In more detail
1. What is arbitration?
Arbitration is an alternative dispute resolution process conducted outside of courts. Its key features include:
- Consent-based mechanism – Parties may agree to resolve disputes through arbitration by entering into an "arbitration agreement," either before or after a dispute arises.
- Party autonomy in tribunal formation – Parties can participate in the appointment of one or more "arbitrators" who will adjudicate the dispute.
- Procedural flexibility – While parties are free to design their own procedural rules, they often adopt established "arbitration rules" provided by recognized "arbitral institutions," which also administer the proceedings.
- Final and binding outcome – An arbitral tribunal issues an "arbitral award" that is generally final and binding, with no right of appeal. If the losing party fails to comply, the prevailing party may seek enforcement through courts.
2. How is arbitration related to international investment disputes?
When two jurisdictions seek to promote foreign investment between them, they often enter into a bilateral investment treaty (BIT). A BIT typically contains two key components:
- Substantive protections: BITs generally provide legal protections for qualifying "investments" made by investors from one jurisdiction (home jurisdiction) in another jurisdiction (host jurisdiction). These protections vary by treaty but commonly include:
- Fair and equitable treatment (FET) – Requiring the host jurisdiction to treat foreign investors in accordance with international standards.
- National treatment (NT) – Ensuring foreign investors are treated no less favorably than domestic investors in like circumstances. Many BITs define "investment" broadly, often including equity interests such as shares in a local entity. Due to this scope, foreign investors may challenge legislative changes in the host jurisdiction that adversely affect their investment.
- Investor-state dispute settlement (ISDS): If a host jurisdiction breaches its obligations under a BIT, the foreign investor may seek redress through ISDS. Rather than litigation in the host jurisdiction’s courts, the investor may initiate investor-state arbitration under specified rules. The BIT may designate an applicable arbitral institution and rules, subject to certain conditions.
3. What about BITs to which Thailand is a party?
As noted, each BIT protects foreign investors from jurisdictions that are signatories to the treaty. Therefore, when a Thai company seeks to assess its protections under a BIT, it must first confirm whether the jurisdiction in which it is investing has entered into a BIT with Thailand, and must also review whether the BIT provides for investor-state arbitration and under what conditions. Below are examples of BITs with differing dispute resolution mechanisms:
| |
BIT |
Investor-state arbitration |
Arbitration rules1 |
| 1 |
BIT between Thailand and Lao PDR (1990) |
✕ |
- |
| 2 |
BIT between Thailand and Cambodia (1995) |
✓ |
UNCITRAL Arbitration Rules (1976) where both parties so agree |
| 3 |
BIT between Thailand and India (2000) |
✓ |
UNCITRAL Arbitration Rules (1976) |
4. Can a Thai company benefit from a BIT to which Thailand is not a party? Can restructuring solve all problems?
We note that BITs to which Thailand is a party remains relatively limited. Moreover, not all of Thailand’s BITs provide open access to investor-state arbitration. This raises the question: can a Thai company benefit from a BIT to which Thailand is not a party? While the general answer is no, the reality is more nuanced and depends on the investment structure and the treaties involved.
It is common for companies to structure their investments through intermediary entities incorporated in third jurisdictions, or to have significant foreign shareholders. In such cases, if a BIT exists between the intermediary jurisdiction (or the jurisdiction of the shareholder) and the host jurisdiction, and that BIT includes investor-state arbitration, there may be a pathway to invoke treaty protection. This is subject to the specific facts surrounding the shareholding and corporate structure.
In today’s rapidly evolving geopolitical landscape, foreign investments face increasing legal and regulatory uncertainty. While local remedies in the host jurisdiction remain important, they may not always provide sufficient protection. It is therefore prudent for companies investing abroad to reassess their legal options, not only under the domestic laws of the host jurisdiction but also through the lens of international investment law. Understanding the scope and applicability of BITs, including the potential use of intermediary structures or foreign shareholder routes, can be a critical step in safeguarding cross-border investments.
