its improper use and impact on the cambodian economy€¦ · was the primary author and was...

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Acknowledgements 5ExecutiveSummary 7

Chapter1:Introduction 111.Purposeof Study 112.WhatisBreachof Trust 113.WhydoesCambodiahaveaBreachof TrustLaw 124.WhyApplicationof theBreachof TrustLawisaProbleminCambodia 13

Chapter2:CriminalBreachof Trust 171.Elementsof CriminalBreachof Trust 172.PhysicalElementsof Breachof Trust 183.TheMentalElement–IntenttoCommittheCrime 214.TheNewCriminalCode 22

Chapter3:Misapplicationof Breachof TrustinCambodia 251.Misapplicationof theBreachof TrustLawisaProblem 252.Misapplicationof theBreachof TrustLaw:WhyandHow? 26

Chapter4:Breachof TrustCostingMillionsinLostInvestment 33

Chapter5:Recommendations&Conclusion 37

Appendix1–ResearchMethodology 43Appendix2–CaseStudies 47Appendix3–MediaReports 53Appendix4–BusinessSentimentSurveyResults 55Appendix5–TechnicalLegalAnalysisof Breachof TrustLaw 59Appendix6–Ministryof JusticeCaseData 73Appendix7–TheJointInstructionbytheMinisterof JusticeandthePresidentof theSupremeCourtonCriminalBreachof Trust 77

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Acknowledgements

This Discussion Paper on the improper application of the “Breach of Trust”provisionof Cambodia’s transitional penal codewaspreparedby anAdHocSub-Committee set up by the Government-Private Sector Forum’s (G-PSF)WorkingGrouponLaw,Tax, andGoodGovernance,which is co-chairedbyH.E.KeatChhon,SeniorMinister,Ministerof EconomyandFinance,andMr.BrettonSciaroni,ManagingPartnerof Sciaroni&Associatesandrepresentingtheprivatesector.TheAdHocSub-Committeeconsistedof representativesfromtheMinistryof Justice,thebusinesscommunity,andtheInternationalFinanceCorporation’s Mekong Private Sector Development Facility (IFC MPDF).

BothH.E.KeatChhonandMr.Sciaronihavebeenstrongsupportersof thisworkandprovidedusefulguidancetotheAdHocSub-Committeeduringthecourseof thestudy.Theircontinuoussupportledtothesuccessfulcompletionof thestudy.

Many people helped make this Discussion Paper a reality. H.E. Hy Sophea,Secretaryof State,andMr.SeungPanhavuth,Directorof ProsecutorialAffairs,both from the Ministry of Justice, assisted the Ad Hoc Sub-Committee toarrange interviewswith the judiciaryand toobtainstatisticsoncourtcases infive provinces. Mr. Eng Touch, Chief of the Private Sector Development Bureau of the Ministry of Economy and Finance, was instrumental in coordinatingthe work of the Ad Hoc Sub-Committee with the Ministry of Justice.

Ms.SengHunof Sciaroni&Associateswasanactiverepresentativeof theprivatesectorinmeetingswiththeMinistryof Justicetodiscussthevariousdraftsof thereport.JamesBrew,whocoordinatedtheG-PSFuntilDecember2007,helpedtofacilitatethediscussionwiththeAdHocSub-Committeebydistributingthedraft report to the private sector and coordinating the receipt of comments.Manybusinesspeopleparticipatedinthisworkbycooperatingwiththeresearchteamthroughdirect interviewsandresponding inwriting tosurveyquestions.

IFC MPDF Operation Officer Soneath Hor was principally responsible for the development of this Discussion Paper, and the work was carried outunder the supervision of Trang Nguyen and Charles Schneider. Stuart Fordwas the primary author and was supported by Dugald Richards and AnitaSurewicz, both of whom made significant contributions to the report.

Ann Bishop edited and proof read the manuscript and Kong Vannarithtranslated the document to Khmer. Khy Touk, Khemara Ros, and IengSophealeak edited the Khmer version and Kea Kunthea was responsiblefor graphic design and layout. Tonie Tan provided administrative support.

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Introduction

Thebusinesscommunity inCambodiahasexpressedconcernthat theBreachof TrustLawisusedinanimpropermanner,tothedetrimentof thebusinesscommunityandCambodia’seconomy.InJanuary2006,H.E.KeatChhon,SeniorMinister,Ministerof EconomyandFinance,createdanAdHocSubCommitteeto study breach of trust issues and make recommendations for clarification of thelawandimprovementof itsapplication.Thisreportistheproductof theAdHocSubCommittee’sworkandwascompiledfrominformationgatheredfrominterviewswithstakeholders,areviewof publiclyavailable information,andaseriesof interviewswithbusinesses.Improperuseandapplicationof theBreachof TrustLawislikelytobecostingCambodiamillionsof dollarsperyearinlostinvestments.Itishopedthattheinformationandrecommendationscontainedinthisdiscussionpaperwillcontributetoreducingthecostlyimpactof improperbreachof trustcasesontheCambodianeconomy.

Elements of a Breach of Trust

Breach of trust is a criminal offence defined in Article 46 of the “Provisions RelatingtotheJudiciaryandCriminalLawandProcedureApplicableinCambodiaduringtheTransitionalPeriod”(hereaftercalledthe“TransitionalCriminalLaw”).Breachof trustcanbebrokendownintothreephysicalelementsandonementalelement1.Theessentialphysicalelementsare:

Thepropertymusthavebeenentrustedtotheaccused;Theaccusedmusthavepromisedtoreturnthepropertytoitsowneroruse it for a specific purpose; andTheaccusedmusthavedisposedof ormisappropriatedthepropertyeitherbyrefusingtoreturnitorbyfailingtouseitfortheagreedpurpose.

Therequiredmentalelementisacriminalintent.Tohavetherequisitecriminalintent,theaccusedmusthaveintendedtodeprivetheownerof thepropertyandmusthaveknownthatwhathewasdoingwaswrong.Itcannothavebeensimplyamistakeoranaccident.

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1Atechnicallegalanalysisof thecrimeof breachof trustbytheprominentCambodianlawyer,MrKoyNeamisprovidedinAppendix5.

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Breach of Trust Cases in Cambodia

Thebusinesscommunityisof theopinionthatbreachof trustchargesareusedimproperlyduringbusinessdisputestopressurepeople intomakingpaymentsto their accusers. One of the most consistent complaints is that the courtsignore theelementsof thelawandtreatsimplecontractdisputesasbreachesof trust.Amajorcauseforthisisthecomplexityandambiguityof thelaw,whichcontributestotheproblemof simplecontractdisputesbeingtreatedasbreachesof trustbythecourts. Technically,mostcontractdisputescannotgiverisetoabreachof trustchargebecauseonlyasmallnumberof contractsinvolveonepartyentrustingtheotherpartywithsomethingthatmustbereturned.

Improperbreachof trustchargesaresaidtooftenbeusedasabargainingchiptoforcethesettlementof businessdisputes.Whilerecoveringmoneythrougha civil lawsuit can be complicated and time consuming, a criminal breach of trustcaseimmediatelyplacestremendouspressureontheaccusedtosettletheunderlyingbusinessdisputebecausewarrantsareissuedforthearrestof almostallpeoplechargedwithbreachof trust.

What Happens to People Charged With Breach of Trust

Peoplewhoarechargedwithcriminalbreachof trust face immensepressure.Warrantsareissuedforthearrestof almostanyonechargedwithbreachof trust,meaningthattheaccusedislikelytobearrestedandheldincustodyuntilheorshe is takenbeforean investigating judgeandapreliminarychargeof breachof trust is confirmed. At this point, it is very likely that the accused will be put inpre-trialdetention.This is the chief sourceof pressureon the accused, asalmostallof theintervieweesforthisstudystatedthatspendingtimeinjailoverabusinessdisputeissomethingtheywouldtrytoavoidatallcosts.Onceinpre-trialdetention, inordertobereleasedfromprision, theaccusedmayagreetomakeabailpayment,whichinmostcasesseemstorangefromthousandstotensof thousandsof dollars.Mostintervieweesstatedthatthereislittletonochanceof recoveringthebailpaymentregardlessof theoutcomeof thecase.

The Economic Impact on Cambodia

The effect of improper breach of trust cases on Cambodia is difficult to measure becausethereisnoeasywaytoestimatehowmanyof suchcasesoccureachyear.Nevertheless, the informationgathered for this report suggests that improperbreach of trust cases are a significant problem for the business community. There appear to be several types of costs associated with improper breach of trustcases. The most obvious costs are the direct ones – the lawyer fees and unofficial payments.Thenextcategoryof costsisbusinesslosses.Thelargestcategoryof costsassociatedwithimproperbreachof trustcasesislostinvestmentopportunity.ThiscostrepresentsthemoneythatwouldhavebeeninvestedinCambodiaif

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notforinvestors’concernoverbeingimproperlychargedwithbreachof trust.Theamountinlost investmentopportunityforthosesurveyedforthisreportexceeds $5 million per year. The clarification of the current Breach of Trust Law andimprovementinitsapplicationwoulddoagreatdealtoimproveinvestorconfidence and benefit the overall economy of Cambodia.

Summary of Report Recommendations

Basedonthisstudyof theBreachof TrustLaw,aswellasdetailedinterviewswith18businessesandkeystakeholdersand11surveyresponses,theAdHocSubCommitteemakesthefollowingrecommendations:

PassthedraftPenalCodeprovisionsonbreachof trust.

Focusonthekeyelementsof criminalbreachof trust(entrustmentandcriminalintent)by:

IssuinganewJointInstructionthatrequiresbreachof trustdecisionstoseparatelydiscusstheevidencesupportingeachelementof thecrime;

ProvidingtrainingtotheJudiciaryontheelementsof breachof trust,particularlyentrustmentandcriminalintent,inconjunctionwiththenewJointInstructionrecommendedabove;and

Publishingallbreachof trustdecisions.

Coordinatetheactivitiesof thegovernment,businesscommunity,civilsocietyandthemediatofocusscrutinyonbreachof trustcases.

Createamechanismforanonymousreportingof personswhosolicitunofficial payments.

Restricttheuseof pre-trialdetentionbyissuingformalguidelinesthatdescribewhenpre-trialdetentionisappropriate.

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Introduction

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1. Purpose of Study

The business community in Cambodia is concerned about the improperapplicationof theBreachof TrustLawanditsnegativeeffectonboththebusinesscommunityandCambodia’seconomy.Asearlyas1999,whenthegovernmentcreatedtheGovernment-PrivateSectorForumtofosterpublic-privatedialogue,theprivatesectorbegantoraisetheissueof improperuseof theBreachof TrustLaw,primarilythroughtheWorkingGrouponLawTaxandGoodGovernance(LTGGWG).Respondingtotheconcernsexpressedbytheprivatesector, theSeniorMinisterandMinisterof EconomyandFinance,H.E.KeatChhon,withtheassistanceof theInternationalFinanceCorporation’sMekongPrivateSectorDevelopmentFacility(IFCMPDF),createdanAdHocSubCommitteeof theLTGGWGtostudyissuesassociatedwiththeapplicationof theBreachof TrustLaw.

ThePrimeMinisterof Cambodia,H.E.SamdechHunSen,hasstressedthattheconfidence of investors in Cambodia can be secured by clarifying issues relating to theBreachof TrustLaw2.Forthisreason,itishopedthattherecommendationsexpressedinthisreport,whichistheproductof theAdHoc’sSubCommittee’swork,willcontributetothereductionof thecostlyimpactof improperbreachof trustcasesontheCambodianeconomy.

2. What is Breach of Trust

Breach of trust is defined in Article 46 of the Transitional Criminal Law. The crimeof abreachof trustiscomprisedof threekeyphysicalelementsandonementalelement.Theessentialphysicalelementsare:

Thepropertymusthavebeenentrustedtotheaccused;Theaccusedmusthavepromisedtoreturnthepropertytoitsowneroruse it for a specific purpose; and

Theaccusedmusthavedisposedof ormisappropriatedthepropertyeitherbyrefusingtoreturnitorbyfailingtouseitfortheagreedpurpose.

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2Summaryof PrimeMinisterH.E.SamdechHunSen’sspeechrelatedtotheissueof breachof trustatthe11thGovernment-PrivateSectorForum,January24,2007.

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The requiredmental elementof criminal breachof trust is a criminal intent.Theaccusedmustnotonlyhaveperformedeachof thephysicalacts,heorshemustalsohavepossessedcriminalintent.Tohavetherequisitecriminalintent,theaccusedmusthaveintendedtodeprivetheownerof herpropertyandmusthaveknownthatwhathewasdoingwaswrong.Itcannothavebeensimplyamistakeoraccident.

3. Why does Cambodia have a Breach of Trust Law

TheUnitedNationsTransitionalAuthorityinCambodia(UNTAC)wassetupinFebruary1992toimplementtheParisPeaceAccordsof October1991,theproductof intensediplomaticactivityovermanyyears. Its jobwas to restorepeaceandcivilgovernmentinthecountry,toholdfreeandfairelectionsleadingto a new constitution and to ‘kick-start’ the rehabilitation of the country. 3

UNTACreportedthatCambodiain1992lackedthebasiclegalinstitutionsandprocessesrequiredof alegalsystem.Theexistinglegalandinstitutionalstructureswere essentially thosewhichhaddevelopedover thepreviousdecade. Therewereinadequateornolegaltexts,whetheroncivillaw,contractsandproperty,criminallawandprocedure,rulesof court,evidence,orlaborlaw.Furthermore,institutionssuchasthepoliceandcourtswereunderrigidpoliticalcontrolbackedbyanactivemilitaryforce.

Politicalcontrolof the judiciaryandunsatisfactorypenal legislationpromptedUNTACtodrafttheProvisionsRelatingtotheJudiciaryandCriminalLawandProcedureApplicableinCambodiaduringtheTransitionalPeriod(TransitionalCriminalLaw),whichwasadoptedbytheSupremeNationalCouncilonSeptember10, 1992. This law formed the legal framework within which the courts andsecurityapparatusweresupposedtoworkduringthetransitionalperiod.Italsoemphasized the “independence of the judiciary and incorporated all relevantprovisions of the international human rights instruments into Cambodiannationallaw.”(HonoringHumanRights–AliceHHenkin)

TheTransitionalCriminalLawwasviewedbyUNTACasatemporarymeasure,which would quickly be replaced by more permanent legislation.4 UNTAC’smandatehighlightedan“urgentneed to indicate clearly to all theCambodianparties therulesof lawwhichmustbeappliedthroughoutCambodiaandthejudicialprocedureswhichmustbeputinplaceinordertoensuretheireffectiveapplicationduringthetransitionalperiod.”5

3Seeforexample,http://www.un.org/Depts/dpko/dpko/co_mission/untac.htm(accessed10December2007)

4EconomicandSocialCouncil5Seeforexample,http://www.un.org/Depts/dpko/dpko/co_mission/untac.htm(accessed10December2007)

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Today the Transitional Criminal Law remains a foundation for most of thesubstantivecriminallawinCambodia,includinginrelationtothecriminalbreachof trust.TheTransitionalCriminalLawwascreatedinahurryandwasintendedtobereplacedfollowingtheadoptionof theCambodianConstitutionandtheseating of the first National Assembly. Although the Cambodian constitution hasbeenadoptedformanyyears,theTransitionalCriminalLawisstill inuse.Perhapsthedrafterswouldhavemadedifferentdecisionsif theyhadrealizedtheTransitionalCriminalLawwouldstillbeinusewellintothe21stCentury.

