For several years now, commentators – particularly in the business community – have opined that Thailand is in need of a significant infrastructure upgrade such as its mass transportation, road and railways systems.

The government appears to agree. Despite the differences between Thailand’s two main political parties, both of them have presented proposals for large scale and comprehensive infrastructure projects. Both parties continue to agree that Thailand needs to invest significant amounts to modernize and improve its infrastructure.

In such circumstances it is not uncommon for a government to encourage private sector investment. Such private participation may have several benefits for the government. These may include technical or managerial expertise not available domestically, a larger and more competitive bidding pool for the project and, depending on the type of private participation, project financing. Where the potential private investor is foreign, a significant consideration will be an assessment of the protections afforded to the investment. Internationally, this is usually provided by substantive rights and enforcement provisions in a public-private contract (“PPC”) between the host State and the foreign private party or under any relevant investment treaty (“IT”) or both. The following will briefly explain what types of rights and enforcement provisions are commonly available to foreign investors under these two options and conclude with a brief comment on the current investor-State situation in Thailand.

SUBSTANTIVE RIGHTS

The rights afforded to an investor under a PPC are for the contracting parties to determine and may vary with regard to the type of investment. However, a common concern for foreign investors is that the State may enact or change its law relevant to the investment such that it would diminish the investment’s value. Thus, an example of a substantive right commonly included in the PPC for the investor is a provision, which applies the law of the host State – at the time of the investment – to the investment throughout its duration. This is commonly known as a “freezing clause”.

Whereas the investor will need to convince the host State to include investment protection provisions contractually, ITs provide such protections to the investor without such requirement.

Its take three common but different forms:

1) bilateral agreements between two countries (BITs) and to which Thailand is currently a party of at least 34 such agreements;

2) multilateral investment agreements between more than two countries (MITs) and of which the 2009 ASEAN Comprehensive Investment Agreement (ACIA), to which Thailand is also party, is a good example; and

3) free-trade agreement (FTA), which although not dealing only with investment protection issues, commonly include such provisions. The 2009 ASEAN-Australia-New Zealand Free-Trade Treaty (AANZFTT) to which Thailand is also a party is a good example of and FTA and to which Thailand is a party.

The substantive protections that ITs offer to investors are common and generally include the following:

1)  “fair and equitable treatment” in accordance with international minimum standards (which has generally been equated with the investor’s legitimate expectations to be treated transparently, predictably, consistently, and justly by the host State);

2)  “full protection and security” (which imposes positive obligations on the host State to protect investments);

3)  no “arbitrary or discriminatory treatment” (which imposes a duty on the host State not to disregard internationally accepted standards of due process of law);

3)  no direct or indirect “expropriation” of the investor’s property by the host State without “prompt, adequate, and effective compensation”;

4)  “national treatment” and “most favored nation treatment” (which are sometimes treated separately and which require the host State to treat the investor no worse than it treats its own nationals or investor parties from third States); and

5)  the observance of specific contractual undertakings by the host State with the investor (which are sometimes referred to as “umbrella clauses” and which require the host State to honor its undertakings with investors regarding their investment).

ENFORCEMENT

Claims by an investor under a PPC would be subject to whatever dispute resolution mechanism is provided for therein. In the case of the IT this is usually by way of submission of the dispute to the courts of the host State or to international arbitration. Where international arbitration is provided for it will commonly take one of the following three main forms:

1) “ICSID”;

2) “institutional arbitration”; or

3) “ad hoc arbitration under the UNCITRAL Rules”.

Submission to the courts of the host State is generally not the preferred choice for the investor. The forum is considered not to be in a “neutral” location and the decision-maker is regarded as not to be “independent” of the allegedly breaching host State.

“ICSID” stands for the International Center for the Settlement of Investment Disputes. The 1965 Washington Convention established ICSID “primarily to create an arbitral forum for the resolution of disputes between investors and States . . .” As of 1 November 2013, 150 States had ratified the Washington Convention. Because it was designed to resolve investor–State disputes, ICSID arbitration is distinctive in that it:

1) virtually eliminates any involvement by another State’s courts in the arbitration proceedings; and

2) requires all contracting States to immediately enforce the final award without any grounds on which it may analyze and conclude to refuse such enforcement–thereby avoiding the “indignity” of any contracting State being subjected to the scrutiny of another State’s courts.

