Alastair Henderson

Herbert Smith LLP

'Should we consider arbitration in Thailand?' 'Will we get a reliable decision?' 'Do Thai courts enforce awards?'

These are common and pertinent questions for businesses negotiating Thai contracts or considering Thai-related claims. A lot of money may ride upon the answer. But it is not always easy to give an accurate or concise reply. Arbitration is comparatively new in the mainstream of Thai dispute resolution, and though much has been achieved in many areas of arbitration law and practice, there have also been reversals and uncertainties which complicate the picture. This article offers one perspective on the current environment for arbitration in Thailand.

Arbitration law

It is only 20 years since Thailand first enacted a comprehensive arbitration law. Though arbitration had been known and practised for many decades before, the Arbitration Act 1987 provided the first clear and solid legal foundation.

The 1987 Act was recognisably a modern arbitration law but it contained several quirks and local anomalies. These were largely explained by the fact that the law was intentionally transitional, aiming only to start a move from traditional, court-influenced arbitration procedures towards a more modern, international view of arbitration law and practice. The 1987 Act sought to educate as well as to reform, and the draftsmen therefore resisted the temptation to push ahead too fast. It was felt that Thailand in the mid-1980s was not yet ready for a fully-fledged Model Law statute.

It can be seen as a measure of the progress over 15 years that, by 2002, Thailand was thought to be ready for an updated statute based substantially on UNCITRAL's Model Law. The form and content of the Arbitration Act 2002 are immediately recognisable to anyone familiar with arbitration laws around the world, and generally it provides a more than adequate statutory framework for Thai arbitration proceedings.

This is not the place for an exhaustive review of the Act. However, a brief glance will give a flavour and highlight points of note or variation. As a preliminary observation, the Act makes no distinction between domestic and international cases and awards.

As would be expected, the 2002 Act requires courts to enforce arbitration agreements on a non-discretionary basis. Courts must dismiss proceedings brought in breach of an arbitration agreement made in writing, unless that agreement is found to be void, unenforceable or incapable of being performed. Notably, the definition of an agreement 'in writing' goes beyond the Model Law by including ''data interchange with electronic signature, or other means which provide a record of the agreement''.

In contrast to the Model Law, the Act provides for a sole arbitrator unless the parties agree on another number (the Act requires an uneven number). The Thai court is the default appointing authority and also the final forum for determining challenges to arbitrators, on whom there is an express duty of independence and impartiality. Tribunals are empowered to rule on their own jurisdiction but not to order provisional measures, though the court may do so if requested by either party. The tribunal, or a party with the approval of the majority of the tribunal, may apply for court assistance in obtaining evidence.

In keeping with most modern arbitration laws, the Act says little about detailed procedures beyond simply recognising tribunal discretion in this respect, subject to an express requirement for equality of treatment and an opportunity for each party to present its case.

Importantly (given the contrary expectations of some users), the Arbitration Act 2002 does not empower tribunals to award legal costs in the absence of agreement by the parties. If required, this power should therefore be expressly included in an arbitration clause or agreement.

Once an award has been obtained, the Act's provisions on challenge and enforcement are essentially identical to the Model Law and therefore aim to restrict the ability of courts to reopen or overturn awards by reference to the substantive merits of the arbitrators' decision. It should be noted that awards may be set aside or refused enforcement where recognition or enforcement would be ''contrary to public policy or the good morals of the people''. Appeals from challenge and enforcement proceedings leapfrog directly to the Supreme Court, by-passing the Court of Appeal.

In general terms, therefore, the Act follows an internationally-accepted form and creates a modern legal environment for arbitration in Thailand, providing a workable framework with most of the necessary tools and supports. Of course, it may not follow that the law is always acknowledged or applied in practice, but in black-letter law terms at least, Thailand scores a comfortable pass with the Arbitration Act 2002.

Arbitration and the courts

Thai Courts were previously ambivalent (to say the least) in their attitudes and approach to arbitration. There was a distinctly patchy record of judicial support and an unfortunate tendency for some judges to see arbitration as an improper encroachment on the rightful territory of the courts. Some judges therefore sought to ignore arbitration agreements or were willing to involve themselves surprisingly in pending cases. Successful enforcement of awards was not always assured.

The position has improved substantially. In part, this reflects greater awareness and support for arbitration at an institutional level, but it is also credited to a sustained educational programme within the judiciary that aims to increase awareness of the nature and role of arbitration and the requirements of the law. It can now be said with greater confidence that Thai courts will enforce arbitration agreements and dismiss litigation brought in breach of an agreement to arbitrate disputes. Similar changes can be seen at the other end of arbitration proceedings, where courts show greater willingness to uphold and enforce awards, even awards made overseas or in favour of foreign parties against Thai counterparties. Finally, Thai courts are also more willing in suitable cases to issue orders for provisional relief or protection pending the outcome of arbitration proceedings.

