of the Breach of Trust Law is a Problem 2. Misapplication of the Breach of Trust Law: Why and How?

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Chapter 4: Breach of Trust Costing Millions in Lost Investment

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Chapter 5: Recommendations & Conclusion

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Appendix 1 – Research Methodology Appendix 2 – Case Studies Appendix 3 – Media Reports Appendix 4 – Business Sentiment Survey Results Appendix 5 – Technical Legal Analysis of Breach of Trust Law Appendix 6 – Ministry of Justice Case Data Appendix 7 – The Joint Instruction by the Minister of Justice and the President of the Supreme Court on Criminal Breach of Trust

43 47 53 55 59 73 77

Acknowledgements This Discussion Paper on the improper application of the “Breach of Trust” provision of Cambodia’s transitional penal code was prepared by an Ad Hoc Sub-Committee set up by the Government-Private Sector Forum’s (G-PSF) Working Group on Law, Tax, and Good Governance, which is co-chaired by H.E. Keat Chhon, Senior Minister, Minister of Economy and Finance, and Mr. Bretton Sciaroni, Managing Partner of Sciaroni & Associates and representing the private sector. The Ad Hoc Sub-Committee consisted of representatives from the Ministry of Justice, the business community, and the International Finance Corporation’s Mekong Private Sector Development Facility (IFC MPDF). Both H.E. Keat Chhon and Mr. Sciaroni have been strong supporters of this work and provided useful guidance to the Ad Hoc Sub-Committee during the course of the study. Their continuous support led to the successful completion of the study. Many people helped make this Discussion Paper a reality. H.E. Hy Sophea, Secretary of State, and Mr. Seung Panhavuth, Director of Prosecutorial Affairs, both from the Ministry of Justice, assisted the Ad Hoc Sub-Committee to arrange interviews with the judiciary and to obtain statistics on court cases in five provinces. Mr. Eng Touch, Chief of the Private Sector Development Bureau of the Ministry of Economy and Finance, was instrumental in coordinating the work of the Ad Hoc Sub-Committee with the Ministry of Justice. Ms. Seng Hun of Sciaroni & Associates was an active representative of the private sector in meetings with the Ministry of Justice to discuss the various drafts of the report. James Brew, who coordinated the G-PSF until December 2007, helped to facilitate the discussion with the Ad Hoc Sub-Committee by distributing the draft report to the private sector and coordinating the receipt of comments. Many business people participated in this work by cooperating with the research team through direct interviews and responding in writing to survey questions.

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IFC MPDF Operation Officer Soneath Hor was principally responsible for the development of this Discussion Paper, and the work was carried out under the supervision of Trang Nguyen and Charles Schneider. Stuart Ford was the primary author and was supported by Dugald Richards and Anita Surewicz, both of whom made significant contributions to the report. Ann Bishop edited and proof read the manuscript and Kong Vannarith translated the document to Khmer. Khy Touk, Khemara Ros, and Ieng Sophealeak edited the Khmer version and Kea Kunthea was responsible for graphic design and layout. Tonie Tan provided administrative support. 

Executive Summary

The business community in Cambodia has expressed concern that the Breach of Trust Law is used in an improper manner, to the detriment of the business community and Cambodia’s economy. In January 2006, H.E. Keat Chhon, Senior Minister, Minister of Economy and Finance, created an Ad Hoc Sub Committee to study breach of trust issues and make recommendations for clarification of the law and improvement of its application. This report is the product of the Ad Hoc Sub Committee’s work and was compiled from information gathered from interviews with stakeholders, a review of publicly available information, and a series of interviews with businesses. Improper use and application of the Breach of Trust Law is likely to be costing Cambodia millions of dollars per year in lost investments. It is hoped that the information and recommendations contained in this discussion paper will contribute to reducing the costly impact of improper breach of trust cases on the Cambodian economy.

EXECUTIVE SUMMARY

Introduction

Elements of a Breach of Trust Breach of trust is a criminal offence defined in Article 46 of the “Provisions Relating to the Judiciary and Criminal Law and Procedure Applicable in Cambodia during the Transitional Period” (hereafter called the “Transitional Criminal Law”). Breach of trust can be broken down into three physical elements and one mental element1. The essential physical elements are: 1. The property must have been entrusted to the accused; 2. The accused must have promised to return the property to its owner or use it for a specific purpose; and 3. The accused must have disposed of or misappropriated the property either by refusing to return it or by failing to use it for the agreed purpose.

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The required mental element is a criminal intent. To have the requisite criminal intent, the accused must have intended to deprive the owner of the property and must have known that what he was doing was wrong. It cannot have been simply a mistake or an accident.

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A technical legal analysis of the crime of breach of trust by the prominent Cambodian lawyer, Mr Koy Neam is provided in Appendix 5.



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EXECUTIVE SUMMARY

Breach of Trust Cases in Cambodia

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The business community is of the opinion that breach of trust charges are used improperly during business disputes to pressure people into making payments to their accusers. One of the most consistent complaints is that the courts ignore the elements of the law and treat simple contract disputes as breaches of trust. A major cause for this is the complexity and ambiguity of the law, which contributes to the problem of simple contract disputes being treated as breaches of trust by the courts. Technically, most contract disputes cannot give rise to a breach of trust charge because only a small number of contracts involve one party entrusting the other party with something that must be returned. Improper breach of trust charges are said to often be used as a bargaining chip to force the settlement of business disputes. While recovering money through a civil lawsuit can be complicated and time consuming, a criminal breach of trust case immediately places tremendous pressure on the accused to settle the underlying business dispute because warrants are issued for the arrest of almost all people charged with breach of trust.

What Happens to People Charged With Breach of Trust People who are charged with criminal breach of trust face immense pressure. Warrants are issued for the arrest of almost anyone charged with breach of trust, meaning that the accused is likely to be arrested and held in custody until he or she is taken before an investigating judge and a preliminary charge of breach of trust is confirmed. At this point, it is very likely that the accused will be put in pre-trial detention. This is the chief source of pressure on the accused, as almost all of the interviewees for this study stated that spending time in jail over a business dispute is something they would try to avoid at all costs. Once in pretrial detention, in order to be released from prision, the accused may agree to make a bail payment, which in most cases seems to range from thousands to tens of thousands of dollars. Most interviewees stated that there is little to no chance of recovering the bail payment regardless of the outcome of the case.

The Economic Impact on Cambodia The effect of improper breach of trust cases on Cambodia is difficult to measure because there is no easy way to estimate how many of such cases occur each year. Nevertheless, the information gathered for this report suggests that improper breach of trust cases are a significant problem for the business community. There appear to be several types of costs associated with improper breach of trust cases. The most obvious costs are the direct ones – the lawyer fees and unofficial payments. The next category of costs is business losses. The largest category of costs associated with improper breach of trust cases is lost investment opportunity. This cost represents the money that would have been invested in Cambodia if



Breach of Trust

not for investors’ concern over being improperly charged with breach of trust. The amount in lost investment opportunity for those surveyed for this report exceeds $5 million per year. The clarification of the current Breach of Trust Law and improvement in its application would do a great deal to improve investor confidence and benefit the overall economy of Cambodia.

Based on this study of the Breach of Trust Law, as well as detailed interviews with 18 businesses and key stakeholders and 11 survey responses, the Ad Hoc Sub Committee makes the following recommendations: 1. Pass the draft Penal Code provisions on breach of trust. 2. Focus on the key elements of criminal breach of trust (entrustment and criminal intent) by: a. Issuing a new Joint Instruction that requires breach of trust decisions to separately discuss the evidence supporting each element of the crime; b. Providing training to the Judiciary on the elements of breach of trust, particularly entrustment and criminal intent, in conjunction with the new Joint Instruction recommended above; and

EXECUTIVE SUMMARY

Summary of Report Recommendations

c. Publishing all breach of trust decisions. 3. Coordinate the activities of the government, business community, civil society and the media to focus scrutiny on breach of trust cases. 4. Create a mechanism for anonymous reporting of persons who solicit unofficial payments. 5. Restrict the use of pre-trial detention by issuing formal guidelines that describe when pre-trial detention is appropriate.

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Introduction 1. Purpose of Study

The Prime Minister of Cambodia, H.E. Samdech Hun Sen, has stressed that the confidence of investors in Cambodia can be secured by clarifying issues relating to the Breach of Trust Law2. For this reason, it is hoped that the recommendations expressed in this report, which is the product of the Ad Hoc’s Sub Committee’s work, will contribute to the reduction of the costly impact of improper breach of trust cases on the Cambodian economy.

CHAPTER 1

The business community in Cambodia is concerned about the improper application of the Breach of Trust Law and its negative effect on both the business community and Cambodia’s economy. As early as 1999, when the government created the Government-Private Sector Forum to foster public-private dialogue, the private sector began to raise the issue of improper use of the Breach of Trust Law, primarily through the Working Group on Law Tax and Good Governance (LTGGWG). Responding to the concerns expressed by the private sector, the Senior Minister and Minister of Economy and Finance, H.E. Keat Chhon, with the assistance of the International Finance Corporation’s Mekong Private Sector Development Facility (IFC MPDF), created an Ad Hoc Sub Committee of the LTGGWG to study issues associated with the application of the Breach of Trust Law.

2. What is Breach of Trust Breach of trust is defined in Article 46 of the Transitional Criminal Law. The crime of a breach of trust is comprised of three key physical elements and one mental element. The essential physical elements are: 1. The property must have been entrusted to the accused; 2. The accused must have promised to return the property to its owner or use it for a specific purpose; and 3. The accused must have disposed of or misappropriated the property either by refusing to return it or by failing to use it for the agreed purpose.

2 Summary of Prime Minister H.E. Samdech Hun Sen’s speech related to the issue of breach of trust at the 11th Government-Private Sector Forum, January 24, 2007.

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The required mental element of criminal breach of trust is a criminal intent. The accused must not only have performed each of the physical acts, he or she must also have possessed criminal intent. To have the requisite criminal intent, the accused must have intended to deprive the owner of her property and must have known that what he was doing was wrong. It cannot have been simply a mistake or accident.

3. Why does Cambodia have a Breach of Trust Law

CHAPTER 1

The United Nations Transitional Authority in Cambodia (UNTAC) was set up in February 1992 to implement the Paris Peace Accords of October 1991, the product of intense diplomatic activity over many years. Its job was to restore peace and civil government in the country, to hold free and fair elections leading to a new constitution and to ‘kick-start’ the rehabilitation of the country. 3

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UNTAC reported that Cambodia in 1992 lacked the basic legal institutions and processes required of a legal system. The existing legal and institutional structures were essentially those which had developed over the previous decade. There were inadequate or no legal texts, whether on civil law, contracts and property, criminal law and procedure, rules of court, evidence, or labor law. Furthermore, institutions such as the police and courts were under rigid political control backed by an active military force. Political control of the judiciary and unsatisfactory penal legislation prompted UNTAC to draft the Provisions Relating to the Judiciary and Criminal Law and Procedure Applicable in Cambodia during the Transitional Period (Transitional Criminal Law), which was adopted by the Supreme National Council on September 10, 1992. This law formed the legal framework within which the courts and security apparatus were supposed to work during the transitional period. It also emphasized the “independence of the judiciary and incorporated all relevant provisions of the international human rights instruments into Cambodian national law.”(Honoring Human Rights – Alice H Henkin) The Transitional Criminal Law was viewed by UNTAC as a temporary measure, which would quickly be replaced by more permanent legislation.4 UNTAC’s mandate highlighted an “urgent need to indicate clearly to all the Cambodian parties the rules of law which must be applied throughout Cambodia and the judicial procedures which must be put in place in order to ensure their effective application during the transitional period.” 5

3 See for example, http://www.un.org/Depts/dpko/dpko/co_mission/untac.htm (accessed 10 December 2007)

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4 Economic and Social Council 5 See for example, http://www.un.org/Depts/dpko/dpko/co_mission/untac.htm (accessed 10 December 2007)

Breach of Trust

Today the Transitional Criminal Law remains a foundation for most of the substantive criminal law in Cambodia, including in relation to the criminal breach of trust. The Transitional Criminal Law was created in a hurry and was intended to be replaced following the adoption of the Cambodian Constitution and the seating of the first National Assembly. Although the Cambodian constitution has been adopted for many years, the Transitional Criminal Law is still in use. Perhaps the drafters would have made different decisions if they had realized the Transitional Criminal Law would still be in use well into the 21st Century.

