A Perfect Opportunity for Change: Walter Bau v Kingdom of Thailand

8/6/2019 A Perfect Opportunity for Change: Walter Bau v Kingdom of Thailand

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A Perfect Opportunity for Change Walter Bau AG v Kingdom of Thailand

Adam Richard Tanielian

Institute of International Studies

Ramkhamhaeng UniversityLLD English Program

Bangkok, Thailand

August 2011

[email protected]

Abstract: The Crown Prince of Thailands airplane was seized in Munich. The action was

authorized by the German court in pursuit of compensation from a case decided by an

international arbitral tribunal in 2009. The tribunal, under UNCITRAL rules, decided in

favor of an insolvent German construction firm, Walter Bau AG, which was contracted as

part of a group of companies in the Kingdom of Thailand to build and operate a tollway in

Bangkok starting in the late 80s. Government changes, political unrest, the 1990s Asian

economic crisis, and some bad faith created financially unfavorable conditions for Bau,

which was ultimately put in the position where it had to sell off its shares without a profit.

Nearly 30 million was awarded to Walter Bau AG, now in liquidation, and Thailand

defaulted after a reasonable time had passed. Under the NY Convention, arbitral tribunal

decisions are legally binding and shall be recognized and enforced. Violations of

international law and business custom have occurred, and some resolutions are necessary to

protect the integrity of the international system.

1. Opening Statements

In mid-July 2011, international news reports covered an international arbitration case that

was previously largely unknown. The Crown Prince of Thailands Boeing 737 had been

impounded at the Munich Airport on order from the German court upon application by an

insolvency administrator, Werner Schneider, for enforcement of an international arbitral

award rendered in favor of a German construction firm in liquidation, Walter Bau AG. The

situation was politically volatile in Thailand, where the monarchy enjoys sovereign immunity

and freedom from any sort of accusation or action, where in 2009, a little-known Aussie

author, Harry Nicolaides, was sentenced on lese majeste charges to three years in prison for

writing in his novel, which sold only seven copies, about an unnamed crown prince (BBC,

2009). A diplomatic spat ensued between Germany and Thailand.

The benefits of the media exposure to this case are many, despite the temporary fallout

between the Thais and Germans, or between the Thais andfarang. The near future will likely

bring amicable solutions to the minor bilateral crisis, but the case shows the future of

international dispute resolution is under some threat by non-enforcement and non-recognition

of awards. International law has been a laughing stock of the legal communities worldwide

between wars, public debt panics, corruption, encroachments on foreigners freedoms, human

rights, and lack of confidence in the United Nations.


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Walter Bau AG v Kingdom of Thailand represents a systemic error, from bidding on

contracts, to acquisition of rights, through delivery and later stages. The weaknesses of our

international legal system are so many and varied, the commitment to suppression of

initiatives designed to strengthen the system so entrenched, and the opposition to more

harmonization of domestic laws so fierce, that it is almost impossible to believe that one

could successfully pitch the authorities and general public on some solutions. On one handthe possibilities in international law are essentially endless, and on the other hand it is

essentially impossible to accomplish anything entirely given the conflicting interests among

nations. Theory and practice are remarkably different at the international level.

If we want to capitalize on opportunities to draw attention to issues, to make commentary

on the weaknesses and threats of our international system, and to strengthen the integrity,

structure and function of the system, we should first open communication, research, and

discuss facts as they are and have been. This report features a detailed history of theWalter

Bau case in sections 2 and 3. Analysis of the surrounding issues is made in section 4.

Acceptance of the system as it is today is necessary, as we must accept those thingswhich are static in the immediate moment, or those things which we cannot change. Section

5 features references to relevant international conventions and treaties, and the relationship

between application of international law and the present case.

Upon understanding facts and laws related to a specific case, or a set of circumstances or

cases, or relating to the system as a whole, we will likely find several contradictions between

theory and practice, or between the letter of the law and enforcement thereof. Interpretation

of words would not likely be the only conflict one could find in this case, nor in others.

There are generally-accepted meanings to words, and it is evident that certain parties in cases

and in general simply choose to debate semantics in efforts to rationalize and justify their

actions which were made in a departure from generally-accepted meanings of plain words

found in laws and treaties. The wisest conclusion, then, after we have established that the

current framework has been insufficient in checking and balancing various interests of parties

and entities, and that noncompliance and lack of remedies for consistent violations are

features of the present systems weaknesses, is to try to change the system.

This research only brushes upon well-known troubles at the international level. Legal

professionals from around the globe have and shall continue to write volumes about the

intricacies of the problems, and the apparent lack of some solutions, or the most suitable

options for specific and general situations. This research finds that the process by which

changes are made is too inefficient to affirm that a perfect world legal system is probablewithin any foreseeable time frame. An adequate system is needed, and it is not the opinion of

this author that the worlds legal professionals have been handed an adequate system today.

This author shall refrain from making suggestions which give the appearance of remote

desktop legislation. A general change of mind is requested, for the benefit of all, and in the

present case, at the loss of a few. The present case, unlike future ones, and unlike various

related issues, however, has been decided already. The easy part is accepting and affirming


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the decisions of other qualified professionals; getting other people to accept and comply is

where we find the difficulty.

2. Case History

The history of the case can be found in an arbitration report, hereinafter referred to as

AR, which was made available to the public upon consent of both parties underUNCITRAL rules (Walter Bau AG v Kingdom of Thailand, 2009).

For the purposes of the arbitral tribunal hearing the case, Dyckerhoff & Widmann AG,

Dywidag International GmbH, and Walter Bau AG were considered one entity as the

Claimant (2.1-2.5AR). The Kingdom of Thailand in all of its government departments,

ministries, and offices was the Respondent. After a 1986 Department of Highways report

by the Respondent, the Claimant pursued a profitable investment with a Thai joint venture

partner, Delta Engineering Construction Co. Ltd. The joint venture, Don Muang Tollway Co.

Ltd. (DMT), was 51% owned by Delta and 49% by the Claimant (2.17AR). DMT submitted

a bid to the Respondent for construction of the Don Muang Tollway.

2.1 Proposal and Acceptance

In 1988, there were several issues covered regarding the technical details of the

construction, such as the conversion of flyovers, and administrative conditions regarding the

length of concession period, toll fare, and status of the investment with the Board of

Investment, etc. (2.12-2.19AR). On 20 September 1988, one version of the Claimants

proposals was accepted. The proposal accepted involved turning two pre-existing four

flyovers on the highway, a 20 Baht fare for 4-wheeled vehicles with 5 Baht toll increases in

the 9th

and 14th

year, and a 25 year concession term wherein the Claimants joint venture

would be the sole operator of the Tollway (2.19AR). After 25 years the concessionaire was

to hand over the Tollway to the Respondent without compensation (2.22AR). The only

income DMT would have the only opportunity to recover costs of construction and

operation would be from tolls paid by motorists using the Tollway during the 25 years of

concessions. The 1987 Guidelines for proposals, issued by the Respondents Department of

Highways (DoH), stated that the toll fees need be justifiable but apparently did not specify

a monetary value (2.9AR). Initial estimates calculated by the Claimants financial advisors

showed expected returns of about 15% in the worst case scenario (2.21,2.23,2.30AR). The

Claimant entered into the contract with the view that the project was a long-term investment,

and that the DMT project would be profitable.