“Institutional arbitration” refers to arbitration under the administration and rules of an arbitration service provider, for example: the International Chamber of Commerce; the International Center for Dispute Resolution; the Singapore International Arbitration Center; or the Thai Arbitration Institute.

“Ad hoc arbitration under the UNCITRAL Rules”, refers to arbitration which is not administered by an institution and is therefore “ad hoc” but which is controlled by the United Nations Commission on International Trade Law Arbitration Rules.

Both institutional and ad hoc UNCITRAL arbitration are designed for commercial disputes between individual parties without regard to sensitivities of disputes involving National “sovereigns”. They depend on the “1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards”. The New York Convention will only recognize arbitration awards, which are subject to the procedural law and a certain degree of possible involvement of the courts of the State where the arbitration takes place. Such third party State court involvement is the reason why ICSID arbitration is the preferred choice for arbitration involving a State. ICSID arbitration gained acceptance within ITs as they proliferated. However, since States have increasingly come to recognize that their commercial activity does not necessarily implicate their sovereignty, ITs have also become increasingly subject to institutional and ad hoc arbitration.

With regard to enforcement of ITs, it is not uncommon that the investor will be required to first submit their dispute to the host State’s courts for some minimum period of time. However, the ultimate resolution of the dispute is generally vested in one of the forum options discussed above. The investor generally has a choice of which forum, but once made this choice will exclude the other forums. A typical example of such is Article 33(1) of the ACIA:

A disputing investor may submit a claim referred to in Article 32 (Claim by an Investor of a Member State) at the choice of the disputing investor:

• to the courts or administrative tribunals of the disputing Member State, provided that such courts or tribunals have jurisdiction over such claims; or

• under the ICSID Convention and the ICSID Rules of Procedure for Arbitration Proceedings, provided that both the disputing Member State and the non-disputing Member State are parties to the ICSID Convention; or

• under the ICSID Additional Facility Rules, provided that either of the disputing Member State or the non-disputing Member State is a party to the ICSID Convention; or

• under the UNCITRAL Arbitration Rules; or

• to the Regional Centre for Arbitration at Kuala Lumpur or any other regional center for arbitration in ASEAN; or

• if the disputing parties agree, to any other arbitration institution,

provided that resort to any arbitration rules or for a under sub-paragraphs (a) to (f) shall exclude resort to the other.

It should also be noted that an investor may have a claim under either their PPC with the host State or an applicable IT or both. Any such claims would be properly addressed only under the applicable PPC or IT dispute resolution provision.

THAILAND

Thailand can properly point to several successful foreign investor-State projects in recent years. However, in December 2003 the Civil Court of Thailand upheld a 6.2 billion Thai Baht international arbitration award against the Expressway and Rapid Transit Authority of Thailand (ETA) (a Thai government agency) in favor of Bangkok Expressway, PLC (a Thai-foreign joint-venture company) regarding their PPC to construction of the Bang Na-Chonburi elevated expressway and a concession to thereafter operate it. Following this, on 27 January 2004, the Thai Cabinet passed a resolution prohibiting the inclusion of arbitration in PPC contracts involving concessions without prior approval by the Cabinet.

Then, on 1 July 2009, Walter Bau AG (a foreign contractor) was awarded approximately 30 million euros in an international arbitration regarding the construction of the Don Muang tollway. And – although this arbitration was brought under an IT – on 28 July 2009 the Thai Cabinet issued a resolution extending the 2004 resolution to all PPCs.

Both cabinet resolutions, as well as, other instances where Thai courts have refused to enforce international arbitration awards based on interpretations, which are not in keeping with international norms, have caused concern to the foreign business community in Thailand. Furthermore, although Thailand signed the Washington Convention in 1985, it still has not ratified it. Undeniably, these issues must be considered in the course of any potential foreign investor’s contemplation of contracting with the State in Thailand.

