Monthly Archives: July 2011

Walter Bau vs. Thailand: A Funny Thing Happened on the way to the Second Circuit

Confirmation of Arbitration Award – 14 March 2010

When Walter Bau sought confirmation of the Swiss arbitral award in the US with the US District Court in New York, Thailand opposed that petition on two grounds: (1) the “arbitrability” of the award (discussed in the prior blog post); and (2) forum non conveniens.  The doctrine of forum non conveniens applies when the forum is oppressive and vexatious – totally inappropriate.  Thailand argued the US was an oppressive and inappropriate forum to address any issues relating to the arbitration award.

“Thailand strongly asserts that the Parties and the disputes lack of contacts with the United States, coupled with the facts that Thailand has no assets in the United States, favors strongly in favor of dismissal”, said the US District Court.  The US District Court seemed to show some sympathy to this argument, saying: “Thailand is correct that a lack of assets is a factor that weighs in favor of dismissal”.

But the US District Court also said that Walter Bau: “disputes that Thailand has no assets in the United States and that any search of assets should be the product of post judgment discovery.”  Citing other reasons as well, the US District Court confirmed the Arbitral Award against Thailand on 14 March 2010.

Boeing 737 Seized in Germany – 12 July 2011

On 12 July 2011 a Boeing 737 is seized in Germany pursuant to a court order Walter Bau’s liquidator obtains to enforced the arbitration award.  Later that week, in Thailand, news of this seizure appears in the press and the Thai government claims the seizure was improper because the jet did not really belong to the Thai government.

When asked why Thailand had not paid the arbitration award in the first place – after all, if it had been paid, there would have been no seizure of the plane – the press describes the Thai government’s response as follows:

The prime minister said a separate legal battle between the German company and the government was underway in New York, and that the Thai side was going to file an appeal with a court in the United States on July 29. Therefore, he said, there should have been no urgent need for German authorities to impound the plane.
“Thailand is ready to follow the final court verdict [the appellate court in the US] even if it means we will have to pay the money. The government will not escape from the responsibility. Besides, we have lots of assets,” he said.

But wait a minute?  Hadn’t Thailand previously argued that United States was the wrong forum for deciding the dispute?

Thailand Files it’s Opening Brief – 28 July 2011

In one short sentence of its 71 page opening brief, Thailand announces it is dropping its challenge on forum non conveniens grounds.  Thailand now has no objection to the US Second Court of Appeals addressing their argument (summarized in the blog post above) that – under US law – the US District Court should conduct a de novo review the “arbitrability” of the dispute.  Thailand also, of course, also acknowledges that: “The New York Convention affords the district court no power to vacate the Final Award [the arbitration award that is supposedly on appeal], and Thailand did not ask the district court to do so.”

But isn’t this curious?  First, Thailand says the US is totally inappropriate, oppressive no less, for deciding any part of this dispute.  But after the airplane seizure in Germany  and questions are raised about why Thailand had not paid the award in the first place, Thailand argues it was not obliged to pay because the matter is still on appeal in the US.  And then, in it’s opening brief, Thailand drops its objection to having the US courts address any part of this dispute.


Is Thailand Really Appealing Walter Bau’s Arbitration Award in a US Court?

No.  But reading some of the reports in the Thai press you might get that impression.  “once the legal dispute was decided by the [US] court, the Thai government would live up to its responsibility”  “it was inappropriate for the German government to make such a demand when the legal dispute had not yet been settled [on appeal in the US].  “This is being appealed.”  So this appeal challenges the merits of the arbitration award, right?

That’s is not what Thailand’s own appellate brief says.  In fact, it says the exact opposite.  On page six: “The New York Convention affords the district court no power to vacate the Final Award [the arbitration award that is supposedly on appeal], and Thailand did not ask the district court to do so.”

While quotes from Thai politicians in the Thai press seem to suggest otherwise (maybe something got lost in the translation?), Thailand’s own appellate brief get’s it right: Thailand cannot challenge the arbitration award and it is not trying to do so.  U.S. law does not allow it do so and the New York Convention – a treaty that governs the recognition and enforcement of international arbitration awards – also does not permit a U.S. court to overturn the arbitral award in favor of Walter Bau and against the Thai government.  This is about as basic as it gets.

So what is the appeal about?

