Baker McKenzie LLP | View firm profile
Introduction
Over the past decade, the Thai government has launched numerous initiatives to stimulate economic growth, with a key strategy being the promotion of cooperation and investment from the private sector. Legally, such cooperation is formalized through contracts between the government and private investors. When these contracts involve the provision of public services, they may be classified under Thai law as “administrative contracts.” Despite their significance, there is no comprehensive statute governing the substantive relationship between the parties. Currently, the legal framework for administrative contracts is largely shaped by case law from the Supreme Administrative Court. Often, parties in litigation encounter precedents they were previously unaware of, making the law surrounding administrative contracts somewhat of a Pandora’s box.
This article is the first in a series exploring the unique features of administrative contracts that all stakeholders should understand. It begins with an examination of the state’s prerogative to unilaterally terminate such contracts.
Administrative contracts under the Thai legal system
Disputes involving administrative contracts fall under the jurisdiction of the Administrative Courts. The Establishment of Administrative Courts and Administrative Court Procedure Act, B.E. 2542 (1999) (“ACA”) outlines the scope of administrative contracts for jurisdictional purposes. Section 3 of the ACA provides examples of administrative contracts, including those where at least one party is a state agency and the contract involves: (1) concession agreements, (2) public service provision, (3) public utility provision, or (4) exploitation of natural resources. The legislature intentionally left the definition open-ended to allow for further judicial and academic development. For example, in 2001, Judges of the General Assembly of Supreme Administrative Court issued Resolution No. 6/2544 (2001), which expanded the definition to include: (1) contracts allowing private parties to directly participate in public service provision, and (2) contracts containing special provisions indicating state prerogatives.
State’s prerogative to unilaterally terminate an administrative contract
Section 3 of the ACA is the primary statutory provision addressing administrative contracts, focusing more on procedural rather than substantive aspects. This raises the question: how do administrative contracts differ substantially from ordinary contracts? The Supreme Administrative Court has addressed this question through decades of case law.
The foundation of an administrative contract lies in the provision of public services. Unlike ordinary contracts, which primarily serve private interests, administrative contracts aim to ensure the delivery of public services. Disruptions to such services can have widespread societal impacts. To safeguard public interests, case law has established that the state has the authority to monitor and control the execution of administrative contracts. This includes the prerogative to unilaterally terminate a contract, even in the absence of a breach by the private party, to maintain continuity and adaptability of public services.
A notable example is Supreme Administrative Court Decision No Or 292/2552 (2009), which involved a dispute over a contract granting a private party the right to manage and generate revenue from a local public port. The state later unilaterally terminated the contract, citing the need to improve efficiency in port management, despite no breach by the private party. The court upheld the state’s prerogative to terminate the contract unilaterally, provided the action served the public interest. It also affirmed the private party’s right to fair compensation for damages resulting from the termination. This precedent has been followed in numerous subsequent rulings.
Further clarification was provided in Supreme Administrative Court Decision No. Or.491/2564 (2021), which outlined four circumstances under which an administrative contract may be terminated: (1) mutual consent of the parties, (2) implicitly, such as through force majeure, (3) by court order, and (4) unilaterally by the state to ensure public service provision. The court emphasized that while the state may unilaterally terminate a contract for public interest reasons, a private party may only do so with the state’s consent, implicitly, or through a court order, even in cases where the state is in breach. This distinction underscores the asymmetry in termination rights between the state and private entities.
However, the state’s prerogative is not absolute. In Supreme Administrative Court Decision No. Or. 221-223/2562 (2019), the court held that in cases involving “important administrative contracts,” where unilateral termination could significantly harm public services or collective benefits, the state must seek court approval before terminating the contract. This ruling reinforces the principle that administrative law prioritizes public interest without granting the state unchecked authority. The court did not define “important administrative contracts” in detail, citing concession contracts as a general example. Each case must therefore be assessed individually. Similarly, compensation must be determined on a case-by-case basis, considering the specific circumstances involved.
Conclusion
In a rapidly evolving global landscape marked by social, economic and technological change, the Thai government must continuously adapt its policies and development strategies. The state’s prerogative to unilaterally terminate administrative contracts is likely to be exercised more frequently. Such actions must be grounded in legal principles that prioritize public interest. Equally important is the provision of fair compensation to private investors affected by these decisions, ensuring a balanced and equitable outcome for all parties.
In the event of disputes, the Administrative Court of Thailand is empowered to assess the legality and public interest justification of the state’s actions and to determine appropriate compensation for affected private parties.
Authors
- Paralee Techajongjintana, Partner | Dispute Resolution
- Teerapat Chanpiwat, Partner | Dispute Resolution
- Nattapat Wongsiri, Associate | Dispute Resolution
- Kosit Prasitveroj, Associate | Dispute Resolution