However, despite these issues, Thailand remains a part of the trend to protect foreign investors by way of its several IT commitments. And even with regard to PPCs themselves, it should be noted that Cabinet approval for the provision of arbitration therein has actually been granted in several instances since 2010. A further encouraging sign is the 14 July 2015 Cabinet resolution, which amended the 2009 resolution. Pursuant to this Cabinet approval of arbitration in PPCs is now required only for:

1) contacts covered by the Private Investments in State Undertakings Act (2013), which includes all PPC for projects worth 1 billion Thai Baht or more; and

2) all PPC’s involving concessions.

Thus, any potential investor should consider PPC contractual provisions with the Thai State, including arbitration as the means to resolve any dispute. And any applicable IT – which may still achieve what may not be obtainable by way of a negotiated PPC.

Furthermore, with little exception, the current dominant global and regional international trend is to favor protection and enforcement of rights between investors and State parties. Thailand has always been and continues to be a responsible and active member of the global economic community. It is anticipated that Thailand will continue its path towards harmonization with internationally accepted foreign investor–State practices.

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DUENSING KIPPEN is an international law firm specializing in business transaction and dispute resolution matters, with offices in Bangkok and Phuket, Thailand and affiliated offices in 45 other countries. Visit them at: duensingkippen.com

ADR – A Better Choice for Construction Disputes?

Olaf Duensing [Fellow of the Chartered Institute of Arbitrators (FCIArb) and Attorney-at-Law (Germany)] will be speaking on arbitration under FIDIC form construction contracts. Olaf will be joined by other construction industry experts who also share their thoughts at:  “ADR – A Better Choice for Construction Disputes?” sponsored by the Thai Arbitration Center.

Wednesday, 19 August 2015 at 09.00 a.m. – 12.00 p.m.

Thailand Arbitration Center (THAC) 

26th Floor – Bhiraj Tower (EM Quartier), Bangkok, Thailand

*Presentations will be presented in English and Thai

The Thai Arbitration Institute (TAI) — currently under the auspices of the Thai government’s judiciary — is the most commonly chosen institutional arbitration service provider by commercial parties to administer their contractual dispute arbitrations seated in Thailand. Unless the parties agree to deviate from the TAI Rules — and somewhat controversially — “with the consent of the Director of the Alternative Dispute Resolution Office”, the TAI Rules will apply to any arbitration proceeding under its administration. In Part 1 of this article we summarize the procedure and timing of a TAI arbitration.

PROCEDURE

(1) The first step is for the claimant to file a “statement of claim” against the “respondent” together with a payment of preliminary advance on costs to the TAI.

(2) The TAI will then send the statement of claim to the respondent.

(3) The respondent may then file a statement of defense (and a counterclaim, if any) to the TAI within fifteen days of receipt of the statement of claim.

(4) The TAI will then send the statement of defense (and the counterclaim, if any) to the claimant.

(5) The claimant may file a defense to the counterclaim to the TAI within fifteen days of receipt of the counterclaim.

(6) Then the TAI will encourage the parties to settle the dispute amicably and offer an opportunity for the parties to meet to discuss such settlement, failing which the parties will be asked to agree on the place of arbitration, language used, and choice of law — if they have not previously done so.

(7) The parties will then nominate their arbitrator(s). The standard TAI Rules require that the arbitral tribunal be composed of either one or three arbitrators. If it the parties choose:

(A) a sole arbitrator: then if the parties cannot agree on the sole arbitrator, each party nominates three names to the TAI. If none of the nominated names are the same, the TAI may list three more names and dispatch all nine names to the parties to arrange in order of preference and send back to the TAI. The TAI contacts the most preferred person agreed by the parties to be the arbitrator

(B) three arbitrators: then each party nominates one arbitrator. The two arbitrators choose the third arbitrator who will act as the chairman of the arbitral tribunal.

Note: if the parties have not chosen the number of arbitrators, the Act dictates that the tribunal shall be composed of a sole arbitrator.

(8) The TAI will then coordinate with the parities to arrange a meeting to: formally appoint the arbitrator(s); settle of issues to be decided; determine procedural and evidentiary issues; and schedule the proceedings.

(9) The parties will then, in accordance with the proceedings schedule, submit any relevant documents in support of their claim or defense — usually within one to three months of the scheduling meeting.

(10) This will be followed by a formal hearing of evidence, if any — usually within four to six months of the scheduling meeting.

