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ADVICE AND OPINION REQUESTED BY WALTER BAU AG
Sompong Sucharitkul
OPINION ON THE PROTECTION OF GERMAN INVESTMENTS IN THAILAND
In the Matter of an Arbitration
Under the UNCITRAL Arbitration Rules
BETWEEN
WALTER BAU AKTIENGESELLSCHAFT in Liquidation (Claimant)
AND
THE KINGDOM OF THAILAND (Respondent)
CONSIDERED OPINION OF PROFESSOR SOMPONG SUCHARITKUL on
jurisdictional issues relating to the promotion and protection of German investments in
the Kingdom of Thailand arising in the afore-mentioned arbitration.
1. I, Sompong Sucharitkul, have been asked by Walter Bau Aktiengesellschaft in
Liquidation, Claimant in this case, to address three jurisdictional issues and related
questions in the matter under consideration;
1.1. whether, under the facts as commonly noted and/or contended by the
Parties, the investment of capital brought into Thailand by the Claimant
was owned by, or under the management or effective control of nationals
or companies of the Republic of Germany in accordance with the terms of
the bilateral Treaty between the Republic of Germany and the Kingdom of
Thailand concerning the promotion and reciprocal protection of
investments signed by the Parties on 13 December 1961;
1.2. whether, under the facts as commonly noted and/or contended by the
Parties, the investment in question made in a project classified in the
Certificate of Admission by the appropriate authority of the Kingdom of
Thailand in accordance with the legislation and administrative practice as
an "approved project” under the terms of the 1961 Treaty, is not also an
"approved investment made prior to the entry into force of the 2002
Treaty"; and
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1.3. whether, under the facts as commonly noted and/or contended by the
Parties, the investment in question is entitled to the measures of protection
agreed upon in the bilateral Treaty of 1961 and farther reaffirmed by the
subsequent Treaty between the Federal Republic of Germany and the
Kingdom of Thailand concerning the Encouragement and Reciprocal
Protection of Investments of 24 June 2002.
2. I feel obliged to place on record at the outset a disclaimer and a disclosure that
may to some extent account for an inevitable imperfection in the formation of my
considered opinion. I will then explain to the best of my knowledge and belief
why I am distinctly qualified to address these three questions. I will thereafter set
out the basic object and purpose of the bilateral treaty and the treaty regime in
operation between Germany and Thailand, designed primarily and expressly to
promote, encourage and ensure reciprocal protection of investments between the
two countries. It is in this context that the provisions of the bilateral treaties
should be construed, interpreted, understood and applied by both Parties to attain
the avowed aims and objectives, enunciated in no uncertain terms by the Parties in
particular regard to the jurisdictional issues under review..
3. In the first place, I do not profess an expertise on all aspects of the intricate
niceties in every branch of the domestic and internal law of any national legal
system in which I have served and been recognized as an “international legal
professional". My publications in the past few decades relating to the practice of
national legal systems have been limited mainly to questions of public rather
private international law, including constitutional and administrative law and the
practice of selected countries, and confined notably to such topics as the law of
nationality, legal personality and the treaty law and practice of a State best known
to me, namely Thailand. More often as a specialist in public international law
and sometimes as a Special Rapporteur appointed by the International Law
Commission on a particular topic, my methodology in the examination of the
practice of States has been in an effort to identify the rules of customary
international law from the general practice of States and subsidiarily to induce
such rules from the general principles of law, civil law as well as common law,
recognized by the principal legal systems of the world. My OPINION in the pages
that follow will be made from the combined perspective of a practicing
international legal professional and that of a scholar and teacher of international
and comparative law. I might observe nonetheless that, in spite of my avowed
limitations, the Federal District Court of New York, in Lehman Brothers v.
Finance One, was neither precluded nor deterred from appointing me in 2002 as
Special Master of the Court in that case upon consultations with the Parties and
with their concurrence, nor from requesting me to submit an OPINION as a
neutral expert witness in the form of a report. In that case, it may be recalled, the
two Party-appointed Thai expert witnesses on both sides, one a former Member of
the Supreme Dika Court and the other a Professor of Law at Thammasat
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University, gave opposing opinions on the question of set-off under Thai law.
After reviewing my initial report, the District Court requested a supplemental
report, and accepting the recommendations contained in the two reports I
submitted, decided the case accordingly.
4. In the second place, I feel duty-bound to disclose the fact that I am a loyal subject
of the Kingdom of Thailand and cannot conceal my long-termed undivided
loyalty to the Kingdom. My considered opinion is incurably and favorably partial
to Thailand in the general interest of the beloved fatherland. Next in priority after
Thailand are all the Members of ASEAN and all other countries with which
Thailand maintains durable friendship and partnership in progress. I would not
hesitate to come to the assistance of countries friendly to Thailand, especially in
time of need and with an opportunity to further enhance the friendly cooperation
and mutually fruitful relations between Thailand and her friends and partners in
economic development.
5. I graduated from Oxford University with B.A (Honours School of Jurisprudence)
(1953), a D.Phil. and M.A. (1955), and a D.C.L. and B.CL. by accumulation
(1990). From the University of Paris (Faculte de Droit) I hold a Docteur en
Droit (1954) with a Diplome d’Études Superieures de Droit International Public. I
graduated from Harvard Law School with an LL.M. (International Legal Studies)
in 1956. I was admitted to practice as a Barrister-at-Law of the Middle Temple in
the United Kingdom in 1954, and in 1958, I was awarded the Diplome de
l’Acaddmie de Droit International of The Hague Academy of International Law in
the Private International Law Section.
6. Returning from years of legal studies in Europe and the United States, with
scholarships from Thammasat University, from Gurusabha (under the auspices of
the Ministry of Education) and from Harvard, I began my academic career in
1956 at Chulalongkom University, Legal Section of the Political Science
Department, teaching International Law and Relations at LL.B. and LL.M. levels,
and serving as a special lecturer in the graduate division of Thammasat
University, teaching a course on the Law of the Sea. In 1957, I was invited by
Norman Marsh, law reform commissioner of the UK to assist him in his capacity
as Secretary-General of the International Commission of Jurists at The Hague
until 1959, when Marsh was succeeded by Jean-Flavien Lalive and subsequently
by Sir Leslie Monroe and Sean McBride. The Commission moved its
headquarters to Geneva in 1959 and I returned to Bangkok to serve as Secretary
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to the Prime Minister while waiting to enter the Ministry of Foreign Affairs in the
same year.
7. It was during the two years tour of duty at The Hague that I was exposed to the
practice of international and comparative law, as law officer and editor of the
Journal, theBulletin and the Newsletters of the Commission. I had the experience
of representing the Commission at NGO meetings in Geneva and presenting the
Commission publication on the Hungarian Situation in 1957 to the President of
the UN General Assembly, then Prince Wan of Thailand, at Rome, on his way to
the UN from Thailand. It was at The Hague that I attended in 1957 the Research
Centre of the Hague Academy of International Law, a research seminar on the
Protection of Foreign Investments or the Treatment of Aliens, conducted by
Professor A. Freeman of New York. In 1958, I was awarded a diploma by The
Hague Academy. It was also at The Hague that had my first experience with the
International Court of Justice, attending hearings in the Bulgarian Aerial Incident
Case and the case concerning the Right of Passage over Indian Territory, meeting
former classmates and friends from the US and UK serving as counsels and
advocates respectively for Israel and for India.
8. At the hearings of the International Court of Justice, I witnessed Shabtai Rosenne
pleading for the exercise of jurisdiction by the Court on the plain ground that
otherwise the declaration of acceptance of compulsory jurisdiction of Thailand,
like that of Bulgaria, of the Permanent Court of International Justice would have
equally lapsed, since neither Bulgaria nor Thailand was a member of the United
Nations at its inception in 1945. In spite of this moving plea, the Court declined
jurisdiction. This inspired me to propose that Thailand raised a preliminary
objection to the jurisdiction of the ICJ in the Temple ofPhra Viham Case in 1960,
soon after I joined the Legal Adviser’s Office of the Ministry of Foreign Affairs,
and was appointed a member and secretary of the combined defence team of
international counsels and advocates in that case.
9. Meanwhile during the research seminar at The Hague Academy of International
Law in 1957, I became deeply interested in the problem of balancing or finding a
proper balance between the interests of the capital exporting and the capital
importing countries, or between the home and the host States. It appeared
difficult and delicate to establish, and more so still to maintain, such a balance.
Regardless of the inviting incentives and effective measures of preferential
treatment that have been offered to attract foreign direct investments, there is still
no assurance of actual investments which are generally motivated by countless
other factors. It was not a coincidence that in October 1997, some three decades
later, I found myself conducting a course of lectures and seminars at the
invitation of The Hague Academy at its 26th external session in Hanoi on The
Law of International Investments for young professors and diplomats from
Cambodia, China, Indonesia, Laos, Malaysia, Singapore, Thailand and Vietnam
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10. Back to the sixties, my personal interest in international law and in the
development of Thai law grew as I was appointed a member of the National
Research Council of Thailand in 1960 and served for ten years until 1970 as
secretary of the Law Branch, consisting of no more than a dozen of Thai lawyers,
judges and law-makers, such as President and Members of the Supreme Dika
Court and Secretary General of the Juridical Council. As a most junior member
of the Council, I was chosen to serve as secretary and conductor of legal research.
