1 Introduction

Thailand has been very open to foreign direct investment (FDI) particularly from the 1980s, fuelling strong economic growth, albeit with strong competition from Singapore, Malaysia and more recently Vietnam as popular FDI destinations within the Association of Southeast Asian Nations (ASEAN) (Sect. 15.2). This pro-FDI environment has arisen despite many military coups and political upheavals.1 Corruption has also remained a serious challenge for local and foreign investors, although improvements have been made thanks to an anti-corruption agency and other initiatives (Sect. 15.3).

Inbound FDI has been underpinned by four somewhat overlapping waves of investment treaties, although originally with no investor–state dispute settlement (ISDS) arbitration option or only ones with very limited scope. The award against Thailand in the Walter Bau arbitration (2005–2009) took over a decade subsequently to be enforced. The government has also vigorously defended arbitration claims and award enforcement in cases brought instead under investment contracts rather than investment treaties, often very protracted and sometimes alleging corruption or other investor misconduct. Yet Thailand has gradually become more supportive of international arbitration overall (Sect. 15.4).

The second major inbound ISDS arbitration claim was commenced in 2017 under a 2004 bilateral free trade agreement (FTA) by Australia’s Kingsgate, after the Thai government suspended operations at its joint venture gold mine in 2015 (and other mines from late 2016) allegedly for environmental reasons. Public sources also indicate that questions have arisen about whether the foreign investor’s shareholding in the joint venture was within the maximum permitted under Thai law, and especially about potential bribery. The Australian investor in this Chatree gold mine joint venture has contested these allegations, and by early 2022 it looked like the case was going to settle before the award and that mining would resume, before any corruption inquiries had fully run their course (Sect. 15.5).2

In conclusion (Sect. 15.6), we reiterate first how corruption investigations and court proceedings are necessarily very lengthy, sometimes more so than the time taken to generate and enforce final awards in large (especially treaty-based) investment arbitrations. To reduce the consequent risk of enforcing an award that later proves to be based on seriously corrupt conduct, one solution may be for investment treaty arbitrators to apply a high standard of proof, similar to that applied by corruption investigators and criminal courts, although this will mean more delays and costs in arbitration. Secondly, we suggest that this topic shows the importance of adding more transparency to investment arbitration proceedings, so that the public at least knows that corruption is being alleged and investigated. Like a growing number of states, Thailand should therefore consider building more transparency provisions into future investment treaties and review past ones to incorporate such provisions, in various ways, to help promote important public interests and rule of law values.

2 Foreign Investment in Thailand: Past, Present and Future

Foreign investment, especially FDI in manufacturing, has been an important part of industrialisation in Thailand since 1959. FDI has also been central in Thailand’s overall strategy to push its industrial structure from labour-intensive to capital-intensive, then assembly-intensive (1981–2018) and now innovation-intensive (the national strategy 2018–2038).3 As more Asian countries became independent and rebuilt after World War II, Thailand in 1949 became a member of the International Monetary Fund (IMF) and the World Bank, which made its first loan in 1950 to accelerate industrialisation. In 1959 coup leader Sarit Thanarat committed Thailand to a path of economic growth based on an essentially pro-capitalist economy with private ownership as the means of production and an open trading regime, including American advice and a revision of the Investment Promotion Law in 1962. The role of the Board of Investment (BOI) was crucial, not just because of the few incentives it could grant, but because it was a symbol of the state’s commitment to promoting import-substitution industrialisation (ISI).

However, the ISI strategy adopted by the Sarit government and its successors led the economy into structural difficulties, including a chronic and growing adverse trade balance and deteriorating balance of payments. The labour-absorptive capacity of this strategy was also weak, impeding the modernisation of agriculture and expanding the urban poor. In 1972, the Thais started to move from ISI to export-oriented industrialisation with a revision of the Investment Promotion Law in 1972, designed to offset the disincentives inherent in import protection. The BOI offered export incentives for intermediate goods. Under the fourth economic and social development plan (1977–1981), the export promotion policy was significantly revised to reduce the anti-export bias resulting from ISI. The BOI still had a major role in authorising and granting exemptions and privileges.4

From around 1980, the World Bank and newer Asian Development Bank encouraged Thailand to upgrade their export capability as four Asian newly industralised countries (South Korea, Taiwan, Singapore and Hong Kong) moved away from manufacturing textiles and simple consumer electrical goods and so on to more sophisticated products like automobiles and videocassette recorders. The success of some Thai exporters of labour-intensive products created demonstration effects for other firms.5

General Prem (prime minister over 1980–1988) was convinced by his top economic advisors to establish Joint Public–Private Cooperation, helping to stimulate the Thai economy by exporting. The discovery of natural gas in the Gulf of Thailand made possible the Eastern Seaboard Development Program, a large-scale industrial development modelled after Japanese success, which generated petrochemical and fertilizer industries as well as two industrial parks near deep-sea ports.6

Export-oriented industrialisation took off after the Thai baht (tied to the US dollar) depreciated, as Japan strengthened the yen after the Plaza Accord of 1985. By the late 1980s, Thailand had become an attractive investment location due to high economic growth without high inflation, unstable exchange rates or political turmoil—despite occasional military coups. The private-enterprise economy, positive attitude towards foreigners and increasing export-oriented strategy induced foreign investors, especially Japanese firms, to relocate industrial plants to Thailand.

Most of this Japanese FDI was concentrated in assembly-intensive industries (such as automobiles and parts, electrical appliances, electronic goods and machinery) and capital-intensive industries (such as petrochemicals), mainly geared to the export market. By 1993, the World Bank ranked the late-comers in industrialisation (Indonesia, Malaysia, Singapore and Thailand) as High-Performing Asian Economies successful in reducing poverty.7

However, after the 1997 Asian Financial Crisis (AFC), to push Thailand up the industrial ladder to an innovative-based or knowledge-based economy, Thaksin Shinawatra (elected prime minister in 2001) invited Harvard economics professor Michael Porter to design a new plan. However, there was a serious problem in the implementation process, which led to the failure of this excellent strategy.8 There was political turmoil during the second Thaksin Shinawatra administration, leading to the coup in 2006. There was a general election in 2009, and another in 2011 when his sister Yingluck Shinawatra won a large victory, but political unrest continued until there was another coup in May 2014 led by General Prayut Chan-o-cha.

In 2012, Thai policy makers also realised that the absolute share of Thailand’s FDI had decreased from 1.2% in 1990 to 0.6%, while the foreign investor confidence index for Vietnam, Malaysia and Indonesia surpassed that of Thailand. For FDI share, Thailand was ranked 17 in 1990 but dropped to 29 in 2012. As its exports were driven by FDI, when the share of FDI dropped, the ranking of the share of its exports also dropped from 15 in 1990 to 22 in 2012.9 Fortunately, tourism became an important source of revenue for Thailand particularly after the AFC.

Thailand, classified by the World Bank as a lower-middle-income country in 1991, was reclassified in 2012 as high-middle-income. Accordingly, the next year, the European Union (EU) cut off Thailand from being a beneficiary of the EU Generalized System of Preferences. Being stuck in a middle-income trap while society aged rapidly also became a serious problem for the then Thai government. The economy became over-dependent on tourism (as highlighted by the COVID-19 pandemic from 2020), particularly from China, but this is not sustainable due to the rapidly deteriorating environment.

To move Thailand out of this middle-income trap, the Prayuth government adopted the 20 year national strategy (2018–2038) on 13 October 2018. The sub-strategy concerning competitiveness aims to push the Thai economy up the industrial ladder to knowledge-based or innovative-based industries or ‘Future Industries and Services’. This means firstly the extension of industries that Thailand already has: (1) Next-Generation Automotive; (2) Smart Electronics; (3) Affluent, Medical and Wellness Tourism; (4) Agriculture and Biotechnology; and (5) Food for the Future. The sub-strategy also promotes new industries that Thailand does not have yet or not sufficiently: (1) Robotics; (2) Aviation and Logistics; (3) Biofuels and Biochemicals; (4) Digital; and (5) Medical Hub.

Most of the ‘Future Industries and Services’ will be located in existing and new industrial parks in phase II of the Eastern Seaboard Development Program, called the ‘Eastern Economic Corridor (EEC) area’. After major transport infrastructure is completed in 2026, foreign tourists and investors can travel more conveniently. Because of the lack of Thai companies with advanced technology in those ten targeted industries and services, Thailand needs to solicit foreign companies with sophisticated technology to come to invest in Thailand, especially in the EEC area. The BOI now offers investment incentives to those companies.10

3 Governance and Corruption

Thailand’s impressive FDI trajectory has been achieved despite extensive political turmoil and wider governance challenges, including considerable bribery of public officials. Its current anti-corruption legislation dates back to the Criminal Code of 1956. Under Article 149, corruption and particularly bribe taking are serious crimes punishable by death. However, the death penalty has never been applied, and instead serves the purpose of eliciting confessions whereby the sentence is commuted to life imprisonment.