4. Why Application of the Breach of Trust Law is a Problem in Cambodia

The inappropriate application of the Breach of Trust Law damages the Cambodian economy. The Ministry of Justice and the President of the Supreme Court have recently issued a Joint Instruction acknowledging that improper application of Breach of Trust Law is a problem when it comes to the protection of the rights of the citizens to take part in the development of the national economy and increasing the public and investors’ confidence in the Cambodian judicial system and laws.8 While it is difficult to generalize from the interview and the survey results conducted by the Ad Hoc Sub Committee, the figure for overall lost investment opportunities in Cambodia appears very high. Totaling the amounts reported by the stakeholders and businesspeople regarding the value of foregone investment opportunities turned down because of the risk of breach of trust, indicates a range of lost investment worth between $3 million and $12.1 million dollars for those seven individuals alone. 9

CHAPTER 1

A weak legal system, corruption and inappropriate application of laws, such as the Breach of Trust Law, deter foreign investment and affect the country’s economic development. The World Economic Forum’s 2006 competitiveness survey ranked Cambodia 103 out of 125 countries surveyed.6 The World Bank’s Doing Business 2008 study also ranked Cambodia quite low in terms of the ease of doing business, (145 out of 178 economies surveyed). 7 With many investors reluctant to invest in Cambodia, international trade and investment comprises a very small part of economic activity in Cambodia and is concentrated in the garment manufacturing, services, construction and tourism industries.

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6 The Global Competitiveness Index (GCI), developed for the World Economic Forum by Columbia University Professor Xavier Sala-i-Martin and originally introduced in 2004. The GCI is based on 12 pillars of competitiveness: Institutions, Infrastructure, Macroeconomic Stability, Health and Primary Education, Higher Education and Training, Goods Market Efficiency, Labor Market Efficiency, Financial Market Sophistication, Technological Readiness, Market Size, Business Sophistication and Innovation. 7 Doing Business 2008, World Bank, 2007. 8 See Appendix 7. 9 See Appendix 4.

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Improper application of the Breach of Trust Law can deter foreign investors as they may be concerned about the possibility of criminal sanctions being used against them for breaches of contract or simply out of malice. For years, the business community has reported that breach of trust charges are improperly used to pressure people into making payments to their accusers and that simple contract disputes are often treated as cases of criminal breach of trust because the provisions of the law are either misapplied or misunderstood. These private sector concerns are legitimate because individuals who are charged with breach of trust are likely to be imprisoned, and if found guilty, sentenced to jail. In the past judicial authorities have misapplied the criminal Breach of Trust Law to non-criminal contract and other civil disputes, which should have been dealt with under civil rather than criminal law. The practice of turning civil suits into criminal ones is one of the major problems with the court’s application of the Breach of Trust Law. The distinction between civil disputes arising from failures to perform contractual obligations and disputes arising from actions that constitute elements of breach of trust are still issues that need to be clarified. The clarification of the current Breach of Trust Law and improvement in its application would do a great deal to improve investor confidence and benefit the overall economy of Cambodia.

“The abuse of breach of trust has a negative impact on business. It discourages investors from coming to and investing in Cambodia. Commercial disputes can occur anywhere in the world, but they are generally considered civil offenses. When investors learn that simple commercial disputes can be easily criminalized in Cambodia, they stay away and don’t invest to avoid the risk of being put in jail. As a result, the country loses as investors turn down opportunities.” Mr. Bretton G. Sciaroni, Co-chairman of the Law, Tax and Good Governance Working Group of the Government-Private Sector Forum

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Criminal Breach of Trust 1. Elements of Criminal Breach of Trust Criminal breach of trust is defined in Article 46 of the Transitional Criminal Law, which was drafted by staff at UNTAC and passed by the Supreme National Council on September 10, 1992. This is the foundation for most of the substantive criminal law in Cambodia. Article 46 of the Transitional Criminal Law describes the crime of breach of trust as follows:

Unfortunately, Article 46 is not concise and is complex and difficult to understand. Several Cambodian lawyers interviewed for this study complained that the language of the provision (both the English and the Khmer texts) causes confusion and contributes to the problem of improper breach of trust cases. There are several reasons for the complexity of the language used in Article 46 of the Transitional Criminal Law. First, the text of the Article is based on complex language used in Article 408 of the French Criminal Code of 1810. The Criminal Code of 1810 has been replaced in France with much simpler language in the current French Criminal Code. It is unclear why the law supported by UNTAC is so closely based on the language of the old French Penal Code, but it would be beneficial to simplify the text to improve its clarity. Second, according to former UNTAC staff members, the law was first drafted in French, then translated into English, and finally translated into Khmer. As a result the Khmer text is a translation of a translation. This also explains why Cambodian lawyers and scholars have noted that the Khmer text lacks precision and is confusing.

10 There is no official English translation of the Transitional Criminal Law. The only official version of the law is the Khmer text. The translation used here is the one that was produced by UNTAC and published by the Cambodia Office of the High Commissioner for Human Rights in “A Selection of Laws Currently in Force in the Kingdom of Cambodia” (2001). Others have translated Article 46 differently; for example, the Council of Jurists has a somewhat different version of the translation available on its website.

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Any person who misappropriates or disposes of, against the interest of the owner, possessor or holder, any property, money, merchandise, or document containing or establishing an obligation or release, which was entrusted to that person as rent, deposit, commission, loan or remuneration for paid or unpaid work, having promised to return it or to offer it back or to put it to an agreed upon use, is guilty of breach of trust and shall be liable to a punishment of a term of imprisonment of one to five years.10

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CHAPTER 2

Despite the complex and sometimes confusing language of Article 46, the actual crime of breach of trust is fairly simple. It can be broken down into its physical elements and its mental element. The physical elements refer to those physical acts that the person accused of the crime (the accused) must perform to be guilty of breach of trust. The mental element refers to the intent with which the physical elements must be performed. The mental element is often the most important. In fact, many crimes have identical physical elements and are distinguished only by the intent of the accused.

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For example, under the Transitional Criminal Law, voluntary manslaughter and involuntary manslaughter have the exact same physical element – the killing of a person. If the killing is done deliberately (with the intent to kill the person) then the crime is voluntary manslaughter. Voluntary manslaughter is punished with a prison term of eight to fifteen years. If the killing occurs as a result of “carelessness, negligence, inattention, or failure to heed regulations,” then it is involuntary manslaughter. Involuntary manslaughter carries a prison term of only one to three years. A completely accidental killing, one which occurs without the intent to kill or any carelessness on the part of the killer, is not a crime at all. As these examples demonstrate, the mental element, the intent with which the physical acts are committed, often determines the existence and severity of the crime.

2. Physical Elements of Breach of Trust Although the language of Article 46 is not clear, there are essentially three key physical elements to the crime of breach of trust. They are: 1. Property (including intangible property) must have been entrusted to the accused; 2. The accused must have promised to return the property to its owner or use it for a specific purpose; and 3. The accused must have disposed of or misappropriated the property either by refusing to return it or by failing to use it for the agreed purpose. Each element will be discussed below. This discussion is not intended to be a technical legal analysis. Rather, it is intended to focus on the key elements and explain them in a manner that is clear and understandable. The target audience is the business community, donors, and the Royal Government of Cambodia. There are some moderately difficult legal questions that can arise in a small number of cases that have not been addressed in this report. A technical legal analysis that was previously published by prominent Cambodian lawyer Koy Neam has been included as Appendix 5 for those who want more detailed information.

Breach of Trust

2.1 Property Must Have Been Entrusted to the Accused The first physical element is that property must have been entrusted to the accused. This requirement is found in the language “any property, money, merchandise or document containing or establishing an obligation or release, which was entrusted to that person as rent, deposit, commission, loan, or remuneration for paid or unpaid work . . . .” The language is complicated, but “property, money, merchandise, or documents containing or establishing an obligation or release” can be restated in most cases simply as “property.”

2.2 The Accused Must Have Promised to Return the Property to the Owner or to Use the Property for a Specific Purpose This element is found in the language “having promised to return it or to offer it back or to put it to an agreed upon use . . . .” This element obviously depends on the existence of the first element. The accused must have been entrusted with some property before she can promise to “return it or to offer it back or put it to an agreed upon use.” This language describes three things that the accused must have promised to do with the property. First, the accused can promise to return the property. This covers situations where the accused has borrowed an item, for example a car, and promised to return it to its owner. The accused lawfully possesses the property because the owner gave it to her willingly, but she has made a promise to the owner that she will return it. This limits her rights to the property. She cannot sell it or give it away. She must return it. The “offer it back” language is aimed at a situation where the accused has been entrusted with some property but promised to offer the owner a chance to reacquire it before the accused disposes of it. For example, the accused might have rented a piece of farm equipment for a period of three years. The owner and the accused agree that the owner has the right to re-purchase the equipment for a set fee at the end of the three year period. If the owner does not want to

11 There may be some cases where the existence of the crime of breach of trust does depend on what particular kind of contract was created between the accused and the owner of the property. This is a difficult and technical subject and has been addressed by Cambodian scholars. For example, Koy Neam’s article entitled “Breach of Trust” (see Appendix 5) addresses this issue in some detail.

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The next part of the phrase states that the property must have been entrusted to the accused as “rent, deposit, commission, loan or remuneration for paid or unpaid work . . . .” This language is probably unnecessary. It describes six different types of contracts which can be created by entrusting property to another person. In practice, entrusting property to another will probably give rise, either implicitly or explicitly, to one of these six kinds of contracts. Most of the time the key will be whether property was entrusted to the accused, not which kind of contract was created between the accused and the owner of the property. Consequently, the language of this element of the crime can be restated in most cases as: property must have been entrusted to the accused.11

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re-purchase the equipment, then the accused has the right to sell it to the highest bidder. In common law countries, this would be described as taking the property subject to a “right of first refusal.” The key is that the accused has made a promise to the owner that limits his right to dispose of the property. He cannot simply sell the property without first offering it back to the owner.

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The third way this element may be met is through a promise to put the property to an agreed upon use. Again, the key here is that the accused has made a promise to the owner that prevents her from treating the property like it belongs to her. The classic case is that of the employee who is entrusted with money by her employer for a specific purpose. For example, an employee who is given cash by her employer to take to the bank to deposit has received property for a specific use. She lawfully possesses it, but she only possesses it for a specific purpose – to take it to the bank and deposit it. She has made an express or implied promise to use it for that specific purpose, and this limits her ability to treat it as her own money. The key to each of the three parts of this element is that the accused has made a promise to the original owner of the property that limits his or her right to dispose of the property. It is the deliberate violation of this promise that is a breach of trust. 2.3 The Accused Has Disposed of or Misappropriated the Property This element arises when the accused fails to carry out his promise with regards to the property. It stems from the language “any person who misappropriates or disposes of [the property] against the interest of the owner, possessor or holder . . .”of the property.12 It relates to the failure of the promise made in the second element. If the accused promised to return the property then he must try to return it. If he promised to offer it back, he must try to offer it back. If he promised to use it for a specific purpose, he must try to use it for that purpose. Misappropriation can occur in numerous ways, but the most common are probably destroying the property, selling the property to a third person, keeping it and refusing to return it, or using it for some purpose other than the one that was agreed on. So, for example, misappropriation might occur when someone who has borrowed a motorcycle from a friend sells that motorcycle to a third person. Equally, it might occur in a situation where an employee was given money to buy supplies for the office and instead gambles the money on a football match. In either case, the actions of the accused prevent his or her promise from being carried out. There is also a requirement of harm to the owner in this element. It is not enough that the accused has technically failed to meet his promise. Rather, the

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12 The language “owner, possessor or holder” is used in the law (rather than simply “owner”) to make it clear that breach of trust can be committed against someone who is the lawful possessor of property, even if that person is not the actual owner. In most cases, the distinction will not matter because the person entrusting the accused with the property will be the actual owner.

Breach of Trust

failure must result from the misappropriation or disposal of the property against the interest of the owner. In other words, the failure must be such that the owner can no longer recover the property. So, for example, if a woman rented a car for a week and returned it a day late, she would not have misappropriated the car. It is true that she did not meet the strict terms of her promise, but her actions did not destroy the owner’s interest in the car. The woman might owe an additional day’s rent, but she did not “misappropriate or dispose” of the car within the meaning of Article 46. However, a man who rents a tractor for a week to move some earth on his property and sells it to a third person has misappropriated the tractor because the owner cannot get it back from the accused.

3. The Mental Element – Intent to Commit the Crime

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A man borrows $500 from his neighbor so that he can plant corn. He promises to use the money to buy corn seed and fertilizer and also promises to return the money in six months, once the corn has been sold. He plants corn, but there is a terrible drought and all of his corn plants die. There is nothing he can do to prevent it. He is unable to repay his neighbor.

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A man borrows $500 from his neighbor, telling him that he intends to plant corn. He promises to use the money to buy corn seed and fertilizer and also promises to return the money in six months, once the corn has been sold. But he does not intend to actually plant corn. Instead, he intends to take the money and move to Phnom Penh. He knows when he takes the money that he does not intend to repay his neighbor after six months. Shortly after taking the money, he moves to Phnom Penh and disappears.

