Dispute Resolution
Hughes Krupica operates a small but efficient arbitration practice designed to assist primarily in disputes involving Thai and foreign entities. We have assisted both claimants and respondents in over 25 cases with on the whole ‘successful’ settlements or outcomes of proceedings when the merits of the case have been favourable to our clients.
The terms of appointment of an arbitrator will typically include
1. Description of the dispute to be resolved
2. confirmation of the arbitrator’s jurisdiction
3. reference to the arbitration agreement under which the arbitrator is to be appointed
4. a declaration of independence and impartiality
5. statement of availability
6. the basis of remuneration and arrangements for payments of fees and expenses on account.
The terms of remuneration may be
(i) fixed fee
(ii) hourly rates for time spent
(iii) based on a % of the value of the dispute
(iv) a mixture of the above
The arbitrator should also include provision for a cancellation fee and make arrangements for payment in the event the matter settles before a final award is given.
1. The fees of the institute
2. The fees of the legal counsel representing the parties
3. The fees of the arbitrator(s)
4. The expenses of the institute – venue and facilities per hearing including food and beverage
5. The expenses of the arbitrators, which may include travel, accommodation, food and other out of pocket expenses subject to the terms of remuneration
6. The cost of experts for the hearings
7. Post award, the legal costs of enforcing or defending enforcement proceedings
Arbitrators who are appointed through an institution may be subject to a fixed scale of fees depending on the value of the dispute and other criteria. However, there may also be some flexibility on the arbitrators fees and the arbitrators may offer lower fees than the maximum scale rates.
In professionally managed institutions, the arbitrators fees will be paid through an advance payment process whereby the parties pay the institute the advance. The arbitrators are then paid by the institute. The terms of remuneration may in certain jurisdictions first be agreed by the appointing party, but later they should be disclosed and all parties should ideally be asked to agree a final document setting out all terms.
The parties will be jointly and severally liable for the fees, and if under the contract, rules and applicable law the costs of the arbitration are awarded to a party in part or in whole, then the other party must meet those costs including the costs of the arbitrator not appointed by that party. During proceedings, the arbitrators will ensure that they have fees on account and if they have drafted their terms of appointment properly, they can cease their works or delay issuance of a final award until their fees are paid.
This depends on the rules of the relevant institute. However, the parties can still agree to determine the number of arbitrators between themselves, but if they fail to agree, the default number under the applicable law and rules will apply. There will generally always be an odd number of arbitrators. For complex arbitrations, there may be a larger panel of arbitrators such as investor-state disputes.
Generally, it would be highly unusual to challenge the arbitrator you selected, but it can happen if circumstances arise under which it would be appropriate to challenge the independence, impartiality or fulfilment of obligations of the arbitrator.
More common are challenges of arbitrators appointed by the other party(res) to an arbitration. Unfortunately, many challenges are strategic and spurious, and such challenges can give rise to delays in the appointment process.
The normal grounds for challenging an arbitrator are lack of independence and impartiality. Parties often research the background of an arbitrator they wish to challenge to see if they can find any links between the arbitrator and the parties involved or even if an arbitrator has published articles on the topic in dispute.
Arbitrators are subject to disclosure requirements and duties to analyse their own independence. They also must preserve their reputation in order to potentially be appointed for future arbitrations.
There are no specific requirements for the qualifications of an arbitrator.
Choosing an arbitrator is tantamount to choosing a ‘judge’. Those not familiar with arbitration may mistakenly believe that by choosing an arbitrator, the arbitrator somehow owes a duty only to the party choosing the arbitrator.
In fact, the arbitrator must be and remain independent and impartial. This is a fundamental principle of arbitration and the arbitrator’s duty.
Aside from that, the qualifications of an arbitrator can vary considerably. Some parties like to choose arbitrators who have a long list of arbitrations to their name and are very senior. Others like to choose an arbitrators of a particular background or nationality. Sometimes an arbitrator may be chosen due to possession of expert knowledge in a particular field or trade.