Basically Thailand argues that the US district court applied the wrong standard of review in determining whether Walter Bau and Thailand agreed to arbitrate the dispute when it confirmed the arbitration award.  It’s about the “arbitrability” of the dispute.  Thailand argues that the US district court was obliged – under U.S. law – to take a “fresh look” at whether there was an agreement to arbitrate. The US district disagreed, saying: “Thailand has already conceded, as it must, that it entered into two treaties that expressly provide for arbitration…” and this is a dispute about the scope of this undisputed arbitration obligation, something which the arbitral panel itself has the authority to decide.

The US District adds: “While the Court finds it unnecessary to review the Arbitrators’ Award de novo [legal language for a “fresh look”], it is important to note that…there is serious doubt as whether, even on a de novo review, Thailand would be able to turn over the Arbitrators’ well reasoned award.”

I’d agree that this is worth noting.  Thailand’s appellate brief dismisses this comment as dicta (probably right), but it’s nonetheless very important dicta.

What does Thailand want the US Appellate Court to do?

Thailand wants the appellate court to remand – meaning, return – the matter to the US District Court with instructions that the US District Court conduct a fresh review of the arbitrability of the dispute.  Thailand also wants the order confirming the arbitration award in the US District Court to be vacated.  To be fair, Thailand is also essentially arguing that if the correct standard of review is applied, the US District Court should decide that this dispute was not properly subject to arbitration under US law.

When Does a US Court Decide the Underlying Dispute Between Walter Bau and Thailand?

Never.  The US doesn’t have jurisdiction over the underlying dispute and it doesn’t have authority to set aside the international arbitration award issued in Geneva, Switzerland.

So how is this Resolved?

By all accounts the arbitration award is final.  Other than the somewhat confusing references to the pending appellate court proceedings in US, no one has suggested otherwise.  This means that Walter Bau continues to pursue Thai assets until Thailand complies with the award and pays, Walter Bau seizes enough Thai assets to satisfy the award, Walter Bau gives up (that doesn’t seem likely) or some sort of settlement is reached between Walter Bau and Thailand.

A Possible Solution to the Arbitration Row with Walter Bau?

The dispute between Walter Bau AG and the Thai government goes far beyond the Boeing 737 currently impounded in Munich, Germany.   Walter Bau has an arbitration award against the Thai government – not against any Thai person – and the amount of that arbitration award exceeds the value of the impounded aircraft.  That means additional assets can be seized if Walter Bau can make a prima facie claim they are owned by the Thai government and not subject to sovereign immunity.  If it happens, it will likely happen without warning or notice.  And this creates an on-going headache for the Thai government that is not limited to this one incident.

Walter Bau’s administrator has demonstrated that he will aggressively use every procedural mechanism available to him to recover on this claim.  That is his job, and like him or not, he seems to be good at it.  He employed a similar technique before. He says he was forced into this position because the Thai government ignored his earlier requests to resolve this matter amicably.  I don’t know if this is true or not.

But I do know that arbitration is intended to provide for prompt enforcement of arbitration awards.  Arbitration is designed to avoid endless appeals and certainly lengthy stays of enforcement pending an appeal.  This is why arbitration is attractive to the international business community. Enforcement is typically not delayed during an appeal.

As one other lawyer in this area wrote: “Most arbitral awards are voluntarily complied with and do not require judicial enforcement.”  There is a plan to appeal the judgement Walter Bau obtained in the Southern District of New York to confirm the arbitration award, but Walter Bau is not going to refrain from enforcing the arbitration award while an appeal is pending before a U.S. Circuit Court when “an international award…has substantially greater (executory) legal force than a domestic court decision.”

The New York Convention requires that the states that have ratified it to recognize and enforce international arbitration agreements and foreign arbitral awards issued in other contracting states, subject to certain limited exceptions. And those exceptions are very limited.

On the other hand, the current Prime Minister, Khun Abbhisit, says the Thai government has strong arguments to prevail on the appeal it plans to file and that if the government loses that appeal, they will pay.  Unfairly or otherwise, Walter Bau’s administrator doesn’t believe this.

The Thai government refuses to put up a bank guarantee now for release of the airplane.  If they did put up a bank guarantee now, it could be construed as a tacit admission that they own the plane.  It creates other obvious problems and it’s not surprising that no bank guarantees will be provided for the release of the plane alone.