2.2 Financing

In 1989, both Thai and foreign investors were attracted to DMT (2.27AR). DMTs

equity investors, including the Claimant, were expected to supply capital annually between

1989 and 1993, while DMT also drew loans to finance to construction of the toll road. The

Tollway was expected to commence partial operation in late 1992 or early 1993, at which

time it would start generating revenues. In 1993, the Tollway would open fully, and

immediately it was expected to provide profits from operations. DMT was expected to start


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repaying its debts in 1995, and continue doing so for 8 to 10 years. After 2 or more years of

profiting from operations, after having legal reserves built up, DMT was expected to have

positive retained earnings, and was then expected to begin paying dividends to shareholders,

which was forecasted to happen in 1996 or 1997. Around 2004 to 2010, DMT was expected

to have fully repaid its loans to banks, and was then expected to pay significantly higher

dividends to shareholders. Between 2010 and 2014, dividends would be reduced and theRespondent was to start sharing revenue (2.29AR). The Claimant supplied 18% of the equity

investment, or 23.58 million German Deutschmarks (2.32AR).

2.3 Finalization of the Agreement and Commencement

On 17 August 1989, a contract was signed between DMT and a construction collective

(DMC) Dywidag, Delta, and Dywidag Thailand Co. Ltd. The concession agreement

between DMT and Respondents DoH was signed on 21 August 1989. As agreed upon

previously, DMT was to finance, design, construct, operate, and maintain the Tollway for 25

years, after which time the Respondent would take over for no cost (2.35,2.36AR). The

Respondent had an option to assume ownership prior to the end of the concession period if itpaid compensation in the amount that was invested in equity, plus that which was considered

a reasonable return, plus profits and other costs (2.38AR). The 21 Aug 1989 agreement

specified rates, planned for increases at certain times, and included provisions for DMT to

seek toll increases, which could only be implemented if approved by the Respondent

(2.37AR). An arbitration clause (clause 31) required disputes be settled within 60 days, or

within an agreed upon time frame, or to be arbitrated in Bangkok under the Thai Arbitration

Act with two party-appointed arbitrators and a third appointed by the Thai Chamber of

Commerce. Thai law was to be the law governing the contract. Dywidag and Delta agreed to

hold not less than 30% of the shares in DMT between them for the construction period.

Some profit-sharing rights were granted to the Respondent in the case of profits exceeding a

certain level. The agreement could be further amended by written agreement. DoH was to

coordinate the concessionaires activities with authorities, public utility organization owners

of adjacent land, users of roads in the construction area, and to provide support and assistance

with permits, licenses, etc. (2.39AR).

Financing the project took more than 1 year. The loan period was to be 10 years

including construction time. DMT gained Board of Investment (BoI) approval in October

1990 by agreeing to an extended profit-sharing arrangement with the Respondent, which was

not included in the concession agreement of August 1989. Loan documents were signed on

16 Nov 1990 with expected IRREs between 14.67% and 20.61%, and another shareholders

agreement was signed on 21 Nov 1990 (3.3-3.5AR).

2.4 Delays and Complications

An initial promotional certificate was issued by BoI on 16 May 1991, and construction

commenced 29 June 1991 (3.6AR). Several delays and complications followed. Perhaps the

most glaring controversy in this case is the Hopewell Project.


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Hopewell

In November 1990, shortly after DMT signed loan agreements, the Respondents

Minister of Transport, which oversaw the DoH, signed an additional concession agreement

with a Hong Kong firm named Hopewell for a 60km long elevated tollway which ran

parallel to the Don Muang Tollway for a distance of 12km, roughly 50 meters to the west of

the tollway DMT/DMC was to construct. A number of freestanding concrete pillars are still

present at the scene of the Hopewell Project, which failed in 1998. Had the Claimant and

DMT known of the Hopewell Project, which would have provided heavy competition at very

close proximity to the Don Muang Tollway, prior to signing the concession agreement and

loan documents, it is unlikely that DMT and the Claimant would have entered into the

contracts. Thus, this show of bad faith on the part of the Respondents Ministry not only

draws very reasonable suspicion about the Respondents intentions with the Claimant and

DMT, very early on in the concession period, but also essentially places the Respondent in

breach upon award of the concession to DMT. The Hopewell Project led to the enactment of

new regulations on State contracts in 1992 (3.11-3.13AR).

Flyovers

Political demonstrations against turning of the two flyovers occurred, and in March 1992

the Minister of Transport was required to enter into negotiations with DMT to amend the

concession agreement. In exchange for the amendment, DMT was to receive benefits from

the northern extension of the Tollway, though the proposal for the northern extension was not

made until 1995. The Respondent clearly agreed to the turning of two flyovers in the original

agreement (3.14-3.15AR). Eventually the Respondent allowed flyovers to be turned, but

upon suspension of tolls for the period when they were being turned 21 Apr to 7 July 1996

which cost DMT approximately 2.34 million Baht per day (4.1AR).

Land Use

DMT was unable to obtain rights to use land owned by Kasetsart University, nor was

DMT able to obtain a right-of-way over the land used by the Hopewell Project. The

Respondent agreed to provide land, including for flyovers (3.16AR).

VAT Tax

After the concession agreement was signed, the Respondent imposed a general VAT tax,

but did not allow DMT to raise tolls affected by the tax. DMT repeatedly attempted to raise

tolls, but the Respondent would not authorize increases (3.17-3.19AR).

2.5 Opening the Tollway

On 14 Dec 1994 the tollway opened without the turned flyovers, which were opened on 7

July 1996. The delays and complications concerned foreign banks which were financing the

project, and in 1993 credit lines were frozen. The Claimant granted DMT interim financing

while DMT refinanced with lenders. In late 1993, the Claimant, DMT, and investing banks

signed an agreement which held the Claimant directly responsible for delays and budget


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overages. The final refinancing agreement was signed on 27 May 1994, and on 29 Dec 1994

the lead financier of the project forced DMT into a potential default when it pressured DMT

to take action against DoH to force the Respondent to assure compliance with the agreement

regarding the flyovers, and to protect against future revenue losses (4.1-4.6AR). Financiers

were especially concerned about the Hopewell project (4.7AR).

2.6The Northern Extension

The respondent decided to contract the Northern Extension to DMT. DMT saw the

extension as the only way to save their project. On 15 Sept 1995, DMT notified the

Respondent that it wished to terminate the concession agreement, and on 18 Dec 1995, DMT

notified the Respondent it wished to enter into arbitration under the agreement clause 31. On

26 Dec 1995, DMT submitted a 7-point proposal to the DoH, including request for a 500

million Baht soft loan at 3% interest with a 2-year grace period, an extension of the

concession agreement, rights to construct the northern extension, and a toll increase. DMT

stated it would waive all of its claims because of the breaches of contract by the

government in return for assistance (4.8-4.13AR). A revision to the 26 Dec 1995 proposalwas made by DMT on 13 May 1996 after the loan and exemption from the VAT were not

approved by the Respondent. On 22 May 1996, the Minister of Finance wrote a letter to a

special committee on the project and stated that the DoH had failed to fulfill its contractual

obligations, which significantly delayed the project and caused problems (4.15-4.16AR). On

29 Mar 1996, the Ministry of Finance recorded DMTs claim of estimated losses of 9,773.6

million Baht, which the Respondent interpreted as the cause for the request for the loan,

which was not perceived by the Respondent as a loan so much as compensation for the

estimated losses (4.13-4.14AR).

