FIDIC around the world – December 2021

Wednesday 8 December 2021

FIDIC Around the World – Thailand

Nuanporn Wechsuwanarux
David Beckstead

Asia Pacific Regional Forum Liaison Officer, IBA Power Law Committee

Phalintip Ueprapeepun
Suphachok Saengarun

Chandler MHM, Bangkok, Thailand

In this questionnaire, references to FIDIC clauses are references to clauses in the 1999 Red Book.

1. What is your jurisdiction?

Thailand.

2. Are the FIDIC forms of contract used for projects constructed in your jurisdiction? If yes, which of the FIDIC forms are used, and for what types of projects?

FIDIC contracts are often used in infrastructure projects in Thailand. In our experience, the most commonly used forms are the turnkey agreement (Silver Book) and the design-build agreement (Yellow Book). Since the introduction of the revisions to the FIDIC suite of contracts in 2017, we have seen the new editions used in several projects; however, some project owners and contractors continue to prefer the 1999 editions.

FIDIC contracts are used in all types of infrastructure projects, such as power plants, rail projects, refineries, ports, etc. The Silver Book and Yellow Book are both commonly used in projects funded by asset-based project financing.

3. Do FIDIC produce their forms of contract in the language of your jurisdiction? If no, what language do you use?

There are no official Thai translations of FIDIC form agreements, though we have seen translated versions of FIDIC contracts for government-owned projects. The English-language versions are commonly used for projects in Thailand.

4. Are any amendments required in order for the FIDIC Conditions of Contract to be operative in your jurisdiction? If yes, what amendments are required?

Thai law generally embraces the principle of freedom of contract, meaning parties are free to stipulate the contents of their agreements so long as the agreement is not illegal or contrary to public order or the good morality of Thailand. As such, there are no amendments necessary in order to ensure the FIDIC terms are operative.

5. Are any amendments common in your jurisdiction, albeit not required in order for the FIDIC Conditions of Contract to be operative in your jurisdiction? If yes, what (non-essential) amendments are common in your jurisdiction?

Some of the adjustments to FIDIC Conditions of Contract that we regularly see in Thailand are:

1. Splitting the contract

As in other jurisdictions in Asia, it is common practice in Thailand to ‘split’ the scope of work to be performed under an engineering, procurement and construction contract into an onshore agreement and an offshore agreement. In order to recreate the effect of the turnkey structure, the parties will also typically enter into a wrap agreement to ensure that both onshore and offshore contractors are jointly liable; that there are no horizontal defences available to the contractors; and there is consistency in the liquidated damages regime, among other relevant matters.

The primary motivation for splitting the construction contract is for tax planning purposes. However, the structure can also be beneficial for foreign contractors, as engineering, architecture and domestic trading are restricted business activities under Thailand’s Foreign Business Operations Act.

2. Removal of Dispute Adjudication Board (DAB)

In our experience, (for better or worse) DABs are seen by parties as an unnecessary and additional expense. As a practical matter, the pool of qualified individuals who would be capable of sitting on a DAB is smaller than in jurisdictions where DABs are more commonly used.

3. Employer-friendly derogations for government-owned projects

Where a project is owned by a governmental agency or state-owned entity, the Conditions of Contract will typically be amended by the particular conditions to be more Employer-friendly. Some examples we have seen are:
(1) the removal of the Contractor’s liability cap at Sub-Clause 17.6;
(2) limiting the Contractor’s ability to request extensions of Time for Completion at Sub-Clause 8.4; and (3) the removal of provisions entitling the Contractor to certain relief in the event of changes in legislation (Sub-Clause 13.7) or due to interference by governmental authorities (Sub-Clause 8.5).

6. Does your jurisdiction treat Sub-Clause 2.5 of the 1999 suite of FIDIC contracts as a precondition to Employer claims (save for those expressly mentioned in the sub-clause)?

Yes, the employer must comply with the notification requirements under Sub-Clause 2.5 as a condition for asserting a claim under the Conditions of Contract. In our experience, Sub-Clause 2.5 is commonly included without amendment and is generally acceptable to employers in Thailand, particularly public authorities for the construction of infrastructure projects.

Thai law generally recognises the principle of freedom of contract, meaning the parties may stipulate adherence to certain conditions prior to asserting a claim. Therefore, based on a textual reading of Sub-Clause 2.5, an employer may lose its right to claim as a result of its failure to comply with the notification requirements.

7. Does your jurisdiction treat Sub-Clause 20.1 of the 1999 suite of FIDIC contracts as a condition precedent to Contractor claims for additional time and/or money (not including Variations)?

Yes, the procedures set out at Sub-Clause 20.1 would be seen as a condition precedent to Contractor claims for additional time and/or payment, since the provision expressly provides that the Employer’s liability in respect of the respective claim will be discharged in the event the Contractor fails to assert its claim within the specified period.

