29 October 2009
On 28 July 2009, the Thai Cabinet resolved that any contract entered into between the government and a private Thai or foreign entity should not include an arbitration clause.
Relevant legislation /Government notifications
The Thai Arbitration Act B.E.2545 (2002) ("Act") is based substantially on the Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law (UNCITRAL). It is generally recognised as an adequate piece of legislation to govern Thai arbitration proceedings.
To a certain extent, the introduction of the Act was seen as an attempt to encourage foreign investment and to promote international and domestic business norms. However, since its enactment in 2002, the ambit of the Act has been slowly restricted through the publication of two Cabinet resolutions, in 2004 and 2009.
Following a series of high profile arbitrations which resulted in unfavourable awards against various government entities, the Thai government resolved in January 2004 that an administrative contract (e.g. a concession contract, public utilities contract) entered into between a Thai government institution and a private company should not specify an arbitration clause unless Cabinet approval was obtained.
The 2004 Cabinet resolution was published even though Section 15 of the Act specifically provides that all contracts, regardless of the parties involved, can have an arbitration clause. The rationale was that the jurisdiction of any dispute arising out of a concession agreement, as an administrative contract, is with the Thai Courts, not an arbitral tribunal.
The 2009 Cabinet resolution has widened the scope of the 2004 Cabinet resolution to cover all contracts with government entities. Inclusion of an arbitration agreement in any contract with the Thai government remains subject to Cabinet approval on a case by case basis.
Thailand is party to over 30 Bilateral Investment Treaties (BIT) (see our previous client alert Thai Investment - Is Your Investment Protected By A Bilateral Investment Treaty? <https://www.mayerbrown.com/publications/article.asp?id=7312&nid=6>) and is a signatory to the Washington Convention (ICSID), however it is not a contracting state to ICSID, so any dispute between Thailand and a foreign private investor may need to be arbitrated under other institutional rules, unless otherwise agreed.
Thailand has also ratified the Convention Establishing the Multilateral Investment Guarantee Agency (MIGA), in 1996. MIGA is a World Bank agency that issues guarantees to private foreign investors against political risks in developing countries and provides services to assist these countries in promoting investment opportunities: http://www.miga.org/regions/index_sv.cfm?stid=1529&country_id=210&hcountrycode=TH
The fear of collusion between private entities and arbitration panels seems to be the driving force behind the government's decision, and while the decision may seem objectionable to some, it is important to note that it is not an outright prohibition. Cabinet approval may still be sought in cases where there is a justifiable need for arbitration.
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