The student movement that toppled the military dictatorship in 1973 led to an interim civilian government that established Thailand’s first agency dedicated to fighting corruption in 1975. However, this agency was generally perceived to be ineffective since it was housed under the Prime Minister’s Office, and its ability to fight high-level corruption was limited. Under the new people-based Constitution of 1997, widely considered to be enlightened and progressive, a new independent anti-corruption agency (the National Anti-Corruption Commission; NACC) was set up in 1999. A new Anti-Corruption Act was also enacted (last amended in 2018).

The anti-corruption legal infrastructure subsequently improved, with the passing of several laws, including the Anti-Bid-Rigging in Public Procurement Act (1999), the Facilitation Act for Licences and Permits (2015), and the Public Procurement Act (2017). Measures to improve governance were also encapsulated in a set of guidelines, the Regulations of the Prime Minister’s Office on Good Governance in 2001, and each government agency was required to create and abide by explicit codes of conduct. These guidelines sought to promote transparency in government, improve the quality of public services, strengthen integrity in public life, prevent corruption and misconduct for personal gain, as well as create a sense of mutual responsibility towards society. Moreover, popular participation was mandated by law, and there were various awareness-raising campaigns organised by local and international civic organisations, as well as the country’s increasingly dynamic media, which thrived in the wake of a coup in 1991.

Nonetheless, the anti-corruption law focused mainly on the bribe receiver. Amendments in 2018 added provisions based on the 2003 United Nations Convention against Corruption (ratified in 2011), bringing greater focus on the bribe payer as well as international players. A separate central Anti-Corruption Court was created in 2016 to expedite the handling of corruption cases, with nine provincial courts specialising in corruption cases set up in different parts of the country in 2017.

Despite all these initiatives, Thailand’s extensive web of integrity, anti-corruption and institutional arrangements for good governance have not succeeded. For example, Transparency International’s score for Thailand in its 2021 Corruption Perception Index remained at 35 out of 100, well below the Asia–Pacific average (45) and not much different to nearby Laos (30) and Vietnam (39) although better than Cambodia (23).11 So what went wrong? Thailand’s current corruption problem stems from the confluence of four main inter-connected factors in the late 1990s: (i) the 1997 Constitution, (ii) the Asian economic crisis, (iii) civil service reform and (iv) ingrained political culture.

First, the reformist constitution of 1997 encompassed most of the standard provisions said to underpin good government and governance as well as specific provisions for increasing transparency and probity. Ironically, the same Constitution contained certain features that had unintended consequences on the nature of corruption in Thailand. By imbedding several elements that ensured strong government (to foster accountability), the seeds for ‘network’ corruption were inadvertently planted. For example, those eligible to stand for election had to belong to a political party for more than 90 days before contesting elections, ostensibly to prevent questionable candidates from registering overnight. No independents were allowed. However, if Parliament was dissolved, elections had to be held within 45 days. Deviation from party lines would most likely result in expulsion, which would be tantamount to political suicide. Accordingly, even when corruption among high-level party members could be perceived, dissension was practically impossible, so voting would still conform to party directives. The Constitution was intended to create strong government, but it led to the concentration of power, monopoly of government and decline in political contestability. This allowed a powerful business–politics nexus to capture key state and regulatory processes.

Second, the 1997 Asian economic crisis had two main consequences in Thailand. First, it led to structural shifts in economic power and the face of cronyism in Thai society changed. Because it started off as a financial crisis, private-sector banking was decimated through massive non-performing loans, paving the way for new businesses like telecommunications and information technology to dominate. Big business entered politics and became central to forming government.

The concentration of political power also allowed vulnerable populist policies to be pursued, with government banks now gaining prominence and becoming tools under government command. With strong government, political objectives often took precedence over economic rationality, with tendencies to circumvent proper evaluation, feasibility studies and scrutiny. Distortions in the economy were created, and necessary long-term projects or programmes for capacity building were crowded out. At the very least, there was a tendency to disregard the fiscal burden and long-term consequences for macroeconomic stability. In addition, strong government paved the way for irregularities and conflicts of interest in procurement and interventions in contracts, subsidies, taxation and concessions. Technocrats were largely discredited, and had little say, because the crisis happened under their watch. Many projects were found to have connected dealings and reeked of conflicts of interest involving high-level politicians in power. Thus, the crisis aftermath also contributed to the ascendancy of a powerful business–politics nexus capable of blocking reform and sometimes even the judicial process.

Third, civil service reform was a factor. Several laws already regulated the conduct of public employees.12 Many were linked to much larger civil service reform efforts enacted in the aftermath of the 1997 AFC. However, the appearance of reform also allowed considerable looting of the economy. Because the bureaucratic system was generally seen as inefficient and ineffective, new ‘public organisations’ were set up with greater flexibility in procurement and human resource management. This allowed cronies to be appointed to high-paying positions, using public funds with no accountability, in return for political support and suspected kickbacks. In addition, risk-averse policy makers were reluctant to enact meaningful reforms that might jeopardise the interests of constituents who profited from systemic corruption.

Fourth, engrained political culture remains a problem. In many parts of Southeast Asia, the family dynasty–big business nexus is common and these well-connected dynasties control politics through their power and influence.13 In Thailand, big business became the government. This gives rise to the most insidious form of corruption, involving bribery, connected dealings and state capture, often perpetrated by high-level power brokers in government. Thailand lacks a strong conspiracy law similar to the 1970 Racketeer Influenced and Corrupt Organisations (RICO) Act in the United States. The process of prosecuting corruption cases is therefore time-consuming and arduous, particularly if key players are sitting in seats of power.

Space precludes elaborating the theoretical and empirical framework for such ‘network corruption’, but it is important to understand the ongoing problem in Thailand (and beyond). Network relationships play an important role and help to create efficiency, whether in business or politics, or any other area of interaction. Indeed, investing in creating trust, brand loyalty, recognition and reputation, whether in personal or business relationships, is part of the process of networking. Trust implies confidence that some person or institution will behave in an expected way. Yet there are also built-in dangers when networking turns into conspiracy aimed at siphoning public funds into private coffers. Exchanges expand among identified patrons and clients, in a growing self-enforcing network.14 Information asymmetry compounds the complexity of corruption investigations.15

Prior to the 1990s, perhaps because of failings of governments in the past, poor and disenfranchised people who cannot rely on governments for basic services sought to affiliate themselves with people in power or groups with access to power. Political parties recruited members who then became part of the party’s central customer database, a stock of regular customers willing to vote for the party in elections. Candidates were not evaluated on the basis of policy or ideology, but on which network they belonged to, and whether election outcomes were beneficial or detrimental to the group’s interests. To a large extent, political loyalties were not directed towards ideas, but towards leading personalities. Therefore, for the most part, it is not ideological persuasion but the leadership qualities of individual politicians that become important. Such features remain ingrained in Thailand’s political culture.

In sum, these four factors combined to transform the nature of corruption in Thailand from simple embezzlement, or ‘skimming off’ projects, to the unprecedented emergence of a powerful business–politics nexus. Contracts were often won because of undisclosed network relationships rather than objective criteria. Although procurement regulations may be clear and strict, loopholes can be found that allow conspirators within patron–client networks to engage in wrongdoing with much impunity. Sometimes, laws and regulations are blatantly violated because of perceived ‘protection’ within the network. Because of these complexities, corruption investigations are time-consuming and fraught with obstacles, as shown for example in the Klong Darn wastewater plant case.16 By contrast, arbitration proceedings are generally less complicated, by focusing on narrower issues and relationships, and so are often concluded long before corruption cases are completed.

4 Investment Treaties and Arbitration

4.1 Four Phases in Thailand’s Investment Treaty Practice

Thailand has gone through four partially overlapping phases in signing investment treaties, connected with national, regional and global trends in FDI, treaty-making and arbitration. The first phase encompassed 7 of Thailand’s 39 BITs (of which 36 are currently in force), signed between 1961 (with the then West Germany) and 1991 (with Vietnam).17 None of these seven treaties allowed for any ISDS arbitration to be initiated by the foreign investor, instead only inter-state arbitration of alleged substantive violations by the host state. These BITs also focused on protection of investments once made, not providing liberalisation favouring investors from the home state (e.g. through national treatment commitments from the host state extending to the pre-establishment phase).

However, some such liberalisation along with protections for investors was provided under the 1965 Treaty of Amity and Economic Relations between the Kingdom of Thailand and the United States of America, albeit without an enforcement mechanism. This treaty was concluded in the context of the Cold War, the war in Vietnam and the Sarit military government’s laissez-faire ISI strategy (outlined in Sect. 15.2 above), and a long tradition of such treaties signed by the US and earlier by other Western states. The Treaty allowed US investors (at least 51% American-owned and with at least half the directors comprising American citizens) to own the majority of or all shares in Thai entities, and to engage in business activities like local companies (exempt from most restrictions on FDI imposed by the Revolutionary Party’s Order No 281 on Foreign Business 1972). However, for example, the 1965 Treaty maintained restrictions over US investments in sensitive areas such as communications, transport, banking, land ownership, exploitation of land or resources, and domestic trade in local agricultural products.