Many corporations in dispute choosing an arbitrator will look at the formal qualifications and affiliations of an arbitrator to assess credibility and experience. They will look at which institutions the arbitrator is associated with, and whether an arbitrator has undergone any formal training.
There are many institutions which deliver formal training, one of them being the Chartered Institute of Arbitrators (CIArb). CIArb has branches across the globe.
There are currently two main arbitration institutes in Thailand – the Thai Arbitration Institute (“TAI”) and the newer Thai Arbitration Centre (“THAC”), noting that an International Chamber of Commerce ("ICC") arbitration can also take place in Thailand, at a suitable venue, and subject to supervision of procedure and rules by the ICC Court. There is also the Office of the Arbitration Tribunal of the Board of Trade of Thailand.
In order to assess which institute is preferable, an analysis of the arbitrators on the ‘panel’ of arbitrations available to administer a dispute should be reviewed. Further, the style and manner in which an institute oversees a dispute, and the costs involved should be assessed. The parties may also be free to appoint an ‘external’ arbitrator to the panel but with the arbitration to be administered through the institute. The facilities of the institute should be reviewed for appropriateness, and then the rules issued by the relevant institute will also be an important factor in proceedings.
It is also acceptable for the parties to choose a non-Thai institute to govern a dispute that arises in Thailand, is governed by Thai law, where the parties have agreed the dispute forum will be arbitration and the subject matter is capable of being arbitrated. Some disputes cannot be arbitrated as a matter of public policy or national law.
The considerations for an adviser assisting you with this clause will be:
The location of the parties
The location of the subject matter of the agreement
If the subject matter involves trade across borders, a neutral place where a dispute can be heard
Enforceability of the agreement against assets of the parties in their jurisdictions
The appropriate arbitration institution for the dispute which could be the ICC; a local arbitration institute in a neutral jurisdiction or a trade body
The rules to be applied to the arbitration – these generally speaking should be the rules of the institution chosen, as choosing rules that an institution doesn’t generally administer can be problematic
The law which will govern the arbitration. This is different to the law governing the contract. the procedural law governing the arbitration is the law which governs how the arbitration must be conducted and is generally the law of the place where the institution conducts the arbitration. To avoid doubt, this should be stipulated in the arbitration clause or arbitration agreement.
The venue of hearings. Many rules actually state that the arbitration tribunal will choose the venue of the hearings, so stipulating where the hearings will be can be subject to change. The place of hearings should not be confused with the meaning of the ‘place of arbitration’ which is where the proceedings are deemed to be governed by a body of law. The hearings need not be in the same place at all.
whether legal costs and other costs should be awarded as part of an arbitration award. In some jurisdictions, if you do not specify that legal costs should be awarded, then national legislation dictates that no legal costs will be recoverable. This is a serious matter as it is often only worth pursuing a dispute if there is a strong possibility of recovering costs including legal costs.
How many arbitrators there will be. It is expedient and normal to have an odd number of arbitrators. Some jurisdictions only allow an odd number.
If any expedited procedures can be used. Some institutions offer expedited procedures for smaller value disputes. If the parties agree to use such procedures this can be very helpful.
If there are any pre-conditions before arbitration can commence. Sometimes mediation must first be attempted. Sometimes the parties must first escalate a dispute to a management tier or external dispute board. If any such conditions are to be drafted in an arbitration clause, they must be clear and linked to deadlines.
Other considerations apply.
The simple answer to this is that you should seek advice. The clause relating to arbitration will become very important if you ever have a dispute, and please remember that the reason you have a contract in writing is to make matters clear and to protect you should there be a dispute.
Do not cut, copy and paste an arbitration clause without considering its meaning and applicability.
In order for an agreement to be governed by arbitration, the parties must have agreed to arbitration in an ‘arbitration agreement’. This ‘arbitration agreement’ can be a simple clause contained within the main body of a commercial agreement, it need not be a separate document.
