Australia: Myanmar’s Legal System And Contract Law¹

A distinct advantage to investing in Myanmar over other countries in the region is that the available business structures, commercial laws and general legal system will be familiar to international business people.

In addition, the general feeling among foreign investors in Myanmar is that once signed, a contract, unlike in some other countries in the region, is considered as binding and not simply the starting point for ongoing negotiations. In addition to the company and foreign investment laws of Myanmar, a foreign investor’s activities in Myanmar will be regulated, in particular, by Myanmar’s law of contract.²

The legal system of the Union of Myanmar is a unique combination of the customary law of the family, codified English common law and recent Myanmar legislation. The principles of English common and statutory law were implanted in Myanmar by the British law codes of the pre-independence India Statutes. These statutory laws, based on and incorporating the English common and statutory law of the time, include the Contract Act, Negotiable Instruments Act, Trusts Act, Transfer of Property Act, Registration Act, Sale of Goods Act, Companies Act, Arbitration Act and the Civil and Criminal Procedure Codes.

Where there is no statute regulating a particular matter the Courts are to apply Myanmar’s general law, which is based on English common law as adopted and moulded by Myanmar case law and which embodies the rules of equity, justice and good conscience. Where there is no relevant statutory or general law on point, the Myanmar Courts are obliged to decide the matter according to justice, equity and good conscience.

Since 1988 the corporate, commercial and economic laws of pre-independence Myanmar have been revived as the pillars of Myanmar’s push towards a market economy. In addition, new laws have been promulgated to encourage foreign and local investment and develop the market economy.

The administration of justice by the Myanmar Courts is based upon the following principles:

(i) independence of the judiciary;

(ii) protecting and safeguarding the interests of the people;

(iii) educating the people to understand and abide by the law and cultivating the habit of abiding by the law;

(iv) working within the framework of law for the settlement of cases;

(v) dispensing justice in open court, unless otherwise prohibited by law; and

(vi) guaranteeing, in all cases, the right of defence and the right of appeal under the law.

The judicial system in Myanmar is hierarchical. In ascending order of importance, the Courts of Myanmar are:

• Township Courts (of which there are 323)
• District Courts (of which there are 63)
• Divisional Courts/State Courts (of which there are 14)
• The Supreme Court

The Supreme Court, the highest court in Myanmar, was re-established under the Judiciary Law, 1988 and is currently constituted by a Chief Justice and ten judges.³ The Supreme Court also has judicial officers who undertake research and provide assistance to the Supreme Court judges. In addition, there are also law officers, appointed by the Attorney General’s office, who act as public prosecutors in all Courts.

The Supreme Court is responsible for the supervision of all other Courts in Myanmar and has the jurisdiction to adjudicate on, among other things:

(i) civil and criminal matters within its original jurisdiction;

(ii) appeal hearings from a decision of a Divisional/State Court;

(iii) any order or decision relating to the legal rights of a citizen and amending or quashing such order, as necessary;

(iv) cases against the judgment, order or decision of any Court;

(v) any judgment, order or decision of any Court which is not in accordance with the law and amending or quashing it, as necessary;

(vi) maritime cases; and

(vii) cases for which it is given jurisdiction under any law.

The Supreme Court, sitting as a full bench may, if necessary, adjudicate on any case decided by the Supreme Court sitting with a single judge or with a bench of judges less than a full bench, as prescribed by the Chief Justice.

The Divisional/State Courts have original jurisdiction in criminal and civil proceedings as well as being the Court of first appeal for decisions made in Township Courts. The Township and District Courts deal mainly with petty criminal matters and low monetary value civil matters.

Each Divisional/State, District and Township Court may, in exercising its jurisdiction, adjudicate on cases with a single judge or by a bench, in accordance with the directions of the Supreme Court.

In general, Myanmar Courts have jurisdiction to try all civil suits against all persons (whether local or foreign), within Myanmar, other than foreign sovereigns. The appropriate Court in which to commence proceedings in Myanmar is dependent upon the type and value of the claim and the location of the parties/the place the business is or act in question was carried on.

