• Dr.Isaraporn & Partners

Arbitration in 8 minutes

Arbitration has emerged at the time global trade and commerce are in fast changing pace. Traditional trial and adjudication executed by the court might not effectively untie complexities. 

Sole legal specialists including lawyers and judiciary members are not sufficient to solve very specific disputes taking place in other areas of expertise such as engineering, financial technology, biochemistry, electronic commerce and medical development. Specialised courts are available ranging from court of  first instance to the supreme court. However, it seems impossible to cover all current and recent development. 

Arbitral tribunal is a group of arbitrators consisting of a wide range of expertise depending on the particular legal issue. The tribunal seems a forum where the parties are able to specifically reach the expertise in that particular area to consider the case. Apart from expertise, the arbitration is accounted for as an alternative dispute resolution for contractors which renders cost-effective and short time procedure.

These advantages derive from the arbitration resulting in wide recognition in contract these days. This edition is going to draw a framework of arbitration in Thailand and wrap up the procedure and key points to concern.

Arbitration regulatory matters in Thailand mostly rely on the UNCITRAL Model Law on International Commercial Arbitration. The Thai Arbitration Act B.E. 2545 (2002) restitutes the Arbitration Act of 1979 with clearer details conforming with international arbitration standards. 

There are two types of arbitration conducted in Thailand which are in-court arbitration and out-of-court arbitration. The latter type is commonly used by the parties due to the confidentiality of thorough process and this is going to be discussed in this edition.

According to the Arbitration Act as a main legal framework covering this legal process, section 11 stipulates that the arbitration can be mutually agreed through the specific arbitration contract or certain clauses within other contractual agreements. Validity of contract can be challenged by the parties where the arbitration clauses are among those invalid contracts. This should be noted that arbitration clauses are still valid and enforceable in the event that the rest of the contract is unable to enforce so. 

In general sale contracts, they usually contain the section of “severability” which engages the existence and enforcement of provisions where the contract is unenforceable. It reads as follows:

In the event that any provision of this Agreement shall be unenforceable or invalid under any applicable law or be so held by applicable court or arbitration decision, such unenforceability or invalidity shall not render this Agreement unenforceable or invalid as a whole, and, in such event, such provisions shall be changed and interpreted so as to best accomplish the objectives of such unenforceable or invalid provision within the limits of applicable law or applicable court. 

Not every dispute or legal issue is disputable. Contractors and drafters have to ascertain that at least the key provisions within the contractual agreement are not against the public policy so they are eligible to arbitration procedure. It is partly true that the arbitration as we discuss here is the out- of-court arbitration however in the event that the arbitral award is obtained abroad or there are challenges by one of the parties in relation to an award the process will be pursued in court in order to enforce the arbitral award within the jurisdiction or consider if the challenges proposed by the parties can be hear.

The court is empowered to dismiss any arbitral award if it engages in unlawful matters or against public policy and this is under discretion on case by case basis.

General civil and commercial issues are mostly not in contrast with the public policy and can be arbitrable and enforced. This includes contractual agreements done by the state agency or state enterprise with private organisation as stipulated in Section 15 of the Arbitration Act 2002. However, it should be highlighted that certain commercial disputes including competition law and mandatory commercial provisions are not eligible for arbitration.

Arbitral tribunal is empowered to facilitate procedure by all appropriate means. Certain means seem similar to those applied by the court including the consideration of admissibility and weight of evidence illustrated in the case pursuant to the Code of Civil Procedure to proceedings mutatis mutandis (making necessary alterations while not affecting the main point at issue). Both parties in the arbitration shall be equally treated and given opportunities to indicate their standing points together with the evidence.

In the aspect of jurisdiction the arbitration conducted and the award given, the court of Thailand is obligated to enforce the award regardless of the jurisdiction. However, this should be considered along with the Geneva Convention on the Execution of Foreign Awards 1927 (Geneva Convention 1927) and the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention 1958). To explain, Thai courts will enforce the arbitral award limited to those given in the countries which are members of aforementioned treaties. Thus, it has to be ascertained that the country which award is given is one of the parties prior to the initiation of any procedures so cost will not be incurred.

The arbitral award is not accounted for the final stage as it could be challenged in certain grounds as follows

1. when the arbitration agreement is not valid;
2. when the composition of the arbitral tribunal or the arbitral proceeding was not consistent with the agreement;
3. when the arbitral award is beyond the scope of the agreement; and
4. when the recognition or enforcement of the award would be contrary to public order or good morals.

The Arbitration Act allows the parties both Thai and foreign to designate substantive law in other jurisdictions to govern the contract without drawing a line to which contract is accounted for domestic or international arbitration.

The UNCITRAL Model Law as a blueprint of Arbitration Act gives majority provisions however the Arbitration Act itself specifically customized provisions to be additionally enforced. Conversely, there are certain provisions in UNCITRAL which are excluded to be illustrated in the Arbitration Act.

Interim measures and preliminary orders given by the tribunal are among those provisions of the UNCITRAL not included in the Act.

