A. LEGISLATION AND RULES
A.1 Legislation
International arbitration in Thailand continues to be governed by the Arbitration Act, BE 2545 (2002) of Thailand, with its latest legislative amendment made in 2019 (“Arbitration Act”).
A.2 Institutions, rules and infrastructure
There is no change in arbitration rules of the leading arbitration institutes in Thailand.
B. CASES
B.1 Recognition and enforcement of an arbitral award on legal costs
Section 46(1) of the Arbitration Act provides:
“In the case where the parties to the dispute have not otherwise agreed, fees and expenses in arbitral proceedings and remuneration of arbitrators, with the exception of lawyers’ fees and expenses, shall be as determined in the arbitral award.”
This provision had long been a thorn in the lawyers’ flesh, as it is nebulous as to whether a court of Thailand is bound to recognize and enforce an arbitral award on legal costs.
In Supreme Court Decision No. 1/2565 (2022), the arbitration under the Commercial Arbitration Rules of Japan Commercial Arbitration Association (“JCAA Rules”) was commenced. The arbitral award was later issued requiring, among others, the losing parties to be liable for legal costs. The losing parties then attempted to resist the recognition and enforcement of the arbitral award. The losing parties argued that the arbitral tribunal did not have the authority to award legal costs under section 46(1) of the Arbitration Act. The Supreme Court held that, in this case, the parties chose to apply the JCAA Rules of which clause 83 (Allocation of Costs) authorizes the arbitral tribunal to award legal fees and expenses to the extent the arbitral tribunal determines that they are reasonable. Moreover, during the course of the arbitration proceedings, the losing parties themselves also requested the arbitral tribunal to award legal costs for them as well. These facts, from the view of the Supreme Court, evince that the parties understood and agreed to confer upon the arbitral tribunal the authority to award legal costs, even before the arbitration proceedings commenced. Therefore, the arbitral award on legal costs at dispute is not incompatible with section 46(1) of the Arbitration Act.
Through Supreme Court Decision No. 1/2565 (2022), the Supreme Court sheds light upon how section 46(1) of the Arbitration Act ought to be construed. In particular, the Supreme Court’s construction gave effect to the language “[i]n the case where the parties to the dispute have not otherwise agreed.” Namely, insofar as there is an agreement between parties that authorizes an arbitral tribunal to award legal costs, an arbitral tribunal would adhere to such parties’ autonomy. Accordingly, as can be seen in the Supreme Court’s reasoning, the Supreme Court also recognizes that such parties’ agreement may be in the form of arbitration rules which endow an arbitral tribunal with the discretion to fix legal costs, which is in line with section 6(2) of the Arbitration Act. Therefore, this precedent echoes another milestone for Thailand to be an arbitration-friendly jurisdiction.
B.2 Independence and impartiality of an arbitrator in the context of conflict of interest in the law firm
Since Supreme Court Decision No. 2231-2233/2553 (2010), it has been endorsed by the Supreme Court that the breach of the obligation of an arbitrator to remain independent and impartial is a matter relating to public order and good morale of people, which may constitute a ground to set aside and refuse the recognition and enforcement of an arbitral award under section 40, paragraph 3(2)(b) and section 44 of the Arbitration Act.
In this regard, in Supreme Court Decision No. 1/2565 (2022), the Supreme Court was seized with the situation wherein an arbitrator’s obligation to remain independent and impartial was challenged. The losing parties attempted to resist the recognition and enforcement of the arbitral award based on the allegation that the presiding arbitrator lacks independence and impartiality. The allegation was premised upon the fact that the presiding arbitrator is a partner at one global law firm; and there is one branch office that happens to provide legal services to the affiliate of a winning party in the arbitration. The Supreme Court ruled that such fact does not give rise to the lack of independence and impartiality. Namely, an affiliate to which the disputed legal services were provided is not the same entity as the winning party. Moreover, each branch office of a law firm in which the presiding arbitrator serves as a partner operates with full independence without any interference and influence from another. In addition, the presiding arbitrator’s office has never been rotated to another branch. Hence, Supreme Court Decision No. 1/2565 (2022) sets out the clearer borderline for an arbitrator who has a law firm background in the world of globalization.
