Can foreign governing law or arbitration cure a Thai foreign-ownership restriction?

Investors sometimes respond to a difficult Thai ownership or control issue by moving the contractual documents offshore: foreign law, foreign security documents, foreign arbitration or enforcement outside Thailand.

Those choices can be commercially useful. But they answer a different question — how the parties enforce their contract against each other — not whether the underlying Thai operating structure complies with Thai law.

A foreign investor cannot obtain the degree of ownership or control it wants directly in a Thai operating business. The parties consider a revised structure under foreign law with offshore arbitration and contractual rights intended to preserve the investor’s economics or control.

The commercial team asks whether this removes the Thai-law risk.

Three legal layers should be kept separate.

The Foreign Business Act regulates whether foreigners may operate restricted businesses and expressly prohibits nominee arrangements designed to circumvent the Act.

If the substance of the Thai structure violates those rules, changing the governing law of a side agreement does not change the Thai business activity, the Thai shareholding facts or the regulator’s enforcement powers.

Thai private law also contains mandatory-law limits. Section 150 of the Civil and Commercial Code provides that a juristic act is void where its object is expressly prohibited by law or contrary to public order or good morals.

Likewise, under Thailand’s conflict-of-laws rules, foreign law is applied only so far as its application is not contrary to Thai public order or good morals.

This means a foreign-law clause should not be viewed as a contractual override of mandatory Thai rules.

Arbitration can move the dispute away from Thai courts at the merits stage, but an award may still need to be recognised or enforced where assets or conduct are located.

Thailand’s Arbitration Act allows Thai courts to refuse recognition or enforcement where enforcement would be contrary to public order or good morals.

The practical point is not that every foreign-law ownership arrangement is automatically unenforceable. It is that arbitration does not convert a prohibited Thai structure into a compliant one.

• the actual Thai business activity;
• whether the Thai company is “foreign” under the FBA;
• ownership, voting, funding and economic-control arrangements;
• whether any Thai shareholder is acting as a genuine investor or merely as a nominee;
• licences, BOI/FBC/FBL or treaty routes that could lawfully support foreign participation;
• what rights are governed by foreign law;
• where contractual enforcement would occur; and
• whether enforcement would require action in Thailand against Thai shares, assets, directors or the operating company.

• assuming an offshore SHA changes the Thai company’s regulatory status;
• treating arbitration as a substitute for FBA compliance;
• focusing only on legal title while ignoring the substance of funding and control arrangements;
• assuming a foreign award will necessarily be enforceable against Thai assets; and
• redesigning enforcement mechanics before asking whether a lawful direct structure is available through BOI, FBL, FBC, treaty or another permitted route.

Analyse the structure in two columns:

Compliance: Is the Thai ownership and operating arrangement lawful?

Enforcement: If the parties dispute the arrangement, where and how are the contractual rights enforced?

Do not use a solution to the second question as the answer to the first.

• Foreign Business Act B.E. 2542 (1999), including section 36 on nominee arrangements and circumvention.
• Thai Civil and Commercial Code, section 150 on juristic acts prohibited by law or contrary to public order or good morals.
• Conflict of Laws Act B.E. 2481 (1938), section 5.
• Arbitration Act B.E. 2545 (2002), sections 40 and 44 on public-order / good-morals grounds at the setting-aside and enforcement stages.