If the parties have not agreed to arbitration by contract, then one party cannot impose an arbitration on the other party. One of the key principles of arbitration is that the parties have chosen this method as a way of determining their disputes. Note however that many sportspersons are made subject to arbitration because there is no other choice for a method of determining their dispute in their industry. You could therefore say that arbitration is forced upon some sportspeople because there are no alternatives.
If both parties are able, notwithstanding being in a dispute, to agree that arbitration would be better than determining a dispute at the court, they may enter into an agreement to arbitrate. Such an agreement can actually narrow the issues of a dispute and make a dispute more cost effective. In practice it is difficult to get the parties to agree to anything at all, once their dispute has begun. It is only later on along the process that agreements are more likely to be reached. However, sometimes the surprise that a matter has escalated to the level of a formal dispute may trigger settlement.
Real Estate
Hughes Krupica’s team has an ingrained strength in law and real estate matters which shines through in investment structuring, transactions and difficult and challenging issues requiring detailed investigation to assess risk, solutions and costs.
Leasehold is denoted under Thai law in the Civil and Commercial Code as a ‘hire of immoveable property’.
This means that the hire is temporary and limited in time.
The maximum period of time allowable under Thai law is currently for residential property – 30 years.
There is no mention in the Civil and Commercial Code of any provisions relating to ‘renewals’ or leases or additional periods of time.
If the terms of the lease attempt to make a lease longer than 30 years, then the entire lease can be deemed ‘void and unenforceable’.
If the terms of the lease allow a ‘renewal’ but do not attempt to make the lease longer than 30 years, then the entire lease shall not be void.
A ‘renewal’ is an agreement ‘outside of’ or separate to the lease itself. It is an agreement to agree to do something in the future after a certain event – the expiry of the lease term has occurred.
A renewal can be relied upon if the renewal is between the original parties to the lease because any party violating the agreement will be able to sue the other party. Please note that ‘suing another party’ isn’t a particularly attractive proposition.
If the owner of the ‘freehold’ sells its interest to another party, the other party does not have to honour the renewal – it can choose to do so, only by specific agreement or in practice.
Many developers set up structures including corporate structures, to try and avoid the situation where a third party could acquire the freehold and undermine any ‘renewal’ provisions. Such structures include ‘collective leasehold’ structures, and should be vetted for reliability and all documents checked for an assessment of stability of such a structure.
Condominium
1. Purchase a condominium as part of 49% of the registrable saleable area which can in the entire building be sold to foreigners, as a freehold ‘in the foreigner’s name’ basis
2. Purchase a lease of a condominium unit for 30 years. Some leases have ‘renewal’ options, which are subject to provisos and conditions under law and in practice. Someone has to be the ‘lessor’ the ultimate owner of the unit in order for a foreigner to take a lease. The owner may be the developer which developed the condominium building.
3. Co-Invest in a Thai company to acquire a Thai quota unit. This is subject to numerous provisos and restrictions including but not limited to: not using illegal nominee shareholders; ensuring laws relating to paid up capital of the company are complied with; the company conducting business and not being a ‘shell company’ used to circumvent the Condominium Act; a genuine commercial relationship existing between the investors in the Thai company.
Villas/Townhomes
3. Purchase a lease of the land from the developer or land owner for 30 years. Some leases have ‘renewal’ options for additional terms of 30 years. These are subject to provisos and conditions. In combination with purchasing the land lease, a foreigner can also purchase and own the building through transfer of a sale of a registered building, or through constructing the building by being the named party on the construction permit or having the construction permit transferred to them prior to completion of the building.
4. Co-Invest in a Thai company such company to acquire the land. This is subject to numerous provisos and restrictions including but not limited to: not contravening the Land Code which prohibits direct or indirect ownership of land by foreigners, not using illegal nominee shareholders; ensuring laws relating to paid up capital of the company are complied with; the company conducting business and not being a ‘shell company’ used to circumvent the Land Code or any other provisions of law; a genuine commercial relationship existing between the investors in the Thai company.
Land and law is unique in many jurisdictions, and that includes Thailand.
