In our last blog we explained that arbitration can only take place if both of the contract parties agree to the use of such a mechanism to resolve any dispute arising from their contract. In fact, in Thailand, Section 11 of the Arbitration Act (2002) (the “Act”) specifically requires that the parties, must enter into a written “Arbitration Agreement” that is signed by both parties. Furthermore, the Arbitration Agreement must state that the parties want arbitration proceedings govern all disputes arising out of a specified legal relationship, like a contract.

The Arbitration Agreement may be in the form of a separate agreement or it may be in the form of a clause within the contract in question itself. It should be noted that if it takes the form of a clause within a contact, the Arbitration Agreement “survives” the termination of the contract it is embedded in. In other words, the “arbitration clause” has its own standing as a separate agreement independent from the main contract that the arbitration covers.

Thus, an Arbitration Agreement, ideally a well drafted Arbitration Agreement, is a pre-requisite for any enforceable alternative dispute resolution. The various arbitration service providers propose sample clauses to be used in contracts between parties who wish to choose arbitration as a method to settle any future dispute under the contract. Locally, the two most well-known arbitration service providers are the International Chamber of Commerce (“ICC”) and the Thai Arbitration Institute (“TAI”).

The ICC recommends the following clause to be included in any contract that the parties wish to have any disputes arising there from resolved by arbitration under auspices of the ICC:

“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.”

Alternatively, where the TAI is the chosen service provider, the following is recommended:

“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 of these model clauses have two essential elements of any Arbitration Agreement: (1) referral of any dispute under the contract to arbitration; and (2) the incorporation of the governing rules of arbitration. However, before actually inserting any such model clause into your contract, it is advisable to further tailor the clause to the parties’ preferences and in order to avoid future disputes regarding the arbitration proceedings. The place of the arbitration hearing, if any, is one essential element that the parties may very well wish to decide on beforehand such that it is mutually convenient and that they will very likely dispute if not agreed prior to any dispute. The language that should govern the proceedings is another element. Especially in cases with a local contract partner, a firm decision as the governing language when entering into a contract with an arbitration clause is generally essential. It is also usually prudent to predetermine the number and qualifications of the arbitrators used for the proceedings. However, note that the more arbitrators the higher the fee payable for the arbitration.  Highly skilled arbitrators will generally only work for the institutes that pay them accordingly. On the other hand, the more arbitrators and the more highly skilled they are, generally the better, and therefore, the more certain the enforceability of the final award.

In case of ICC proceedings, the “Seat” of the arbitration is also one of these elements that the parties should agree upon prior to signing the Arbitration Agreement. The choice of Seat will determine what jurisdiction’s procedural arbitration law governs arbitration proceedings itself, e.g.  in the case of Thailand being the Seat, the Act will govern the proceedings.

Finally, it should be noted that it is not possible to obtain an enforceable arbitration award for all disputed matters. If the jurisdiction where you are seeking enforcement of an arbitration award has a substantive law that does not allow final resolution of the said matter by way or arbitration or if that jurisdiction considers that enforcement of arbitration award of said matter would be contrary to “public policy”, that jurisdiction will not enforce any such arbitration award.

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DUENSING KIPPEN is an international law firm specializing in business transaction and dispute resolution matters, with offices in Bangkok and Phuket, Thailand and affiliated offices in 45 other countries. Visit them at: duensingkippen.com

Arbitration proceedings offer various important advantages to the normal local court proceedings in Thailand. To resolve business related disputes quickly and with finality is advantageous to the business community. To say the least, normal court proceedings are not known for achieving either of these desired ends, especially in Thailand. Thus, the fixed time frame to achieve an award outlined by the various arbitration service providers is one of the most important advantages of arbitration over ligating the dispute in normal court proceedings. Furthermore, unlike a normal court ruling, arbitration awards cannot be challenged on the “material part” of the case. In other words, the award cannot be appealed on the basis of its determination on factual or legal issues. For example, in Thailand, the court that will need to enforce an arbitration award, whether it is an award in an international or domestic arbitration proceeding, is only allowed to set aside such ruling in the following, very limited, cases outlined in Section 40 of the Arbitration Act (2002)(the “Act”):

1)    A party to the arbitration agreement was under some legal incapacity.

2)    The arbitration agreement is not binding under the governing law agreed to by the parties, or in the absence of such agreement, the laws of Thailand.

3)    The applicant was not given proper advance notice of the appointment of the arbitral tribunal, or of the arbitral proceedings, or was otherwise unable to defend the case in the arbitral proceedings.

4)    The award deals with a dispute outside the scope of the arbitration agreement, or contains a decision on a matter outside the scope of the agreement. If the part of the award that lies outside the scope of the agreement can be separated from the balance of the award, then the court will only set aside that part.

5)    The composition of the arbitral tribunal or the arbitral proceedings was not in accordance with the arbitration agreement or, unless otherwise agreed by the parties, the Arbitration Act.

6)    The award deals with a dispute not capable of settlement by arbitration under the law.

7)    The recognition or enforcement of the award would be contrary to public order.

The enforcement, or rather the “enforceability”, of an arbitration award is itself another very important advantage of arbitration over normal court proceedings. Unlike foreign court judgements, all countries that are part of the 1958 United Nations New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) will enforce a “foreign” arbitration award if that award was made in a country that is also a signatory to the New York Convention. There are currently 144 signatories, including Thailand, to the New York Convention. Section 41 of the Act states that “(…) an arbitral award, irrespective of the country in which it is made, shall be recognized as binding on the parties(…). In case where an arbitral award was made in a foreign country, the award shall be enforced by the competent court (…)”.

