In our last blog we explained that arbitration can only take place if both contract parties agree to use this mechanism to resolve disputes arising from their contract. In Thailand, Section 11 of the Arbitration Act (2002) (the “Act”) specifically requires the parties to enter into a written “Arbitration Agreement” signed by both parties. The Arbitration Agreement must state that the parties want arbitration to govern all disputes arising out of a specified legal relationship, such as a contract.
The Arbitration Agreement may take the form of a separate agreement, or a clause within the contract itself. If it takes the form of a clause within a contract, the Arbitration Agreement “survives” the termination of the contract it’s embedded in — in other words, the arbitration clause stands as a separate agreement, independent from the main contract it covers.
A well-drafted Arbitration Agreement is therefore a pre-requisite for any enforceable alternative dispute resolution. Various arbitration service providers offer sample clauses for parties wishing to choose arbitration to settle future disputes. Locally, the two most well-known providers are the International Chamber of Commerce (ICC) and the Thai Arbitration Institute (TAI).
The ICC recommends the following clause:
“All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.”
Where the TAI is the chosen provider, the following is recommended instead:
“Any dispute, controversy or claim arising out of or relating to this contract or the breach, termination or invalidity thereof, shall be settled by arbitration in accordance with the Arbitration Rules of the Thai Arbitration Institute, Office of the Judiciary applicable at the time of submission of the dispute to arbitration and the conduct of the arbitration thereof shall be under the auspices of the Thai Arbitration Institute.”
Both model clauses contain the two essential elements of any Arbitration Agreement: (1) referral of disputes to arbitration, and (2) incorporation of the governing arbitration rules. Before inserting either clause into a contract, however, it’s advisable to tailor it to the parties’ preferences to avoid future disputes over the arbitration process itself.
The place of the arbitration hearing is one element worth deciding in advance, for mutual convenience — parties are very likely to dispute this if it isn’t agreed beforehand. The governing language of the proceedings is another, especially when one party is a local contract partner. It’s also generally prudent to predetermine the number and qualifications of arbitrators: more arbitrators mean higher fees, and highly skilled arbitrators typically only work for institutes that compensate them accordingly. That said, more — and more highly skilled — arbitrators generally increases the certainty that the final award will be enforceable.
In ICC proceedings specifically, the “Seat” of arbitration is another element the parties should agree on before signing the Arbitration Agreement. The choice of Seat determines which jurisdiction’s procedural arbitration law governs the proceedings — for example, if Thailand is the Seat, the Act governs.
Finally, it’s worth noting that not every disputed matter can result in an enforceable arbitration award. If the jurisdiction where enforcement is sought has substantive law that doesn’t allow final resolution of the matter through arbitration, or considers enforcement of the award to be contrary to “public policy,” that jurisdiction will not enforce the award.