B.3 Validity of a unilateral arbitration clause
Under the Arbitration Act, there is no clear provision dealing with the validity of a unilateral arbitration clause — a clause entitling one party to initiate an arbitration.
In Supreme Court Decision No. 500-501/2565 (2022), the dispute arose out of the participation agreement to provide credit facility concluded between Company A and two individuals. As the event of default was triggered, Company A instituted the SIAC arbitration against the two individuals. As a result, the sole arbitrator issued the arbitral award; ordering the two individuals to pay damages to Company A. This prompted Company A to seek the recognition and enforcement of the arbitral award in Thailand. The two individuals attempted to resist the recognition and enforcement, by arguing that the arbitration clause in the participation agreement is not binding since such provision entitles Company A to unilaterally elect to arbitrate the dispute, which is not in line with the Arbitration Act. The Supreme Court rejected this argument. It ruled that, although the arbitration clause allows Company A to unilaterally elect to arbitrate the dispute, it does not entail that the two individuals would not be accorded with fairness in the ensuing arbitration proceedings. In particular, once Company A elected to institute the arbitration, the parties were required to comply with the arbitration rules of SIAC under which Company A did not enjoy any advantage over the two individuals. Moreover, in the case where an application to recognize and enforce an arbitral award is filed with a court of Thailand, the two individuals still had the opportunity to resist such recognition and enforcement of an arbitral award under section 41 and section 42 of the Arbitration Act.
Although the Supreme Court did not provide the detailed analysis, Supreme Court Decision No. 500-501/2565 (2022) may be deemed a judicial recognition of the validity of a unilateral arbitration clause whereby one party is entitled to arbitrate a dispute. This seems to be in line with Supreme Court Decision No. 1527/2562 (2019) in which the Supreme Court indirectly held that the arbitration clause in the insurance policy entitling only a claiming party (an insured or an injured) to arbitrate a dispute as such party wishes.
B.4 The authority of an arbitral tribunal to reduce the penalty
Under section 383 of the Civil and Commercial Code, if the penalty is disproportionately high, an arbitral tribunal has the authority to reduce such penalty to a reasonable amount. The court tends to respect the autonomy of an arbitral tribunal in exercising such discretion and rules that the arbitral tribunal’s discretion in reducing the penalty under section 383(1) of the Civil and Commercial Code does not concern public order and good morale of people. This has been long endorsed by the Supreme Court since Supreme Court Decision No. 8717/2554 (2011).
However, under Thai laws, when a private party enters into a contract with a state party, there may be a chance that such contract is governed by special regimes. For instance, in Supreme Administrative Court Decision No. Or. 752-753/2565 (2022), the Supreme Administrative Court clarified the contour of the arbitral tribunal’s discretion in reducing the penalty in a public procurement contract. In such case, State University A entered into a contract with Company B for the construction of the education facility. In the contract, the parties agreed to fix the penalty at the rate of THB 209,545.20 (USD 6,060) per day. Thereafter, the dispute ensued as State University A imposed the penalty upon Company B for its delay in construction, leading to Company B commencing the arbitration to claim for the construction prices.
The arbitral tribunal issued the arbitral award ordering State University A to pay the construction prices to Company B. With respect to the penalty issue, the arbitral tribunal ruled that the penalty fixed at the rate of THB 209,545.20 (USD 6,060) per day is disproportionately high. As a result, the arbitral tribunal applied section 383(1) of the Civil and Commercial Code to reduce the penalty to the rate of THB 113,883 per day (USD 3,293).
