Citation: Supreme Court Decision 4288/2558 (2015)
Court: Thailand Supreme Court
Relevant Legislation: Thai Arbitration Act BE 2545 (available here)
In line with modern international arbitration practice, in 2015, the Thai Supreme Court affirmed the position that a typical “broad” arbitration clause would allow the arbitration of tort-based disputes, even where such tortious claims are premised on certain statutory provisions and where the arbitration clause does not explicitly provide for the arbitrability of tortious claims. IAA student editors for Thailand Pimvipa Kunanusorn, Gunthorn Supatadarut, Natthicha Wiriyatornphan and Pornphan Uasunthonphanit report.
In this case, Tongkum Company Limited (the “plaintiff”) and Deutsch Bank AG (the “defendant”) entered into a “Facility Agreement” and an “Export Contract” relating to a shipment of gold from the plaintiff to the defendant. Each agreement included an arbitration clause that stipulated that any dispute shall be to the London Court of International Arbitration (“LCIA”).
Subsequently, the defendant alleged that the plaintiff’s had defaulted on its obligations for loan payment and the delivery of gold under the Facility Agreement and the Export Contract. The defendant purported to exercise its contractual right to terminate both agreements and proceeded to submit its claim for arbitration in accordance with the arbitration clause contained in the agreements.
The plaintiff however, brought a claim before the Thai court alleging that the defendant had failed to inform the plaintiff of the evident increase in the price of gold and, thus, fraudulently coerced the plaintiff into entering the Facility Agreement and the Export Contract in violation of the Unfair Contract Terms Act B.E. 1997. Additionally, the plaintiff also claimed that the Facility Agreement and the Export Contract provide for a pre-determined price of the gold, rather than a price in accordance to the market value at the time and place of payment in contradiction to Section 656 of the Thai Civil and Commercial Code. The plaintiff argued that both agreements were void on such grounds.
The defendant claimed that since the underlying dispute falls within the scope of the arbitration agreement as it arose from the Facility Agreement and the Export Contract, the plaintiff did not have the right to submit such disputes to the court; instead, it was under the obligation to submit its cases to arbitration with the LCIA. In response to the defendant’s arguments for arbitration, the plaintiff argued that as dispute is tort-based (and based on statutory rights) rather than based on contractual rights, the plaintiff has the right to submit its case to the Thai court.
The court of first instance held that the dispute should be arbitrated and that the court did not have jurisdiction over the dispute. The plaintiff appealed this decision to the Supreme Court.
II. ISSUES FOR THE COURT
The primary issue before the Court related to its jurisdiction over the dispute. The plaintiff contended that the Court possessed jurisdiction to resolve the dispute, as it is tort-based (and founded on statutory rights) which renders it outside the scope of the arbitration agreement. On the contrary, the defendant argued that the dispute is subject to the arbitration agreement and as such, that the Court did not have jurisdiction over the dispute and should remit the dispute to the LCIA arbitral tribunal.
III. DECISION OF THE COURT
The Supreme Court upheld the decision of the court of first instance that the Facility Agreement and the Export Contract concluded between the parties contained an arbitration clause as defined by Section 11 of the Arbitration Act B.E. 2545, where the contractual parties have agreed to submit all disputes or certain disputes that have arisen or may arise between them to arbitration.
The Court held that the arbitration agreement was valid and that the defendant had already submitted the dispute to the LCIA. Therefore, when the plaintiff filed a lawsuit with the court of first instance instead of pursuing arbitration, the plaintiff acted contrary to the arbitration agreements. According to the Supreme Court, the defects in the agreements as claimed by the plaintiff, such as the involvement of fraud or the agreements being contrary to Section 656 of the Civil and Commercial Code or the Unfair Contract Terms Act, are claims which arise or relate directly to the agreements. As a result, the grounds for the plaintiff’s claims were within the ambit of the relevant arbitration clauses. The Supreme Court thus ordered the striking out of the plaintiff’s case in accordance with Section 14 of the Arbitration Act B.E. 2545 and for the parties to proceed with arbitral proceedings.
A typical “broad” arbitration clause recommended by leading arbitral institutions include wording to the following effect: “any disputes arising out of or in connection with this agreement are subject to arbitration…”.
It is quite clear that the ambit of such a broad provision encompasses all contractual claims being “disputes arising out of the contract”, but the provision – on its face – does not specifically address tort claims. This arguably leaves room for interpretation, and the unwelcome possibility of parties engaging in prolonged litigation over the scope of the arbitration agreement. There is the question of whether such supposedly catch-all provision provides address for tort-based claims founded on statutory rights.
In line with with the general policy of a broad interpretation of arbitration clauses, and the decisions of courts in leading jurisdictions such as England, Singapore, and Hong Kong, the Thai Supreme Court has confirmed that a claim in tort, premised on certain statutory rights, would fall within the scope of an arbitration clause if the claim can be shown to be premised on the underlying primary contract. Further, the Thai Court has confirmed that such an arbitration agreement is valid and enforceable.
Therefore, parties should be aware that the assertion of mixed-basis claims, i.e. claims which are reliant on both breach-of-contract and tortious arguments, cannot be used as a convenient escape tool from a broadly-worded arbitration clause. One practical consequence of this decision is that it would dissuade recalcitrant parties keen to employ obstructionist tactics from invoking tort-based claims in an attempt to avoid its obligations under the arbitration agreement.
Should it be the parties’ genuine intention to exclude certain tortious claims from arbitration however, they would be strongly encouraged to expressly and specifically provide for such an exception in the arbitration agreement. Otherwise, costly and protracted litigation may ensue to ascertain the precise scope of such an arbitration agreement and whether a particular claim falls within its perimeters.
This article may be cited as follows: Pimpvipa Kunanusorn, Gunthorn Supatadarut, Natthicha Wiriyatornphan and Pornphan Uasunthonphanit, “Thailand Case Update: Arbitrating Tort Claims (Supreme Court Decision 4288/2588) International Arbitration Asia (4 February 2016) <http://www.internationalarbitrationasia.com/arbitrating-tort-claims>.