The second phase involved nine BITs signed by Thailand from 1989 (with South Korea), then Hungary in 1991, through to 18 February 2000 (with Egypt). These treaties are distinguished by adding the possibility of ISDS arbitration by foreign investors, but only under the framework 1965 Washington Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, which also established the International Centre for the Settlement of Investment Disputes. Yet, because Thailand had only signed that ICSID Convention and has never ratified it, ISDS in fact remained unavailable under all nine of these BITs. Our separate research suggests this was quite deliberate drafting from the side of Thailand, in an era when the country was also not yet keen on arbitration generally.18 Through the 1990s, Thailand was anyway a booming destination for FDI, despite a hiatus around the 1997 AFC.

Thailand’s third phase of investment treaty-making ran from 1993 (with a BIT signed with Romania) through to 2008 (with Myanmar) and then a gap until 2015 (with the United Arab Emirates). All of these 26 treaties involved full ISDS, because they allowed foreign investors to invoke instead or as well the UNCITRAL Arbitration Rules. The early BITs over this phase were mostly with other ASEAN member states (Cambodia, the Philippines and Indonesia) but also for example included BITs signed with Taiwan in 1996 and Canada in 1997, as significant actual or potential investors into Thailand.19 Remarkably, on 18 February 2000, Thailand signed six BITs (along with the one with Egypt mentioned above), all concluded with less important states for FDI flows (such as Zimbabwe—indeed that BIT never even entered into force). This seems a good example of mass signings by states prompted around that time by UNCTAD, which actively promoted investment treaties to promote FDI and related trade, which were already starting to burgeon regionally and globally as socialist states in Europe and then Asia started to open up their economies.

The BITs in this third phase, overlapping with new economic and FDI policies aimed at pushing Thailand out of the middle-income trap (as mentioned above in Sect. 15.2), still focused on the protection of foreign investment once accepted and made. Liberalisation was primarily promoted only with other ASEAN member states, through the 1998 Framework Agreement on the ASEAN Investment Area. However, the latter only provided for enforcement through inter-state arbitration. Complementing this treaty, focused on protection of investors from the then other ASEAN member states and underpinned also by ISDS, was the earlier 1987 ASEAN Investment Agreement. These two intra-ASEAN treaties were supplanted by the ASEAN Comprehensive Investment Agreement signed in 2009, providing for both liberalisation and protection of foreign investment underpinned equally by ISDS.

Thailand’s fourth phase (since around 2004) has been characterised mostly by free trade agreements (FTAs) including investment chapters, although it has also signed a few BITs (in addition to those with Myanmar and the UAE, also in 2005 with Hong Kong, Turkey, Jordan and Tajikistan—the latter not yet in force). These include bilateral FTAs with Australia (signed in 2004), New Zealand (2005), Japan (2007) and Chile (2013). Negotiations for more FTAs have been suspended due partly to Thailand’s shifts to military government, meaning it has far fewer than say Singapore, but the latter also has been able to conclude more FTAs because it already has an even more open economy for investors and traders. This means that most FTAs for Thailand, promoting both liberalisation and protection for foreign investors and usually providing for full ISDS, have come from regional ‘ASEAN-Plus’ treaties. These include the ASEAN Japan Economic Partnership Agreement signed in 2008 (with an investment chapter omitting ISDS, but anyway available for Japanese investors against Thailand under the 2007 bilateral FTA), the ASEAN Australia New Zealand FTA (AANZFTA) signed in 2009 and updated in 2022, the ASEAN Korea Investment Agreement and the ASEAN China Investment Agreement signed in the same year, the ASEAN India Investment Agreement signed in 2014 (but not yet in force) and the ASEAN Hong Kong Investment Agreement signed in 2017. The latter four are complemented by ASEAN Plus trade agreements, whereas AANZFTA combines an investment chapter along with commitments on trade and other matters such as intellectual property rights.

AANZFTA does allow for ISDS but involves less commitments than say the bilateral Thailand–Australia FTA (TAFTA), even though the latter was signed five years earlier. For example, AANZFTA only provides for a work programme to negotiate pre-establishment national treatment or liberalised market access for foreign investors. By contrast, TAFTA commits to various liberalisations going beyond Thai national law for foreign investors, or at least locks in via the treaty certain market access commitments for Australian investors. For example, there is pre-establishment national treatment (Article 904), although this provision preventing discrimination compared to local Thai investors is subject to reservations from Thailand contained in Annex 8.

Protections under TAFTA include post-establishment national treatment (Article 906) and most-favoured nation treatment (Article 910) without scheduled exceptions, fair and equitable treatment (Article 909(2)), and compensation for direct or indirect expropriation (Article 912). By contrast, AANZFTA lacks any most-favoured-nation commitment, even after the establishment of the investment, that would require Thailand to treat an Australian investor equally to an investor from a third state. AANZFTA also limits fair and equitable treatment to the minimum standard of treatment under customary international law (Article 6(2)(3)), like some of Australia’s later FTAs influenced by evolving US and other Asia–Pacific investment treaty drafting practice.

AANZFTA’s Investment Chapter 11 Article 2(a) (and the earlier TAFTA, in Article 901) defines protected ‘covered investment’ as those ‘admitted’ by the host state subject to its ‘laws, regulations and policies’. However, AANZFTA qualifies admission with ‘where applicable’ and adds in Note 1 ‘for greater certainty’ for Thailand that it means ‘specifically approved in writing for protection by the competent authorities’ (emphasis added, perhaps responding to the Walter Bau ISDS claim discussed next). Thailand’s other treaties, especially earlier and recent BITs, have been mixed in including such explicit ‘legality’ requirements, which arguably are crucial in taking away jurisdiction of ISDS tribunals to award relief for substantive treaty violations if serious corruption tainting the initial investment can be proven.20

4.2 Investment Treaty and Contract-Based Arbitrations Involving the Thai Government

Thailand has therefore built up a quite extensive network of investment treaties, with gradually more expansive commitments from the host state underpinned increasingly by ISDS provisions, while FDI flows have continued to burgeon in parallel. Unsurprisingly, therefore, there have now started to be some treaty-based ISDS claims. Yet only two have been brought against Thailand,21 perhaps reflecting the long tradition of (even very different) Thai governments being very welcoming towards foreign investors (outlined in Sect. 15.2 above). The latest ISDS arbitration was initiated in 2017 by Australian investors Kingsgate under TAFTA, after the Thai military government closed down their Chatree joint venture and gold mining in Thailand (detailed in Sect. 15.5 below).

The first treaty-based ISDS claim against Thailand was initiated in 2005 by the liquidators of Walter Bau under a BIT revamped with Germany in 2002 (adding ISDS), and related to a tolled Bangkok highway project. This claim led to a 2009 award of EUR29 million (plus interest and significant costs) by an UNCITRAL Rules ad hoc arbitration tribunal chaired by a former New Zealand judge. The Thai government vigorously attempted to resist enforcement by applying unsuccessfully to have the award set aside at the seat in Switzerland, and then to resist enforcement in US courts against Thai government assets possibly held in that jurisdiction. In both proceedings Thailand reagitated the argument that it had not given sufficient consent in writing to ISDS jurisdiction, which had been dismissed by the original tribunal as Walter Bau had obtained various other governmental consents associated with the highway project.

The company’s liquidator did not attempt to enforce the award through Thai courts, perhaps fearing they might apply the public policy exception or some other ground permitted under the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (ratified by Thailand in 1960). Instead the liquidator applied for seizure of the aeroplane of the then Crown Prince when he was visiting Germany in 2011. After it was released by the government paying funds into the German court, the liquidator sought enforcement of the award in Germany. Thailand again contested consent to arbitration but finally in December 2016 the last of various German court decisions ordered enforcement. This denouement and presumably payment of the award plus interest by Thailand, received curiously little coverage in Thailand although this first-ever ISDS case had become quite a cause célèbre in the Thai media.22

Ironically, given the government’s dispute resolution tactics in the protracted Walter Bau saga, Thailand has made several submissions to UNCITRAL deliberations about reforming the ISDS system globally, underway since 2017, complaining about the high costs associated with ISDS cases.23 However, the government’s dogged and doubtless expensive defence in this treaty-based case is also characteristic of several high-profile contract-based arbitration claims brought by foreign investors. One reason is arguably that Thai government officers can be held personally liable for breaching official duties intentionally or with gross negligence, under the Tort Liability of Officials Act 1996. In addition, the public can be very critical of perceived government failures.24 One commentator on arbitration in Thailand further notes:25

a well-recognised reluctance among officials to take responsibility for authorising payment of public funds in circumstances where there still exists some possibility—however remote—that the payment may not be due. Thai law imposes broad criminal liability on officials who exercise their functions incorrectly, and this has contributed to an institutional mindset that seeks to avoid personal responsibility for any matter that could conceivably be controversial or open to future reconsideration. Delay and appeals are obvious methods for deferring decisions and (with luck) passing responsibility to a successor.