One should not overstate the case. On any realistic assessment, Thai courts are not yet as arbitration-friendly as (say) the courts of Hong Kong or Singapore. Even if one can reasonably hope that the courts will reach the right decision, the procedures for getting to that decision can be inefficient and slow. Instances remain of courts appearing reluctant to uphold arbitration agreements; or setting aside awards on puzzling grounds; or meddling with pending cases; or delaying the exercise of default powers so as (intentionally or otherwise) to delay the arbitration proceedings. Special considerations may also arise sometimes in relation to cases involving state-sector counterparties. But these mishaps seem increasingly to be exceptions rather than the rule, and there is generally greater confidence than before that the courts will support arbitration in compliance with the law.

Arbitral institutions

There are two main commercial arbitral institutions in Thailand, of which the Thai Arbitration Institute (TAI) is by far the more prominent and active. The TAI was established in 1990 as a further plank in the reform and development programme that included the 1987 Act. It was originally set up under the auspices of the Ministry of Justice, where it was known simply as the Arbitration Office. This was a deliberate step intended to bolster the TAI's standing against a background of widespread belief at that time that arbitrators and awards lacked integrity and authority. However, this came at the price of concerns about overt links with a Government Ministry, and oversight was later transferred to the Office of the Judiciary, a constitutionally independent body. The TAI appears to operate substantially free from interference.

The TAI has contributed greatly to the promotion and growth of Thai arbitration. Its caseload has grown dramatically from one case in 1990, seven in 1991, to 126 new cases in 2006. It offers good, technology-enabled facilities for hearings and it promotes an active programme of education for public servants and the business community.

Notably and almost uniquely, the TAI does not make a charge for its own services. This is a welcome surprise to those familiar with the charges at other international centres. But it comes at a price when the absence of fee income is not compensated by other funding. Compared to regional counterparts, the TAI has a smaller budget for institutional development and for investment in case-handling and administration. TAI's success and dedication is unquestioned but its administration will inevitably feel some strain as it prospers in credibility and caseload, and this may start to impact more significantly on further growth and popularity. Over time this may even start to affect the current perspective of informed business users, who see presently that there is no cause for particular concern at the prospect of agreeing to arbitrate under the TAI's supervision and rules.

The other institutional option is the Thai Commercial Arbitration Committee of the Board of Trade. It was established well before the TAI but it has struggled to make an impact and is rarely disturbed in practice. Other schemes operate prominently in particular business sectors: for example, the Securities and Exchange Commission has a scheme for arbitrating disputes between securities companies and private clients, while the Department of Insurance requires that all Thai insurers must offer policy-holders the option of arbitrating claims under the department's own rules.

Arbitrators

Most arbitration in Thailand proceeds under Thai law and according to Thai procedures. Many cases are conducted in Thai language. Not surprisingly, therefore, the rising caseload translates into growing demand for arbitrators - specifically, Thai arbitrators - with appropriate qualifications, experience and sensitivities.

This represents an opportunity for interested individuals. However, the risk of mismatch between demand and supply is a challenge to further development in the market for arbitration. Indeed, the greatest practical challenge facing Thai arbitration may be the current shortage of arbitrators with requisite experience and expertise.

This is partly a matter of simple finance. TAI's low daily payment rate makes tribunal appointments far from lucrative, deterring some suitably-qualified Thai candidates and all but the most dedicated foreign arbitrators. Finances aside, the supply shortage also reflects the relative modernity of mainstream arbitration in Thailand, and the fact that there was for many years rather little opportunity for training or on-the-job learning. Comparatively few people have had extensive exposure and experience of modern arbitration over many years, and even today some arbitrators hold the traditional perception of arbitration as a form of negotiation between arbitrators as representatives for each party. It is not at all uncommon for an arbitrator to be chosen precisely because of his or her affiliation and sympathies with the appointing party, and for this state of affairs to be assumed and accepted by the other party.

The position is not yet critical; it may never become so. Highly-regarded professional arbitrators sit in Thai cases and there is a broad panel of people available to join them on tribunals. Nevertheless, those who undertake Thai arbitration face recurrent issues when deciding who to appoint, and the need to develop a wider pool of experience is well-recognised. As with the constraints on institutional development, the expansion in Thai tribunal resources is also a critical factor for further growth.

Arbitration procedures

It is common all over the world for domestic arbitration procedures to contain reflections of procedures in local courts. This applies in Thailand as elsewhere.

For example, there is no general discovery of documents in Thai litigation and therefore very little document production in Thai arbitration. Similarly, it was traditionally the practice of Thai courts to hold evidentiary hearings on a periodic basis rather than in one block, and some Thai arbitrators still adopt the same approach (for example, holding witness hearings two days every week for an extended period). Matters such as requests for particulars or the exchange of written arguments and pre-hearing briefs are very uncommon. Even at the start of an arbitration proceeding, after an initial exchange of statements of case but before the tribunal is appointed, the Thai Arbitration Institute is likely to convene a meeting at which it will seek to mediate a settlement between the parties. There is no provision for this in TAI rules but it is invariable in practice and can impact substantially on progress in the early stages of a case. Several other examples of local procedures could be cited.

