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Thailand loses investment treaty case invoking concept of legitimate expectations

16 August 2009

Sir Ian Barker QC, the former New Zealand judge, chaired an international arbitral tribunal which on 1 July 2009 issued an award in an investment treaty dispute between a German investor and Thailand.  The investor was a minority shareholder in a consortium hired to build and operate a toll highway.  

The award has not yet been made public, but it has been reported that the Tribunal held for the investor on the basis of the “fair and equitable treatment” standard in the relevant bilateral investment treaty and that this standard was interpreted, as is increasingly the case by arbitral tribunals, to protect the investor’s legitimate expectations.  These were frustrated by the consortium being deprived of a reasonable rate of return on its investment, partly due to the existence of a competing government project.  Thailand was ordered to pay damages of EUR29m.  It has been reported that the award may be challenged in the Thai courts. 

This award, if released, will be relevant for New Zealand investors to Thailand, who have the protection of the NZ-Thailand CEP as well as the Australia-ASEAN-NZ FTA (when it comes into force), both of which contain investment chapters guaranteeing fair and equitable treatment.  The decision illustrates the utility of this important dispute resolution option to New Zealand investors in the event that their foreign investment is somehow frustrated or impaired by governmental conduct.