You should not assume that any aspect of law relating to land is similar to your home country jurisdiction.
In order to understand why a land title search is important, the following non-exhaustive key points are relevant:
1. All land types in Thailand are capable of being revoked. This means that even the ‘best’ land title can be ‘taken back’ if it is found to be illegal. The best land title is ‘Chanote’ which if originating from illegal practices can be investigated and revoked under the revocation provisions of the Land Code.
Therefore, it is very important to check the history of land.
2. Sometimes developers buy what they think is ‘good land’ and then discover part or all of it has land title issues. Then these issues may be hidden or concealed or not obvious on the face of initial inspection.
3. The shape of land in reality can be different to the shape of the land on the land title papers. IT is important to commission a survey to check this, to establish if land is ‘missing’ or if there is ‘encroachment’ into National Park, National Forestry Reserve or neighbouring land.
4. You might think there is access from the public road to the land, but maybe there is a ‘gap’ or an intervening issue affecting access
5. There may be a history of ‘upgrades’ of the land showing incomplete or technically incorrect surveys or strange very large increases in land size upon upgrades and re-measurement of the land boundaries.
6. The original ‘possessory’ origins of the land may not be properly explained or link to the evolution of land titles from its origins.
Land must have come into existence somehow, and that process must be legal. There are various methods by which land title can come to exist in Thailand but the most common is the possessory title ‘Sor Kor 1 (SK1)’ being notified to the Land Department by the possessor(s) in order to survey and issue a form of utilisation or ownership document. If there are issues relating to the origin of the title, or the history is missing, this can represent a ‘defect’ on the title.
7. Many Thai banks will not look into the history of land as extensively as a private investor would. This is also unusual because in many jurisdictions a bank will conduct rigorous checks on land title unless the title is ‘guaranteed’ by the state. In Thailand, there is no ‘state guarantee’ of land title per se. Therefore, if a bank issue a loan against land, this does not lead to the absolute conclusion that the land is legal or its title has been issued properly.
It is not possible to check these matters by a simple review of papers at the Land Department. Qualified competent Thai lawyers should be engaged to search and identify all relevant papers, this should be analysed, placed into a report and then reviewed by partners.
1. the number of ‘storeys’ on the building in the construction permit may be different to that which has been built. A seller or developer may try to pass off a ‘basement’ or ‘rooftop’ as a legal addition which may not be legal subject to the plans and the permit
2. the as-built drawings may materially deviate from the submission drawings provided to the authorities to obtain the permit
3. the construction permit may have been ‘endorsed’ to be ‘on behalf’ of a third party when in fact the endorsement does not by operation of law ‘transfer’ a permit
4. the building may be built on too steep a gradient in contravention of the gradient rules
5. the building may be built above a height limit of the building from ground level to the top of the building
6. the building may be built above a height limit from ground level measured whereby above a certain height above ground level, no buildings may be built.
Other matters should be checked in relation to building legality with thorough due diligence. The scope of due diligence will depend on the scope of an engagement and associated legal fees.
A construction permit allows a person or entity to build a property, accordingly only to the plans submitted to support the permit.
If the person or entity constructing under the permit completes the building but does not sell the building, then that person or entity will become the owner of the building – having constructed it.
If the person or entity construction under the permit transfers the permit to a third party prior to material completion of the building then the new owner may become the owner by simply having its name on the construction permit.
However, if the person or entity constructing under the permit completes the building, and then wishes to legally transfer the building to a new owner, then a sale must take place and be registered as having taken place by a bill of sale and payment of transfer fees and taxes by the parties.