The Council presented two projects authored by myself, one on the introduction
of maritime transport law and the establishment of Thai merchant marine as an
autonomous office, and another project on the introduction of Thai Patent Law
and the establishment of a Thai Patent Office in the Ministry of Commerce, both
projects being in the field of national economic development.
11. Concurrently with the decade of my duties as a legal researcher in the National
Research Council, I was serving initially as Second Secretary in the Legal
Division of the Legal Adviser’s Office, directly under the Division Chief who was
also Acting Legal Adviser, Mr. Chapikom Sresthaputra, a member and secretary
of the National Committee to Review Treaties and Conventions. Subsequently
the Legal Adviser’s Office was renamed Treaty and Legal Department and
ultimately Department of Treaties and Legal Affairs. My main duties were to
assist the Legal Adviser, subsequently Director-General of the Department, in his
review of all the draft treaties submitted to the Department and to engage in all of
Thailand’s major treaty negotiations and treaty-making practice in addition to
serving in the Temple of Phra Viham Case. My very first involvement in bilateral
treaty negotiations came in 1961, the bilateral investment treaty (BIT) with the
Federal Republic of Germany. I found myself engaging in the preparation of all
drafts and counter-drafts, in the active participation in the conduct of negotiations,
both at the plenary level, serving principally as secretary of the Thai Delegation,
preparing opening and closing statements for the Chairman of the Thai
Delegation, keeping all the records and drafting the Minutes of the proceedings in
English and in Thai, and at the legal sub-committee level, heading the Thai team
and serving as the principal Thai negotiator together with Dr. Schulz, the German
legal counterpart. As such, I was responsible at both levels for the preparation of
executive summaries for the Minister of Foreign Affairs and the final report to be
submitted to the Council of Ministers for approval. This could only be finalized
after several sessions of deliberations within the National Committee to Review
Treaties. Within a short time, I became secretary and also member of that
National Committee, and remained attached to the Committee, regardless of my
subsequent promotion and new assignments as Director of SEATO Affairs in
1963, and as Directeur de Cabinet of the Minister of Foreign Affairs in 1965 and
ultimately as Director General of the Economic Department and ASEAN
Secretary-General for Thailand in 1967. It was very exceptional and unique for
any diplomatic officer to serve in Bangkok, at any Home post, for longer than
three or four years. In my case, I remained at different posts in the Home Office
(Thailand) for more than ten years and because of my uniquely diverse
qualifications I continued to serve on this Treaty Review Committee throughout
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that decade until I became Ambassador Extraordinary and Envoy Plenipotentiary,
Chief of Mission of Thailand to the Benelux Countries and accredited to the
European Economic Communities.
12. In 1960 I was launched into the ring of diplomacy by conference by an
appointment as an alternate representative on the Thai Delegation to the fifteenth
regular annual session of the General Assembly of the United Nations and was
assigned as representative on the Sixth (Legal) Committee. Sir Francis Vallat of
the UK nominated me to serve as Chairman of the Free World Group which
participated in the drafting of resolution 1514 and a successful attempt to replace
a proposed study group on Peaceful Coexistence by one on the Principles of
Friendly Relations and Cooperation of States under the Charter of the United
Nations, culminating ten years later in the declaration of principles of
international law adopted in resolution 2625 in 1970. Several events occurred in
the United Nations General Assembly which will be specifically addressed in
relation to the jurisdictional issues under consideration.
13. On the average of every other annual session of the UN General Assembly, I
became a regular representative on the Thai Delegation, especially on the legal
side, and particularly as an elected Member of the International Law Commission
since 1977 until 1986 when my eighth report on Jurisdictional Immunities was
finally approved by the ILC at first complete reading. This set of draft articles
were to be adopted by the General Assembly as the UN Convention in December
2004. My diplomatic career as head of mission started with the Benelux and the
EEC in 1970, then Japan from 1973 to 1977, and France, Portugal and UNESCO
in 1977 and 1978. From 1978 to 1980 I returned to Bangkok as Director General
of the Department of Treaties and Legal Affairs, formerly known as principal
legal adviser. I resumed my last diplomatic post as chief of mission in Rome,
Athens and Israel with accreditation to FAO from 1980 to 1985.
14. From 1985, I have resumed my teaching career, first as Fulbright Professor of
International Law and Relations at UNCC in North Carolina, USA, then at NUS
in Singapore. Thereafter I was given the Robert Short Chair in International
Human rights Law at Notre Dame Law School and later moved to Lewis and
Clark at Portland, Oregon, and in 1989 was awarded the Cleveringa Endowed
Chair at Leiden University in the Netherlands. In 1990, I returned to the United
States to take up a distinguished chair of international and comparative law at
Golden Gate University School of Law from 1990 until today.
15. During the past two decades I have been active as counsel and arbitrator in
State/Investor arbitration. I have represented the Department of Natural
Resources of Thailand in an arbitration involving an American concessionaire in
the Gulf of Thailand and appeared at the hearing in Zurich in 1986. Since 1987, I
have chaired several ICSID Annulment Committees, and served as President or
Sole Arbitrator in ICSID arbitral tribunals and presided over the first and so far
only ASEAN Arbitral Tribunal for Investment Disputes in 2002-2003.
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16. In 1996, I was appointed a member of the United Nations Compensation
Commission, Panel E 3 to examine claims submitted by Governments arising
from the invasion and occupation of Kuwait by Iraq in construction and
engineering contracts. Panel E 3 completed its work in 2003, with some feed-
back from the Governing Council. Claims already assessed are being paid out of
the United Nations Compensation Fund allocated by the Security Council from
the proceeds of the sale of Iraqi crude oil authorized half yearly by the UN.
17. From Thailand’s perspective, certain facts leading to and accompanying the
conclusion and implementation of the bilateral investment treaty between
Thailand and the Republic of Germany are notable as an aid to a deeper
understanding of the object and purpose of the treaty in the context of economic
cooperation in the promotion and reciprocal protection of investments of the
respective nationals and companies of the Parties in each other’s territories.
Relations between Thailand and Germany in the Twentieth Century:
18. The First World War witnessed Thailand’s participation in the War on the side of
the Allies. Thailand emerged victorious, having sent two expeditionary forces to
Europe to relieve France with logistical supplies and transport vehicles. Thailand
was signatory to the Treaty of Versailles at the end of the War with the result that
Germany had to renounce extraterritorial rights for German nationals in Thailand.
As such, Germany was the third country after the United States and Japan to
abandon exterritorial rights over their respective nationals in Thailand. Other
European nations did not give up their anomalous positions until after prolonged
negotiations and fulfillment of certain legislative conditions by Thailand.
19. After Japan’s invasion of Thailand on 8 December 1941, Thailand became an ally
of Japan and consequently of Germany. Japan mediated the dispute between
Thailand and France before the Japanese invasion. The Second World War ended
with uncertainties for Thailand, thanks to the Thai resistance movements in the
United States and the United Kingdom as well as the underground movements in
the Kingdom. The United States mediated the dispute between Thailand and
France resulting in the Washington Accord of 1947, establishing a Conciliation
Commission to conciliate the border dispute between Thailand and France, which
ended in the status quo ante World War II. Thailand in the meantime was able to
secure her admission to the United Nations in 1946. This was attributable, in no
small measure, to the efforts on the part of the United States and the preliminary
steps taken by the Free Thai Movement which liberated Thailand when the Allied
High Command entered to accept the surrender of the Japanese forces in the
Kingdom.
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20. Japan and Germany were both declared to be enemies of the United Nations.
Germany was divided and Japan remained outside the UN until after the Bandung
Joint-Commumqite of 1955. By that time, Japan had concluded the Treaty of
Peace with the United States and Germany had recovered from the ravages of the
War. By 1960, Japan had not yet settled the dispute with Thailand regarding the
repayment of Japanese war-time loan, which subsequently was settled by the
conclusion of the Special Yen Agreement, following the official visit of Prime
Minister Ikeda to Thailand. On the other hand, the Federal Republic of Germany
joined forces with the North Atlantic Collective Defense Treaty Organization with
the United States, France and the United Kingdom, Thailand hosted the
Headquarters of the South-East Asia Treaty Organization, NATO’s counterpart,
in South-East Asia, also sharing the same partnership in collective defense with
the United States, France and the United Kingdom. The stage was thus set for a
new era of closer relations and cooperation between Thailand and Germany.
21. By 1960, Thailand had a thriving economy with long-term economic planning and
necessary mechanisms put in place to carry out the task of national economic
development, including inter alia legislation to encourage foreign investments
and the establishment of a Board of Investment to grant privileges and incentives
to certain identified categories of industrial projects to advance her national
economic development plan. Disenchanted with the earlier series of FCN
Treaties which carried inherent vestiges of extraterritorial rights and frontier
rectification provisions in the FCN Treaties with Western Colonial Powers,
Thailand was planning to overhaul these outmoded treaties, including the
investment guarantee exchange of letters with the United States. It was indeed
opportune that in 1961 Germany made a timely overture by sending a team with
two sub-committees, one to negotiate a bilateral treaty of promotion and
reciprocal protection of investments and the other to propose projects of technical
assistance and economic cooperation with Thailand. This was a welcomed
gesture and concrete agreements were reached on the bilateral investment
protection treaty as well as the acceptance of several of the technical cooperation
projects offered by the German counterpart.