Thus, even more than civil liability under the 1996 Act, Thai officials—including lawyers representing the government in arbitration-related proceedings—are likely to be concerned about potential imprisonment and/or fines for dishonest (in)action, under Section 157 of the Criminal Code. Such concerns are particularly understandable given Thailand’s frequent coups and changes of government. A further cause of protracted arbitration related proceedings involving the government is that there may be actual or perceived corruption involved in the conclusion of the underlying contracts, as also mentioned in Sect. 15.3 above, and agitating such issues before arbitral tribunals and often again before courts can be very time-consuming.

One example of the active defence of a contract-based arbitration involving the Bangkok metropolitan government relates to a Thai Arbitration Institute (TAI) tribunal award for THB 6.2 billion (now about USD176 million). After this was enforced by the Bangkok Civil Court in December 2003 against the Rapid Transit Authority, regarding a claim filed in 1998 by a consortium for the Bangna Expressway project formed after Japanese firm Kumagai Gumi sold out in 1994 after an earlier dispute, the government appealed. The Civil Court’s enforcement order was overturned by the Supreme Court in 2006, after it found evidence of bribery and conflicts of interest rendering the underlying agreement contrary to public policy.

Another claim lodged with the TAI in 2004 awarded large damages to Hong Kong construction firm Hopewell in 2008, finding wrongful contract termination by the government. However, in 2014 the Central Administrative Court annulled the award on public policy grounds by applying legislation enacted in 1999 setting a shorter prescription period than the period in force when Hopewell had commenced arbitration.26 Hopewell appealed unsuccessfully to the Supreme Administrative Court, which upheld the Central Administrative Court’s decision. The Ministry of Transportation and the Railroad Authority of Thailand via the Ombudsmen then appealed to the Constitutional Court. It ruled that the resolution of the Supreme Administrative Court judges (Grand Bench, number 18/2545) concerning the time prescription was void. Accordingly, on 4 March 2022, the Supreme Administrative Court ordered the Central Administrative Court to decide this case again, to decide whether Hopewell took legal action by commencing arbitration within the relevant prescription period.

On 9 October 2014, noting also a 2006 annulment decision in an award related to the ITV television station, one Thai practitioner expert in international arbitration remarked:27

The Hopewell case follows a series of cases in the past decade where the Thai courts have broadly interpreted public policy in order to set aside awards against state entities. …

In 2007, the Supreme Court overturned the Civil Court’s enforcement of the USD 202 million award against the Expressway and Rapid Transit Authority (‘ETA’) upon finding evidence of bribery and numerous conflicts of interest. The Supreme Court concluded that the underlying agreement was contrary to public order and good morals, and therefore the award was against public policy.

The picture is not entirely bleak; indeed, the Central Administrative Court has enforced a THB 9 billion arbitration award against the Pollution Control Department for breach of contract for the construction of a wastewater treatment system on 9 November 2012. The court enforced the award despite allegations of corruption, criminal charges and convictions of a high-ranked official. The matter is pending appeal.

The last-mentioned case involves the controversial Klong Dan waste water plant dispute. On 10 October 2014 the Supreme Administrative Court did affirm the TAI award enforcement, ordering the Department to make payment to the consortium within 90 days of the court judgment. Two years later, a settlement was reached whereby the Prayut government agreed to pay the award in three tranches.28 However, investigations into corruption and criminal proceedings had continued. The State Audit Commission wrote to the Prayut government to suspend the payment because of a Criminal Court’s decision that the Director General of the Pollution Control Board illegally sold public land to the consortium. Accordingly, the Minister of Finance and the Department petitioned the Central Administrative Court to retry the case based on new evidence (the Director General’s conduct) and to set aside the TAI award based on the violation of public policy (pursuant to Section 40(3)(2)(b) of the Arbitration Act 2002). The Central Administrative Court agreed with the Minister’s argument, and set aside the TAI award in March 2018. However, the consortium then appealed to the Supreme Administrative Court, which reversed the judgment of the Central Administrative Court and ordered the government to pay the award.

This protracted Klong Dan dispute highlights an important point concerning the interface between corruption and arbitration, which are further elaborated below regarding the Kingsgate treaty-based ISDS case study below (Sect. 15.5) and reiterated in the Conclusions (Sect. 15.6). Arbitration is often criticised for being too slow and costly, but the process resulting in an award and even then any extra time due to the losing respondent contesting the award through the courts can often be quicker than the time needed to commence and conclude investigations into corruption, and then prosecute cases through multiple forums. This is because of the difficulties of collecting evidence and coordinating corruption investigations involving often multiple government and private entities such as banks domestically, let alone internationally, as outlined in Sect. 15.3 above. The evidence of corruption needs to be sufficient ultimately to prove the case in criminal courts, beyond reasonable doubt, and also to avoid potentially tarnishing reputations or resulting in political backlash if corruption is alleged and investigated but not finally proven. The end result is that an arbitration award may be rendered and even enforced before the necessarily detailed and lengthy corruption matters have been finally resolved in other forums. This problem becomes more acute as states ‘compete’ to make themselves more ‘arbitration-friendly’, including by promoting more efficient proceedings in their arbitration centres and courts dealing with any challenges to award enforcement or arbitrators.

Indeed, overall, the Thai government has become more positive and proactive generally about arbitration, albeit in fits and starts, and comparatively less so than in nearby states like Malaysia and especially Singapore. The TAI was established by the Ministry of Justice in 1990, but was moved under the jurisdiction of the judiciary’s ADR Office in 2000 partly to promote its independence from the executive branch of government. In 2002 Thailand also enacted a new Arbitration Act based on the global best practice of the UNCITRAL Model Law template. Since 2015 the TAI has also been subjected to competition from the new Thai Arbitration Centre, under the Ministry, but seemingly aiming to be more like the popular arbitration centres in the region. In 2015 the Cabinet Office also revised its policy requiring only three types of government contracts to be reviewed before including arbitration agreements, instead of all government contracts (as under a policy introduced in 2009, soon after the Walter Bau treaty-based arbitration award) and earlier all concession contracts (in 2004).29 Thus, the Thai government has gradually started to promote and support international arbitration, while also pursuing a longstanding programme to address corruption (Sect. 15.3), creating more scope for tension in the interface between the two regimes.

5 Kingsgate v. Thailand Gold Mine Case Study

Given the complicated background outlined above concerning Thailand’s evolving attitudes towards investment treaties and international arbitration, it is unsurprising that the second major ISDS claim to proceed against Thailand, by Australian listed mining company Kingsgate,30 was also protracted and controversial. Interestingly, the arbitration initiated under TAFTA raised questions of potentially illegal and/or corrupt practices involving the Australian investor. Unfortunately, the arbitration claim is subject to confidentiality restrictions so the following analysis is based only on publicly available information, including media reports, which may not always be accurate or complete.31

Sydney-based listed company Kingsgate, which had operated in Thailand since 1987, invested with Thai shareholders in Akara Resources to begin operating from 2001 the open-pit Chatree gold mine 280 km north of Bangkok in Pijit Province, the first and largest gold mine in Thailand, expecting to operate the mine under concessions until 2028.32

In late 2010, 44 local residents filed a lawsuit against five Thai government authorities claiming they had illegally issued Chatree mine concessions and land use permits, and negligence in mitigating alleged health and environmental damage. In 2012, the Phitsanulok Administrative Court refused to revoke the concessions or grant local people access to allocated forest areas. However, it did instruct Akara Mining to conduct an environmental and health impact assessment, stating that the concessions grant without such assessments was contrary to environmental protection clauses in the Constitution enacted in 2007 (the year after the coup deposing Prime Minister Thaksin Shinawatra).33

In January 2015 (after the military coup led by Prayut), the Department of Primary Industries and Mines ordered a 30-day suspension of Akara’s operations. After Akara’s environmental impact studies had continued to find no adverse impact, a government study had found excessive arsenic and manganese among 282 villagers living nearby. However, commentators reported that Kingsgate ‘responded by arguing that “arsenic and manganese are not used or stored at the Chatree Mining operation now or at any time in its history”. Indeed, it is cyanide rather than arsenic or manganese which is used to leach gold from ore’.34

After public consultations in February 2015, the Department agreed to lift the suspension order if Akara could prove its operation did not pose a health threat; the order was extended for 45 days. Australian-government-funded researchers argued that a contributing factor to this ongoing dispute was that a ‘systematic lack of engagement of all villagers in Pijit to actively participate in decision-making has led to frustration and dissatisfaction’. They further noted:35

The legacy of political decentralisation promoted while Thailand was under the rule of the Shinawatra siblings, is the expectation rural communities will be involved in decision-making processes impacting their welfare. At the same time, most villagers we interviewed consider themselves ‘uneducated’ and ‘powerless’.

The suspension led to Akara reporting an after-tax loss of USD147 million for the 2015 full year, up from the USD97.6 million in fiscal year 2014. On 2 October 2015, it was reported that:36

Almost 100 members of a residential group living near the mine told Thai authorities this week their quality of life had improved because of the mine's employment and development funds, and they suffered no adverse health effects from living near the mine.