On 26 July 1996, DMT received a formal request to propose the northern extension

project (4.19AR). Negotiations on details of the plan lingered until 29 Nov 1996, when the

parties signed a MoA, the second since the start of the construction project. By October

1996, foreign banks were demanding they be paid in full, though the Claimant was then

planning to finance a new project in the Northern Extension (4.21-4.23AR).

MoA2

MoA2 amended both the 21 Aug 1989 concession agreement and the 27 Aug 1995

MoA1. The details of the first MoA are not entirely important given the other circumstances

and facts leading to the MoA2. The preamble of the MoA2 stated that DMT suffered

financial troubles due to the governments inability to comply with the terms and conditions

stipulated in the Tollway Concessions Agreement (4.28AR). Major points from MoA2 were

as follows:

y The Respondent was to put 3 billion Baht of new share capital into the NorthernExtension, giving the Respondent the largest share in DMT, with nearly 40%

(5.29AR). An additional 700,000 Baht in cash from operations was to fund the

new addition to the Tollway.

y The Respondent was to provide a soft loan of 8.5 billion Baht.


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y 1.5226 billion Baht was to be added by private shareholders to pay on loansoutstanding.

y The concessions period was to remain 25 years, but started again on 29 Nov1996.

y The northern extension was to have a fare of 15 Baht, and the toll fees for theoriginal Tollway were to be increased by 10 Baht upon completion of DoH u-turns by the DoH (not DMT), and upon completion of the extension. Toll fees

for the original highway were to increase by 10 Baht every five years, and

increases of 5 Baht every 5 years were to be implemented on the northern

extension.

y All claims relating to the original agreement were nullified.y Changes to the airport usage, construction of u-turns, and traffic management

were not to be considered competition or government-caused vehicle loss.

(4.29AR)

Asian Crisis

On 19 Jun 1997, DMT entered into a mixed currency loan arrangement with various

financiers and did not enter into the MoA2 loan arrangements. This change was made due to

the Respondents inability to grant such a loan denominated entirely in Thai Baht, though the

information available on this point is not clear (5.4-5.9AR).

Between May and June 1997, the Respondent made arrangements with DMT to acquire

over 3 billion shares in DMT to fund the Northern Extension, and the Claimant added nearly

200 million Baht, though the Claimants share in DMT was reduced to 9.87% due to the

increased shareholding by the Respondent (5.10-5.11AR). When the Asian Economic Crisis

hit, several effects were noticed by DMT, which by 31 Dec 1997 had nearly doubled its

foreign currency-based debt due to Baht devaluation. Daily toll income decreased from 3.5

million Baht to 2 million Baht and construction costs for the new extension increased (5.12-

5.13AR).

Tolls

MoA2 stated that tolls were to increase upon completion of the u-turns by DoH, which

was scheduled to occur on 1 Oct 1997, though did not actually happen until 28 Dec 1998. In

December 1997, DMT proposed a 10 Baht increase in tolls starting on 1 Mar 1998, under

clause 25 of the concession agreement, citing basic economic factors as compelling reason

(5.14-5.17AR). On 20 Apr 1998, the 10 Baht increase was approved by a special committee,

though the decision had no binding effect and the raise was not made (5.18AR). MoA2

showed an expected return on equity of 13.35% for DMT, and after a DoH-requested bank

study related to the increase of tolls, it was decided in August 1998 that an increase to 16.50

Baht per vehicle in addition to the 20 Baht per vehicle increase expected upon completion of

the u-turns was necessary to bring returns back to the forecasted levels (5.20AR). Multiple

requests for toll increases were made to DoH by DMT between 6 Oct 1998 and 3 Dec 1998,

when the main Northern Extension was completed (5.21-5.23AR), and by 16 June 1999 all


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works on the Northern Extension were completed with the exception of a ramp which the

Airport Authority had delayed (5.32AR).

Around December 1998, a new local road was opened about 50 meters west of the

Tollway along the Hopewell line (5.27AR). On 18 Jan 1999, the DMT directors met and

discussed the competing toll-free roadways, which presented threats to DMTs operations

(5.29AR), though such complaints were clearly invalid under the waiver included in MoA2.

The claimant submitted that as a minority shareholder of DMT, it was not a party to MoA2,

or that the Claimant was alternatively under duress exerted within DMT by the Respondent

when MoA2 was signed, and thus the Claimant contested that the waiver clause was

inoperative (4.27AR). On 21 Apr 1999, representatives of DMTs private shareholders wrote

to DoH upon finding that toll rises were not feasible due to an automatic further reduction of

the usage of the tollway (5.31AR). On 24 June 1999, shortly after completion of all but

ramp 4, DMT wrote the Minister of Finance and Minister of Transport to propose a

temporary toll reduction (5.34AR). On 30 July 1999, with the assistance of the German

Ambassador, DMT met the Ministers to discuss DMTs financial position, but the meeting

was inconclusive (5.35AR).

2.7Financial Problems

In 1999, the construction of ramp 4, which was supposed to lead into the airport, was

delayed indefinitely. In early 2000, representatives of DMTs foreign shareholders proposed

deletion of the ramp, and the Attorney Generals office representative agreed, as did the DoH

upon condition that toll rate adjustments would not be made without Cabinet resolution

(5.42AR). Around the same time, DMTs lenders warned the main private Thai

shareholders representative that bankruptcy action would result if DMT did not restructure

before March of 2000, since DMT had not been able to pay roughly 50% of its interest debt.

A refinancing agreement, which the Claimants representative did not approve of, was made

on 14 July 2000 (5.45AR). Prior to that meeting, DMT submitted to DoH a financial

damages assessment report upon request, which claimed damages of 34.541 billion (5.49AR).

Between mid-2000 and 2001, the Claimant and other private investors in DMT attempted

to design a profitable strategy for the concession, but shareholders did not consider the MoA2

sufficient to create profits that were previously forecasted. The Claimant and its French joint

venture partner lobbied at both political and diplomatic levels. The issue was furthered by

the German Ambassador who on 29 Oct 2001 submitted a memo prepared by the Claimant,

which contained a mention to the possibility of arbitration, to the Thai Prime Minister (5.50-

5.55AR). By 8 Nov 2002, the negotiations over tolls, control of the operations of theprojects, and financial strategies were stalled, the Claimant feeling out-voted and excluded by

the majority of shareholders who were Thai, and an updated damage report was given to the

Minister of Transport claiming that if progress was not made soon to repair the financial

position, that the inaction would mean an eventual expropriation of [shareholders]

investment, without compensation, without any fault on their part. The Minister of

Transport gave a press interview in which he said he did not pay attention to DMTs

proposal, and mentioned his interest to buy back the concession at a low price (5.58-5.59AR).


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Government changeovers complicated matters further. By 2003, the Thai Deputy Prime

Minister stated that the Walter Bau problem was inherited from the previous government.

Foreign investors, seeking to minimize their losses given the then-presently hopeless

scenario, asked the representative of Thai shareholders to refrain from negotiating on lower

toll fees, and suggested the only way to solve the problem would be for the government to

buy back the concession and compensate investors (5.61AR). DMT reviewed a Ministerstoll reduction strategy in April 2003, and found that DMT would stand to lose 9 billion Baht

in revenues. Foreign investors, including the Claimant, then requested in writing that

privately-held shares in DMT be re-purchased (5.65AR).

