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Phuket Law: Getting the right deal – State agreements and investors' rights

Phuket Law: Getting the right deal – State agreements and investors' rights

PHUKET: For several years now, commentators – particularly in the business community – have opined that Thailand is in need of a significant infrastructure upgrade such as its mass transportation, road and railways systems.

economicsconstructiontourismtransport
By Jerrold Kippen

Sunday 25 October 2015, 10:00AM


Investment in state infrastructure projects may pay off better for some, depending on the understanding of what rights and forms of redress they may have. Photo: Alamy

Investment in state infrastructure projects may pay off better for some, depending on the understanding of what rights and forms of redress they may have. Photo: Alamy

The government appears to agree. Despite the differences between Thailand’s two main political parties, both of them have presented proposals for large scale and comprehensive infrastructure projects. Both parties continue to agree that Thailand needs to invest significant amounts to modernize and improve its infrastructure.

In such circumstances it is not uncommon for a government to encourage private sector investment. Such private participation may have several benefits for the government. These may include technical or managerial expertise not available domestically, a larger and more competitive bidding pool for the project and, depending on the type of private participation, project financing.

Where the potential private investor is foreign, a significant consideration will be an assessment of the protections afforded to the investment. Internationally, this is usually provided by substantive rights and enforcement provisions in a public-private contract (“PPC”) between the host State and the foreign private party or under any relevant investment treaty (“IT”) or both.

The following will briefly explain what types of rights and enforcement provisions are commonly available to foreign investors under these two options and conclude with a brief comment on the current investor-State situation in Thailand.

SUBSTANTIVE RIGHTS

The rights afforded to an investor under a PPC are for the contracting parties to determine and may vary with regard to the type of investment. However, a common concern for foreign investors is that the State may enact or change its law relevant to the investment such that it would diminish the investment’s value. Thus, an example of a substantive right commonly included in the PPC for the investor is a provision, which applies the law of the host State – at the time of the investment – to the investment throughout its duration. This is commonly known as a “freezing clause”.

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Whereas the investor will need to convince the host State to include investment protection provisions contractually, ITs provide such protections to the investor without such requirement.

ITs take three common but different forms:

  1. Bilateral agreements between two countries (BITs) and to which Thailand is currently a party of at least 34 such agreements;
  2. Multilateral investment agreements between more than two countries (MITs) and of which the 2009 ASEAN Comprehensive Investment Agreement (ACIA), to which Thailand is also party, is a good example; and
  3. Free-trade agreement (FTA), which although not dealing only with investment protection issues, commonly include such provisions. The 2009 ASEAN-Australia-New Zealand Free-Trade Treaty (AANZFTT) is a good example of an FTA and to which Thailand is a party.

 

The substantive protections that ITs offer to investors are common and generally include the following:

  1. “Fair and equitable treatment” in accordance with international minimum standards (which has generally been equated with the investor’s legitimate expectations to be treated transparently, predictably, consistently, and justly by the host State);
  2. “Full protection and security” (which imposes positive obligations on the host State to protect investments);
  3. No “arbitrary or discriminatory treatment” (which imposes a duty on the host State not to disregard internationally accepted standards of due process of law);
  4. No direct or indirect “expropriation” of the investor’s property by the host State without “prompt, adequate, and effective compensation”;
  5. “National treatment” and “most favoured nation treatment” (which are sometimes treated separately and which require the host State to treat the investor no worse than it treats its own nationals or investor parties from third States); and
  6. The observance of specific contractual undertakings by the host State with the investor (which are sometimes referred to as “umbrella clauses” and which require the host State to honour its undertakings with investors regarding their investment).

Keep an eye out for our next column on legal rights in private-state agreements, when we look at what enforcement provisions in a state contract can protect a private party’s rights.

Duensing Kippen is an international law firm specializing in business transaction and dispute resolution matters, with offices in Bangkok and Phuket, Thailand and affiliated offices in 45 other countries. Visit DuensingKippen.com

 

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