The answer perhaps lies in recent history. The boom years of the 90’s construction and infrastructure investment led to a series of high profile arbitrations which went against several Government entities leading to large monetary awards and consequential adverse and sometimes xenophobic headlines. The Thai government led by Mr. Taksin resolved in January 2004 to outlaw arbitration in government administrative contracts (loosely defined as concession contracts relating to public utilities) unless prior Cabinet approval was obtained.

Thailand has been a New York Convention Member State since 20 March 1960. The Thai Arbitration Institute (TAI) was formed in 1990 and under the auspices of the Office of the Judiciary of Thailand actively promotes Arbitration in Thailand. Throughout its 15-year history TAI has handled virtually all high-profile cases in Thailand. The TAI website proudly states “TAI is affiliated to the Office of the Judiciary which assures non-intervention policy, and provides safeguard from any domestic political interference. Therefore, the parties can completely trust the impartiality of the institute, even though one of the parties to a dispute may be a governmental agency”.

In 2002 the Thai Government introduced its Arbitration Act B.E.2545 based on the UNCITRAL Model Arbitration Law. It is generally recognised as a satisfactory piece of legislation (but marked ‘Model Law Minus’ by the international arbitration community). To a large extent the Act was a measure to encourage foreign investment and to promote international and domestic dispute resolution. Since its enactment in 2002 the scope of the Act has been progressively restricted through bad publicity and the two Cabinet resolutions of 2004 and 2009.

The 2004 Cabinet Resolution was explained to me by a senior Thai Judge in terms of pendular motion. “There has been an enormous swing in favour of globalisation and openness in Thai society but now the swing is the other way”. In true Buddhist tradition he went on to opine that equilibrium will be attained eventually.

The 2004 Cabinet resolution was passed even though Section 15 of the Act specifically provides that all contracts irrespective of the identity of parties involved may have an arbitration clause.  The 2009 Cabinet Resolution has widened the scope of the 2004 Cabinet Resolution to cover all contracts with government entities. The inclusion of an arbitration agreement in any contract with the Thai government remains subject to Cabinet approval on a case by case basis.

On a positive note it is good to see the red shirted Mr. Taksin Shinawatra and yellow shirted Mr. Abhisit Vejjajiva the 23^rd and 27^th Prime Ministers of Thailand respectively agree on something politically substantive.

Where does this leave the foreign investors implementing high value EPC Contracts in the Kingdom? You ought to get the right advice from professionals who understand the alternatives within the Thai system. You could of course ask United Utilities Plc who has published a footnote in its annual accounts since 1997 stating it is in arbitration in Thailand where the outcome remains uncertain.

Herbert Smith has flown a second senior partner from London to deal with rush and Clyde & Co says is handling twice as much dispute-related work this year compared with last. Among the cases pending is a claim involving a UAE contractor seeking US$681 million in payments from a Developer? Any number of litigation partners will tell you the whole of Dubai is gearing up for a litigation bonanza. But will it happen? There are a lot of nasty letters flying around in cyberspace but no one seems to have pressed the ‘go’ button yet.

There is an apparent lack of enthusiasm evident in local businesses and their managers to have their disputes resolved by what is seen largely as a foreign process. The United Arab Emirates signed and passed into law the New York Convention in August 2006. Dubai awards can be enforced in any Convention Country and foreign awards can be brought to the Dubai Courts. There are as yet no reported examples of successful enforcement of foreign awards. The Dubai EPC Contract of choice is FIDIC Rainbow collection so many cases will be pending at ICC Paris as well.

Of the 4 or 5 arbitrations I have been involved in this year all but one has settled around the time the arbitration process got under way and just before the panel could earn respectable fees. Why would a sane contractor spend 2 to 3 million dollars chasing an impecunious Developer through arbitration in Dubai when at a deep discount to his final account he can at least generate enough cash flow to keep his business afloat? Liquidity is now reportedly returning to the Dubai market and many contractors will be reanalysing the risk profile of taking cases through arbitration to recover more than may be on offer in a forced settlement. The siren has sounded but there is no sign of the big wave reaching the shore just yet.

If arbitration is as an exercise in defining what was actually promised is in order to enforce delivery on that promise then mediation must be a process in defining what can be delivered instead of the original promise. How then can mediation work in a culture where the preference is to apply increasingly severe sanctions until the original promise is performed? Compromise will not be acceptable if one party is seen to lose face (or money).

Key to any successful mediation is the ability to accept compromise. In Arabia compromise should be presented as a way of delivering equivalent value to the original promise whether in the form of future opportunities or enhanced value. Faced with the illiquidity of Dubai’s cash strapped local developers international contractors have accepted 25% to 50% reductions in final account on staged payments together with a promise of future work instead of spending US$ 2/3m on an arbitration award they will not easily be able to enforce on any reasonable time horizon. In other cases physical assets have been successfully bartered instead of cash.

In presenting mediated options to those clients steeped in Arabian and Islamic culture care must be exercised in showing that the compromise represents no more than a deal change of equivalent or enhanced value. A client who feels he is being screwed by foreign interests will not settle or if he does he will remember the experience until he is able to re balance the position on his terms at some future date. Despite the absolute nature of contractual promises peoples of the Arabian Gulf come from a strong trading tradition. Deals can be done and final accounts can be settled on the basis of equivalent value. If there is any secret it is in the ability of the mediator to redefine and present a deal both parties see as being equivalent in value to the original promise.