1. Introduction
As of 2012, Myanmar created a modern and accessible environment in which to conduct business by replacing 100-year Companies Act with Myanmar Companies Law, 2017 and combining Foreign Investment Law and Myanmar Citizen Investment Law as Myanmar Investment Law, 2016. Due to these two major changes in operating business, it is easier to establish companies and start up new investment activities. In doing such investment activities, the business contracts must be concluded as a legal requirement. Legally enforceable agreements are tools to help the facilitation of business operations. Business contracts provide the parties necessary legal protections that they need in any operation.
2. Importance of Business Contracts
Every businessman should have general understanding of the legal aspects of running a business and making business agreements or contracts. In particular, the investors desirous to do business in Myanmar need to understand the legal consequences of conducting businesses in Myanmar. By means of understanding of legal aspects, they will become dutiful businessmen who comply with international and local laws in relevant fields. In the case of concluding business contracts, the businessmen or investors should know about the basic concepts of commercial contracts and laws and policies of relevant contracting countries.
3. Types of Business Contracts
The most common types of business contracts concluded in Myanmar are;
(1) Memorandum of Understanding (MOU),
(2) Land Lease Agreement,
(3) Lease Agreement of Building and Land,
(4) Joint Venture Agreement,
(5) Sale Agreement,
(6) Loan Agreement,
(7) Service Provider Agreement,
(8) Non-disclosure Agreement,
(9) Technology Transfer Agreement,
(10) IP right Agreement,
(11) Guarantee Agreement
(12) Profit Sharing Contract and so on.
In order to be the validity of business contracts, they must be concluded in accordance with international terms and conditions of contracts as well as the provisions of relevant Myanmar Laws and other directives which apply to making contracts.
4. Due Diligence
Due diligence is an investigation of a business or person prior to signing a contract, or an act with a certain standard care (disambiguation). As for the parties who enter into an agreement, they should perform due diligence process before concluding a contract. The goal of due diligence is to discover hidden information about a business and properties aimed for entering into an agreement. Performing an effective due diligence takes time, resources and money. Hence, due diligence requires to be performed for investors making business contracts because some business owners intentionally hide information such as their businesses, financial statement and constitutive documents.
5. Laws related to Concluding Business Contracts
5.1 Contract Act, 1872
Under section 2(h) of the Myanmar Contract Act, 1872, “an agreement enforceable by law is a contract”. All agreements are contracts if they are made by the free consent of the parties competent to contracts, for the lawful consideration and with a lawful object and are not expressly declared to be void. All contracts are agreements but all agreements are not necessarily contracts. An agreement in order to be a contract must be enforceable at law.
The essential elements of a valid contract
According to section 2 (h) and section (10) of Contract Act, all agreements are contracts only if they are made with the free consent of the parties, competent to contract, for a lawful consideration and with a lawful abject and are not hereby declared to be void.
The essential elements of a valid contract;
1. Proposal or offer and acceptance of such proposal or offer (or) Agreement 2. The parties must be competent to contract (section 11)
3. Free consent of the contracting parties (section 13 to 22)
4. Lawful consideration and lawful object (section 23)
5. The agreement must not be expressly declared to be void (section 20, 26-30 and 56)
6. In writing if so required by law.
5.2 The Registration Law, 2018
After execution of agreements, the next issues are registration of those agreements and proper stamp duty to be imposed. There is a list of documents which require compulsory registration (section 16). The documents of which registration is compulsory are as follows:
(1) instruments of gift of immoveable property;
(2) other non-testamentary instruments which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of one hundred thousand kyats and upwards, to or in immoveable property;
(3) instruments which extinguish the mortgage and mortgage instruments in which the mortgagor signs the mortgage and at least two witnesses sign to be authenticated except borrowing mortgage-money by entrusting the title-deed valued one hundred thousand kyats and upwards; (4) leases of immoveable property from year to year, or for any term exceeding one year, or reserving a yearly rent;
(5) instruments whereby the company has mortgaged, conveyed or otherwise transferred the whole or part of its immovable property or any interest therein to trustees upon trust for the benefit of the holders of such debentures;
(6) instruments of Kittama adoption and
(7) instruments stipulated by the government from time to time.
Generally, agreements related to immovable property must be registered.
In submitting the documents or instruments to be registered at Registration of Deeds Office, the following particulars must be contained;
(1) The instruments must be duly stamped and consistent with the value of instrument specified according to kinds of contract;
(2) The instruments must be ones signed by contracting parties in full;
(3) When registering the instruments concerning immovable property, the kind, shape, size and location of immovable property must be mentioned clearly in order to classify them easily. If immovable property is land, documents evidencing title which are issued by the relevant government authorities;
(4) If any document in which any interlineation, blank, erasure or alteration appears, the persons executing the document attest with their signatures or initials such interlineation, blank, erasure or alteration;
(5) If the instruments are not written with Myanmar language, the documents translated and authenticated by Notary Public must be attached;
(6) If the instruments are executed outside the Union of Myanmar, they must be endorsed by Myanmar Embassy in relevant country and authenticated by Notary Public. At the time of arriving these instruments, they must be stamped under the Myanmar Stamp Act.
