As a firm that specializes in international arbitration to resolve commercial disputes, we often hear “people actually arbitrate in Thailand?” or something to that effect. It’s true that Thailand isn’t regarded as an “arbitration friendly” jurisdiction, at least not in the international context.
That said, private contract parties are free to enter arbitration agreements in Thailand, and hundreds of such proceedings are seated here every year. What’s often forgotten is that Thailand is currently party to twenty-two free trade agreements and thirty-seven bilateral investment treaties, most of which provide for arbitration as a (or the) dispute resolution mechanism between Thailand and its foreign investors. One of the most recent, and arguably most important, of these treaties is the ASEAN Comprehensive Investment Agreement (the “ASEAN Agreement”).
The ASEAN Agreement is a multilateral treaty between the ten member states of the Association of Southeast Asian Nations (ASEAN), agreed in February 2009 (in Thailand, as it happens) and entered into force on 29 March 2012. It’s intended to help create a free and open investment regime within ASEAN to support the bloc’s economic integration goals — encouraging investors from ASEAN states to invest in other ASEAN states by giving them enforceable rights (with some exceptions and reservations) to protect their investments.
The New Model
The decades leading up to the end of the twentieth century saw a proliferation of investment agreements; there are now over three thousand bilateral and multilateral investment agreements in force worldwide, broadly credited with fostering global prosperity and lifting hundreds of millions of people out of poverty.
However, one indicator of these treaties’ success was a dramatic rise in investor-State disputes and arbitrations. Since investment has historically been most needed — and most attractive — in developing states, those states have most often been the ones involved in such disputes, and have sometimes lost. Dissatisfaction with the traditional investment agreement model grew as a result, with developing states arguing that such agreements gave too much protection to investors at the expense of their own citizens’ interests.
In response, the United States drafted a new model investment treaty in 2002 (first used in the 2005 US–Uruguay bilateral investment treaty) addressing these concerns. For example, the traditional model prohibits an investment state from expropriating an investment through a law that devalues it — exposing the state to monetary damages. Developing states complained this limited their ability to reasonably regulate for the protection of citizens and the environment without risking liability to investors. The new model responds by excluding non-discriminatory measures designed to protect legitimate public welfare objectives — such as public health, safety, and the environment — from the definition of “expropriation.”
The ASEAN Agreement incorporates this same provision, along with several other features of the new investment model relating to the arbitration of investor claims.
Arbitration Under the ASEAN Agreement
Claims
The ASEAN Agreement provides several protections to eligible investors, allowing an investor that suffers loss or damage to its investment as a result of the investment state’s breach to submit a claim:
(a) to the courts or administrative tribunals of the investment state, if they have jurisdiction; or
(b) under the ICSID Convention and ICSID Arbitration Rules, if both the investment state and the investor’s home state are ICSID Convention parties; or
(c) under the ICSID Additional Facility Rules, if either state is an ICSID Convention party; or
(d) under the UNCITRAL Arbitration Rules; or
(e) to the Regional Centre for Arbitration in Kuala Lumpur, or another ASEAN regional arbitration center; or
(f) to any other arbitration institution the parties agree to — though choosing one path under (a)–(f) excludes resort to any other.
If the investor submits a claim to arbitration under one of the arbitration options above:
(a) the submission must be made within three years of when the investor became aware (or should reasonably have become aware) of the breach causing the claimed loss;
(b) the investor must give the investment state written notice of intent to submit the claim, with details, at least ninety days beforehand; and
(c) the notice of arbitration must include the investor’s written waiver of any right to pursue the same matter before the investment state’s courts, tribunals, or other dispute settlement procedures — though this doesn’t prevent the investor from seeking interim protective measures from a relevant court or tribunal.
Procedure
The ASEAN Agreement also regulates several procedural matters:
(a) any preliminary objection to admissibility or jurisdiction must be decided by the tribunal, in the form of an award, before the tribunal proceeds to the merits;
(b) where the investment state raises a preliminary objection that a claim is “manifestly without merit” or “outside the jurisdiction or competence of the tribunal,” it must file that objection no later than thirty days after the tribunal is constituted, stating its reasoning as specifically as possible;
(c) the tribunal may award reasonable costs related to a preliminary objection to the prevailing party;
(d) where the parties haven’t agreed on a place of arbitration, the tribunal may determine it, provided the chosen place is a party to the 1958 New York Convention;
(e) where a dispute concerns an alleged taxation measure, the investment state and the investor’s state (including tax administration representatives) must consult to determine whether the measure is genuinely a taxation measure. This matters because the ASEAN Agreement generally doesn’t protect investors from taxation measures, except where taxation affects the transfer of an investor’s funds or amounts to “expropriation” as the Agreement defines it. Where an investor claims a taxation measure amounts to expropriation, both states must consult, on request, to determine whether the measure has an equivalent effect. The tribunal isn’t bound by either state’s conclusion but must give it “serious consideration”; if a state doesn’t respond in a timely manner, the tribunal proceeds without it; and
(f) the Agreement allows investment states to make awards and tribunal decisions publicly available for transparency, while requiring that information specifically designated as confidential be protected from disclosure.
These provisions — allowing a state to raise an early “manifestly without merit” objection, excluding reasonable non-discriminatory taxation measures from expropriation claims, and enabling public transparency — are significant departures from the older investment agreement model. None of them appear, for example, in Thailand’s bilateral investment agreements with the United Kingdom (1978), China (1985), Sweden (2000), or Germany (2002). They’re intended to give more balanced consideration to the investment state’s interests.
Awards
Arbitration under the ASEAN Agreement may only award:
(a) monetary damages and applicable interest;
(b) restitution of property (with the state given the option to pay monetary damages and interest instead); and
(c) costs and attorney’s fees, per the Agreement and applicable arbitration rules.
Notably, the ASEAN Agreement explicitly prohibits punitive damages. It also prevents an investor from enforcing an ICSID Convention award until either 120 days have passed without a request for revision or annulment, or any such proceedings have concluded. For awards under the ICSID Additional Facility Rules, UNCITRAL Rules, or other selected rules, enforcement is barred until either 90 days have passed without a party initiating revision, set-aside, or annulment proceedings, or a court has ruled on such an application with no further appeal available.
These limits — capping damages to monetary sums (excluding punitive damages) and delaying immediate enforcement — were also unheard of under the older investment agreement model, including those Thailand is party to, and are similarly designed to balance the investment state’s interests.
Finally, the ASEAN Agreement defines any claim submitted to arbitration under it as a “commercial” relationship or transaction for purposes of Article 1 of the New York Convention. This matters because some countries only enforce arbitration agreements under the Convention if they’re commercial in nature, and have historically treated investment-treaty awards as non-commercial. The ASEAN Agreement’s definition ensures the broadest possible enforceability under the Convention.
Conclusion
Only time will tell whether the new investment agreement model proves more satisfactory in practice. But given the wide economic and investment disparities among the ten ASEAN nations, adopting the new model as the basis for the Agreement was likely a sound decision — and one that cross-ASEAN investors, and anyone advising them, should be aware of.