Moreover, even if Walter Bau’s seizure of this asset is set aside, it can pursue other assets of the Thai government.  And even if the seizure of this one asset stands, Walter Bau can and presumably will still pursue other assets to make up for the shortfall between the value of this plane and amount of its award. The headaches for the Thai government will continue.  This dispute is really not about the plane.  It goes beyond the plane, and that point seems to get lost in the controversy surrounding this matter.

But there is a solution: why doesn’t the Thai government simply propose – unilaterally, on its own – to put up a bond for the full award amount plus a bit on top to cover costs to the U.S. court in return for a stay on all efforts to enforce the award, including the seizure of the jet in Munich?  In other words, the jet is released and no other assets of anyone are seized to enforce this arbitration award.

This is what large companies do to avoid a prevailing claimant from interfering in their operations while an appeal is pending on what they firmly believe to be an unjustified award or judgment.  If they can’t get the judgment stayed – and its very hard to stay a judgment on an arbitration award – they bond around it to avoid unexpected levies that will interfere with business operations and tarnish their reputation.  No matter how strongly a company may disagree with an award or judgment, this simply makes good business sense.

The current prime minister says he is confident Thailand will win on appeal.  Thailand certainly has enough money to bond around this award.  Why don’t they do so?  They don’t stand much to lose if, as Khun Abbhisit says, they expect to win on appeal.

If the Thai government wins, they get the money back. If not, Walter Bau gets paid.  While the bond is in place, Walter Bau would agree to be stayed from seizing any other assets from the Thai government or anyone else to enforce the award.  No one is harassed with surprise levies by Walter Bau and the Thai government can go about its business without worrying about getting blind-sided with a boat, plane or bank account getting seized in some foreign jurisdiction.

Since Thailand has not even yet filed an appeal in the second circuit, this risk of getting blind-sided with an asset seizure could go on for years.  This is not good for Thailand.

Perhaps this solution is not possible with the current government.  Perhaps emotions run so hard with the current government that this sort of compromise is not possible.   But a new government will likely come in soon, and I don’t see why it could not agree to this sort of arrangement.  There are plenty of good practical and policy reasons to do so.  It demonstrates that Thailand does honor arbitration awards.  It prevents Walter Bau from seizing other assets that it claims, rightly or wrongly, belong to the Thai government and are not subject to sovereign immunity.

It seems like a sensible way to cut the Gordian knot and bring all of this to an end.

Arbitration with the Thai Government?

In recent years, the Thai government has expressed an ambivalent attitude towards the use of arbitration in disputes between private parties and the Thai government.  I discuss this in some detail in an article published in March 2010 and posted on our website here:

The recent seizure in Germany of an aircraft used by the HRH Crown Prince Maha Vajiralongkorn’s has generated controversy and consternation for everyone involved (, but I want to focus on what this may mean for the use of arbitration to settle disputes with the Thai government and some puzzling comments by Thai government officials about international arbitration.

First, this case was not submitted to international arbitration because of an arbitration clause in a contract with the Thai government but rather because of an arbitration requirement in a bilateral investment treaty (BIT) between Thailand and Germany.  A policy of prohibiting or restricting the use of arbitration clauses in contracts with the Thai government would not have made any difference in this case.  The dispute was still subject to international arbitration.  But it’s still relevant to the broader question about the Thai government’s attitude towards international arbitration.

In my March 2010 article I also asked how Thailand would respond to to treaty obligations to arbitrate disputes even if it refused to agree to arbitration clauses in contracts with the government.  Is this an example of what we can expect to see?  I hope not.

Putting aside the controversy over ownership of the plane and the obvious sensitivities of this issue, this case highlights problems with Thailand’s ambivalence towards international arbitration provisions and awards generally.  Even though the seizure of this plane was not the result of an agreement containing an arbitration clause, it could stiffen resistance to the use of arbitration clauses in contracts with the Thai government.  This is not a good result for Thailand or foreign investors who want to participate in Thailand’s ambitious infrastructure development plans.

And some of the comments in the press (perhaps they’re not getting it right?) coming from Thai officials are baffling.  For example:

Mr Abhisit said the Office of the Attorney-General is in the process of appealing to the Southern District Court of New York, which last year ruled in favour of Walter Bau and ordered Thailand to pay compensation to the firm.