22. The Title
As expressly specified in the Treaty itself which is fully entitled: “Treaty
between the Kingdom of Thailand and the Federal Republic of Germany
concerning the Promotion and Reciprocal Protection of Investments”, there
can be no uncertainty about the object and purpose of the Treaty, namely to
promote and to protect the investments of nationals and companies of each
contracting State in the territory of the other.
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23. Preamble
The three paragraphs in the Preamble describe the desire, intention and
recognition of the Kingdom of Thailand and the Federal Republic of Germany in
the following terms;
“DESIRING to intensify economic cooperation between both States,
“INTENDING to create favorable conditions for investments by nationals or
companies of each State in the territory of the other State, and“RECOGNIZING that a contractual protection of such investments is apt to
stimulate private initiative and to increase the prosperity of both States,”HAVE AGREED AS FOLLOWS:......
It is in this context that the provisions of the bilateral treaty of 1961 should be
read, interpreted and understood accordingly. .
24. Several questions have been raised by the Respondents regarding the status of the
investments held by the Claimant, which in my view is beyond suspicion. It is to
be noted that “investment” for the purpose of the Treaty of 1961 may take many
different forms and contain several components or elements. In the practice of
international biddings, for instance, it is customary to incur expenses in the
exploratory pre-investment or pre-admission stage of foreign direct investment.
Only the successful bidder will be awarded the contract and his post-contractual
transfer of capital will henceforth be regarded as actual foreign investment after
being duly admitted, all expenses incurred in the pre-admission or preliminary
bidding stage are considered to be merely “pre-investment” expenses. However,
for accounting purposes, all pre-investment expenses for a successful bid which
led to the conclusion of a construction contract or engineering contract or any
concession contract, are invariably included as part and parcel of foreign direct
investment. In general and in most other cases, the definition of “investment” is
comprehensively contained in the 1961 Treaty. Article 8 (1) defines
“investment” as “comprising every kind of asset, and more particularly, though
not exclusively,
a) movable and immovable property as well as any other rights in
rem, such as mortgages, liens, pledges, usufructs and similar rights,
b) shares or other kinds of interest in companies,
c) rights of action for money or for any performance having an
economic value,
d) copyrights, patents, trade-marks, trade-names and good wills
e) business concession under public law.”
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This definition more than fully covers the entire investments made by the
Claimant in Thailand from the very outset, beginning with a 49/51 joint venture
with a local partner to form a special entity duly designated and pre-ordained by
the Department of Highways and the Ministry of Communications to carry out the
DMT project, a project conceived, planned and sponsored by the national
Government of the Kingdom of Thailand. As will be seen in paragraph 57 below,
the Ministry of Foreign Affairs reaffirmed in a Note to the German Embassy
dated 28 October 2003, that among other things, foreign investments made in
connection with a Government concession contract under public law requires no
additional approval and as such this category of investment does not need to apply
for a second approval, In any event, the Treaty makes no mention of “direct” or
“indirect” investment, nor of any required percentage of share-holding in the case
of investment in the form of “shares” listed in subparagraph b)
25. Furthermore, Article 1 (1) provides that the Contracting States, i.e. Thailand and
Germany will each “endeavor to admit in its territory, in accordance with its
legislation, the investment of capital by nationals and companies of the other
Contracting Party.” In this case, the admission into Thai territory of investment
of capital by nationals or companies of Germany, namely the Claimant, Walter
Bau AG, the entity with which subsequently was merged the total business of
Dyckerhoff & Widmann, in a merger and acquisition in accordance with the
prevailing law of incorporation covering merger and acquisition in Germany, both
being German companies in accordance with Article 8 (3) within the meaning of
the Basic Law of the Federal Republic of Germany. Acquisition of shares by
merger was clearly permitted and in effect contemplated by the provisions of
Article 8. It was as such indubitably a German investment of capital in the form
of shares in a joint venture company composed ab initio of Dyckerhoff &
Widmann as a foreign investor and Delta Engineering, a local Thai company
together to hold 49/51 shares in a newly created Thai special purpose company,
named Don Muang Tollway Company (DMT) to take over the Don Muang
Tollway project. DMT was granted a concession agreement by the Department of
Highway, signed by the Department Director and the Minister of
Communications in August 1989.
26. The Respondent has alleged in this connection that the additional requirement as
to the proportion or percentage of shares owned by the Claimant in the DMT has
not been met to be qualified as coming within the meaning of “investment” as
defined in the 1961 Treaty. This Treaty of 1961, as amended and reinforced by
the successive Treaty of 2002, is admitted by both Claimant and Respondent to
contain all the applicable and prevailing rules governing the case under
examination. The Respondent has further asserted that to qualify as a “foreign
direct investment” (FDI) under the 1961 Treaty, the Claimant’s shares must
exceed the threshold of 10 per cent, and that anything short of 10 per cent does
not count as “direct” investment but constitutes “indirect” investment, and
impliedly not covered by the 1961 Treaty protection. In my considered opinion,
in the case under review, it is generally uncontested that in any event in earlier
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years from 1989 the investments by the Claimant in Thailand in the form of share-
holding owned by German nationals or companies were most of the time in
substantial proportion, beginning with 49 per cent of the total shares. As I have
been informed, the original shareholding in DMT was 49 per cent Dyckerhoff &
Widmann AG and 51 per cent Delta Engineering Construction Company Limited.
Investors were sought and a shareholder Agreement signed just before the
Concession Agreement was entered into, following which Dyckerhoff’s
shareholding was reduced to 27 per cent and Delta to 25 per cent. Under the
Concession Agreement, DMT undertook that Dyckerhoffs and Delta’s
shareholding would together be at least 30 per cent. By financial closing in 1990
Dyckerdoff s holding was 21 per cent. By 1994, Dyckerdoff transferred 3 per
cent of its shareholding to another “Promoter”, reducing its share to 18 per cent.
It is reduced proportionally to its current level of 9.87 per cent after the
Government’s participation upon MoA2 and the Share Purchase Agreement in
1996-97.
27. Furthermore, the Respondent’s allegation and assertion are clearly unfounded, as
regards the allegation of additional requirement as much as the assertion that 10
per cent minimum share-holding is required to constitute “direct investment”.
Both the allegation and the assertion on behalf of the Respondent in this
connection must be rejected for the following reasons:
1) The term “investment” as used and defined in the 1961 Treaty does not
exclude indirect investment. It makes no mention of any distinction
whatsoever between direct and not so direct or indirect investment.
2) In fact, the difference between direct and indirect investment may be and has
been used in an entirely different context and connection. The adjective
“direct” may refer to the initial import of capital from outside the territory.
Re-investment of the earnings or returns from the initial investment or
“plough back” of the profits so derived may still be regarded in general as
“direct” investment. The characterization of investment as “foreign” is used
to denote actual transfer of capital from abroad to make the investment as
distinguished from local, domestic or colonial investment. Colonial
investments may eventually become foreign investments upon attainment of
independence by the non self-governing or former colonial territories.
Investments made from local sources within the host country are not
necessarily regarded as foreign direct investments, nor indeed are investments
made by proxy or through an undisclosed agent. In any scenario, an
investment remains an investment, entitled to protection under the Treaty and
under international law, regardless of the amount or percentage of shares in a
company.
3) From the record of the Minutes (Revised) of the Meetings of the Thai CA
Committee, in Document QQ, 1st meeting dated 28 August, 2002, pages 8, 9
and 10, a lively discussion took place between the Chair and Members of the
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Committee. In particular, references were made by representatives of the
BOI, of the Bank of Thailand and of the Ministry of Finance to the IMF
practice of accepting a benchmark of ten per cent share-holding as a cleavage
between “direct investment” and “portfolio investment” which is tested by a
different set of criteria pertaining to the differences between a short-term
investment and a minimum one year term of port folio investment, taking into
account the commercial risks associated with investment in the stock market.
The risks involved in the speculative character of a volatile stock market are
not insurable by way of Treaty protection. Considerations applicable to short-
term investments in financial portfolio and investment speculation in stock
exchange and international stock market belong to the financial world, way
out of the present context. In any case, Dr. Kraichitti, the Chair, was prepared
to recognize as direct investment even investment in the money market port
folio as long as it passes the ten per cent benchmark. It was the consensus of
the Meeting nonetheless that in any event the investments made in Thai
Government projects must automatically be taken for granted as already
approved, especially in cases where there had been Government solicitation
for foreign direct investments in such a Government sponsored project, the
Chair citing the case of German investment in the BCEL Expressway as an
example. The current dispute relates precisely to such a Thai Government
project. The same considerations are applicable with particular regard to the
measures of protection required of every host State by international law,
especially as reconfirmed in the present case by additional specific Treaty
obligation freely undertaken by States, and to which foreign nationals and
companies are entitled and may expect to be granted. It should also be
recalled that the threshold of 10 per cent or majority shareholders as adopted
by the OECD or the Balance of Payments Manual: Fifth Edition (BPM5) is
only relevant as one of the factors among many different criteria used to
ascertain the existence of active management or effective control of a
company or of its assets in determining priorities to be accorded to the
competing claims of a right of action based upon nationality. By way of
illustration, in the Barcelona Traction Case, Belgium, as country of the
nationality of more than 80 per cent of its shareholders appeared to be no
match against Canada, country of the place of incorporation as well as the
place of effective management of the company. As such, considerations other
than the percentage of share-holding appear to be more decisive, such as the
place or the law of the place of incorporation or the place of effective
management or headquarters or principal office of the Directors or the
combination of two or more thereof may be more determinative of nationality
of claims. Applying the test of effective management or direction and control
of the DMT by Dywtdag or Dyckerhoff & Widermann (Germany) and Delta
Engineering (Thailand), which can also be seen as representing a truly
substantial percentage of shareholding throughout the early part of the life
span of the DMT but only to be reduced by subsequent transformation of the
DMT itself. More importantly, the Claimant also operated as leader of the
Promoter Group, with two representatives on the Board of Directors, the
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General Manager and the Construction Manager at the initial contraction
phase. As such, the investments made by the Claimant are clearly and
unmistakably investments within the meaning of the 1961 bilateral Treaty.