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

A weak legal system, corruption and inappropriate application of laws, suchastheBreachof TrustLaw,deterforeign investmentandaffect thecountry’seconomic development. The World Economic Forum’s 2006 competitivenesssurveyrankedCambodia103outof 125countriessurveyed.6TheWorldBank’sDoingBusiness2008studyalsorankedCambodiaquitelowintermsof theeaseof doingbusiness,(145outof 178economiessurveyed).7Withmanyinvestorsreluctantto invest inCambodia, international tradeand investmentcomprisesaverysmallpartof economicactivityinCambodiaandisconcentratedinthegarmentmanufacturing,services,constructionandtourismindustries.

The inappropriate application of the Breach of Trust Law damages theCambodianeconomy.TheMinistryof JusticeandthePresidentof theSupremeCourt have recently issued a Joint Instruction acknowledging that improperapplicationof Breachof TrustLawisaproblemwhenitcomestotheprotectionof the rightsof the citizens to takepart in thedevelopmentof thenationaleconomy and increasing the public and investors’ confidence in the Cambodian judicialsystemandlaws.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.Totalingtheamountsreportedbythestakeholdersandbusinesspeopleregardingthe value of foregone investment opportunities turned down becauseof theriskof breachof trust,indicatesarangeof lostinvestmentworthbetween$3millionand$12.1milliondollarsforthosesevenindividualsalone.9

6TheGlobalCompetitivenessIndex(GCI),developedfortheWorldEconomicForumbyColumbiaUniversityProfessorXavierSala-i-Martinandoriginallyintroducedin2004.TheGCIisbasedon12pillarsof competitiveness:Institutions,Infrastructure,MacroeconomicStability,HealthandPrimaryEducation,HigherEducationandTraining,GoodsMarketEfficiency, Labor Market Efficiency, Financial Market Sophistication, Technological Readiness, MarketSize,BusinessSophisticationandInnovation.7DoingBusiness2008,WorldBank,2007.8SeeAppendix7.9SeeAppendix4.

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Improperapplicationof theBreachof TrustLawcandeterforeigninvestorsastheymaybeconcernedabout thepossibilityof criminal sanctionsbeingusedagainst themforbreachesof contractor simplyoutof malice.Foryears, thebusinesscommunityhas reported thatbreachof trustchargesare improperlyusedtopressurepeopleintomakingpaymentstotheiraccusersandthatsimplecontractdisputesareoftentreatedascasesof criminalbreachof trustbecausetheprovisionsof thelawareeithermisappliedormisunderstood.Theseprivatesectorconcernsarelegitimatebecauseindividualswhoarechargedwithbreachof trustarelikelytobeimprisoned,andif foundguilty,sentencedtojail.Inthepast judicial authorities havemisapplied the criminal Breachof TrustLaw tonon-criminalcontractandothercivildisputes,whichshouldhavebeendealtwithundercivilratherthancriminallaw.Thepracticeof turningcivilsuitsintocriminalonesisoneof themajorproblemswiththecourt’sapplicationof theBreachof TrustLaw.Thedistinctionbetweencivildisputesarisingfromfailurestoperformcontractualobligationsanddisputesarisingfromactionsthatconstituteelementsof breach of trust are still issues that need to be clarified. The clarification of thecurrentBreachof TrustLawandimprovementinitsapplicationwoulddoa 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.BrettonG.Sciaroni,Co-chairmanof theLaw,TaxandGood

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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,whichwasdraftedbystaff atUNTACandpassedbytheSupremeNationalCouncilonSeptember10,1992.Thisisthefoundationformostof thesubstantivecriminallawinCambodia.Article46of theTransitionalCriminalLawdescribesthecrimeof breachof trustasfollows:

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

Unfortunately, Article 46 is not concise and is complex and difficult to understand.SeveralCambodian lawyers interviewedfor thisstudycomplainedthatthelanguageof theprovision(boththeEnglishandtheKhmertexts)causesconfusionandcontributestotheproblemof improperbreachof trustcases.

There are several reasons for the complexity of the language used in Article46of theTransitionalCriminalLaw.First,thetextof theArticleisbasedoncomplexlanguageusedinArticle408of theFrenchCriminalCodeof 1810.TheCriminalCodeof 1810hasbeenreplacedinFrancewithmuchsimplerlanguagein the currentFrenchCriminalCode. It is unclearwhy the law supportedbyUNTACissocloselybasedonthelanguageof theoldFrenchPenalCode,butitwould 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 textisatranslationof atranslation.ThisalsoexplainswhyCambodianlawyersandscholarshavenotedthattheKhmertextlacksprecisionandisconfusing.

10There is no official English translation of the Transitional Criminal Law. The only official versionof thelawistheKhmertext.ThetranslationusedhereistheonethatwasproducedbyUNTAC and published by the Cambodia Office of the High Commissioner for Human Rights in“ASelectionof LawsCurrentlyinForceintheKingdomof Cambodia”(2001).OthershavetranslatedArticle46differently;forexample,theCouncilof Juristshasasomewhatdifferentversionof thetranslationavailableonitswebsite.

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Despitethecomplexandsometimesconfusinglanguageof Article46,theactualcrimeof breachof trustisfairlysimple.Itcanbebrokendownintoitsphysicalelementsanditsmentalelement.Thephysicalelementsrefertothosephysicalacts that the person accused of the crime (the accused) must perform to beguiltyof breachof trust. Thementalelementreferstotheintentwithwhichthe physical elements must be performed. The mental element is often themost important.Infact,manycrimeshave identicalphysicalelementsandaredistinguishedonlybytheintentof theaccused.

Forexample,undertheTransitionalCriminalLaw,voluntarymanslaughterandinvoluntarymanslaughterhavetheexactsamephysicalelement–thekillingof aperson.If thekillingisdonedeliberately(withtheintenttokilltheperson)thenthecrimeisvoluntarymanslaughter.Voluntarymanslaughterispunishedwith a prison term of eight to fifteen years. If the killing occurs as a result of “carelessness, negligence, inattention, or failure to heed regulations,” thenitisinvoluntarymanslaughter.Involuntarymanslaughtercarriesaprisontermof onlyonetothreeyears. Acompletelyaccidentalkilling,onewhichoccurswithouttheintenttokilloranycarelessnessonthepartof thekiller, isnotacrime at all. As these examples demonstrate, the mental element, the intentwithwhichthephysicalactsarecommitted,oftendeterminestheexistenceandseverityof thecrime.

2. Physical Elements of Breach of Trust

Althoughthelanguageof Article46isnotclear,thereareessentiallythreekeyphysicalelementstothecrimeof breachof trust.Theyare:

Property (including intangibleproperty)musthavebeenentrusted to theaccused;Theaccusedmusthavepromisedtoreturnthepropertytoitsowneroruseit for a specific purpose; andTheaccusedmusthavedisposedof ormisappropriatedthepropertyeitherbyrefusingtoreturnitorbyfailingtouseitfortheagreedpurpose.

Eachelementwillbediscussedbelow.Thisdiscussionisnotintendedtobeatechnicallegalanalysis.Rather,itisintendedtofocusonthekeyelementsandexplaintheminamannerthatisclearandunderstandable.Thetargetaudienceisthebusinesscommunity,donors,andtheRoyalGovernmentof Cambodia.Thereare some moderately difficult legal questions that can arise in a small number of casesthathavenotbeenaddressedinthisreport.AtechnicallegalanalysisthatwaspreviouslypublishedbyprominentCambodianlawyerKoyNeamhasbeenincludedasAppendix5forthosewhowantmoredetailedinformation.

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2.1 Property Must Have Been Entrusted to the Accused

The first physical element is that property must have been entrusted to the accused. Thisrequirementisfoundinthelanguage“anyproperty,money,merchandiseor document containing or establishing an obligation or release, which wasentrustedtothatpersonasrent,deposit,commission,loan,orremunerationforpaidorunpaidwork....”Thelanguageiscomplicated,but“property,money,merchandise,ordocumentscontainingorestablishinganobligationorrelease”canberestatedinmostcasessimplyas“property.”

Thenextpartof thephrasestatesthatthepropertymusthavebeenentrustedto the accused as “rent, deposit, commission, loan or remuneration for paidor unpaid work . . . .” This language is probably unnecessary. It describessixdifferenttypesof contractswhichcanbecreatedbyentrustingpropertytoanotherperson.Inpractice,entrustingpropertytoanotherwillprobablygiverise,eitherimplicitlyorexplicitly,tooneof thesesixkindsof contracts.Mostof thetimethekeywillbewhetherpropertywasentrustedtotheaccused,notwhichkindof contractwascreatedbetweentheaccusedandtheownerof theproperty.Consequently,thelanguageof thiselementof thecrimecanberestatedinmostcasesas:propertymusthavebeenentrustedtotheaccused.11

2.2 The Accused Must Have Promised to Return the Property totheOwnerortoUsethePropertyforaSpecificPurpose

Thiselementisfoundinthelanguage“havingpromisedtoreturnitortoofferitbackortoputittoanagreeduponuse....”Thiselementobviouslydependsonthe existence of the first element. The accused must have been entrusted with somepropertybeforeshecanpromiseto“returnitortoofferitbackorputittoanagreeduponuse.”Thislanguagedescribesthreethingsthattheaccusedmusthavepromisedtodowiththeproperty.First,theaccusedcanpromisetoreturntheproperty.Thiscoverssituationswheretheaccusedhasborrowedanitem,forexampleacar,andpromisedtoreturnittoitsowner.Theaccusedlawfullypossessesthepropertybecausetheownergave it toherwillingly,butshehasmadeapromisetotheownerthatshewillreturnit.Thislimitsherrightstotheproperty.Shecannotsellitorgiveitaway.Shemustreturnit.

The“offeritback”languageisaimedatasituationwheretheaccusedhasbeenentrusted with some property but promised to offer the owner a chance toreacquireitbeforetheaccuseddisposesof it.Forexample,theaccusedmighthaverentedapieceof farmequipmentforaperiodof threeyears.Theownerandtheaccusedagreethattheownerhastherighttore-purchasetheequipmentforasetfeeattheendof thethreeyearperiod.If theownerdoesnotwantto

11Theremaybesomecaseswheretheexistenceof thecrimeof breachof trustdoesdependonwhatparticularkindof contractwascreatedbetweentheaccusedandtheownerof theproperty. This is a difficult and technical subject and has been addressed by Cambodian scholars.Forexample,KoyNeam’sarticleentitled“Breachof Trust”(seeAppendix5)addressesthisissueinsomedetail.

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re-purchasetheequipment,thentheaccusedhastherighttosellittothehighestbidder.Incommonlawcountries,thiswouldbedescribedastakingthepropertysubject to a “right of first refusal.” The key is that the accused has made a promisetotheownerthatlimitshisrighttodisposeof theproperty.Hecannotsimply sell the property without first offering it back to the owner.

Thethirdwaythiselementmaybemetisthroughapromisetoputthepropertyto an agreed upon use. Again, the key here is that the accused has made apromisetotheownerthatpreventsherfromtreatingthepropertylikeitbelongstoher.Theclassiccaseisthatof theemployeewhoisentrustedwithmoneybyher 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 takeittothebankanddepositit.Shehasmadeanexpressorimpliedpromiseto use it for that specific purpose, and this limits her ability to treat it as her own money.Thekeytoeachof thethreepartsof thiselementisthattheaccusedhasmadeapromisetotheoriginalownerof thepropertythatlimitshisorherrighttodisposeof theproperty.Itisthedeliberateviolationof thispromisethatisabreachof trust.

2.3 The Accused Has Disposed of or Misappropriated the Property

Thiselementariseswhentheaccusedfailstocarryouthispromisewithregardstotheproperty.Itstemsfromthelanguage“anypersonwhomisappropriatesor disposes of [the property] against the interest of the owner, possessor orholder...”of theproperty.12Itrelatestothefailureof thepromisemadeinthe secondelement. If theaccusedpromised to return theproperty thenhemusttrytoreturnit.If hepromisedtoofferitback,hemusttrytoofferitback.If he promised to use it for a specific purpose, he must try to use it for that purpose.Misappropriationcanoccurinnumerousways,butthemostcommonare probably destroying the property, selling the property to a third person,keepingitandrefusingtoreturnit,orusingitforsomepurposeotherthantheonethatwasagreedon.So,forexample,misappropriationmightoccurwhensomeonewhohasborrowedamotorcyclefromafriendsellsthatmotorcycletoathirdperson.Equally,itmightoccurinasituationwhereanemployeewasgivenmoney to buy supplies for the office and instead gambles the money on a football match.Ineithercase,theactionsof theaccusedpreventhisorherpromisefrombeingcarriedout.

There is also a requirementof harm to theowner in this element. It is notenoughthattheaccusedhastechnicallyfailedtomeethispromise.Rather,the

12Thelanguage“owner,possessororholder”isusedinthelaw(ratherthansimply“owner”)tomakeitclearthatbreachof trustcanbecommittedagainstsomeonewhoisthelawfulpossessorof property,evenif thatpersonisnottheactualowner.Inmostcases,thedistinctionwillnotmatterbecausethepersonentrustingtheaccusedwiththepropertywillbetheactualowner.

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failuremustresultfromthemisappropriationordisposalof thepropertyagainsttheinterestof theowner.Inotherwords,thefailuremustbesuchthattheownercannolongerrecovertheproperty.So,forexample,if awomanrentedacarforaweekandreturneditadaylate,shewouldnothavemisappropriatedthecar.Itistruethatshedidnotmeetthestricttermsof herpromise,butheractionsdidnotdestroytheowner’sinterestinthecar.Thewomanmightoweanadditionalday’s rent,but shedidnot“misappropriateordispose”of thecarwithin themeaningof Article46.However,amanwhorentsatractorforaweektomovesomeearthonhispropertyandsellsittoathirdpersonhasmisappropriatedthetractorbecausetheownercannotgetitbackfromtheaccused.

3. The Mental Element – Intent to Commit the Crime

Tobeguiltyof criminalbreachof trust,anaccusedmustnotonlycommitthephysicalactsdescribedabove,buthemustalsoperformthemwiththeappropriateintent. It isnotenoughsimply that theaccusedcommitted thephysicalacts.Thiscanbedemonstratedwithtwosimpleexamples:

Amanborrows$500fromhisneighborsothathecanplantcorn. Hepromisestousethemoneytobuycornseedandfertilizerandalsopromisestoreturnthemoneyinsixmonths,oncethecornhasbeensold.Heplantscorn,butthereisaterribledroughtandallof hiscornplantsdie.Thereisnothinghecandotopreventit.Heisunabletorepayhisneighbor.