It is obvious that these two people should not be treated in the same manner. One is a criminal; the other is the victim of bad luck. Yet both have committed the physical elements of the crime of breach of trust. Both have been entrusted with a piece of property and promised to return it. In both cases, something happened to the property that prevented it from being returned to the owner.

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To be guilty of criminal breach of trust, an accused must not only commit the physical acts described above, but he must also perform them with the appropriate intent. It is not enough simply that the accused committed the physical acts. This can be demonstrated with two simple examples:

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The difference is the intent of the two men. The man in the first example did not intend to default on the loan. He planted corn and did everything he could to fulfill his obligation. However, through no fault of his own, a drought killed his crop. The man in the second example intended to commit a crime. He lied to his neighbor about why he wanted the money, and he knew when he took it that he did not intend to return it. Shortly after receiving the money 21

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he disappeared and took the money with him. This is ample evidence that he intended to commit a crime. Criminal intent is a required element of the crime of breach of trust. The accused must deliberately intend her actions and must know that what she is doing is wrong. It cannot simply be a mistake or an accident. This is clear from the use of the word “misappropriate” in the text of Article 46. Misappropriate means to take something, but it also implies that the taking is done wrongly or dishonestly. In their Joint Instruction on Breach of Trust, dated August 8, 2005, the Minister of Justice and the President of the Supreme Court came to the same conclusion. While the text of the Joint Instruction is confusing in places, it notes that the accused must have a “wicked will” or must “embezzle or misappropriate” the entrusted property. In an interview with staff from Phnom Penh Municipal Court, a prosecutor cited criminal intent as one of the key elements in his decision on whether or not to file criminal charges. The Supreme Court has also recognized criminal intent as a requisite element of the crime. In 2002, it released a woman from pre-trial detention partly because evidence of criminal intent was absent from her case. 13

4. The New Criminal Code The Transitional Criminal Law will be replaced by a new Criminal Code sometime in 2008. Article 46 will be abolished and a new breach of trust provision will take its place. The new breach of trust provision (assuming it is not changed before it is promulgated) will be much simpler than the current one: Breach of trust is committed when a person, to the prejudice of other persons, misappropriates funds, valuables or any property that was handed over to him and that he accepted subject to the condition of returning, redelivering or using them in a specific way.

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The new breach of trust provision will not be substantively different from the existing one. It will focus on the same three physical elements and include the same mental element. Essentially, the only change has been to remove some of the language that has led to problems with the interpretation of Article 46. For example, there is no longer any reference to the specific kind of contract that is created by one person entrusting property to another, or to whether or not the complainant is the owner, possessor or holder of the property. These changes are beneficial and should make the law easier to understand and apply.

13 See Keo Tam, complainant v. Chhun Nay Suor, accused (Supreme Court of Cambodia, Criminal Case Number 62, dated September 4, 2001, Verdict Number 4, dated January 9, 2002).

Misapplication of Breach of Trust in Cambodia 1. Misapplication of the Breach of Trust Law is a Problem

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8.2% of cases in Phnom Penh are breach of trust cases (see Appendix 6). Even though it is impossible to determine how many of these are improper breach of trust cases, this is a lot when one considers that there were almost half as many breach of trust cases as thefts or batteries.

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A warrant was issued for the arrest of the accused in 33 out of 34 (97%) of the cases in the media database for which information on the use of arrest warrants was available (see Appendix 3).

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The accused was placed in pre-trial detention in 29 out of 31 (94%) of the cases in the media database for which information on pre-trial detention was available (see Appendix 3).

•

In 13 out of the 36 cases reviewed in the media, the complainant claimed damages in excess of $100,000.

The Joint Instruction of the Minister of Justice and the President of the Supreme Court acknowledged that the application of the criminal Breach of Trust Law in courts has not been consistent and instructs “all provincial-municipal courts and prosecutors’ offices to pay attention and take into consideration the following legal concepts stipulated in Article 46.” In particular, the Joint Instruction emphasizes that the distinction between civil disputes arising from failures to perform contractual obligations and disputes arising from actions that constitute elements of breach of trust are still issues that need to be clarified.

CHAPTER 3

The business community has been concerned about the misapplication of the Breach of Trust Law. The research conducted by the Ad hoc Committee generally supports the position taken by the business community about the improper application of Breach of Trust Law. It appears that the problem of improper breach of trust is a significant issue for the business community and while the statistics below are not representative, they highlight the kinds of issues and costs associated with improper breach of trust cases. Not only is there an unusually high number of breach of trust cases in Phnom Penh, but the statistical data indicates that a criminal breach of trust charge places a great deal of pressure on the accused because of the high possibility of arrest and pre-trial detention.14

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It appears that both the Government and the business community share the same concerns in relation to cases of improper breach of trust. While it is 14 Data provided by the Ministry of Justice

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currently difficult to ascertain the magnitude of the problem it is clear that both the government and the business community perceive it as a significant problem and that this negatively impacts the Cambodian economy.

2. Misapplication of the Breach of Trust Law: Why and How? A. Contract Disputes Can Lead to Criminal Breach of Trust Charges The Joint Instruction issued by the Minister of Justice and the President of the Supreme Court recognizes that in the past judicial authorities have misapplied the criminal Breach of Trust Law to contract and other civil disputes, which should have been dealt with under civil rather than criminal law.

CHAPTER 3

The distinctions between civil disputes arising from failures to perform contractual obligations and [disputes arising from actions that constitute] elements of breach of trust are still issues that needed to be clarified. 15

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Moreover, the Joint Instruction explicitly emphasizes that criminal breach of trust provisions should not be used in the case of matters where the requisite elements of a criminal breach of trust are not present. Even if the receiver of property fails [to fulfill] his or her obligation, for whatever reason, [including a failure] to return it [property] to the giver of the property, [such failure] is not an act of misappropriation or embezzlement that constitutes a breach of trust. 16 The business community and other stakeholders, however, have expressed concern that the Breach of Trust Law has not always been applied appropriately and in line with the Joint Instruction. One of the most consistent complaints is that simple contract disputes are often treated as cases of breach of trust because the provisions requiring entrustment and criminal intent as an element of the crime of breach of trust are not implemented. Almost every interviewee – business person or lawyer, Cambodian or foreigner – raised this complaint.17 All eleven respondents to the survey (see Appendix 4) stated that the Breach of Trust Law is applied fairly either “almost never” or only “some of the time.” Most contract disputes cannot give rise to a breach of trust charge because most contract disputes do not contain all the physical elements and the mental element

15 Joint Instruction No. 2, 8 August 2005, of the Minister of Justice and the President of the Supreme Court. 16 Joint Instruction No. 2, 8 August 2005, of the Minister of Justice and the President of the Supreme Court. 17 In addition to recognition of this problem in the Joint Instruction on breach of trust, the problem has also been recognized by Cambodian legal scholars, such as Koy Neam, who devoted an entire section in his article on breach of trust to explaining why the failure of a contract or contract negotiations is not automatically a breach of trust (see Appendix 5).

Breach of Trust

of the crime of breach of trust. For example, breach of trust requires that the accused be entrusted with property belonging to the complainant and that he or she promises to return this property or use it for a specific purpose. Only a small number of contracts involve one party entrusting the other with something that must be returned. The most common form of contract, a contract for the sale of goods, can never result in a breach of trust because neither party entrusts the other with property that must be returned. Even if a contract involving the entrustment of property does exist, the failure of one party to perform to the other party’s satisfaction still should not automatically result in criminal charges. The failure of the contract may give rise to a civil complaint for damages, but it should not give rise to a criminal breach of trust charge unless there is evidence that the contract failed because of the criminal intent of the accused. The failure of a business or the loss of the entrusted property is not evidence, on its own, of criminal intent. There must be some evidence that the accused took the property intending to steal or misappropriate it.

Case Studies 1 and 3 are examples of how simple contract disputes have resulted in breach of trust charges.18 In Case Study 1, it is Mr. C who breaches the contract by failing to deliver the agreed goods. Yet, Mr. A is charged with breach of trust when he refuses to pay on the contract. It is clear that this cannot be a breach of trust case because Mr. C never entrusted anything to Mr. A, nor did Mr. A misappropriate anything from Mr. C. Instead, it appears that Mr. C breached a contract for the sale of goods. This improper breach of trust case cost Mr. A $60,000, several weeks in jail, and significant loss of reputation and business. Case Study 3 also cannot be a breach of trust as the complainant had not entrusted anything to Company H, nor was there any evidence that Company H had misappropriated anything. In fact, it is not even a breach of contract. The contract between the complainant and the accused was a contract for a set period of time, and it expired on its own at the end of that period. The charges seem to have arisen solely out of the complainant’s desire to prevent Company H from securing another distributor for its computer equipment. The complainant was ultimately successful, as Company H withdrew from the Cambodian market entirely.

18 These case studies are based on the experiences of real people. However, the identifying information in the stories has been changed to conceal the identities of the participants.

CHAPTER 3

Five Case Studies have been composed to demonstrate the kinds of problems which concern the business community in relation to criminal breach of trust (see Appendix 2). Case Studies 1, 2 and 3 are composites based on interviews with individuals who gave accounts of criminal Breach of Trust cases and lawyers who have defended people in such cases. Case Studies 4 and 5 are based on court decisions in cases involving criminal breach of trust.

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B. Unofficial Payments Appear to Play a Significant Role in Improper Breach of Trust Cases



CHAPTER 3

How could the situations in Case Studies 1 and 3, which do not involve breach of trust, have resulted in criminal proceedings? Many interview subjects blamed improper breach of trust cases on persons trying to elicit unofficial payments. Several indicated that it is possible to pay a prosecutor to bring a criminal breach of trust case against a business partner or business rival. One interviewee, a Cambodian lawyer, said the payment could start from as little as $1,000 for relatively small cases and go much higher if a lot of money was at stake. Nine out of ten survey respondents said that breach of trust charges are filed improperly “some of the time,” “most of the time,” or “almost always.” Eight out of eleven survey respondents (see Appendix 4) said that unofficial payments “almost always” affects breach of trust cases, while the remaining three respondents said that unofficial payments affects breach of trust cases “most of the time.”

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Why are complainants willing to pay to have people charged with crimes? Improper breach of trust charges are often said to be used as bargaining chips to force the settlement of business disputes. While recovering money through a civil lawsuit can be complicated and time consuming, a criminal breach of trust charge immediately places tremendous pressure on the accused to settle the underlying dispute. In almost all cases, warrants are issued for the arrest of a person charged with criminal breach of trust. This conclusion is supported by the summary of information found in the media (see Appendix 3). An interviewee for this report said that it is common practice for people to be arrested on Friday afternoons and held until Tuesday or Wednesday of the following week. Furthermore, pressure may be placed on the accused to pay the allegedly misappropriated money on the spot. For example, in Case Study 1, Mr. A was repeatedly told that he would be released if he paid the $80,000 that he had allegedly misappropriated. It appears that sometimes accused persons may be detained longer than is permitted under Cambodian law in order to elicit the largest possible amount of the allegedly misappropriated money and settle the case prior to the accused appearing in court. If the accused refuses to pay, he or she will be brought before an investigating judge and a preliminary charge of breach of trust will be confirmed. The interviewees stated that in almost all cases, the accused will be placed in pre-trial detention. The media database summary in Appendix 3 is consistent with this conclusion, with 29 out of 31 (94%) of the cases for which information was available resulting in pre-trial detention.19 The length of time that people spent

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19 In contrast to the information provided by interviewees and the media database, members of the judiciary stated that the rate of pre-trial detention in breach of trust cases is “quite low.” They suggested that the results of the media database could be explained by the poor quality of Cambodian newspapers.

Breach of Trust

in pre-trial detention varied greatly. According to the media database, some people spent months in pre-trial detention, while others managed to arrange bail in a matter of days. Pre-trial detention is the chief source of pressure on the accused. All of the business people interviewed agreed that spending time in jail over a business dispute is something they would try to avoid at all costs. In Case Study 1, it was the prospect of spending weeks or months in pre-trial detention that eventually led Mr. A to pay $40,000. Similarly, in Case Study 3, the threat of arrest and pretrial detention prevented Company H’s employees from even visiting Cambodia. Six of the eight survey respondents said they were “very concerned” about the prospect of spending time in jail over a breach of trust case. Most interviewees, as well as the survey respondents, also agreed that they were very concerned about the potential loss of money, business and reputation.

Most of the interviewees agreed that the amount that it costs to be released from pre-trial detention varies depending on the amount of money at issue in the lawsuit. The more money the complainant demands, the larger is the payment necessary to be released from jail. One interviewee stated that it costs a minimum of $20,000. In Case Study 1, Mr. A paid $40,000, or half of the amount alleged to have been misappropriated. In 13 of the 36 cases that came from Cambodian newspapers, the complainant claimed damages in excess of $100,000. It is possible that bail payments in these cases, if they were made, were tens of thousands of dollars for each case. Several interviewees indicated that once “bail” has been paid, the charges are usually either withdrawn by the complainant or dismissed by the judge; in other cases, action on the case may simply stop.