4) As indicated in paragraph 26 above, the Claimant originally owned as much
as 49 per cent of the shares in the DMT from the inception of the project. The
9.87 per cent share-holding, cited by the Respondent, was only the position
since the Government’s participation in the subsequent Northern Extension.
In point of fact and of law, the integrity of the status of the capital imported
into Thailand from Germany which was ab intitlo distinctly recognized as
protected investment remains unimpaired by any subsequent structural
transformation of the DMT. This is explicitly and unequivocally stated in the
last unnumbered sub-paragraph of Article 8 (1) of the 1961 Treaty, which
reads:
“Any alteration of the form in which the assets are invested shall not
affect their classification as investment”.
Once vested or acquired, as in the case of the Claimant’s lawful investment in
Thailand, by virtue of the 1961 Treaty, such an acquired or vested right cannot be
suspended or confiscated or otherwise unlawfully “taken” without payment of
appropriate compensation under customary international law as confirmed time
and time again by Treaty provisions. This, in my considered OPINION, is the true
meaning of the term “investment” as intended and understood by the Parties to the
Treaty to ensure the mutual protection of their respective investment as an
additional Treaty obligation undertaken and firmly guaranteed by the Parties to
the 1961 Treaty to give full faith and credit to the object and purpose of the
Treaty.
28. The next series of questions to be considered relate to
(1) the proof of admission of direct foreign investment in the case under
review and
(2) the necessity of approval of such investment for the specific purpose
of a particular treaty under reference, namely the bilateral investment protection
treaty of 1961 between Thailand and Germany.
29. It should be recalled that the primary concern expressed by the Thai side during
the negotiations of the 1961 Treaty was essentially about the need for recognition
and acceptance or acknowledgement of the legitimacy of the German investment
under contemplation. In the first place, it is required that the import of German
capital investment into Thailand must be legitimate, lawful, admissible and
accepted by the host country, Thailand, in order to satisfy the initial requirement
of admission of the investment in question for the purpose of protection under the
existing treaty regime of Thailand for investments of German nationals or
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companies. The first question asked is whether the intended investment of capital
by a German national or company has been duly admitted or rejected with or
without any explanation or justification under Thai law or regulation by the
appropriate authority such as the Bank of Thailand with the power and discretion
to refuse admission of foreign direct investment of capital of suspicious or
dubious origin. In the case under review, the admission of German capital
investment has invariably been transparent and legitimate, consistent with the
laws and regulations of Thailand, the recipient State.
30. Thailand, as the host country, has been constantly aware of the need to assert its
sovereign authority to admit or reject friendly foreign direct investments in the
various industrial projects that from time to time Thailand may feel the need to
promote or encourage in gradual and progressive fulfillment of its national
economic development plan. It is Thailand’s prerogative as host State to pick and
choose the industrial projects of preference to attain national goals. That is why it
was necessary to specify in paragraph (1) to Article 1, especially sub-paragraph
(b) of the Protocol to the 1961 Treaty that “investment” for the purpose of the
Treaty, from Thailand’s perspective, refers to “investments made in projects
classified in the certificate of admission by the appropriate authority of the
Kingdom of Thailand in accordance with the prevailing legislation and
administrative practice as an “approved project”.
31. It will be seen in paragraph 41 below, whether or not and to what extent there is in
actual practice a difference to be discerned between admission of investment of
foreign capitals and approval of the project in which foreign direct investment is
made in each individual case. Clearly ratione temporis, the needs or requirements
of the developing host country such as Thailand have to change and continue to
grow and to evolve with the progress of time, as conditioned by the increasing
potentials and capacity of the host State to sustain its national economic
development. The prevailing rules and determining criteria are not only temporal,
i.e., changing with the march of time, but are also inter-temporal varying with the
prevailing circumstances, conditions and other relevant factors at a particular
period of time..
32. By way of illustration, in the decade that followed the 1961 bilateral investment
treaty between Thailand and Germany, Thailand’s principal concern was confined
to the attraction of foreign direct investments in certain categories of industrial
projects which tended to be export oriented in order to earn hard currencies to
finance other national economic development projects according to the periodic
five or six years plan. No wonder the language of the Protocol to the 1961 Treaty
specifically refers to the certificate of admission, later to be more popularly
known as the CA in which the project in question is classified by the
“appropriate authority” of the Kingdom of Thailand in accordance with its
legislation and administrative practice as an “approved project”.
[Page 15]
33. Thus it was the project, indeed the industrial project that must be approved as
foreign direct investment in question to be qualified for protection under the 1961
Treaty regime. A Certificate of Admission was merely evidentiary of such
approval, not constitutive of any substantive approval. In these circumstances, in
my opinion it is crystal clear that “approval of the project” as classified in the
Certificate of Admission is a testimony of the admission of the investment made
in the project already approved as such. Accordingly, it can be taken for granted
that such admission with a proper certificate inevitably implies a previous
approval of the foreign direct investment. The approval of the investment is
presupposed or subsumed by its classification as an approved project verified in
the CA. in accordance with the prevailing legislation and administrative practice
of the time, and invariably falling within the designation of a specified category of
the industries receiving preferential and promotional treatment from time to time
and for a limited duration, hence the temporal or inter-temporal character of the
preferred treatment.
34. The promotion of a variety of categories of industrial projects under the series
of Industrial Investment Promotion Acts lies within the province and functions of
the Board of Investment intimately connected with the Ministry of Industry. In
Thailand, the promotion of industrial projects is a question of policy which has
undergone progressive modifications to reflect the pressing needs of the national
economic development of the country at any material time. It should be recalled
that in the early years of the decade beginning in 1960, Germany was the first
country that proposed to conclude a bilateral investment protection treaty with
Thailand and proceeded successfully to negotiate and conclude the first such
bilateral Treaty in 1961, which entered into force upon ratification in 1964. The
historic significance of the Thai-German bilateral Treaty negotiations could never
be exaggerated. Readers of the internal memoranda within the Thai Ministry of
Foreign Affairs, which have been offered as part of the Travaux Préparatoires of
the 1961 negotiations, Document SS, will be reminded that in the preliminary
preparation for the negotiations, both the Thai and the German Sides had several
occasions to request postponement of the negotiations scheduled dates. On 24
June 1960, when the German Ambassador made a call on H.E. Dr. Bun
Charoenchai, Minister of Industry acting for the Minister of Foreign Affairs in the
latter’s absence at the United Nations during the early part of the sixteenth regular
annual session of the General Assembly in 1961, the Acting Foreign Minister who
was also Minister of Industry, a lawyer by training and former Thai Ambassador
to India, took occasion to remind the German Ambassador of the special
importance that Thailand attached to this first round of negotiations in a series of
bilateral investment treaties ever concluded by Thailand. It was the very first in
this category and meticulous care had to be taken because of the Most-Favored-
Nations Clause likely to be incorporated in subsequent bilateral treaties with other
third countries. This remark was indeed prophetic. It was in the ensuing decade
that Thailand started to negotiate a new series of Bilateral Treaties of Amity and
Economic Relations after terminating earlier series of FCN Treaties with foreign
powers. The first of a kind was concluded with the United States of America in
[Page 16]
1966, which contained provisions envisaging establishment of business activities
in the Kingdom. By virtue of the most-favored-nation clause, other bilateral
treaties also entailed similar recognition of the need for foreign direct investments
in new fields other than projects in different industrial sectors promoted by
legislation from time to time. This new trend related to the establishment and
management of private business enterprises through DFI or joint venture
investment of capitals and technology. Thus a new practice has emerged in terms
of an additional appropriate authority of the Royal Thai Government to lend
approval to foreign investments in the formation and management of business
enterprises permitted by law, or not prohibited nor restricted by legislation, nor
otherwise reserved for Thai nationals, either exclusively or proportionately, either
in whole or in part, with or without restrictive conditions or covenants. These
businesses included retail trade, coastal trade, air services and maritime or inland
or fluvial transport and navigation. It was apparent from the Travaux
Preparaloires of the 2002, in a Memorandum of 15 August 2002, Document QQ,
recalling the origin and background as well as the reasons for the establishment of
the CA National Committee dating back to 1991, reviewing the reasons for and
against such a CA, including the relative necessity, or comparative utility of the
need, for such “approval”. This reluctance or hesitation on the part of competent
agencies of the Thai Government, as reflected in the Non Paper Document QQ, a
one-page executive summary, dated 27 may 2004, to a large extent accounted for
the outcome of the guideline adopted by tire Committee and communicated to the
German Embassy in October 2003. The guideline plainly reflecting the existing
practice was published in the form of an Announcement of the Committee to the
effect that three categories of investments would not require any approval from
the Committee, either because the investment was made in a business already
licensed and/or registered, or in a project already admitted as an “approved
project” or in a concession agreement or State contract, initiated and sponsored by
the Thai Government itself or one of its Ministries or Departments which in
practice has been pre-approved by the Government at national level. The three
exceptions listed in the guideline merely reflected the immediate past
administrative practice of the Kingdom of Thailand.