Amanborrows$500 fromhisneighbor, tellinghim thathe intends toplantcorn.Hepromisestousethemoneytobuycornseedandfertilizerandalsopromisestoreturnthemoneyinsixmonths,oncethecornhasbeen sold. But he does not intend to actually plant corn. Instead, heintendstotakethemoneyandmovetoPhnomPenh.Heknowswhenhetakesthemoneythathedoesnotintendtorepayhisneighboraftersixmonths.Shortlyaftertakingthemoney,hemovestoPhnomPenhanddisappears.

Itisobviousthatthesetwopeopleshouldnotbetreatedinthesamemanner.Oneisacriminal;theotheristhevictimof badluck.Yetbothhavecommittedthephysicalelementsof thecrimeof breachof trust.Bothhavebeenentrustedwithapieceof propertyandpromisedtoreturnit.Inbothcases,somethinghappenedtothepropertythatpreventeditfrombeingreturnedtotheowner.

The difference is the intent of the two men. The man in the first example did notintendtodefaultontheloan.Heplantedcornanddideverythinghecouldto fulfill his obligation. However, through no fault of his own, a drought killed his crop. Theman in the secondexample intended to commit a crime. Helied tohisneighbor aboutwhyhewanted themoney, andheknewwhenhetook it thathedidnot intend to return it. Shortlyafter receiving themoney

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hedisappearedandtookthemoneywithhim.Thisisampleevidencethatheintendedtocommitacrime.

Criminal intent is a required element of the crime of breach of trust. Theaccusedmustdeliberately intendher actions andmust know thatwhat she isdoingiswrong.Itcannotsimplybeamistakeoranaccident.Thisisclearfromtheuseof theword“misappropriate”inthetextof Article46.Misappropriatemeans to take something, but it also implies that the taking is done wronglyordishonestly. IntheirJointInstructiononBreachof Trust,datedAugust8,2005,theMinisterof JusticeandthePresidentof theSupremeCourtcametothe same conclusion. While the text of the Joint Instruction is confusing inplaces,itnotesthattheaccusedmusthavea“wickedwill”ormust“embezzleormisappropriate”theentrustedproperty.Inaninterviewwithstaff fromPhnomPenh Municipal Court, a prosecutor cited criminal intent as one of the keyelements in his decision on whether or not to file criminal charges. The Supreme Courthasalsorecognizedcriminalintentasarequisiteelementof thecrime.In2002, it releasedawomanfrompre-trialdetentionpartlybecauseevidenceof criminalintentwasabsentfromhercase.13

4. The New Criminal Code

TheTransitionalCriminalLawwillbereplacedbyanewCriminalCodesometimein2008.Article46willbeabolishedandanewbreachof trustprovisionwilltakeitsplace.Thenewbreachof trustprovision(assumingitisnotchangedbeforeitispromulgated)willbemuchsimplerthanthecurrentone:

Breach of trust is committed when a person, to the prejudice of otherpersons,misappropriatesfunds,valuablesoranypropertythatwashandedover to him and that he accepted subject to the condition of returning,redelivering or using them in a specific way.

Thenewbreachof trustprovisionwillnotbesubstantivelydifferentfromtheexistingone.Itwillfocusonthesamethreephysicalelementsandincludethesamementalelement.Essentially,theonlychangehasbeentoremovesomeof thelanguagethathasledtoproblemswiththeinterpretationof Article46.Forexample, there is no longer any reference to the specific kind of contract that is createdbyonepersonentrustingpropertytoanother,ortowhetherornotthecomplainantistheowner,possessororholderof theproperty.Thesechangesare beneficial and should make the law easier to understand and apply.

13SeeKeoTam,complainantv.ChhunNaySuor,accused(SupremeCourtof Cambodia,CriminalCaseNumber62,datedSeptember4,2001,VerdictNumber4,datedJanuary9,2002).

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Misapplication of Breach of Trust in Cambodia

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

Thebusinesscommunityhasbeenconcernedaboutthemisapplicationof theBreachof TrustLaw.TheresearchconductedbytheAdhocCommitteegenerallysupports the position taken by the business community about the improperapplicationof Breachof TrustLaw.Itappears that theproblemof improperbreach of trust is a significant issue for the business community and while the statisticsbelowarenotrepresentative,theyhighlightthekindsof issuesandcostsassociatedwithimproperbreachof trustcases.Notonlyisthereanunusuallyhighnumberof breachof trustcases inPhnomPenh,but thestatisticaldataindicatesthatacriminalbreachof trustchargeplacesagreatdealof pressureontheaccusedbecauseof thehighpossibilityof arrestandpre-trialdetention.14

8.2%of casesinPhnomPenharebreachof trustcases(seeAppendix6).Eventhoughit isimpossibletodeterminehowmanyof theseareimproperbreachof trustcases,thisisalotwhenoneconsidersthattherewerealmosthalf asmanybreachof trustcasesastheftsorbatteries.

Awarrantwasissuedforthearrestof theaccusedin33outof 34(97%)of thecasesinthemediadatabaseforwhichinformationontheuseof arrestwarrantswasavailable(seeAppendix3).

The accusedwasplaced inpre-trial detention in29outof 31 (94%)of thecasesinthemediadatabaseforwhichinformationonpre-trialdetentionwasavailable(seeAppendix3).

In13outof the36casesreviewedinthemedia,thecomplainantclaimeddamagesinexcessof $100,000.

TheJointInstructionof theMinisterof JusticeandthePresidentof theSupremeCourtacknowledgedthattheapplicationof thecriminalBreachof TrustLawincourtshasnotbeenconsistentandinstructs“allprovincial-municipalcourtsandprosecutors’ offices to pay attention and take into consideration the following legal concepts stipulated in Article 46.” In particular, the Joint Instructionemphasizes that thedistinctionbetween civil disputes arising from failures toperformcontractualobligationsanddisputesarisingfromactionsthatconstituteelements of breach of trust are still issues that need to be clarified.

It appears that both the Government and the business community share thesame concerns in relation to cases of improper breach of trust. While it is

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14DataprovidedbytheMinistryof 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 andthatthisnegativelyimpactstheCambodianeconomy.

2. Misapplication of the Breach of Trust Law: Why and How?

A. Contract Disputes Can Lead to Criminal Breach of Trust Charges

TheJointInstructionissuedbytheMinisterof JusticeandthePresidentof theSupremeCourtrecognizesthat inthepast judicialauthoritieshavemisappliedthe criminal Breach of Trust Law to contract and other civil disputes, whichshouldhavebeendealtwithundercivilratherthancriminallaw.

Thedistinctionsbetween civil disputes arising from failures toperformcontractualobligationsand[disputesarisingfromactionsthatconstitute]elements of breach of trust are still issues that needed to be clarified. 15

Moreover, the Joint Instruction explicitly emphasizes that criminal breach of trustprovisionsshouldnotbeusedinthecaseof matterswheretherequisiteelementsof acriminalbreachof trustarenotpresent.

Even if the receiver of property fails [to fulfill] his or her obligation, for whatever reason, [including a failure] to return it [property] to thegiverof theproperty,[suchfailure]isnotanactof misappropriationorembezzlementthatconstitutesabreachof trust.16

The business community and other stakeholders, however, have expressedconcernthattheBreachof TrustLawhasnotalwaysbeenappliedappropriatelyand in linewiththeJointInstruction.Oneof themostconsistentcomplaintsis that simple contract disputes are often treated as cases of breach of trustbecausetheprovisionsrequiringentrustmentandcriminalintentasanelementof thecrimeof breachof trustarenotimplemented.Almosteveryinterviewee–businesspersonorlawyer,Cambodianorforeigner–raisedthiscomplaint.17Allelevenrespondentstothesurvey(seeAppendix4)statedthattheBreachof TrustLawisappliedfairlyeither“almostnever”oronly“someof thetime.”

Mostcontractdisputescannotgiverisetoabreachof trustchargebecausemostcontractdisputesdonotcontainallthephysicalelementsandthementalelement

15JointInstructionNo.2,8August2005,of theMinisterof JusticeandthePresidentof theSupremeCourt.16JointInstructionNo.2,8August2005,of theMinisterof JusticeandthePresidentof theSupremeCourt.17Inadditiontorecognitionof thisproblemintheJointInstructiononbreachof trust,theproblemhasalsobeenrecognizedbyCambodianlegalscholars,suchasKoyNeam,whodevotedanentiresectioninhisarticleonbreachof trusttoexplainingwhythefailureof acontractorcontractnegotiationsisnotautomaticallyabreachof trust(seeAppendix5).

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of thecrimeof breachof trust.Forexample,breachof trustrequiresthattheaccusedbeentrustedwithpropertybelongingtothecomplainantandthatheorshe promises to return this property or use it for a specific purpose. Only a small numberof contractsinvolveonepartyentrustingtheotherwithsomethingthatmustbereturned.Themostcommonformof contract,acontractforthesaleof goods,canneverresultinabreachof trustbecauseneitherpartyentruststheotherwithpropertythatmustbereturned.

Even if a contract involving the entrustment of property does exist, thefailureof onepartytoperformtotheotherparty’ssatisfactionstillshouldnotautomatically result incriminalcharges. The failureof thecontractmaygiverise toacivilcomplaint fordamages,but it shouldnotgiverise toacriminalbreachof trustchargeunlessthereisevidencethatthecontractfailedbecauseof thecriminalintentof theaccused.Thefailureof abusinessorthelossof theentrustedproperty isnotevidence,on itsown,of criminal intent. Theremustbesomeevidencethattheaccusedtookthepropertyintendingtostealormisappropriateit.

FiveCaseStudieshavebeencomposedtodemonstratethekindsof problemswhichconcernthebusinesscommunityinrelationtocriminalbreachof trust(seeAppendix2).CaseStudies1,2and3arecompositesbasedoninterviewswithindividualswhogaveaccountsof criminalBreachof Trustcasesandlawyerswhohavedefendedpeopleinsuchcases.CaseStudies4and5arebasedoncourtdecisionsincasesinvolvingcriminalbreachof trust.

CaseStudies1and3areexamplesof howsimplecontractdisputeshaveresultedinbreachof trust charges.18 InCaseStudy1, it isMr.Cwhobreaches thecontractbyfailingtodelivertheagreedgoods.Yet,Mr.Aischargedwithbreachof trustwhenherefusestopayonthecontract.Itisclearthatthiscannotbeabreachof trustcasebecauseMr.Cneverentrustedanything toMr.A,nordidMr.AmisappropriateanythingfromMr.C.Instead,itappearsthatMr.Cbreachedacontractforthesaleof goods.Thisimproperbreachof trustcasecost 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 notentrustedanythingtoCompanyH,norwasthereanyevidencethatCompanyHhadmisappropriatedanything.Infact,itisnotevenabreachof contract.Thecontractbetweenthecomplainantandtheaccusedwasacontractforasetperiodof time,anditexpiredonitsownattheendof thatperiod.Thechargesseemto have arisen solely out of the complainant’s desire to prevent Company Hfromsecuringanotherdistributorforitscomputerequipment.Thecomplainantwasultimatelysuccessful,asCompanyHwithdrewfromtheCambodianmarketentirely.

18Thesecasestudiesarebasedontheexperiencesof realpeople.However,theidentifyinginformationinthestorieshasbeenchangedtoconcealtheidentitiesof theparticipants.

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B.UnofficialPaymentsAppeartoPlayaSignificantRolein Improper Breach of Trust Cases

HowcouldthesituationsinCaseStudies1and3,whichdonotinvolvebreachof trust,haveresultedincriminalproceedings?Manyinterviewsubjectsblamedimproper breach of trust cases on persons trying to elicit unofficial payments. Severalindicatedthatitispossibletopayaprosecutortobringacriminalbreachof trust case against abusinesspartnerorbusiness rival. One interviewee, aCambodian lawyer, said the payment could start from as little as $1,000 forrelativelysmallcasesandgomuchhigherif alotof moneywasatstake.Nineoutof ten survey respondents said that breach of trust charges are filed improperly “someof thetime,”“mostof thetime,”or“almostalways.”Eightoutof elevensurvey respondents (see Appendix 4) said that unofficial payments “almost always”affectsbreachof trustcases,whiletheremainingthreerespondentssaidthat unofficial payments affects breach of trust cases “most of the time.”

Why are complainants willing to pay to have people charged with crimes?Improperbreachof trustchargesareoftensaidtobeusedasbargainingchipstoforcethesettlementof businessdisputes.Whilerecoveringmoneythrougha civil lawsuit can be complicated and time consuming, a criminal breach of trustchargeimmediatelyplacestremendouspressureontheaccusedtosettletheunderlyingdispute.

Inalmostallcases,warrantsareissuedforthearrestof apersonchargedwithcriminal breach of trust. This conclusion is supported by the summary of informationfoundinthemedia(seeAppendix3).AnintervieweeforthisreportsaidthatitiscommonpracticeforpeopletobearrestedonFridayafternoonsandhelduntilTuesdayorWednesdayof thefollowingweek.Furthermore,pressuremaybeplacedontheaccusedtopaytheallegedlymisappropriatedmoneyonthespot.Forexample,inCaseStudy1,Mr.Awasrepeatedlytoldthathewouldbereleasedif hepaidthe$80,000thathehadallegedlymisappropriated.ItappearsthatsometimesaccusedpersonsmaybedetainedlongerthanispermittedunderCambodian law inorder to elicit the largestpossible amountof the allegedlymisappropriated money and settle the case prior to the accused appearing incourt.

If theaccusedrefusestopay,heorshewillbebroughtbeforeaninvestigatingjudge and a preliminary charge of breach of trust will be confirmed. The intervieweesstatedthatinalmostallcases,theaccusedwillbeplacedinpre-trialdetention.ThemediadatabasesummaryinAppendix3isconsistentwiththisconclusion,with29outof 31 (94%)of thecases forwhich informationwasavailableresultinginpre-trialdetention.19Thelengthof timethatpeoplespent

19Incontrasttotheinformationprovidedbyintervieweesandthemediadatabase,membersof thejudiciarystatedthattherateof pre-trialdetentioninbreachof trustcasesis“quitelow.”Theysuggestedthattheresultsof themediadatabasecouldbeexplainedbythepoorqualityof Cambodiannewspapers.

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in pre-trial detention varied greatly. According to the media database, somepeoplespentmonthsinpre-trialdetention,whileothersmanagedtoarrangebailinamatterof days.

Pre-trialdetentionisthechief sourceof pressureontheaccused. Allof thebusinesspeople interviewed agreed that spending time in jail over abusinessdisputeissomethingtheywouldtrytoavoidatallcosts.InCaseStudy1,itwastheprospectof spendingweeksormonthsinpre-trialdetentionthateventuallyledMr.Atopay$40,000.Similarly,inCaseStudy3,thethreatof arrestandpre-trialdetentionpreventedCompanyH’semployeesfromevenvisitingCambodia.Sixof theeightsurveyrespondentssaidtheywere“veryconcerned”abouttheprospectof spendingtimeinjailoverabreachof trustcase.Mostinterviewees,aswell as the survey respondents, also agreed that theywerevery concernedaboutthepotentiallossof money,businessandreputation.