Kingsgate's chairman Ross Smyth-Kirk in August announced plans for the company to expand its gold mining operations in south-east Asia, including Thailand, Indonesia, Papua New Guinea and Vietnam. He was quoted by the Bangkok Post as saying his company was waiting for Thailand’s government to establish a policy for gold mining. Thailand has not opened any gold mine concessions for private companies for eight years.

However, the report added that the Australian Securities and Investment Commission (ASIC) had sent initial evidence to its Thai counterpart, the Securities and Exchange Commission, according to Wicha Mahakhun, chair of Thailand’s NACC sub-committee investigating an allegation that Kingsgate bribed Thai state officials to obtain the Chatree gold mining concession. Its then CEO Greg Foulis reportedly responded that ‘Kingsgate had always acted in accordance with Thai mining laws and categorically stated that the company had never made an improper payment in return for a mining lease in Thailand’.

He later also elaborated:37

As for Kingsgate’s 100-per-cent share in its Thai subsidiaries, which is against Thai law on foreign investment, he said the Thai media had misunderstood, as the figure shown in the company’s annual report stood for the percentage of ordinary shares in Thai subsidiaries and not the overall share structure. ‘I confirm that our shareholdings in Akara Resources are 48 per cent which are common shares, while the other 52 per cent of shares are preferred shares held by the Thai investor. Therefore it is not against Thai foreign-investment law,’ he said.

In April 2016, Kingsgate executives continued to defend the company’s environmental record at its Thai operations against claims of polluting the local community.38 In August 2016, Thai authorities reportedly permitted an application for renewal of the licence to proceed. However, Kingsgate alleged in November 2016 that this did not compensate for the substantial losses Kingsgate had already suffered ‘as a result of the unlawful expropriation and closure of the Chatree Mine’.39 In May 2016, the government declared it would shut down the country’s only gold mine after the government said environmental concerns outweighed the economic benefits.40

In December 2016, General Prayut, as Thai Prime Minister and head of the ruling National Council for Peace and Order, invoked (non-reviewable) Section 44 of the military government’s interim Constitution to suspend Chatree’s mining operations from 1 January 2017. He cited villagers’ complaints that wastewater discharged from the mine had poisoned the environment and harmed their health.41 The Kingsgate chairman responded that the ‘Prayuth Chan-ocha’s gold mind decision sends a “horrendous” message; FDI is already way down and there is no chance in the mining sector of anybody else going there’.42

On 3 April 2017, Kingsgate announced a formal notice of dispute filed against Thailand under TAFTA.43 In August 2017, Kingsgate shares soared when the government announced the ban would be partially lifted. However, the government reportedly would not offer any compensation for the past shutdown of the mine and dismissal of employees, although negotiations were ongoing about possible alternative ‘meaningful benefits’ given the investment losses plus substantial costs and future uncertainties around reopening the mine.44 Operations ultimately did not resume, and on 2 November 2017, Kingsgate announced it was commencing arbitration, claiming expropriation of the Chatree gold mine, under UNCITRAL Arbitration Rules.45

On 18 March 2019, Kingsgate’s claim against its political risks insurers in the New South Wales Supreme Court was settled for around AUD82 million. This included a AUD55 million cash payment and ‘up to $US3.5 m to help Kingsgate fund its fight against the Thai government and share future costs relating to the legal battle’ ongoing under TAFTA.46

Also in December 2017, in the context of the EU resuming FTA negotiations with Thailand after its Prime Minister reiterated that democratic elections would be held, the co-founder of the ‘FTA Watch’ NGO (Kannikar Kijtiwatchakul) warned that the Kingsgate dispute showed the risks of the Thai government facing more claims ‘if it hastily cancels foreign investments especially those with clear benefits for the public’.47

Meanwhile, in March 2018, a Civil Court lawsuit was filed against Akara claiming about THB500 million (AUD20 million) in compensation for alleged harm on behalf of hundreds of named plaintiffs and potentially over 6000 villagers under a US-style class action law enacted in 2015. The plaintiffs’ main lawyer reportedly stated that a ‘recent report by Naresuan University, which confirmed the leakage of water from the gold mine’s tailing storage facility to the environment, would be prominent evidence in the case’.48 It took the Civil Court (Environmental Section) about two years of preliminary hearing before this class action was accepted. Akara appealed the Civil Court’s decision to accept this case. The Appeal Court then rejected Akara’s request for dismissal. Accordingly, the Civil Court was scheduled to hear the witnesses of the plaintiffs and Akara in February 2023. Settlement negotiations proceeded but fell through in May, so hearings resumed in the Civil Court from 22 June.

The Kingsgate ISDS arbitration, commenced in late 2017, has attracted some attention in the Thai and international press. On 7 June 2018, for example, Nikkei Asia reported that the ‘Australian gold miner’s arbitration case against Thailand’s ruling military junta has put the spotlight on a [temporary] constitutional law that gives the government sweeping power to intervene on any matter it sees fit’. It noted that a government spokesperson had claimed being ‘confident that we have strong information and data to defend our stance on why we needed to order Akara to close its mining operation’, and soon after in a press release maintained that the ‘gold mine had adverse environmental effects that harmed local villagers’. However, Kannikar Kijtiwatchakul (for FTA Watch) was quoted as saying on the Prachathai website earlier that ‘Section 44 is not a typical civilian law, which could be the Thai government’s weakest point and prevent the country from winning this case’, although ‘that is just one side of the coin’.49

In March 2019, soon after its settlement with political risks insurers and around Thailand’s general election when General Prayut and his party were narrowly elected to power, Kingsgate stated it now had sufficient cash to pay off its debt and no longer needed to pursue the option of a litigation funder for its ongoing dispute. The first TAFTA arbitration hearing was also scheduled for November 2019 in Hong Kong. Reporters added that ‘Kingsgate has not said how much compensation it is seeking, but an Akara executive once said the company could have earned another 30 billion baht [now worth over AUD1.2 billion] if the mine had continued to operate throughout the remainder of its term’ through to 2028.50

In June 2019, various groups opposed generally to ISDS arbitration published a case study of the Kingsgate claim against Thailand, as part of a report entitled ‘Red Carpet Courts: 10 Stories of How the Rich and Powerful Hijacked Justice’, arguing that:51

the question of who gets to decide what is a harmful level of exposure to certain chemicals is crucial. In this ISDS case, rather than trusting national research institutes, the precautionary principle or the local community’s knowledge, the decision will be made by three investment arbitrators based on narrow investment law in a secret backroom process. Neither the details of the claim, nor how much or what type of compensation is being demanded by the company are public at this stage, and yet the arbitrators’ decision could impact the entire country through the precedent it sets for regulation in Thailand. There is a big risk that all environmental and human rights concerns will be ignored in the panel’s decision, as has happened in many other cases.

In October 2019, with remarkable transparency, Thai media reported that the Energy Ministry had proposed four options to the Cabinet for resolving the case with Kingsgate:52

(1) paying Akara Resources to shut it down; (2) complying with Akara's demands to avoid paying; (3) waiting for the ruling of the arbitrator and abiding by it; and (4) partially paying the damages and then allowing the mine to reopen. Some ministers did not agree with the last option, viewing if the government had already shut down the mine, it would be inappropriate to allow it to reopen. While the meeting was discussing the issue, [Prime Minister] Prayut said he needed time to think. ‘I can’t decide now but I’ll bear all the responsibility,’ he said. Interior Minister Anupong Paochinda said Thailand should wait for the ruling while Finance Minister Somkid Jatusripitak made no comments.

In January 2020, due to civil unrest in Hong Kong it was reported that the first TAFTA arbitration hearing would instead be held in Singapore the following month.53 On 29 August, Thai media further reported that:54

An inquiry panel looking into kickback allegations involving an Australia-based gold mining firm and Thai state officials has found documents that might prove the company had paid bribes to the officials, according to graftbuster Supa Piyajitti [in the NACC].

These allegedly showed the financial routes used for the alleged bribes with money being wired to Hong Kong and Singapore, and bribes to Thai state officials to secure concessions and authorisations needed for gold mine explorations and operations, which Kingsgate still denied. Earlier in 2020, in March, the then Director General of the Department of Primary Industries and Mines had been indicted by the NACC partly in relation to Akara’s operations, although it is unclear whether these allegations extend to the original investment.55 In addition, Akara’s former managing director was indicted by the NACC for bribing Department officials to allow the company to partially expand its mining project without conducting an environmental impact assessment report.56

Later in 2020, on 2 September, the Industry Ministry reportedly stated that ‘Thailand needs a budget to finance its legal fight with an Australian gold mining company after a House committee vetting the budget bill in fiscal 2021 slashed its 111-million-baht [AUD4.5 million] request’. The committee had voted 38 to 21 in favour of cutting the budget by THB12 million from the total for legal expenses incurred from arbitration initiated by Kingsgate.57

On 7 September 2020, the Bangkok Post editorial reported that the government had resumed negotiations with Kingsgate, which Deputy Prime Minister Wissanu Krea-ngam reportedly hoped would be concluded before the arbitral tribunal’s ruling. The negotiation effort initiated by Industry Minister Suriya Jungrungreangkit began late in 2019 but was discontinued due to the COVID-19 pandemic. He had reportedly proposed to settle the case and to pay compensation, but Prime Minister Prayut rejected this as he thought Thailand could win. In addition, noting the NACC had recently found documents relating to bribes denied by Kingsgate, the editorial argued that ‘details could still be used as new evidence to fight the case’ and:58

Whatever option it takes, the government is obliged to dig into the bribery allegations, and see if there was any foul play that enabled the company to mine the area. Those who abused their authority must be held accountable and pay the price.