35. It is to be observed that under the recent Foreign Business Act B.E.2542
(A.D.1999), it is for the Ministry of Commerce to issue license or grant approval
of a business enterprise to be set up and registered accordingly. On the other hand,
the various categories of industrial projects continue to require approval by the
Board of Investment. The Ministry of Commerce and the Board of Investment or
the Ministry of Industry each in turn have had their share in serving as the
appropriate authority of the Royal Thai Government in accordance with national
legislation and administrative practice at the time for the purpose of approving
foreign investment in industrial or business projects. In addition, Government
projects require no subsequent secondary approval by the appropriate subordinate
authority. These include all projects of national development in the creation of
essential infra structures, planned and initiated or sponsored and administered by
the Royal Thai Government as such. Government projects may be operated
[Page 17]
directly by the competent agencies such as the Port Authority of Thailand or the
Airport Authority or the Highway Department. They may also be implemented by
way of concession agreements conferring upon or assigning to a foreign national
or a joint venture company, the task of management and operation of the public
utilities, such as gas, water supply, electricity or a public transport system, such as
a bridge or a toll way, as in the case under review.
36. It goes without saying that, in my considered opinion, all Thai Government
Projects for public purposes and public works, having of necessity been more
than approved or even pre-approved and conceived or initiated by the Thai
Government itself in accordance with its national legislation and constitutional
requirements, do not require any additional or supplementary approval or
endorsement by its subordinate agency or subdivision of State of any kind. It is
amply apparent in the circumstances that a Certificate of Approval for protection
(CAP) is totally redundant, having no place whatsoever in the implementation of
all projects espoused by the Royal Thai Government. The Treaty regime under
consideration operates for the benefit of foreign private industrial projects or in
later years also foreign private business enterprises, which would still need the
approval of the appropriate authority, namely the Board of Investment or the
Ministry of Commerce, as the case may be. However, in the case of a
Government Project such as the Don Muang Tollway or DMT Project, ratione
cessante, there is no more raison d'être for the Claimant to seek any additional
approval from any more authentic authority than the Royal Thai Government eo
nomine. Nor indeed is it tenable for the Respondent to expect, much less to insist,
that the Claimant should seek additional approval of the project, proposed,
promoted and advanced by the Royal Thai Government itself.. This project was
indeed advertised to solicit foreign direct investment to participate in the
implementation of Thailand’s national development plan. It is preferable in the
case of the Don Muang Tollway project under consideration to apply the test that
is generally acceptable in international law. The project is clearly attributable to
the Kingdom of Thailand and to no other entity outside the Kingdom. The
decisive test is one of attributability, independent of any niceties in the domestic
legislation or in the variable local or administrative practices of any given
bureaucracy. This Government project is without restrictions or qualifications
open to participation by foreign investors with sufficient confidence in the
rationality, reliability and dependability of the Government and people of
Thailand. No further insistence should be made on the alleged requirement of
extraneous additional approval of investments made by the Claimant, German
investors, in response to an open invitation by the Thai Government, and with an
implicit faith in Thailand’s respect for the Rule of International Law above all
unilateral domestic differences.
37. On the other hand, it should be observed at this point that projects of economic
and technical cooperation proposed by a foreign Government, such as the
German Government in 1961, would certainly require consideration and eventual
concurrence or acceptance by the Government of Thailand as the host State
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ultimately to administer and operate the projects. As may be recalled in this
connection that, as it happened in actual reality, it was the same Department of
Treaties and Legal Affairs of the Ministry of Foreign Affairs led by the Director
General M.C. Plemg Nopadol Rabibhadhana that negotiated the BIT in 1961 with
a delegation from the Federal Government in Bonn under the leadership of Dr.
Kurt Daniel and concurrently in the same year, negotiated and signed on the same
day, 13th December 1961, another joint Thai-German Protocol on:
i. Technical Assistance;
ii. Assistance in the Financial Field; and
iii. Trade Questions.
38. It should be further recalled that Prince Plemg on that very same day signed and
exchanged Notes with Dr. Kurt Daniel on the arrangements regarding the
implementation of the agreed Technical Assistance projects. The main BIT and
its Protocol, negotiated separately by the Joint Thai-German Legal Sub-
committee, were both signed by Foreign Minister Dr. Thanat Khoman and
Ambassador Dr. Hans Bidder. Dr. Kurt Daniel was Chairman of the German
Delegation to negotiate on the projects of Technical Assistance and Cooperation
with Thailand offered by the German Government and Trade Questions between
Thailand and Germany, and signed all three documents and a number of other
Notes exchanged with the Thai Government, as Chairman of the German
Delegation as a whole. The German Delegation also comprised several separate
but not unconnected subcommittees, including the legal subcommittee to
negotiate the BIT and its Protocol. Reference to this simultaneous signing of two
different sets of documents is intended as a reminder that while the 1961 BIT was
concerned with the need for the Certificate of Admission to specify the category
of investment made in an “approved project”, the second set of Bilateral
Agreements related to the acceptance by Thailand of German offer of
technical and financial assistance projects. Extra care should be taken lest
private German investments in “approved projects” in Thailand be confused with
the technical and financial assistance projects offered by the German Government
and after negotiations accepted by Thailand as an “agreed or accepted
Government assistance project”. Again this requirement of Government approval
or agreement for foreign Government assistance projects is to be contrasted with
national development projects conceived, planned and proposed by the Thai
Government itself, which require no further agreement or approval by any agency
when open to participation to the public and more particularly in the case under
review when foreign direct investment has been or is being solicited.
39. For the Technical Assistance and Cooperation projects proposed by Germany in
1961, it may be recalled, Thailand actually accepted five projects at that time,
four out of ten technical assistance projects and one out of two financial or loan
projects and retained eight more for future consideration, but did not accept the
remaining projects of Technical Assistance. It should be remembered that
Thailand used the same negotiating team throughout, led by the Ministry of
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Foreign Affairs under the chairmanship of Prince Plemg of the Department of
Treaties and Legal Affairs which incidentally also served the National Committee
to Review Treaties and Conventions, with myself as member and secretary. This
was an isolated instance of the Ministry of Foreign Affairs engaging in direct
negotiations on the acceptance of various types of projects offered as assistance
by the Federal Republic of Germany. The question of acceptability of the projects
under parallel and concurrent negotiations in each case must be kept apart to
avoid confusion of thought on the relative need for approval. The text of the
documents under reference can be found in Volume VII: 1958-1961, pages 315-
342 of the Treaty Series, compiled and published by the Treaties and Legal
Affairs Department, Ministry of Foreign Affairs, Bangkok, June 1984
40. Approval of projects for Foreign Investments
It should be noted at this point that the “approval regime” for purposes of foreign
direct investments in Thailand has undergone some transformation in many
respects including the process of approval and the appropriate authority for the
registration or record-keeping of foreign direct investments. To begin with,
Article 1 (1) of the 1961 Treaty refers to “the investment of capital by nationals
and companies of the other Contracting Party” in regard to an endeavor to admit
in its territory, to promote and to give sympathetic consideration for the
granting of the relevant permit required. Article 1 (2) refers to the granting of
national treatment to investments owned by, under the management or
effective control of, nationals or companies of each Contracting Party in the
territory of the other Contracting Party.
41. On the other hand, the Protocol of 1961, paragraph (1) b) to Article 1 refers
exclusively to German “investments made in projects classified in the certificate
of admission by the appropriate authority of the Kingdom of Thailand in
accordance with its legislation and administrative practice as an approved
project”. Thus, the term admission or granting of a permit refers to the
transfer or movement of capital to be invested in Thailand, hence the phrase
admission of investments, while the term approval is used with reference to
projects for foreign investments in the private sector, and acceptance more
accurately in the case of foreign Government projects, such as a technical
assistance or economic cooperation project in the public sector. In no
circumstances should any of the above projects in the private sector available or
even promoted for private foreign direct investments be confused with Thailand’s
Government projects forming part of national economic development plan for
which no such permit or admission or license can be additionally required, let
alone endorsement or approval by any authority or agency of the Thai
Government. By way of illustration, no approval is needed for the purchase of
Thai Government bonds, should a German national or company wish to purchase
[Page 20]
as a long-term secure investment. Any contention that a treaty provision purports
to exclude from protection all foreign investments in the purchase of bonds
floated by the Government of Thailand would be exposed to a reductio ad
absurdum. It will be seen whether the language of Article 1, paragraph 1:
Definitions in effect introduces any alteration in the meaning of the term
“investments:” for the purpose of the successive Treaty of 2002.
