Arbitration Update

The New Face Of Arbitration In Thailand

On 30 April 2002 a new Arbitration Act came into force in Thailand. The Thai Act is modelled on the UNCITRAL Model Law on International Commercial Arbitration. This is a substantial change from the existing legislation that was widely acknowledged as being somewhat quirky and outdated.

The Thai Act aims to promote arbitration as a means of resolving domestic and international commercial disputes, both for its own sake and in order to reduce the volume of cases filed with the Thai Courts. It applies to all arbitrations conducted in Thailand and also to proceedings in Thailand for the enforcement of domestic and international arbitration awards.

The key changes in the Act are:

1 An arbitration agreement with electronic signature (for instance, an exchange of emails) is enforceable. Under the previous legislation, the enforceability of such agreements was doubtful.

2 Disputes arising out of administrative contracts can be referred to arbitration. Administrative contracts under Thai law are contracts to which one party is a government agency and which are either concession contracts or contracts for the provision of public utilities or mining. In 2001 a specialised court (the Administrative Court) was set up to deal with disputes arising out of administrative contracts. There was then confusion over whether the Administrative Court had exclusive jurisdiction to deal with disputes arising out of administrative contracts, notwithstanding the presence of an arbitration agreement. The new Act makes it clear that arbitration agreements will apply and be enforced even in the context of administrative contracts.

3 Applications for injunctions and other interim measures may be made to a court prior to the commencement of arbitration proceedings. Previously a party was only able to make these applications once the arbitration had commenced. This meant that a party to an arbitration agreement who had not yet submitted the dispute to arbitration could not get emergency relief from the Court. Further, and also importantly, the new Act confirms that the parties may make these applications themselves. The previous legislation provided that only the arbitrators could apply to the Court for interim protection.

4 Once the Award has been issued a party may now apply to a Court within 90 days to have the Award set aside (on limited grounds). There was previously no provision for setting aside awards. The relevant provisions are in keeping with the Model Law (that is, they concern procedural issues rather than the substantive merits of the decision) but nevertheless critics of this change argue that it may be used to delay enforcement. It remains to be seen how often this procedure will be used as a tactical gambit to pre-empt or defer enforcement proceedings by attempting to have the matter subjected to lengthy processes of review in the Thai Courts.

5 The distinction between foreign and domestic arbitration awards has been eliminated in the context of enforcement. The grounds for refusing to enforce an arbitration award and the grounds for appeal against a court order enforcing an arbitration award are now the same, irrespective of whether the award was obtained in Thailand or elsewhere. The relevant grounds are essentially those set out in Article V of the New York Convention – that is, they are again concerned with procedural issues rather than the substantive merits of the decision.

6 Finally, the period within which a party can bring a court action to enforce an arbitration award has been extended from 1 year to 3 years from the date that the award was issued.

There are several other more technical changes that are also generally beneficial to the progress of arbitration in Thailand. However, some parts of the new Act are less satisfactory, in particular the transitional provisions and the possibilities for abuse inherent in the section imposing civil and criminal liability on arbitrators in certain circumstances.

These changes are part of a push by the Thai government to promote arbitration in Thailand as an efficient and commercially viable option for resolving both international and domestic disputes. Other measures being taken to improve the quality of arbitration in Thailand include educational programmes and seminars for the judiciary to explain how arbitration works and the benefits that it offers.

Similarly, Thailand’s main body for administering arbitration proceedings – the Thai Arbitration Institute (TAI) – is taking steps to improve the standard and quality of its arbitrators by encouraging their ongoing education and exposure to arbitration practices in other countries through, for example, attendance at international conferences on arbitration. The TAI is also in the process of revising and updating its rules and upgrading its facilities with the objective of becoming a more competitive and attractive forum for arbitration proceedings.