Soon afterwards, on 16 September 2020, Rich Phoom (linked to Akara) submitted gold mining exploration requests for Phetchabun and Chantaburi provinces, prompting local opposition. The Bangkok Post editorial suggested that by allowing the request the government was practically lifting the ban on Akara, despite the pending arbitration, raising concerns that a settlement might have been reached. The editorial added that the department’s director general:59

Wisanu Tabtieng, in particular, downplayed worries by local villagers over the requests, insisting that the new Mineral Act BE 2560 has teeth. In a TV interview, the chief was adamant that Akara or Rich Phoom are obliged to follow strict environmental protection guidelines and also a public participation process. He seemed to imply that the Chatree mine was not subject to the law and that’s why it’s riddled with problems.

Yet, it’s too premature for environmentalists and the public to feel relieved or rejoice. In Thailand, it’s a case of strong laws, but weak enforcement. In addition, the top [Department of Primary Industries and Mines] official seems to have forgotten the allegation of bribery brought against the mine operator and Thai authorities in securing a permit for the Phichit mine. Shouldn’t all concession requests be suspended at least until allegations are cleared?

Nonetheless, in November 2020, with the tribunal’s decision looming, the government issued prospecting licences and allowed the sale of high-value gold and silver ‘sludge’ secured at the Chatree Gold Mine.60 The following month, a group of Akara former employees pleaded with the government to revive mining operations given the suspension’s adverse impact on the local economy and community.61

On 18 February 2021, Kingsgate publicly announced via the Australian Securities Exchange (ASX), pursuant to continuous disclosure obligations, that it was continuing with its longstanding policy of negotiating a settlement, bolstered by those developments, but Kingsgate felt the need to elaborate on some matters arising from discussions over the TAFTA case discussed during a debate in the Thai Parliament. This was despite Kingsgate adhering to the arbitral tribunal’s order to keep the arbitral proceedings confidential unless required to fulfil a legal duty. Kingsgate then noted:62

In relation to aspects of the negotiations that were specifically mentioned in the parliamentary debate such as the metallurgical licence, the Chatree South mining leases, investment incentives and other Special Prospecting Licence Applications, Kingsgate would like to make it clear that these are not special concessions by any means, rather basic operational items that are required to operate the mine.

In addition, Kingsgate cannot comment on the advice that the Thai Government has purportedly received from its international legal advisers that was also mentioned during yesterday’s debate, which indicated they may have to pay compensation to the Company. Kingsgate does however, stand by its previous comments that the Board considers the Company has excellent prospects for a successful outcome.

Further complicating the picture, however, on 6 March 2021 Thailand’s Department of Special Investigation was reportedly investigating Akara after a civil society group accused it of allowing the use of proxy shareholders contrary to the Foreign Business Act.63 Nonetheless, from mid-2021 Kingsgate began commissioning studies and finance for refurbishing and restarting the Chatree mine. On 23 September 2021, it announced that negotiations with Thailand were entering the final stages, while the tribunal was getting ready to issue its award, so the parties ‘jointly requested’ that the tribunal pause rendering the award until 31 October 2021, ‘to allow the parties a short extension to conclude their settlement negotiation’.64

Negotiations were prolonged, until on 30 January 2022 Kingsgate announced to the ASX that, less than a fortnight before the arbitral tribunal was due to release its award that month, the firm had been awarded four 10-year leases allowing it to restart the Chatree mine. Speculating that this outcome may be due to Prime Minister Prayut’s weakening control over his government, Australian media reported further that ‘Thai Deputy Prime Minister Wissanu Krea-ngam said the mine was being permitted to re-open under new laws as long as the company complied with strict environmental, land management and community health provisions’ and that:65

Kingsgate’s permission to re-open has prompted scrutiny from opposition politicians and activists about what deal had been struck by Prayut’s under-fire government to avoid the ignominy of defeat at the tribunal and a 10-figure payout. Opposition MPs had given Thailand little chance of winning the TAFTA case because Prayut had invoked a section of junta-era legislation labelled ‘the dictator law’ to shut the mine without due process, pushing more than 1000 workers out of jobs.

On 9 March 2022, around 30 activists petitioned the parliamentary committee on law, justice and human rights, arguing the licences were renewed unlawfully, and later visited the Ministry of Justice and the Ministry of Industry.66 On 11 March, however, the president of the ‘Gold Mine Lovers Club’ and some residents near the Akara gold mine submitted a letter to provincial governor Paiboon Nabutchom saying they awaited the mine’s re-opening, claiming it did not affect the environment or local residents’ health and would improve their incomes and quality of life. Residents also reportedly ‘asked the government not to be afraid of intimidation from [NGOs] outside the area’. Paiboon told them he had met with opponents of the re-opening but later found out they were not local residents, and pledged to protect them ‘with transparency and in line with laws’.67 Tensions therefore remain among different groups interested in the gold mine, somewhat like those identified by commentators in 2015.

Nonetheless, in May 2022 Kingsgate announced appointment of a locally based company to refine the gold and silver expected from resumption of mining, with the Kingsgate chairperson asserting this initiative offered a real opportunity to create ‘Thai gold for the Thai people’.68 In its ASX announcements, Kingsgate further declared the appointment of a company to refurbish and restart the mine, with experience across Asia and long-term relationships with mining companies in Laos and Vietnam. Kingsgate also announced almost 50% increases in expected gold and silver Chatree mine ore reserves compared to the last assessment in 2016. On 17 March 2023, Kingsgate announced that the Department had approved re-opening of the mine, and on 21 March that the BOI had approved its investment promotion application including tax and import duty benefits for eight years. On 24 March Kingsgate declared the first gold pour had started (also filmed on its YouTube channel) and then that it had raised funds for refurbishment of the mine. The Kingsgate Equity Raising Presentation did not mention any future risks from government intervention in the mine but rather that:69

In 2022, positive negotiations with the Thai Government … led to key developments and approvals to permit Akara to prepare for a restart of its Chatree operations.

Local Thai media added that the general manager of the Akara subsidiary stated it was ‘also preparing documents to clarify supposed irregularities in issuing land-rights documents’ to the NACC.70 The Kingsgate share price rose from AUD1.51 on 16 March to AUD2.01 on 24 March before dropping back to AUD1.50 on 29 March 2023 (and then to AUD1.29 on 2 June 2023).71

Overall, the Kingsgate dispute and TAFTA-based ISDS claim commenced in late 2017 first illustrate an important point raised already from the outline of the contract-based investment arbitration in the Klong Dan waste water plant case outlined above in Sect. 15.4.2. Much of the media and other commentary has focused on the alleged environmental harms from the Chatree gold mine operated by Akara, until the issuance of temporary suspension orders in early 2015 and then a permanent suspension decree from late 2016. Yet in 2015 the media were already reporting that Thai authorities were investigating possible bribery, and in 2020 reporting on the indictment of the former Director General of Mines who had signed off on Akara operations (albeit possibly not regarding Kingsgate’s original investment). By the time this and any other prosecutions are decided by Thai courts, likely then after many appeals as in past cases like the Klong Dan case, an award or settlement will probably then have been reached and enforced, with compensation possibly paid to Kingsgate.

A second general point that can be distilled from this case study is that information about this ISDS arbitration claim under UNCITRAL Rules has remained sparse. The analysis above has had to be based on publicly available information mostly from newspapers (in English and Thai) and other media sources, as well as brief announcements made by Kingsgate to the ASX as required under Australian corporate and securities law. The arbitration itself remains subject to a confidentiality regime, as the applicable UNCITRAL Rules and TAFTA do not provide for greater transparency as is the case with more recent or other rules and investment treaties. Yet corruption thrives when there is lack of transparency around government affairs.

6 Conclusions and Recommendations

Thailand’s economy has developed strongly by consistently attracting foreign investment especially since the 1980s (Sect. 15.2), despite political upheavals and persistent efforts to reduce corruption amidst many ongoing challenges (Sect. 15.3). It has also expanded the number and scope of its investment treaties, including more options for ISDS arbitrations to enforce substantive commitments to foreign investors (Sect. 15.4.1), resulting in a few treaty-based arbitrations as well as some contract-based arbitrations involving foreign investors (Sect. 15.4.2). A few, and the Kingsgate v. Thailand claim under TAFTA since 2017, have involved allegations and investigations concerning corruption and other serious illegal behaviour (Sect. 15.5).