(11) The TAI Rules prescribes that the arbitral tribunal must issue the award within 180 days from the day on which the last arbitrator was appointed. However, it should be carefully noted that in practice the TAI usually presents a minutes of meeting template, which includes a waiver of this deadline and grants an open-ended award issuance period to the arbitrator — this is not required and the parties should not agree to it unless they wish to.

(12) Once the award is completed, the TAI sends a copy of the award to each party.

(13) If a party fails to comply with the award, the other party may petition a competent Thai court to enforce the award within three years from the day that the award is enforceable. Alternatively, if the arbitration was not in compliance with the Act, either party may request that court to vacate the award within three months.

TIMING

It generally takes nine to twenty-four months from filing of the statement of claim to issue of the final award. However, if the case is complicated or, if the respondent is dilatory, the arbitral proceedings may take longer to complete.

The enforcement of the arbitration award within Thailand, if necessary, may require anywhere from a few months to several years. It is hoped that the reasons for such enforcement delay will be addressed soon. However, it should be noted that Thailand is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1959), which means that any international arbitration award administrated by the TAI in Thailand, is enforceable in any of the more than one hundred fifty countries that have also signed the Convention.

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DUENSING KIPPEN is an international law firm specializing in business transaction and dispute resolution matters, with offices in Bangkok and Phuket, Thailand and affiliated offices in 45 other countries. Visit them at: duensingkippen.com

Our article that appeared in the American Chamber of Commerce’s T-AB: Thai-American Business magazine, “Arbitration: Enforcing Contracts Outside of Thai Courts”

INTERNATIONAL COMMERCIAL ARBITRATION TRAINING AND CERTIFICATION IS COMING TO THAILAND FOR THE FIRST TIME IN EIGHT YEARS.

The Chartered Institute of Arbitration (“CIArb”) will be providing a one day entry-level course with optional application for entry-level membership in CIArb as an associate on 31 October 2014. Do not miss this rare opportunity in Thailand and very reasonable fee for qualified early registrants. Details here:

“Investor – State Agreements: Protecting Investors and Encouraging Investment”, in the American Chamber of Commerce’s May-June 2014 Thai-American Business magazine; our latest published article on international commercial arbitration.

In part one of this blog we introduced you to formal arbitration. We told you that formal arbitration is way for you to resolve your dispute with your contract partner without having to take them to court. Further we told you that the former has many advantages over the latter. One reason for that is the worldwide recognition and enforceability of your arbitration agreement and award—as we explained in part one and part two of this blog. In this part of our blog we will tell you some of the other reasons why you should strongly consider using arbitration to resolve any intractable disputes with your contract partner and slightly about how you should do so.

It is not uncommon that disputes between parties require specialized knowledge to understand the nature of the dispute. A local court judge may not have such knowledge. Arbitration proceedings, however, provide you with the opportunity to have the dispute settled by a specialist who understands the issues surrounding your claim from a practical point of view. This enhanced adjudicatory flexibility is reflected in, for example, Thailand’s Arbitration Act, which defines a qualified arbitrator as one who is “(…) impartial, independent and possess the qualifications prescribed in the arbitration agreement (…)”.

Furthermore, in an arbitration proceeding you are not only able to select a qualified arbitrator, but you also have the right to choose the place and the language of the arbitration proceedings. If you are doing business in a foreign country, to be able to: (i) select a convenient venue for the proceedings; (ii) understand the proceedings without the necessity of a translator; and (iii) submit all documentation without having to translate them into a foreign language—are all major advantages to settling disputes by arbitration.

Another procedural advantage of arbitration over normal court proceedings relates to “Service of Process” or how you formally notify your contract party against whom you wish to begin proceedings—without this, there is no proceedings, no judgment and no justice. Service of Process in court proceedings is time consuming and can be quite expensive. In Southeast Asia this can be particularly true in disputes involving a defendant who is located outside of the country in question, which then requires a lengthy notification process. In arbitration proceedings, however, it is not necessary to involve any government agency. An arbitration service provider, pursuant to you and your contract party’s arbitration agreement, is able to serve your contract party directly and to commence proceedings through to a worldwide enforceable award even if your contract party does not acknowledge the service or participate in the proceedings.

