A. LEGISLATION AND RULES
A.1 Legislation
International arbitration in Thailand continues to be governed by the Arbitration Act, B.E. 2545 (2002) (“Act“), the major provisions of which have remained unchanged since its enactment.
A.2 Institutions, rules and infrastructure
On 1 September 2023, the Thai Arbitration Institute (TAI) announced an amendment to the Office of Judiciary Regulation on Arbitration Rules of TAI (“TAI Rules“), which applies to TAI arbitrations commencing from 1 September 2023 onwards. Parties that commenced TAI arbitrations before 1 September 2023 may also agree to adopt this latest version of TAI Rules.
Among others, there are three amendments to TAI Rules that showcase TAI’s eagerness to escalate its services to conform to practices adopted worldwide. These three amendments are as follows:
- Article 10 paragraph 3 of TAI Rules is added to address cases in which the language of arbitration is neither Thai nor English. In such cases, when submitting a statement of claim, a statement of defense, a counterclaim or an answer to a counterclaim in such foreign language, the party is also further required to submit a translation in Thai.
- Article 33/1 of TAI Rules introduces the procedure of witness conferencing or hot-tubbing by empowering an arbitral tribunal to order expert witnesses from each party to give their evidence concurrently for simultaneous questioning and discussion on key issues.
- Article 57 of TAI Rules deals with cost allocation. It is amended to include further clarification as to how an arbitral tribunal allocates costs. Firstly, Article 57 paragraph 1 of TAI Rules specifies the factors upon which an arbitral tribunal may rely in making cost allocation. These factors are (a) attempt to carry out arbitral proceedings with speed and efficiency, (b) circumstance and good faith in arbitral proceedings, (c) complexity of the case, (d) duration of arbitral proceedings and (e) expertise. Secondly, the last limb of Article 57 paragraph 1 of TAI Rules provides that, where no cost allocation is made, each party will equally bear costs. Thirdly, where a party has deposited security for expenses, fees and arbitrator’s fees (in lieu of another party), and, in the end, an arbitral tribunal order that such party is entitled to the compensation for such costs, Article 57 paragraph 2 of TAI Rules also provides an arbitral tribunal with a power to specify interests for such compensation.
B. CASES
B.1 Supreme Administrative Court Decision No. 672/2566 (2023)
The Thai legal system adopts a dual-court approach whereby the administrative courts[1] are established, in addition to the courts of justice, to adjudicate administrative disputes exclusively. Such administrative disputes include the annulment and enforcement of arbitral awards related to administrative contract disputes.[2] When engaged in such arbitration-related cases, the administrative courts apply the Act in combination with the general principles of administrative laws.
It should be noted that the Act contains a slight difference in terms of wording from the New York Convention and the UNCITRAL Model Law when it comes to setting aside proceedings on the “public policy” grounds. Namely, the Act provides the arguably broader term, i.e., “public order and good moral”, rather than the term “public policy”, as stated in the New York Convention and the UNCITRAL Model Law. No clear legislative intent behind such variation is provided. This has invited persistent debate concerning the extent to which the administrative courts may undertake the judicial review over an arbitral award through such grounds.
In Supreme Administrative Court Decision No. 672/2566 (2023), the Supreme Administrative Court laid down the meticulous explanation of the term “public order and good moral.” In this case, State Enterprise M entered into a contract with Company O for the construction of the handholes and conduit pipes for the substation. This contract provides for an arbitration clause opting for TAI. Later, a dispute arose as to State Enterprise M’s failure to make the payment and to return the bank guarantee letter. As such, Company O commenced the TAI arbitration and obtained a favorable arbitral award. Needless to say, State Enterprise M moved to set aside the arbitral award at the Central Administrative Court, while Company O cross-petitioned to enforce it. The Central Administrative Court dismissed State Enterprise M’s petition to set aside the arbitral award and granted the enforcement for Company O. State Enterprise M then appealed the Central Administrative Court’s decision to the Supreme Administrative Court.
