INDEPENDENT ARBITRATION IN THAILAND (I.E., OUTSIDE OF THAI COURT SANCTIONED ARBITRATION)


BACKGROUND

The current law relating to arbitration in Thailand is the Arbitration Act, B.E. 2545 (2002) (the “Arbitration Act”), which is closely drafted along the lines of the UNCITRAL Model Law. It establishes a recognized legal framework for independent arbitration proceedings as well as for the enforcement of both domestic and foreign arbitral awards. With commerce acquiring a more sophisticated outlook over the past three decades, the number of litigations in Thai courts of law increased drastically resulting in an ever-burgeoning workload for the judiciary. ADR was encouraged not only in keeping with international trends, but also because protracted litigation proceedings pose a detrimental effect to the growth of the Kingdom’s economy. It was with this rationale in mind that arbitration was statutorily recognized as an ADR method for settling disputes.

WHAT IS ARBITRATION & ITS OVERALL BENEFIT?

Arbitration is a form of alternative dispute resolution (ADR). It is a mechanism invoked by way of an agreement (the “arbitration agreement”) where the parties refer a dispute to one or more third persons (forming the “arbitral tribunal”) for their adjudication, and legally bind themselves to the resulting decision (the “arbitral award”) which can then be brought before a court of law for enforcement.  Arbitration is similar in purpose and arrives at the same end result as litigation, but has several noticeable benefits.

First, it allows the parties to appoint an arbitral tribunal with suitable expertise in the subject of the dispute.  This expertise often exceeds what judges are able to ordinarily provide.

Second, foreign investors are more likely to feel comfortable with arbitration feeling that there is more transparent and with less likelihood of bias or outside considerations (e.g., public policy interests) than with a nation’s court system.

Third, arbitrations typically proceed at a faster pace than litigation.  This is particularly true in those countries where court trials are not continuous but instead conducted with long intervals between hearings.

Fourth, arbitration can be used to arrive at awards and decisions (e.g., the decision to award actual attorney fees reasonably incurred) that may otherwise not be available in a jurisdiction (e.g., attorney fees and expenses awarded by Thai courts typically do not exceed THB 60,000) provided the award or decision does not otherwise violate local public policy.

Fifth, arbitration proceedings are a private affair unlike litigation proceedings which can become a matter of public record.

From the context of international commercial transactions, arbitration is often the preferred method of resolving commercial disputes.

ARBITRATION AGREEMENT & ITS CONTENTS

In order to constitute a binding agreement under Thai law, Section 11 of the Arbitration Act requires an arbitration agreement to adhere to the following:

  1. Be in writing;
  2. Be signed by the parties; and
  3. Explicitly state the intent of the parties to settle all or certain disputes arising between them relating to a defined legal relationship, whether contractual or not, to arbitration.

Typically, an arbitration agreement may constitute one clause within a larger contract though it can be a separate agreement. An arbitration agreement should offer a bespoke dispute resolution mechanism.

An arbitration agreement should ideally provide for the following:

  1. Condition precedent and Election to Arbitrate (e.g., with stipulations to resolve the dispute in good faith after receipt of written notice of dispute within a fixed number of business days, and an option to unilaterally elect);
  2. Specified procedure for selection and total number of arbitrators;
  3. Applicable procedural rules for arbitration;
  4. Locale of arbitration;
  5. Language of arbitration;
  6. Consolidation and joinder of parties;
  7. Limitation of pre-hearing discovery;[1]
  8. Powers exercised by the arbitrators;[2]
  9. Provision for consecutive hearings;[3]
  • Strict enforcement of contractual terms and adherence to applicable law;[4]
  • Reasoned award.[5]

With regard to the issue of procedural rules of arbitration, it is usually best for the parties to an arbitration agreement to apply the existing, tried-and-test procedural rules of an international arbitration institute than for them to create new procedural rules from scratch.  International arbitration institutes of global repute include the Singapore International Arbitration Centre, the Hong Kong International Arbitration Centre, the International Court of Arbitration of the International Chamber of Commerce, and the London Court of International Arbitration. The primary domestic arbitration institutions in Thailand, which have their own procedural rules, are the Thai Arbitration Institute of the Alternative Dispute Resolution Office, and the Office of the Arbitration Tribunal of the Board of Trade of Thailand.  In recent times, the Security and Exchange Commission, Department of Insurance, and the Department of Intellectual Property have also commenced offering arbitration as an alternative means of dispute resolution. Such forms of institutional arbitration are a preferred avenue of ADR on account of proven flexibility and the implementation of time limits on arbitration proceedings especially in context of the fact that time limits are not imposed by statutory law.

[1] Typically, these provisions may be provided for in procedural rules of arbitration as promulgated by international arbitration institutes.
[2] See footnote 1.
[3] See footnote 1.
[4] See footnote 1.
[5] See footnote 1.

APPOINTMENT OF FOREIGN ARBITRATORS IN THAILAND

As mentioned earlier, one of the benefits of arbitration is that the parties are free to choose the composition of their arbitral tribunal ensuring the qualifications and expertise of their arbitrator(s).  While Thailand has a large number of qualified Thai arbitrators, parties are also free to choose expatriate arbitrators as well.  The Royal Decree Occupations and Professions Forbidden to Aliens (No. 3), B.E. 2543 (2000) permits foreigners to act as arbitrators in any arbitration. However, there could be immigration and labor law compliance requirements that need to be fulfilled especially for non-resident expatriates new to Thailand, which may place an unwanted onus on the parties, thereby translating into delay.

RECOGNITION AND LIMITED USE OF ARBITRATION IN THAILAND

There is a peculiar and often overlooked issue of foreign court judgments. These are neither binding nor en­­forceable in Thailand because the Kingdom is not a party to any treaties or conventions on the enforcement of foreign court judgments. It is here that the value of arbitration as a dispute resolution mechanism rises to the fore. Thailand is a signatory to both the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention) and the older Geneva Protocol on Arbitration Clauses 1923 (Geneva Protocol). Therefore, foreign arbitration awards passed by reciprocating treaty nations will be enforced by a Thai Court of law if it conforms to Thai public policy.

      Section 15 of the Arbitration Act states that in a contract between a government agency and private party, whether administrative contract or not, the parties thereto may agree to settle their disputes by arbitration. The parties to the contract shall be bound by such arbitration agreement.

However, in 2004, a Cabinet Resolution was passed to the effect that state contracts incorporating arbitration agreements would require prior cabinet approval. Concession agreements were to be treated as administrative contracts, conferring Administrative Courts with exclusive jurisdiction thereof, barring the inclusion of arbitration agreements to oust such jurisdiction.

COMMENTS ABOUT ARBITRATION

Despite how much one may wax eloquent about the merits of arbitration, it is clearly evident that its sheen has been jaded over time. Often arbitration can turn into a protracted affair, and become just as vexatious as litigation if not even more so, only to be overturned when enforcement is sought. The solution is to look to the arbitration agreement between the parties and the surrounding contract. Arbitration after all, is a creature of agreement. In that vein, agreements must be practical, cater specifically to the needs of the parties and of course, be economically viable.  The standard boilerplate arbitration clause is often rendered obsolete by constantly changing legal trends. If the much touted benefits of arbitration are speed, cost, and efficiency, then the dispute resolution mechanism in the form of an arbitration agreement must necessarily envisage and demonstrate these elements; which form the crux of the reasons why Arbitration is chosen as an ADR.

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