Afterbeingplaced inpre-trialdetention, theaccusedhas theright topetitiontheinvestigatingjudgeforrelease.If thatpetitionisrefused,theaccusedhastheright toappeal thedecisiontotheAppealsCourt. However, thisprocesscanbeslowandthereisnoguaranteethattheaccusedwillbereleased.Inthemeantime,theaccusedremainsinjail.20Severalintervieweesindicatedthatitispossibletopaymoneytogetoutof pre-trialdetention.Thispaymentmaybedescribed as “bail,” but in reality it is an unofficial payment to be released from prison.Thereislittlechanceof theaccusedeverrecoveringthemoney,evenif heorsheeventuallysucceedsinhavingthechargesdismissed.

Mostof the interviewees agreed that the amount that it costs tobe releasedfrom pre-trial detention varies depending on the amount of money at issuein the lawsuit. The more money the complainant demands, the larger is thepaymentnecessarytobereleasedfromjail.Oneintervieweestatedthatitcostsaminimumof $20,000. InCaseStudy1,Mr.Apaid$40,000,orhalf of theamountallegedtohavebeenmisappropriated.In13of the36casesthatcamefromCambodiannewspapers, the complainant claimeddamages in excessof $100,000. It ispossible thatbailpayments in thesecases, if theyweremade,weretensof thousandsof dollarsforeachcase.Severalintervieweesindicatedthatonce“bail”hasbeenpaid,thechargesareusuallyeitherwithdrawnbythecomplainantordismissedbythejudge;inothercases,actiononthecasemaysimplystop.

Intervieweesindicatedthatthemajorityof improperbreachof trustcasesaresettledbeforetrialthroughsomesortof paymentbecausefew,if any,wishtotaketheriskof beingfoundguiltyandsentencedtoprison.Thismayexplainone apparent oddity concerning the information collected from Cambodiannewspapers – there appear to be far more breach of trust cases being filed than

20Forexample,thewomaninCase4dideventuallygetoutof pre-trialdetention,afterpetitioningallthewaytotheSupremeCourt.Shespenteightmonthsinpre-trialdetentionduringtheappealsprocess.

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therearetrials.Whiletheremaybemanyreasonsforthisphenomenon,includingthesample’snon-representativenature,italsohappenstobeconsistentwiththeinterviewees’statementsthatmostbreachof trustcasesaresettledbeforetrial.

OnAugust5,2005,theMinisterof JusticeandthePresidentof theSupremeCourtissuedaJointInstructiononhowtointerpretArticle46of theTransitionalCriminalLaw. TheJointInstructionhighlightedthelackof uniformity intheapplicationof Article46andstressedtheneedforthecourtstodistinguishbetweenbreachof contractandbreachof trust.Itwasissuedpartlyattherequestof theprivatesector,anditwashopedthatitwouldhelpeliminateimproperbreachof trustcases.Mostof thelawyerswhowereinterviewedhaveheardof theJointInstruction,andtwoof themindicatedabelief thatithashelpedthesituation.Onelawyersaidthathefeltthatthecourtswerenowmorecarefulregardingtheapplicationof Article46duetotheirperceptionthatboththegovernmentandtheprivatesectorarescrutinizingbreachof trustcasesmorecarefully.AnotherindividualacknowledgedthattheJointInstructionmayhavehelped,buthewasconcernedthatanypositiveeffectwouldfadeovertimeif itsmessagewasnotreinforcedperiodically.Both judiciarymemberswhowere interviewedforthisreportwereawareof theJointInstructionandstatedthatithadboth:1)helpedthemtoanalyzetheelementsof breachof trust;and2)alertedthemtobemorecautiousinchargingpeoplewithbreachof trust.

C. The System Can Work Properly

While Breach of Trust Law often seems to be misapplied, cases involvingpoor people where large sums of money are not at issue appear to proceedmorenormally. For instance,CaseStudy2 isanexampleof howthesystemissupposedtowork.Thecasestartedoutsomewhatbadly,withMrs.Tbeingincorrectlychargedwithbreachof trust.Shewasentrustedwithproperty,whichshepromisedtoreturn,andwhichshefailedtoreturn.However,becauseshelost theproperty unintentionally, and shedidnot pawn it, sell it or refuse toacknowledgethatshehadborrowedit,consequentlyshelackedthecriminalintentnecessaryforbreachof trust.Shewasputinpre-trialdetentionfortwomonths,whichwasprobablyunnecessary. However,her lawyerwasabletosecureherreleasefromjailwithouthavingtomakeapayment.Herlawyerwasthenabletosuccessfullyarguetothecourtthatthefactsof thecasedemonstratedthatMrs.Thadnothadanycriminalintent.Theinvestigatingjudgeagreedanddismissedthecharges. Afterstartingoutpoorly, theproperresultwasachievedwithoutMrs. T having to make any unofficial payments.

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Breach of Trust Costing Millions in Lost Investment

Statisticsonbreachof trustcasesarenotpubliclyavailable,whichmakesithardto accurately calculatehowmanybreachof trust cases there are each year inCambodia.TheMinistryof JusticeprovideddatatotheAdHoccommitteeforthis report and it appears the totalnumberof breachof trust casesper yearisprobably in thehundreds (seeTable1,Appendix6).21 There isnowaytoaccuratelyestimatewhatpercentageof thesecasesshouldbeconsideredimproper.Nine out of ten survey respondents said that breach of trust charges are filed improperly“someof thetime,”“mostof thetime,”or“almostalways,”andmostof theintervieweesagreedthatimproperbreachof trustcaseswereapervasiveproblem.However,sincethesurveyandtheinterviewsarenotrepresentative,this finding cannot be applied to all breach of trust cases. Nevertheless, it does seemsomewhatsurprisingthat8.2%of thecasesinPhnomPenharebreachof trustcases.Therewerealmosthalf asmanybreachof trustcasesastheftsorbatteries(seeTable2of Appendix6).Ultimately,theinformationgatheredforthis report suggests the problem is a significant issue for the business community, even if there isnoway tomakeanaccurateestimateof howmany improperbreach of trust cases are filed each year.

Theinformationcollectedforthisreportisnotcomprehensive.Boththesurveyand the interviews were probably skewed by a self-selective bias among therespondents. Therefore, it is difficult to extrapolate an overall figure for the economicimpactof breachof trustcasesonCambodiafromtheintervieworthe survey results. However, the findings can be useful in two ways. First, they canhelp in identifyingthekindsof costsassociatedwith improperbreachof trustcases,andsecond,theycanbeusedtoestimatethecostsfortheindividualsandcompanieswhowereinterviewedorsurveyed.

Thereappeartobeanumberof waysinwhichimproperbreachof trustcasescouldbeimpactingtheCambodianeconomy.Themostobviouscostsarethedirect ones – the lawyers’ fees and unofficial payments associated with being sued forbreachof trust.Variousnumberswereadvancedforthesedirectcosts.Oneinterviewee indicated that the cost of being released from pre-trial detention

21PhnomPenhMunicipalCourtisaveragingmorethan200breachof trustcasesayear,althoughitappearsthatPhnomPenhisalsothelargestsourceof breachof trustcasesinCambodia.

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wasatleast$20,000,whileseveralintervieweessaidthatthecostwassubstantialbutdependedontheamountof moneyallegedlyatstake.InCaseStudy1,Mr.Aspent$40,000onbailandanother$20,000onlawyers’fees.The10surveyrespondentsoverwhelminglyansweredthatthecostsof beingsuedforbreachof trustwerebetween$5,000and$50,000dollars. While it isnotpossible tocalculatetheaveragecostsof improperbreachof trustcasesinCambodiawithanycertaintyfromthisdata,theanecdotalevidencesuggeststhatitrangesfromthousandstotensof thousandsof dollarspercase.

Thenextcategoryof costsarethebusinesslossescausedbybeingsuedforbreachof trust–lossof businessresultingfromtimespentinjail,damagetoreputation,etc.Onceagain,itisimpossibletoputaconcretevalueonthisamount.Thesurveydidnotaskrespondentstoseparatedirectcostsfromthebusinesslossescaused by being sued, and none of the interviewees were willing to put a definitive numberonbusinesslosses,otherthantosayitwas“substantial.”

Athirdcategoryof costsrelatestothethreatthatabreachof trustcasemaybefiled. Several of the lawyers interviewed complained that other lawyers routinely threaten to file breach of trust cases when asking for money during negotiations orcontractdisputes.Theseareunderstoodasveiledthreatstohavetherecipientimprisoned if heor shedoesnotpay themoney. The interviewees said thatwhile there is almost alwaysnobasis for abreachof trust claim tobemade,theincidenceof improperbreachof trustcasesiscommonenoughthattheirclientssometimespaymoneytotheiraccuserssolelytoavoidtheriskof beingembroiledinsuchcases.Itisnotpossibletoquantifytheamountof moneythatchangeshandseachyearbecauseof thesethreats.

The final, and probably the largest, category of costs is lost investment opportunities.Thiscategorycoversbusinessdealsthatwouldhavebeenmadeif notforthefearof beingsuedforbreachof trust.Almostallof thebusinesspeople who were interviewed indicated that they had declined investmentopportunities thatwerepresentedtothembecauseof their fearof breachof trustcharges.Thosewhohadactuallybeensuedforbreachof trustappearedto be the most cautious. Most of the commercial lawyers and businessconsultantsreportedhavingcounseledtheirclientstobeselective inchoosingbusinesspartnersbecauseof improperbreachof trustclaims.Of thetensurveyrespondents(seeAppendix4),threeindicatedthattheyturneddowninvestmentopportunities“veryoften,”threesaidtheydidso“often,”andthreesaidtheydidso“sometimes.”Onlyonerespondentreportedneverhaving turneddownaninvestmentopportunitybecauseof theriskof breachof trustcharges.

It is impossible to generalize from the interview and the survey results to a figure foroverall lost investmentopportunities inCambodia. However, totaling theamountsreportedbytherespondentstothequestion“whatisthevalueof theinvestmentopportunitiesyouhaveturneddownbecauseof theriskof breachof trust?” indicates a range of lost investment between $3 million and $12.1

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milliondollarsforthesevenindividualswhotookpartinthesurveyalone.Theresults are summarized in the table below. The interviewees were asked thesamequestion,andtheaggregateamountof declinedinvestmentopportunitiesreportedamongst themexceeded$5milliondollarsperyear. Together, thesefigures represent the lost investment opportunities among less than a dozen individualsandcompanies.Whiletheindividualsandcompaniesmayrepresentthose who have declined the most business, the findings still do indicate that improperbreachof trustcasesarecostingCambodiamillions,andpossiblytensof millions,of dollarsperyearinlostinvestment.

Howmuchdoyouthinkitcoststobesuedforbreachof trust?

Howoftenhaveyouturneddowninvestmentopportunitiesbecauseof theriskof breachof trust?

Whatisthevalueof theinvestmentopportunitiesyouhaveturneddownbecauseof theriskof breachof trust?

1 $5,000-$50,000 VeryOften $1-5Million

2 $5,000-$50,000 Often $250,000-$500,000

3 $5,000-$50,000 VeryOften NoAnswer

4 $5,000-$50,000 Sometimes NoAnswer

5 $5,000-$50,000 Never NoAnswer

6 LessThan$5,000 Sometimes LessThan$50,000

7 $5,000-$50,000 Often $250,000-$500,000

8 $5,000-$50,000 Sometimes NoAnswer

9 $5,000-$50,000 VeryOften $1-5Million

10 $5,000-$50,000 Often $500,000-$1Million

11 NoAnswer NoAnswer LessThan$50,000

Total = $3,000,000 - $12,100,000

Theinformationinthistablewasobtainedfromanon-randomsurveyof Cambodianbusinesses.

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Recommendations & Conclusion

Recommendations

Reducing the Impact of Criminal Breach of Trust Cases on the Cambodian Economy

Variousmechanismstoreducetheimpactof improperbreachof trustcasesweresuggestedby,anddiscussedwith,theinterviewees.Inaddition,thesurveyaskedrespondentstoprovidetheiropinionontheeffectivenessof anumberof possiblereforms.Thesurveyalsohadtwoblankswheretherespondentscouldwriteintheirownrecommendations,whichseveralrespondentsdid.Thesesuggestionsanddiscussionswereevaluatedinlightof thealltheinformationgatheredforthisreport,andresultedinthefollowingrecommendationsforreducingtheimpactof impropercriminalbreachof trustcasesontheCambodianeconomy.

Pass the Draft Penal Code Provisions on Breach of Trust

ThedraftPenalCodeprovision that relates tobreachof trust ismuchbetterthantheexistinglaw.Itretainsthesamecoreelementsbutusesmuchsimplerlanguageandwouldprobablycauselessconfusion.Itshouldbeadoptedassoonaspossiblewithitspresentlanguage.

Focus on the Elements of Entrustment and Criminal Intent

Onewaytodecreasetheimpactof criminalbreachof trustcasescanbetofocusattentionontheelementsof entrustmentandcriminalintent.Inmostimproperbreachof trustcases,thecomplainantwillnothaveentrustedtheaccusedwithanyproperty,andtherewillprobablybenoevidenceof criminalintent.Indeed,as Case Studies 1 and 3 demonstrate, there may even be evidence that thecomplainantistheonewhohasfailedinhisorherobligations.Consequently,byrequiringstrictproof of entrustmentandcriminalintent,itmaybecomeeasiertoidentifyandavoidimproperbreachof trustcases.

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 ensureconsistency and clarity inbreachof trust cases, andhelp to ensure that each

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of theelementsof thecrimeareseparatelyandproperlyaddressedbyjudicialofficers prior to a guilty finding in breach of trust cases. Such judicial guidelines needtospecifythatalljudicialdecisionsaretocontainseparatediscussionsof theevidencesupportingeachof theelementsof breachof trust.Thiswouldthenmake itmoreobvious if evidence foroneormoreof theelementswaslacking.Acleardiscussionof theevidencesupportingeachelementof thecrimeinthetrialcourt’swrittenopinionwouldalsohelpnarrowtheissuesonappealandreducetheburdenonthehighercourts.

Provide Training to the Judiciary on the Elements of Breach of Trust, Particularly Entrustment and Criminal Intent

Amajorityof the survey respondentsbelieved thatproviding training for thepoliceandjudgesonbreachof trustcaseswouldresultina“bigimprovement”in the situation. Thewordingof theBreachof TrustLaw is confusing, andadditional training may provide some benefits. If such training is conducted, it should focuson theneed forproof of eachof theelementsof thecrime,particularlyentrustmentandcriminalintent,andcouldbegiveninconjunctionwiththeissuanceof thenewJointInstructionsuggestedabove.

Publish All Breach of Trust Decisions

Publication of breach of trust decisions would help keep the focus on theelementsof entrustmentandcriminalintentbecauseitwouldallowforscrutinyof thereasoningbehindtherulings.Thelackof accesstojudicialdecisionsinCambodia makes it difficult to monitor whether cases involve sufficient evidence oneachof theelementsof thecrime.