5.3 The Myanmar Stamp Act
The Myanmar Stamp Act provides the list of proper stamp duty for different documents in 1st Schedule. It might be stated that the rate is competitively high. Another issue is calculation of stamp duty in different currencies. When the value of contract is shown in foreign currency, the calculation of stamp duty is based upon exchange rate. It is daily reference rate announced by the Central Bank of Myanmar at the date of documents.
5.4 Foreign Exchange Management Law
In the case of lease of immovable property, the parties must comply with the provisions of Foreign Exchange Management Law if the payment made with foreign currency. The payments made with foreign currency within the Union of Myanmar are subject to this Law. The persons desirous to pay with foreign currency must operate through Foreign Exchange Licensees and Authorized Dealers when they pay or transfer the foreign currency.
(Currently, all local transaction must be paid in Kyats (local currency) under the direction of the Central Bank of Myanmar.)
5.5 Transfer of Property Act
The Transfer of Property Act lays down the principles to be followed for a legally enforceable transfer of property. According to Section 7 of this Act, every person competent to contract and entitled to transferable property, or authorized to dispose of transferable property not his own, is competent to transfer such property either wholly or in part, and either absolutely or conditionally, in the circumstances, to the extent and in the manner allowed and prescribed by any law for the time being in force.
Property of any kind may be transferred, except as otherwise provided by this Act or by any other law for the time being in force. However, inheritance rights and similar cases, right of re-entry, easement, an interest in property restricted in its enjoyment to the owner personally, a right to future maintenance, right to sue, public office and the salary of a public officer, whether before or after it has become payable, stipends allowed to military, naval, air-force and civil pensioners of the Government and political pensions and a person legally disqualified to be transferee cannot be transferred.
5.6 The Transfer of Immoveable Property Restriction Act, 1987
When it comes to the transfer of immoveable properties on foreigners and foreign companies, it is required to aware about this Act when concluding the contracts related to immoveable property (especially; lease of building or land) because this Act prohibits that no person shall sell, buy, give away, pawn, exchange or transfer by any means immovable property with a foreigner or foreigner owned company. In the case of lease of immoveable property, they may not receive a lease of immoveable property for a term exceeding one year.
Nevertheless, the foreign investors and foreign owned companies may use or lease land for a term exceeding one year or long-term use under Myanmar Investment Law, 2017. In order to do so, they need to obtain endorsement or permit from Myanmar Investment Committee (MIC) or relevant Region/State Investment Committees.
5.7 Myanmar Companies Law, 2017
A company is a separate legal entity as distinct from its members, therefore it is separate at law from its shareholders, directors, promoters etc. and as such is conferred with rights and is subject to certain duties and obligations. A legal entity has legal capacity to enter into agreements or contracts, assume obligations, incur and pay debts, sue and be sued in its own right, and to be held responsible for its actions. Similarly, a company incorporated in Myanmar may enter into a contract subject to existing relevant Myanmar Laws, Rules and Regulations as well as terms and conditions contained in company constitution.
5.8 Myanmar Investment Law, 2016
Regarding contracts executed to relevant government organizations, the investors may, after obtaining a permit or an endorsement from the Myanmar Investment Commission (MIC), execute and sign necessary contracts with the relevant government department or a government organization or government organizations, and conduct its investments. On the other hand, the investors are allowed to enter into agreement with Myanmar nationals, companies and other persons eligible to do so.
6. Arbitration
Another important thing the foreign investors should emphasize in concluding business contracts with Myanmar nationals and Myanmar companies is that “Arbitration” clause which is used to mentioning in terms and conditions of business contracts. This clause describes that if any dispute relating to contract arise between the contracting parties, which ways and proceedings of country they will use to settle the dispute and so on. In doing so, the parties may clearly settle the disputes or problems by complying with this clause. If the way to settle the dispute is not described in contract, it shall be settled in the competent court or the arbitral tribunal in accord with the applicable laws. The Arbitration Law, 2016 applies to settle domestic and international commercial disputes. On top of that, the Myanmar Arbitration Centre was launched on 3 August 2019 under the operation of the Union of Myanmar Federation of Chambers and Commerce and Industry (“UMFCCI”) to deal with commercial disputes in compliance with the Arbitration Law.
7. Signature
In Myanmar legal practice, it is noticed that often some multi-page contracts contain a location on each page for all parties to initial. These small signature lines in the lower right-hand corner of each individual page of a contract. This prevents one of the parties from later inserting a false or modified page and fraud in the enforcement of contracts. There is no statute or law that demands that each page of a contract be initialed. Written contracts are binding if signed on the last page by the parties to the contract.
8. Conclusion
To sum up, the validity of a business contract helps to prevent future misunderstandings of terms and conditions of contract between the parties and avoids potential contract disputes and litigation for the contracting parties. Therefore, contracts should be made by consulting with specialist business attorneys not to lose their legal rights conferred by the law.
Researched by –
Shine Ko Ko Naing, the Advocate and Corporate Lawyer
