https://globalarbitrationreview.com/article/1078541/thailand-loses-german-appeal-over-treaty-award
Germany’s Federal Court of Justice has upheld a €45 million treaty award against Thailand, accepting evidence provided by the German government that the claimant had an approved investment protected by a treaty.In a decision dated 6 October that has only just been published, the court in Karlsruhe upheld a decision by a Berlin regional court last year that recognised an UNCITRAL award in favour of insolvent German construction company Walter Bau. The judgment is the latest stage in a seven-year effort by Walter Bau’s insolvency administrator Werner Schneider to collect on the award, which was issued in 2009 by a Geneva-seated tribunal consisting of New Zealander Sir Ian Barker QC as chair, Marc Lalonde QC of Canada and Jayavadh Bunnag of Thailand. The award compensated Walter Bau for state measures that depreciated its investment in the Don Muang toll road linking Bangkok and its international airport. Walter Bau brought its claim under the 2002 Germany-Thailand bilateral investment treaty, which applies to “approved investments” made in Thailand prior to the entry into force of that treaty. The tribunal issued a jurisdictional award in 2007 upholding the claimant's argument that it had an approved investment in the terms of a 1961 BIT between Thailand and Germany no longer in force, as it had been granted a certificate under a Thai investment promotion statute.Thailand argued that the UNCITRAL tribunal lacked jurisdiction, contending that the 1961 BIT required the issuance of a certificate of admission confirming the protected status of every “investment” made under the treaty and that a certificate of promotion under the statute did not qualify for this purpose.In March 2012, the Berlin Higher Regional Court – the court of first instance for enforcement of arbitral awards – declared the award enforceable after concluding that Thailand had waived its immunity from suit.The Federal Court of Justice remitted the case to the Berlin court on this point, ruling that it had not been established that Thailand had waived its sovereign immunity. It instructed the Berlin court to determine for itself whether Walter Bau’s investment in Thailand was an approved investment for the purposes of the BIT.The Berlin court again declared the award enforceable in 2015. In so doing, it relied on evidence provided by the German government – including a 1972 “note verbale” in which Thailand had confirmed on a diplomatic level that investments that had been granted a certificate of promotion under the Thai Promotion of Industrial Investment Act were deemed to be “approved” within the meaning of the 1961 BIT. Thailand had failed to produce these documents either before the arbitral tribunal or the German courts.Thailand appealed that decision once again to the Federal Court of Justice, on the basis that the Berlin court had wrongly determined that the investment was protected under the 2002 BIT, and that the state immunity defence should still apply even in light of the 1972 note verbale.In the latest decision, the Federal Court of Justice affirmed that, in light of Thailand’s confirmation in the note verbale that a certificate of investment was to be treated as a certificate of admission for the purposes of the 1961 BIT, Walter Bau therefore had an approved investment that fell within the consent to arbitration under the 2002 treaty. Thailand also argued before the court that Walter Bau should have discontinued the BIT claim to comply with an agreement the investor had concluded with its Thai business partner Sombath Phanichewa in 2006 to purchase its remaining shares in the toll-road company for €10 million. According to Thailand, Phanichewa triggered a clause in the agreement that required Walter Bau to cease the arbitration but Schneider ignored it by obtaining the award and seeking its enforcement. The issue has been the subject to two concluded ICC arbitrations between Phanichewa and Walter Bau, and a court action that is pending in the Augsburg Regional Court. It also formed the basis of an unsuccessful request for revision of the UNCITRAL award in the Swiss courts. But the Federal Court of Justice said that any breach of contract between Schneider and Phanichewa was not a basis for refusing recognition of the award as a matter of public policy.Thailand’s counsel, Frank Roth of DLA Piper in Cologne, questions whether it was within the court’s remit to apply the diplomatic note in a manner that contradicted Thailand’s interpretation of it, raising the possibility that the Asian state may seek to bring a complaint before the German Federal Constitutional Court.Walter Bau’s counsel Daniel Busse of Allen & Overy in Frankfurt says: “I am very happy that this dispute has come to an end, and that we have a final and unappealable decision on the enforceability of the award”.Busse also says that the case shows a need for Germany to reform its procedure for enforcing arbitral awards – suggesting that the state should follow in Switzerland’s footsteps, with a one-instance-only procedure for enforcement.“While the arbitration took just under four years, we were then forced to wait more than seven years to receive a final decision on enforceability,” he said.It is expected that Schneider will now look to execute a bank guarantee it obtained from Thailand in 2011 for the full amount of the award, unless the state makes an imminent payment.Thailand was required to issue the guarantee to win the release of Thailand’s Royal Air Force One – a Boeing 737 used by the country’s Crown Prince – which Schneider had succeeded in attaching that year after it landed at Munich airport.Frankfurt-based sole practitioner Robert Hunter, who acted as counsel to Walter Bau in the arbitration, says the decision is “hopefully the end of a long saga”.The German court made its October decision a week before the death of King Bhumibol Adulyadej, who ruled Thailand for seven decades. Crown Prince Maha Vajiralongkorn has since succeeded him as king. Werner Schneider v ThailandIn the Federal Court of JusticeCounsel to Werner Schneider as insolvency administrator of Walter BauAllen & OveryPartners Daniel Busse and Wolf Bussian, and associate Sybille Herberg David Schmid Sven Lange in FrankfurtRobert Hunter of Chambers of Robert Hunter in FrankfurtProfessor Matthias Siegmann Counsel to ThailandDLA PiperPartner Frank Roth and David Buntenbroich in CologneToussaint & Schmitt Partner Guido ToussaintCounsel to intervenorPricewaterhouseCoopers Legal Klaus Bischoff and Reinhold Lachmann in NurembergIn the UNCITRAL arbitrationArbitral tribunalSir Ian Barker QC (Chair) (New Zealand)Marc Lalonde PC OC QC (Canada)Jayavadh Bunnag (Thailand)Counsel to SchneiderLovells (now Hogan Lovells)Robert Hunter (no longer with the firm) and Mariel Dimsey James Crawford SC of Matrix ChambersCounsel to ThailandWhite & CasePartner Michael Polkinghorne, Elizabeth Lefebvre-Gross and Paul BrumptonNews, Investment Arbitration, Enforcement and Set-Aside
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