A venture breaks down: who must arbitrate
When a venture breaks down the parties think first of the arbitration clause. That clause answers only who decides. It does not answer who is liable, or for how much — the heavier question where no company was ever formed.
Forum and liability are separate questions
An arbitration clause settles who decides and by what procedure. Liability comes from the character of the arrangement itself. If a venture agreement meets section 1012 of the Civil and Commercial Code — two or more persons agreeing to carry on a business together with a view to sharing the profits — then section 1025 makes all the partners jointly liable without limit for all its obligations, wherever disputes are to be heard.
Who the clause actually binds
In a venture with no juristic person, who the arbitration clause binds is not always simple, because those who joined later, those who signed different documents, and affiliates that did the actual work may not be parties to the document carrying the clause. Establishing who signed what, and when, is therefore the first task before any decision about forum.
The deadline if the other side sues
If the other side sues rather than referring the dispute to a tribunal, section 14 of the Arbitration Act B.E. 2545 (2002) 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. In a venture dispute spread across several documents and parties, working out who the clause binds within that window is work that has to start immediately.
What an award can and cannot settle
An award binds the parties to that dispute, but liability to outside creditors under section 1025 is a different set of relationships to which those creditors are not parties. A ruling on who indemnifies whom among the venturers therefore does not change a creditor's right to look to any one partner. Separating the two layers early keeps expectations accurate.
What to settle at the drafting stage
Because the arbitration clause answers only the forum, what belongs beside it is whatever answers liability: whether a juristic person will be formed to carry the venture, a returns mechanism drafted so that it plainly is or is not a sharing of joint profits, and a list of parties bound by the clause that matches those actually doing the work.
PREPARE
What to bring
- The venture agreement and every document signed
- The dispute clause and who signed the document carrying it
- Who joined later, and in what capacity
- The debts the venture incurred and to whom
- The summons and when the defence falls due, if sued
QUESTIONS
Questions this raises
We won the arbitration. Can a creditor still come to us?
An award binds the parties to that dispute. Section 1025 fixes the partners' liability for all the obligations of the partnership, a relationship with creditors who were not parties to the arbitration. The award is therefore worth having as between the venturers, but it does not cut off a creditor's choice of which partner to pursue.
The affiliate that did the work never signed the venture agreement.
An arbitration clause binds according to the document that carries it, so someone who is not a party to that document raises a separate question. That is why it is worth checking at the drafting stage whether the list of parties matches those who will actually perform. Once a dispute has arisen, correcting it is a good deal harder.
LAW
The legislation
- Civil and Commercial Code, sections 1012 and 1025
- Arbitration Act B.E. 2545 (2002), section 14
ENQUIRIES
