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.

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