1. Land Title History Search
2. Zoning Search
3. Survey of Land Boundaries versus land title document maps and physical markers
4. Litigation search of the land or property owner / developer / shareholders / directors at the local Provincial Court
5. Possible litigation search at other Provincial Courts
6. Company check at Department of Business Development of corporate documents of any companies involved
7. Regulatory compliance – licenses/notifications for any short term rental or hotel use
8. Type of permitted use of the building registered with the authorities
9. Asset management arrangements – property management agreement and property management company and any third party companies providing services or supplies to a property or project
10. Accounting, Financial and Tax due diligence into all relevant persons/entities
11. Review of any loans – internal or external loans – terms and conditions
12. Review quality of contractual rights in any leasehold ownership
13. Review quality of corporate rights in any corporate ownership
14. Review management of condominium building – committee; condominium juristic person and rules and regulations in any condominium project
15. Review legality and financial matters relating to any ‘mixed’ use
16. Review method of purchase in terms of registration fees and taxes
17. Review potential method of future re-sale post acquisition of property
18. Review contributions made to any ‘sinking’ fund or fund for capital renovations and status of usage of such a fund
19. Review history of any minuted meetings of any committee, shareholders, board of directors in relation to the project
Thai to Metric
1 Wah = 2 m
1 Talang Wah = 4 sqm
1 Rai = 1600 sqm
1 Rai = 400 Talang Wah
1 Rai = 0.40 Acre (approx.)
1 Rai = 0.16 Hectare
1 Ngan = 100 Talang Wah
Metric to Thai
1 m = 0.5 Wah
1 sqm = 0.25 Talang Wah
1 Acre = 2.53 Rai
1 Hectare = 6.25 Rai
Construction Contract Support
Hughes Krupica will provide assistance on small to medium sized construction projects which comprise single, multiple dwelling luxury high value one-off projects, or for large volume residential and mixed-use projects. We generally do not advise or specialise in larger construction projects such as private-public partnerships and projects.
Under section 604 of the Civil and Commercial Code (“CCC”)
“If the materials have been supplied by the employer, and the work is destroyed or damaged before due delivery, the employer bears the loss provided that such loss is not caused by any act of the contractor.”
Advice should always be sought on the conflict between Thai law and any standard form international contracts.
First you have to provide the contractor with the opportunity to fix its works, as per section 595 of the Civil and Commercial Code (“CCC”) which states that:
“When it is possible to foresee with certainty, whilst the work is proceeding, that by the fault of the contractor, the work will be executed in a defective manager or contrary to the terms of the contract, the employer may notify the contractor to make good the defect or to comply with the terms of the contract within a reasonable time to be fixed in the notice”
However, if the contractor fails to remedy the defects in its works then
“the employer is entitled to have the work repaired or continued by a third person at the risks and expenses of the contractor”.
In terms of basic protections, yes, there are provisions of the Civil and Commercial Code (“CCC”) that simply state a protection as existing, regardless of whether or not you document or agree the protection in an agreement.
To take just one example, under section 592 “The contractor is bound to allow the employer or his agents to inspect the work during its execution”.
Generally under the Civil and Commercial Code, the hire of a contractor by an employer is governed as a ‘Hire of Work’ under Title VII. S.587 states that “A hire of work is a contract whereby a person, called the contractor, agrees to accomplish a definite work for another person, called the employer, who agrees to pay him remuneration of the result of the work”.
Construction is touched upon by many other laws in Thailand such as the Building Control Act, the Town Planning Act and National Environmental Quality Act.
1. the number of ‘storeys’ on the building in the construction permit may be different to that which has been built. A seller or developer may try to pass off a ‘basement’ or ‘rooftop’ as a legal addition which may not be legal subject to the plans and the permit
2. the as-built drawings may materially deviate from the submission drawings provided to the authorities to obtain the permit
3. the construction permit may have been ‘endorsed’ to be ‘on behalf’ of a third party when in fact the endorsement does not by operation of law ‘transfer’ a permit
4. the building may be built on too steep a gradient in contravention of the gradient rules
5. the building may be built above a height limit of the building from ground level to the top of the building
6. the building may be built above a height limit from ground level measured whereby above a certain height above ground level, no buildings may be built.
Other matters should be checked in relation to building legality with thorough due diligence. The scope of due diligence will depend on the scope of an engagement and associated legal fees.
