Thailand is more than just a tranquil holiday destination; it is a thriving commercial hub with a successful dispute resolution market. Alastair Henderson and Surapol Srangsomwong report

Thailand evokes predictable images of beaches and temples, friendly people and the urban hubbub of Bangkok. But behind these cliches lies the harder commercial reality that Thailand is also a major trading partner and investment market for international businesses. In 2006, Thailand's total trade stood at $28bn (£14.1bn) with the US and $27.5bn (£13.8bn) with the European Union (EU).

Disputes are an inevitable part of commercial life. Though preferably avoided and typically resolved quickly if they occur, there will nevertheless be occasions when commercial disagreements are sufficiently complex or intractable that formal assistance is required. Which prompts the question: how reliable are available processes for resolving these disputes? The risk and cost of trade and investment can be affected greatly by the efficiency and reliability of formal dispute resolution and by perceived prospects of recovering losses in a timely and cost-effective way.

There are two main options for international businesses pursuing claims against Thai counterparties: litigation in Thai courts or arbitration either in Thailand or elsewhere. Whereas Thailand is a New York Convention state that recognises and enforces foreign arbitration awards, foreign judgments are neither recognised nor enforced in Thailand, making litigation in foreign courts an impractical option in most cases.

The basic architecture of Thai dispute resolution seems familiar. The court system has three tiers (first instance, Court of Appeal and Supreme Court), though there are additional specialist courts for matters such as tax, labour disputes, bankruptcy, intellectual property and international trade. Arbitration is conducted under a model law-based statute either under the auspices of a local institution – the Thai Arbitration Institute (TAI) – or under international rules (e.g. the International Chamber of Commerce, United Nations Commission on International Trade Law). Commercial law in Thailand bears a strong resemblance to general principles of commercial law in other countries – unsurprisingly, as the civil and commercial code was written by early 20th century jurists drawing on international laws, expertise and practice.

Basic knowledge of relevant rules is, naturally, essential to proper conduct and management of commercial disputes. Knowledge of those rules will also reveal some particular features of Thai dispute resolution; for example, that there is rarely any substantial discovery of documents nor any significant recovery of legal costs without prior agreement. But rules can only tell part of the story; nothing beats hands-on experience. Thailand is by no means unusual in this respect, but it is certainly as true of Thailand as anywhere that longstanding, practical experience of the system is essential to maximise the prospects of a successful outcome.

Thai law contributes to this. Thailand is a civil-law jurisdiction that does not recognise judge-made precedent. First instance and Court of Appeal decisions are unreported and even Supreme Court judgments are only persuasive but non-binding guidance in later cases raising similar issues. When a judge decides a case, the decision is based principally on that judge's personal interpretation of the way in which broad written principles of law should apply to the particular facts in hand. Previous interpretations of the same principles by judges in other cases are irrelevant, except for Supreme Court guidance, which should generally be applied consistently. As a result, there is not the same detailed forensic development of finer principles of laws as is seen under a common law system.

Therefore, for an intending litigant and its lawyers, knowledge of written laws and rules is essential but not sufficient. It is equally important to have real depth of experience in the ways courts and arbitrators are likely to approach issues in practice. To take one example, Thai litigators know that although Thai law treats guarantees and on-demand bonds in the same way as laws around the world (an underlying commercial dispute hardly ever justifies non-payment under the guarantee), in practice the Thai court may nevertheless issue an injunction preventing payment in some cases, on the grounds that the basis for the call is in dispute between the parties. We have even obtained an injunction preventing a bond call by a government entity against an international contractor, which is revealing and reassuring in terms of occasional concerns about the influence of state parties in Thai disputes. In an arbitration context and illustrating a slightly different point, it may surprise those who rely on reading the TAI's rules that the start of an arbitration may be delayed by a requirement for initial mediation, which is a standard TAI operating procedure that is not mentioned in its rules. Again, hands-on knowledge is the only sure way of knowing what lies ahead.

As well as experience of laws and rules applied in practice, it is also important to understand the people who apply them. Judicial service is a career open to any law graduate aged 25 or over and cases may therefore be decided by a judge without broader experience of commercial or legal practice. This can impact substantially on the way in which a case is pursued and presented. In the context of Thai arbitration, the current shortage of experienced arbitrators means that in practice, tribunals are often drawn from the same small group of available candidates, making knowledge of individual preferences and idiosyncrasies an important part of effective case preparation and case management.

And then there are the parties themselves. Litigants in Thailand are exactly the same as their counterparts elsewhere: resourceful, creative and sometimes downright sneaky in pursuit of their case and promotion of their interests. However, the broad texture of Thai procedures and the sometimes uncertain manner in which those rules are applied in practice gives some litigants an opportunity to use the rules (or exploit them) to their own advantage, whether it be to delay a case, raise unexpected arguments or secure some other benefit. The recent experiences of some foreign-invested companies shows the potential for hugely disruptive and time-consuming litigation at the suit of disgruntled local partners with determined and inventive advisers. As with other features of the system discussed above, there is ultimately no substitute for experience when it comes to anticipating these tactics and strategising to prevent or respond to them effectively.

Against this background it may seem unsurprising that international law firms have typically chosen to leave dispute resolution to local firms and to focus their Thai practices on corporate and finance matters. This may also have been encouraged by concerns – justified or otherwise – about possible ethical issues in Thai dispute resolution. Yet our own experience shows that commercial disputes can be managed effectively and brought to a successful conclusion against Thai counterparties, even in the public sector, without any issues that would cause ethical problems.

Thai litigation and arbitration are clearly not perfect, but with experience and understanding they can work effectively in many cases, although it is fair to add that international businesses usually prefer arbitration where a choice is possible. With official Thai support for further development of effective, impartial dispute resolution, international parties can continue to trade and invest in Thailand without despair at the prospect of occasional disputes along the way.