Mr Abhisit said the government will submit the appeal on July 29.

The reference to the U.S court proceedings is odd for several reasons.  First, why does a German court need to wait on a U.S. court decision to enforce an international arbitration award from a respected UN arbitral body? How is this at all relevant?  Second, even in the U.S., a judgment confirming the award would be immediately enforceable unless the trial court or an appellate court orders a stay of execution.  No word of any stay of execution. So why even comment on the U.S. court proceedings?

But more important, what does all of this tell us about the use of arbitration to settle disputes with the Thai government going forward?  Will it make it make it harder to negotiate contracts with arbitration clauses. Will it be harder to enforce arbitration awards?  Or will the Thai government quickly settle unfavorable arbitration awards to avoid this sort of embarrassment?   The latter, of course, would be preferable, but we will need time to assess the fall out from all of this.

Claims of Political Interference in DTAC FBA Probe

We said it would get interesting.  Over the last two days the press have carried stories about conflicts within the Ministry of Commerce (MOC) over the probe into DTAC for allegedly violating the Foreign Business Act (FBA).  Page one of the business section of today’s Bangkok Post provides a good summary (“”).  The whole story should be read, but first a few snippets:

The head of the Business Development Department is challenging his boss’s order for the department to take legal action against DTAC on its nationality, saying the instruction is a “direct political intervention” and “illegitimate”.

The department, a unit under the Commerce Ministry, insisted on submitting its committee’s original findings to the police and ask them to determine whether the law had been broken, and if so, to take further action.

The move openly challenges Commerce Minister Alongkorn Ponlaboot, who had yesterday demanded that Banyong Limprayoonwong, director-general of the ministry’s Business Development Department, press the charge against DTAC. “He [Mr Alongkorn] has no authority or obligation under the Foreign Business Act (FBA) to force me to accuse a company of being foreign-owned,” Mr Banyong said.

“Mr Alongkorn’s decision cannot be regarded as a government policy. It is a direct political intervention,” Mr Banyong said.

The article goes onto to describe the difference between Business Development Department’s report and the report from Mr. Alongkorn’s committee as follows:

Mr Banyong’s panel is less certain about the legal implications and planned to ask the police to investigate further for more evidence.

The original complaint against DTAC was raised by True Move, the country’s third largest mobile operator. It alleged that DTAC is 71.35% held by foreigners and their nominees.


A telecom veteran, who asked not to be named, said the legal move by True Move could also spell trouble for mobile leader Advanced Info Service on its shareholding structure.

“Even though True said it would not do the same with AIS, the outcome of the DTAC case will inevitably put pressure on AIS’s shareholding structure, particularly under the administration of the new Pheu Thai-led government,” he said.

We’re not going to delve much further into this politically charged morass here, other than to make the obvious observation that it is morass.  Laws such as the FBA lend themselves to this sort of political controversy in Thailand.  There are views on what constitutes an illegal nominee under FBA Section 36, but much of this is contested terrain – perfect ground for political battles having little to do with sound policy or providing Thailand with a better IT infrastructure.

It is also safe to say that these sorts of controversies do not instill investor confidence in Thailand.  More about that later.

Early Comments on the FBA Investigation into DTAC

The Bangkok Post reported that the Ministry of  (“MOC”) issued a 35 page report addressing claims that DTAC is an “alien” under the Foreign Business Act (FBA): “Commerce Ministry investigators have made a preliminary finding that some Thai nominees hold shares on behalf of foreigners in the mobile firm DTAC”. (

That report was to be forwarded to the Royal Police, but more about that below. Continuing with the Bangkok Post report: “Mr. Yanyong [of the MOC] said the preliminary investigation had found some Thai shareholders were nominees for foreign groups led by Telenor, a Norwegian state enterprise.”  In other words, this case turns on the so-called “nominee shareholder” prohibition contained in FBA Section 36, as we originally suspected.

The report is not public and it’s early days, but we can make a few observations and comments about this matter.   For example, what the MOC’s “findings” do and do not mean.  And what they suggest about the MOC’s views on what constitutes nominee shareholding under FBA Section 36.