On 27 June and 26 Nov 2003, DMT sent letters to DoH requesting contractual toll

increases mentioned in MoA2 (5.66,5.70AR). Legal options were considered by the DMT

board of private shareholders. A fight over control of DMT ensued between private Thai and

foreign shareholders, and the Claimant wrote the Minister of Finance declaring that if the

Respondent as shareholder supported the Thai shareholders plans, the Claimant would view

that as an act of the government against private shareholders in conflict with earlier

assurances (5.72AR). By 2004, Cabinet approval for the deletion of ramp 4 had still not

occurred, though approval was established in 2000, and the contractual increase of tolls was

contingent upon the Cabinets approval (5.73AR). The in-fight among private shareholders

continued to complicate the direction of DMT, with Thai-foreign conflicts resulting in a

refusal by foreign shareholders to sign DMT proposals sent to the Minister of Transport

(5.76AR).

2.8 Formation of Dispute

In February 2004, the Thai Minister of Transport met with the German Ambassador and

a buy-back was discussed, but at a low price of 8 Baht per share (5.78AR). On 17 Mar 2004,

DMT notified DoH of a dispute under clause 31 of the concession agreement, relating to the

Respondents failure to approve toll increases (5.80AR). In September 2004, DMTs board

resolved to initiate arbitration proceedings against the Thai government (5.83AR). On 17

Nov 2004, the Germany Minister of Economic Affairs visited the Thai Prime Minister and

Minister of Finance, when the Claimants case was mentioned (5.85AR).

The dispute was clearly founded upon legitimate business concerns. Modern

international businesses such as the Claimants, are private entities which do not enjoy the

luxuries of government-sponsored enterprises. International construction projects in the

colonial era may have been less privatized, and losses more easily expunged, but today

companies have to operate with precision and meet very narrow margins to compete in thefield of government contracting. The slightest delay or added variable or fixed cost, the least

loss of revenue, and the smallest decrease in profit margin can throw a company completely

off course in these modern projects. Banks are serious businesses, and investors today dont

have time or patience to wait around and hope for the best in conditions of failure and breach.

International business of the past may have been about culture exchange, diplomacy,

goodwill, and even religious conviction, but since globalization has started, since the 1980s

and 90s at least, international business is about making profit, and not about a groovy


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experience overseas, at least not officially as a primary objective. Tourists take a loss, but

businesspeople are expected to minimize risks and generate returns, or there cannot be

international business.

Delay of Toll Increases

Key components of the delay of toll increases included the failure by the Cabinet toapprove of the deletion of ramp 4, which was approved by the special committee in February

2000. Cancellation of ramp 4 was not approved until a 3rd

MoA was signed in September

2007, when toll increases were finally approved. The Northern Extension had been open for

about 9 years prior to MoA3. DoH recommended MoA3 in August 2006 when it found that

non-construction of ramp no. 4 [would] cause DMT to lose toll revenues for the concession

period pursuant to MoA2 1996 in the amount of approximately THB756 million while in

comparison construction costs would only have amounted to THB32.5 million (5.86-

5.88AR).

Trial period Reductions of Tolls

At the last DMT board meeting of 2004, the 8 Thai directors, including 4 government-

appointed directors, voted for 10 Baht reduction of toll fees on the original highway and toll-

free use of the northern extension for 3 months, a period lasting until after the Feb 2005

Parliamentary elections. Foreign shareholder representatives voted against the resolution and

contested that the action would amount to breach of obligations to lenders, whom the

directors did not consult (6.1-6.6AR). The Claimant filed for arbitration under the 2002 BIT

immediately in 2005 (6.9AR). After the first 3-month toll reduction period expired, DoH

requested another 3 months from the DMT board, which approved despite the objections

from foreign directors, which happened more than once in 2005-2006 (6.10AR). Other board

proposals were objected to by the foreign shareholders, who as a minority could not make asufficient impact to sway the opinion of the board at DMT, which had the Respondent the

perceived cause of problems in project as the largest shareholder.

State-Assistance

In August 2005, the Claimant and delegates of the German Ministry of Economic Affairs

met with the Thai Minister of Finance at the Thai Embassy in Berlin, Germany (6.15AR). A

letter from the German Minister to the former Deputy Prime Minister of Thailand followed,

but that letter remained unanswered, as did the Claimants letters (6.19AR).

MoA3

On 28 Dec 2005, the DMT shareholders approved of MoA3 against the votes of the

Claimants representatives. The effects of MoA3 were as follows:

y Move repayment of the investment back 10 years from the MoA2 date, from2012 to 2022, and decreased IRRE from 9.15% as calculated from MoA2 to

5.98% (6.21AR).


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y Extend the concession period by 12 years to 2034 and provided a new schedule oftoll rates.

y DMT was entitled to increase tolls unilaterally in accordance with the tollschedule, so there was no danger of further stalls or interference by the

Respondent.

y Cancel all existing claims, law suits filed with courts and/or submissions ofdisputes to arbitration relating to: construction of the local road; disapproval of

toll fee increases; failure to arrange a soft loan at the agreed terms in the past;

construction of detour lines; delayed returns on bonds; construction of flyovers;

relocation of the main international airport to Suwanaboom; construction of ramp

4.

Last Resort

Some tolls were re-introduced to the tollway in April 2006, after a long 3-month trial

reduction period still present from December 2004, though the 2006 fare increase did not

match the level existing at the start of the 15-month reduction period (6.22AR).

In December 2006, the Claimant agreed to sell its shares in DMT to the main Thai

private shareholder for the price of 10 million. The shares were acquired by an Australian

investor in October 2007 for 13.7 million (6.24AR).

3. Procedural History

3.1 Submission of the Dispute and Initial Actions

On 21 Sept 2005 the Claimant through its insolvency administrator brought its claim to

arbitration under Article 10 of the 2002 Bilateral Investment Treaty (BIT). The Claimant

alleged that the Respondent breached obligations to the Claimant as an investor and

shareholder in DMT (1.1-1.5AR).

Co-arbitrators and Terms

The Claimant appointed a Canadian co-arbitrator in the request for arbitration. The

Respondent appointed a Thai co-arbitrator on 30 Nov 2005 (1.11-1.12AR). The co-

arbitrators were unable to agree on appointment of a chairman and requested the President of

the ICC Court appoint the third arbitrator, under the 2002 BIT (1.12AR).

The ICC Court President appointed a New Zealander chairman to the Tribunal on 27 Feb

2006 (1.15AR). On 15 Mar 2006, the Tribunal and party counsel held a telephone conferenceregarding the venue and date of the arbitration, terms of reference and appointment of the

Tribunal. An 8 Jun 2006 procedural conference in Montreal, Quebec, Canada for the

Tribunal, counsel, and party representatives was scheduled in the phone conference. Terms

of reference and terms of appointment of the tribunal were agreed upon at the conference.

English was the language of the arbitration (1.16-1.17AR). Terms were finalized on 20 Jul

2006, and parties deposited their share of the costs in advance with the London Court of


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International Arbitration. Both parties signed the terms of reference and deposited the

advance on costs by 1 Sep 2006 (1.19-1.20AR).