TheLegalandJudicialReformCouncilhasrecommendedthatcases inwhichArticle46isappliedbepublished.Thisisapositiverecommendationandit ishopedthatitsimplementationwouldshedlightonthemannerinwhichArticle46isapplied.

Coordinate with Government, the Business Community, Civil Society, and the Media to Closely Scrutinize Breach of Trust Cases

Thisrecommendationaroseoutof commentsmadebyintervieweesabouttheAugust2005JointInstructiononbreachof trustissuedbytheMinisterof JusticeandthePresidentof theSupremeCourt.Oneinterviewee,aCambodianlawyer,saidthathefeltthesituationhadimprovedsincetheJointInstruction’sissuancebecausecourtpersonnelbelievedthattheiractionswerebeingevaluatedbythegovernment.Thismakessense,andsuggeststhatcloserscrutinyof breachof trustcaseswouldbehelpful.Thereareanumberof waysthiscouldbedone,includingclosertrackingof breachof trustcasesbytheMinistryof Justiceor

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theSupremeCouncilof Magistracy.Civilsocietyandthemediacouldalsoplayaroleinhighlightingandbringingattentiontopotentiallyimpropercases.Thereisaneedforbettercooperationbetweentheprivatesector,civilsociety,themediaandthegovernmenttodothis.Recognizing the need for scrutiny of breach of trust cases, the Minister of Justiceissuedaninstructionallettertothecourtsandprosecutorson2October2006statingthattheBreachof TrustLawhadnotbeenimplementedcorrectlyandthatfromthattimeforward,theMinistryof Justicehadtobeinformedof casesinvolvingbreachof trustagainstinvestors.

Create a Mechanism for Anonymous Reporting of Persons who Solicit UnofficialPayments

Thisrecommendationisrelatedtotheideaof closerscrutinyof breachof trustcases ingeneral. Individuals inpowerwouldprobablybe less likely tosolicitunofficial payments if they knew that the accused could report them to someone whowould investigate theallegation. Therefore, itwouldbehelpful if therewasananonymousandindependentmechanismforindividualsorcompaniestoreportindividualswhoactimproperly.Onethingthatisclearfromthisreportisthatindividualswillnotreportimpropercasestoanyoneunlesstheyareassuredof completeanonymity.

Restrict the Use of Pre-Trial Detention By Issuing Formal Guidelines That Describe When Pre-Trial Detention Is Appropriate

Mostof theintervieweesandallof thesurveyrespondentsbelievethatrestrictingtheuseof pre-trialdetentioninbreachof trustcaseswouldbeanimprovement.Thesurveyrespondentswerefairlyevenlysplitaboutwhetheritwouldbeaslight,moderate or big improvement. The threat of pre-trial detention is themainsourceof pressureonbusinesspeopletomakepaymentsinimproperbreachof trustcases.Therefore,itmakessensethatrestrictingtheuseof pre-trialdetentionwouldreducetheimpactof impropercases.ItwouldalsobeconsistentwiththeTransitionalCriminalLaw,whichstatesthatpre-trialdetentionistobeusedonlywherethereisagenuineriskof theaccusedescaping.

This recommendation could be implemented through written guidelines tothejudiciarythatexplainindetailwhatfactorsitshouldevaluatetodeterminewhether an accused person is a flight risk. For example, those with extensive ties toCambodia (immediatefamily,property,businesses,etc.)couldbeexemptedfrompre-trialdetentioninbreachof trustcases.Assumingtheaccusedisfoundto be a flight risk, the guidelines should describe when bail is appropriate, specify howtheamountof bailistobecalculated,andestablishamechanismthroughwhichtheaccusedcanrecoverbailpayments.

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Conclusion

It ishoped that the recommendationspresented in this reportwill contributetothereductionof thecostlyimpactof improperbreachof trustcasesontheCambodian economy. The study undertaken by the Ad Hoc Sub Committeehas confirmed that inappropriate application of criminal Breach of Trust Law hurtsthedevelopmentof thenationaleconomyanddamagespublicandinvestorconfidence in the Cambodian judicial system and laws. The research indicates that there is a general perception among stakeholders, both Cambodian andforeign,thatthecriminalBreachof TrustLawisoftenmisappliedandthatthiscausesseriousdamagetotheCambodianeconomy.Improperbreachof trustcasesarecostingCambodiamillions, andpossibly tensof millions,of dollarsperyear in lost investment.Withboth thegovernmentand theprivate sectorconcernedaboutthecostlydamagedonetotheeconomybycasesof improperbreachof trust,nowistheperfecttimetoensurethattheprovisionsof Article46areappropriatelyimplementedandthattheCambodianeconomyisallowedtoprosper.

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Appendix 1

Research Methodology

1. Introduction

Thisreportisbasedoninformationfromfoursources:

interviewswithstakeholders;informationprovidedbytheMinistryof Justice;a review of publicly available information about breach of trust cases;andasurveyof businesssentiment.

2. Stakeholder Interviews

Eighteen interviewswereconductedwithawidevarietyof stakeholders,bothCambodianandforeign,including:businesspeople,commerciallawyers,criminaldefense lawyers, business consultants, human rights advocates, civil societyorganizations, researchers, and members of the judiciary. The intervieweesincludedindividualswhohadbeeninvolvedinbreachof trustcases,lawyerswhohaddefendedpeopleaccusedof criminalbreachof trust,andbusinesspeoplewhowereconcernedbyhowthecriminalBreachof TrustLawisapplied.

3. Review of the Information Provided by the Ministry of Justice

The Ministry of Justice provided the Ad Hoc Sub Committee with data onthetotalnumberof breachof trustcases.This information issummarized inAppendix6.Unfortunately,whiletheMinistryof Justiceendeavoredtoprovideinformationwhereitcouldforthisresearch,beyondthedataprovided,relativelylimitedinformationiskeptbytheMinistry.Judgmentsonbreachof trustcasesare currently not published by the courts and there is no publicly availableinformation 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 resultinconvictions, theaverage lengthof aprisonsentence,or theamountof theaveragedamagesaward.

Copiesof asmallnumberof judgments,whilenotavailableviatheMinistryof Justice, were provided confidentially from other sources, notably by lawyers who hadrecordsfromcasesinwhichtheywereinvolved.

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4. Review of Press Reports and Other Publicly Available Information

Althoughthereislittlepubliclyavailableinformationaboutbreachof trustcases,the research team conducted a thorough review of a number of Cambodia’smajor newspapers over a four-year period in order to compile media reportsabout breach of trust cases. The newspapers reviewed were: the PhnomPenhPost,TheBusinessPress, theMirror,DevelopmentWeekly,andRasmeiKampuchea.Eachpaperwassearchedfortheperiod2002to2005.ThemediadataissummarizedinAppendix3.Thisrepresentsonlyafractionof thetotalnumberof breachof trustcasesthathaveoccurred.Thecasesthatmadeitintothepaperswereundoubtedlychosenbecausetheywereviewedasnewsworthy.Consequently,theycannotbeconsideredarandomsampleof breachof trustcasesinCambodia.Nonetheless,themediadatabaserepresentsaninsightintohowthecourtstreatbreachof trustcases.

In addition to newspaper reports, partial information, on 20 breach of trustcaseswasprovidedbytheCenterforSocialDevelopment,whichgatheredtheinformation while monitoring trials in the Cambodian courts as part of itsCourtWatchProject. This informationwasalso incorporated into themediadatabase.

5. Business Sentiment Survey

In addition to the above sources of information, a non-random businesssentimentsurveywasconductedinwhichbusinesspeoplewereaskedtorespondtoquestionsrelatedtotheirperceptionsof thecriminalBreachof TrustLaw.

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Appendix 2

Case Studies

Case Study 1

Mr.A,aKhmerbusinessman,enteredintoacontractwithMr.Cin2000.Thecontractwasforthepurchaseof $80,000worthof constructionequipmentandmaterials.Mr.Cdeliveredsomegoods,buttheywerenotwhathewasobligatedtodeliverunderthecontract,soMr.Arefusedthegoodsandcanceledthecontract.Mr.Cdemandedpaymentunderthecontract,butMr.Arefused.

Afewweekslater,Mr.Awasaskedtocometothepolicestationandwasarrestedandheldatthepolicestationfor72hours.Hewasaccusedof breachof trustbecauseof hisallegedfailuretopayMr.Cunderthecontract.Hewasrepeatedlytoldthathewouldbeletgoif hepaidthepolice$80,000(theallegedamountof his“breachof trust”withMr.C).Herefused.

Hewas taken to courton the followingMonday,wherehewas chargedwithbreach of trust and sent to pre-trial detention at Prey Sar jail. He remainedin Prey Say jail for several weeks while his lawyer attempted to bail him out.Eventually,hewasabletosecurebailfromprisoninreturnforpaying$40,000tothecourt.

Attrial,neitherMr.Cnorhislawyerappeared.Mr.A’slawyerpresentedwitnessesand documents that showed that Mr. C had not fulfilled his part of the contract andthatthecontracthadbeenproperlycanceled.Despitetheevidence,hewasfoundguiltyof breachof trustbythetrialcourtandgivenathree-yearsuspendedsentence.HeappealedtheverdicttotheAppealsCourt,whichoverturnedthelowercourt’sdecisionanddismissedthecharges.

Mr.Ahasneverbeenabletorecoverthe$40,000thathepaidinbail,andhasspent another $20,000 on lawyers’ fees. He also suffered a significant loss of reputationandhisbusinesswasdamagedduringthetimehespent inpre-trialdetention. He isnowverycautiousaboutsigningcontractsandhasforegonemanyinvestmentopportunitiesbecauseof theriskof breachof trust.

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

In2000,Mrs.Tborrowedagoldnecklacefromherneighbor,Mrs.K,sothatshecouldwearittoarelative’swedding.Atthewedding,theclasponthenecklacebrokeanditfelloff.Mrs.Tdidnotnoticethattheclasphadbrokenuntilafterthe wedding was over. She went back to look for it but could not find it.

When Mrs. K asked for the necklace back, Mrs. T asked for more time to find it.Afteraweekortwo,Mrs.Kaskedforitagain.Thistime,Mrs.Tadmittedthatitwaslostandaskedfortimetorepaythevalueof thenecklace,whichwas$100. However, Mrs. T was too poor and could not find the $100 to pay Mrs. K.Finally,Mrs.KlostpatienceandbroughtasuitagainstMrs.Tforbreachof trust.

Mrs.Twas arrested,brought toPhnomPenhMunicipalCourt, chargedwithbreachof trustandthenputinpre-trialdetention.ShewasassignedalawyerfromanNGOwhosoughtbailforher.Theinvestigatingjudgedeniedthebailmotion. Her lawyer appealed thedenialof bail to theAppealsCourt,whichgrantedit.Shewasnotrequiredtopayanymoneytoreceivebail.Mrs.TwasinjailforabouttwomonthsbeforetheAppealsCourtgrantedherbail.

Afterbailwasgranted,herlawyertriedtogetthecriminalchargesdropped.HesubmittedamotiontotheinvestigatingjudgeexplainingthatMrs.Tcouldnotbeguiltyof breachof trustbecauseshedidnothaveanycriminalintent.Shedidnotmisappropriatethenecklace;shelostit.Moreover,shewasnottryingtoavoidherobligationstoMrs.K;shewasjusttoopoortopayforthelostnecklace.NeithertheprosecutornorMrs.Kopposedthemotion,whichwaseventuallygrantedwithoutahearing.Afterthecriminalchargesweredropped,Mrs.KandMrs.Tsettledthecivilcaseoutof 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.

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Case Study 3

In 2001, Company H, a Singaporean company, entered into a contract withCompanyD,aCambodiancompany,toimportcomputerequipment.CompanyDagreedtopurchasetheequipmentandsellitinCambodia.Thecontractwasfor a one-year period. At the end of the first year, Company H was unhappy with CompanyD’sperformance.CompanyDhadfailedtoimportasmuchcomputerequipment as the Singaporean company had expected. Company H decidednottorenewthecontract,preferringinsteadtosearchforanothercompanytoimportitscomputerequipment.

WhenCompanyH informedCompanyDthat itdidnot intend torenewthecontract, Company D brought suit against Company H for alleged criminalbreach of trust. It also brought suit against several individual employees of CompanyH, including its generalmanager,whowasSingaporean. Anarrestwarrantwasissuedforthegeneralmanager,buthewasnotarrestedbecausehewasoutof thecountry.However,thewarranteffectivelypreventedhimfromvisiting Cambodia. The arrest warrants also prevented the company from finding anothercompanytosellitscomputerequipmentinCambodia.Ratherthansuffertheriskof jailtimeforitsexecutivesandthelossof itsreputation,CompanyHmadeapaymenttoCompanyDsothatitwoulddropthecharges.Thepaymentwasmadebeforethetrialwasheld,andthechargeswereeventuallydismissed.Nevertheless,CompanyHwithdrewentirelyfromCambodiaandnolongerdoesanybusinesshere.Beforeitsdeparture,ithadbeendoingbusinessworthseveralhundredthousandUSdollarsayear.

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.KeoTampurchasedaplotof land inPhnomPenh. HeaskedawomannamedMrs.ChhunNaySuortoguardhisland.InMarch2001,helearnedthatshehadrentedthelandtoavehicleenginesellerwithoutaskinghispermission.Hebrought a complaintof breachof trust againstMrs.Chhun, and shewasarrestedonMay25,2001andplacedinpre-trialdetention.

Mrs. Chhun requested release from pre-trial detention so she could care forher threeyoungchildren,but the investigating judgedeniedher request. SheappealedthedecisiontotheAppealsCourt,whichalsodeniedherrequestforrelease.Shesubsequentlyappealedherpre-trialdetentiontotheSupremeCourt,whichreceivedthecaseinSeptember2001.

Duringtheappeal,theSupremeCourtreceivedstatementsfromboththeaccusedand thecomplainant. Mrs.Chhun, theaccused,argued that shebelieved thatMr.KeoTamhadgivenherthepropertyandthatsinceitwashers,shehadtherighttorentitout.Sheadmittedtohavingmadeamistake,butshesaidshehadnot intendedtotakeanythingfromMr.KeoTam. Consequently,shedidnothavethecriminalintentnecessaryforabreachof trustcharge.Sherequestedrelease from pre-trial detention so that she could care for her children. TheSupremeCourtalsoheardareportfromthereportingjudgeandlistenedtotherecommendations of the representative from the prosecution office.

TheSupremeCourtconcludedonJanuary9,2002thatthepropertydidbelongtoMr.KeoTam,butthatMrs.Chhunshouldbereleasedfrompre-trialdetentionfortworeasons:1)shedidnotappeartohavecriminalintentbecauseshehadbelievedthepropertywashers;and2)shehadalreadybeenheldindetentiontoolong(bythistime,shehadbeenindetentionforeightmonths).TheSupremeCourtthensenttheactionbacktothePhnomPenhMunicipalCourtsothatitcouldruleonthemeritsof thecase.

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).