The new Act will undoubtedly help Thailand towards its goal of "developing an arbitration system… to rival those of other countries." However, achieving this objective will ultimately depend on the willingness of the Thai government and the judiciary to abide by not only the letter but also the spirit of the new Act. This is particularly the case when it comes to the enforcement of awards.

Judges will need to be much more vigilant in guarding against the abuse of court processes to delay and even prevent enforcement. Cases will need to be managed much more effectively to keep costs (in time and money) to a minimum. In particular, the Court needs to make it clear that it will not entertain groundless challenges to enforcement, nor permit challenges to become full rehearings on the merits.

Positive signals from the government appeared about a year ago with the enactment of a Regulation of the Office of the Prime Minister apparently requiring public bodies to comply with arbitration awards. According to the Regulation, a government entity intending not to comply with an arbitration award issued against it must first refer the matter to a special Committee for its review and final decision. This procedure is designed to inject a degree of objectivity into the way that the government deals with adverse awards and will hopefully ensure that decisions regarding compliance and non-compliance with arbitration awards are made by those with appropriate expertise.

It was therefore unfortunate that these efforts to build confidence in arbitration in Thailand were undermined more recently by the government’s refusal to comply with a substantial award made against it in favour of the joint venture constructing the Bang Na – Chon Buri expressway. It may be that the stance taken by the government in this case is justified given the rather peculiar facts of the case (in particular, the circumstances surrounding the making of the underlying contract). However, there is no doubt that news of the government’s refusal to comply with the award has adversely affected the image of Thai arbitration in local and international circles.

The new Act brings long overdue and welcome changes to the face of arbitration in Thailand. We are yet to see what effect it will have in practice for parties arbitrating in this country. It is hoped that the Act will be implemented with vision and commitment and that the arbitral process will consequently become much cheaper, quicker and more certain. All signs are that this is the goal that Thailand has set itself. Certainly, if Thailand wants to become a serious player in the business of arbitration, this is what it must achieve.

The Commercial Court recently (18 October 2002) had to deal with the question of the validity of an enforcement order in respect of a foreign arbitral award. The parties named in an award differed from those referred to in the enforcement order. The case involved an agreement governing the development of a terminal in the Ukraine and which regulated the relationship between the various owners. A dispute between the owners arose and Norsk Hydro claimed that it had been wrongly expelled from the joint venture; that, effectively, its interest in the terminal had been expropriated.

The agreement was to be governed by and construed in accordance with the substantive laws of Sweden. It also provided that any dispute arising out of or in connection with the agreement was to be resolved by arbitration under the UNCITRAL Arbitration Rules. The Stockholm Chamber of Commerce was to be the appointing authority for the three arbitrators, and the seat of the arbitration was also to be in Stockholm.

One of the parties referred to in the agreement as an "owner" was the "State Property Fund of Ukraine, being an agency of the Government of Ukraine". However, in the Request for Arbitration, the first Respondent was referred to as "Republic of Ukraine, represented through the State Property Fund of Ukraine." There was no issue as to sovereign or diplomatic immunity, this having been waived, and there was also no issue as to the contractual capacity of the parties. Throughout the arbitration, the first Respondent did not participate, save to contest jurisdiction on the ground of a signature point. However, all communications to it were sent to the address of the State Property Fund.

Norsk Hydro requested the Tribunal to find that the Respondents were in breach of the agreement and that they should pay, jointly and severally, US$21.26 million plus interest from the date of the award. The Tribunal, finding that it had jurisdiction to hear the claim and that the agreement was valid, ruled that "the Republic of Ukraine, through the State Property Fund" (and one other Respondent – Concern Primorsky) were in breach of the agreement. An award in the sum of US$16 million plus interest was made in favour of Norsk Hydro.