However, pursuant to Section 45 paragraph 1 of the Act, an appeal against a court’s decision is allowed only on limited grounds, one of which is that the enforcement of an arbitral award will be contrary to “public order and good moral.” It is in this context where the Supreme Administrative Court had to decide whether State Enterprise M’s appeal against the Central Administrative Court’s decision falls under such ground.
Here, the Supreme Administrative Court began by noting that the term “public order and good moral” under the Act has a different meaning from that in other legislations, for instance, the Civil and Commercial Code (CCC) and Civil Procedures Code. This is because the spirit of the Act is distinct: to limit the curial intervention in the context of arbitration as much as possible. With this in mind, the term “public order and good moral” must not be exploited by a losing party in arbitration proceedings to assail an unfavorable arbitral award by relitigating the merits of the case before a court. For the violation of “public order and good moral” to be established, it must be shown that an arbitral award is based upon facts or legal applications that affect (a) the fundamental legal system or (b) common sense relating to fairness. The Supreme Administrative Court gave examples of such circumstances as follows: (a) an arbitral award in which a party is ordered to perform its obligations relating to the sale of narcotic drugs or (b) an arbitral award in which a party is ordered to perform its obligations based on the contract obtained by corruption. None of these, the Supreme Administrative Court said, appears in the concerned case because the arguments put forth by State Enterprise M are merely against the arbitral tribunal’s discretion in the interpretation of the contract. Thus, the appeal was rejected.
Arguably, this case signals the attitude of the Supreme Administrative Court toward a noninterventionist approach to arbitration awards. Now, in line with the spirit of the Act and international approaches, a losing party in arbitration proceedings will find it difficult to get a second bite of the cherry before the administrative courts. However, the concrete application of the test laid down in this case remains to be observed in the future.
B.2 Supreme Court Decision No. 1901/2566 (2023)
Similar to what was discussed above, the Supreme Court has taken the noninterventionist approach to review the merits of cases for years. A clear example is Supreme Court Decision No. 5560-5563/2562 (2019), in which the Supreme Court held that the term “public order and good moral” relates to the consideration of the protection of public benefits, public services or the common good. Such a term does not encompass the private benefits of parties to arbitration proceedings.
Be that as it may, the Supreme Court has hinted that the issue relating to the limitation is likely to concern “public order and good moral” on which a court may reopen and revisit an arbitral tribunal’s ruling. The Supreme Court confirmed this position again in Supreme Court Decision No. 1901/2566 (2023). In this case, the dispute stemmed from the death of Ms. W in a car accident on 15 January 2018. Ms. W had two children (“Children“) who were minors at the time. On 23 April 2019, Ms. S was appointed by the court as a guardian of the Children. Later, on 28 January 2020, Ms. S, on behalf of the Children, commenced arbitration against Company O, an insurance company, under the auspices and the arbitration rules of the Office of Insurance Commission (OIC), seeking compensation for the death of Ms. W under the relevant insurance policy. In the arbitration proceedings, Company O argued, among others, that the claim is time-barred under Section 882 paragraph 1 of CCC, which requires that the action for the payment of compensations under an insurance policy be entered no later than two years from the date of loss. In this regard, Company C argued that Ms. S commenced the arbitration on 28 January 2020, which was beyond two years from the date of loss on 15 January 2018. The arbitral tribunal found for Company O and dismissed the claim. Ms. S then moved to set aside the arbitral award on behalf of the Children. As expected, central to her claim was the argument that the arbitral tribunal’s ruling on the limitation violates “public order and good moral.”
Seized with this question, the Civil Court (as the court of first instance) and the Supreme Court concurred with Ms. S that the arbitral tribunal was in error in ruling that the claim was time-barred, and thus the enforcement of the arbitral award would violate “public order and good moral.” Here, the Supreme Court turned to Section 193/20 of CCC, which, in summary, extends the limitation of a claim for a minor for one year from the date such a minor has a legal representative. In the view of the Supreme Court, Section 193/20 of CCC applies to this case. Therefore, the proper limitation for Ms. S to commence the arbitration is one year from 23 April 2019, which is the date on which Ms. S was appointed by the court as a guardian of the Children. This means that the limitation continued to run until 23 April 2020. As such, the claim brought by Ms. S on 28 January 2020 was not time-barred. The Supreme Court simply said that the misapplication of the law causes the arbitral award to violate “public order and good moral.”
