The Peculiar Local View of Arbitration

When reporting on disputes subject to arbitration, the Thai press typically says or suggests that the arbitration proceedings are, as a matter of common practice, subject to some form of automatic and independent de novo review by a court.  This is particularly true when the local press is reporting about disputes with the Thai government, but you also see this in reporting about commercial disputes between private parties.

The recent case involving the Boeing 737 in Munich was just an example of this practice in the context of a dispute with the Thai government, made more unusual by the extraordinary claim that a Swiss arbitral award could be directly challenged in a U.S. Court.  More recently, in a description of the dispute between DTAC and CAT, the Bangkok Post reported: “If the arbitrator rules in favour of CAT, DTAC can appeal to the Central Administrative Court.”

Is this how arbitration really works?  Not at all, but reading the Thai press you could be excused for thinking otherwise.  This is not the international practice and it is not even supposed to be the practice in Thailand.

The Thai government does seem to be reluctant to agree to arbitration in the first instance, but once it agrees, it should not object to arbitration and should comply with the arbitral award, absent extraordinary circumstances.  This is basic.

Thailand is one of the original signatories to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Convention, and the New York Convention provides very limited grounds for refusing to enforce an international arbitral award.  Thailand is not alone in agreeing to the New York Convention.

At least 144 other countries are signatories to the New York Convention, including every major trading partner of Thailand.  The domestic legislation that signatories to the New York Convention enact and the policies they following in recognizing and enforcing international arbitral award may vary somewhat, but this idea that arbitral awards are somehow subject to automatic judicial review is very peculiar.

Parties do go to the court, but in the U.S. a motion to vacate an arbitral award may be heard only in the courts of the country where the arbitration occurred or in the courts of any country whose procedural law was specifically invoked in the contract calling for arbitration of contractual disputes.

When parties do go to court following issuance of an arbitral award, this typically only occurs to have the arbitral award recognized and enforced.  And for obvious practical reasons (cost and inconvenience), this generally only occurs when a party fails to comply with an arbitral award.  Even in China:

…if an Intermediate People’s Court intends to turn down an application for enforcing an award of a PRC foreign related arbitration commission or a foreign arbitration award, it must refer the application to the Higher Court for review before making the decision. If the Higher Court is of the same view as the Intermediate People’s Court, it must further refer the application to the Supreme Court at Beijing and no decision should be made until the view of the Supreme Court is sought. This practice assists to alleviate the concern of some foreign parties that awards may not be enforced in China due to local protectionism, especially if the losing party is a state-owned enterprise.

But what about this notion in Thailand that arbitral awards are subject to automatic review by a court?  There were proposals to change Thai law to prohibit arbitration between private parties and governmental agencies, but those proposals were never enacted.  And there is no general provision of law providing for automatic de novo review of arbitral awards by courts, administrative or otherwise.

Could these be a feature of a contract between a private party and the Thai government?  If so, I have never seen such a provision providing for judicial review following arbitration.

In negotiating contracts with government agencies, I have encountered strong resistance to agreeing to any form of arbitration at all.  And in negotiating contracts on behalf of foreign parties with local commercial parties in Thailand, I have sometimes encountered reluctance to  agree to arbitration outside of Thailand. But I have never seen anyone even suggest a clause providing for automatic judicial review of the arbitration.

In the U.S., the courts do not permit a direct appeal of an arbitration award to an appellate court even when the parties have agreed to such a procedure. Johnson v Well Fargo Mortgages, Inc. An agreement for judicial review on the merits of an arbitral award runs contrary to the very purpose of arbitration. It is well established that:

The number-one benefit of arbitration is that it serves as a forum to resolve disputes outside of the judicial system. Arbitration can be fast, quick and easy, whereas lawsuits can drag on for years and years.

So why does this idea that arbitral awards should and commonly are subject to appeal persist in Thailand?

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  • Steve F  On August 23, 2011 at 7:46 am

    “So why does this idea that arbitral awards should and commonly are subject to appeal persist in Thailand?”

    Isn’t it a function of the Thai view that you can and do go on appealing through various courts until you get a decision you like? This is presumably more expensive the further up the chain of courts one goes – making it rather like a no-limits poker game (deepest pockets scoop the pot).

    • Douglas Mancill  On August 23, 2011 at 2:30 pm

      I am not sure there is such a thing as a “Thai view”. Instead there are many Thai views. Most Thais don’t benefit from a system where one party is able to appeal through various courts until it gets the decision it wants. A privileged few might benefit, but the average man in the street certainly doesn’t benefit. Perhaps I am overly optimistic, but as incomes rise in Thailand and the middle class grows, I believe that friction between the old patronage style of governance and the aspirations of an increasingly prosperous Thai middle class will increase. The cat’s out of the bag now.

      • Steve F  On August 27, 2011 at 2:55 pm

        Wrong of me to be so sweeping as to say “the Thai view” – of course there will be more than one. Plainly the average man in the street/village isn’t likely to pursue a case up the legal chain – having neither the financial means nor usually the expectation of succeeding against people better placed than he is.

        I think the ingrained influence of several hundred years of sakdhina won’t disappear that quickly just because of rising incomes/swelling middle class – but it must at least weaken in its effect on attitudes. My take is that there was little point in doing away with tax-farming and the like (inc. position-selling) if you weren’t at the same time attending to what made tax-farming a necessity – i.e. the absence of a professional (inc. properly-paid) civil service. From what I understand, the “farming” (commissions) used to be better regulated when sakdhina was in full flower.

        On the last sentence, I prefer “genie’s out of the bottle” – but same same 🙂

  • Prof BWBean  On August 25, 2011 at 4:58 am

    We should distinguish disputes between private parties and those involving the sovereign itself.

    And, of course, the NY Convention applies to foreign arbitral awards, not domestic.

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