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Case Study 5

InApril1992,Mr.BunSrunenteredintoapartnershipwithMr.KhongPheoutoinstallanelectricgeneratorinavillageinKompongChamProvince. Theyeach investedanequalamountof money tobuy thegeneratorand theybuilta structure tohouse it. Eachpartnerhadakey to thestructure. After threemonths,thepartnershadadisagreement.Mr.KhongPheouwishedtosellhisshareof thegeneratortoathirdparty,butMr.BunSrundidnotwanthimtosellhisshare.Theycouldnotagree,andeventuallytheydecidedtoshutdownthegeneratorandnottouseit.However,Mr.Buncontinuedtouseitsecretlytomake a profit for himself. Sometime later, Mr. Bun had his wife ask Mr. Khong’s wifeif shecouldborrowthekeytothegeneratorbuilding.ThisleftMr.Bunwithboth keys and Mr. Khong without one. Mr. Bun then secretly sold thegeneratortoathirdparty.

Mr.Khongsued,andMr.Bunwaschargedwithbreachof trustinMarch1994.Mr.Bun,whohadalawyer,arguedthathewasnotguiltybecausethesaleof thegeneratorhadbeenpartof anagreementheandMr.Khonghadaboutdissolvingtheirbusiness;throughthisagreement,Mr.BunreceivedthegeneratorandMr.Khongreceived thegeneratorbuildingand the landonwhich itwas situated.Basedontheevidencepresentedatthetrial,thecourtrejectedMr.Bun’sversionof events.

The court concluded that there was sufficient evidence that Mr. Bun had committedbreachof trust.Inparticular,thecourtnotedthat:1)hehadusedhiswifetoobtainMr.Khong’skeysothathewouldhavesolecontroloverthegenerator; and 2) he had secretly sold the generator to a third party withoutnotifyingMr.Khong.ThecourtconcludedthatMr.Bunhad“actedknowingly”whenhemisappropriatedthegenerator.Hewassentencedtooneyearinprison,received a two-year suspended sentence, and was ordered to compensate Mr.Khongforthelossof hisshareof thegenerator.

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).

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Number of cases where an arrest warrant was issued

Caseswhereinformationonarrestwarrantwasavailable 34

Caseswherearrestwarrantwasissued 33

Percentageof caseswherearrestwarrantwasissued 97%

Appendix 3

Media Reports

Number of cases where accused was arrested

Caseswhereinformationonarrestwasavailable 34

Caseswhereaccusedwasarrested 32

Percentageof caseswhereaccusedwasarrested 94%

Analysisof MediaDatabase

Number of cases where accused was placed in pre-trial detention

Caseswhereinformationonpre-trialdetentionwasavailable 31

Caseswhereaccusedwasplacedinpre-trialdetention 29

Percentageof caseswherepre-trialdetentionwasused 94%

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Appendix 4

Business Sentiment Survey Results

Analysisof SurveyResults

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

Almostalways 0

Mostof theTime 0

Someof theTime 5

AlmostNever 6

TotalResponses 11

Question2:Arebreachof trustcasesfiledimproperly?

Almostalways 2

Mostof theTime 4

Someof theTime 3

AlmostNever 1

TotalResponses 10

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

Almostalways 8

Mostof theTime 3

Someof theTime 0

AlmostNever 0

TotalResponses 11

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

Lossof Money? Lossof Reputation? TimespentinJail?

Veryconcerned 8 7 6

Concerned 2 1 0

Slightlyconcerned 0 0 1

Notconcerned 0 1 1

TotalResponses 10 9 8

Question 5: How much do you think it costs to be sued for breach of trust?Lessthan$5,000 1

$5,000-$50,000 9

$50,000-$150,000 0

$150,000-$500,000 0

Morethan$500,000 0

TotalResponses 10

Question 6: How often have you turned down investment opportuni-ties because of the risk of breach of trust?Veryoften 3

Often 3

Sometimes 3

Never 1

TotalResponses 10

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Question 7: What is the value of the investment opportunities you have turned down because of the risk of breach of trust?Lessthan$50,000 2

$50,000-$250,000 0

$250,000-$500,000 2

$500,000-$1,000,000 1

$1-5million 2

Morethan$5million 0

TotalResponses 7

Question 8: In your opinion, how much would the following changes improve the situation?

Moretraining

forpolice?

Moretraining

forjudges?

Makeitmoredifficult to

usepre-trialdetention?

Eliminatejailterms

forbreachof trust?

Createaspecialcommercial

courttohearbreachof trust

cases?

BigImprovement 5 6 4 1 6

ModerateImprovement 2 2 2 2 2

SlightImprovement 1 1 3 2 1

NoImprovement 1 0 0 3 0

TotalResponses 9 9 9 8 9

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A. Introduction

Breachof trust,likethecrimeof theft,isanoffenseagainstproperty.Themainfeatureof theft istakingawaypropertybelongingtoanotherperson,withtheintentionof permanentlydeprivingthatpersonof it.Thedifferencebetweenbreachof trustandtheftisthatintheft,theoffenderhasnolawfulpossessionof theproperty,whereasinbreachof trust,theownerhasentrustedthepropertyto the offender. The offender violates this agreement (the entrustment) byfraudulently taking the property away from the owner with the intention of keepingthepropertyortransferringittoanotherperson.Insimpleterms,thetwo offenses are similar in nature because the commission of either theft orbreachof trusthasthesameintent–thatis,todepriveapersonof hisorherproperty.

Breachof trustcombinestheterms“breach”and“trust.”Inreallife,peopleoftenthink that when a debtor causes “dismay” or “loss of confidence” by failing to repayadebt,a“breachof trust”hasbeencommitted.Simplyspeaking,however,suchacaseisabreachof contract–notabreachof trust.Breachof trustisinsteadmostsimilartothecrimeof theft.

B. Analysis of Sentence Structure and Terminology in Article 46 Regarding Breach of Trust

Basedonacomparisonof Article408of the[former]FrenchcriminalcodeandArticle46of the[current]Cambodiantransitionalcriminalcode,itisapparentthatalmostallCambodianlegalconceptsrelatedtobreachof trusthavebeenborrowedfromtheFrenchcriminalcode.ThecurrenttransitionalcriminalcodewasdraftedbyaFrenchlegalconsultantin1992.RecentlyaFrenchlegalexperthasagainhelped todraftacriminalcode for theKingdomof Cambodiaandarticle404(onbreachof trust)inthecurrentdraftCambodiancriminalcodehasagainbeencopiedfromtheFrenchcriminalcode(Article314-1of the[current]Frenchcriminalcode,adoptedin1994).

Translation of foreign text into the Khmer language often causes problems

BREACH OF TRUST

By Koy Neam

Appendix 5

Technical Legal Analysis of Breach of Trust Law

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becauseof vocabularyandsyntax.Forexample,inArticle46of theCambodiantransitional criminal code, the French term “représenter” was translated as“domnang”(or“represent”)inKhmer.Infact, inalegalcontext, inordertomatchitslegalmeaning,thetermshouldbetranslatedintoKhmeras“bonghanh”(“to show”). In addition, it is hard to find a Khmer term to match the meaning of someFrenchterms,suchas“possesseur”and“détenteur.”BecauseKhmerdoesnotuseacomma1,typingerrors,includingspacingerrors,cancauseconfusionwhen interpreting themeaningof aphrasesuchas is illustratedbelow, in thecontextof Article46of Cambodiantransitionalcriminalcode,asitiscurrentlywritten(translatedliterallyfromtheKhmer):

Article 46: Breach of TrustAny person who misappropriates, against the interest of the owner [of aproperty],ownerof aplaceor theholderof property,money, goods,or existing documents or documents which stipulate an obligationor discharge, which was entrusted to the person in the form of a rent[agreement],deposit,mandate2, loanforuseorforpaidorunpaidwork,withtheresponsibilitytoreturnitortorepresent(sic)orforuseorforaspecific 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.]

Itcanbeseenthatthefailuretospace,prepositiontoseparatebetween“holder”andproperty”leadthereadertomisunderstandthatthefraudormisappropriationdamaged the benefit of the owner, owner of a place, or holder of property3.Infact,thisArticleisintendedtomeantomisappropriate property, money, goods, ordocuments4,andisnotintendedtomeanmisappropriatetheownerorholderof property5.Thepersonwhosuffersfromthemisappropriationiseithertheownerof property, theownerof theplace,or theholder. The term“mchaskamsith”(“ownerof property”)isequivalenttotheFrenchterm“propriétaire”whichmeansapersonwhoenjoyslawfulownershiprightstouse,enjoythefruitsof,ormanagetheproperty (i.e. throughsaleordonation).WithregardtothetermsusedintheFrenchtextof thelaw,theterm“mchastikanlaeng”(“ownerof theplace”)mighthavebeentranslatedfromtheFrenchterm“possesseurs”

1Nevertheless,acommawasfrequentlyusedintheCambodiancriminalcodeof 1959.Forexample,seeArticle366,etal.2Ed. Note: The Khmer text of Article 46 uses the word ‘mandate’, which has a specific meaninginKhmerlawandlanguage.Thisisdiscussedfurtherbelow.3If apreposition“ney=of ”isotherwiseusedinbetweentheterm“holder”and“goods”,itmaybeeasierforthereadertounderstandthattheproperty,money,etc.aretheobjectof theverb“misappropriates”andnottheobjectof thenoun“holder.”4‘Documents’ in terms of Article 46 specifically meaning ‘documents specifying an obligation ordischarge’5Ed.Note:Thatis,thecrimeof breachof trustfocusesonthemisappropriationof property,ratherthanthefactthatdamagehasbeensufferedbyaperson[egthepropertyowner].

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and“neakkankab”(“holder”from“détenteur”)intheordertheywerewritteninFrench,namelypropriétaires,possesseurs,anddétenteurs.

InordinaryKhmer,theterms,“possesseurs”and“détenteurs,”havenearlythesame meaning as “neak kankab” (“holder”) but in a legal context have quiteadifferentmeaning6. Theterm“mchaskamsith”(“owner”or“propriétaire”)refers,forexample,totheownerof avehicle,whohaslawfultitletothevehicle.“Possesseur”includesapersonwhohaslegalpossessionof avehicleorproperty,buthasnotyetregisteredherorhimself astheowner.Theterm“detenteurs”includesapersonwhoisatenantleasingahouseorwhoreceivesadepositfor[thepurchaseof]propertyorisaconsignee,etc.Inordertosimplifyunderstandingof thistext,fromthispointforward“ownerof goodsorproperty”istakentorefertooneof thethreetypesof persons–thepropriétaire,thepossesseur,orthedétenteur.

Thenextquestiontoaskishowwasthetransfermadetothepersonaccusedof breach of trust? The likely answer is that the property, money, goods, ordocumentswastransferredorentrustedtotheaccusedthroughalease,deposit,mandate, loanforuse,ordeliveryforthepurposeof undertakingsomework(whetherpaidorunpaid).

Finally,thepersonaccusedof theoffenseof breachof trustmusteitherreturnthepropertytoitsowner,oruseitaccordingtotheowner’sinstructions.Wealsofind use of the term “thvoeu chie domnang” (“to represent”). The meaning of thistermwillbeexaminedlater.

To make it easier to read and understand, the current wording of Article 46(seepreviouspage)hasbeenduplicatedbutreformattedandseparatedintoitscomponentpartsbelow:

Article 46: Breach of Trust

Any person who misappropriates, against the interest of an owner,possessororholderof:

property;money;merchandise;oradocument,wherethatdocumenteithercontainsorstipulateseither

anobligation,oradischarge

andwhich[items(a)to(d)above]wereentrustedtotheperson,intheformof a

1.

a.b.c.d.

i.ii.

2.a.

6Theterm“possesseurs”referstoapersonwhohasphysicalpossessionand“détenteurs”referstoapersonwhohasphysicaldetentionof aproperty.Theconceptsbehindpossessionanddetentionaretoocomprehensiveandcannotbeaddressedhere;however,thereadermayfind these legal concepts in the law concerning property, in particularly, corpus and animus.

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rental/lease,oradeposit,ora‘mandate’,oraloanforusefor

paidorunpaidworkwiththeresponsibilitytoreturnit,or‘re-present’it7ortouseit,ortoputittotheagreedpurpose

isguiltyof breachof trustandshallbeliabletoapunishmentof atermof imprisonment of from one to five years.

Basedonthisbreakdownof Article46,itappearsthatthearticlecontainsthefollowingcomponents:

Theactof misappropriationandcausationof suchanact(adetrimenttotheownersufferedbytheactof misappropriation);

Thingsorobjectsthataremisappropriated(i.e.property,moneyetc.);

Theentrustmentof thethingorobjectswiththeaccused,andthetermsand conditions on which those things or objects were entrusted (i.e.entrustmentintheformof alease,deposit,orloan,etc.);

Aconditionthatstipulatesthattheownerhasnointentionof givinguporabandoningownershiporinterestintheentrustedthingsorobjects.Suchaconditioncouldbethatthethingsorobjectsentrustedmustbereturnedorshowntotheowneratapre-determinedtimeorwhentheownerwantsthembackorwhentheownerwantstochecktheavailabilityorconditionof theobjects.

Thelastpartof thisarticleconcernspunishmentforapersonwhoisguiltyof breachof trust.

C. Elements of Breach of Trust

C.1MaterialElement(Objective)

A material element refers to an act of misappropriation. Such an act of misappropriationoccurswhentheownercannolongerexerciserightsovertheproperty because it has been misappropriated by the person to whom it wasentrusted.

Misappropriationinbreachof trustisdifferentfromtheft.Intheft,theownerhasnotgivencustodyof hispropertytothethief,whereasinbreachof trust,theownerhas givencustodyof hisproperty to the accused,with themutualagreementof theownerandtheaccused.Thisagreementconstitutesacontract;

i.ii.iii.iv.

b.3.

4.

1.

2.

3.

4.

5.

7InArticle46,‘represent’infactmeans‘tore-present’(egtore-presentachequeatabank).HoweverwhentranslatedfromtheoriginalFrenchtext‘represent’wastranslatedas‘domnang’(meaningtorepresentasalawyermightrepresentaclient).AbetterKhmertermwouldhavebeen‘bounghanhleungvinh’,whichmeansliterally,“toshowitback”,asitbetterencapsulatesthemeaningof ‘re-present’.

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forexample,acontracttorentatrucktoacustomerwhousesittotransportgoods.Thecontractcreatesarelationshipbetweentheownerandthereceiverof 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 honestwiththeowner.Misappropriationoccurswhenthereceiverviolatesthisduty.

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, includinga lease,abailmentcontract (deposit), a ‘mandate’ (seeexplanation atE.3below), a loan foruse, and an employment contract8.Thereasonfornotconsideringamandateasacontractisthatamandatemayarisefromacontract,byjudicialorder,orbylaw.Thisissuewillbediscussedlaterinthistext.