This case should alert all parties to arbitrations involving Thai laws because the misapplication of the law on the limitation may pose the risk of a losing party reopening this issue once again before a Thai court.
B.3 Supreme Court Decision No. 2050/2566 (2023)
Another example of how the “public order and good moral” ground is applied to set aside an arbitral award is found in Supreme Court Decision No. 2050/2566 (2023). This case concerns the land sale and purchase agreement between Mr. D, as a buyer, and Company L, as a seller. Company L agreed to transfer the lands and buildings to Mr. D.[3] The key terms relevant to our discussion are: (a) Company L will grant a loan of THB 9.8 million to Mr. D and (b) Mr. D will sign a loan payment security contract with Company L.
After the contract was executed, the lands were transferred to Mr. D. The remaining issues were the buildings. Company L then requested Mr. D to sign a loan payment security contract. However, Mr. D refused such a request. As such, Company L proceeded to transfer the buildings to Ms. O (“Transaction“), who is a former director of Company L. This led to Mr. D commencing the TAI arbitration against Company L, requesting, among others, that the remaining buildings be transferred to Mr. D. In retaliation, Company L submitted the counterclaim, seeking, among others, the return of the loan of THB 9.8 million with statutory interests. The arbitral tribunal found for Company L. However, the arbitral tribunal issued the arbitral award (with the supplementary order), among others, (a) requiring Mr. D to sign a loan payment security contract with Company L and (b) revoking the Transaction so that the buildings are reinstated to Company L’s ownership. Mr. D moved to set aside the arbitral award.
The Supreme Court viewed that the arbitral award violated the “public order and good moral” ground. Here, the Supreme Court analyzed two parts of the arbitral award separately. The first analysis focused on the requirement for Mr. D to sign a loan payment security contract with Company L. The Supreme Court viewed this part of the arbitral award as ultra petita and in violation of Section 37 paragraph 2 of the Act, which prohibits an arbitral award from addressing matters beyond the scope of the arbitration agreement and the parties’ submissions. This is because, in its counterclaim, Company L only requested the return of the loan of THB 9.8 million with statutory interests. It did not request to have Mr. D sign a loan payment security contract with Company L. The second analysis revolved around the revocation of the Transaction so that the buildings are reinstated to Company L’s ownership. Here, the Supreme Court made clear that, although Ms. O is a former director of Company L, they are different juridical persons. In addition, Ms. O is not a party to the arbitration proceedings. Therefore, the arbitral award in this part, which purports to give effect to a nonparty, is unenforceable.
This case is quite rare in the sense that, normally, an arbitral award deals only with parties to arbitration proceedings and is confined to the prayers for relief. Yet, this is another example that the violation of certain procedural requirements may amount to the violation of the “public order and good moral” ground.
[1] The administrative courts have two instances: the Administrative Court of First Instance and the Supreme Administrative Court.
[2] Without going into too much detail, an administrative contract is exemplified in Section 3 of the Establishment of Administrative Courts and Administrative Court Procedures Act, B.E. 2542 (1999) as a contract (a) in which at least one party is an administrative agency or a person acting on behalf of the state and (b) of which the essence relates to concession, provision of public services, construction of public works or exploitation of natural resources. The General Assembly of Judges of Supreme Administrative Court further passed Resolution No. 6/2544 (2001) to include a contract that allows a private party to directly engage in the provision of public services and a contract that contains a clause exorbitante as additional examples.
[3] In fact, aside from Mr. D, there were three other relevant companies appointed by Mr. D that were to obtain the properties. However, to simplify the story, we are only mentioning Mr. D. Despite this, the essence of the case remains unchanged.