In order for you to submit a dispute to arbitration, it is required that both parties agree to it. Usually this requires something like what Thailand’s Arbitration Act requires—“an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. An arbitration agreement might be in the form of an arbitration clause in a contract or in the form or a separate agreement.” The arbitration agreement needs to be in writing and signed by both parties.

Note that it is not possible for one party to unilaterally and without the approval of the other party to submit a dispute to arbitration. If you failed to include an arbitration clause in your agreement and a dispute arises, the dispute must be settled by the local courts unless you both later agree to arbitration proceedings. Therefore, it is advisable to include a well-drafted arbitration clause in your agreement, preferably in the initial contract document, before any dispute that requires a third party adjudicator arises. In our experience, once such a dispute arises, getting the parties to agree on anything—including how to resolve the dispute—can be very difficult, if not impossible.

Formal arbitration is often an outstanding alternative to domestic court proceedings. And for international parties it is almost always highly advisable to include such as your dispute resolution mechanism—particularly in Southeast Asia. However, there are a multitude of factors to consider and apply prior to and in the course of selecting and using arbitration to resolve any potential or actual dispute with your contract party. Before doing so, consult a competent arbitration specialist.

In part one of this blog we told you that formal arbitration offers many advantages over domestic court proceedings when you need to resolve a dispute with your contract partner. We also told you that “formal” arbitration is arbitration “prescribed by law”—in other words recognized, supported and enforced by law. Here, we tell you how.

“The law” that makes arbitration agreements and judgments enforceable and controls their proceedings is actually a three-part body of laws and rules:

-Part one: international treaties. The pre-eminent international treaty regarding international arbitration is the “New York Convention”. Signatories to the New York Convention will generally recognize any “foreign” arbitration agreement and any foreign arbitration award if that award was made in a country that is also a signatory to the New York Convention. There are currently 144 signatories to the New York Convention.

-Part two: national arbitration laws. Although these laws are laws of individual countries, they tend to be quite similar for two main reasons. First most countries in the world are signatories to the New York Convention and so their domestic arbitration laws are intend to support a country’s obligations to this treaty. For example Thailand’s Arbitration Act provides that “. . . [i]n case where an arbitral award was made in a foreign country, the award shall be enforced by the competent court only if it is subject to an international convention, treaty, or agreement to which Thailand is a party.”

The second reason is because many countries adopt, in large part if not in whole, the United Nations’ Model Arbitration Law when drafting and enacting their own arbitration law.

The following table illustrates the uniformity of these first two tiers of arbitration law in Southeast Asia and a few other countries whose investments in the region have increased in recent years:

* in March 2012 Myanmar began the legal process of acceding to the New York Convention and of adopting the United Nations Model Law for international (not domestic) arbitrations.

# on 16 April 2014 Myanmar formally acceded to the New York Convention.

√ in the Spring of 2014, the Myanmar Parliament published a draft Arbitration Bill, which largely follows the UNCITRAL Model law.

-Part three: the parties’ arbitration agreement. A fundamental difference between litigation in a domestic court and arbitration is the source of the power to decide the dispute. In the former, it is the relevant country’s law. In the latter, it is the private agreement between the parties. It is true that international treaties and national laws are part of the system of law that prescribes arbitration; but it is the private agreement of the parties to submit their dispute to arbitration, which gives the arbitrator the power to decide their dispute. And, in general, the international treaties and national laws merely recognize, support and enforce the parties’ agreement.

But typically, arbitration agreements do not contain enough details to manage the arbitration proceedings. Furthermore, an efficient arbitration proceeding requires administrative support. Thus, most arbitration agreements provide that the proceedings will “under the auspicious of” a given arbitration administrative service provider and will follow that service providers’ arbitration procedural rules. By way of such reference the parties thereby incorporate those—generally tried and tested—rules into their agreement without having to draft and agree all such details in advance themselves.

There are a number of excellent arbitration administrative service providers. Which one would be the most appropriate choice for your contract—if at all—depends on factors far too numerous to detail here. The following will give you an idea of a few of the leading providers operating in the Southeast Asia region:

-The American Arbitration Association’s international arm, the International Centre for Dispute Resolution, is among the most popular such providers, which now has offices providing services world-wide from New York, Dublin, Mexico City and, notably, Singapore. They are available to conduct arbitrations anywhere in the world and generally the office closest to where the arbitration proceedings are being conducted would then do so.