The award remained unsatisfied. Despite various negotiations, Norsk Hydro was unable to resolve the matter. Consequently, an application was made to the English Courts in 2002 for permission to enforce the award against the Respondents. The Respondents to this application were (1) State Property Fund of Ukraine (2) Republic of Ukraine, and (3) Concern Primorsky. Such permission was granted, although the Respondents were allowed 21 days from service of the order to apply to have it set aside. The order was served through diplomatic channels on the Ukraine on 24 July 2002. Consequently, all that remained for Norsk Hydro to do was enforce the judgment through the normal routes.

To this end, Deutsche Bank AG in London were principal paying agents for the Republic of Ukraine in respect of its debt commitments through bond issues. On the basis that it was being funded by Ukraine in London, and that sums held by Deutsche to the credit of Republic of Ukraine would constitute a debt capable of being attached for the purposes of CPR Part 72, Norsk Hydro sought and obtained, without notice, an interim third party debt order.

Subsequently, Ukraine applied to have the orders made by the English Courts set aside on the basis that, inter alia, the agreement giving rise to the proceeding was entered into by the State Property Fund only, as principal, and not as agent for the Republic of Ukraine and that the Republic of Ukraine was not a party to an arbitration agreement in writing, and the Court had no jurisdiction to enter judgment against it in respect of the purported arbitration award.

The issue came before Mr Justice Gross in the Commercial Court. The Judge concluded that the first order could not stand because the relevant Respondent to the award was the "Republic of Ukraine, through the State Property Fund of Ukraine", whereas the order purported to enforce the award against the "State Property Fund of Ukraine" and the "Republic of Ukraine" as separate entities. He held that the Court had no jurisdiction to make such an order. He referred to section 100 of the Arbitration Act 1996 providing for the recognition and enforcement of New York Convention awards. This involved an important policy interest, reflected in the UK’s treaty obligations, in ensuring the effective and speedy enforcement of such international arbitration awards. As a result, the task of the enforcing court should be as "mechanistic" as possible. Subject to the various grounds on which enforcement of a New York Convention Award may be refused (sections 102 to 103 of the Arbitration Act 1996), the enforcing Court is neither entitled nor bound to go behind the award in question or to explore the reasons or the intention of the tribunal. The proper approach was to seek enforcement of an award in accordance with the terms of that award.

On the second order, the Judge explained that, pursuant to section 12 (2) of the State Immunity Act 1978, two-months had to be added to the 21-day period expressly provided for in the first order. Since the enforcement of the award had actually been sought by way of the second order prior to the expiry of the two-month plus 21-day period, this order was premature and was also set aside.

This is an important decision because it clarifies that when seeking to enforce an award against a single party, it is not possible to enforce it against two separate and distinct parties. Moreover, an order by a Court providing for enforcement of an arbitral award had to follow the award. The Court confirmed that:

"no doubt, true ‘slips’ and changes of name can be accommodated; suffice to say, that is not the case. Here it is sought to enforce an award made against a single party, against two separate and distinct parties. To proceed in such a fashion, necessarily requires the enforcing Court to stray into the arena of a substantive reasoning and intentions of the Arbitration Tribunal".

Clearly, the courts are not prepared to re-write an award, and the concept of the slip rule in enforcement proceedings, to the extent to which it exists at all, is quite narrow. This decision is a cautionary note for applicants seeking to enforce an award to frame any such application to reflect the precise terms of the award.

A Commercial Court decision which will have relevance to international arbitrations with their seat in England or Wales. Mr Justice Aikens considered the application of section 69 of the Arbitration Act 1996 in relation to appeals from arbitration awards. The decision clarifies the position in relation to the application of English law principles in proceedings where the dispute is to be determined under foreign law.