The Claimant wrote the ICC Court on 10 Feb 2006 regarding the impartiality of the

Thai-appointed co-arbitrator, though no formal challenge was made nor did the BIT offer a

means to resolve such concerns about impartiality (1.13-1.14AR). The Respondent later

agreed with the Claimants contest. The co-arbitrator under review removed himself, and

was replaced (1.36-1.45AR).

Applicable Law, Rules and Venue

The applicable law was public international law according to the terms of reference.

Some issues relating to national law were expected, and so both the Thai law and German

law were to be considered, though due to the location of the contracts and nature of the

dispute, the Thai law was more applicable. The Tribunal was to determine which law or laws

would be applied when a question existed. The juridical seat of the arbitration was Geneva,

Switzerland (1.25AR).

UNCITRAL Arbitration Rules were the basic outline, with some supplemental

provisions from the BIT and/or specific orders agreed upon by the parties (1.26AR). No

strict rules on taking evidence were written into the terms of reference, though the 1999 Rules

on Taking of Evidence in International Commercial Arbitration by the International Bar

Association were noted as appropriate if such rules were needed (1.27AR).

Contest to Jurisdiction

The Respondent wished to contest the Tribunals jurisdiction on claims for BIT

protection (1.18AR). On 2 Oct 2006 the Respondent submitted a formal request for

bifurcation, and sought an order for security for costs against the Claimant. On 21 Dec 2006the Tribunal and counsels held a telephone conference which resulted in the chairman

granting the Respondents application (1.30AR). A jurisdictional hearing was scheduled for

20-21 Mar 2007 in Kuala Lumpur, Malaysia (1.31AR). The Tribunal refused to issue an

order for security for costs, though discussion was held with the insolvency administrator

regarding availability of funds (1.32,1.53AR).

After the change of co-arbitrators, the jurisdictional hearing was rescheduled and

relocated, to Hong Kong on 31 Jul 1 Aug 2007, a location reflecting the Respondents

wishes to have the hearing in Asia whereas the Claimant preferred London or Paris (1.45AR).

Representatives and counsel for each party attended the hearing, where expert witnesses were

cross-examined and re-examined, and various documents were reviewed (1.49AR).

SubsequentHearing

On 5 Oct 2007 the Tribunal determined that another hearing on further jurisdiction

objections and merits would be held (1.51AR). Between 6 and 17 Oct 2008, at the Hong

Kong International Arbitration Centre, the hearing took place (1.57AR). The terms of

reference and constitution of the Tribunal, and the award amount had all been amended by


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that time. Expert witnesses were cross-examined by party counsel and questioned by the

Tribunal (1.59AR). The hearing adjourned before noon on 17 Oct 2008 (1.71AR).

3.2 Following the Hearings

The Tribunal received a letter from a Bangkok law firm claiming to have written on

behalf of the Respondent (1.73AR). The primary Thai private shareholder of DMT, whobought the Claimants shares, was stated to have commenced ICC arbitration against the

Claimants insolvency administrator, regarding the sale of the Claimants shares in DMT

(1.74AR). The letter stated that the insolvency administrator had violated an agreement in

sales of the shares, then that the administrator had proceeded with the arbitration in bad faith,

and that the ICC Tribunal was requested to instruct the administrator to withdraw from the

present arbitration (1.76AR). The Tribunal chairman, on 25 Apr 2009, notified the other

Tribunal members that the time for entering or receiving of evidence had long since passed,

that the letter was not a proper application to admit further evidence, and that the letter should

be ignored by the Tribunal (1.77-1.85AR).

Preparation of the Award

The Tribunal met in London, UK on 4 May 2009. A request was issued for further

information and calculations from accounting experts, who agreed to respond by 13 May

2009 (1.87AR).

3.3 The Award, Costs, and Reasons

The Claimant was denied on claims of creeping expropriation, and upon rights to

pursue claims with the Tribunal under the 1961 BIT. The Tribunal found that there was no

expropriation of the Claimants contractual rights as a shareholder of DMT (10.13AR), nor

did the Tribunal find deprivation of the investors control of the investment sufficient towarrant a decision of expropriation, having citedPSEG Global v Turkey (2007) as a standard,

though it was noted that many things wrongly handled, while insufficient to justify a

finding of expropriation, was not explicitly lacking in this case (10.16-10.17AR).

The Claimant was, however, found to have been deprived of fair and equitable

treatment (FET) by the Respondent in a number of instances, which was a violation of the

2002 BIT. Breaches of FET obligations included the lengthy refusal to raise tolls as

required by MoA2; changes to the roading network which went well beyond what can be

considered traffic management; the short term total closure of Don Muang Airport (12.43-

12.44AR). The Claimant had a legitimate expectation that it would profit from the

investment, and that it would be able to pay debts on time, which meant it expected the

forecasted rates of return would be achieved, or that returns close to the forecasted amounts

would be achieved, and such a profitable scenario was an understanding between the parties

(12.1AR). No explicit rate of return was guaranteed, though that having been an

understanding between the two parties, the Tribunal decided that the Claimant agreed to all

conditions in the original concessions agreement, and to MoA2, with the legitimate


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expectation that it would make a profit, and the failure to fulfill that reasonable expectation

was considered a breach on the Respondents FET obligations (12.3-12.4, 12.31AR).

Formal Award

The Tribunal, having rejected consideration of claims prior to the 2002 BIT coming into

force (9.69AR), and having rejected claims ofde facto expropriation (10.12AR), usedestimated losses for the concession period between October 2004 and 2 July 2021 (14.29AR).

Recalling that MoA2 extended the concession by 25 years from 2 July 1996, and considering

initial and interim forecasted returns, which were to be accrued through a payment of

dividends, after consideration also of multiple accounting techniques used to calculate losses

the Claimant suffered, the Tribunal found that after subtraction of the discounted value of the

Claimants shares, which were sold on 3 Dec 2006, the damages amounted to 29.21 million

(14.43-14.44, 17.1AR). The Tribunal ordered the Respondent to pay the Claimant interest on

the award at a specified rate and method of compounding, beginning on 3 Dec 2006 until the

date of payment of the award (16.1AR). The Claimant suffered more than 2.5 times the

arbitration costs of the Respondent (5,606,443 to 1,993,331), and so to balance that outmore fairly, in view of the award in favor of the Claimant, the Tribunal ordered the Claimant

to pay half the Respondents costs and the Respondent to pay half the Claimants costs (15.5-

15.8, 17.1AR).

4. Enforcement Action and Resulting Controversy

4.1 Seizure of a Boeing737in Munich, Germany

On 13 July 2011, news publications featured articles about the Claimants insolvency

administrator, Werner Schneider, having requested a Boeing 737 in Munich be impounded in

pursuit of debt enforcement on the Tribunals July 2009 award (Jolly, 2011). The German

creditors reportedly claimed that the plane was registered to the Thai government according

to aviation registries, which made it a target for collection on the debt (Baetz J. , 2011). The

Thai debtors reportedly maintained that the plane was off-limits because it was the private

property of the Crown Prince personally, and not that of the government (Bangkok Post,

2011).

