THAILAND
Pisut Attakamol and Pumma Doungrutana
A. LEGISLATION AND RULES
A.1 Legislation
International arbitration in Thailand continues to be governed by the Arbitration Act B.E. 2545 (2002), with its latest legislative amendment made in 2019.
A.2 Institutions, rules and infrastructure
There are two main local arbitration institutions in Thailand, namely, the Thailand Arbitration Center (THAC) and the Thai Arbitration Institute (TAI). There have been no significant developments regarding their arbitration rules or relocation of their office.
B. CASES
B.1 The award being set aside due to the award dealing with a dispute not falling within the scope of the arbitration agreement or containing decisions on matters beyond the scope of the submission to arbitration and the recognition or enforcement of the award being contrary to public order or good morals[1]
By way of background, there was a dispute between Party A, a private telecom corporation in Thailand, and Party B, a state enterprise carrying out main business in the telecom sector in Thailand, in connection with a high-speed internet provision recession agreement (“Agreement”) with a claim value of approximately THB 100 billion (equivalent to USD 3.33 billion). The dispute under the Agreement was governed by Thai law and was to be resolved through arbitration with three arbitrators under the rules of the TAI.
The nature of the Agreement set out that Party A would invest in procuring, installing, controlling, and providing maintenance of equipment in a system of expansion of telephone services (“Equipment”) whereby Party B agreed to grant Party A the right of use and the earnings of benefits from the Equipment for 25 years from 31 December 1992 or the delivery date, whichever came first. It appeared that since Party A accepted the delivery of the equipment on 29 October 1992, the expiry date of the Agreement would fall due on 28 October 2017. On 13 May 1996, Party A and Party B entered into an appendix to the Agreement, which stated that if Party A would provide additional services previously granted by Party B prior to this date, Party A was required to obtain permission from Party B in advance of the provision of such additional services. Additionally, in the event where Party A had earned excess profit from such provision of services, Party A was to share its excess profits (after tax deduction), at the rate of 30 percent for the rate ranging between 16 and 20 percent and at the rate of 60 percent for the rate over 20 percent to Party B throughout the tenure of the Agreement. Party A and Party B further agreed to pay any outstanding sum which became due to the other party within seven days from the date of receipt of notice. Moreover, clause 33 of the Agreement provided that income or any benefits which may arise out of the Agreement and was not clearly identified therein shall be discussed and agreed upon. Otherwise, such income or benefits shall be deemed to belong to Party B.
On 28 October 2005, Party B submitted an arbitration claim to the tribunal, asserting that around the end of 2003, Party A delivered the Equipment and allowed other entities to use the Equipment in providing high-speed internet, so-called Asymmetric Digital Subscriber Line or ADSL, without permission from Party B. For this, Party B sought compensation calculated up to June 2005 in the amount of approximately USD 65.5 million and monthly damages in the sum of no less than USD 5.8 million, together with interest at the rate of MLR+1 from July 2005 onward.
On 6 November 2015, while the arbitration proceedings remained pending, Party B sought to amend its statement of claim by replacing the original compensation sought with a whole new compensation value calculated from September 2001 to August 2015 at the sum of approximately USD 2 million, together with interest in the sum of approximately USD 740 million. Party B further demanded Party A to pay for the loss of income from September 2015 until Party A would comply with the Agreement or ceased the high-speed internet service.
The tribunal rendered its award on 30 August 2018, ordering Party A to pay: (1) compensation to Party B as a result of the breach of the Agreement calculated from September 2001 to August 2015 in the sum of approximately USD 2 million, together with interest amounting to approximately USD 550 million and interest at the rate of 6.6875 percent per annum from the principal amount of approximately USD 1.9 million, calculated from September 2015 until full payment is made to Party B and (2) damages calculated from September 2015 to December 2017 in the amount of approximately USD 555.5 million and interest in the sum of USD 42.2 million, together with interest at the rate of 6.6875 percent per annum from the principal amount of approximately 555.5 million from January 2018 until full payment is made to Party B.
