Summary

A military coup and dissolution of the Thai government of Prime Minister Thaksin and suspension of the operation of the Thai constitution and at least one of the country's courts occurred on 19 September 2006. 

It is too early to know what impact this may have on the country's economy, whether there will be prolonged unrest or what measures any new government might impose.  Investors might have concerns about this development and, in particular, about the measures that are available to them to protect the value of their investment.

Full Update

Situation

Thailand's military overthrew elected Prime Minister Thaksin Shinawatra on Tuesday 19 September 2006 amid mounting criticism that he had undermined democracy. The sudden coup is likely to spark both enthusiasm and criticism in Thailand and abroad. The political change in Thailand was undertaken by the Council for Democratic Reform under Constitutional Monarchy ("CDRM") without any violence or resistance. The military said it would soon return power to a democratic government and would undertake only brief intervention in order to restore peace, unity, and justice in the country. 

The coup leaders declared martial law, revoked the constitution and ordered all troops not to leave duty stations without permission from their commanders. The incident has caused minimal disruption of normal life. Only one day was declared a public holiday (Wednesday 20 September 2006).  From 21 September, businesses have resumed their normal operations.

CDRM has firmly declared that a provisional constitution will be in place within 2 weeks, and a civilian government will be formed. The mechanisms for democratic reform will soon be reinstated.  A legislative body, responsible for legislation and the drafting of the new constitution, will be established. This process, which will lead to general elections, should be completed within one year. 

What impact has this situation on investors in Thailand?

As a general rule, when a foreign investor's investment is harmed by civil unrest or political intervention, it has no legally enforceable rights against the State in which the investment is located unless there is a Bilateral Investment Treaty ("BIT") between the investor's country and the country in which the investment is located.

Bilateral Investment Treaty ("BIT")

BIT is an agreement establishing the terms and conditions for private investment by nationals and companies of one state in the state of the other. BITs are established through trade pacts.

Most BITs provide a number of guarantees, which typically include fair and equitable treatment, expropriation compensation and the repatriation of capital, free transfer of means and full protection and security for investments made by an investor of one Contracting State in the territory of the other.

The distinctive feature of most BITs is that they provide an investor whose rights under the BIT have been violated, with recourse to international arbitration, often under the auspices of the International Centre for the Settlement of Investment Disputes ("ICSID"), rather than suing the host State in its own courts.

Thailand has BITs with 39 countries, including Germany, the Netherlands, the United Kingdom, China, and members of the Association of Southeast Asian Nations (ASEAN).

Hong Kong Investors

The Agreement between the Government of Hong Kong Special Administrative Region of the People's Republic of China and the Government of the Kingdom of Thailand for the Promotion and Protection of Investments entered into force on 12 April 2006 and provides compensation for losses under Article 4 and procedures for settlement of investment disputes under Article 8.

Investors From Countries Without BIT

What happens to an investor from a country which has not signed a BIT? If the country signed a Free Trade Agreement with Thailand, there might be some provisions similar to a standard BIT and which make available to investors some remedies and recourse to arbitration. In addition, if the corporate structure in which an investment is held includes an entity which has the benefit of a BIT, that entity may in some circumstances rely on the BIT even if it does not hold the investment directly.  Hence there are remedies potentially available to investors in Thailand who suffer loss as a result of the present unrest.

Outlook

Thailand reaffirms adherence to the UN Charter and remains committed to obligations under international treaties and agreements, under the basis of equality of states. Thailand's international economic policy, including multilateral trade negotiations and free trade agreements, will be continued.  

If you have any queries as to whether Thailand has signed a BIT with a certain country or how to protect your investments in Thailand and you wish to know more about your rights and remedies in the event of damage to those investments, please contact either Gary Biesty or Paul Graham.