-Another well-known and perhaps the oldest international service provider is the International Chamber of Commerce’s International Court of Arbitration, which is headquartered Paris, France but which also conducts arbitrations worldwide.

-The Singapore International Arbitration Center is probably the fastest growing now considered one of the top arbitration administration service providers in the world.

-In Thailand the Thai Arbitration Institute of the Alternative Dispute Resolution Office, Office of the Judiciary, provides arbitration services to proceedings held within Thailand.

-Hong Kong and Malaysia also have excellent and well-experienced arbitration service provider centers.

Alternatively, it is possible to administer your own proceedings. But if you do not want to draft your own procedural rules, there is a set of rules that was specifically designed by the United Nations for and which are commonly used in such “ad hoc” arbitration proceedings.

If you have entered any contracts in any of the the Southeast Asia “ASEAN” countries,  you might have already had some less than pleasant experience with the local court systems. An all too common complaint is that the court proceedings are often agonizingly slow. Furthermore, if you are not from the country in question it is unlikely that you will be able to understand the proceedings, since the language used in court is generally the official language of that country. What’s more, a domestic court ruling is generally not enforceable in another country. If you or your contract partner does not live in the country where the court is located and/or your contract partner’s assets are located in another country, your domestic court “win” might be a “hollow victory”. But what’s the alternative?

You may have heard of “alternative dispute resolution”. The “alternative” means “other than going to court”. One such longstanding alternative gaining evermore international recognition is formal arbitration. Formal arbitration is the most commonly used alternative to domestic court proceedings, especially for disputes between parties from different countries. By “formal” arbitration, we mean arbitration that is prescribed by law. But for the remainder of this three-part article we will also simply call it “arbitration”.

Arbitration proceedings offer several important advantages to court proceedings. For example, an arbitration proceeding is generally quite quick—often completed within 12 to 18 months. Furthermore, an arbitration award, unlike a normal court ruling, is generally final. This is because arbitration awards cannot be challenged or “appealed” on the basis of the proceeding’s determination of factual or legal issues. For example, Thailand’s Arbitration Act—and note, national arbitration laws throughout the world including Southeast Asia are surprisingly uniform as we will explain in part two of this article— makes this clear. Under Thailand’s Arbitration Act, a court there is allowed to set aside an arbitration award only if it finds one of the following:

1)    A party to the arbitration agreement was under some legal incapacity.

 2)    The arbitration agreement is not binding under the governing law agreed to by the parties, or in the absence of such agreement, the laws of Thailand.

3)    The applicant was not given proper advance notice of the appointment of the arbitral tribunal, or of the arbitral proceedings, or was otherwise unable to defend the case in the arbitral proceedings.

4)    The award deals with a dispute outside the scope of the arbitration agreement, or contains a decision on a matter outside the scope of the agreement. If the part of the award that lies outside the scope of the agreement can be separated from the balance of the award, then the court will only set aside that part.

5)    The composition of the arbitral tribunal or the arbitral proceedings was not in accordance with the arbitration agreement or, unless otherwise agreed by the parties, the Arbitration ActThe award deals with a dispute not capable of settlement by arbitration under the law.

6)    The recognition or enforcement of the award would be contrary to public order.

but not if the court believes the arbitrator made a mistake—even an egregious one—about the law applicable to or regarding an essential fact that should have determined the outcome of the proceeding differently.

The reason that most countries in the world including those in Southeast Asia limit any challenge to an arbitration award is because they are signatories to an international treaty—the “New York Convention”. Pursuant to the New York Convention, any signatory country (currently 144) will enforce an arbitration award made in any other signatory country—except in essentially the same very limited circumstances outlined above where an arbitration award may be set aside.

Thus, arbitration can provide you with a relatively quick judgment, which is immediately enforceable almost anywhere in the world—a huge advantage over domestic court proceedings in ASEAN. But these are only two of the reasons we recommend that you consider including arbitration as your contract’s dispute resolution mechanism.