Upon receipt of the award issued on 4 September 2018, Party A applied to the Central Administrative Court (“Court”) for the setting aside of the award. The basis to set aside the award were that: (1) Party A did not receive fair treatment in the arbitration proceedings because the presiding arbitrator and Party B’s appointed arbitrator directed Party A to prepare and submit questions and answers of a witness to Party B in advance of the next hearing, which would clearly prejudice Party A ‘s case since Party B would have more than sufficient time to prepare for the cross-examination against such witness, whereas this order was not applicable to Party B[2], (2) the enforcement of the award being made out of unfair treatment would be contrary to good morals and public order[3] and (3) the award rendering Party B to receive compensation from October to December 2015, which was after the expiry of the Agreement, would not be permissible for settlement by arbitration under the law.[4] Additionally, the statement of claim with respect to the compensation was ambiguous as it lacked descriptions and the method of compensation calculations, rendering Party A unable to defend its case properly. As a matter of Thai law, if the statement of claim is vague, the tribunal shall dismiss the claim because this is a legal issue relating to Thai public order.
The Court set out three issues for determination. The first issue was whether Party B was entitled to amend its statement of claim dated 6 November 2015. The second issue was whether the statement of claim was ambiguous. The third issue was whether Party A committed a breach of the Agreement.
For the first issue, the Court explained that either party could request to amend its statement of claim or statement of defense (as the case may be) during the course of the arbitral proceeding unless the tribunal is of the view that such amendment was not appropriate, taking into account the delay of the proceeding[5] and whether it is for increasing or decreasing the claim amount, waiving some of the arguments or completing the arguments originally stated in the statement of claim, or raising a new argument.[6]
Based on the supplemental statement of claim submitted by Party B, the Court did not see evidence that Party B had already sent a demand notice asking for the payment of the amount claim therein, in which case it failed to comply with the requirement under the Agreement that the parties agreed to pay any sum to the other side within seven days from the date of receipt of notice, pursuant to clause 21 of the Agreement. The Court, therefore, was convinced with the fact that Party B never demanded payment of the sum claimed in this supplemental statement of claim from Party A prior to the date of submission of the supplemental statement of claim on 6 November 2015, and that as such, Party A was not deemed to have been in default of payment and was not considered to have constituted a breach of the Agreement. Party B was not entitled to submit its dispute to the tribunal.
Therefore, the Court did not share the tribunal’s opinion that Party B was entitled to amend its statement of claim, as the Court considered that the amount of claim — which was supplementarily added — was compensation arising from July 2005, which was after the original amount of claim that arose in September 2001 and was considered to be a different debt; such amendment, therefore, was not a minor change, nor was it made to increase the amount of claim in the original claim or to complete the arguments in the original claim. The Court was of the opinion that the supplemental statement of claim did not comply with the aforesaid criteria and was rendered to be invalid. As a result, the decision of the tribunal to accept the supplemental statement of claim for arbitration was illegal and invalid.
For the second issue, the Thai Civil Procedural Code requires that the statement of claim and the relief sought must be clearly described; otherwise, a court shall return it or dismiss it. In other words, if the court finds that there is ambiguity in the statement of claim and/or the request for relief, the court shall dismiss the case. The statement of claim described that Party B sent a letter to Party A informing that Party A was not allowed to provide the high-speed internet service or consent other entities to use the Equipment to provide the high-speed internet service and asking Party A to comply with the Agreement and discuss the income and benefits with Party B. Based on this, the Court took the view that such description was self-contradictory because it was not clear whether the allegation was to rely on the fact that Party A itself provided the high-speed internet service or allowed others to use the Equipment for its provision of the high-speed internet service without permission from Party B. This contradictory allegation made Party A unable to understand the allegation and properly defended the case. Hence, the Court held that the description of the statement of claim in this manner did not clearly describe the basis of the claim, pursuant to the legal requirement under the Civil Procedural Code. The Court further held that the determination of the tribunal that Party A allowed others to use the Equipment for the provision of the high-speed internet service was out of the scope of the subject matter and contrary to evidence adduced in the case.
Not only did the statement of claim insufficiently describe the details as explained above, but the relief sought was also not clearly elaborated. Based on the relief sought, there were several aspects which Party B failed to illustrate. First, Party B did not specify the first date when Party A was alleged to have caused damage to Party B, and Party B only specified the final date when Party B had suffered loss. Secondly, Party B claimed damages based on the monthly service fee from customers but failed to specify which date it started to calculate the amount of damages and to identify how many customers were taken into account. Thirdly, Party B claimed for the loss of income in the sum of approximately USD 5.9 million per month from July 2005, but Party B failed to explain how much of the income was earned by Party A for each month.
Taking the facts appearing in the arbitral proceeding holistically into account, the Court was of the opinion that the tribunal accepting the statement of claim for determination in the arbitral proceeding was illegal.
