On 11 May 2020, the Civil Code No. 55/NA dated 6 December 2018 (“Civil Code”) was published in the Lao Official Gazette, to be effective from 26 May 2020. The Civil Code replaces and repeals civil and commercial laws containing similar provisions, including the Law on Contract and Tort, Law on Family, Law on Property, Law on Succession, and Law on Secured Transactions.

The Civil Code contains 630 provisions of law, divided into nine main parts, namely: (i) General Provisions, (ii) Person and Juristic Person, (iii) Family, (iv) Property, Proprietorship and other Property Rights, (v) Contractual Obligations, (vi) Non-Contractual Obligations (covering Tort, Undue Enrichment, and Management without Mandate), (vii) Secured Transaction, (viii) Succession, and (ix) Final Provision.

As the Civil Code replaces and repeals various legislation, there are notable changes to civil and commercial relationship. A summary of the key changes are as follows:

• The possession period for the acquisition of ownership by means of adverse possession in cases of an immovable asset has been reduced from 20 years to 10 years.
• The Civil Code amended the formality requirements for a contract, with the presence of village chief and signatures of witnesses now optional in a written contract.
• Provisions relating to rights affecting a third party has been introduced, including the requirement for a third party to express intention to receive contractual benefit to be entitled therein under a contract for the benefit of third party, and debt transformation. These provisions were not included in the Law on Contract and Tort, which was the general law governing contractual transaction and commercial relationship in Lao PDR before the adoption of the Civil Code. The previous law only includes the rights of creditors to terminate fraudulent transactions of debtor and assignment of contractual by means of transfer of documents or debt.
• Under the general sale of asset with registration, the Civil Code now expressly states that title will be transferred only after registration of such transaction, notwithstanding whether there is actual transfer of property or delivery of payment.
• The provisions governing hire-purchase agreement have been expanded. The Civil Code now provides that the seller has to notify the buyer of the failure to pay installments for three consecutive installments and allow 30 days period for buyer to remedy the situation before being entitled to terminate the contract, claim for damages, and withhold all paid amounts. The Civil Code also imposes criminal liability for buyers who sell or otherwise transfer hire-purchase items to a third party during the term of the hire-purchase agreement.
• Defamatory tort is now recognised by the Civil Code and introduced new categories of liability for damage caused by third party or personal belonging, including liability to compensate for damages of owner or possessor of tree and building, liability to compensate for damages of construction contractor, liability for damaged caused by products and dangerous items, and liability for damaged caused to environment.
• Secured creditor has rights over secured assets and their proceeds until the debt is settled in full, notwithstanding whether there is transformation of debt or change in relation to the debtor.
• Creditor who funds debtors in the purchase of an asset has priority over other creditors for a period of 10 days from the acquisition of the asset by debtor. If the period lapses without registration of a secured transaction, the priority will no longer be applicable.
• The Civil Code introduced subcategories of secured transaction to include pledge by moveable assets, pledge by immovable assets, pledge by rights, mortgage by movable assets, mortgage by immovable assets and pledge by individual or juristic person.
• It is no longer a formal requirement for a secured transaction agreement in the mortgage or pledge of immovable assets to have three witnesses and/or village chief witnessing the execution of the agreement. However, for mortgage with immovable asset, in addition to registering the agreement with the natural resource and environment sector it is also now compulsory to register the agreement with the finance sector.

Commentary

The adoption of the Civil Code is one of the biggest and long-awaited developments for the Lao legal system. Previously, it had been relatively difficult for those unfamiliar with Lao legal system to identify provisions of law that are relevant and applicable to their activities, given that laws and regulations governing civil and commercial transactions and relationship are set out in numerous instruments. As in most major transnational investment, one of the most important steps for investor is to become familiar with relevant domestic regulatory environment and regime, this codification of domestic private law would thus have an indirect affect in simplifying such process, thereby attracting more foreign investment.

Despite offering several developments to the system, the implementation of the Civil Code may prove to be challenging. There are a number of changes to formalities and conditions of contract, such as registration and execution requirements. With merely 15 days from promulgation date to comply with the Civil Code, on-going or concluding negotiations may be frustrated to the extent that parties involved may need to recommence the process from the beginning. Given current enforcement of lockdown measures globally, this would result in additional compliance cost on such transactions.

In addition, the implementation of the Civil Code may still need supplementary instruments to clarify principles laid down therein. For example, for the adjustment to registration process, instructions or guidelines from responsible authorities at operational levels would facilitate smooth transition of such new process and provide transparency and certainty to the system. As a result, it may take some time for the Civil Code to be fully implemented in the Lao legal system.

If you have any questions or require any additional information, please contact Tuchakorn Kitcharoen or the ZICO Law lawyer you usually deal with.

This alert is for general information only and is not a substitute for legal advice.