1. the number of ‘storeys’ on the building in the construction permit may be different to that which has been built. A seller or developer may try to pass off a ‘basement’ or ‘rooftop’ as a legal addition which may not be legal subject to the plans and the permit
2. the as-built drawings may materially deviate from the submission drawings provided to the authorities to obtain the permit
3. the construction permit may have been ‘endorsed’ to be ‘on behalf’ of a third party when in fact the endorsement does not by operation of law ‘transfer’ a permit
4. the building may be built on too steep a gradient in contravention of the gradient rules
5. the building may be built above a height limit of the building from ground level to the top of the building
6. the building may be built above a height limit from ground level measured whereby above a certain height above ground level, no buildings may be built.
Other matters should be checked in relation to building legality with thorough due diligence. The scope of due diligence will depend on the scope of an engagement and associated legal fees.
Litigation
Hughes Krupica operates an experienced team capable of handling small to mid-sized disputes typically ranging from 20,000 USD (650,000 THB) to 50m USD (1,550,000,000 THB).
Foreign judgments are not enforceable in Thai Court but can be used as evidence in proceedings. It will be upon the court’s discretion to weigh the foreign judgment’s evidentiary value. Thailand adopts a conservative approach, which places the onus on the applicant to establish and prove that the judgment applies in Thailand. Therefore, it is necessary that when a foreign judgment is obtained, the plaintiff will have to initiate a new lawsuit against the defendant in Thailand.
This will depend on the complexity of the case and which court it is heard in. If a court case is heard through to the Supreme Court, then it is possible that it will be a lengthy court case up to 5 years in total from Court of First Instance to Supreme Court. If a case is heard in the Court of First Instance only, it is reasonable to expect one to two years. If the case is appeals in the Court of Appeal, then he length of time for a decision is generally less than a year. All of these timelines are outlines only and are subject to change due to volume of cases in the court and court busyness.
It is possible to appeal the judgement of the Court of First Instance should any party disagree with the decision of the Court of First Instance on permitted grounds only. The party may file for an appeal to the Court of Appeal within one month from the date of the delivery of the judgment of the Court of First Instance. However, if the delivery of the judgment from the Court of First Instance is done through hand delivery to the residence or office, then the party must file for an appeal within 30 days from the date of the judgement via hand delivery to the residence or office.
The Court of Appeal may hear both civil and criminal cases and it either affirms or revises the decision of the Court of First Instance. No new evidence from witnesses may be submitted at this level and unless decided by the court, only written arguments is submitted by the lawyers representing the parties, where the evidences submitted from the Court of First Instance will be examined and deliberated by the Court of Appeal.
Thailand does not practice trial by jury as it is a civil law legal system where judgments apply law to the cases. The cases are decided on the merits of the submitted evidence. The number of judges may vary from one case to another.
It is possible for foreigners to file a case in Thai court as long as the matter falls under a Thai jurisdiction. However, please note only registered Thai attorneys are allowed to practice law in Thai and appear before the court. Foreign consultants can assist you with an understanding of the case and act as an intermediary.
If you are not in Thailand permanently, you should take great care in relation to civil or criminal proceedings before the courts. Non-attendance for criminal matters may incur serious sanctions or penalties, including if you filed the claim or action through a private prosecution. Non-attendance for civil proceedings may also attract sanctions and penalties and may affect the consideration of the weight of evidence.
The court fee that will be incurred in civil proceedings depends on the claimed amount. It is usually 2% of the claimed amount and is limited at 200,000THB. There are also the subpoena fees which will be incurred. This fee is not fixed as it depends on place where the party you are suing is located.
Depending on the matters that have arisen in your case, the dispute may be heard in a civil or criminal court. Further, the dispute may be heard in the Specialised Courts of First Instance, which are the Central Labor Court, the Central Intellectual Property and International Trade Court, the Central Tax Court or the Central Bankruptcy Court. If the disputes are heard within one of these Specialized Court, the appeals for these court usually goes directly to the Supreme Court.
