Would a sane person arbitrate in Thailand with the Thai government?By Bangkok Pundit Jul 28, 2011 8:30AM UTC
What is the past history of foreign companies and arbitration with the Thai government? Foreign companies win, but then the Thai Court throws out the case.
The Supreme Court on Wednesday reversed a lower court verdict against the Government Lottery Office, saying the GLO does not have to pay 2.5 billion baht compensation plus interest to Jaco Co.
In December 2000, arbitrators awarded 2.5 billion baht in damages to Jaco Co for losses incurred due to the cancellation of the contract.
The Civil Court in 2004, on the advice of the arbitrators, awarded the company 2.5 billion baht in damages.
Jaco then petitioned the Supreme Court to order the GLO to pay the 2.5 billion baht damages plus 7.5 per cent per year interest retroactively from Jan 4, 2000.
The GLO appealed the verdict. It said the contract to award the project to Jaco violated Article 5 of the 1992 law on private investment in government projects, which requires projects in which investment exceeds one billion baht to get prior approval from the cabinet.
The court ruled that the project did not get required approval from the cabinet, making the contract invalid.
Therefore, the court ruled today, the GLO is not required to pay the 2.5 billion baht in damages to Jaco.
As BP commented then:
GLO makes contract then breaks the contract then states well we the contract was not approved properly. Tthis is not to say the court was wrong, but just to point out that entering into contracts with the Thai government is a very risky business.
A reader points to another case, this time involving a German company. DPA:
The Supreme Court Thursday ruled in favour of the state-owned Expressway and Rapid Transit Authority of Thailand (ETA) in its dispute with BBCD consortium, that includes Thailand’s Ch Karnchang and Germany’s Bilfinger Berger…
An arbitration committee and civil court had both ruled in favour of the contractor in seeking compensation of 6.2 billion baht for delays caused in construction by the ETA’s problems in purchasing land for the project.
The Supreme Court, however, ruled that former ETA governor Siwa Charoenphan had unlawfully signed a contract with BBCD to build the expressway so the ETA was not bound to pay any compensation resulting from the contract.
“This contract was signed 12 years ago, so it’s funny they just discover the ex-ETA govvernor didn’t have the authority to sign it,” said one German businessman who asked to remain anonymous.”
BP: One wonders whether a company could pull the same trick. For example, the CEO signs the contract with the Thai government, Thai government spends billions of baht to acquire land and spends other money in order to fulfill their side of the contract then the company later doesn’t fulfill their side of the contract and says ‘hey, the CEO didn’t get board approval so did not have the capacity to bind the company so screw you suckers’…..
Hence, one understands why a foreign company would want to go to international arbitration. Just briefly want to touch on the Steyr firetruck case and the mention of inflated prices when dealing with the Thai government. As blogged previously:
So would you charge the Thai government with the risk that one day the contract may be cancelled the same as you would charge the private sector or say the Singapore government? Factor in that you may not get paid and that you may face criminal charges – in that instance, the price is said to be inflated about 40 percent, which if correct, doesn’t seem like an unreasonable risk premium given all the risks involved. In essence, what risk premium would you add to your products if you were doing business with the Thai government? Shouldn’t we be considering this whether the price is inflated?
If the basis for cancelling the purchase of any good is that the price is inflated then are there any purchases which don’t fit in this category?
BP: In fact, what sane person would enter into a contract with the Thai government without inflating their price, demand partial payment upfront, and then never step foot in Thailand in case one is immediately checked into the Bangkok Hilton for a long stay…..
Hence, aside from possible legal or contractual problems with Walter Bau proceeding with arbitration in Thailand, as the above shows why even bother?
btw, in case you are wondering why the repeated posts over arbitration and minimum wages. Simply put, it takes time to research certain topics and also well over time as one gains more knowledge about topics and it doesn’t take much time to write a new post about a topic that BP has blogged about repeatedly before.