42. Issuance of Certificates of Admission (CA)
I had occasion to view the copies of the eight Certificates of Admission issued by
the Ministry of Foreign Affairs to German Applicants over the period of three
decades spanning between 1972 and 2003. It would appear that none had been
issued before 1972 although the Treaty entered into force since June 1964. There
seem to have been but very few instances of such certificates and too far apart in
between. They were in 1972, 1981, 1982, 1984, 1988, 1991 and the last two in
2003. Many observations have dawned on me at first reading:
(1) It came as no surprise that there was no such CA before 1971, as
recalled in the Travaux Preparaloires, Document QQ, last memo from the
NESD Board, explaining the need for CA in a report to the Cabinet dated
11 October, 1972. Besides, I should have recalled the occasion if there
was any CA issued before 1971, since I personally directed the Economic
Department from 1967 to 1970, not that there were no German
investments in Thailand prior to 1972. German investments were on the
rise as evidenced by statistics supplied by the Bank of Thailand and
collected by UNCTAD in its World Investment Directory published in
2000, Volume VTI-Part 2: Asia and the Pacific, containing statistics of FDI
in Thailand for 1987-1997, at page 587, showing a significant amount of
investments made by German nationals and companies in Thailand,
ranking fifth after Japan, USA, UK and the Netherlands..
(2) It is curious that the first four certificates were issued in running
numbers although No. 1 and No. 4 were actually four years apart, one
from the next, No.4 was first issued in 1984 and the same number was
repeated in 1988. By 1991 the issuing authority ran out of numbers and
the Certificate of Admission for the first time was unnumbered in 1991,
Nos. 7 and 8 were issued in 2003, a gap of twelve years after 1991.
(3) It is to be noted that the first two Certificates cited earlier approval
in the form of license granted by the Ministry of Industry and the third by
the Ministry of Finance. The fourth, fifth and sixth related to the
financing of local industrial business in the form of loan or acquisition of
shares in the local companies without requiring or inquiring about the
relative proportion of share-holding. No mention was matte in the last five
certificates of any earlier approval by the appropriate authority in the form
of license or other types of approval, except for registration as a limited
company under Thai law. Approval may have been taken for granted.
[Page 21]
Otherwise the Economic Department would have been functioning in the
place of the appropriate authority of other Ministries, Industry or Finance.
(4) This uneasiness may have accounted for the need to establish a
central body to issue and convey to the foreign direct investors the
confirmation of the applicability and availability of treaty protection based
on previous approval by another authority competent in the field, whether
industry, or commerce or finance or otherwise. The Ministry of Foreign
Affairs would serve as the coordinator to maintain uniformity in
Government practice by reconfirming for the specific purpose of a
particular treaty or group of treaties, including regional agreements such
as the 1987 ASEAN Agreement. In other words, the Ministry of Foreign
Affairs was prompted by a desire to streamline practical procedures for
identifying foreign investments entitled to protection under the Treaties,
without itself acting as an approving authority. It appears from the record
in a Non-Paper dated 27 May 2004 that only approximately 20
Certificates of Admission were issued between 1972 and 2004, and only to
companies from Germany, the Netherlands and Taiwan, in spite of the fact
that by 2004 Thailand already concluded BIT with 35 countries and 39 in
all to date. This also includes the ASEAN Agreement of 1987. The
paucity of the CA is some indication of the relative use or non-use of the
Certificates in question. The retail trade in department stores and super
markets or wholesale markets, such as the Dutch investments in Macro,
the French in Carrafour and the British in Tesco Lotus in all parts of the
Realm, entailed for each site some seal of approval by registration or
license issued by the appropriate agency of the Ministry of Commerce.
43. It may be recalled, in this particular connection, that the Ministry of Foreign
Affairs through the Department of Treaties and Legal Affairs negotiated with
the German Delegation the draft 1961 Investment Protection Treaty and the
Protocol to that Treaty as well as other Agreements on Technical Assistance,
Assistance in the Financial Field and Trade Questions. At The treaty-making
stage and in the treaty negotiations, it has been the practice of the Thai
Government to let the Ministry of Foreign Affairs play the leading role until
the international agreement is concluded and subsequently enters into force
upon signature or ratification as necessary. But once a treaty is in force, the
actual implementation is assigned, delegated or relegated to the competent
agency or appropriate authority for implementation and execution in
accordance with the terms of the Treaty. In actual practice, it is for the Bank
of Thailand or the Ministry of Finance, or the Office of the Board of
Investment (OBOI) and the Ministry of Industry or Ministry of Commerce,
each in turn and in accordance with its competence, to have a fair share in the
approval process of foreign direct investments in various forms and in the
different classes or categories of business or industrial projects open and
available for foreign direct investments with varying degrees of privileges and
promotional incentives at different periods of time. For instance, it is for the
Bank of Thailand to allow the transfer or transmittal of capital or for the
[Page 22]
Ministry of Industry or Commerce or the OBOI to license and register the
establishment of a factory or a business enterprise or to authorize an industrial
project. The distribution of power to approve a transaction or a project is
designed to ensure efficient reception and management of foreign direct
investments. This practice is confirmed by the plain reading of the very terms
of Article1 (1) of the Protocol to Article 1 of the 1961 BIT.
44. The last series of questions considered in this OPINION relates to the extent.
scope and coverage of available measures of protection under the successive 2002
Treaty between the Federal Republic of Germany and the Kingdom of Thailand
concerning the Encouragement and Reciprocal Protection of Investments.
45. It appears that the Treaty of 2002 was primarily designed to update the earlier
Treaty of 1961, having been in operation for nearly four decades since its entry
into force in 1964. With very slight verbal modifications, the Title and the
Preamble, in all its three paragraphs, reproduce almost verbatim the wording of its
predecessor. The word “encouragement” is used in the place of “promotion”, and
the phrase “apt to stimulate” is replaced by “conducive to stimulate”. The
definition of the term “investments” in Article 1 repeats all the components of
investments contained in Article 8 of the predecessor treaty. Accordingly, there
has been no change in the intention, motivation or desire of the two Contracting
State Parties to both Treaties, continuing to pursue the same object and purpose of
the original treaty. Nor has there been any indication that there are further
restrictions on the scope, extent or coverage of the measures of protection under
the new Treaty. Much less can it be construed as an attempt to curtail or
otherwise to impair the rights of German nationals and companies already
acquired and protected by the earlier Treaty. If anything, the later Treaty serves
to reaffirm and reinforce the reciprocal commitments of the two Governments in
the context of the avowed assurance of the availability of improved measures of
protection in respect of investments made by nationals and companies of the other
Contracting Party.
46. In their relentless effort to continue to strengthen the existing Treaty regime
which offered firmer assurances than otherwise obtainable under existing
customary international law which at the dawn of the twenty-first century may
still be characterized as unsettled on many crucial points regarding international
development law or the law of international investments in the light of
inconsistent resolutions of the General Assembly of the United Nations, the
Kingdom of Thailand and the Federal Republic of Germany have found it
[Page 23]
expedient to sit down at a conference table to explore the ways and means of
improving “transparency” in the rule of international law mutually acceptable by
both countries, not unmindful of the current circumstances of economic
interdependency and the ever increasing need for foreign direct investments. In
my considered opinion, a proper balance has been struck and is currently being
maintained in the extended and newly reinforced regime to encourage and
reciprocally to provide more readily available mechanisms and methods of
friendly negotiations and more relaxed and flexible means of settlement of
differences directly between the parties to the dispute without having
unnecessarily to invoke the traditional method of subrogation by the home State
or to revert to the practice of the so-called diplomatic intervention to protect its
citizens abroad. After all, the host State is more than ready and willing to provide
the facilities to promote the resolution or settlement of any conflict. The
availability and transparency of the methods of dispute settlement is a factor
which is conducive to stimulate private foreign investments. Each country has
been fully aware that it is capital importing as well as capital exporting at the
same time. An appropriate balance could thus be achieved and maintained
between Thailand and Germany, as it has been in this particular respect for almost
half a century.
47. As amply demonstrated by the record of the communications between Thailand
and Germany and the minutes of the meetings and internal deliberations of the
Thai CA Committee headed by Dr. K. Kraichitti, then Deputy-Director General of
the Department of Economic Affairs, several concerns were expressed by both
Sides. For the Federal Republic of Germany, it was felt that the time had come to
revise and update the nature and extent of the measures of protection offered by
the existing bilateral treaty regime which had been in force since 1964. On the
part of the Kingdom of Thailand, there was an emerging need for more foreign
direct investments with more relaxed control and restrictions since the financial
crisis of 1977, and a sense of urgency in an effort to restore the general
confidence of foreign investors to overcome the Asian financial crisis of the time.
Thailand planned for a quick recovery and early repayment of the USD 17 billion
loan from the IMF almost without condition. It is in this light that the new 2002
Bilateral Treaty should be viewed and understood. It is noted in this context that
Article 10 of the new Treaty provides in detail practical working procedures for
the settlement of disputes between a Contracting Party and an Investor, and
thanks to the far-sighted wisdom of both Thailand and Germany, parties to the
present dispute are accorded an opportunity to be heard before a mutually
acceptable and properly constituted arbitral forum, presided by a neutral arbitrator
duly appointed in accordance with the provisions of the 2002 Treaty. In the
present case, the Claimant was thereby enabled to institute proceedings directly
against the Respondent without having to go through the diplomatic channels for
traditional measures of protection of yesteryear.
