Arbitration in Thailand – The End02 Nov
By resolution dated 28 July 2009 the Thai Cabinet has forbidden any contract entered into by the Government and a Thai or foreign entity from containing an arbitration clause as a method of dispute resolution. Why would any country actively seeking inward foreign investment take such a step? Why would you force foreign investors into the Thai Courts without any official Thai translation of the FIDIC Rainbow Contracts? A senior Thai Lawyer once explained to me that the Thai legal system is an adapted German import from the 1830’s. He continued “In many ways it still operates like a Mercedes Benz built in 1830”.
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 23rd and 27th 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.