Foreign arbitration does not move the liability
Franchise and distribution agreements drafted by the brand owner usually send disputes to arbitration abroad, so a Thai operator tends to focus on the cost of fighting there. The heavier point is the liability that attaches well before any forum is reached.
The forum changes; the liability does not
Section 824 of the Civil and Commercial Code provides that an agent who contracts on behalf of a principal resident and domiciled abroad is personally liable on that contract, even where both the agent's own name and the principal have been disclosed, unless the terms of the contract are inconsistent with the agent's liability. That liability arises from the parties' status and the principal's domicile, not from any clause about where disputes are heard.
What an arbitration clause can and cannot do
An arbitration clause settles who decides and by what procedure; it does not settle who is liable in law. A Thai operator who succeeds in renegotiating the forum is therefore left with the same section 824 question. What section 824 does leave open is terms of the contract inconsistent with the agent's liability — and that is where negotiating effort is better spent.
When the other side sues in a Thai court instead
Even where the contract points to arbitration, proceedings are still sometimes brought in a Thai court. Section 14 of the Arbitration Act B.E. 2545 (2002) then allows the defendant to apply for the case to be struck out, no later than the date of filing the defence or within the period allowed for it. That window is short and runs with the defence, so it tends to arrive before consultations with foreign counsel have concluded.
A decision that has to be made sooner than expected
Put together, a Thai operator who is sued faces two decisions inside the same window. The first is whether to insist on the arbitration the contract provides for, which must be done within the section 14 period. The second is how to meet the section 824 liability question, which turns on wording already signed. Both have to be prepared from the day the summons arrives.
What to look at before signing
Because section 824 attaches to the status of a principal resident and domiciled abroad, two things repay checking before signature: the wording fixing whether the Thai party is an agent or is buying and reselling in its own name, and the dispute clause with the institution and seat it names. They answer different questions and are worth considering separately.
PREPARE
What to bring
- The signed franchise or distribution agreement
- The dispute clause with its institution and seat
- Where the brand owner is resident and domiciled
- The wording fixing the Thai party's status
- The summons and when the defence falls due, if sued
QUESTIONS
Questions this raises
If we move arbitration to Thailand, does that help on liability?
Changing the seat or the institution is a question of forum and procedure. Section 824 attaches liability to the principal being resident and domiciled abroad, so the two are separate. Moving the forum may help with cost and convenience, but it does not answer the liability question, which turns on whether the terms of the contract are inconsistent with the agent's liability.
The brand owner sued in Thailand despite the arbitration clause.
That is the situation section 14 provides for: the defendant may apply for the case to be struck out, no later than the date of filing the defence or within the period allowed for it. What has to be decided quickly is whether to exercise that right or to contest in the Thai court, since the two routes differ in cost, in time, and in how the result is later enforced.
LAW
The legislation
- Civil and Commercial Code, section 824
- Arbitration Act B.E. 2545 (2002), section 14
ENQUIRIES