C.2MentalElement(Subjective)

Breachof trust,muchthesameasothercrimes,requiresanintenttocommitacrime.Forbreachof trust,suchintentreferstofraudulentintent.Fraudulentintentispresumedtoariseasaresultof dishonesty.Forexample,aclientgivesgoldtoagoldsmithinordertomakeagoldnecklace.However,thegoldsmithstealsaportionof thegoldandreplacesitwithanothermetalsoitweighsthesame.If thegoldsmithhasnoreasontodothis,otherthantomisappropriateaportionof thegold,afraudulentacthasoccurred.

Howeveranactdoesnotconstitutebreachof trustif fraudbytheaccusedcannotbeproven.Forexample,aPhnomPenhresident,Mr.Chanreceivessomemoneyfromhisfriend,Mr.Veasna,wholivesinBattambangprovince,inordertopaytuitionfeesforMr.Veasna’ssoninPhnomPenh.Mr.VeasnaagreestopayMr.Chan5%of themoneyforhishelp.However,anotherpersonasksMr.ChanforaloanandofferstopayMr.Chanahighinterestrate.Mr.ChanagreestoloanthemoneyentrustedtohimbyMr.VeasnaontheexpectationthathewillincreaseMr.Veasna’smoney.Unfortunately,thedebtordefaultsanddisappears.Inthiscase,itisunlikelythatMr.Chanhasfraudulentlyintendedtocausedamagetohisfriend.However,Mr.Chanwouldremainliableforcivildamagesarisingoutof breachof contractashewasrequiredtousethemoneyonlyforthepurposeof payingMrVeasna’sson’stuitionfees.

Ontheotherhand,if Mr.Chanweretoloseallof Mr.Veasna’smoneygamblingatacasinoandcouldnotaffordtopaythetuitionfeesforMr.Veasna’sson,itwouldbemorelikelythatMr.Chanwouldberegardedashavinghadthenecessary

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8AnewFrenchcriminalcodeandadraftof thenewCambodiancriminalcodefailedtodescribethetypeof contractswhicharesubjecttotheLawonBreachof Trust.

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fraudulentintentrequiredtoconstitutebreachof trust.Itisforeseeablethattheriskof lossingamblingisalmost100%foranordinarygambler.Badfaithonthepartof anaccusedismorelikelytobepresumedtoarisefromactswhichareasonablepersoncouldanticipatewouldbedetrimentaltotheowner[suchasgamblingentrustedmoney].

C.3Detrimentissufferedbytheownerof theproperty

If the owner of the property suffers no detriment as a result of the allegedmisappropriationbythepersonaccusedof breachof trust,itcanbearguedthatnobreachof trusthasoccurred.Adetrimentcanbesaidtohaveoccurredwhenanownerhassufferedaloss.Forexample,theownerloseshisrights,orcannotexercisethoserights,inpropertythatwasentrustedtotheaccused.

However,if theaccusedfailstoreturnpropertytoitsowneronadatepreviouslyspecified, this does not mean that the accused has committed breach of trust. The deprivationorlossof anowner’spropertymustoccurasaresultof fraudulentintentonthepartof theaccused.

D. Object or Subject Matter [of the Offense of Breach of Trust]

Thecrimeof breachof trustappliestothoseobjects/itemsdescribedinArticle46of theTransitionalCode,includingproperty,money,merchandise,ordocumentswhichcontainorstipulateanobligationordischarge9(seethetranslationonpage2orthelistof itemsinthebreakdownof thebreachof trustlawonpage4underpoints(1)(a)–(d).

D.1Property–[MovableoronlyImmovableProperty]

It is not clear whether the term “troapsambat” (“property”) in Article 46includesbothmovable and immovableproperty.As the lawwasoriginallycopiedfromtheFrenchcriminalcode,itisnecessarytoexaminethederivationof theterm“troapsambat”.ThetermtroapsambatinArticle46wastranslatedfromtheword“biens”inFrench.OnephraseinjudicialorderNo.6295,datedOctober10,2001of theFrenchTrialTribunal,statesthat“a breach of trust only relates to funds, valuables, or other property,withtheexceptionof immovableproperty”.Inthelastpartof its judicialorder,theTribunalcontinuestostressthat“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.

9AnewFrenchcriminalcodeandadraftof newCambodiancriminalcodefailedtodescribethetypesof contractswhicharesubjecttotheLawonBreachof Trustanditmerelyincluded“funds,valuables,orotherproperties”.SeeArticle314-1of theFrenchcriminalcodeandArticle404of thedraftCambodiancriminalcode.10http://lexinter.net/JPTXT/bien_quelconque.htm,May9,2003.

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InFrance,thereasonwhybreachof trustdoesnotapplytoimmovablepropertyisthattheownermayrepossessthepropertybasedondroit de suite11(therightattachedtopropertythatallowstheownertorepossessorenjoytheproceedsthereof).ThismaybereasonableinFrancewhereanownershipregistrationsystemand a proper and specific method of recording the transfer or conveyance of ownershipmeanstherighttoimmovablepropertyisstableandprotectedunderastrictmechanismthatmakesmisappropriationortransferwithouttheconsentof theownerimpossible.However,suchprotectiondoesnotexistformovableproperty,exceptincaseswheretheownerhasanownershiptitleasevidence.

IntheUSA,somestates,suchasOklahoma,haveinterpretedtheterm“propertyrights”under state criminal law as [referringonly to]movableproperty, eventhough the law has not defined it as movable property. In other states, some courtsandlegalwritersthinkthattheconceptof breachof trustmayalsoapplytoimmovableproperty.Theappellatecriminalcourtof Oklahomaconcludedthatbreachof trustoriginatedfromtheft.Theftcoversonlymovablepropertyandcontainsonemainelementcalled“takingaway”“thepropertyoverwhichtheaccusedhasnolawfulpossession”,andassuch,thelawontheftmaynotapplytomisappropriationof propertyoverwhichtheaccusedhaslawfulpossession.Thus, breach of trust is an offense formulated to fill the loophole in the law concerningtheftbyaddingtheelementof “takingawaythepropertyof anotherpersonwhichispossessedbytheoffender”12.

If the above justification and rule is applied in Cambodia, the law on breach of trustwouldpunishonlyanactagainstmovableproperty,ratherthanimmovableproperty. As a result, Cambodia might encounter numerous disadvantages asmostpeoplewhoownimmovablepropertydonothaveatitledeedto justifytheirlawfulownership,andthereisnoreliableregistry/record.Thismaymakeit easy for misappropriation or conveyance of ownership to another person.Examplesof suchpropertiesincludeanautomobiledeliveredtoamechanicforrepair,jewelrythathasbeenpledged[ascollateralforaloan],vehiclesparkedatamarketetc.

D.2MoneyandGoods

Intermsof Article46,‘money’and‘goods’arepropertyitemswhicharemosteasily defined. For example, money under the control of a company accountant, or money left with an individual for safekeeping, or goods that are beingtransportedbya shippingcompany,orgoods that are stored inawarehouse,etcetera,areallexamplesof propertywhichmaygiverisetoabreachof trustoffence.

11 François SIBAUD, De L’Abus de Confiance; <http://lexilis.free.fr/notesjur/note55.htm> 12 Committee Comments, www.okcca.net/datafiles/legal/oklahoma/ouji/criminal/UJI-CR%205-21.HTM

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Breachof trustoccurswhentheaccusedpersontakesmoneywhichwasentrustedto him or her for a specific purpose, with the intent to keep the money as his orherown.Forexample,acompanyaccountanthasmisappropriatedmoney intermsof thecrimeof breachof trustif it ishisdutytomanageacompany’smoney,butheinsteadtakesittospendonhimself.Similarly,atruckdriverwhomisappropriatesgoodsforhimself thatwereentrustedtohimtobedeliveredbytheownercouldbesaidtohavemisappropriatedgoodsintermsof thecrimeof breachof trust.

D.3 ExistingDocumentsorDocumentStipulatinganObligationor Discharge

In general, a document which contains an obligation is a contract. However,otherdocumentssuchaswillsalsocontainobligations.Thedescriptioninthe[former]FrenchCriminalCodestatesthatmisappropriationwillbepenalizedasabreachof trustonlyif thereisafraudulentactagainstaphysical document itself andnotjustagainstitsterms(i.e.anabuseintheenforcementof thetermsof acontract).Theactof misappropriatingordestroyingadocumententrustedtosomeoneforhisorherpropermaintenance,withintenttocausedetrimenttothebeneficiary of such a document, shall constitute misappropriation in the context of breachof trust.

Oneproblemthatshouldbeconsiderediswhetheradocumentwhichcontainsnoobligation,buthascontentsthatshouldnotberevealedcanbesubjecttoabreachof trustaction.Forexample,aninternalcompanydocumentsuchasabusinessplanorwhichdescribesaproprietarycompanyinnovation.Insuchacase,thequestionarisesastowhetherabreachof trusthasoccurredwhenanemployeemakesacopyof thisdocumentandrevealsittoanothercompanyand,asaresultof suchdisclosure,causesdamagetohisemployer.Intheabsenceof obligationrequiredbylaw,doesabusiveuseof adocumentinthiswayconstitutebreachof trust?E. Contractual Relationship Between the Owner and the Recipient of the Property

Article 46 concerningbreachof trust, coversonly certain typesof contracts,includingalease,bailment,mandate,loanforuse,andanemploymentcontract.Beforeconsideringwhetherthereisabreachof trust,itisnecessarytodeterminewhetheracontractual relationshipexistsbetween theownerand the recipientbecauseabreachof trustarisesoutof aviolationof thecontractsmentionedearlierinthissection.

Aquestionariseswhenacontractisinvalid(nullandvoid):Canacourtcontinuecriminalproceedingsforbreachof trustif thecontractonwhichthebreachof trustwasbasedwasitself nullandvoid?UnderFrenchlaw,thisisnotpossible;

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theinvalidityof acontractisnotgroundsforastayof criminalproceedingsinabreachof trustcase.Forexample,inacontractforbailmentinwhichonepartyis aminor, and the adultpartyhas fraudulently taken the entrustedproperty,the adult party may not assert, as the defense, that there was no contractualrelationshipbecausethecontractwasinvalid[nullandvoid]astheotherpartywasaminor.Insuchcases,criminalproceedingsareentitledtoproceedwhetherornot the contract is valid. In termsof breachof trust,what is essential todetermineiswhetherthetermsof acontractspecifydeliveryof property,howthepropertywillbemanaged,andwhenthepropertyisexpectedtobereturned.Theseare termsthatcreateanobligationowedby thedeliveree [theaccused]to theowner. Illegality13 of a contractprovides abasis for refutationof thecontractual relationship [rather than refutation of the crime of breach of trust],providedthattheliabilityof theaccusedtowardstheownerdoesnotitself ariseoutof abreachof contractandotherwiseresultfromacommissionof acriminalact (breach of trust) where sufficient elements are present for the case.

E.1LeaseAgreement(Louage)

Article101of Decree#38,concerning‘ContractandOtherLiabilities’,statesthat“aleaseisacontractwhereinalessorpromisestoleasehisorherpropertyfor a fee to a lessee to use temporarily”. Under this definition of a lease, the lessor(i.e.ownerof theproperty)reserveshisorherrightinthepropertyandthelessee(renter)onlyenjoystherighttousetheproperty.Inthiscase,thereisnotransferof ownershipfromtheownertothelessee.Thedurationof thelease,andthedatethepropertyistobereturnedtotheowner,shallbedeterminedintheleasecontract;however,if nodurationordateissetforthelessee(renter)toreturntheproperty, the lawstates it isdeemedthat itshallbereturnednolaterthanoneyear[fromthedatetheleasewassigned](Article101of Decree#38).Thepropertytobeleasedmaybeeitherrealproperty14(i.e. ‘immovableproperty’)orpersonalproperty(‘movable’property).

E.2BailmentContract(Dépôt)

InSection6of theDecree regardingContract andOtherLiabilities, there isreference to a “bailment contract”. Article 89 defines a bailment as a “contract wherebyaperson (“thebailee”) isgivencustodyof thepersonalpropertyof anotherperson(“thebailor”),eithergratuitouslyorforafee,andisobligatedtoreturnthepropertytothebailororthepersonclearlydesignatedbythebailor,ata specified time, or at the time when the property is demanded back”. The bailor hasnorighttouseormanagethebailedproperty,butmustkeepitingoodorderfortheowner.Examplesof bailmentcontractsincludebailmentof avehicleatamarketoraschool,bailmentof jewelrywithabank,bailmentof merchandiseinamarketetc.

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13i.e.aninvalidcontractthatwouldbevoidbecauseitisnotincompliancewiththecontract14‘Real’property,inlawreferstoland.

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E.3Mandate(Mandat)

There are two types of ‘mandates’. The first type of mandate is created by a contractandthesecondiscreatedbylaworcourtorder.TheLawonContractand other Liabilities does not include mandate as being a type of contract.However, thedraft civil codedoes includemandateasacontract.Article634of the draft code defined mandate as being “any contract whereby one party (“themandator”)delegateshisorherrightstoanotherparty(“themandatee”)to actonbehalf of themandator. Under the above article, a company salesrepresentativewouldusuallybeconsideredamandatee.Amandateemayactforafeeorgratuitously,basedonthecontractbetweenthemandatorandmandatee.Article367of thedraftestablishes“adutyof diligentmandatorymanagementinacapacityasmanageringoodfaithbyvirtueof amandate.”Anybreachof thisgoodfaithdutybymeansof misappropriatinganyoperatingequipmentorfundingwillleadtoabreachof trust.

Anothertypeof mandateiscreatedbyacourtorderorbylaw.Amandatecreatedbyacourtorderincludesthepowergiventoajudgmentexecutor.Ajudgmentexecutor who fraudulently takes a property seized for the benefit of a creditor is anexampleof amandatecreatedbycourtorder as it is thecourt thathasdesignatedhimorhertoexecuteitsjudgment.

E.4LoanforUse(Prêtáusage)

Current Cambodian contract law defines a loan for use as “a loan without any interestor fee.Apersonwho lendsproperty to someone else foruse retainsownership of the property”. Article 96 requires a borrower to preserve theproperty as if he or she were the owner. If no time is specified in the contract, the lendermaydemandareturnof theloanedpropertyatanytime.Therefore,theborrowermustbereadytoreturnthepropertytotheowner.Theonlydifferencebetweenaloancontractandbailmentisthataloancontractallowstheborrowertousethepropertyunderthetermsof anagreement.

E.5LaborContractwithPayorwithoutPay

Laborcontracts–eitherwithorwithoutpay-includeemploymentcontractsundertheLaborLaw,aswellasenterprisecontractsundercurrentCambodiancontractlaw.EmploymentcontractsundertheLaborLawrefertothe[contractual]workingrelationship between the employer and the employee. However, an enterprisecontract applies to thework thatonepersonperforms for another individual(Article72).Bothtypesof contractsdescribedaboveareforremuneration.Theprovisionof Article46regardingbreachof trustalsocoversanon-remunerationcontract[i.e.acontractwithoutpay].Theaccusedmaynotusetheargumentthatheisemployedunderanon-remunerationcontractasadefenseagainstliabilityforbreachof trustif hehasactuallycommittedafraudagainstpropertyentrusted

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to the accused for a specific purpose [under the terms of the non-remunerated employmentcontract].Typicalexamplesof suchcontractsmightincludedeliveryof goldtoagoldsmithtomakeanecklace,anemployeewhosejobitistotakecareof awarehouse,orcontractsfortherepairof acaratagarage.

