Category Archives: Arbitration

Will Thailand Ever Ratify ICSID? And Why it Should.

ICSID, the acronym for the International Centre of the Settlement of Investment Disputes, is “an autonomous international institution established under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the Convention) with over one hundred and forty member States.”  It provides a forum and has rules for arbitrating disputes between foreign investors and countries.  It covers disputes similar to the one we saw between Walter Bau and Thailand recently.

Indeed, the bi-lateral investment treaty (BIT) between Germany and Thailand that Walter Bau employed to commence arbitration proceedings against Thailand provides that if “both” countries become parties to the Convention, investment disputes will be arbitrated under ICSID rules rather than the rules set out in Article 10 (3) of that treaty. This provision might as well have said: “if Thailand (finally) becomes a party to the Convention”, since Germany is already a party to the Convention.

At least 147 countries have ratified ICSID.   China is one of them.  Virtually every developed country (except Canada?) and the vast majority of less developed countries have ratified the Convention.  A few countries, such as Namibia and the Russian Federation, have not.  Thailand signed the Convention on 6 December 1985, but has not yet ratified the Convention?   Why?

To be fair, some commentators claim that ICSID and BITs containing investment protection provisions unfairly override the ability of countries, particularly less developed countries, to exercise their regulatory powers.  To be honest, I have never seen ICSID or a BIT prevent a country from legitimately exercising its regulatory powers.

The irony here is that Thailand is already a party to at least 30 treaties that contain some form of arbitral requirement for investment disputes.  They don’t seem to have deterred Thailand from exercising its regulatory powers.  They have created a hodge-podge of inconsistent obligations on the treatment of foreign investors.

Further, even though the Thai government has been reluctant to agree to arbitration of investor disputes, in some matters it is already obliged to arbitrate investment disputes. (The lesson for investors here is simple: look beyond your contract to possible treaty obligations.)  And because arbitration under a BIT is generally subject to ad hoc rules, that arbitration “is subject to the rules of the arbitration law of the country where the tribunal has its seat.”   The Walter Bau matter arose out of Swiss arbitral proceedings.

As Christoph Schreuer observed in The Dynamic Evolution of the ICSID System:

Compared to ad hoc arbitration, the ICSID Convention offers considerable advantages: it offers a system for dispute resolution that contains not only standard clauses for arbitration and rules of procedure but also institutional support for the conduct of proceedings.

Because of these advantages and, quite frankly, the prestige and integrity of ICSID, arbitral proceedings under ICSID also provides a level of perceived legitimacy that ad hoc arbitration lacks.  When a recognized and well-respected international body such as ICSID administers arbitral proceedings, it’s easier for a government to explain why the award must be paid and fend off misinformed domestic complaints about honoring an unfavorable award.

Those advantages did not exist in the Walter Bau matter.  And, because of what occurred in the Walter Bau matter, I suspect it is even less likely now Thailand will ratify the Convention and join ICSID.  There is further irony here since, if Thailand had adopted ICSID, I suspect that it would have been much easier to pay the award in the first place and thereby avoided the domestic controversy we saw when Walter Bau tried to enforce the award.

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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?

Diageo – Victim or Perpetrator?

The Thai press has reported  extensively on the settlement reached between the major multinational alcoholic beverages company, Diageo plc, and the U.S. Securities and Exchange Commission (SEC) after Diageo self-reported violations of the U.S. Foreign Corruption Practices Act (FCPA). Most of the coverage seems to consist of speculation – or perhaps “hints” is the better word – about the identity of the “Thai government official and foreign political official” retained by Diage to provide “lobbying services…in connection with several important tax and customs disputes that were pending between Diageo and the Thai government”.  This is understandable.  The SEC’s Order (in particular, pages 5 and 6) instituting the claim, imposing a cease and desist order and civil penalties provides plenty of hints.  Fingering the ‘bad guy’ makes for simple and exciting press.

But there is another, more fundamental, issue here: why is it that some Thai agencies seem to attract more than their fair share of corruption cases?  “Bribery is particularly concentrated in a few governmental sectors in charge of large financial transactions: the Land Department, Tax and Customs Department, the Transport Department, and the Police Department”, according to the Business Anti-Corruption Portal’s report on Thailand. The Diageo matter involved the Customs Department, and that is not surprising.

The Bangkok Post reports that: “Numerous business surveys have placed the Customs Department at the top of the list of government agencies with serious corruption and transparency problems.”  A large part of the problem at Thai Customs is the incentive system for rewarding tipsters and Customs officials who uncover alleged violations of Thai customs laws.  The Bangkok Post reports:

Previously, officials would get cash rewards of 25% while outsiders would get 30%. However, there were no ceilings. There were cases involving billion-baht shipments where the rewards would be staggering. This led to officials spending too much time trying to find fault with shipments.