The Thai government demanded the plane be released, and Werner Schneider was said to

have been placed on thepersona non grata list, banning him from entering Thailand

(Puangthong, 2011). The Thai Attorney General then reportedly said Walter Bau must bring

the case to the Thai domestic court for enforcement (The Nation, 2011). Meanwhile, the

German Court ordered the plane released upon condition that the Thai government provide a20 million bank guarantee (France-Presse Agence, 2011), having declined a request by the

Thai government for a release of the plane without such security on the debt, and apparently

not convinced that the plane was not the property of the Thai government (The Nation, 2011).

The German Embassy in Bangkok issued a press release online dated 22 July 2011,

which was shortly thereafter removed, which stated that the competent German Regional

Court in Landshut ruled on the plane, authorizing its release after the security payment, and


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that the Thai Government [had] since declared that it does not intend to secure the release of

the aircraft by paying the bond. Further proceedings in Landshut were scheduled for late

August. The German Embassy urged the Thai Government to fulfill its obligation under the

judgment as soon as possible, referring to the arbitral award rendered in 2009. The report

included a brief summary of the case, and encouraged the Thai government to send out a

positive message about the further development of German-Thai relations by paying theaward (German Embassy, 2011).

Back in Deutschland, the Thai Crown Prince had a second jet flown to Munich after the

first was seized, and a German tabloid quoted Schneider as saying that he was considering

seizing the second plane (Bryan, 2011).

4.2 Confirmation in New York

The Embassy press release found that reports in the Thai media about ongoing

proceedings in New Yorkare misleadingthe proceedings in New York merely concern

the question as to whether compulsory enforcement is also possible in the US[which] will

do nothing to alter Thailands obligation to pay compensation.

Indeed, some of the news media reports have been misleading, or have in some way

communicated a message which is not entirely accurate, and certain journalist agencies have

shown their lack of expertise in the field of law by printing lay-commentary, representing an

incorrect interpretation of the facts and law as they appear to be.

Schneider did petition the US District Court in Southern New York for confirmation of

the arbitral award. Thailand presented two arguments as to why the petition should have

been dismissed: (1) the Arbitrators improperly asserted jurisdiction as the Parties did not

agree to arbitrate; (2)forum non conveniens considering that Thailand had no assets in the

USA. Thailand argued that the US Court should conduct a de novo review of the arbitration

proceedings and award, citing aFirst Options case which the Court found inapplicable. The

Court noted that given the apparent facts and applicable laws, even upon a de novo review,

there is doubt that Thailand may be able to overturn the Arbitrators well-reasoned award.

The question of arbitrability was raised by Thailand on the basis of lack of a Thai

Certificate of Approval (CA) for the investment, which Thailand argued was necessary,

along with Board of Investment (BOI) approval, for the BIT arbitration clause to apply. The

Court noted that only 8 CAs had been issued in a 40 year period of German-Thai

investments, and none of those applicants had BOI approval, and so there were zero examples

of a German investor in Thailand who had both the BOI certificate and the CA. The projectwas approved at various levels of the Thai government, and Thailand was found to have

never given the Claimant any notice or indication that the CA was required, yet the CA

requirement was invoked upon the Claimants application for BIT protection, which the

Court found unjust. This objection to the petition was therefore rejected.

On theforum non conveniens objection, the Court noted that the petitioners choice of

the US forum received less deference than if the petitioner were a domestic one, yet some


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deference was afforded to the petitioner. The petitioner was not found to have been

motivated by forum-shopping considerations. The Court also clearly stated that the Claimant

was not seeking to resolve any dispute or conduct extensive trial proceedings; instead it

[sought] only to confirm its Award . The Court assumed Thailand would be an adequate

alternative forum, though presence of an adequate alternative forum did not prohibit the US

from retaining jurisdiction.

Private interest factors were not in favor of, and were against, aforum non conveniens

dismissal because the dispute was already resolved in arbitration and was merely awaiting

confirmation in the US Court. Thailand attempted to interpret confirmation as litigation

where new evidence was introduced, involving a de novo review, which appears to have been

a misinterpretation of the process and lack of clear understanding of the Courts capacity to

make any changes to the actual award.

Public interest factors were more evenly balanced, and ultimately found to be neutral.

Factors against dismissal included that the American courts have an interest in recognizing

and enforcing arbitration agreements in international contracts, and that no additionalevidence or foreign legal issues were required to consider confirmation. Thailand was not

found to have been burdened in any way by proceedings in the USA. Factors which were not

against dismissal included the loose connection of the case and both parties to the USA,

except that both parties to the case and the USA are NY Convention signatories. Lack of

Thai assets in the USA weighed in favor of dismissal. The Claimant argued that Thailand

may have assets in the US in the future.

Based on numerous considerations of fact and law, the US Court denied Thailands

cross-motions, and affirmed Schneiders petition. The award was confirmed, but not

enforced, nor was enforcement sought as it was known prior to petitioning the Court that

Thailand had no assets in the USA (USDCSNY, 2011).

Inaccurate or Misleading News Reports

The news media stated that Schneider/Bau sought payment under the New York

Convention through the US Court, though the Courts report clearly shows payment in the

US was not sought, but only confirmation was sought (Nation, 2011). Further reports stated

that according to the then-outgoing Thai Prime Minister, Thailand was planning to continue

defending against the charges in legal cases overseas (BKK Post, 2011). However, despite

the appearance in the news written by both Thai local and some international agencies,

Thailand has very few, if any, options to contest the actual award. The confirmation decision

is in appeals, but some news agencies have made it appear as though the award were being

appealed, which it is not because it cannot under law.

4.3 Apparent underlying Dispute in the Aircraft Issue

The German Revolution and founding of the Weinmar Republic in 1918-1919 coincided

with the abolition of monarchy in Germany. After WWII, the Federal Republic of Germany

and German Democratic Republic divided the nation, which was merged in 1990. The word


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republic is defined as a State in which the supreme power is held by the people and their

elected representatives, and which has an elected or nominated president rather than a

monarch (Oxford, 2011).

Constitutional Monarchy

In the 20th century, many absolute monarchies were overthrown, abolished, orsignificantly altered to accommodate the growing demand for rights to self-determination of

people and more participative government. With the passing of Western colonial rule, many

nations chose to adopt the experimental Constitutional Monarchy structure of government,

where, as the British government stated, a king or queen reigns, with limits to their power,

alongside a governing body, Parliament (Directgov, n.d.). Other nations with longstanding

sovereign absolute monarchies transitioned to the new model independently as times

changed. The constitutional system acknowledges a hereditary or elected monarch as head

of statea constitutional monarchys executive authority is vested in the head of state

(Government of Bermuda, n.d.).

Much disagreement and some controversy have resulted in the interpretation of the role

of the monarchy in the government of States with the constitutional monarchy system. Some

commentators would maintain that the king or queen in the constitutional monarchy have no

power whatsoever, while both the official government interpretation and alternative private

opinion find there is certainly some, or a great deal of quantifiable power which monarchies

still hold, even under the constitutional monarchy system.

The United Kingdom, for example, offers a royal.gov.uk website. The inclusion of the

.gov domain suffix following the word royal, which leads to a number of web pages

dedicated to the British monarchy, suggests that the monarchy is inseparable from

government, and thus is not a private body per se. In the royal.gov.uk websites, readers canlearn about the role the Queen plays in government, from symbolic traditional practices, to

duties including opening new sessions of Parliament, and dissolving Parliament prior to

elections, approving Orders and Proclamations through the Privy Council, etc. The Queen

also has exclusive access to the government via regular meetings with the Prime Minister

(British Monarchy, 2011).