Turning to the proceedings itself, It is not uncommon that disputes between parties require specialized knowledge to understand the nature of the dispute. A local court judge may not have such knowledge. Arbitration proceedings, however, provide the opportunity to the parties to have the dispute settled by a specialist or practitioner who understands the issues surrounding the claim from a practical point of view. In Thailand, this enhanced adjudicatory flexibility is reflected in Section 19 of the Act which defines a qualified arbitrator as one who is ”(…) impartial, independent and possess the qualifications prescribed in the arbitration agreement (…)”.

Furthermore, the parties in an arbitration proceeding are not only able to select their qualified arbitrator, but they also have the right to choose the place and the language of the arbitration proceedings. For anyone doing business in a foreign country, to select a convenient venue for the proceedings and to be able to understand the proceedings without the necessity of a translator and to be able to submit all documentation without having to translate them into a foreign language are major advantages to settling disputes by arbitration.

Finally, one more procedural advantages of arbitration over normal court proceedings relates to “Service of Process” or how one party or the adjudicator formally notifies the other party of matters in the proceeding, for example, that the case has been filed commencing the proceedings.  Service of Process in court proceedings is time consuming and can be quite expensive.  In Thailand, this is particularly true in disputes involving a defendant who is located outside of Thailand which requires lengthy notification process involving the Thai Ministry of foreign affairs. In arbitration proceedings, however, it is not necessary to involve any government agency. The arbitration service provider is able to service the defendant directly.

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DUENSING KIPPEN is an international law firm specializing in business transaction and dispute resolution matters, with offices in Bangkok and Phuket, Thailand and affiliated offices in 45 other countries. Visit them at: duensingkippen.com

If you are doing business in Thailand you might have already had some experience with the local court system. An all too common complaint of the local business community is that court proceedings in Thailand are agonizingly slow. Furthermore, a non-Thai businessman usually does not understand the proceedings, since the official language in Thai courts is Thai. Finally, a domestic court ruling is generally not enforceable in another country and if one or both of the parties does not live in Thailand and/or has their assets in another country, a domestic court “win” might be a “hollow victory”.

But what’s the alternative? You may have heard of “alternative dispute resolution”. The “alternative” means “other than going to court.” One such longstanding alternative gaining evermore international recognition is arbitration. Arbitration is the most commonly used formal alternative to domestic court proceedings, especially for disputes between parties in different countries. From a legal perspective Thailand was a relative “late comer” to the arbitration scene, enacting its first law governing arbitration in 1987.  Then in 2002 Thailand enacted the current Arbitration Act, which replaced the 1987 law. The Arbitration Act governs not only domestic, but also any international arbitrations conducted in Thailand.

In order to submit a dispute to arbitration, it is required that both parties agree to it. Section 11 of the Arbitration Act defines such an arbitration agreement as “an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. An arbitration agreement might be in the form of an arbitration clause in a contract or in the form or a separate agreement.” The arbitration agreement needs to be in writing and signed by both parties. Thus, it is not possible for one party to unilaterally and without the approval of the other party to submit a dispute to arbitration. If the parties failed to include an arbitration clause to an agreement and a dispute arises, the dispute must be settled by the local courts as long as both parties do not agree to arbitration proceedings. Therefore, it is advisable to include a well-drafted arbitration clause in an agreement, preferably in the initial contract document, before any dispute that requires a third party adjudicator arises.  In our experience, once such a dispute arises, getting the parties to agree on anything, including how to resolve the dispute can be very difficult, if not impossible.

But if you are going to use the arbitration alternative then it is highly advisable to select and include in your arbitration clause a professional arbitration institute that can provide the procedural and administrative support requisite for the conduct of proper arbitration proceeding. Internationally, perhaps the most commonly known such institute is the International Chamber of Commerce’s International Court of Arbitration (the “ICC”) which is headquartered Paris, France but which conducts arbitrations worldwide. Founded in 1923, the ICC established its own rules of arbitration that govern the proceedings between the parties themselves and between the parties and the ICC. These rules of arbitration are “universal” and govern all ICC proceedings worldwide. Locally, Thailand established its own “Thai Arbitration Institute of the Alternative Dispute Resolution Office, Office of the Judiciary” (the “TAI”) to provide arbitration services within Thailand. The TAI also has its own rules that govern its arbitration proceedings. Finally, the Board of Trade of Thailand also offers arbitration services which are provided by its “Thai Commercial Arbitration Institute” and which are conducted under its own rules.

The parties to an arbitration agreement are free to choose what rules should govern the arbitration proceedings by choosing one of the aforementioned service providers. It should be noted that the choice of the service provider not only has an impact on the fees charged for the arbitration service, but could also have an impact on the recourse a winning party has to claim for compensation for legal fees incurred during the arbitration proceedings.

Arbitration proceeding are generally quick, in fact the ICC rules generally require a decision and an award within 8 months of the arbitrator’s appointment. In the case of the TAI it is within 6 months of such appointment. Arbitration proceedings can be conducted in any language the parties choose. In general, the parties get to choose the arbitrator, thus they control their competence and may even select someone with particular expertise and experience relevant to the dispute at hand. And an award issued by any of the above mentioned arbitration institutes is enforceable in any country that is the signatory to the 1958 U.N. Convention on the recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”). Thailand is a signatory to the New York Convention and an arbitration award made here will be enforceable outside of Thailand in any other signatory country (currently 145 countries worldwide). And pursuant to the Arbitration Act any such award will also be enforceable inside of Thailand. Accordingly, formal arbitration can be an outstanding alternative to Thai court proceedings and highly advisable to include provision for such dispute resolution in your commercial contracts here in Thailand.

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DUENSING KIPPEN is an international law firm specializing in business transaction and dispute resolution matters, with offices in Bangkok and Phuket, Thailand and affiliated offices in 45 other countries. Visit them at: duensingkippen.com