Arbitration rulings face challenge in Asia

A dispute between a European group and its partner Thailand about arbitration rulings is raising doubts about investor safeguards in Asian countries where such awards are being challenged. 

Semperit of Austria has accused Sri Trang of ignoring arbitration rulings and is claiming damages of about €82m in a dispute over a joint venture agreement to produce gloves used in healthcare. 

The case shines a spotlight on concerns about the reach of arbitration rulings in parts of Asia. This year, the former owners of Ranbaxy, the Indian drugmaker, said they would explore a legal challenge in India to a Singapore arbitration award of damages to Daiichi Sankyo of Japan.

Thomas Fahnemann, Semperit’s chief executive, told the Financial Times the company had cooled on Thailand and was instead investing €50m in Malaysia.

“We also think Thailand is a great country to invest in. [But] this legal dispute is making us wonder whether we should make further investment in Thailand,” he said.

Global production of medical gloves is dominated by Southeast Asia, which is home to the world’s largest producers of natural rubber. 

Thailand is a great country to invest in. [But] this legal dispute is making us wonder whether we should make further investment

How courts in Thailand and India respond to the respective disputed rulings will have repercussions for investor confidence, experts say, with companies likely to be deterred by the time and expense involved in pursuing local litigation. 

One reason arbitration is an attractive option is its broad reach: under the 1958 New York Convention, more than 150 nations including Thailand and India have agreed to recognise and enforce foreign arbitration decisions. 

Lakshanthi Fernando, managing director at Holborn Law in Singapore, said: “If you go through arbitration for example in London, Hong Kong or Singapore, you can be fairly secure that the domestic courts will uphold the finality of the arbitration award. 

“If the local courts in India and Thailand do set the arbitration award aside on wider grounds, this may reflect negatively on them,” she said.

Semperit says a key factor in the dispute is a disagreement over the pricing of raw materials supplied to the joint venture’s Thai production facilities. Sri Trang claims its Austrian partner is attempting to prevent it from marketing and selling in Europe gloves produced by the joint venture. 

The Thai company declined to comment further, citing “confidential arbitral proceedings which are also pending before the Singapore and Thai courts”. 

Sri Trang, which is listed in Thailand and Singapore, is the world’s top producer of natural rubber with a global market share of 9 per cent. Semperit makes and sells specialised rubber products in more than 100 countries.

Semperit won an award at arbitration in Zurich ordering its Thai partner to grant the Austrian group access to “certain trade information”, Sri Trang said in a stock exchange filing in August. It said the tribunal also awarded costs to Semperit as a result of a second request for arbitration. 

“The issue that we have is [that] executing rulings made in Zurich is extremely difficult in Thailand,” Mr Fahnemann said, adding: “For the enforcement, you have to go through the Thai courts”.

In July Sri Trang had said it won an Austrian court case over distribution of the gloves in Europe. 

In a similar example, in May Daiichi said it had won an award of ¥56.2bn ($525m), including damages, interest, fees and costs, at arbitration in Singapore following a claim that former shareholders of Ranbaxy had concealed critical information relating to US regulatory investigations at the time the Japanese pharmaceuticals group bought control of its Indian rival. 

RHC Holding, which sold its shares in Ranbaxy to Daiichi, said in a statement at the time of the ruling that it was “exploring further legal options”. The company has declined to comment further.

Malvinder Singh, who was Ranbaxy chairman and chief executive at the time of Daiichi deal, is part owner of RHC Holding.

Daiichi declined to comment on the current status of the dispute. A person with knowledge of the matter said the arbitration award has not yet been paid. 

Additional reporting by Kana Inagaki in Tokyo