2007Thai Constitution

The 2007 Thai Constitution places the King as the Head of State in section 2, and as the

head of the armed forces under section 10. According to section 3, the King may exercise

power through the National Assembly, the Council of Ministers and the Courts in accordancewith the Constitution. The King selects and appoints the President of the Privy Council and

up to 18 Privy Councilors, who consult and advise the King (s12). It is the duty of the Thai

people to uphold the King and the Constitutional Monarchy (s70). The kings signature is

required to pass any bill into law (s90). The King may refuse to sign or simply not return the

bill within 90 days, which prompts the Assembly to reconsider the bill, and upon a second

failed attempt to obtain the Kings signature, the Prime Minister calls the bill to be

promulgated as an Act in the Gazette as if the King had signed it (s151).


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The King may dissolve the House and calls general elections in both the House and

Senate (s108,107). Within the laws, the King appoints the Leader of the Opposition in the

House (s110), and the President and Vice President(s) of the House and Senate (s124), and

the Prime Minister (s171), and military and civil service officers (s193), and judges (s200),

and Constitutional Court judges (s204), and election commissioners (s229), and ombudsmen

(s242), and National Counter Corruption Commissioners (s246), and State AuditCommissioners (s252), and National Human Rights Commissioners (s256). The King may

remove a Minister upon advice from the Prime Minister (s183), or remove military and civil

service officers (s193), or remove judges (s200). The King convokes the National Assembly,

opens and prorogues its session, though the king may have the Heir to the Throne who is sui

juris or any other person perform the ceremony as a representative (s128).

The King may issue Royal Decrees in line with laws (s187), and may declare and lift the

martial law (s188), and declare war (s189), and conclude a treaty (s190), and grant pardons

(s191), and remove titles and recall decorations (s192). Ministers must make a solemn

declaration of allegiance to the King prior to taking office (s175), and so must judges swear a

declaration of loyalty to the King prior to taking office (s201). Court proceedings are in the

name of the King (s197). The enumerated duties, privileges, and powers given to the King in

Thailand under the Constitution (Kingdom of Thailand, 2007) suggest that while there is a

law guiding and constraining the power of the monarchy, the monarchy is still a very active

and influential institution, as does the King as an individual have a very active role in the

administration of the government.

The Prince

HRH Vajiralongkorn is a military pilot with the rank of Air Chief Marshal (Baetz J. ,

2011). The Prince is also a General in the Army and Navy (Thai PRD, 2002). Together with

his sisters, the Prince has often acted as the representative of the King, State, and monarchy

(Golden Jubilee Network, 2000). As per section 128 of the 2007 Thai Constitution, HRH

Vajiralongkorn opened Parliament within the month following the seizure of the Royal jet

(O'Brien, 2011). The founder of the Royal Thai Air Force was a Prince (RATF , n.d.), and so

the title of HRH is likely inseparable from the branch of service.

The Apparent underlying Dispute

From the standpoint of a citizen or court of a Republic, which does not recognize the

legal capacity or authority of a monarchy in its domestic government, the line separating the

public and private capacity of any figure of a monarchy, be it under the absolute or

constitutional model, is likely very blurry. The Thai Constitution, like the official rules, laws,

and regulations in the UK, like the procedures and customs in all constitutional monarchies,

makes the operation of government entirely impossible without the consistent actions of the

Head of State who is the King or Queen. To complicate matters further, third-party

spectators, who are unfamiliar with the culture and beliefs of citizens of States under

constitutional monarchy, may not be able to easily separate the State from the Government

which many Brits most notably have done related to their Queens supposed utter lack of


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any power whatsoever. Such a contradiction between the literal meaning of words and the

perceived practical value is insufferable to many people, and thus it is not likely to ever be

the consensus, nor even strong majority, view that the Head of State is not a Government

figure.

Given that it is a plausible argument to consider the Royals of this world as government

actors in some capacity, however limited and symbolic it may be depending on the

jurisdiction, we can then move on to the next conflict, which is regarding private property

rights among government officials. Here we need to, again, draw clear distinction between

the general assemblies, the elected and appointed officials, and the anomalous figures of

monarchies. Kings and Queens are featured on money worldwide, which is a privilege not

afforded to other living officials. Royals are certainly entitled to privacy and private

property, but these rights are not likely to be identical to those of other civilians and other

public servants. An aircraft bearing the Royal insignia andgovernment markings, and in this

case, according to news reports, an aviation registry in the name of the Air Force, whether co-

owned or showing such registry in error, is likely to fall into a gray area at very least.

The German court, having no lese majeste law, nor having any requirement of oath of

allegiance to a Koenig or system of monarchy prior to entry into office, representing the

citizens of a republic, was obviously able to consider arguments and applications which were

far outside of the scope of the Thai law, where such a seizure would have clearly been a

crime. The 2002 BIT, however, did not exclude such unilateral action, nor did it require a

harmonization of national laws to facilitate application of that treaty or others.

5. Applicable Laws, Rules, Conventions, Treaties, and Standards

5.1 International Law & Treaty

The most relevant Convention at the post-award stage of international dispute resolution

is the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards

the New York Convention which entered into force in Thailand in 1960 and in Germany in

1961. The Convention is also in force in Hong Kong SAR, Malaysia, Canada, New Zealand,

the UK, USA, and Switzerland, so any question about the applicability related to the various

jurisdictions involved in the arbitration are covered. The Treaty is valid and binding at the

national levels in both Thailand and Germany.

The dispute was brought under Articles 9 and 10 of the 2002 Treaty between the

Kingdom of Thailand and the Federal Republic of Germany concerning the Encouragement

and Reciprocal Protection of Investments (previously mentioned as BIT). Article 1 of theBIT defines investments as every kind of asset. Article 2(3) sets out the fair and

equitable treatment requirements. Article 3 provides for national and most-favoured-nation

treatment. Article 8 provided for application to approved investments made prior to [the

2002 BITs] entry into force. Article 10(2) stated the award shall be enforced in

accordance with domestic law (Thailand-Germany, 2002).


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Article 10(4) of the BIT stated that if both parties were members of the Convention on

the Settlement of Investment Disputes between States and Nationals of Other States, disputes

would be submitted for arbitration under the ICSID. 157 States have signed the ICSID, and

Thailand is one, however Thailand is also one of 10 States that has not deposited instruments

of ratification. Germany has signed and ratified the Convention, and it has entered into force

(ICSID, 2011).

Germany is a member State to the 1980 United Nations Convention on Contracts for the

International Sale of Goods (CISG), though Thailand is not (UN-CITRAL, 2011).

Germany adopted the 1985 UNCITRAL Model Law on International Commercial

Arbitration in 1998, and in 2002 Thailand adopted the Model Law (United Nations, 2011).

The arbitration was brought under the BIT and the procedure followed UNCITRAL

rules. The 1969 Vienna Convention on the Law of Treaties Article 28 non-retroactivity

rule was applied to deny claims for damages present before the 2002 BIT entered into force

(United Nations, 1969). The Tribunal considered the events, facts, and claims from times

prior to the 2002 BIT entry into force, but no award was based on damages incurred prior to

the 2002 BIT entry into force 20 Oct 2004 (9.67-9.69AR). Germany ratified the Vienna

Convention in 1987, though the UN did not report any signature or ratification for Thailand

(UNTREATY, 2011).