The limitation period for filing a claim in Thailand can vary from 0.5, 1, 2, 5 or 10 years. Ten years is the basic prescription period in Thailand if the law does not establish a shorter period for a specific claim. The limitation period for claims concerning taxes is ten years. The limitation period for claims concerning arrears of interest, salaries, rent or hire of immovable properties is five years. The limitation period of two years will be more most commercial transactions.
It is possible to have your attorney represent you in the case, through a power of attorney. There are two types of form which are the General Power of Attorney and the Special Power of Attorney. The former allows a wider scope of authority whereas the latter is limited in scope and duration. This power of attorney will allow the authorized attorney to act on your behalf, including but not limited to filing the court complaint, acting as you in court hearings, receiving the judgement award for you if you are abroad. Although it is possible to proceed with the case when you are abroad, it is generally recommended that you appear in court although there will be many exceptions to this general recommendation.
Corporate Transnational and Domestic
Hughes Krupica will code the corporate constitution and contractual framework of your entities to adapt domestic and international contexts of investment and corporate governance objectives.
The actual registration process can be completed in one day. However, the preparation process can take time especially for those unfamiliar with the requirements for the signing of the application documents and if any changes to the articles of association have not been negotiated, discussed or planned. Therefore, the timeline for incorporation can me mapped out by liaising carefully with legal advisers on the pre-registration requirements and in the event of absence of signatories from Thailand - computation of additional postage time will be required.
Broadly speaking, no. Although 'pre-incorporation' representations may be made, logically an entity which does not yet exist also cannot attract liability and those that attempt to do business with such a construct prior registration must be aware of lack of entity for any dispute and lack of enforceability of provisions which might be critical. Solutions for producing letters of intent with the persons or parent or affiliated entity are available as preferred options over invalid or contentious acts.
The Thai system offers flexibility in relation to share capital and permits registered or unregistered loans into a business. It is possible to obtain collateral over the entire assets of a business and different rights may be attached to shares. However, there are also numerous constraints in law and in practice which may relate to the type of investment, the purpose and activities of the entity, and requirements for certain capitalisation for a particular activity amongst others. For overseas entities, care must be taken in relation to equity to assist with any group accounting and consolidation requirements. For debt, unsecuritised or void commercial agreements should be avoided through careful attention to permitted types of security and the restrictions on banking or investment activities.
Thailand's codified civil system is unique. In fact, no civil system is the 'same' as another civil system and common law systems are also distinguishable by differing case law and outcomes even with similar principles and statutes.
It is possible to align closely the decision making processes, especially at board level, in a Thai company with a group structure, but it is not possible to 'mirror' outright. Thailand does have a modern system of corporate governance for public companies, and private companies can be structured carefully to correspond with international governance structures. However, for the procedures relating to shareholders' meetings and decisions, regard must be applied to the civil provisions and care taken not to contravene minimum protections embedded in the Thai system.
Distinction should be applied to a contractual arrangement between private parties outside of Thailand but intending to do business in or with connection to Thailand, and a corporate structuring process which is constrained and governed by Thai law and may not be adjusted by another legal jurisdiction. Assumptions made at the MOU/LOI level can be corrected in more in-depth documentation such as an investment agreement, joint venture agreement and/or shareholders agreement. The Articles of Association of the entity must also be balanced and conform with Thai law.
No. There are some obvious examples of business activities which generally require foreigners to own no more than 49% of the shares in an entity but there are also many businesses which may fall under promotion criteria of the Board of Investment, or relate to a treaty such as the US-Thai Treaty of Amity, where there are different more liberal rules. Note that if an investment relates to or includes land, it is highly likely that the 49:51 per cent rule will apply, in addition to a host of other restrictions.