CHAPTER 3

After being placed in pre-trial detention, the accused has the right to petition the investigating judge for release. If that petition is refused, the accused has the right to appeal the decision to the Appeals Court. However, this process can be slow and there is no guarantee that the accused will be released. In the meantime, the accused remains in jail.20 Several interviewees indicated that it is possible to pay money to get out of pre-trial detention. This payment may be described as “bail,” but in reality it is an unofficial payment to be released from prison. There is little chance of the accused ever recovering the money, even if he or she eventually succeeds in having the charges dismissed.

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Interviewees indicated that the majority of improper breach of trust cases are settled before trial through some sort of payment because few, if any, wish to take the risk of being found guilty and sentenced to prison. This may explain one apparent oddity concerning the information collected from Cambodian newspapers – there appear to be far more breach of trust cases being filed than

20 For example, the woman in Case 4 did eventually get out of pre-trial detention, after petitioning all the way to the Supreme Court. She spent eight months in pre-trial detention during the appeals process.

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CHAPTER 3

there are trials. While there may be many reasons for this phenomenon, including the sample’s non-representative nature, it also happens to be consistent with the interviewees’ statements that most breach of trust cases are settled before trial.

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On August 5, 2005, the Minister of Justice and the President of the Supreme Court issued a Joint Instruction on how to interpret Article 46 of the Transitional Criminal Law. The Joint Instruction highlighted the lack of uniformity in the application of Article 46 and stressed the need for the courts to distinguish between breach of contract and breach of trust. It was issued partly at the request of the private sector, and it was hoped that it would help eliminate improper breach of trust cases. Most of the lawyers who were interviewed have heard of the Joint Instruction, and two of them indicated a belief that it has helped the situation. One lawyer said that he felt that the courts were now more careful regarding the application of Article 46 due to their perception that both the government and the private sector are scrutinizing breach of trust cases more carefully. Another individual acknowledged that the Joint Instruction may have helped, but he was concerned that any positive effect would fade over time if its message was not reinforced periodically. Both judiciary members who were interviewed for this report were aware of the Joint Instruction and stated that it had both: 1) helped them to analyze the elements of breach of trust; and 2) alerted them to be more cautious in charging people with breach of trust. C. The System Can Work Properly While Breach of Trust Law often seems to be misapplied, cases involving poor people where large sums of money are not at issue appear to proceed more normally. For instance, Case Study 2 is an example of how the system is supposed to work. The case started out somewhat badly, with Mrs. T being incorrectly charged with breach of trust. She was entrusted with property, which she promised to return, and which she failed to return. However, because she lost the property unintentionally, and she did not pawn it, sell it or refuse to acknowledge that she had borrowed it, consequently she lacked the criminal intent necessary for breach of trust. She was put in pre-trial detention for two months, which was probably unnecessary. However, her lawyer was able to secure her release from jail without having to make a payment. Her lawyer was then able to successfully argue to the court that the facts of the case demonstrated that Mrs. T had not had any criminal intent. The investigating judge agreed and dismissed the charges. After starting out poorly, the proper result was achieved without Mrs. T having to make any unofficial payments.

Breach of Trust Costing Millions in Lost Investment

The information collected for this report is not comprehensive. Both the survey and the interviews were probably skewed by a self-selective bias among the respondents. Therefore, it is difficult to extrapolate an overall figure for the economic impact of breach of trust cases on Cambodia from the interview or the survey results. However, the findings can be useful in two ways. First, they can help in identifying the kinds of costs associated with improper breach of trust cases, and second, they can be used to estimate the costs for the individuals and companies who were interviewed or surveyed.

CHAPTER 4

Statistics on breach of trust cases are not publicly available, which makes it hard to accurately calculate how many breach of trust cases there are each year in Cambodia. The Ministry of Justice provided data to the Ad Hoc committee for this report and it appears the total number of breach of trust cases per year is probably in the hundreds (see Table 1, Appendix 6).21 There is no way to accurately estimate what percentage of these cases should be considered improper. Nine out of ten survey respondents said that breach of trust charges are filed improperly “some of the time,” “most of the time,” or “almost always,” and most of the interviewees agreed that improper breach of trust cases were a pervasive problem. However, since the survey and the interviews are not representative, this finding cannot be applied to all breach of trust cases. Nevertheless, it does seem somewhat surprising that 8.2% of the cases in Phnom Penh are breach of trust cases. There were almost half as many breach of trust cases as thefts or batteries (see Table 2 of Appendix 6). Ultimately, the information gathered for this report suggests the problem is a significant issue for the business community, even if there is no way to make an accurate estimate of how many improper breach of trust cases are filed each year.

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There appear to be a number of ways in which improper breach of trust cases could be impacting the Cambodian economy. The most obvious costs are the direct ones – the lawyers’ fees and unofficial payments associated with being sued for breach of trust. Various numbers were advanced for these direct costs. One interviewee indicated that the cost of being released from pre-trial detention

21 Phnom Penh Municipal Court is averaging more than 200 breach of trust cases a year, although it appears that Phnom Penh is also the largest source of breach of trust cases in Cambodia.

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was at least $20,000, while several interviewees said that the cost was substantial but depended on the amount of money allegedly at stake. In Case Study 1, Mr. A spent $40,000 on bail and another $20,000 on lawyers’ fees. The 10 survey respondents overwhelmingly answered that the costs of being sued for breach of trust were between $5,000 and $50,000 dollars. While it is not possible to calculate the average costs of improper breach of trust cases in Cambodia with any certainty from this data, the anecdotal evidence suggests that it ranges from thousands to tens of thousands of dollars per case.

CHAPTER 4

The next category of costs are the business losses caused by being sued for breach of trust – loss of business resulting from time spent in jail, damage to reputation, etc. Once again, it is impossible to put a concrete value on this amount. The survey did not ask respondents to separate direct costs from the business losses caused by being sued, and none of the interviewees were willing to put a definitive number on business losses, other than to say it was “substantial.”

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A third category of costs relates to the threat that a breach of trust case may be filed. Several of the lawyers interviewed complained that other lawyers routinely threaten to file breach of trust cases when asking for money during negotiations or contract disputes. These are understood as veiled threats to have the recipient imprisoned if he or she does not pay the money. The interviewees said that while there is almost always no basis for a breach of trust claim to be made, the incidence of improper breach of trust cases is common enough that their clients sometimes pay money to their accusers solely to avoid the risk of being embroiled in such cases. It is not possible to quantify the amount of money that changes hands each year because of these threats. The final, and probably the largest, category of costs is lost investment opportunities. This category covers business deals that would have been made if not for the fear of being sued for breach of trust. Almost all of the business people who were interviewed indicated that they had declined investment opportunities that were presented to them because of their fear of breach of trust charges. Those who had actually been sued for breach of trust appeared to be the most cautious. Most of the commercial lawyers and business consultants reported having counseled their clients to be selective in choosing business partners because of improper breach of trust claims. Of the ten survey respondents (see Appendix 4), three indicated that they turned down investment opportunities “very often,” three said they did so “often,” and three said they did so “sometimes.” Only one respondent reported never having turned down an investment opportunity because of the risk of breach of trust charges. It is impossible to generalize from the interview and the survey results to a figure for overall lost investment opportunities in Cambodia. However, totaling the amounts reported by the respondents to the question “what is the value of the investment opportunities you have turned down because of the risk of breach of trust?” indicates a range of lost investment between $3 million and $12.1

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Breach of Trust

million dollars for the seven individuals who took part in the survey alone. The results are summarized in the table below. The interviewees were asked the same question, and the aggregate amount of declined investment opportunities reported amongst them exceeded $5 million dollars per year. Together, these figures represent the lost investment opportunities among less than a dozen individuals and companies. While the individuals and companies may represent those who have declined the most business, the findings still do indicate that improper breach of trust cases are costing Cambodia millions, and possibly tens of millions, of dollars per year in lost investment. Lost Investment Opportunities Caused by Improper Breach of Trust Cases How often have you turned down investment opportunities because of the risk of breach of trust?

What is the value of the investment opportunities you have turned down because of the risk of breach of trust?

1

$5,000 - $50,000

Very Often

$1-5 Million

2

$5,000 - $50,000

Often

$250,000 - $500,000

3

$5,000 - $50,000

Very Often

No Answer

4

$5,000 - $50,000

Sometimes

No Answer

5

$5,000 - $50,000

Never

No Answer

6

Less Than $5,000

Sometimes

Less Than $50,000

7

$5,000 - $50,000

Often

$250,000 - $500,000

8

$5,000 - $50,000

Sometimes

No Answer

9

$5,000 - $50,000

Very Often

$1-5 Million

10

$5,000 - $50,000

Often

$500,000 - $1 Million

11

No Answer

No Answer

Less Than $50,000

CHAPTER 4

How much do you think it costs to be sued for breach of trust?

Total = $3,000,000 - $12,100,000 The information in this table was obtained from a non-random survey of Cambodian businesses.

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Recommendations & Conclusion Recommendations Reducing the Impact of Criminal Breach of Trust Cases on the Cambodian Economy

Pass the Draft Penal Code Provisions on Breach of Trust The draft Penal Code provision that relates to breach of trust is much better than the existing law. It retains the same core elements but uses much simpler language and would probably cause less confusion. It should be adopted as soon as possible with its present language.

CHAPTER 5

Various mechanisms to reduce the impact of improper breach of trust cases were suggested by, and discussed with, the interviewees. In addition, the survey asked respondents to provide their opinion on the effectiveness of a number of possible reforms. The survey also had two blanks where the respondents could write in their own recommendations, which several respondents did. These suggestions and discussions were evaluated in light of the all the information gathered for this report, and resulted in the following recommendations for reducing the impact of improper criminal breach of trust cases on the Cambodian economy.

Focus on the Elements of Entrustment and Criminal Intent One way to decrease the impact of criminal breach of trust cases can be to focus attention on the elements of entrustment and criminal intent. In most improper breach of trust cases, the complainant will not have entrusted the accused with any property, and there will probably be no evidence of criminal intent. Indeed, as Case Studies 1 and 3 demonstrate, there may even be evidence that the complainant is the one who has failed in his or her obligations. Consequently, by requiring strict proof of entrustment and criminal intent, it may become easier to identify and avoid improper breach of trust cases.

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Issue a New Joint Instruction That Requires Breach of Trust Decisions to Discuss the Evidence Supporting Each Element of the Crime Separately Formal guidelines on how to write judicial opinions would help to ensure consistency and clarity in breach of trust cases, and help to ensure that each 37

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of the elements of the crime are separately and properly addressed by judicial officers prior to a guilty finding in breach of trust cases. Such judicial guidelines need to specify that all judicial decisions are to contain separate discussions of the evidence supporting each of the elements of breach of trust. This would then make it more obvious if evidence for one or more of the elements was lacking. A clear discussion of the evidence supporting each element of the crime in the trial court’s written opinion would also help narrow the issues on appeal and reduce the burden on the higher courts.

CHAPTER 5

Provide Training to the Judiciary on the Elements of Breach of Trust, Particularly Entrustment and Criminal Intent A majority of the survey respondents believed that providing training for the police and judges on breach of trust cases would result in a “big improvement” in the situation. The wording of the Breach of Trust Law is confusing, and additional training may provide some benefits. If such training is conducted, it should focus on the need for proof of each of the elements of the crime, particularly entrustment and criminal intent, and could be given in conjunction with the issuance of the new Joint Instruction suggested above. Publish All Breach of Trust Decisions Publication of breach of trust decisions would help keep the focus on the elements of entrustment and criminal intent because it would allow for scrutiny of the reasoning behind the rulings. The lack of access to judicial decisions in Cambodia makes it difficult to monitor whether cases involve sufficient evidence on each of the elements of the crime. The Legal and Judicial Reform Council has recommended that cases in which Article 46 is applied be published. This is a positive recommendation and it is hoped that its implementation would shed light on the manner in which Article 46 is applied. Private Sector Discussions No.23

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Coordinate with Government, the Business Community, Civil Society, and the Media to Closely Scrutinize Breach of Trust Cases This recommendation arose out of comments made by interviewees about the August 2005 Joint Instruction on breach of trust issued by the Minister of Justice and the President of the Supreme Court. One interviewee, a Cambodian lawyer, said that he felt the situation had improved since the Joint Instruction’s issuance because court personnel believed that their actions were being evaluated by the government. This makes sense, and suggests that closer scrutiny of breach of trust cases would be helpful. There are a number of ways this could be done, including closer tracking of breach of trust cases by the Ministry of Justice or

Breach of Trust

the Supreme Council of Magistracy. Civil society and the media could also play a role in highlighting and bringing attention to potentially improper cases. There is a need for better cooperation between the private sector, civil society, the media and the government to do this. Recognizing the need for scrutiny of breach of trust cases, the Minister of Justice issued an instructional letter to the courts and prosecutors on 2 October 2006 stating that the Breach of Trust Law had not been implemented correctly and that from that time forward, the Ministry of Justice had to be informed of cases involving breach of trust against investors. Create a Mechanism for Anonymous Reporting of Persons who Solicit Unofficial Payments

Restrict the Use of Pre-Trial Detention By Issuing Formal Guidelines That Describe When Pre-Trial Detention Is Appropriate Most of the interviewees and all of the survey respondents believe that restricting the use of pre-trial detention in breach of trust cases would be an improvement. The survey respondents were fairly evenly split about whether it would be a slight, moderate or big improvement. The threat of pre-trial detention is the main source of pressure on business people to make payments in improper breach of trust cases. Therefore, it makes sense that restricting the use of pre-trial detention would reduce the impact of improper cases. It would also be consistent with the Transitional Criminal Law, which states that pre-trial detention is to be used only where there is a genuine risk of the accused escaping. This recommendation could be implemented through written guidelines to the judiciary that explain in detail what factors it should evaluate to determine whether an accused person is a flight risk. For example, those with extensive ties to Cambodia (immediate family, property, businesses, etc.) could be exempted from pre-trial detention in breach of trust cases. Assuming the accused is found to be a flight risk, the guidelines should describe when bail is appropriate, specify how the amount of bail is to be calculated, and establish a mechanism through which the accused can recover bail payments.