In relation to the third issue, the Court considered the undisputed facts in the award and concluded that Party A did not commit a breach of the Agreement because Asia Multimedia Company Limited provided the high-speed internet service, not Party A as alleged by Party B. Party B was unable to claim for the income earned by Asia Multimedia Company Limited as compensation from Party A in accordance with clause 33 of the Agreement. In fact, Party B should have claimed compensation from Asia Multimedia Company Limited as it used the Equipment without obtaining permission from Party B. Given that Party B could not prove that Party A allowed Asia Multimedia Company Limited to use the Equipment for its provision of the high-speed internet service and that Party A received any remuneration from Asia Multimedia Company Limited, Party B was, therefore, not entitled to claim for compensation from Party A . If Party B were to claim compensation from Party A , Party B would have had to claim under the appendix to the Agreement, whereby it clearly specified the proportion of the profit share from the use of the Equipment provided by Party A to other entities, i.e., Asia Multimedia Company Limited, as per the rate set out in the appendix to the Agreement, i.e., 19 percent of income arising from the use of the Equipment by other entities. In view of this, the Court held that the award for compensation given by the tribunal to Party B was unlawful and that the amount of compensation was also not reasonable and fair because the tribunal did not take account of the criteria in the Telecommunications Business Act B.E. 2544 (2001). Particularly, the tribunal awarded compensation to Party B in full without having regard for the fact that Party A was the exclusive investor making an investment in public network and expansion of the telecommunication system. The Court was of the view that for the sake of justice, Party A should be entitled to receive the portion of the profit share under the appendix to the Agreement.
Through all of the said reasons, the Court ultimately held that the award was beyond the scope of the arbitration agreement. That the principle of taking on evidence was not in compliance with the Civil Procedural Code — which is the law relating to public order, and that recognizing and enforcing the award would be contrary to public order and good morals; as a result, the award was set aside accordingly.
In conclusion, there are a number of important remarks which can be taken away from this judgment. First, this is the case brought before the Central Administrative Court and not before a civil and commercial court. The Thai Administrative Court seems to consistently preserve its own jurisdiction by intervening the determination of the merit of the case by the arbitral tribunal and remains ready to set aside the award if it appears that the arbitral tribunal’s decision in the case was not compliant with any substantive law. Secondly, it is interesting to note the judgment on the part of procedural law in the arbitration proceedings. The Court rules that if the Civil Procedure Code is not strictly followed, the award may be set aside as it is considered to be contrary to public order, even if the arbitral tribunal is permitted to apply the Civil Procedural Code by analogy.[7] Lastly, given that arbitrators may not be as qualified as a lawyer or possess any law degree, there is a chance that arbitrators may misapply any substantive law to the case, which would ultimately increase the likelihood that the award would be set aside.
It should be noted that the judgment of the Central Administrative Court above is not final. It is still subject to further appeal by Party B and may be reversed by the Supreme Administrative Court.
B.2 Interpretation of an arbitration agreement and the application of the principle of separability[8]
The subject matter, in this case, relates to a dispute over the agency fee under the Agency Agreement (“Agreement”) between a Thai agent (“Agent”) and a principal (“Principal”) residing in Germany. This Agreement contains an arbitration agreement in clause 18 which reads as follows:
“Disputes arising from this Agreement shall be settled first in the sense of this Agreement by mutual arrangement. If such an arrangement cannot be reached, the place of jurisdiction for all possible disputes – also those resulting from legal documents, deeds, bill of exchange, and cheques – is Bremen (the courts of the City of Bremen). ATLAS [the Principal] is, however, also entitled to the
appropriate courts having jurisdiction over the registered office of the Agent.
Without prejudice to the foregoing, ATLAS and the Agent are, by their own, entitled to appeal to Arbitration Court of Disputes and claims arising from this Agreement. The appeal to and the award of the Arbitration Court shall be final and binding on both ATLAS and the Agent. The Arbitration Court shall be established and shall proceed in accordance with Swiss Rules of International Arbitration at the Chamber of Commerce in Zurich/Switzerland. The Arbitration Court shall include one arbitrator, appointed by the President of the Chamber of Commerce in Zurich. The language of arbitration shall be English”.