Thailand's system of corporate governance has been shaped in the private and public sector by the practice of large concentrated segments of power belonging to affluent persons and families. The Stock Exchange does of course model itself around protection for all shareholders, but as with all systems there is a separation between boards, investors and intermediaries creating 'agency' issues. On the positive side, concentrated power can mean efficient decision making and a firm direction for a company which may have become successful due to the decision making of the concentrated block shareholder from the inception of the business. For foreign or domestic minority investors seeking to diversify investment portfolios or obtain returns, the risk factor in calculations should include an element of lack of control and decision making and also that the practical application of legal protections for minority shareholders is difficult and costly with lack of certainty on the outcome. For minority investors who are considering placing more cash and debt into a company than is reflected in the control due to the restriction on majority control in many companies for foreigners in Thailand, additional protections should be put in place over an above basic protections of law. Care should be taken to ensure that such protections do not conflict with Thai law, otherwise they will simply be void and useless.
The main issues that arise in the private entity sphere relate to due diligence. SMEs and MSMEs may not be prepared for a professional and organised disclosure process. Additionally, it may be difficult to obtain public or market information on a target from Government departments, which may keep certain records private unless there is full co-operation and written consent from the target. Therefore, behind-the-scenes verification or validation of information is difficult and it is therefore best to disclose the scope of due diligence to be conducted to a target's board and representatives, so that full information can be acquired. There are some other issues such as electronic registers of information, the status of court cases and critical employment information which may be out of date even when checked on a business day. Additional care and repeated checks are required to overcome some of these practical issues.
There is an Escrow Act in Thailand which was designed to allow licensed entities carry out escrow activities. However, the licensing process was 'problematic' to the extent that at the time of writing there was a distinct lack of interest from new market entrants and only banks provide limited escrow services with deep layers of administrative bureaucracy. Escrow agreements we see are often overly long but in essence absolve the escrow agent of all liability for the underlying transaction, which one would expect, but further absolves responsibility for transferring funds when a payment is disputed. This can trigger litigation and an escrow agent may simply sit on the funds until the slow process of resolution takes place. On such basis, international demand guarantees, international escrow systems based on certainty and instructions or execution only scenarios are preferable to any ambiguity or lack of accountability in a domestic system. If funds are not yet in Thailand, then it is possible to structure international escrow outside in relation to contracts which are governed in and relate to Thailand.
Transnational Commercial
Hughes Krupica's small and focused team will act quickly and with diligence to assist you with your commercial transnational needs from transactions to disputes
The type of goods and any sensitivities relating to components or materials can affect the regulatory clearance process and delay at least a first shipment unless there is additional resource applied to preparing for clearance in advance or very experienced agents are used who can clear, legally and without additional unaccounted expenses, goods in an orderly manner. For new entrants to a supply chain, we recommend the relevant segment of supply is studied by reference to applicable treaties, any entity which is responsible or will be set up to import the goods, and regulatory agencies and certification processes. A test shipment is also clearly preferable but not always commercially viable. Chemicals, alcohol based products, agricultural products and products which may or do compete with domestically produced goods will all carry some additional hurdles or may even have prohibitions. Therefore, timelines cannot be accurately predicted until due diligence into all relevant and connected aspects of the supply chain and clearance process is conducted in 'live' or 'test' conditions.
Provided there are no provisions offensive to Thai law or public policy or national security, international sales of goods documents containing standard terms such as INCOTERMS2020 are wholly accepted and useable in Thailand. The allocation of risk and insurance requirements can therefore be inspected and ascertained with certainty, provided of course the international terms do not themselves contain uncertainties which they may do. On such basis, even the international standard terms should be vetted and modified where appropriate, and can then be used as a template to lower transaction and legal costs thereafter.
The extent of your rights depends on the status of the documentation, the parties against whom you can enforce and any applicable laws. If you had no financial provision for advance payment then you will need to consider the substance of the party against whom you have a right to sue and enforce, the time horizon versus the costs of the loss of the payment for the goods. There may be some accelerated dispute resolution provisions in your documentation and this is worth discussing with an adviser for assessment of costs and viability of a claim. Insurance rights should also be checked carefully and then discussed with the insurer depending on the circumstances of the refusal to pay or rejection of the goods.