Reform in the form of reducing numbers has been the approach, but many question if reducing ‘the take’ rather than changing the underlying policy is really effective. Many also ask why such a system was allowed in the first place; the Bangkok Post reports: “Pornsil Patchrintanakul, the deputy secretary-general of the Board of Trade says the cash rewards should have never existed.”

And why allow any form of pernicious incentive system like this to continue even if the incentives are more modest? Another Bangkok Post article reports: “Even capping the ceiling of each case at 5 million baht might not solve the problem.  For shipments of larger value, officials could simply break them down into smaller cases that meet the 5-million-baht limit.”   The prior Bangkok Post article provides part of the answer about why real reform is so difficult:  “A senior Finance Ministry official said there once was a proposal to abandon the reward system but there was serious opposition from the Customs Department.”

But another, less reported, legal ruling highlights the flaws in Thailand customs law regime: the WTO Ruling and WTO Appellate Body ruling in the Philipp Morris case.  The WTO case concerned the valuation of imported cigarettes, but the fact that the imported products in this particular WTO case were cigarettes should not divert attention to its more important findings.  The rulings by the WTO panel and a WTO Appellate Panel are far more important for what they say about the rule of law in Thailand.

The WTO not only found that Thailand failed to comply with its international obligations in setting values for these imported products for tax purposes, but also that: “Thailand…fail[ed] to publish laws and regulations pertaining to the determination of a VAT for cigarettes and the release of a guarantee imposed in the customs valuation process.”  It is may be hard to garner sympathy for a cigarette producer, but this case was not about protecting the Thai public from cigarettes.  How is any company importing goods into Thailand supposed to do business when its imports are subject to unpublished laws and regulations?

If the subject matter of the dispute, cigarettes, is still a concern, consider this from the WTO: “Philippines challenged the Thai government system under which certain government officials simultaneously served on the board of TTM, a state-owned domestic cigarette manufacturer.”  This wasn’t a public health issue.  It was a trade issue pure and simple.

But even more troubling, according to the WTO’s summary of the case: “[t]he Panel also found that Thailand acted inconsistently …by failing to maintain or institute independent review tribunals or process for the prompt review of guarantee decisions.”  No independent review of decisions made by officials with strong financial incentives to find violations?

This is not about cigarettes or even about the alcoholic beverages that Diageo produces and imports.  It’s about the rule of law.  And the inevitable friction between: (a) legal regimes that permit officials to exercise unfettered discretion when identifying violations pursuant to unclear – or here – unpublished regulations; and (b) and increased enforcement of foreign anti-corruption laws.  Clashes are inevitable.

The U.S.’s FCPA prohibits the payment of bribes to gain a business advantage.  In US vs Kay the fifth circuit held that prohibited payments (illegal bribes) not only include payments to obtain, say, government concessions or contracts, but also include payments made to reduce import duties and reduce taxes if they are made to obtain an unfair business advantage.  But what if they are simply necessary to even do business at all in a particular country?

This feature of the FCPA and other foreign anti-corruption laws puts businesses, particularly foreign businesses, in a very awkward position when they have to deal with less than transparent foreign government agencies.  It often places companies doing business in those jurisdictions with few, if any, legitimate options.  And it is not limited to only the Thai Customs Department.

What might be characterized in the U.S. as payment made to obtain an “unfair” business advantage is often seen as a necessary payment so as even to be able to do business.  It doesn’t provide the business with an unfair business advantage.  It is often simply seen as an unsavory requirement for doing any business at all in some jurisdictions.

This is not a justification for such payments and I am not involved in or familiar enough with Diageo’s situation to say if that is what happened here, but this clearly does happen in practice in Thailand.  More developed countries are more aggressively enforcing their own anti-foreign corruption laws, and this is a positive development.  But the increased enforcement on the supply of the corruption problem must be matched by increased reform on the demand side.

Laws that provide unfettered discretion to officials and provide for little or no independent review on how such discretion is exercised are big part of the problem on the demand side.  As long as local vested interests can use such laws to tilt the playing field in their favor, they will do so.  And in doing so, they undermine local economies, create business environments conducive to corruption and – this is often missed – generate friction with the increasingly robust anti-foreign corruption regimes of more developed economies.  And because these uneven playing fields place foreign companies subject to regulation in countries with robust foreign anti-corruption laws in impossible situations, these same foreign companies will, naturally enough, often press harder for serious enforcement of international conventions and obligations that are designed to level the playing fields.

Aggressive efforts to enforce rights and obligations under the WTO, the UN Convention, the New York Convention and other international treaties and conventions will play an increasingly important role in efforts to level the playing field going forward.   We are now only seeing the early signs of this.

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. http://www.nationmultimedia.com/home/Kasit-seeks-a-meeting-with-German-deputy-FM-over-i-30160380.html

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: http://www.deaconsbk.com/knowledge/arbitration-and-thai-government-agencies.php.

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 (http://www.bangkokpost.com/news/local/247273/german-court-begins-hearings-on-royal-jet), 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.