CHAPTER 5

This recommendation is related to the idea of closer scrutiny of breach of trust cases in general. Individuals in power would probably be less likely to solicit unofficial payments if they knew that the accused could report them to someone who would investigate the allegation. Therefore, it would be helpful if there was an anonymous and independent mechanism for individuals or companies to report individuals who act improperly. One thing that is clear from this report is that individuals will not report improper cases to anyone unless they are assured of complete anonymity.

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CHAPTER 5

Conclusion

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It is hoped that the recommendations presented in this report will contribute to the reduction of the costly impact of improper breach of trust cases on the Cambodian economy. The study undertaken by the Ad Hoc Sub Committee has confirmed that inappropriate application of criminal Breach of Trust Law hurts the development of the national economy and damages public and investor confidence in the Cambodian judicial system and laws. The research indicates that there is a general perception among stakeholders, both Cambodian and foreign, that the criminal Breach of Trust Law is often misapplied and that this causes serious damage to the Cambodian economy. Improper breach of trust cases are costing Cambodia millions, and possibly tens of millions, of dollars per year in lost investment. With both the government and the private sector concerned about the costly damage done to the economy by cases of improper breach of trust, now is the perfect time to ensure that the provisions of Article 46 are appropriately implemented and that the Cambodian economy is allowed to prosper.

Appendix 1

Research Methodology 1. Introduction This report is based on information from four sources: • • • •

interviews with stakeholders; information provided by the Ministry of Justice; a review of publicly available information about breach of trust cases; and a survey of business sentiment.

Eighteen interviews were conducted with a wide variety of stakeholders, both Cambodian and foreign, including: businesspeople, commercial lawyers, criminal defense lawyers, business consultants, human rights advocates, civil society organizations, researchers, and members of the judiciary. The interviewees included individuals who had been involved in breach of trust cases, lawyers who had defended people accused of criminal breach of trust, and businesspeople who were concerned by how the criminal Breach of Trust Law is applied.

APPENDIX 1

2. Stakeholder Interviews

3. Review of the Information Provided by the Ministry of Justice The Ministry of Justice provided the Ad Hoc Sub Committee with data on the total number of breach of trust cases. This information is summarized in Appendix 6. Unfortunately, while the Ministry of Justice endeavored to provide information where it could for this research, beyond the data provided, relatively limited information is kept by the Ministry. Judgments on breach of trust cases are currently not published by the courts and there is no publicly available information on the number of criminal breach of trust cases that are filed each year, the frequency of pre-trial detention, the percentage of cases that result in convictions, the average length of a prison sentence, or the amount of the average damages award.

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Copies of a small number of judgments, while not available via the Ministry of Justice, were provided confidentially from other sources, notably by lawyers who had records from cases in which they were involved. 43

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4. Review of Press Reports and Other Publicly Available Information

APPENDIX 1

Although there is little publicly available information about breach of trust cases, the research team conducted a thorough review of a number of Cambodia’s major newspapers over a four-year period in order to compile media reports about breach of trust cases. The newspapers reviewed were: the Phnom Penh Post, The Business Press, the Mirror, Development Weekly, and Rasmei Kampuchea. Each paper was searched for the period 2002 to 2005. The media data is summarized in Appendix 3. This represents only a fraction of the total number of breach of trust cases that have occurred. The cases that made it into the papers were undoubtedly chosen because they were viewed as newsworthy. Consequently, they cannot be considered a random sample of breach of trust cases in Cambodia. Nonetheless, the media database represents an insight into how the courts treat breach of trust cases.

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In addition to newspaper reports, partial information, on 20 breach of trust cases was provided by the Center for Social Development, which gathered the information while monitoring trials in the Cambodian courts as part of its Court Watch Project. This information was also incorporated into the media database.

5. Business Sentiment Survey In addition to the above sources of information, a non-random business sentiment survey was conducted in which businesspeople were asked to respond to questions related to their perceptions of the criminal Breach of Trust Law.

Appendix 2

Case Studies

Case Study 1 Mr. A, a Khmer businessman, entered into a contract with Mr. C in 2000. The contract was for the purchase of $80,000 worth of construction equipment and materials. Mr. C delivered some goods, but they were not what he was obligated to deliver under the contract, so Mr. A refused the goods and canceled the contract. Mr. C demanded payment under the contract, but Mr. A refused.

He was taken to court on the following Monday, where he was charged with breach of trust and sent to pre-trial detention at Prey Sar jail. He remained in Prey Say jail for several weeks while his lawyer attempted to bail him out. Eventually, he was able to secure bail from prison in return for paying $40,000 to the court. At trial, neither Mr. C nor his lawyer appeared. Mr. A’s lawyer presented witnesses and documents that showed that Mr. C had not fulfilled his part of the contract and that the contract had been properly canceled. Despite the evidence, he was found guilty of breach of trust by the trial court and given a three-year suspended sentence. He appealed the verdict to the Appeals Court, which overturned the lower court’s decision and dismissed the charges. Mr. A has never been able to recover the $40,000 that he paid in bail, and has spent another $20,000 on lawyers’ fees. He also suffered a significant loss of reputation and his business was damaged during the time he spent in pre-trial detention. He is now very cautious about signing contracts and has foregone many investment opportunities because of the risk of breach of trust.

APPENDIX 2

A few weeks later, Mr. A was asked to come to the police station and was arrested and held at the police station for 72 hours. He was accused of breach of trust because of his alleged failure to pay Mr. C under the contract. He was repeatedly told that he would be let go if he paid the police $80,000 (the alleged amount of his “breach of trust” with Mr. C). He refused.

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This case study is a composite based on interviews with several individuals who gave similar accounts of having been charged with breach of trust due to a contract dispute. Identifying information has been altered at the request of the interviewees.

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Case Study 2 In 2000, Mrs. T borrowed a gold necklace from her neighbor, Mrs. K, so that she could wear it to a relative’s wedding. At the wedding, the clasp on the necklace broke and it fell off. Mrs. T did not notice that the clasp had broken until after the wedding was over. She went back to look for it but could not find it.

APPENDIX 2

When Mrs. K asked for the necklace back, Mrs. T asked for more time to find it. After a week or two, Mrs. K asked for it again. This time, Mrs. T admitted that it was lost and asked for time to repay the value of the necklace, which was $100. However, Mrs. T was too poor and could not find the $100 to pay Mrs. K. Finally, Mrs. K lost patience and brought a suit against Mrs. T for breach of trust.

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Mrs. T was arrested, brought to Phnom Penh Municipal Court, charged with breach of trust and then put in pre-trial detention. She was assigned a lawyer from an NGO who sought bail for her. The investigating judge denied the bail motion. Her lawyer appealed the denial of bail to the Appeals Court, which granted it. She was not required to pay any money to receive bail. Mrs. T was in jail for about two months before the Appeals Court granted her bail. After bail was granted, her lawyer tried to get the criminal charges dropped. He submitted a motion to the investigating judge explaining that Mrs. T could not be guilty of breach of trust because she did not have any criminal intent. She did not misappropriate the necklace; she lost it. Moreover, she was not trying to avoid her obligations to Mrs. K; she was just too poor to pay for the lost necklace. Neither the prosecutor nor Mrs. K opposed the motion, which was eventually granted without a hearing. After the criminal charges were dropped, Mrs. K and Mrs. T settled the civil case out of court.

This case study is a composite based on interviews with Cambodian lawyers who have defended people accused of borrowing and then failing to return various pieces of property. Identifying information has been changed at the request of the interviewees.

Breach of Trust

Case Study 3 In 2001, Company H, a Singaporean company, entered into a contract with Company D, a Cambodian company, to import computer equipment. Company D agreed to purchase the equipment and sell it in Cambodia. The contract was for a one-year period. At the end of the first year, Company H was unhappy with Company D’s performance. Company D had failed to import as much computer equipment as the Singaporean company had expected. Company H decided not to renew the contract, preferring instead to search for another company to import its computer equipment.

APPENDIX 2

When Company H informed Company D that it did not intend to renew the contract, Company D brought suit against Company H for alleged criminal breach of trust. It also brought suit against several individual employees of Company H, including its general manager, who was Singaporean. An arrest warrant was issued for the general manager, but he was not arrested because he was out of the country. However, the warrant effectively prevented him from visiting Cambodia. The arrest warrants also prevented the company from finding another company to sell its computer equipment in Cambodia. Rather than suffer the risk of jail time for its executives and the loss of its reputation, Company H made a payment to Company D so that it would drop the charges. The payment was made before the trial was held, and the charges were eventually dismissed. Nevertheless, Company H withdrew entirely from Cambodia and no longer does any business here. Before its departure, it had been doing business worth several hundred thousand US dollars a year.

This case study is a composite based on interviews with several individuals who gave similar accounts of breach of trust cases arising from failed distribution agreements. Identifying information has been altered at the request of the interviewees.

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Case Study 4 Mr. Keo Tam purchased a plot of land in Phnom Penh. He asked a woman named Mrs. Chhun Nay Suor to guard his land. In March 2001, he learned that she had rented the land to a vehicle engine seller without asking his permission. He brought a complaint of breach of trust against Mrs. Chhun, and she was arrested on May 25, 2001 and placed in pre-trial detention.

APPENDIX 2

Mrs. Chhun requested release from pre-trial detention so she could care for her three young children, but the investigating judge denied her request. She appealed the decision to the Appeals Court, which also denied her request for release. She subsequently appealed her pre-trial detention to the Supreme Court, which received the case in September 2001.

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During the appeal, the Supreme Court received statements from both the accused and the complainant. Mrs. Chhun, the accused, argued that she believed that Mr. Keo Tam had given her the property and that since it was hers, she had the right to rent it out. She admitted to having made a mistake, but she said she had not intended to take anything from Mr. Keo Tam. Consequently, she did not have the criminal intent necessary for a breach of trust charge. She requested release from pre-trial detention so that she could care for her children. The Supreme Court also heard a report from the reporting judge and listened to the recommendations of the representative from the prosecution office. The Supreme Court concluded on January 9, 2002 that the property did belong to Mr. Keo Tam, but that Mrs. Chhun should be released from pre-trial detention for two reasons: 1) she did not appear to have criminal intent because she had believed the property was hers; and 2) she had already been held in detention too long (by this time, she had been in detention for eight months). The Supreme Court then sent the action back to the Phnom Penh Municipal Court so that it could rule on the merits of the case.

The facts of this case are taken from the Supreme Court’s decision in Keo Tam v. Chhun Nay Suor (Criminal Case Number 62, dated September 4, 2001, Verdict Number 4, dated January 9, 2002).

Breach of Trust

Case Study 5 In April 1992, Mr. Bun Srun entered into a partnership with Mr. Khong Pheou to install an electric generator in a village in Kompong Cham Province. They each invested an equal amount of money to buy the generator and they built a structure to house it. Each partner had a key to the structure. After three months, the partners had a disagreement. Mr. Khong Pheou wished to sell his share of the generator to a third party, but Mr. Bun Srun did not want him to sell his share. They could not agree, and eventually they decided to shut down the generator and not to use it. However, Mr. Bun continued to use it secretly to make a profit for himself. Sometime later, Mr. Bun had his wife ask Mr. Khong’s wife if she could borrow the key to the generator building. This left Mr. Bun with both keys and Mr. Khong without one. Mr. Bun then secretly sold the generator to a third party.