Three companies, Reliance Industries Limited ("Reliance"), Enron Oil & Gas India Limited ("Enron") and Oil & Natural Gas Corporation Limited were parties to arbitration proceedings concerning the operation of two offshore oil and gas fields on India’s continental shelf. Enron was appointed Operator of the fields under two Joint Operating Agreements ("JOAs"). Disputes had arisen under the JOAs in relation to the construction of the accounting provisions of the JOAs, in particular, regarding procedures relating to the making and paying of cash calls and the raising of Authorisations for Expenditure. The JOAs provided that they should be "construed, interpreted and applied in accordance with the laws of India." The JOAs also contained arbitration agreements which provided that disputes should be submitted to arbitration under the UNCITRAL rules. The arbitration agreements were governed by English law and the seat of any arbitration was to be in London.

In order to resolve the disputes that had arisen between the parties, Enron referred the disputes to arbitration. The tribunal ordered that preliminary issues on construction of the JOAs should be heard. At the hearing, it was common ground between the parties that for the purpose of construing and interpreting the provisions of the JOAs there was no difference between English and Indian law and that the principles of construction set out by Lord Hoffman in the recent cases of Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896 and Bank of Credit & Commerce International SA v Ali and Others [2001] 2 WLR 735 were authoritative. Following the hearing, the tribunal made two Partial Awards on the preliminary issues of construction.

Reliance sought leave from the Commercial Court to appeal the Partial Awards on questions of law, under section 69(1) of the Arbitration Act 1996 (the Act). Section 82(1) of the Act defines a "question of law" as "a question of the law of England and Wales." It was, therefore, necessary for Mr Justice Aikens to make a decision on the threshold question of whether a question on the law of England and Wales arose in the construction of the JOAs, before the application for leave could be considered on its merits.

Reliance submitted that none of the parties at the arbitration hearing had adducedevidence or argument on the principles of Indian law governing the questions of construction before the tribunal. Therefore, the tribunal was entitled to apply English law. Reliance argued that, because the tribunal had proceeded on the basis that English law was for all practical purposes the same as Indian law, it had therefore applied English law principles.

Enron submitted that all of the questions raised in the appeal were questions of construction of the JOAs and so were questions of Indian law because the JOAs were governed by Indian law. As the parties agreed that Indian law applied and the parties had not agreed to vary the contract terms (either before the disputes arose or subsequently in the arbitral process), the tribunal had to apply Indian law to construe the contract. Although it had been agreed that Indian and English law principles of construction were the same, the tribunal had applied Indian law. Enron submitted that the correct analysis was that the tribunal had accepted that English law on construction could be considered to discover the correct principles of construction according to Indian law, but that those principles had been adopted as a matter of Indian law.

Mr Justice Aikens did not accept Reliance’s submissions. He noted that the parties had agreed that Indian law governed the JOAs but that in drafting the JOAs they had been careful to ensure that English law would be the procedural law applicable to any arbitral proceedings that were commenced. Consequently, if and when disputes were referred to arbitration under the JOAs, as a matter of English law (the procedural law), the tribunal had to decide those disputes in accordance with the proper law of the JOAs chosen by the parties, i.e. Indian law. The Judge found that, in the circumstances, the "It was, therefore, necessary for Mr Justice Aikens to make a decision on the threshold question of whether a question of the law of England and Wales arose in the construction of the JOAs" parties had agreed that principles of construction under Indian law equated with those under English law. The tribunal took those principles and applied them as principles of Indian law, in order to construe the JOAs. This is what the tribunal was required to do under English law which governed the procedure of the arbitration.

Therefore he refused to grant leave to appeal the Partial Awards on the grounds that no question of the law of England and Wales arose and so the English Courts did not have the jurisdiction to grant leave under section 69 of the Act.

This case clarifies the position in relation to the availability of appeals to the Commercial Court under section 69 of the Act. This has important implications where the common approach in international arbitrations with their seat in London of applying English law principles without the need for evidence or submissions on the foreign law which governs the dispute is adopted. Mr Justice Aikens’ decision establishes that in these circumstances, the application of English law principles by the tribunal will not make the award subject to appeal on the basis that they concern questions of the law of England and Wales. The decision will be welcomed by the arbitration community in London as promoting commercial certainty and a benign climate for parties to agree on London as a seat for international arbitrations.