48. On the other hand, the balance struck and maintained by the 1961 Treaty has been
recognized and preserved in the 2002 Treaty. The ultimate decision in the
[Page 24]
admission and the granting of approval of investment projects or the permission
required for the establishment of a business enterprise by the Host State is
retained intact. The principle of transparency as well as that of “good faith”
dictates that all the requirements to be met by both the investor and the host
country must be met “consistent with the latter’s laws and regulations”. This
is borne out by the wording of Article 8: Scope of Application, forming part of
the subject to be addressed immediately below..
49. Under International Law, the canon of construction and interpretation of Treaties
is almost exhaustively contained in the Vienna Convention on the Law of Treaties
of 1969, in particular for successive treaties in Article 30 and in general in
Articles 31, 32 and 33 for multilingual treaties. Although Thailand has not ratified
this particular Vienna Convention, most of its fundamental provisions represent
current general international law. Accordingly, the views expressed in this
OPINION on the interpretation of the pair of successive Treaties between
Thailand and Germany under review will follow essentially the basic principles of
interpretation contained in the Vienna Convention. For the particular questions
under review, Article 2: Admission, Protection and Treatment of Investments,
in particular paragraph 2 is directly on the point at issue. It runs:
“(2) The Treaty shall apply only to investments that have been
specifically approved in writing by the competent authority, if so
required by the laws and regulations of that Contracting Party”.
50. Thus, this provision, if read without the proviso, can be seen as a restriction on the
application of the 2002 Treaty solely to “investments that have been specifically
approved in writing by the competent authority,” and not to other investments not
“approved in writing by the competent authority”. Such a construction would be
incomplete since the entire proposition is contingent upon the satisfaction of the
condition “if so required by the laws and regulations of that Contracting
Party”. Further enquiry is needed to verify the requirement by the laws and
regulations of the host State. Based on the paucity of the Certificates of
Admission containing approval issued by the Ministry of Foreign Affairs between
1972 and 2003, it appears that the first decade between 1972 and 1982 witnessed
only three such certificates, each of which did nothing more than reconfirm the
approval already given by another appropriate authority, while the last four
certificates between 1984 and 2003 were silent on prior approval being given by
an appropriate authority or else being taken for granted by the Ministry of Foreign
Affairs, not being in the position to find any Thai law or regulation requiring such
approval, consistent with the terms of Article 2 (2) of the 2002 Treaty...
[Page 25]
51. As such, Article 2 (2) may be considered to be sufficiently well balanced even
without reference to the express provision of Article 8. In any event, following
on the heel of Article 1: Definitions any reasonable interpretation of Article 2
must take into account the definitional provision of the various components of
“investments,” which necessarily include “shares” in b) and business
concession under public law In e). Under the general rule of interpretation of
treaties, Article 31 of the Vienna Convention is directly on point. It reads in
part:
“1. A treaty shall be interpreted in good faith in accordance with
the ordinary meaning to be given to the terms of the treaty in their context
and in the light of its object and purpose.”
It should be recalled that the definition of investment in Article 1 and the
list of every kind of asset enumerated therein is not meant to be exhaustive,
leaving room for other types of assets as yet not specifically classified.
52. Article 2 (2) cannot as such be read out of context, or without regard for the
entire text of the Treaty. Without resorting to supplementary means under Article
32 reference still has to be made to Article 8 of the same 2002 Treaty, which
affords the check and balance for the total structure of the 2002 Treaty. It defines
the Scope of Application in these terms:
“This Treaty shall also apply to approved investments made prior to
its entry into force by investors of either Contracting Party in the territory of
the other Contracting Part consistent with the latter’s laws and regulations.”
53. Article 8 provides the necessary link to ensure the uninterrupted application of
the enhanced protection guaranteed by the later Treaty. A normal reading of the
final clauses of both Treaties reveals the existence of a well-conceived coherent
system being put in place. Thus Article 14 (3) of the 1961 Treaty serves to
ensure the protection afforded by Articles 1 to 13 of the Treaty for all
investments made prior to the termination of the Treaty to remain effective for
another ten years after termination of the Treaty. The 2002 Treaty entered into
force on 14 October 2004, thereby terminating on that date the 1961 Treaty,
whereas the investments made prior to that date, naturally under the 1961 Treaty
shall continue to be effective for a further period of ten years, i.e. until 14
October 2014. As such, investments made in Thailand by German nationals and
companies prior to 14 October 2004 will continue to be protected by the
provisions of Articles 1 to 13 of the 1961 Treaty until 14 October 2014 and at the
same time will continue to receive the concurrent protection available under the
2002 Treaty from the date of the latter’s entry into force until terminated. For
these reasons, investment made by the Claimant continues to receive concurrent
double coverage of protection of both the 1961 and the 2002 Treaties from 14
October 2004 until 14 October 2014, exactly ten years of the entire period of
concurrent operation of both Bilateral Treaties. If the 2002 Treaty were to be
terminated after entry into force for ten years, that is to say on 14 October 2014
after giving twelve months notice of termination, then investments made before
termination date under the 2002 Treaty would continue to be effective for another
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fifteen years from the date of effective termination.. Ratione temporis, in any
event, the present dispute is safely and amply covered by virtue of the provisions
of the 1961 Treaty as well as those of the 2002 Treaty.
54. It should also be added that this proposition is endorsed by the final clause of the
2002 Treaty, of which Article 11 (2) stipulates that This Treaty shall remain in
force for a period of ten years and shall be extended thereafter for an
unlimited period unless denounced in writing through diplomatic channels
by either Contracting Party twelve months before the expiration.
Accordingly, the 2002 Treaty cannot be denounced before 14 October 2014.
Thus the protection granted under the 1961 Treaty will remain effective until that
date, thereby securing the standing of the Claimant in respect of the validity of its
claims and the applicability and availability of the continuing protection offered
and reconfirmed by both Treaties 1961 as much as 2002. There appears to be no
discrepancy on these points in the three different languages of the Treaties,
English, Thai and German, each text containing in effect identical provisions.
There is no necessity to invoke Article 33 of the Vienna Convention of 1969.
55. The Scope of Application as specifically circumscribed in article 8,
representing a balanced approach, may and has in fact given rise to at least two
questions. The first question relates to the use of the term “approved
investments” which in the light of the clarification given in Section G,
paragraphs 28 to 39 above refers to “investments made in projects classified in
the certificate of admission by the appropriate authority of the Kingdom of
Thailand in accordance with its legislation and administrative practice as an
“approved project”. In short, the phrase “approved investments” for all
practical purposes means “investments made in Thailand in projects classified by
the appropriate authority of the Kingdom of Thailand in accordance with its
regulations and administrative practice as an “approved projects”. In point of
fact, the shorter term “approved investments” after four decades of repeated usage
has come to be adopted in the 2002 Treaty, as a more convenient substitute for the
longer phraseology and verbiage used in the 1961 Protocol, Both terms continue
to be used interchangeably, but retaining one and the same meaning, namely
“investments made in an approved project”.
56. The second question at issue relates more precisely to the phrase “consistent with
the latter’s laws and regulations” in connection with the “approved
investments made prior to its entry into force.” This phrase only refers to
“investments made prior to 14 October 2004”. This can only mean
“investments made in projects classified in the CA as an “approved project”.
Thus the term “approved investment” used in the 2002 Treaty merely operates
as a renvoi back to the 1961 Treaty and Protocol, and could not stand on its own
without invoking the true meaning with exclusive reference to “approved
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project”. The two terms are intended to signify one and the same notion, namely
“approval of the project”.
57. For these reasons, the expression “approval of the investment” in the 2002 Treaty
is meaningless without a renvoi back to the 1961 Treaty regime. Any serious
attempt to clarify the true meaning of this phrase cannot avoid a reasoned
appreciation of the legal effect of the Announcement of the Committee
appointed by the Council of Ministers, composed of representatives of the
competent Ministries concerned and headed by the Ministry of Foreign Affairs.
The Announcement was adopted on 19 August 2003, as a new guideline for the
issuance of CA (Certificate of Admission) with its name changed to CAP
(Certificate of Approval for Protection). It was officially communicated by the
Ministry of Foreign Affairs to the German Embassy in a Note No. MFA
(1704/2278) dated 28 October 2003. The Embassy was further notified that the
new investments made in the future shall be entitled to full protection without the
necessity to apply for the approval from the CAP Committee through the Ministry
if they fall under the following categories:
1). Investment that is granted the license approved by the
Minister of Commerce or the Director-General of the
Department of Business Development according to the Foreign
Business Act B.E. 2542;
2). Investment that is granted the Certificate of Promotion from
the Board of Investment;
3). Investment under Government concessions.
Two separate issues are inherently intertwined in any quest to find a viable
answer to this enigma. First, it is useful and necessary to verify the legal
status of this Announcement, specifically whether or not it constitutes in Thai
practice a law or a regulation as stipulated in Article 8 of the 2002 Treaty.
In the second place, regardless of the standing or legal status of this
Announcement, it is nevertheless relevant to ascertain the final outcome of
the exercise of authority pursuant to the Announcement which must be read
as a whole to be able to determine whether in actual practice it serves to
fortify or in any way to preclude or preempt the jurisdiction of the present
Arbitral Tribunal. In my considered opinion, the Announcement in no
uncertain terms expressly eliminated any possibility of an application to be
made to the Committee for re-approval of all Government concession
contracts, including especially the Don Muang Tollway Concession currently
sub juiiice the present Tribunal. The Committee has no part to play in the
approval of a Thai Government project such as the DMT.