Such investigations and any final convictions are necessarily detailed and time-consuming, potentially resulting in an arbitration award or settlement being paid out before the full facts and outcomes concerning corruption have been reached. One way to reduce this risk is to speed up investigations and court proceedings, but this is difficult especially in more developing economies—precisely where corruption tends to be more pervasive. Another approach may therefore be for arbitral tribunals to apply a similarly high (criminal law) standard to assessing allegations of corruption,72 which will entail allowing more time for evidence to be assembled, tabled and discussed in the arbitral hearings. A further way to address this dilemma could also point towards developing countries like Thailand seeking to add an internal appeals process to the arbitration, whether in contract- or treaty-based investment arbitrations, as pressed for example by the European Union in its investment treaties involving a two-tier investment court.73

Admittedly, setting a higher standard of proof may mean the host state is less likely to prevail in the arbitration when raising corruption defences. In addition, a competing interest is that international arbitration should be as cost- and time-effective as possible especially as it is often and perhaps increasingly seen as too expensive and slow.74 Nonetheless, more careful investigations and deliberations by tribunals around allegations such as corruption seems a relatively small price to pay to help maintain the legitimacy of international arbitration, as the latter also depends on rule of law values—including consistency of outcomes75—dovetailing with concerns about corruption.

A related broader point that emerges from this analysis of Thailand, particularly from the complicated Kingsgate case, is that investment arbitrations would benefit from more transparency—particularly when serious matters like corruption are raised on a credible basis. The problem is acute with cases like Kingsgate brought under the old UNCITRAL Rules, even though there is no express general obligation of confidentiality, as the tribunal typically ends up ordering or agreeing to a confidentiality regime to promote the procedural integrity of the arbitration, if sought by one party or more. Yet more transparency in ISDS arbitration is being built into bilateral and regional investment treaties concluded since 2014 that give the option to foreign investors of invoking the UNCITRAL Rules, as these were revised in 2013. Thailand in future treaties could also draft in greater transparency provisions around ISDS (as Australia and other countries have been doing for some years), even though such provisions typically provide for exceptions to be pleaded, such as the host state requesting confidentiality on matters of national security or the investor invoking business secrets.76

In addition, arbitration pursued under the 1965 ICSID Convention and its main Arbitration Rules have long had more transparency, including basic facts about the parties, arbitrators and dispute sector but also the publishing of excerpts of legal reasoning from awards even if a disputing party objects—often resulting in publication of the entire award via the ICSID website. ICSID Arbitration Rules in force from 1 July 2022 expand transparency somewhat, for example by making award publication automatic unless a party objects within 60 days. Thailand could therefore expand transparency by ratifying the ICSID Convention, and then including the option of ICSID Convention arbitration in future treaties (or in consents to ICSID arbitration through contracts or licences with foreign investors). Admittedly, ratification could mean quicker or more successful enforcement of future ISDS arbitration awards against Thailand as a respondent state, compared to enforcement of UNCITRAL Arbitration Rules awards through the New York Convention where enforcement courts could consider public policy objections. Thai firms are also now significant outbound investors, so the option of ICSID arbitration could assist them, and more credible ISDS mechanisms might lead to even more inbound investment into Thailand.

By ratifying the ICSID Convention, Thailand would also make available ICSID Convention arbitration under many past treaties, which currently have no access to ISDS at all. However, for some past Thai treaties, there would still be the option of the foreign investor choosing the old UNCITRAL Rules,77 including limited transparency as mentioned above. In addition, therefore, Thailand should consider also ratifying the 2014 United Nations Convention on Transparency in Treaty-based Investor–State Arbitration.78 This would retrofit the transparency provisions from the revised UNCITRAL Rules onto all of Thailand’s old pre-2014 treaties (if the counterpart state has also ratified this 2014 Mauritius Convention, as Australia already has) for all ISDS arbitrations commenced under such treaties, whether under old UNCITRAL Rules, the recently amended ICSID Rules, or any other rules provided as an option.

Regarding contract-based arbitrations, the Thai government should also consider choosing arbitral institutions that provide for more transparency in their Arbitration Rules (such as the International Chamber of Commerce) and perhaps encourage the TAI or THAC to add more transparency provisions to its rules, at least when government entities are involved (as under the revised UNCITRAL Rules).79 Again, all these suggestions for greater transparency may lead to more costs and delays in arbitrations. However, it might also encourage better value for money from the service providers generally.80 Anyway, these proposals for greater transparency in investment arbitration seem another small cost to pay to better address the important public interests and rule of law values associated with serious allegations such as corruption.

Notes

  1. 1.

    Nottage and Thanitcul 2017.

  2. 2.

    See also Kawharu and Nottage 2018, pp. 62–66.

  3. 3.

    For more details and references, see Nottage et al. 2023, Part 2.

  4. 4.

    Meier 1984, pp. 13–16.

  5. 5.

    Akrasanee and Somsak 1990, p.115.

  6. 6.

    Unakul 2014, pp. 32–40.

  7. 7.

    World Bank 1993, pp. xvi, 33.

  8. 8.

    Akrasanee 2014, p. 161.

  9. 9.

    Suthiwatnarueputhi 2013, p. 21.

  10. 10.

    Secretariat Office 2019, pp. 129–143, 242–243.

  11. 11.

    See https://www.transparency.org/en/news/cpi-2021-for-asia-pacific-grand-corruption-holding-back-progress (25 January 2022).

  12. 12.

    Notably e.g., the Civil Service Act (1992), the Tort Liability of Officials Act (1996), the Witness Protection Act (1997), the Right to Official Information Act (1997), the Organic Law on the Election of Members of the House of Representatives and Senators (1999) regulating electoral fraud and corruption, the Anti-Bid-Rigging in Public Procurement Act (1999), and the Act on the Management of Partnerships and Securities Owned by Ministers (2000).

  13. 13.

    Kidd and Richter 2003; Lim and Stern 2002. On the significance of family and government shareholders even in listed companies across Asia, including Thailand, see also Nottage 2022.

  14. 14.

    On such ‘network corruption’, see Khoman 2015 (and see summary in Nottage et al. 2023, Part 3).

  15. 15.

    Khoman 2017.

  16. 16.

    See Khoman 2016 and Sect. 15.4.2 below.

  17. 17.

    See https://investmentpolicy.unctad.org/international-investment-agreements/countries/207/thailand and more details in Nottage et al. 2023, Part 4.1.

  18. 18.

    Nottage and Thanitcul 2017.

  19. 19.

    Yackee (2018, p. 88) points out that the BITs with Romania, Cambodia and Taiwan provided for ISDS ‘where both parties to the dispute so agreed’ or ‘if so agreed by both parties’, suggesting that only a possibility of host state consent. Nonetheless, a more purposive interpretation and/or legislative history may allow for such phrasing to be construed as sufficient advance consent to ISDS.

  20. 20.

    Most BITs signed between 1992 (with Poland) and 2000 (with India) include a clear legality provision to be an investment covered by the treaty, but mostly not those before 1992 and only inconsistently since 2002. Thailand’s FTAs even since TAFTA are also inconsistent. (Among its bilateral FTAs, moreover, only Article 7 of the 2007 FTA with Japan urges each state to take measures against corruption.) On the importance of a clear legality provision, see generally Chaps. 1 and 16 in this volume.

  21. 21.

    See https://investmentpolicy.unctad.org/investment-dispute-settlement/country/207/thailand/respondent. Another reportedly threatened under a treaty with Hong Kong, in 2014 involving the Tongkum gold mine, has seemingly not proceeded (Nottage and Thanitcul 2017). In addition, although Thailand now has quite a large amount of outbound FDI, no formal ISDS arbitration has yet been commenced by any Thai investor. However, Thai-Lao Lignite obtained a USD59 million contract-based arbitration award in 2009 against Laos for termination of its power plant investment.

  22. 22.

    See Nottage and Thanitcul 2017.

  23. 23.

    See summaries by Anthea Roberts and others over 2018–2019 available via https://www.ejiltalk.org/author/aroberts/. See also generally Calamita and Giannakopoulos 2022, pp. 123–4 and 131–2.

  24. 24.

    As discussed in Nottage and Thanitcul (2017) an example is when Thai media commentary described one adverse contract-based award (seemingly referring to the Bangna Expressway case, mentioned below) as the ‘cost of stupidity' (‘ka ngo thang duang’) despite the Supreme Court overturning it six years later. The Klong Dan wastewater treatment dispute award and settlement, described below, have also been referred to as a ‘stupidity fee’: Patsara Jikkham, ‘Cabinet OK B9.8bn “stupidity fee” over Klong Dan plant’, Bangkok Post (17 November 2015) http://www.bangkokpost.com/archive/cabinet-ok-b9-8bn-tupidity-fee-over-klong-dan-plant/768032.

  25. 25.

    Henderson 2009, p. 66.

  26. 26.

    Sucharitkul 2014.

  27. 27.