Although the exclusion of the jurisdiction of the courts altogether is illegal and void in Myanmar under the Contract Act, a choice of jurisdiction clause specifying a particular Court within Myanmar will and outside of Myanmar may (if such choice is not contrary to public policy) be accepted and enforced by a Myanmar Court.

Unlike other countries with a common law tradition, Myanmar has a codified law of contract: the Contract Act of 1872 (as subsequently amended). Many of the provisions of and legal concepts embodied in the Contract Act will be familiar to those with knowledge of the contract law of other former British colonies in the region or England. Below are examined some of main elements of Myanmar’s contract law which will affect those doing business in Myanmar.

In order to be a valid contract under the Contract Act the agreement must be:

(i) an agreement between the parties, that is, there must be a proper offer and acceptance;

(ii) entered into by parties who are competent/have capacity to contract;

(iii) made by free consent of the parties, that is, they must have agreed to the same thing in the same sense and must not have agreed under:

(a) coercion;

(b) undue influence;

(c) fraud;

(d) misrepresentation; or

(c) mistake;

(iv) for lawful consideration and for a lawful object; and

(v) in writing if only specifically required by another law.

Additional care should be taken when contracting with a company incorporated in Myanmar. Under the Myanmar Companies Act a company does not have the powers of an individual to enter into contract, but only has the powers expressly given to it by its Memorandum and Articles of Association (and those powers necessarily incidental to its objects/scope of activities) and the Companies Act. Any contract entered into by a company beyond the scope of its activities or contrary to an express limitation in the company's constitution is unenforceable by both the company and the other party.

In all dealings with a Myanmar company, the other party is deemed to have notice of the scope of the company’s activities and limitations on its powers set out in the Memorandum and Articles of Association of the company. However, the party dealing with the company is entitled to assume that the internal affairs of the company have been conducted in accordance with the company's constitution and are valid. For example, if a company’s objects/scope of activities do not include the power to manufacture (it being a services company say), any partnership or other contract with that company to manufacture goods would be unenforceable. However, if the company was entitled to enter into manufacturing with the approval of a majority of the shareholders of the company, the joint venture or other contract to manufacture goods would be enforceable against the company, even if the majority of shareholders had not in fact approved the contract.

Also, contracts made with a "company" before it is incorporated are not enforceable against and cannot be ratified by the company once it is incorporated: fresh contracts must be entered into by the parties.

State-owned economic enterprises ("SEEs") are formed as corporate bodies with separate legal personality akin to companies incorporated under the Myanmar Companies Act. SEEs are formed either under "Acts" or "Laws" of the State or Notifications issued by the ministry concerned (collectively referred to as "enabling legislation"). As such, SEEs have only the rights and powers given to them by the Government, as set out in their enabling legislation. As with private companies, SEEs can only act and contract within their objects and the powers given to them. As a practical matter therefore, in addition to obtaining ministerial authorisation (and Foreign Investment Law and any other approvals required) for the SEE to enter the joint venture or other contract, it would be wise to ensure that the SEE has the power to enter into that specific contract.

The essential features of formation of a contract such as offer, acceptance and consideration are defined in the Contract Act and are essentially the same as current Australian, English, Hong Kong and Singapore law. However, there are three major differences:

(i) consideration under Myanmar contract law may be given by a person who is not a person to the contract;

(ii) past consideration (that is, payment/performance prior to entering into the contract) is valid consideration in Myanmar; and

(iii) consideration is not presumed in Myanmar in the case of a contract under seal.

The usual vitiating factors that render a contract unenforceable in other former British colonies of the region and England, such as undue influence, coercion, fraud, misrepresentation and mistake, are also applicable in Myanmar.

The Contract Act distinguishes between "conditions" and "warranties": the main distinction being the rights given to the non-defaulting party for breach.