As with arbitration anywhere, the efficient progress of a case can be strongly impacted by decisions on procedural issues. It is important for foreign parties to be aware that there will be differences in procedure from their experiences elsewhere. This also reinforces the importance of care in choosing the arbitrators who will make procedural decisions.

International treaties

Thailand has several international obligations in the context of arbitration. Most importantly, it is a signatory to the New York Convention 1958 and ratified the convention without reservation in 1959. This ensures effective enforcement in Thailand of awards made in other contracting states, in contrast to the position of foreign court judgments which receive no recognition and are unenforceable in Thailand. As already noted, the Thai courts are increasingly reliable in handling applications for enforcement of foreign awards.

Thailand is also a signatory to the International Centre for the Settlement of Investment Disputes Convention 1965, but it has not yet ratified that treaty and shows no likelihood of doing so. Arbitration of investment disputes under the ICSID treaty is therefore not an available option for aggrieved investors, although other investment arbitration may be possible under numerous bilateral investment protection treaties or the ASEAN regional counterpart.

Arbitration and the public sector

The law is clear that arbitration agreements bind public sector entities just as they bind the private sector. Indeed, the Thai public sector has considerable experience of arbitration over the last two decades. In Thailand as elsewhere, arbitration is often the preferred method for handling commercial disputes with public sector entities, particularly among foreign parties who may not relish the prospect of litigating those claims in the state's own courts.

Successive Thai governments have supported Thai arbitration. The 1987 and 2002 Acts were expressly intended to increase the popularity and practice of arbitration, likewise the creation of the TAI in 1990. It has been noted that some departments and bodies have established their own arbitration schemes, and for some time the standard government procurement contract has contained a clause providing for arbitration under TAI rules. Regulations published in 2001 sought to increase public sector compliance with awards; other regulations were amended to ease the immigration status of foreign arbitrators and arbitration counsel; and tax reform removed an unpopular requirement for payment of stamp duty on awards.

But this is not the whole of the story. Government support is not unequivocal. For example, in 2004 the Cabinet issued a much-discussed directive that appeared to prohibit public agencies from accepting arbitration clauses in 'concession agreements' (a term of imprecise ambit in Thai law and language) without first seeking Cabinet approval. Some public entities jumped upon this as an excuse to resist arbitration clauses in almost any commercial contracts. Meanwhile senior officials have gone on record to say that arbitration is inappropriate in principle for disputes involving the state (not least because of a perceived - and anecdotally justified - fear of collusion between some arbitrators and some private parties), and that arbitration should in principle be confined to disputes between private entities who can better manage such risks. It should be added that concerns at the risk of influence are not always targeted at the private sector side alone.

Matters are further complicated by the recent creation of an Administrative Court whose jurisdiction includes certain kinds of public contracts. Where a contract falls within Administrative Court jurisdiction, that court also has supervisory jurisdiction over arbitrations arising under such contracts, so that (for example) applications for enforcement of awards in such cases will be heard in Administrative Courts as opposed to ordinary civil courts. This is not merely a dry matter of technical jurisdiction. Unlike civil courts, Administrative Courts are entitled to reach decisions based on public policy as well as principles of law. In these early years of Administrative Court practice it is uncertain how the court may interpret and apply these wider public policy considerations in the context of arbitrations between state entities and private parties.

In short, there is a mixed message on arbitration involving the state. There has been great support at numerous levels over a sustained period, yet it seems that some sections of government still entertain doubts about the role of arbitration in the public sector. It is therefore right to note the need for care and judgment when seeking to arbitrate with the public sector, but Thailand is not alone in raising issues of this kind. Experience shows that cases can be brought, handled and concluded successfully even against core government departments. Arbitration is likely to remain a preferred method (for foreign parties, at least) for handling commercial disputes involving state sector entities. The fundamental attractions remain: level playing field, choice of tribunal, procedural adaptability, confidentiality and international enforcement.

It is easy to forget that Thai arbitration is relatively young as a mainstream process for dispute resolution, though its bare existence and practice in Thailand is certainly much older. The last two decades have seen remarkable progress, with arbitration now firmly established as a legitimate and recognised option for commercial dispute resolution. Case statistics prove the increased popularity. Real credit is due to those who have worked with determination and dedication to achieve this.

As a result of these efforts, the laws, rules and procedures are now much improved as a framework for effective arbitration. There is little significant pressure for black-letter reform, though there is always scope for refinement and detailed enhancement.

Greater pressures exist in the realm of practice. The best laws and rules will not avail if those responsible for carrying them into practice - institutions, arbitrators, attorneys - lack resources or experience to discharge their duties effectively. Further training will be needed to encourage a new generation of arbitrators, and robust administrative infrastructure must be capable handling ever-increasing numbers of cases. These priorities will be critical if Thai arbitration is to further cement its position as a mainstream procedure of choice for successful commercial dispute resolution.