F. Application of Law on Breach of Trust to Certain Cases in the Current Cambodian Court System

F.1FailuretoMakePaymentonaLoanCoveredbyaContract

A loan agreement is a contract whereby the right to the loaned money istransferredfromacreditortoadebtor.Thedebtorhasanin remrightoverthecash,andthecreditorhasan in personumrightagainstthedebtor,butnotan in remrighttothecash.Anexamplewouldbeif acreditorlendsRiel5milliontoa debtor as financing for the debtor’s business. When the cash is transferred to thedebtor’scustody,itbecomeshismoneytouse.Thatis,thedebtorhasafullright[subjecttoanycontractualcovenants]tousethecashashewishes;suchas,forexample,thepurchaseof equipmentforthebusiness.Thecreditorusuallyhasnorightsoverthecashbuthastherighttoforcethedebtortorepaythedebtasobligated.Sincethedebtorbecomestheownerof theloanedcash,hecannotbeaccusedof breachof trustif thecashiswastefullyspentorlostthroughthebusiness. However, if the debtor fails to make payment by the due date, thedebtormaysueforbreachof theloancontract.Insuchcases,failuretocomplywithloanconditionsisabreachof contractonly,andisthereforepurelyacivilmatter.

Inanordinarybreachof contract,thecreditormayseekremedy(usuallyintheformof damages)undercivilproceedings.15Of course, inpracticeacreditorwhosufferslosswillwishtouseallpossiblemeanstoforceadebtortorepayaloan-includingbymakingarequesttothepolicethatthedebtorshouldbearrestedforbreachof trust.Insuchcases,thepurposeof sucharequestistothreatenthedefaultingdebtor[giventhatthecriminalsanctionsforbreachof trustareconsiderablystrongerthanthecivilsanctionsforbreachof contract].Nonetheless,inanordinary[civil]caseof breachof contract,theuse(orthreat)of criminalsanctionsmayberegardedasimproper,andboththecreditorandthepolicethemselvesriskbeingaccusedof illegallydetainingthedebtorintheeventthatheorsheisimprisoned.Incaseswhereadebtorhasbeenimproperlyimprisoned,thecourtandtheprosecutormaythemselvesbesuedbythedebtorin the Supreme Council of Magistracy. Should this happen, it would thenbecometheresponsibilityof theSupremeCouncilof Magistracytoexaminetheproprietyof theactionsandintentof thejudgesandtheprosecutorimplicatedin the detention of an individual without proper legal justification.

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15Itshouldalsobenotedthatincircumstanceswhereadebtorhasuseddeceitorfraudtonegotiatealoancontractwithacreditor,thenthedebtormaybeaccusedof fraud,butnotbreachof trust.Itis,however,necessarytofurtherconsidertheelementof fraud inordertodeterminethis.

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Therearemanyreasonswhyadebtormaydefaultunderherorhiscontractualobligations to repay a loan to a creditor. Common reasons for such failureinclude bankruptcy, losses resulting from an incidental disaster, an improperbusinessplan,orothermatters.However,theobligationtomanagetheriskof a debtor defaulting lies not with the debtor but with the creditor. Therefore,beforeprovidingaloan,thecreditorshouldassessthedebtor’scapacitytorepaythedebt.

Inafreemarketeconomy,thelawprotectstheright[of debtorsandcreditors]tofreelycontractasthisisimportanttoensuretheeconomyfunctionssmoothly.If astateshouldinterfereinfreedomof contractby,forexample,theabusiveorimproperenforcementof thebreachof trustlaw(byforexampleimprisoningdefaultingdebtors), then itcreatesuncertaintyandunpredictability incontractformation.Therisk is that itmaymake investors fearful theycould lose theirfreedomandbeimprisonedundercriminallaw[forabreachof contract].Asaresult,partiesmaybecomereluctanttoseekorgivecreditforbusinessventures,as a failure to fulfill contractual obligations may lead to criminal proceedings. The purposeof theLawonBreachof Trustistoprotectpropertyfromfraudulentintent,nottohindertheformationof contractsindailylife.Apartyenteringintoacontracthasvoluntarilyassumedtheusualrisks involvedingeneralbusinessoperations.

F.2Failureof ContractNegotiation

Beforereachinganagreementandsigningacontract,partiesusuallynegotiatethetermsandconditionsthataretobeincorporatedintotheircontract.However,not all negotiations are successful. At some point, one or both parties maywithdrawtheirintentiontoenterintoacontractshoulditproveimpossibletoreachmutualagreementontheproposedtermsandconditionsof thecontract.Insuchcases,nocontracthasbeenformed.Althoughoneof thepartiesmaybe“disappointed”bythisfailureof thenegotiationprocesstoproduceasatisfactorycontract,itdoesnotgiverisetoabreachof trust.Bothinordinaryandlegallanguage, “disappointment” (in Khmer, “kar khoakchet”) “breach of trust”arenotsynonymous.Disappointmentisthestateof mindof someonewhoseexpectations are not met. “Breach of trust” applies when a person has beenentrustedwiththepropertyof anotherpersonandhasactedagainsttheinterestsof theownerinamannerthatisdamagingtotheowner.

If itwereanticipatedthatcontractnegotiationscouldbringharmtooneof thepartiesthroughadverseconsequences,thenitisunlikelythatpeoplewouldentercontractnegotiations.If thiswerethecase,itwouldmakebusinessoperationsimpossibleasanaccusationof breachof trustwouldcreate“highrisk”forthenegotiating partners. The principle of a free market economy, codified in, and promotedbytheCambodianconstitution,istoencouragefreedomof contractwithoutdeterrenceorthreatof anykind.

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F.3Leasesfortherentalof land(realproperty)

The lawonbreachof trust applies toproperty leases inmuch the samewayas itdoestoothertypesof property.Aleaseis, inessence,simplyacontract,albeitacontractrelatingtotheuseof realproperty.Ina leasethe lessor (thepropertyowner)agreestoleaseouthisorherpremisestoanotherperson(thelessee, or renter), in exchange for a rental fee. In Cambodia, most parties fix the durationof theleaseandrequirepaymentof asecuritydeposittoensurethatif the lessee terminates the lease before its specified term, that the lessor can keepthesecuritydeposittocoveranyrentthatisdue.16Intheleaseof premisesdiscussedhere,thelesseecausesnodamagetothelessorbutmerelyterminatesthecontractbefore its term. Althoughthe lesseemayhavecausedthe lessor“disappointment” when s/he did not find someone to take over the lease, the lesseemaynotbeaccusedof breachof trustbecausethelessor’spropertyrightswerenotimpaired.Thelesseemayhavebreachedthecontract;however,suchabreachissolelyacontractdisputethatneedstoberesolvedbycompensationfordamagesarising,andinnocasemaythelesseebepunishedforbreachof trust.

Sometimes the lesseecausesdamage to thepremises.Suchdamagedoesnot,however,constituteoneof theelementsof breachof trust.Rather,suchdamageisanon-contractualortortiousliabilityforwhichthelessormaybecompensatedinacivilaction.

G. Conclusion

Improper enforcement of the law not only affects the rights and freedomof citizensbutmayalsocausedamage to thenationaleconomyas thepublicwill not have confidence in the legal system if it does not protect its interests. Thepurposeof the lawonbreachof trust is toprotectpropertyfrombeingfraudulentlytakenbyadishonestperson.Themainfeaturesof thislaware:(1)theownergivescustodyof theproperty toanotherperson; (2) the termsarethose of any of the five contracts discussed above; (3) the owner reserves the righttosuchproperty,thatis,noownershipistransferredfromtheownertothereceiverbutthereceiverhastherighttocontroltheproperty;(4)thedelivereemisappropriatesthepropertyinamannerthatdemonstratescriminalintent,orusesthepropertyinviolationof thetermsof anagreementinthecontract;(5)thatwhichcausesdamagetotheowner.Ontheotherhand,notallbreachesof contractare“breachesof trust”.Theelementsof suchanoffenseshouldbethoroughlyexamined.

16PleasenoteapropertyleaseisdifferentfromarentalcontractsuchasthatgivenintheexampleinE.1,above.The‘lease’[i.e.rentalcontract]insectionE.1referstocircumstanceswhereonepartyleasespersonalproperty(suchasanautomobile)fromanotherparty,andthelessee[i.e.theaccused]fraudulentlytakesawaytheautomobile,causingdamagetotheowner’spropertyinterest.

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Appendix 6

Ministry of Justice Case Data

Analysisof InformationProvidedbyMinistryof Justice

Province/Municipality 2002 2003 2004 2005 TotalBy

ProvincePercentageof

Total

PhnomPenh10 unknown unknown unknown unknown 861 71.6%

Battambang 49 65 49 42 205 17.1%

KompongSom 27 21 29 22 99 8.2%

KompongCham 3 4 13 17 37 3.1%

TotalBreachof TrustCases 1,202

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

Table 1:Numberof Breachof TrustCasesinThreeProvinces(Battambang,KompongSomandKompongCham)andtheMunicipalityof PhnomPenhfortheYears2002-2005

10PhnomPenhreportedonlyanaggregatetotalfor2002-2005andanaggregatetotalfor2000-2005.Table1usestheaggregatetotalfor2002-2005,whileTables2and3usetheaggregatetotalfor2000-2005.Thisdecisionwasdictatedbytheinformationavailablefromtheotherprovinces,eachof whichreporteddifferentdatainadifferentform.

11Thisrepresentsthetotalnumberof criminalcasesinPhnomPenhbetween2000and2005,includingmanycategoriesof crimesthatarenotincludedinTable2.

Crimes Numberof Cases Percentageof TotalNumber

Breachof 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%

TotalNumberof Cases11 13,770

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

Table 2:Comparisonof Breachof TrustCasestoCertainOtherCrimesintheMunicipalityof PhnomPenhfortheYears2000-2005

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Table3:Comparisonof Breachof TrustCasesasaPercentageof TotalCasesinPhnomPenh,KompongChamandBattambangfortheYears2000-2005.

Province/Municipality

Breachof TrustCases

TotalNumberof Cases

Breachof TrustasPercentageof Total

PhnomPenh 1,136 13,770 8.2%

Battambang 259 5,059 5.1%

KompongCham 58 3,368 1.7%

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

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KINGDOM OF CAMBODIANation Religion King

Ministry of JusticeNo.02 PhnomPenh08thAugust2005

Joint Instruction

MINISTER OF THE MINISTRY OF JUSTICEAND

PRESIDENT OF THE SUPREME COURT

To:

- President, Vice-President and Judges in all Provincial-Municipal Courts- Prosecutors, Deputy-Prosecutors of the Provincial-Municipal Courts

Subject: Instructionon the implementationof Article46of theTransitionalCriminalLaw(1992).

The Ministry of Justice and the Supreme Court have found that theapplicationof Article46concerning“Breachof Trust”of the1992TransitionalCriminal Law in courts throughout the country has not been consistent.Furthermore,[TheMinistryof JusticeandtheSupremeCourthavefoundthat]thedistinctionbetweencivildisputesarisingfromfailuretoperformacontractualobligation and [disputes arising from actions that constitute the] elements of Breach of Trust remains an issue that needs to be clarified.Breachof Trustisanactof embezzlement,[or]misappropriationof -ortakingpossessioninpartialorfullviolationof another’srights–inpropertyentrustedbytheownerorpossessorandwhichtheowner[either]expectstogetback,orexpectsresultsof anyworkfromthepersonsoentrusted.Toprovideabasisforprosecutingandrenderingjudgments,andfordistinguishing[thedifferences]betweencivildisputesandBreachof Trustoffenses,theMinistryof JusticeandtheSupremeCourtherebyinstructallprovincial-municipalcourts

Appendix 7

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

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and prosecutors’ offices to pay attention and take into consideration the following legalconceptsstipulatedinArticle46of theUNTACLaw:

Elements of the offence of Breach of Trust are:

[TheBreachof Trustoffense]isstipulatedinthelaw.Thatis,Article46of theUNTACLaw.

Theoffenderhastheintentiontoembezzleormisappropriatepropertyentrustedbyanotherparty—thatis,thereisaclearintentionnottoreturn or show the property or results of [contracted] work [to theowner]—and[suchactof embezzlementormisappropriation]wasnotcausedbya[mitigating]incident[or]impediment;andthereshallalsobe [an actual actof] embezzlementormisappropriationdoneby theperson to whom the property is entrusted and is reflected by a failure toreturnproperty,orthemisappropriationof thereturnedpropertyintermsof quantityandquality.

Thesubstanceortargetof theBreachof Trustprovisionsinclude:

Property, cash, merchandise, any document containing or statingan obligation or discharge entrusted in the form of lease, bailment,mandate, loan,or loan forpayableornon-payablework,which is tobereturned,represented,orutilizedasdesignatedbytheownertotheentrustedpersonwholawfullyreceivesthepropertyunderthefollowingsixtypesof contracts:[i]lease,[ii]bailment,[iii]mortgage,[iv]loan,[v]mandate,and[vi]workcontractbetweenworkersoremployeesornotbetweenemployersandworkersoremployees.

Therearedamagestotheinterestsof theowner,ownerof theplace,orpossessorwhoentrustedtheproperty.

Other than theaforementionedsix typesof contracts, theMinistryof JusticeandtheSupremeCourtwouldliketoremindandrequestalljudgestocarefullyconsiderfailurestoperformcontractualobligationsundercivilcontracts.Theseinclude purchase-sale, loan for consumption (such as contracts involved inthe loanof cash),giftcontracts towhichanobligation isattached…[Underthese contracts], even if the receiver of the property fails his/her obligation,forwhateverreason,toreturnittothegiverof theproperty,itisnotanactof misappropriationorembezzlementthatconstitutesaBreachof Trust.

Damagestotheinterestsof theownerof apropertythatdoesnotconstituteaBreachof Trustmaybeconsideredasanothertypeof crimeif sostipulatedinthelaw.

TheMinistryof JusticeandtheSupremeCourtwilltakemeasuresinaccordance

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2.

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5.

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withthelaw[todealwith]anynon-compliancewiththisprovisionof thelaw.

TheMinistryof JusticeandtheSupremeCourthopethatalljudgeswillbevigilantinappropriately implementing theprovisionof Article46of theTransitionalCriminalLawtoprotecttherightsof thecitizen[toenablethemtotake]partin the development of the national economy and to increase the public andinvestors’ confidence in the Cambodian judicial system and laws.

ThePresidentof theSupremeCourt Minister of the Ministry of Justice

H.EDithMunty H.EAngVongVathana

[SealandSignature] [SealandSignature]

CC: -Councilof Ministers -SupremeCouncilof Magistracy -ProsecutorGeneralattachedtotheSupremeCourt -Courtof AppealandPersecutor -FileandChronology

APPEND

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