8. Does your jurisdiction treat Sub-Clause 20.1 of the 1999 suite of FIDIC contracts as a condition precedent to Contractor claims for additional time and/or money arising from Variations?

Similar to the answer at question 7, the Contractor’s compliance with Sub-Clause 20.1 would be treated as a condition precedent to its claims for an extension of time and/or additional payment arising from Variations.

For claims for additional time, the Contractor would have to comply with the procedures set out in Sub-Clause 20.1 in order to assert its claim for an extension of time as a result of Variations stipulated in Sub-Clause 8.4, if the Contractor and the Employer/Engineer cannot agree on the adjustment to the time for completion.

As for claims for additional payment, if the Contractor does not agree with the value of the Variations determined by the Employer/Engineer under Sub-Clauses 3.5, 12.3 and 13.3, then the Contractor could still potentially assert its claim for an additional payment in accordance with Sub-Clause 20.1. Compliance by the Contractor under Sub-Clause 20.1 would be treated as a condition precedent to its assertion of claims for additional payment.

9. Are dispute boards used as an interim dispute resolution mechanism in your jurisdiction? If yes, how are dispute board decisions enforced in your jurisdiction?

Dispute adjudication boards, as contemplated at Sub-Clause 20.2 and elsewhere in the Conditions of Contract, are not commonly used in Thailand.

10. Is arbitration used as the final stage for dispute resolution for construction projects in your jurisdiction? If yes, what types of arbitration (ICC, LCIA, AAA, UNCITRAL, bespoke, etc) are used for construction projects? And what seats?

For projects owned by private parties, arbitration is commonly used as the final dispute resolution forum. Typically, the parties will nominate either the Thai Arbitration Institute (TAI) or the Singapore International Arbitration Centre (SIAC) as the body to administer the arbitral proceedings. The seat of arbitration will typically be either Thailand or Singapore. If both the Employer and Contractor are Thai, then a TAI-administered arbitration with Thailand as the seat is likely. However, if either party is foreign (or the Thai subsidiary of a foreign company), the foreign party may push for arbitration in a neutral venue such as Singapore.

Over the past 15–20 years, the Thai government has adopted an official policy of not favouring arbitration as a dispute resolution mechanism for government contracts. As such, most government-owned projects will require disputes to be resolved through Thai courts.

11. Are there any notable local court decisions interpreting FIDIC contracts? If so, please provide a short summary.

There are no published Thai Supreme Court decisions interpreting FIDIC contracts. However, there are some interesting issues provided in FIDIC form agreements that have been interpreted by Thai courts in other contexts:

1. Liquidated damages

The right to liquidated damages provided for under the FIDIC Conditions of Contract, such as delay damages (Sub-Clause 8.7), might be treated as a penalty under Thai law. Accordingly, the stipulated quantum of the liquidated damages may be reduced in accordance with section 383 of the Civil and Commercial Code at the discretion of the court or arbitral tribunal if it finds the amount excessive in light of the actual injury incurred.

2. Termination due to delayed delivery of the site

Thai courts have ruled that delivery of a construction site to the contractor for commencing the work is a substantial obligation of the project owner (Sub-Clause 2.1). Accordingly, failure to deliver the site will be deemed as an event of default of the Employer which would allow the Contractor to terminate the contract pursuant to Thai law, regardless of whether such termination right is explicitly set out in the contract.

3. Governing law

In any proceedings in Thailand, the choice of a foreign law (other than Thai law) as the governing law (Sub-Clause 1.4) will generally be recognised. However, the foreign law will be applied by the Thai court only to the extent to which the law is proven to the satisfaction of the Thai court (the satisfaction of which is within the discretion of the Thai court); and not considered contrary to the public order and good morals of the people of Thailand.

12. Is there anything else specific to your jurisdiction and relevant to the use of FIDIC on projects being constructed in your jurisdiction that you would like to share?

Although use of FIDIC contracts in Thailand is becoming more common, the number of occasions where the provisions of FIDIC Conditions of Contract have been interpreted by Thai courts is fairly limited. As such, the status of many of the provisions of the FIDIC Conditions of Contract has not been definitively established under Thai law. Furthermore, common market practices are still in the process of being developed.

Nuanporn Wechsuwanarux is a partner at Chandler MHM in Bangkok, Thailand and can be contacted at nuanporn.w@mhm-global.com. David Beckstead is a counsel at Chandler MHM in Bangkok, Thailand and can be contacted at david.b@mhm-global.com. Phalintip Ueprapeepun is an associate at Chandler MHM in Bangkok, Thailand and can be contacted at phalintip.u@mhm-global.com. Suphachok Saengarun is an associate at Chandler MHM in Bangkok, Thailand and can be contacted at suphachok.s@mhm-global.com.

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