5.2 Potential for Non-recognition or Vacation of the Award

Under Article V of the NY Convention, recognition and enforcement may be refused

upon limited grounds: (1) if the parties had no legal capacity, or if the agreement was invalid

in the nation where the award was made; (2) if the party against whom the award was

rendered was not given proper notice of arbitrator appointments or proceedings, or if such

party was not present in the arbitration; (3) if the award was rendered for reasons or upon

grounds removed from or beyond the agreed upon subject matter of the arbitration; (4) if the

Tribunal was not composed as agreed upon by the parties; (5) if the award was suspended by

the competent authority under the applicable law, prior to the award taking binding effect; (6)

if the subject matter of the dispute is not capable of settlement under the applicable law; (7) if

the recognition or enforcement of the award would be contrary to public policy in the country

where the award was recognized and or enforced. Section 2(b), concerning public policy

conflicts, may be invoked in Thailand, but elsewhere that option is not likely available

considering that the dominant public interest in these matters is application of the Convention

(UN, 1958). However, even in Thailand, the NY Convention should be a powerful motivator

to recognize and enforce the award.

The UNCITRAL Arbitration Rules allow for interpretation (art35), correction (art36),

and addition to (art37) the award, but no provisions are made for cancellation, revocation,

vacation, or annulment. Article 32(2) does state very clearly that awards shall be final and

binding on the partiesthe parties undertake to carry out the award without delay

(UNCITRAL, 1976).


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Article 36 of the UNCITRAL Model Law on International Commercial Arbitration gives

grounds for refusing recognition or enforcement of awards, which are merely a restatement of

the NY Convention exceptions. Article 35 states that an arbitral award, irrespective of the

country in which it was made, shall be recognized as binding and, upon application in writing

to the competent court, shall be enforced (United Nations, 1994).

Other international arbitration models, such as the ICSID in Chapter VII, offer options

for annulment of the award, though there are limited grounds: (a) the Tribunal was not

properly constituted; (b) the Tribunal has manifestly exceeded its powers; (c) there was

corruption on the part of a member of the Tribunal; (d) there was a serious departure from a

fundamental rule of procedure; (e) the award has failed to state the reasons on which it is

based. The ICSID Convention references the final and binding nature of arbitral Tribunal

decisions in its preamble, in Article 53-54, and throughout the Convention and Rules texts. It

is exceedingly doubtful that Thailand could prove that any such circumstances exist or have

existed which could lead to annulment of the award, and even if such a claim were proven the

ICSID model was not the applicable rule or system used in the arbitration.

5.3 Collection

HRH Vajiralongkorn offered to pay the bank deposit to retrieve the plane (France-Presse,

2011). The 20 million deposit is not the full award. The ongoing dispute has drawn

attention not only to Royal politics, bad debts, breaches of contracts, and alluded to

corruption, but it has also shown the weakest part of the international arbitration law:

enforcement.

The Claimant likely chose not to apply for enforcement in Thailand because it would

have been considered a waste of money. The Thai government is obligate to recognize and

enforce the award under the NY Convention. The dispute is regarding a commercial contract,so sovereign immunity is not a defense, and restrictive immunity has been removed by the

arbitral tribunal. The seizure of the jet was a last option, and further court decisions will

determine the eventual outcome of this case, but until the creditor collects, the case is a loss

for the Claimant and for international law.

6. Closing Statements

The Claimant signed on with the concessionaire group because it wanted to capitalize on

the opportunity to make a profit. The contract was a likely a dream come true, though it

turned into a nightmare for the foreign investors within 10 years, and attempts at lucid

dreaming to redirect the project did not work out prior to the Claimant selling off its shares inthe collective. FET obligations under the 2002 BIT, and terms of the contract(s) were

breached by the Respondent. Two years after the arbitral tribunals award was rendered, the

Respondent takes on the appearance of the recalcitrant debtor with attempts to deny the

validity of the award.

As member nations of the UNCITRAL Model Law and NY Convention, the Respondent

has a duty under international law to pay. Of course the timing of regulations on government


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contracts written after the Hopewell project may also seem to allude to the potential that the

Claimant had engaged in bribery during the bidding and selection process, but that issue was

not explicitly addressed. Of course the 2006 military coup and other unorthodox government

changes before and after initiation of the arbitration affected the case. Of course there are

likely questions within the Respondents many departments and agencies regarding the legal

capacity of post-coup representatives to the arbitration, and the government turmoil on theThai side most likely led to valid complaints about the representation through the arbitration

process. However, the Respondent must somehow accept its own actions and deal with the

anomalous political structure in the Kingdom of Thailand.

Faith in the international process and system is necessary for the system to function.

When and where there are problems, excessive presence of loopholes, contradictory clauses

and features, then a collective effort is needed to change anything. One cannot change the

all, nor is it realistic that all should have to suffer through the attempts by one to change the

whole against the wishes of the overwhelming majority. If and when changes are necessary,

there should be accompanying public and private outcry, and some consensus is required.

After resolution to propose and pursue changes, a process must be satisfied. We cannot

engage in hasty, unorthodox, and unplanned, unstructured government at the international

level as some nations seem to have engaged in at the domestic level.

The simple fact remains today that international arbitral tribunal awards are final and

binding. There is no appeal. The lack of appeals is what makes the arbitration route

attractive to many parties. Litigation is the route which needs to be taken if a party desires an

appeal, but litigation is far more adversarial, more rigid, often more expensive than

arbitration, and there is no real world court which handles cases between private parties and

nations. The ICJ may handle some cases involving commercial subject matter, but all cases

are between states. Arbitration offers much-needed rights for private investors to bring

claims against States, and the NY Convention offers much-needed enforcement and

recognition protection for private interests.

The Kingdom of Thailand is a developing nation without a great deal of technological

innovation or expertise when compared to some other nations. States like Thailand need FDI,

technology transfer and licensing-in to compete in the highly technical global economy.

Thailand is not a nation like Germany, Singapore, Korea, Japan, or China (increasingly)

which can afford, to some greater extent, to alienate investors who have the power in the

relationship by broader standards - outside of the secular State jurisdiction. Thailand likely

contracted out to the Claimant because the Claimant offered the best price for the level of

quality Thailand desired. If Thai construction firms were capable of going it alone, therewould have never been a reason to contract out to foreigners. The breaches of contract and

treaty on the part of the Respondent not only represented an unreasonable departure ofpacta

sunda servanda, but in plain terms constituted a commercial nightmare. Walter Bau AG may

not be insolvent today if the Respondent would have only kept to its agreements.

There are, in probably every case, things left unsaid, and things which could have been

said differently or better, and regrets about past actions of one party or the other or both.


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People are not generally perfect. Some deviation from contracts is often acceptable so long

as the basic objective can still be accomplished. In this case, the objective on the part of the

Claimant to make a profit was not realized, and the failure to accomplish that very simple

financial goal was determined to have been largely due to the breaches of contract and

obligations on the part of the Respondent. On the merits of the case, on the facts, and within

the law, the Tribunal rendered the award in favor of the Claimant. The Respondent isobligated to recognize and enforce the award, regardless of to whom the plane belongs,

regardless of whether the monetary payment is sought in a constitutional monarchy or

republic. Today is a perfect opportunity to recognize the facts about this law.

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