Meanwhile, the Arbitration Act additionally imposes that arbitrators are protected from civil liabilities. However, wilful or gross negligence resulting  damages to the party are not exempted.

Finally, the presiding arbitrator is entitled to issue an award in case the arbitral tribunal cannot reach the majority vote.

To access arbitration services in Thailand, there are a number of institutions offering local and international arbitration which are Thai Arbitration Institute (“TAI”), The Thai Commercial Arbitration Committee of the Board of Trade of Thailand (“TCAC”) and the Thai Arbitration Center (“THAC”). Additionally, certain government agencies also provide arbitration processes in specific areas including the Office of Insurance Commission, Department of Intellectual Property and Securities and Exchange Commission.

Among these institutions, TAI is frequently selected as an arbitration forum with over a hundred cases initiated in 2017 with collectively worth more than a billion dollar USD. This institution has been operating since 1990 under the supervision of the Ministry of Justice before it is being under the Office of Judiciary, an independent organisation of the Ministry of Justice. TAI was an organisation taking part in key aspects of composing the Arbitration Act 2002. There are 20 areas of expertise provided by the institution. Rules applied for arbitration by the TAI have been amended in 2017 so as to tackle a number of complexities, facilitate and accelerate the process. Nevertheless, certain new rules are challenged as being against the rules set in the Arbitration Act including the imposition of interim measure without court adjudication. Another issue in concern is achieving all arbitration processes within new designated time by virtue of new rules.

TCAC is another institution providing arbitration services in relation to Thai Chamber of Commerce. It was initiated in 1968 with the application of the ICC Rules of Arbitration, the Economic Commission for Asia and the Far East (ECAFE) and customized rules of the TCAC itself. 

THAC was firstly introduced in 2015 offering arbitration services under the Act on Arbitration centre (2007). THAC itself intends to elevate the standard of arbitration  so as to be a hub of arbitral services in this region. However, it had roughly 10 cases lodged in 2018 due to lack of recognition among businesses at the time.

Office of Insurance Commission has become one of the institution as government agency taking part in the arbitration process by the virtue of Department of Insurance Official Decree No. 95/2541 stipulating that all kinds of insurance policies, except for the Marine Hull Policy and Marine Cargo Policy, shall contain a provision that allows the parties to policies to settle disputes by arbitration. This rule is retroactively enforced towards any matters occurring before the enforcement of the decree. Subsequently, it has launched additional rules imposing that insurance agreement is also covered by the arbitration process of the aforementioned arbitration committee. Thus, claiming rights in relation to insurance agreement have to be processed through the arbitration process which claimant has to submit the form to the Department of Insurance so as the Department is able to assign arbitrators for the case and it will be resolved within 90 days from the date arbitrators are assigned. Extension for arbitral consideration is allowed upon the discretion of the arbitrators without limitation imposed. The Office of Insurance Commission (OIC) has amended certain rules to facilitate the process as more than 600 cases are initiated towards the OIC.

The Department of Intellectual Property imposed the rules of arbitration applied within the organisation in 2002 so as to resolve the Intellectual Property claims which have been sharply increasing. Time frame of arbitration is similar to those imposed by the Office of Insurance Commission including 90 days of consideration period starting from the date arbitrators are officially assigned with extension under the discretion of the arbitrators. However, in case of Intellectual Property claims, the extension period cannot be exceeded 90 days. 

The Securities and Exchange Commission is another organisation for investors claiming through the arbitration forum involving securities, exchange, fund and derivatives. However, it is noted that only less than THB 5 million worth claim is accepted by the SEC for the arbitration. The claim will be considered and award will be given within 90 days with extension of 180 days.

It can be seen that government agencies have been setting up arbitration mechanisms within the organisation so as to facilitate the businesses in case any disputes occurred. International Trade and Commerce is another area that the arbitration is frequently chosen to be alternative as well as other fields of business sector which the government might take a look at, elevate and apply the model in Insurance and Intellectual Property to others.

This edition draws the regulatory framework enforced in Thailand with certain key details useful for entrepreneurs and investors who would like to set up business in Thailand or probably have to execute legal liability as well as the organisation taking part in the arbitration process. 

Although the arbitration is confidential, it is frequently challenged by one of the contractual parties in court after the arbitral award was given. According to these petitions filed and an increasing number of cases raised to the court, we can extract the key legal concept from publicised supreme court adjudication which is not a source of law as Thailand adopted the Civil law system but influential practicality for other judiciary agencies.

Next edition of our blog will focus on the cases and interpretation done by the court of first instance and supreme court in relation to the enforcement of arbitral award which some of them render contentious issues in enforcing the foreign arbitral award, impartiality of arbitrators who was a former prosecutor, mandatories of using arbitration for the contractual parties, the number of arbitral members as prohibition and arbitration which is being against public policy contracts.

Note: Isaraporn & Partners is a Bangkok based law firm in Thailand providing legal services including highly complicated legal issues arising domestically and internationally. Our firm regularly publishes legal articles to extract key elements in each area of expertise for a broad spectrum of businesses.