Consequently, State University A attempted to set aside the arbitral award. State University A argued that the arbitral tribunal erred in calculating the reduced penalty. The Supreme Administrative Court ruled on this issue that, in general, the arbitral tribunal’s discretion in reducing the penalty under section 383(1) of the Civil and Commercial Code does not concern public order and good morale of people. However, if the reduction of the penalty by the arbitral tribunal is based upon the misapplication of law, such matter would then relate to public order and good morale of people, as it would cause a state to lose the portion of penalty to which it is entitled in the first place (which may be understood as the public budget). In this light, the Supreme Administrative Court undertook the review of the arbitral tribunal’s discretion in reducing the penalty and arrived at the conclusion that the arbitral tribunal erred in the calculation of the reduced penalty. Moreover, it was held that the arbitral tribunal’s adjustment of the daily penalty is tantamount to the interference with the parties’ agreement in fixing the rate of the daily penalty. As a result, the arbitral award concerning the reduction of the penalty was set aside, as it was beyond the scope of arbitration agreement and violates public order and good morale of people under section 40, paragraph 3(1)(d) of the Arbitration Act.
From a practical point of view, although Supreme Administrative Court Decision No. Or. 752-753/2565 (2022) is factually specific, as the arbitral tribunal’s calculation of the reduced penalty in such case is manifestly erroneous and self-contradictory, it may nonetheless signal the future trend that the court would be ready to conduct the full review of the arbitral tribunal’s discretion in reducing the penalty under section 383(1) of the Civil and Commercial Code when the public budget is at stake. This is particularly pertinent to a conclude with a Thai state party under Thai laws.
B.5 Limitation to seek the recognition and enforcement of an arbitral award in case where an arbitral award is set aside
Section 42(1) of the Arbitration Act provides that an application for the recognition and enforcement of an arbitral award with a court of Thailand “within the period of three years as from the date on which an arbitral award is enforceable.” The Council of State had the chance to clarify the term “the date on which an arbitral award is enforceable” under section 42(1) of the Arbitration Act in case where an arbitral award is set aside.
The Council of State is a committee established in the executive branch under the Council of State Act, BE 2522 (1979) of Thailand, having the functions, among others, to give legal advice and opinions to a state agency. Although such advice and opinions do not carry any precedential value,in practice, courts normally take into account the rulings of the Council of State as a nonbinding interpretative guidance. Moreover, pursuant to the Council of Ministers Resolution dated 28 February 2482 (1939), in general, state agencies are directed to comply with the rulings of the Council of State.
In Council of State Ruling No. 1391/2565 (2022), Limited Partnership A and State University B entered into an education facility construction agreement; from which the arbitration ensued. In 2013, the arbitral award was issued requiring State University B to pay damages to Limited Partnership A. State University B successfully set aside the arbitral award before the Administrative Court of First Instance in 2015. Thereafter, Limited Partnership A appealed the court decision to the Supreme Administrative Court. In 2022, the Supreme Administrative Court reversed the decision and dismissed the application to set aside the arbitral award. Thereafter, State University B sought the opinion from the Council of State regarding the interpretation of the term “the date on which an arbitral award is enforceable” under section 42(1) of the Arbitration Act from which Limited Partnership A can file an application for the recognition and enforcement of the arbitral award.
In this regard, the Council of State ruled that the period when there was the ongoing setting aside case is not counted as the period when “an arbitral award is enforceable.” Therefore, the three-year limitation to seek the recognition and enforcement of an arbitral award was triggered as from the date the Supreme Administrative Court handed down the judgement dismissing the application to set aside the arbitral award — namely, the limitation was triggered as from 2022 onwards.
Two points worth mentioning in the Council of State Ruling No. 1391/2565 (2022) are the following. The first point is that the Council of State seemed to suggest that, when there was the ongoing setting aside case, the arbitral award could not be recognized and enforced. The second point is that, following such logic, the Council of State counted the three-year limitation anew as from the date the Supreme Administrative Court rendered its decision in 2022. Through this, it seems like the Council of State disregarded the period before the setting aside application was brought before the Administrative Court of First Instance. Please note that this interpretation is still subject to debate.
