Friday, July 22, 2011

Thai Planes and Cross-Cultural Contracts

I just returned to Singapore from a trip to Bangkok, where the headlines of The Bangkok Post and The Nation where reporting the latest international incident. The German government had impounded the Thai Crown Prince's plane in an attempt to force Thailand to finally pay more than € 30 million in damages and legal costs, which were awarded to Walter Bau, a now defunct German construction company, by an international arbitration panel in 2009. It seems that the Thai government had long been in breach of contract with Walter Bau, which had continued to pursue legal action long after its bankruptcy, and the German government saw fit to impound Crown Prince Maha Vajiralongkorn's plane.

While the debate in the news centered around whether the plane was the Prince's personal property or Thai government property, the real issue that was seldom discussed was how Thailand's refusal to abide by the contract with Walter Bau was detrimental to Thailand's reputation among the international business community. The recent coup, protests, and unstable governments have already dissuaded many international investors from being able to "Believe in Thailand", and a spat with the German government about Thailand's breach of contract is hardly beneficial to assuaging investor fears. Ideally, the incident would prove to be a wake-up call to the new government, but we will have to wait and see as to how the new government chooses to act.

More significantly, the Prince's plane incident underscores the importance of understanding the perceptions of contracts in Asia. An Asian manager once remarked to me that an invoice is just an offer to re-open negotiations, and that family ties often rival legal contract obligations. Recent research also reveals that the greater the cultural divide, the more provisions a contract often has, as negotiating parties feel they need to be explicit about certain terms or practices that would be unstated common practice in their own country.

In both South Korea and Thailand, I have experienced some of the pitfalls that often results when people from different cultures and legal traditions negotiate and dispute contracts. What has been your experience?

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