The Agent filed a civil claim before the Central Intellectual Property and International Trade Court (“IPIT Court”)[9] against the Principal. The Principal made a challenge that the Agent’s case be dismissed due to the arbitration agreement as stated above. Having been determined by the IPIT Court, the case had been dismissed, and the Agent then appealed the order of the IPIT Court to the Supreme Court.[10]
The key issue of this judgment is whether the arbitration agreement is valid and enforceable. In concluding the key issue, the Supreme Court categorized three main points for determination. The first point is whether the first paragraph of clause 18 was void due to being contrary to public order, which would render the entire clause void and unenforceable. The second issue is how the arbitration agreement in the second paragraph of clause 18 should be construed. The last point is whether the arbitration agreement was still enforceable even if the Agreement had already expired.
For the first issue, the Supreme Court considered the parties’ interpretation of the first paragraph of clause 18 of the Agreement and shared the same view that if there is any dispute arising out of this Agreement, both parties shall first mutually discuss to resolve the dispute and that if such mutual discussion is not successful or a settlement cannot be reached, the place of jurisdiction of all such disputes would be the courts of the City of Bremen in Germany; however, the Principal reserved the right to sue the Agent at a competent court in Thailand. Having considered this interpretation proposed by both parties, the Supreme Court held that the agreement to submit any dispute arising out of the Agreement — which may be identified as an international contract — to the court of the City of Bremen given that the place of the business of the Principal was in Bremen, can be enforceable and is not void, pursuant to general international law.
With respect to the second issue, since the approach in interpreting the second paragraph of clause 18 of the Agreement by the Agent and the Principal is different, it is crucial to understand each approach before reaching a conclusion made by the Supreme Court. The Principal’s approach was that either party was entitled to submit its dispute arising out of the Agreement to arbitration; if one party initiated a court proceeding as per the first paragraph of clause 18 of the Agreement, the other party may raise an objection by the second paragraph to the court to stay the court proceedings for arbitration. On the other hand, the Agent argued that either party was entitled to appeal to arbitration after the court proceeding in the first paragraph of clause 18 had been undertaken until the judgment is rendered by the said court.
Taking into account these two different approaches, the Supreme Court held that the interpretation of the agreement shall be made in accordance with its purpose, which is the mutual intention of the parties to be contemplated in good faith by determining customary practice and Thai laws. To elaborate, the Arbitration Act B.E. 2545 (2002), which has adopted the UNCITRAL Model Law on International Commercial Arbitration, does not contain any provision which requires a party intending to resolve its dispute to submit its claim to a court until receipt of a judgment and then appeal the judgment to arbitration. The Agent’s interpretation of the second paragraph of clause 18 that the word “appeal to Arbitration Court” means to appeal the court judgment to arbitration was apparently contrary to arbitration in practice and the Arbitration Act B.E. 2545 (2002). Had this approach been accepted, the entire clause would become meaningless. The Principal, however, suggested that the wording “appeal” should also mean to “submit” or “request.” In support of the Principal’s interpretation, an independent legal expert witness of the Principal affirmed that he had never experienced the approach asserted by the Agent, and the witness, therefore, concluded that “appealing” should refer to “submitting” a dispute to arbitration. In particular, the first phrase of the second paragraph stating that “without prejudice to the foregoing…” suggested that submitting a dispute to arbitration did not prejudice the right of both parties in the first paragraph, and therefore, the first and second paragraphs are defined independently.
For the last point, the Agent argued that the arbitration agreement is not enforceable and becomes invalid on 31 December 2014, which is the expiry date of the Agreement. The Supreme Court did not agree with this assertion and held that an arbitration agreement (even if made in the Agreement) is not dependent on the Agreement and that the expiry of the Agreement does not affect the arbitration agreement. Therefore, it is enforceable.
In light of the above reasons, the Supreme Court upheld the judgment of the PIPIT Court that dismissed the claim of the Agent for arbitration.
[1] Judgment of the Central Administrative Court Black Case No. 2016/2561, 260/2562, Red Case No. 2028/2563, 2029/2563. – please note that this case is appealable to the Supreme Administrative Court (the final court).
[2] Section 40 (1) (c) of the Arbitration Act B.E. 2545 (2002).
[3] Section 40 (2) (b) of the Arbitration Act B.E. 2545 (2002).
[4] Section 40 (2) (a) of the Arbitration Act B.E. 2545 (2002).
[5] Section 29 paragraph two of the Arbitration Act B.E. 2545 (2002).
[6] Section 179 of the Civil Procedural Code.
[7] Section 25 paragraph three of the Arbitration Act B.E. 2545 (2002).
[8] Supreme Court judgment No. 3281/2562 (2019)
[9] The Court of First Instance.
[10] The court of last resort in Thailand.