The court concluded that there was sufficient evidence that Mr. Bun had committed breach of trust. In particular, the court noted that: 1) he had used his wife to obtain Mr. Khong’s key so that he would have sole control over the generator; and 2) he had secretly sold the generator to a third party without notifying Mr. Khong. The court concluded that Mr. Bun had “acted knowingly” when he misappropriated the generator. He was sentenced to one year in prison, received a two-year suspended sentence, and was ordered to compensate Mr. Khong for the loss of his share of the generator.

The facts of this case are based on the Kompong Cham Provincial Court’s decision in Mr. Khong Pheou v. Mr. Bun Srun (Criminal Dossier Number 47, dated January 25, 1994, Judgment Number 41, dated May 12, 1994).

APPENDIX 2

Mr. Khong sued, and Mr. Bun was charged with breach of trust in March 1994. Mr. Bun, who had a lawyer, argued that he was not guilty because the sale of the generator had been part of an agreement he and Mr. Khong had about dissolving their business; through this agreement, Mr. Bun received the generator and Mr. Khong received the generator building and the land on which it was situated. Based on the evidence presented at the trial, the court rejected Mr. Bun’s version of events.

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Appendix 3

Media Reports

Analysis of Media Database

Number of cases where an arrest warrant was issued Cases where information on arrest warrant was available

34

Cases where arrest warrant was issued

33 97%

Number of cases where accused was arrested Cases where information on arrest was available

34

Cases where accused was arrested

32

Percentage of cases where accused was arrested

94%

APPENDIX 3

Percentage of cases where arrest warrant was issued

Number of cases where accused was placed in pre-trial detention Cases where information on pre-trial detention was available

31

Cases where accused was placed in pre-trial detention

29

Percentage of cases where pre-trial detention was used

94%

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Appendix 4

Business Sentiment Survey Results

Analysis of Survey Results

Question 1: Do the courts fairly apply the breach of trust law? 0

Most of the Time

0

Some of the Time

5

Almost Never

6

Total Responses

11

Question 2: Are breach of trust cases filed improperly? Almost always

2

Most of the Time

4

Some of the Time

3

Almost Never

1

Total Responses

10

Question 3: Does bribery affect the outcome of breach of trust cases? Almost always

8

Most of the Time

3

Some of the Time

0

Almost Never

0

Total Responses

APPENDIX 4

Almost always

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Question 4: How much do the following risks concern you? Loss of Money?

Loss of Reputation?

Time spent in Jail?

Very concerned

8

7

6

Concerned

2

1

0

Slightly concerned

0

0

1

Not concerned

0

1

1

Total Responses

10

9

8

APPENDIX 4

Question 5: How much do you think it costs to be sued for breach of trust? Less than $5,000

1

$5,000 - $50,000

9

$50,000 - $150,000

0

$150,000 - $500,000

0

More than $500,000

0

Total Responses

10

Question 6: How often have you turned down investment opportunities because of the risk of breach of trust?

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Very often

3

Often

3

Sometimes

3

Never

1

Total Responses

10

Breach of Trust

Question 7: What is the value of the investment opportunities you have turned down because of the risk of breach of trust? Less than $50,000

2

$50,000 - $250,000

0

$250,000 - $500,000

2

$500,000 - $1,000,000

1

$1-5 million

2

More than $5 million

0

Total Responses

7

Question 8: In your opinion, how much would the following changes improve the situation? Make it more difficult to use pre-trial detention?

Eliminate jail terms for breach of trust?

Create a special commercial court to hear breach of trust cases?

Big Improvement

5

6

4

1

6

Moderate Improvement

2

2

2

2

2

Slight Improvement

1

1

3

2

1

No Improvement

1

0

0

3

0

Total Responses

9

9

9

8

9

APPENDIX 4

More More training training for police? for judges?

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Appendix 5

Technical Legal Analysis of Breach of Trust Law BREACH OF TRUST By Koy Neam A. Introduction

Breach of trust combines the terms “breach” and “trust.” In real life, people often think that when a debtor causes “dismay” or “loss of confidence” by failing to repay a debt, a “breach of trust” has been committed. Simply speaking, however, such a case is a breach of contract – not a breach of trust. Breach of trust is instead most similar to the crime of theft.

B. Analysis of Sentence Structure and Terminology in Article 46 Regarding Breach of Trust Based on a comparison of Article 408 of the [former] French criminal code and Article 46 of the [current] Cambodian transitional criminal code, it is apparent that almost all Cambodian legal concepts related to breach of trust have been borrowed from the French criminal code. The current transitional criminal code was drafted by a French legal consultant in 1992. Recently a French legal expert has again helped to draft a criminal code for the Kingdom of Cambodia and article 404 (on breach of trust) in the current draft Cambodian criminal code has again been copied from the French criminal code (Article 314-1 of the [current] French criminal code, adopted in 1994).

APPENDIX 5

Breach of trust, like the crime of theft, is an offense against property. The main feature of theft is taking away property belonging to another person, with the intention of permanently depriving that person of it. The difference between breach of trust and theft is that in theft, the offender has no lawful possession of the property, whereas in breach of trust, the owner has entrusted the property to the offender. The offender violates this agreement (the entrustment) by fraudulently taking the property away from the owner with the intention of keeping the property or transferring it to another person. In simple terms, the two offenses are similar in nature because the commission of either theft or breach of trust has the same intent – that is, to deprive a person of his or her property.

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Translation of foreign text into the Khmer language often causes problems 59

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APPENDIX 5

because of vocabulary and syntax. For example, in Article 46 of the Cambodian transitional criminal code, the French term “représenter” was translated as “domnang” (or “represent”) in Khmer. In fact, in a legal context, in order to match its legal meaning, the term should be translated into Khmer as “bonghanh” (“to show”). In addition, it is hard to find a Khmer term to match the meaning of some French terms, such as “possesseur” and “détenteur.” Because Khmer does not use a comma1 , typing errors, including spacing errors, can cause confusion when interpreting the meaning of a phrase such as is illustrated below, in the context of Article 46 of Cambodian transitional criminal code, as it is currently written (translated literally from the Khmer):

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Article 46: Breach of Trust Any person who misappropriates, against the interest of the owner [of a property], owner of a place or the holder of property, money, goods, or existing documents or documents which stipulate an obligation or discharge, which was entrusted to the person in the form of a rent [agreement], deposit, mandate2, loan for use or for paid or unpaid work, with the responsibility to return it or to represent (sic) or for use or for a specific purpose, is criminally guilty of breach of trust and shall be liable to a punishment of a term of imprisonment of from one to five years. [Ed. Note: commas added to English translation for ease of understanding; not present in Khmer text. See also author’s footnote 2 below.] It can be seen that the failure to space, preposition to separate between “holder” and property” lead the reader to misunderstand that the fraud or misappropriation damaged the benefit of the owner, owner of a place, or holder of property3. In fact, this Article is intended to mean to misappropriate property, money, goods, or documents4, and is not intended to mean misappropriate the owner or holder of property5. The person who suffers from the misappropriation is either the owner of property, the owner of the place, or the holder. The term “mchas kamsith” (“owner of property”) is equivalent to the French term “propriétaire” which means a person who enjoys lawful ownership rights to use, enjoy the fruits of, or manage the property (i.e. through sale or donation). With regard to the terms used in the French text of the law, the term “mchas ti kanlaeng” (“owner of the place”) might have been translated from the French term “possesseurs”

1 Nevertheless, a comma was frequently used in the Cambodian criminal code of 1959. For example, see Article 366, et al. 2 Ed. Note: The Khmer text of Article 46 uses the word ‘mandate’, which has a specific

meaning in Khmer law and language. This is discussed further below. 3 If a preposition “ney = of ” is otherwise used in between the term “holder” and “goods”, it may be easier for the reader to understand that the property, money, etc. are the object of the verb “misappropriates” and not the object of the noun “holder.” 4 ‘Documents’ in terms of Article 46 specifically meaning ‘documents specifying an obligation

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or discharge’ 5 Ed. Note: That is, the crime of breach of trust focuses on the misappropriation of property, rather than the fact that damage has been suffered by a person [eg the property owner].

Breach of Trust

and “neak kankab” (“holder” from “détenteur”) in the order they were written in French, namely propriétaires, possesseurs, and détenteurs. In ordinary Khmer, the terms, “possesseurs” and “détenteurs,” have nearly the same meaning as “neak kankab” (“holder”) but in a legal context have quite a different meaning6. The term “mchas kamsith” (“owner” or “propriétaire”) refers, for example, to the owner of a vehicle, who has lawful title to the vehicle. “Possesseur” includes a person who has legal possession of a vehicle or property, but has not yet registered her or himself as the owner. The term “detenteurs” includes a person who is a tenant leasing a house or who receives a deposit for [the purchase of] property or is a consignee, etc. In order to simplify understanding of this text, from this point forward “owner of goods or property” is taken to refer to one of the three types of persons – the propriétaire, the possesseur, or the détenteur.

Finally, the person accused of the offense of breach of trust must either return the property to its owner, or use it according to the owner’s instructions. We also find use of the term “thvoeu chie domnang” (“to represent”). The meaning of this term will be examined later.

APPENDIX 5

The next question to ask is how was the transfer made to the person accused of breach of trust? The likely answer is that the property, money, goods, or documents was transferred or entrusted to the accused through a lease, deposit, mandate, loan for use, or delivery for the purpose of undertaking some work (whether paid or unpaid).

To make it easier to read and understand, the current wording of Article 46 (see previous page) has been duplicated but reformatted and separated into its component parts below: Article 46: Breach of Trust 1. Any person who misappropriates, against the interest of an owner, possessor or holder of: a. property; b. money; c. merchandise; or d. a document, where that document either contains or stipulates either i. an obligation, or a ii. discharge 2. and which [items (a) to (d) above] were entrusted to the person, a. in the form of a

6 The term “possesseurs” refers to a person who has physical possession and “détenteurs” refers to a person who has physical detention of a property. The concepts behind possession and detention are too comprehensive and cannot be addressed here; however, the reader may find these legal concepts in the law concerning property, in particularly, corpus and animus.

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i. rental/lease, or a ii. deposit, or a iii. ‘mandate’, or a iv. loan for use for b. paid or unpaid work 3. with the responsibility to return it, or ‘re-present’ it7 or to use it, or to put it to the agreed purpose 4. is guilty of breach of trust and shall be liable to a punishment of a term of imprisonment of from one to five years. Based on this break down of Article 46, it appears that the article contains the following components: 1. The act of misappropriation and causation of such an act (a detriment to the owner suffered by the act of misappropriation);

APPENDIX 5

2. Things or objects that are misappropriated (i.e. property, money etc.); 3. The entrustment of the thing or objects with the accused, and the terms and conditions on which those things or objects were entrusted (i.e. entrustment in the form of a lease, deposit, or loan, etc.); 4. A condition that stipulates that the owner has no intention of giving up or abandoning ownership or interest in the entrusted things or objects. Such a condition could be that the things or objects entrusted must be returned or shown to the owner at a pre-determined time or when the owner wants them back or when the owner wants to check the availability or condition of the objects. 5. The last part of this article concerns punishment for a person who is guilty of breach of trust.

C. Elements of Breach of Trust C.1 Material Element (Objective) Private Sector Discussions No.23

A material element refers to an act of misappropriation. Such an act of misappropriation occurs when the owner can no longer exercise rights over the property because it has been misappropriated by the person to whom it was entrusted. Misappropriation in breach of trust is different from theft. In theft, the owner has not given custody of his property to the thief, whereas in breach of trust, the owner has given custody of his property to the accused, with the mutual agreement of the owner and the accused. This agreement constitutes a contract;

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7 In Article 46, ‘represent’ in fact means ‘to re-present’ (eg to re-present a cheque at a bank). However when translated from the original French text ‘represent’ was translated as ‘domnang’ (meaning to represent as a lawyer might represent a client). A better Khmer term would have been ‘boung hanh leung vinh’, which means literally, “to show it back”, as it better encapsulates the meaning of ‘re-present’.

Breach of Trust

for example, a contract to rent a truck to a customer who uses it to transport goods. The contract creates a relationship between the owner and the receiver of the things or property, in which the receiver has a fiduciary duty, namely “karaneikech bampenh tumnukchet” (“fiduciary duty”). The receiver is obligated to fulfill his or her duty in good faith, as trusted by the owner, and to be strictly honest with the owner. Misappropriation occurs when the receiver violates this duty. Thus, when someone wants to understand the meaning of breach of trust, the first question to ask is whether both parties have established a contractual relationship. The article concerning breach of trust describes five contracts/ relationships, including a lease, a bailment contract (deposit), a ‘mandate’ (see explanation at E.3 below), a loan for use, and an employment contract8. The reason for not considering a mandate as a contract is that a mandate may arise from a contract, by judicial order, or by law. This issue will be discussed later in this text.

