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Thai Court Approach to Legal Costs in Arbitration7 February 2022

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Arbitration has served as one of the most prevalent mechanisms for resolving commercial disputes for centuries. The development of arbitral procedural rules and advancement of arbitral regimes has given rise to complexity in arbitration proceedings. This requires disputing parties to invest considerable amounts in engaging special legal practitioners, in order to ensure that arbitration proceedings are properly conducted and consequential awards therefore recognised and enforceable.

"Whether legal costs are recoverable, in particular lawyers’ fees and expenses, has always been a concern for parties. In a recent judgement, Thai court rendered an affirmative verdict that a disputing party can recover its legal costs as awarded by an arbitral tribunal."

Whether legal costs are recoverable, in particular lawyers’ fees and expenses, has always been a concern for parties. In a recent judgement, Thai court rendered an affirmative verdict that a disputing party can recover its legal costs as awarded by an arbitral tribunal.

The potential uncertainty surrounding the recognition of legal costs under Thailand’s legal framework

The Arbitration Act B.E.2545 (2002) (the “Act”) is the main statute that sets out the principles of arbitral practice in Thailand. The main provision in respect of legal costs is provided in Section 46, Paragraph 1 of the Act.

Section 46 Unless otherwise agreed by the parties, the fees and expenses incidental to the arbitral proceedings and the remunerations for arbitrator, excluding attorney’s fees and expenses, shall be in accordance with that stipulated in the award of the arbitral tribunal.”

However, the above provision presents some uncertainties. It remains questionable whether parties can request for an arbitral tribunal to allocate the recovery of legal costs, because the above provision seems to exclude arbitral tribunals from exercising such power. One could argue that the exclusion of legal costs shall prevail in any case since it serves as a mandatory rule. Taking the contrary position, others could argue that Section 46 is not applicable if the parties have an agreement on the allocation of legal costs, which could overrule the application of Section 46 as well as the exclusion.

"The Arbitration Act B.E.2545 (2002) is the main statute that sets out the principles of arbitral practice in Thailand. The main provision in respect of legal costs is provided in Section 46, Paragraph 1 of the Act."

The case before the Thai court

We represented one of our clients as a claimant in a construction dispute in an ICC arbitration against the project owner. The arbitral tribunal decided the case in the claimant’s favour and ordered the respondent to compensate the claimant in full for their legal costs. The arbitral award was subsequently referred to a Thai court for recognition and enforcement. Nonetheless, the respondent objected arguing that the award on legal costs could not be recognised and enforced, on the ground that the arbitral tribunal was not empowered to allocate legal costs by virtue of the exclusion in Section 46 of the Act.

The claimant presented a dispute resolution clause within the agreement made between them and the respondent to the court, which provided for the resolution of disputes through arbitration under ICC Arbitration Rules 2017. The claimant introduced the relevant provision below.

Article 38: Decision as to the Costs of the Arbitration

1. The costs of the arbitration shall include the fees and expenses of the arbitrators and the ICC administrative expenses fixed by the Court, in accordance with the scales in force at the time of the commencement of the arbitration, as well as the fees and expenses of any experts appointed by the arbitral tribunal and the reasonable legal and other costs incurred by the parties for the arbitration.

4. The final award shall fix the costs of the arbitration and decide which of the parties shall bear them or in what proportion they shall be borne by the parties.”

"It remains questionable whether parties can request for an arbitral tribunal to allocate the recovery of legal costs."

The claimant also submitted that the agreement to resort to arbitration under the ICC Arbitration Rules 2017 qualified as an agreement to empower the arbitral tribunal to decide on the allocation of legal costs, and therefore Section 46 was not applicable because this legal provision would apply only when the parties did not have any agreement on costs.

The court determined that the parties’ agreement to refer disputes subject to the ICC Arbitration Rules, which empower an arbitral tribunal to allocate legal costs, reflected the parties’ intention to apply a different method on cost allocation than that specified in Section 46, the latter being a default provision to apply in the absence of agreement between parties. Therefore, the court agreed with the claimant’s assertion and decided to recognise and enforce the award.

Conclusion

On the whole, it appears that the recent judgment demonstrates the Thai court’s views on the importance of recovering legal courts in respect of arbitration. Furthermore, it represents one of the prominent decisions to ensure that disputing parties can recover their legal cost through arbitration.

UK Trainee Iyanu Ilupeju also contributed to this article.

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