This decision clearly indicates that parties must consider the importance of applicable law to govern the substance of their relations when drafting their contract.

The Committee on Hong Kong Arbitration Law recently produced its draft Report on proposed reform of the Hong Kong Arbitration Ordinance. It has long been recognised that the Arbitration Ordinance, which is based on the now-repealed English Arbitration Acts 1950 – 1979, required updating and presenting in a user-friendly format. The central proposal is to replace the current legislation with a new Arbitration Ordinance, which will be more closely based upon the UNCITRAL Model Law, and which will abolish the present distinction between domestic and international arbitrations. The Draft Report also recommends that:

• a term should be implied into all arbitration agreements that any arbitration proceedings should be confidential

• there should be a general duty on parties to the arbitration to progress the arbitration and comply with orders and directions of the tribunal

• tribunals should have the power to impose sanctions in the event of non-compliance

• parties should be given a "full" as opposed to a "reasonable" opportunity to present their cases

• payments into Court by parties to arbitration should be abolished

• the right of parties to challenge an arbitrator on grounds of serious irregularity or misconduct should be abolished

• provisions permitting parties to consolidate related arbitrations, to appeal to the Court on a point of law, or to refer a preliminary question of law to the Court for determination should be available on an "opt-in" basis only.

The draft Report is currently at the consultation stage, following which the Committee’s final recommendations for the new Arbitration Ordinance will be referred to the Secretary of Justice with a view to their becoming law.

In a recent decision WSG Nimbus Pte Ltd v Board of Control for Cricket in Sri Lanka the Singapore High Court confirmed that an arbitration agreement which provided that the parties had a right to elect to submit a dispute to arbitration was a valid arbitration agreement in accordance with the provisions of Section 2(1) Singapore International Arbitration Act. Essentially this is an agreement in writing in accordance with Article 7 of the UNCITRAL Model Law. The Court noted that although the arbitration agreement did not provide for compulsory arbitration, once the option was exercised arbitration became the mandatory dispute resolution mechanism. The Court also dismissed the argument that the plaintiffs in the Colombo High Court proceedings had accepted its jurisdiction and were therefore stopped from relying on the arbitration

agreement. The Court accepted the plaintiffs’ argument that the only action they had taken in respect of the court proceedings was to file a motion to object to its jurisdiction.

The tribunal rendered their award on jurisdiction in the UPS v Canada case. Canada argued that the issues raised by UPS, anti-competitive behaviour and its regulation and control, were not covered by the terms of NAFTA. The Tribunal reviewed the matter and struck out some of the heads of claim submitted by UPS. However, this will not adversely affect the case being argued by UPS. The main point of interest in the award on jurisdiction is the review of Article 1105 NAFTA, Minimum Standard of Treatment. This is the third decision on the scope of this provision since the Free Trade Commission issued its Statement on the interpretation of Article 1105. All of the tribunals (Pope & Talbot and Mondev) have endorsed the government’s interpretation that the article only prescribes the customary international law minimum standard of treatment of aliens. This is in contrast to the wider concept of treatment in accordance with international law referred to in the provision itself. The Tribunal found that there was no customary international law with regard to anticompetitive behaviour and declined jurisdiction for any claim based on Article 1105 accordingly.

Iran is reviewing the possibility of involvement in the work of the Energy Charter. The Energy Charter is an inter-government organisation whose primary aim is to promote energy cooperation between the 51 signatories of the Energy Charter Treaty. The Secretary General of the Energy Charter secretariat discussed this possibility at the invitation of the Iranian Government during a recent visit to Tehran. Although the Energy Charter Treaty has members from all across Europe, Eastern Europe, and former CIS countries, with China having observer status at the secretariat, there are no Middle Eastern oil producing states that have yet participated in the process. Iran's interest could be an important and interesting development in this regard.

© Herbert Smith 2003