Breach of trust, much the same as other crimes, requires an intent to commit a crime. For breach of trust, such intent refers to fraudulent intent. Fraudulent intent is presumed to arise as a result of dishonesty. For example, a client gives gold to a goldsmith in order to make a gold necklace. However, the goldsmith steals a portion of the gold and replaces it with another metal so it weighs the same. If the goldsmith has no reason to do this, other than to misappropriate a portion of the gold, a fraudulent act has occurred. However an act does not constitute breach of trust if fraud by the accused cannot be proven. For example, a Phnom Penh resident, Mr. Chan receives some money from his friend, Mr. Veasna, who lives in Battambang province, in order to pay tuition fees for Mr. Veasna’s son in Phnom Penh. Mr. Veasna agrees to pay Mr. Chan 5% of the money for his help. However, another person asks Mr. Chan for a loan and offers to pay Mr. Chan a high interest rate. Mr. Chan agrees to loan the money entrusted to him by Mr. Veasna on the expectation that he will increase Mr. Veasna’s money. Unfortunately, the debtor defaults and disappears. In this case, it is unlikely that Mr. Chan has fraudulently intended to cause damage to his friend. However, Mr. Chan would remain liable for civil damages arising out of breach of contract as he was required to use the money only for the purpose of paying Mr Veasna’s son’s tuition fees.

APPENDIX 5

C.2 Mental Element (Subjective)

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On the other hand, if Mr. Chan were to lose all of Mr. Veasna’s money gambling at a casino and could not afford to pay the tuition fees for Mr. Veasna’s son, it would be more likely that Mr. Chan would be regarded as having had the necessary

8 A new French criminal code and a draft of the new Cambodian criminal code failed to describe the type of contracts which are subject to the Law on Breach of Trust.

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fraudulent intent required to constitute breach of trust. It is foreseeable that the risk of loss in gambling is almost 100% for an ordinary gambler. Bad faith on the part of an accused is more likely to be presumed to arise from acts which a reasonable person could anticipate would be detrimental to the owner [such as gambling entrusted money]. C.3 Detriment is suffered by the owner of the property

APPENDIX 5

If the owner of the property suffers no detriment as a result of the alleged misappropriation by the person accused of breach of trust, it can be argued that no breach of trust has occurred. A detriment can be said to have occurred when an owner has suffered a loss. For example, the owner loses his rights, or cannot exercise those rights, in property that was entrusted to the accused. However, if the accused fails to return property to its owner on a date previously specified, this does not mean that the accused has committed breach of trust. The deprivation or loss of an owner’s property must occur as a result of fraudulent intent on the part of the accused.

D. Object or Subject Matter [of the Offense of Breach of Trust] The crime of breach of trust applies to those objects/items described in Article 46 of the Transitional Code, including property, money, merchandise, or documents which contain or stipulate an obligation or discharge9 (see the translation on page 2 or the list of items in the breakdown of the breach of trust law on page 4 under points (1) (a) – (d). D.1 Property – [Movable or only Immovable Property]

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It is not clear whether the term “troapsambat” (“property”) in Article 46 includes both movable and immovable property. As the law was originally copied from the French criminal code, it is necessary to examine the derivation of the term “troapsambat”. The term troapsambat in Article 46 was translated from the word “biens” in French. One phrase in judicial order No. 6295, dated October 10, 2001 of the French Trial Tribunal, states that “a breach of trust only relates to funds, valuables, or other property, with the exception of immovable property”. In the last part of its judicial order, the Tribunal continues to stress that “the appellate court which convicts an accused over failure to deliver the key to immovable property, lacks understanding of the meaning and scope of the law referred to above”10.

9 A new French criminal code and a draft of new Cambodian criminal code failed to describe the types of contracts which are subject to the Law on Breach of Trust and it merely included “funds, valuables, or other properties”. See Article 314-1 of the French criminal code and Article 404 of the draft Cambodian criminal code. 10 http://lexinter.net/JPTXT/bien_quelconque.htm, May 9, 2003.

Breach of Trust

In France, the reason why breach of trust does not apply to immovable property is that the owner may repossess the property based on droit de suite11 (the right attached to property that allows the owner to repossess or enjoy the proceeds thereof). This may be reasonable in France where an ownership registration system and a proper and specific method of recording the transfer or conveyance of ownership means the right to immovable property is stable and protected under a strict mechanism that makes misappropriation or transfer without the consent of the owner impossible. However, such protection does not exist for movable property, except in cases where the owner has an ownership title as evidence.

If the above justification and rule is applied in Cambodia, the law on breach of trust would punish only an act against movable property, rather than immovable property. As a result, Cambodia might encounter numerous disadvantages as most people who own immovable property do not have a title deed to justify their lawful ownership, and there is no reliable registry/record. This may make it easy for misappropriation or conveyance of ownership to another person. Examples of such properties include an automobile delivered to a mechanic for repair, jewelry that has been pledged [as collateral for a loan], vehicles parked at a market etc. D.2 Money and Goods In terms of Article 46, ‘money’ and ‘goods’ are property items which are most easily defined. For example, money under the control of a company accountant, or money left with an individual for safekeeping, or goods that are being transported by a shipping company, or goods that are stored in a warehouse, et cetera, are all examples of property which may give rise to a breach of trust offence.

11 François SIBAUD, De L’Abus de Confiance; 12 Committee Comments, www.okcca.net/datafiles/legal/oklahoma/ouji/criminal/UJICR%205-21.HTM

APPENDIX 5

In the USA, some states, such as Oklahoma, have interpreted the term “property rights” under state criminal law as [referring only to] movable property, even though the law has not defined it as movable property. In other states, some courts and legal writers think that the concept of breach of trust may also apply to immovable property. The appellate criminal court of Oklahoma concluded that breach of trust originated from theft. Theft covers only movable property and contains one main element called “taking away” “the property over which the accused has no lawful possession”, and as such, the law on theft may not apply to misappropriation of property over which the accused has lawful possession. Thus, breach of trust is an offense formulated to fill the loophole in the law concerning theft by adding the element of “taking away the property of another person which is possessed by the offender”12.

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Breach of trust occurs when the accused person takes money which was entrusted to him or her for a specific purpose, with the intent to keep the money as his or her own. For example, a company accountant has misappropriated money in terms of the crime of breach of trust if it is his duty to manage a company’s money, but he instead takes it to spend on himself. Similarly, a truck driver who misappropriates goods for himself that were entrusted to him to be delivered by the owner could be said to have misappropriated goods in terms of the crime of breach of trust.

APPENDIX 5



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D.3 Existing Documents or Document Stipulating an Obligation or Discharge

In general, a document which contains an obligation is a contract. However, other documents such as wills also contain obligations. The description in the [former] French Criminal Code states that misappropriation will be penalized as a breach of trust only if there is a fraudulent act against a physical document itself and not just against its terms (i.e. an abuse in the enforcement of the terms of a contract). The act of misappropriating or destroying a document entrusted to someone for his or her proper maintenance, with intent to cause detriment to the beneficiary of such a document, shall constitute misappropriation in the context of breach of trust. One problem that should be considered is whether a document which contains no obligation, but has contents that should not be revealed can be subject to a breach of trust action. For example, an internal company document such as a business plan or which describes a proprietary company innovation. In such a case, the question arises as to whether a breach of trust has occurred when an employee makes a copy of this document and reveals it to another company and, as a result of such disclosure, causes damage to his employer. In the absence of obligation required by law, does abusive use of a document in this way constitute breach of trust?

E. Contractual Relationship Between the Owner and the Recipient of the Property Article 46 concerning breach of trust, covers only certain types of contracts, including a lease, bailment, mandate, loan for use, and an employment contract. Before considering whether there is a breach of trust, it is necessary to determine whether a contractual relationship exists between the owner and the recipient because a breach of trust arises out of a violation of the contracts mentioned earlier in this section. A question arises when a contract is invalid (null and void): Can a court continue criminal proceedings for breach of trust if the contract on which the breach of trust was based was itself null and void? Under French law, this is not possible;

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Breach of Trust

the invalidity of a contract is not grounds for a stay of criminal proceedings in a breach of trust case. For example, in a contract for bailment in which one party is a minor, and the adult party has fraudulently taken the entrusted property, the adult party may not assert, as the defense, that there was no contractual relationship because the contract was invalid [null and void] as the other party was a minor. In such cases, criminal proceedings are entitled to proceed whether or not the contract is valid. In terms of breach of trust, what is essential to determine is whether the terms of a contract specify delivery of property, how the property will be managed, and when the property is expected to be returned. These are terms that create an obligation owed by the deliveree [the accused] to the owner. Illegality13 of a contract provides a basis for refutation of the contractual relationship [rather than refutation of the crime of breach of trust], provided that the liability of the accused towards the owner does not itself arise out of a breach of contract and otherwise result from a commission of a criminal act (breach of trust) where sufficient elements are present for the case.

Article 101 of Decree #38, concerning ‘Contract and Other Liabilities’, states that “a lease is a contract wherein a lessor promises to lease his or her property for a fee to a lessee to use temporarily”. Under this definition of a lease, the lessor (i.e. owner of the property) reserves his or her right in the property and the lessee (renter) only enjoys the right to use the property. In this case, there is no transfer of ownership from the owner to the lessee. The duration of the lease, and the date the property is to be returned to the owner, shall be determined in the lease contract; however, if no duration or date is set for the lessee (renter) to return the property, the law states it is deemed that it shall be returned no later than one year [from the date the lease was signed] (Article 101 of Decree #38). The property to be leased may be either real property14 (i.e. ‘immovable property’) or personal property (‘movable’ property).

APPENDIX 5

E.1 Lease Agreement (Louage)

E.2 Bailment Contract (Dépôt) In Section 6 of the Decree regarding Contract and Other Liabilities, there is reference to a “bailment contract”. Article 89 defines a bailment as a “contract whereby a person (“the bailee”) is given custody of the personal property of another person (“the bailor”), either gratuitously or for a fee, and is obligated to return the property to the bailor or the person clearly designated by the bailor, at a specified time, or at the time when the property is demanded back”. The bailor has no right to use or manage the bailed property, but must keep it in good order for the owner. Examples of bailment contracts include bailment of a vehicle at a market or a school, bailment of jewelry with a bank, bailment of merchandise in a market etc.

13 i.e. an invalid contract that would be void because it is not in compliance with the contract 14 ‘Real’ property, in law refers to land.

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E.3 Mandate (Mandat)

APPENDIX 5

There are two types of ‘mandates’. The first type of mandate is created by a contract and the second is created by law or court order. The Law on Contract and other Liabilities does not include mandate as being a type of contract. However, the draft civil code does include mandate as a contract. Article 634 of the draft code defined mandate as being “any contract whereby one party (“the mandator”) delegates his or her rights to another party (“the mandatee”) to act on behalf of the mandator. Under the above article, a company sales representative would usually be considered a mandatee. A mandatee may act for a fee or gratuitously, based on the contract between the mandator and mandatee. Article 367 of the draft establishes “a duty of diligent mandatory management in a capacity as manager in good faith by virtue of a mandate.” Any breach of this good faith duty by means of misappropriating any operating equipment or funding will lead to a breach of trust.

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Another type of mandate is created by a court order or by law. A mandate created by a court order includes the power given to a judgment executor. A judgment executor who fraudulently takes a property seized for the benefit of a creditor is an example of a mandate created by court order as it is the court that has designated him or her to execute its judgment. E.4 Loan for Use (Prêt á usage) Current Cambodian contract law defines a loan for use as “a loan without any interest or fee. A person who lends property to someone else for use retains ownership of the property”. Article 96 requires a borrower to preserve the property as if he or she were the owner. If no time is specified in the contract, the lender may demand a return of the loaned property at any time. Therefore, the borrower must be ready to return the property to the owner. The only difference between a loan contract and bailment is that a loan contract allows the borrower to use the property under the terms of an agreement. E.5 Labor Contract with Pay or without Pay Labor contracts – either with or without pay - include employment contracts under the Labor Law, as well as enterprise contracts under current Cambodian contract law. Employment contracts under the Labor Law refer to the [contractual] working relationship between the employer and the employee. However, an enterprise contract applies to the work that one person performs for another individual (Article 72). Both types of contracts described above are for remuneration. The provision of Article 46 regarding breach of trust also covers a non-remuneration contract [i.e. a contract without pay]. The accused may not use the argument that he is employed under a non-remuneration contract as a defense against liability for breach of trust if he has actually committed a fraud against property entrusted

Breach of Trust

to the accused for a specific purpose [under the terms of the non-remunerated employment contract]. Typical examples of such contracts might include delivery of gold to a goldsmith to make a necklace, an employee whose job it is to take care of a warehouse, or contracts for the repair of a car at a garage.