58. Legal Effect of a Resolution of the Council of Ministers (Cabinet)
The first issue that appears relevant and need to be answered forthwith is the
status or legal effect of a resolution adopted by the Council of Ministers at its
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regular weekly session. Contrary to popular belief, under Thai law and
practice, Cabinet resolutions do not have the force of law, although they are
binding on the part of Government agencies concerned unless and until
overruled or modified by subsequent resolutions adopted at the next Cabinet
meeting or otherwise annulled or revoked by a succeeding Council of
Ministers. As such, resolutions of the Cabinet do not have the force of law in
Thailand and consequently are not covered by the phrase “consistent with the
laws and regulations” of the Contracting Party. It is to be noted that the
treaties concluded by Thailand, bilateral and multilateral, contain frequent
references to Thai national legislation, which invariably includes all Thai laws
and regulations but not Cabinet resolutions. Under Thai legislative practice,
all Acts of Parliament, Royal decrees, Ministerial regulations or decrees, as
subordinate or delegated legislation, may have the force of law, and as such
are binding generally. They will be given legal effect due to them by the
Courts of law. However, decisions of the Cabinet or Resolutions adopted by
the Council of Ministers, not being recognized as a juristic person under Thai
internal law, civil and commercial, nor authorized as a legislative body under
Thai administrative law, although highly regarded as policy directives for all
branches of the administrative and government bodies, are not binding on the
people, nor on the Thai judiciary which may feel free not to give effect to
them in the absence of subsequent legislative enactments or prior general
enabling Act of the House of Representatives. Thus, the Supreme Dika Court
of Thailand, in Phya Preeda Narubate v, H.M. Government (1947), Decision
Number 724/2490, rejected the claim against the Thai Government, not for
immunity from jurisdiction, but for the absence of legal personality on the part
of the Thai Government under internal civil law. This decision was cited in
an article I published in the Netherlands Yearbook of International Law,
Volume X, 1979, pp.143-151 on “Immunity from Attachment and Execution of
the Property of Foreign States :Thai Practice”.
59. The Announcement of the CAP Committee in question refers to two Cabinet
decisions on 1 July and 19 August 2003. It was dated 22 October 2003, after the
signing of the 2002 Treaty between Thailand and Germany, but before its
ratification in October 2004. It is in fact traceable back to a much earlier letter,
dated 24 June 1991, addressed to the Council of Ministers, proposing the
establishment of a new Permanent Committee. This was adopted by a cabinet
Resolution of 12 July 1991. The Committee was appointed for the purpose of
approving projects under the Investment Treaties between Thailand and other
countries. In 1994 the name of this Committee was changed to “Committee on
the Approval of Investments between Thailand and Other Countries”. The
certificate issued was also subsequently changed from “Certificate of
Admission” (CA) to “Certificate of Approval for Protection” (CAP). It is to
be recalled in this connection that three types of foreign investments “shall be
granted protection” under the relevant BIT without the need for further
specific approval. These exceptions include all investments specified in the
guideline set out in extenso in paragraph 57 above.
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60. For all practical purposes, the Announcement, in its own words, as
communicated to the German Embassy, in a Note dated 28 October 2003,
restated the practice of the CAP Committee issuing Certificates of Approval
under the Treaty of 1961, by the Ministry of Foreign Affairs, heading the new
Committee. Under the guideline set out in the Announcement, three inherent
exceptions are recognized, of which at least two are eminently applicable to
the investments made by the Claimant in Thailand. First of all, the Claimant’s
investments were made in the merger with Dyckerhoff & Widmann and the
acquisition of substantial German shares in the DMT which was granted a
Certificate of Promotion by the Office of the BOI. Secondly, the Claimant
has been prominently recognized as a leading partner in the DMT, a Thai joint
venture, specifically to secure a Government Concession, which was
successfully awarded to DMT with specific mention by name and in full
recognition of the pivotal role of the Claimant as an indispensable operation
and management partner in the Thai-German joint-venture enterprise, the
DMT. Furthermore, the construction was designed and engineered by the
Claimant, as well as managed and directed by its personnel, and ultimately it
was fully completed in accordance with the Concession Agreement. The
Ministry of Foreign Affairs cannot be heard at this late hour to proclaim a
proposition of law contrary to the contents of its own diplomatic Note dated
28 October, 2003, cited repeatedly earlier in this OPINION. Under
international law, the Respondent is precluded from denying the validity or
veracity of the existing administrative practices of the Thai Government as
lucidly categorized in the Announcement officially conveyed to the German
Embassy through diplomatic channels.
61. One last question to be addressed in this OPINION concerns the connection or
relation, if any, between a breach of a State Contract and a violation of a
Treaty obligation. Admittedly, the concession contract at issue is a State
contract or a Government contract between the State through the Department
of Highways on the one part and the DMT on the other. A breach of contract
by a State as a party to a concession agreement is not necessarily an
internationally wrongful act in the eyes of international law. Nor indeed does
it necessarily constitute a breach of a Treaty obligation entered into between
two Contracting States in a distinct and separate transaction unconnected with
any State contract with a private concessionaire. However, a State is not
excluded from the possibility of violating its treaty obligation whereby it
undertakes to provide constant protection to the investments lawfully made in
its territory by nationals and companies of the other Contracting Party. In
various instances, a State may also be considered to have violated customary
rules of International Law by expropriation or nationalization of foreign-
owned industries without paying appropriate compensation, required of it by
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International Law, and which in addition to constituting failure to abide by the
terms of the concession contract, also violates its own bilateral treaty
obligation. A state can also undertake in a State contract not to expropriate or
nationalize without paying compensation. Different obligations may be
violated by one and the same act attributable to the State which constitutes a
breach of contract, and at the same time failure to comply with the minimum
standard of treatment of aliens under International Law, as restated and
confirmed in bilateral or multilateral Treaty commitments. Once understood,
it is clear that one act attributable to the State may entail two or more different
breaches, one as a violation of an international obligation towards another
State, such as a breach of an Investment Protection Treaty, and indeed
another as failure to perform a contractual obligation under its own contract
law or administrative law. A breach of promise in a concession contract can
entail a violation of the norm Pacta sunt servanda under the law of Treaties.
Both promises must be kept whether under national law of contract or
administrative law or pursuant to the Law of Treaties, just as parallel or
repeated commitments made contractually under the internal civil law must be
honored. Its breach could also at the same time engage the State
responsibility for failure to perform a Treaty obligation by the very same
action or omission on the part of the State.
62. True it is in all cases of dispute settlement that justice must not only be done,
but must also appear to be done. The ultimate interest of the Kingdom of
Thailand and the public interest of the Thai people would be best served if the
present dispute could be faced fair and squarely and seriously considered and
settled by the means chosen by the parties rather than be shunned and avoided.
Justice should not be denied for want of a better chosen or more competent
forum, especially after careful considerations by the Parties to the 1961
Treaty, hand-picking the method and process of dispute settlement from
among the available means of their choice. There is wisdom in resolving the
existing conflict rather than postponing the chance of tackling it by keeping it
floating or dangling in the air. Thailand and Germany should be afforded a
much needed opportunity to have their rights and obligations under the Treaty
clarified by an independent forum once and for all. Final settlement of this
burning issue could enhance further continuing friendly and mutually fruitful
cooperation between the two Nations, with renewed assurances of a
reasonable expectation of an agreed measure of protection for the reciprocal
treatment of the investments made by their respective nationals and companies
in the territory of the other Contracting Party. The Thai side could rest
assured that the claims of German investors in the case at bar are legitimate,
and that their grievances are real and should be heard. Their claims are not
frivolous, nor are they in any sense vexatious. Far from being malicious, the
German claims have been made in all honesty and in the best of good faith..
They clearly deserve to be settled on their merits.
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63. The preceding considerations of the three main questions and related issues
addressed in this OPINION warrant the following conclusions.
(1) The investments made by the Claimant in Thailand are investments in
projects consistent with Thai laws and regulations within the meaning and
purview of the 1961 bilateral Treaty between Thailand and Germany on the
Promotion and Reciprocal Protection of Investments.
(2) The investments made by the Claimant in Thailand have been made
in an “approved project” in the language of the 1961 Treaty, otherwise
subsequently known for short as “approved investment” under the 2002
Treaty, by acquiring significant amount of shares in a joint-venture company
with a Certificate of Promotion, and further strengthened by active
participation and management of the joint-venture to obtain concession
contract from the Department of Highways of the Ministry of
Communications of Thailand consistent with foe relevant laws and regulations
of the Kingdom.
(3) The investments made by the Claimant in Thailand are folly entitled
to foe protection guaranteed by the Kingdom of Thailand in the two
successive and concurrently applicable Investment Protection Treaties of 1961
and 2002..
For the foregoing reasons, in my considered opinion, the Arbitral Tribunal
is well and truly and folly competent with plenipotentiary jurisdiction to hear
and determine the merits of the case before it.
Signature
Sompong SUCHARITKUL
San Francisco, 11th November 2006