A company has decided to expand its operations to another nation. The company is involved in information technology (IT) and is headquartered in Malaysia. The desire is to grow assets by beginning operations in Thailand. The fact that these are two separate countries makes the transition difficult, but it complicated by the fact that the two nations have different sets of laws which govern aspects of the transfer, and of the continuing operation of a Malaysian company in Thailand. Of primary concern is the contract law which exists in Thailand, and how those statutes direct a foreign company within Thai borders. It is the wish of the Malaysian company to maintain control in Malaysia not only for the company, but also for the settling of disputes. Since there are two different sets of laws that may govern a dispute, it is imperative that any potential contracts are governed by Malaysian contract law, and that any contract disputes be settled in Malaysia's courts. This may prove difficult because of the differences with which the laws were written, and new dynamics which now govern Malaysia (Junius, 2007). This paper looks at both sets of contract law to determine how the goals of the IT corporation can be met within those sets of law.
Thai law is the easier of the two to explain and does not include all of the complications of Malay contract law. Current Thai law is based on the fact that it was a part of China for a long period of time and the fact that the monarchy remains an important part of the country. The fact that there is a monarchy is important. The foreign IT company is mainly worried about disputes which occur between the company and its subsidiaries. However, there may be contract disputes with either other companies, or even with the Thai government. In the case of a contract with the Thai government "if [IT] thinks that Thailand is in breach of contract, the first remedy is to bring an action against Thailand in Thai Court. The state of Thailand can be sued only through its agencies" (Hongsiri, 2003). This is against the wishes of IT, but there may be no recourse, unless the company takes the dispute to an international contract court. Despite the differences in the law however, there are many similarities which may aid IT if there is a dispute other than with the Thai government.
Malaysian contract law is a direct result of the Contracts Act of 1950 (CLW Malaysia, 2006), but there is a direct link between that law and the law which was given to the country during colonial times. The British were instrumental in aiding colonies with setting up codes of law which are much like the American system also. Arner, et al., (2007) conducted a study of different Southeast Asian sets of law and determined that "The treatment of secured rights over movable property is still more varied throughout the study group. Although none of the jurisdictions within this study has adopted a U.S. Article 9-style regime, the English origin systems of Hong Kong, Malaysia and Singapore work relatively well" (Arner, et al., 2007). However, Malaysia, being a primarily Islamic nation, is also governed by Sharia law. "Malaysia is a federal country that endorses Islam as its official religion, and political Islam has been continuously gaining political support and clout at the state level" (Hirschil, 2008). Since the political system has been leaning heavily toward the country's Islamic religious base, there has been a tendency to accept Islamic law as important as that of the code previously written with a colonial base. Colon (2011) discovered that "In…countries, such as Malaysia, Indonesia, Libya, Algeria, and Morocco, Shariah law is highly influential and remains a source of legislation (Colon, 2011). Since this governance is different from that of Thailand, there may be differences in how the law is interpreted, and this may cause conflicts during contract disputes.
General Contract Law
The two sets of law to be examined are Malaysian and Thai contract law to determine what common ground the two sets of code possess, and to see if there is any basis for dispute between the two. As defined by Malaysian law, a contract is a proposal made by one party which is accepted by another (CLW Malaysia, 2006). The law sets two conditions on the acceptance of the proposal. It must "be absolute and unqualified, [and] expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which it is to be accepted" (CLW Malaysia, 2006). Thai law does not specific a definition of what constitutes a contract, but there is extensive language with regard to whether a contract is accepted or not. A contract must be promised, it must be accepted within a specified period of time, and the promisor cannot retract the contract once it is accepted (Samuiforsale, 2011a). These two types of law do not vary greatly, and the same can be said for specific contract law.
Specific Contract Law
It is difficult to assume all of the contract law that may be invoked when one company makes an international move. Of course, It will have to hire workers to fill positions at its facility in Thailand; the company will either buy or rent space for its operations; the main contract with the government of Thailand will involve business permits and other permits required to secure a place of business and operate in Thailand; there may also be contracts required to hire subcontractors for various activities; contracts will also be written for the services that IT sells to various customers in Thailand. These specific contracts are governed both by the government of Malaysia and that of Thailand. However, there may be some precedent which would make the law of Malaysia more legally binding in this case.
Malaysian law is very simple with regard to employment contracts. The employee agrees to perform a service for the employer, and the law is not specific about what happens if there is a breach by one side or the other except in general terms (CLW Malaysia, 2006). One issue may be with the stance that Malaysia takes with unemployment insurance.
"This is the case of the two south-east Asian countries, Malaysia and Singapore, which are democratic and have both been ruled by a single party since independence.3 The pro- business ideology is strong in these countries and the Governments have decided not to provide unemployment insurance (UI) because of the moral hazard risk associated with it, even though they could fund and administer it" (Vandenberg, 2010).
If Thai law provides for unemployment insurance then there is a potential conflict between the two countries. Although, there is no specific mention of such insurance or remuneration in general Thai law (Samuiforsale, 2011b), there may be some conflict in more specific law.
The other instances in which a contract would be needed are nearly identical in both Malaysian and Thai law, but there could be a dispute where the government of Thailand is concerned. Hodgson (2007) found that "Religion could play a big role in solving contract disputes. When property rights and contract law are underdeveloped, people often tend to rely on markers of ethnicity and ethnically-based cultural norms to establish necessary mechanisms of enforcement and levels of trust." However, in this case, it could be a hindrance. Since Thailand does not adhere to Sharia law, it may make settlements more difficult. In that case a dispute may have to be taken to an international court.
Contract disputes that happen internationally can be taken to UNIDROIT for mediation.
"The Principles of International Commercial Contracts created by the International organization UNIDROIT (UNIDROIT Principles) address contracts between merchants in an international context. The UNIDROIT Principles attempt to present rules common to most existing legal systems, but also select the most adaptable solutions to the requirements of international trade. The majority rule is not necessarily chosen; rather, the Principles reflect the most persuasive rule that is best suited for cross- border transactions" (Duca, 2007).
Since trying to solve disputes between two international companies or a company and another nation can be complex, it could be necessary to use an outside agency to mediate the dispute. Generally the international legal agency will work to arbitrate an equitable settlement that agrees with the laws of both countries.
"Arbitration awards rely on trade usages and considerations of good faith. Indeed, the awards rely on good faith to such an extent that a number of commentators have identified a duty of good faith in contract performance as a central principle of international contract law reflected in international arbitration awards" (Drahozal, 2000). However, the company wants to make sure that all contract disputes can be handled with Malay law and courts.
To ensure this, it may be necessary that the company negotiate any contracts with the express understanding by all that such will be the case.…