First and foremost, the MOC’s findings, preliminary or otherwise, are not law.  We are a long way off from anything that can remotely be considered law.  Even if this matter gets to the Royal Police, they actually investigate the matter and they decide some of the Thai shareholders are nominees, that finding by the police and anything the police decided is also not law.  The matter must still go to the prosecutors who must then decide if they want to prosecute.  And if they do prosecute and a Thai Court reaches a substantive decision, there are the inevitable appeals.

A comment, reported in the 8 July 2010 edition of the Bangkok Post (, appears to confuse this point:

Sanya Sathirabutr, a political adviser to Alongkorn Ponlaboot, a Democrat MP and acting deputy commerce minister, said yesterday his investigative team had the authority to decide the nationality of the company and hoped to make a decision by Monday.

Not quite.   If it gets that far, that decision will need to be made by a Court.

But even if the MOC’s findings are not law, they are important.  The press reports give us a glimpse into the MOC’s thinking on this matter.  “‘We have no authority to ask for the financial documents. We need to pass on the duty to the Royal Police instead,’ he [an MOC official] said.”  He appears to be referring to alleged loan arrangements with some of the Thai shareholders.

In practice, when making inquiries about possible nominee status, the MOC looks for evidence of the financial ability of Thai shareholders to fund an acquisition of shares with their own money.  A simple review of bank statements is generally conducted at the company registration stage.  The alleged focus on loan agreements in the DTAC case goes beyond this, but it is consistent with our general theory about what, in the MOC’s eyes, distinguishes genuine investors from nominee investors: evidence that the Thai investor had the ability to and did in fact fund an investment with his or her own funds.

From an administrative perspective, you can see why this approach is attractive.  The so-called “nominee” provision found in Section 36 turns on intent: why did this Thai investor buy these shares?  Did he do so as a genuine investor or as a nominee of foreigners?   MOC officials cannot read minds, but they can read financial statements.  Whether that, by itself, is sufficient and how those records should be read is another matter – a matter that also has not yet been decided.

And the there must also be a prosecution.  FBA Section 36 is a penal provision providing for, among other things, imprisonment of up to three years.  From a prosecutor’s perspective, absent an unequivocal admission from the Thai investor (say, a written deed of nominee shareholding signed by the Thai shareholder), how do I, the prosecutor, prove this investor intended to help foreigners circumvent the FBA?  If the Thai shareholder says he is a genuine investor, how do I prove otherwise?

This case, if it proceeds, will need to address these and many other difficult questions.  It will be interesting.

Marked Increase in International Enforcement of Foreign Anti-Corruption Laws

The noose is tightening.  The U.S. has had its Foreign Corrupt Practices Act (FCPA) since the 1970s, but aggressive enforcement is a relatively recent phenomena.  A decade ago there were hardly any active cases, but now there are estimated to be well over 150 cases.  The U.S. used to be an outlier, but now other countries are starting to enforce their own foreign anti-corruption laws, including Germany, Japan and the UK with its new, very strict, anti-corruption law.

Even countries that had ranked low in terms of enforcement ( are now starting to prosecute foreign anti-corruption cases. The first guilty plea was very recently secured under Canada’s Corruption of Foreign Officials Act. Korea recently indicted two representatives of a logistics company for alleged corrupt activity in China. And now Australia has charged six for allegedly bribing officials in Malaysia, Indonesia and Vietnam to win currency contracts. (

Perhaps unknown to many, but Note Printing Australia Limited ( prints bank notes for many countries, including Malaysia, Indonesia, Vietnam and, according to its recent annual report, Thailand. There has been no suggestion that Thai officials were involved in this matter, but this does mean that Australian business persons operating in Thailand can no longer rely on a relaxed anti foreign corruption regime in Australia. The Reserve Bank of Australia issued a press release containing the following:

Over the past several years much has been done to tighten controls and strengthen governance so as to avoid any re-occurrence of the alleged behaviour:

  • Those charged with offences are no longer with the companies;
  • The use of sales agents has ceased;…

“The use of sales agents has ceased.”  The use of sales agents is a common tactic used to circumvent foreign anti-corruption law.

The point of all of this is that foreign corruption laws are no longer a U.S. specific issue.  Other countries are now actively enforcing their foreign anti-corruption laws.  It’s taken awhile, but the playing field is visibly changing and what had been considered “business as usual” is becoming much less acceptable – not only for U.S. companies, but also now for Japanese, Canadian, UK, Korean and Australian companies as well.