A "condition" is a term going to the root of a contract (that is, vital to its existence), a breach of which gives the injured party a right to repudiate the contract and claim for the damages sustained. However, instead of repudiating the contract, the injured party may continue with the contract and bring an action for damages only.

A "warranty" is an auxiliary stipulation in a contract collateral to the main purpose, the breach of which merely gives rise to a claim for damages, not a right to repudiate the contract. A warranty is to be distinguished from a representation amounting to an expression of opinion. It is quite harmless to say of goods that they are "the best value to be had", "exceptional value" or a "wonderful investment". These are typical examples of sales "puffing" and there is no right of action should they prove to be untrue, unless there has been fraud on the part of the seller, in which case the buyer may set aside the contract and claim damages.

Whether a stipulation in a contract is a condition or a warranty is a matter of construction: for example, a stipulation may be a condition although called a warranty in the contract. There is no definite rule which may be applied in all cases to decide what constitutes a condition or a warranty, it is a question of the parties’ intentions and construction of the relevant contract provisions.

As a general rule, stipulations as to time of payment are not deemed to be conditions of the sale and whether any other stipulation as to time is of the essence of the contract depends on the nature of the contract. However, stipulations as to time for delivery of goods are usually considered essential terms and thus conditions, unless a contrary intention appears in the contract.

Contracts of indemnity and guarantee are specifically regulated by the Contract Act, in some 24 sections. The relevant provisions of the Act must be carefully considered before entering into/drafting a contract or provisions creating an indemnity or guarantee.

Many jurisdictions permit reasonable restraints of trade: that is, restraints which are not prejudicial to the public interest and not larger in geographical operation or longer in time than is necessary to protect the legitimate interests of the party seeking the restraint. However, the Contract Act prohibits and voids every agreement by which one is restrained from exercising a lawful profession, trade or business of any kind with only two limited exceptions: agreements not to carry on a similar business within reasonable geographical and time limitations on the part of:

(i) the seller of a business; and

(ii) a partner leaving a partnership.

Agreements which merely restrain the freedom of action in the exercise of business (such as exclusive dealing provisions) are not prohibited.

In many countries a distinction is made between an unenforceable "penalty" (being a payment of money in terrorem of the breaching party) and enforceable "liquidated damages" (being a genuine pre-estimate of damage suffered as a result of the breach). However, this distinction is not recognised in Myanmar.

Irrespective of the amounts (and other stipulations by way of penalty, such as interest on late payments) stated in a contract to be paid in case of breach, the Court has the power to ascertain and award "reasonable" compensation (that is, the actual loss suffered) up to any amount stipulated in the contract. Provisions structured so that a lesser amount is payable, for example, on timely payment (and use of similar mechanisms commonly used to avoid the penalty issue under English law) are permissible and are not open to the Court’s review.

The Money Lenders Act 1945 sets the maximum rates of interest recoverable on "loans" at 12 per cent per annum for secured loans and 18 per cent per annum for unsecured loans. All agreements (and any provision in a contract) to pay compound interest are void. In addition, the total interest recoverable on a loan cannot exceed an amount equal to the principal.

A "loan" is defined as an advance, whether in money or in kind, at interest and includes "any transaction which is in substance a loan". There are a number of exceptions for named banks and societies and a loan taken or advanced by the government or by any local authority is specifically excluded from the operation of the Act. Also, loans advanced by a trader to another trader in the ordinary course of business and in accordance with trade usage are excluded from the definition of "loan".

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

^{1. The information contained in this article should not be relied upon as professional advice and should not be regarded as a substitute for detailed advice in individual cases. No responsibility for any loss occasioned to any person acting or refraining from action as a result of material in this article is accepted by the author or by the company.}

^{2. For an examination of Myanmar laws affecting foreign investors doing business in Myanmar, see A. Christie and S. Smith, Foreign Direct Investment in Myanmar, Sweet & Maxwell Asia, 1997.}

^{3. Six judges sit in Yangon and five judges sit in Mandalay.}

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.