    Sucharitkul 2014. On the 2011 award, see also Janjira Pongrai, ‘Bt11bn compensation over Klong Dan project’, The Nation, 11 February 2011 http://www.nationmultimedia.com/2011/02/11/national/Bt11-compensation-over-Klong-Dan-project-30148430.html. For details on the Klong Dan project saga, see Khoman 2016.

  28. 28.

    Patsara Jikkham, ‘Cabinet OK B9.8bn “stupidity fee” over Klong Dan plant’, Bangkok Post (17 November 2015) http://www.bangkokpost.com/archive/cabinet-ok-b9-8bn-tupidity-fee-over-klong-dan-plant/768032. (This news report states that the ‘consortium agreed to waive interest charges of 1.8 million baht per day ordered by the Supreme Administrative Court’, but the judgment does not contain such an order.).

  29. 29.

    See further Nottage and Thanitcul 2017 and generally extra references in Nottage et al. 2023, Part 4.2.

  30. 30.

    https://investmentpolicy.unctad.org/investment-dispute-settlement/cases/825/kingsgate-V-thailand.

  31. 31.

    For further details and references on this section (researched and written by Nottage), see Nottage et al. 2023, Part 5.

  32. 32.

    Sydney Morning Herald (14 January 2015) https://www.smh.com.au/business/companies/thailand-shuts-down-australian-gold-mine-over-health-fears-20150114-12nrfd.html.

  33. 33.

    Finance Nine (28 March 2012) https://finance.nine.com.au/business-news/thai-court-rules-on-australian-gold-miner/53e216ea-1543-4094-a915-f94763fd24ce.

  34. 34.

    Pimp and Moore 2015.

  35. 35.

    Ibid.

  36. 36.

    Sydney Morning Herald (2 October 2015) https://www.smh.com.au/business/companies/australian-gold-miner-kingsgate-accused-of-bribing-thai-officials-20151002-gjzwkf.html.

  37. 37.

    The Nation Thailand (8 October 2015) https://www.nationthailand.com/news/30270416.

  38. 38.

    Sydney Morning Herald (28 April 2016) https://www.smh.com.au/business/companies/kingsgate-chairman-denies-pollution-charges-at-thai-goldmine-20160428-goh4zx.html.

  39. 39.

    Hepburn 2017.

  40. 40.

    Reuters (14 December 2016) https://www.reuters.com/article/us-thailand-mine-australia-idUSKBN1430OE.

  41. 41.

    Bangkok Post (13 December 2020) https://www.bangkokpost.com/thailand/general/2034607/akara-workers-plead-for-govt-to-reopen-gold-mine and Reuters (14 December 2016) https://www.reuters.com/article/us-thailand-mine-australia-idUSKBN1430OE.

  42. 42.

    Sydney Morning Herald (15 December 2016) https://www.smh.com.au/business/companies/thai-prime-minister-prayuth-chanochas-gold-mine-decision-send-horrendous-message-says-kingsgate-chairman-20161214-gtb5hy.html.

  43. 43.

    See IAReporter 2017.

  44. 44.

    Sydney Morning Herald (18 August 2017) https://www.smh.com.au/business/companies/kingsgate-shares-soar-as-thai-government-lifts-ban-20170818-gxz9g9.html.

  45. 45.

    Hepburn 2017.

  46. 46.

    Stockhead (18 March 2019) https://stockhead.com.au/resources/kingsgate-just-won-its-82m-case-over-a-closed-thai-gold-mine-shares-soar-80pc/.

  47. 47.

    Bangkok Post (13 December 2017) https://www.bangkokpost.com/thailand/general/1377487/big-business-buoyant-on-eu-free-trade-deal/.

  48. 48.

    The Nation Thailand (29 March 2018) https://www.nationthailand.com/in-focus/30342040.

  49. 49.

    Nikkei Asia (7 June 2018) https://asia.nikkei.com/Business/Companies/Thai-junta-s-battle-with-Australian-miner-puts-law-under-spotlight.

  50. 50.

    Bangkok Post (30 March 2019) https://www.bangkokpost.com/thailand/general/1653764/kingsgate-pushes-ahead-with-legal-challenge-to-mine-closure.

  51. 51.

    Corporate Europe Observatory 2021.

  52. 52.

    Bangkok Post (29 Oct 2019) https://www.bangkokpost.com/thailand/general/1782544/prayut-to-take-responsibility-for-mine-closure.

  53. 53.

    Bangkok Post (4 January 2020) https://www.bangkokpost.com/thailand/general/1828429/phichit-gold-mine-arbitration-to-begin-next-month.

  54. 54.

    Bangkok Post (29 August 2020) https://www.bangkokpost.com/business/1976339/money-trail-points-to-bribery-in-mine-dispute.

  55. 55.

    ‘Anti-Corruption Commission: former director-general of the Department of Primary Industries and Mines, along with six others, guilty under Section 157 for allowing unlawful change in the layout of the North Chatree Gold Mining Project​’ Thansettakij (11 March 2020, in Thai) https://www.thansettakij.com/politics/424387, and ‘Anti-Corruption Commission, “NACC” indicting former director-general of the Department of Primary Industries and Mines for Benefiting Akara Mining Co Ltd’ Matichon (11 March 2020, in Thai) https://www.matichon.co.th/politics/news_2045783.

  56. 56.

    ‘NACC pointed out former Director-General of Department of Primary Industries and Mines for benefiting Akara’ Infoquest (11 March 2020, in Thai) https://www.ryt9.com/s/iq03/3104493.

  57. 57.

    Bangkok Post (2 September 2020) https://www.bangkokpost.com/business/1978287/budget-funds-requested-for-akara-case.

  58. 58.

    Bangkok Post (7 September 2020) https://www.bangkokpost.com/opinion/opinion/1980915/time-to-settle-mine-dispute.

  59. 59.

    Bangkok Post (16 September 2020) https://www.bangkokpost.com/opinion/opinion/1985895/new-licence-same-saga.

  60. 60.

    Mining Weekly (26 November 2020) https://www.miningweekly.com/article/hope-on-the-horizon-for-kingsgate-2020-11-26/rep_id:3650.

  61. 61.

    Bangkok Post (13 December 2020) https://www.bangkokpost.com/thailand/general/2034607/akara-workers-plead-for-govt-to-reopen-gold-mine.

  62. 62.

    Bangkok Post (18 February 2021) https://www.kingsgate.com.au/wp-content/uploads/2021/02/TAFTA-Update-18-February-2021.pdf.

  63. 63.

    Bangkok Post (6 March 2021) https://www.bangkokpost.com/business/2079079/akara-resources-to-face-dsi-probe-over-alleged-proxy-use.

  64. 64.

    Announcements available via https://www.kingsgate.com.au/newsdesk/latest/.

  65. 65.

    Sydney Morning Herald (7 February 2022) http://www.smh.com.au/world/thai-prime-minister-under-fire-over-reopening-of-australian-gold-mine-20220207-p59ud5.

  66. 66.

    Bangkok Post (10 March 2022) https://www.bangkokpost.com/thailand/general/2276607/activists-oppose-akara-permits. No mention is made of the activists having also petitioned or visited the NCAC.

  67. 67.

    The Nation (11 March 2022) https://www.nationthailand.com/in-focus/40013296.

  68. 68.

    Mining Weekly (24 May 2022) https://www.miningweekly.com/print-version/kingsgate-secures-refinery-for-chatree-ore-2022-05-24.

  69. 69.

    See https://www.kingsgate.com.au/announcements/, especially in reverse chronological order: 27 March 2023 (quoting from p. 15), 28 March 2023, 24 March 2023 (referring also to https://www.youtube.com/user/kingsgatemining), 21 March 2023, and 17 March 2023; 19 May 2022 and 18 May 2022.

  70. 70.

    The Nation (31 March 2023) https://www.nationthailand.com/thailand/general/40025890.

  71. 71.

    See Kingsgate’s ASX share price trends at https://www2.asx.com.au/markets/company/kcn.

  72. 72.

    See generally Chap. 6 in this volume. Setting instead a lower (balance of probabilities) standard could lead to corruption allegations being more readily upheld, thus depriving the investor of jurisdiction or damages. However, with less information available from the domestic proceedings, the allegations may still not be upheld, and this then leaves the spectre of an award being paid out despite the domestic proceedings later finding corruption associated with the investment. If instead corruption is upheld on the lower standard applied by the arbitrators, later domestic proceedings applying the higher standard may find insufficient evidence of corruption, thus creating inconsistent outcomes which goes counter to rule of law values and therefore undermining the legitimacy of international arbitration.

  73. 73.

    See generally Kawharu and Nottage 2017.

  74. 74.

    Nottage 2021.

  75. 75.

    Menon 2020.

  76. 76.

    See generally e.g., Ubilava and Nottage 2021.

  77. 77.

    Nottage and Thanitcul 2017.

  78. 78.

    See https://uncitral.un.org/en/texts/arbitration/conventions/transparency.

  79. 79.

    For early suggestions for institutional rule amendments along these lines, followed almost a decade later by e.g., the Singapore International Arbitration Centre, see also Nottage and Miles 2009.

  80. 80.

    Nottage 2014.