The fall-out from the Army Coup in Thailand continues. As the stalemate between the political opponents shows no sign of resolution, this could ultimately lead to the interruption of normal business and commercial activities. We review what could be the impact of the situation and whether this could justify a force majeure occurrence.

Background

On May 20 2014, the Thai Army declared martial law. At the time it was denied that this was a coup attempt. However on May 22 the Army announced that there was in fact a coup d’etat and that it was taking control of the country and suspending the country’s constitution. On May 26 2014, it was reported that the Thai Crown had declared its support of the coup d’etat led by General Prayuth giving the coup d’etat some legitimacy.

The military has established a Junta called the National Council for Peace and Order (“NCPO”) to govern the nation. After dissolving the Government in the Senate, the NCPO vested the executive and legislative powers in its leadership and ordered the judiciary to operate under its directives. In addition, the NCPO partially repealed the 2007 Constitution, declared martial law and a curfew, banned political gatherings, arrested and detained politicians and anti-coup activists, imposed internet censorship and took control of the media. Elections may now not take place for another year.

The impact of the coup has been varied. The borders between Thailand and its neighbouring states were closed for some time following the coup. The arrival of foreign tourists has dropped considerably and airline bookings are said to have collapsed. Many Chinese tourists have cancelled plans to visit the country. The coup has also resulted in the cancellation of several events and concerts including the USA Fair 2014 scheduled for early June 2014 as well as a Taylor Swift concert formerly scheduled on June 9 in Bangkok.

A number of analysts have advised that this coup may be different from those before (there have been 12 since the King’s accession in 1946) and this situation could continue for the foreseeable future. The political standoff between the “Red Shirts” based in the North-East of the country supporting former Prime Minister Thaksin and the “Yellow Shirts” based in Bangkok supporting the Bangkok metropolitan class remains to be resolved. It may be that the Military will act on the apparent wishes of the Bangkok elite to change the electoral system in their favour but such actions would presumably provoke a response from the “Red Shirts”. There is also the question of the succession of the King who is highly revered but in ill-health plus the extensive social changes of the last decade.

So far the economic and the financial response to the coup have been muted but as the situation and the political stalemate continue, there may be more fallout.

Thailand is an emerging economy and is considered a newly industrialised country. The economy is heavily export based with exports accounting from more than 2/3rd of GDP. Thailand’s GDP is worth around US$602 billion and Thailand is classified as the second largest economy in South East Asia after Indonesia. Thailand ranks high among the world’s automotive export industries along with the manufacturing of electronic goods. Many Japanese companies have established factories and bases to export motor cars and electronic components out of Thailand. The country is also the world’s number one exporter of rice.

Force Majeure

In these circumstances, does the current situation constitute an event of force majeure? The term has been explained as follows:

“ ‘Force Majeure’ – This term is used with reference to all circumstances independent of the will of man, and which it is not in his power to control, and such force majeure is sufficient to justify the non-execution of a contract. Thus war, inundation and epidemics are cases of force majeure; it has even been decided that a strike of workmen constitutes a case of force majeure.1

Force majeure clause can show up in many different forms. Such a clause does not have to contain the term force majeure whether in the body or heading. Such clauses however contain typical features, including:

  1. The occurrence of a circumstance which is independent of the will of man;
  2. The circumstance is not in the party’s power to control;
  3. The circumstance prevents the party from performing the contract.

In order to invoke a force majeure clause, the party must be able to bring itself squarely within that clause. The conditions that must be satisfied to make the force majeure clause operative will depend on the interpretation of the actual wording of each clause.2 Although a force majeure clause may not require a party to show that he has taken all reasonable steps to avoid the operation, it is however implicit in any clause. The clause cannot be triggered if the performance of the contract could have been rendered by the taking of reasonable steps.3

Summary

To conclude, whether the coup in Thailand entitles a party to invoke a force majeure clause will depend upon the construction of the clause and the factual circumstances regarding the performance of the contract. The key is whether the coup and/or the measures resulting from the coup, like the midnight curfew, would prevent a party from performing the relevant contract. An increase of costs or minor inconvenience would only constitute a hindrance and would not be sufficient to prevent the party from performing the contract. Parties doing business in Thailand or South East Asia should continue to review the situation on a regular basis.

Consideration should be given to reviewing new or existing contracts to check the position on any force majeure occurrence and its relevance to operations and the position on the ground.