F. Application of Law on Breach of Trust to Certain Cases in the Current Cambodian Court System F.1 Failure to Make Payment on a Loan Covered by a Contract

In an ordinary breach of contract, the creditor may seek remedy (usually in the form of damages) under civil proceedings.15 Of course, in practice a creditor who suffers loss will wish to use all possible means to force a debtor to repay a loan - including by making a request to the police that the debtor should be arrested for breach of trust. In such cases, the purpose of such a request is to threaten the defaulting debtor [given that the criminal sanctions for breach of trust are considerably stronger than the civil sanctions for breach of contract]. Nonetheless, in an ordinary [civil] case of breach of contract, the use (or threat) of criminal sanctions may be regarded as improper, and both the creditor and the police themselves risk being accused of illegally detaining the debtor in the event that he or she is imprisoned. In cases where a debtor has been improperly imprisoned, the court and the prosecutor may themselves be sued by the debtor in the Supreme Council of Magistracy. Should this happen, it would then become the responsibility of the Supreme Council of Magistracy to examine the propriety of the actions and intent of the judges and the prosecutor implicated in the detention of an individual without proper legal justification.

15 It should also be noted that in circumstances where a debtor has used deceit or fraud to negotiate a loan contract with a creditor, then the debtor may be accused of fraud, but not breach of trust. It is, however, necessary to further consider the element of fraud in order to determine this.

APPENDIX 5

A loan agreement is a contract whereby the right to the loaned money is transferred from a creditor to a debtor. The debtor has an in rem right over the cash, and the creditor has an in personum right against the debtor, but not an in rem right to the cash. An example would be if a creditor lends Riel 5 million to a debtor as financing for the debtor’s business. When the cash is transferred to the debtor’s custody, it becomes his money to use. That is, the debtor has a full right [subject to any contractual covenants] to use the cash as he wishes; such as, for example, the purchase of equipment for the business. The creditor usually has no rights over the cash but has the right to force the debtor to repay the debt as obligated. Since the debtor becomes the owner of the loaned cash, he cannot be accused of breach of trust if the cash is wastefully spent or lost through the business. However, if the debtor fails to make payment by the due date, the debtor may sue for breach of the loan contract. In such cases, failure to comply with loan conditions is a breach of contract only, and is therefore purely a civil matter.

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APPENDIX 5

There are many reasons why a debtor may default under her or his contractual obligations to repay a loan to a creditor. Common reasons for such failure include bankruptcy, losses resulting from an incidental disaster, an improper business plan, or other matters. However, the obligation to manage the risk of a debtor defaulting lies not with the debtor but with the creditor. Therefore, before providing a loan, the creditor should assess the debtor’s capacity to repay the debt.

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In a free market economy, the law protects the right [of debtors and creditors] to freely contract as this is important to ensure the economy functions smoothly. If a state should interfere in freedom of contract by, for example, the abusive or improper enforcement of the breach of trust law (by for example imprisoning defaulting debtors), then it creates uncertainty and unpredictability in contract formation. The risk is that it may make investors fearful they could lose their freedom and be imprisoned under criminal law [for a breach of contract]. As a result, parties may become reluctant to seek or give credit for business ventures, as a failure to fulfill contractual obligations may lead to criminal proceedings. The purpose of the Law on Breach of Trust is to protect property from fraudulent intent, not to hinder the formation of contracts in daily life. A party entering into a contract has voluntarily assumed the usual risks involved in general business operations. F.2 Failure of Contract Negotiation Before reaching an agreement and signing a contract, parties usually negotiate the terms and conditions that are to be incorporated into their contract. However, not all negotiations are successful. At some point, one or both parties may withdraw their intention to enter into a contract should it prove impossible to reach mutual agreement on the proposed terms and conditions of the contract. In such cases, no contract has been formed. Although one of the parties may be “disappointed” by this failure of the negotiation process to produce a satisfactory contract, it does not give rise to a breach of trust. Both in ordinary and legal language, “disappointment” (in Khmer, “kar khoakchet”) “breach of trust” are not synonymous. Disappointment is the state of mind of someone whose expectations are not met. “Breach of trust” applies when a person has been entrusted with the property of another person and has acted against the interests of the owner in a manner that is damaging to the owner. If it were anticipated that contract negotiations could bring harm to one of the parties through adverse consequences, then it is unlikely that people would enter contract negotiations. If this were the case, it would make business operations impossible as an accusation of breach of trust would create “high risk” for the negotiating partners. The principle of a free market economy, codified in, and promoted by the Cambodian constitution, is to encourage freedom of contract without deterrence or threat of any kind.

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F.3 Leases for the rental of land (real property)

Sometimes the lessee causes damage to the premises. Such damage does not, however, constitute one of the elements of breach of trust. Rather, such damage is a non-contractual or tortious liability for which the lessor may be compensated in a civil action.

G. Conclusion Improper enforcement of the law not only affects the rights and freedom of citizens but may also cause damage to the national economy as the public will not have confidence in the legal system if it does not protect its interests. The purpose of the law on breach of trust is to protect property from being fraudulently taken by a dishonest person. The main features of this law are: (1) the owner gives custody of the property to another person; (2) the terms are those of any of the five contracts discussed above; (3) the owner reserves the right to such property, that is, no ownership is transferred from the owner to the receiver but the receiver has the right to control the property; (4) the deliveree misappropriates the property in a manner that demonstrates criminal intent, or uses the property in violation of the terms of an agreement in the contract; (5) that which causes damage to the owner. On the other hand, not all breaches of contract are “breaches of trust”. The elements of such an offense should be thoroughly examined.

16 Please note a property lease is different from a rental contract such as that given in the example in E.1, above. The ‘lease’ [i.e. rental contract] in section E.1 refers to circumstances where one party leases personal property (such as an automobile) from another party, and the lessee [i.e. the accused] fraudulently takes away the automobile, causing damage to the owner’s property interest.

APPENDIX 5

The law on breach of trust applies to property leases in much the same way as it does to other types of property. A lease is, in essence, simply a contract, albeit a contract relating to the use of real property. In a lease the lessor (the property owner) agrees to lease out his or her premises to another person (the lessee, or renter), in exchange for a rental fee. In Cambodia, most parties fix the duration of the lease and require payment of a security deposit to ensure that if the lessee terminates the lease before its specified term, that the lessor can keep the security deposit to cover any rent that is due.16 In the lease of premises discussed here, the lessee causes no damage to the lessor but merely terminates the contract before its term. Although the lessee may have caused the lessor “disappointment” when s/he did not find someone to take over the lease, the lessee may not be accused of breach of trust because the lessor’s property rights were not impaired. The lessee may have breached the contract; however, such a breach is solely a contract dispute that needs to be resolved by compensation for damages arising, and in no case may the lessee be punished for breach of trust.

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Appendix 6

Ministry of Justice Case Data

Analysis of Information Provided by Ministry of Justice Table 1: Number of Breach of Trust Cases in Three Provinces (Battambang, Kompong Som and Kompong Cham) and the Municipality of Phnom Penh for the Years 2002-2005 Province/ Municipality

2003

unknown unknown

2004

2005

unknown unknown

Total By Percentage of Province Total 861

71.6%

Battambang

49

65

49

42

205

17.1%

Kompong Som

27

21

29

22

99

8.2%

Kompong Cham

3

4

13

17

37

3.1%

1,202

Total Breach of Trust Cases

Source of Information: Documents prepared by the individual provinces/municipality and supplied by the Ministry of Justice in April 2006.

APPENDIX 6

Phnom Penh10

2002

Table 2: Comparison of Breach of Trust Cases to Certain Other Crimes in the Municipality of Phnom Penh for the Years 2000-2005 Number of Cases

Percentage of Total Number

Breach of Trust

1,136

8.2%

Fraud

1,167

8.5%

Theft

2,159

15.7%

Robbery

1,663

12.1%

Battery

2,566

18.6%

Crimes

Total Number of Cases11

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13,770

Source of Information: Documents prepared by the municipality of Phnom Penh and supplied by the Ministry of Justice in April 2006.

10 Phnom Penh reported only an aggregate total for 2002-2005 and an aggregate total for 2000-2005. Table 1 uses the aggregate total for 2002-2005, while Tables 2 and 3 use the aggregate total for 2000-2005. This decision was dictated by the information available from the other provinces, each of which reported different data in a different form. 11 This represents the total number of criminal cases in Phnom Penh between 2000 and 2005, including many categories of crimes that are not included in Table 2.

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Table 3: Comparison of Breach of Trust Cases as a Percentage of Total Cases in Phnom Penh, Kompong Cham and Battambang for the Years 2000-2005. Province/ Municipality

Breach of Trust Cases

Total Number of Cases

Breach of Trust as Percentage of Total

Phnom Penh

1,136

13,770

8.2%

259

5,059

5.1%

58

3,368

1.7%

Battambang Kompong Cham

APPENDIX 6

Source of Information: Documents prepared by the individual province/municipality and supplied by the Ministry of Justice in April 2006.

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Appendix 7

The Joint Instruction by the Minister of Justice and the President of the Supreme Court on Criminal Breach of Trust

KINGDOM OF CAMBODIA Nation Religion King Ministry of Justice No. 02







Phnom Penh 08th August 2005

Joint Instruction

To: - President, Vice-President and Judges in all Provincial-Municipal Courts - Prosecutors, Deputy-Prosecutors of the Provincial-Municipal Courts Subject: Instruction on the implementation of Article 46 of the Transitional Criminal Law (1992). The Ministry of Justice and the Supreme Court have found that the application of Article 46 concerning “Breach of Trust” of the 1992 Transitional Criminal Law in courts throughout the country has not been consistent. Furthermore, [The Ministry of Justice and the Supreme Court have found that] the distinction between civil disputes arising from failure to perform a contractual obligation and [disputes arising from actions that constitute the] elements of Breach of Trust remains an issue that needs to be clarified. Breach of Trust is an act of embezzlement, [or] misappropriation of - or taking possession in partial or full violation of another’s rights – in property entrusted by the owner or possessor and which the owner [either] expects to get back, or expects results of any work from the person so entrusted. To provide a basis for prosecuting and rendering judgments, and for distinguishing [the differences] between civil disputes and Breach of Trust offenses, the Ministry of Justice and the Supreme Court hereby instruct all provincial-municipal courts

APPENDIX 7

MINISTER OF THE MINISTRY OF JUSTICE AND PRESIDENT OF THE SUPREME COURT

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and prosecutors’ offices to pay attention and take into consideration the following legal concepts stipulated in Article 46 of the UNTAC Law: Elements of the offence of Breach of Trust are:

APPENDIX 7

1. [The Breach of Trust offense] is stipulated in the law. That is, Article 46 of the UNTAC Law. 2. The offender has the intention to embezzle or misappropriate property entrusted by another party — that is, there is a clear intention not to return or show the property or results of [contracted] work [to the owner]—and [such act of embezzlement or misappropriation] was not caused by a [mitigating] incident [or] impediment; and there shall also be [an actual act of] embezzlement or misappropriation done by the person to whom the property is entrusted and is reflected by a failure to return property, or the misappropriation of the returned property in terms of quantity and quality. 3. The substance or target of the Breach of Trust provisions include: 4. Property, cash, merchandise, any document containing or stating an obligation or discharge entrusted in the form of lease, bailment, mandate, loan, or loan for payable or non-payable work, which is to be returned, represented, or utilized as designated by the owner to the entrusted person who lawfully receives the property under the following six types of contracts: [i] lease, [ii] bailment, [iii] mortgage, [iv] loan, [v] mandate, and [vi] work contract between workers or employees or not between employers and workers or employees. 5. There are damages to the interests of the owner, owner of the place, or possessor who entrusted the property.

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Other than the aforementioned six types of contracts, the Ministry of Justice and the Supreme Court would like to remind and request all judges to carefully consider failures to perform contractual obligations under civil contracts. These include purchase-sale, loan for consumption (such as contracts involved in the loan of cash), gift contracts to which an obligation is attached … [Under these contracts], even if the receiver of the property fails his/her obligation, for whatever reason, to return it to the giver of the property, it is not an act of misappropriation or embezzlement that constitutes a Breach of Trust. Damages to the interests of the owner of a property that does not constitute a Breach of Trust may be considered as another type of crime if so stipulated in the law. The Ministry of Justice and the Supreme Court will take measures in accordance

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with the law [to deal with] any non-compliance with this provision of the law. The Ministry of Justice and the Supreme Court hope that all judges will be vigilant in appropriately implementing the provision of Article 46 of the Transitional Criminal Law to protect the rights of the citizen [to enable them to take] part in the development of the national economy and to increase the public and investors’ confidence in the Cambodian judicial system and laws. The President of the Supreme Court Minister of the Ministry of Justice

H.E Dith Munty

H.E Ang Vong Vathana



[Seal and Signature]



CC: - Council of Ministers - Supreme Council of Magistracy - Prosecutor General attached to the Supreme Court - Court of Appeal and Persecutor - File and Chronology

[Seal and Signature]

APPENDIX 7 Private Sector Discussions No.23

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