SIAM CITY LAW OFFICES LIMITED

CHAVALIT & ASSOCIATES

THE CHAVALIT LAW GROUP NEWSLETTER
LIMITED

SPECIAL
POINTS OF
MONTAGE
INTEREST:
V O L U M E 1 , I S S U E 1 F E B R U A R Y 2 7 , 2 0 0 9
• Product Liability

Message from the Managing Partner

Law becomes
effective: a mile-
stone in con-
sumer protection

• Draft Amend-
DEAR READER,
ment to the
I am pleased to welcome you to
Patent Act aims the first issue of the Montage,
to provide the Chavalit Law Group’s news-
greater protec- letter, for the year 2009. The
tion and conven- previous year has seen severe
ience fluctuations in the global mar-
kets as a result of the current
• Real estate cau- world recession, bringing all of
tion for foreign- us now to the very midst of a
ers worldwide economic downturn.
Nevertheless, it is hoped that
• Employers with enough unified determina-
tion, effort, and cooperation to
enlightened
strive for recovery, the world will
about correct
soon strike a balance and the
period of ad- situation will improve later this
vance termina- year.
tion notice As business and law are
consistently and closely interlined, I hope you will find the Montage
legal developments must be in line of interest and beneficial to your
with changing economic condi- business operations, as an alterna-
tions. In the wake of this global tive means for us to communicate
financial crisis, some old laws and with you.
regulations may be amended; like-
wise, new laws and regulations Chavalit Uttasart
can be expected to be issued . Managing Partner
In this newsletter, the new
product liability law which just
came into force is discussed. The
draft Amendment of the Patent Act
is highlighted. Foreign buyers of
real property should be aware of
possible legal problems. The as-
pect of labour law concerning ad-
vance notice of termination is also
analyzed. Lastly, legal and tax is-
sues are brought to your attention
for M&A transactions.

• M&A guide:
mergers vs. ac-
quisitions Finally In Force: Product Liability Law
INSIDE THIS THE Act on Liability for Damage from
ISSUE: Unsafe Products B.E. 2551 (2008),
otherwise known as the Unsafe Prod-
uct Liability Act (the “Act”), is finally in
IP Law Update 2 effect as of the 20 February 2009 after
Caveat Emptor: 3 the Act was published in the Govern-
ment Gazette on 20 February 2008 as
Let the Buyer
a mechanism to heighten responsibility
Beware in the business community. The onset
of the new law has caused no little stir,
The One 4 and rightly so. After being the subject of numerous
Month’s Notice headlines for the last year, businesses have been
gearing up for what appears to be a piece of legisla-
Merger or Ac- 5 tion that is nothing short of a milestone. For the first
quisition? Asset time, serious protection for bereaved consumers of
Sale or Share unsafe products is made accessible as the law im-
poses strict liability on the products’ business opera-
tors, which includes everyone from manufacturers,
designers, and suppliers to retailers, importers, and
distributors, etc. This is an unprecedented develop-
ment in the previously dismal sphere of consumer
protection in the Land of Smiles.
So what, exactly, does the law mean for those
involved in the manufacture and sale of goods? Busi-
ness operators may find themselves potentially liable
for damages if a consumer, regardless of whether he
or she was also the purchaser, suffers injury as a
result of using or consuming a prod-
uct that happens to be unsafe and
subsequently lodges a claim with the
Consumer Protection Board. As an
inducement for injured parties, com-
plaints can be filed either verbally or
in writing, and claims can be brought
either by the injured person himself
or on his behalf by the Consumer
Protection Board without the need for
legal representation, making consumer suits less
of a financial burden. Before, it was easy for busi-
ness operators to shrug off consumer claims as
the burden of proving that the harm-causing de-
fect was the result of negligence on the part of
the business operator fell squarely to the injured
consumer, who more often than not had relatively
limited resources. Now, however, the shoe is on
the other foot. Thanks to the new law, the injured
consumer merely has to prove that they suffered
loss or damage (to life, body, health, mind, and/or
property) as a result of using the harmful product
and that they had correctly followed usage in-
structions, without having to prove which busi-
ness operator was at fault. Furthermore, imposing
strict liability means that negligence is now an
(continuous page 3)
 IP LAW UPDATE
PAGE 2
IN early 2008, the cabinet of
the previous Administration
and the National Assembly had
given approval for Thailand to
become a member of the Paris
Convention for the Protection
of Industrial Property (Paris
Convention) and the Patent
Cooperation Treaty (PCT). The
joining of the Paris Convention
with the World Intellectual
Property Organization (WIPO)
became effective on August 2,
2008, thus leaving the PCT
becoming effective soon. This
is a big movement for Thai-
land’s industrial property pro-
tection system.
After the decision to join
both international treaties,
“After a competent authorities were
compelled to change both laws
long pause, and other practicing systems to
comply with the treaties' re-
a huge quirements. One important
duty of competent authorities is
to amend the current Patent
movement Act to meet the requirements
of the Paris Convention, the
has finally PCT and international practices
standard. Many points concern-
come for ing patent registration, patent
enforcement, and public health
issues are required to be
Thailand’s amended. The draft amend-
ment of the Patent Act is cur-
patent rently being considered by the
Department of Intellectual
Property. Details of the impor-
system.” tant issues to be amended are
as follows:
1. Expanding the scope of
design protection to protect
partial design: not only the
whole part of a
new design can
be protected but
also some new
parts of a design
can be pro-
tected. For exam-
ple, if the design
of only the neck
of a bottle is
new, it can be
protected.
2. Expanding the scope of pat-
ent protection to computer
software: if a computer soft-
THE CHAVALIT LAW GROUP
Panisa Suwanmatajarn
ware can be Associate
performed Chavalit & Associates Limited
together with panisa@chavalitlaw.com
any other ma-
chines or equipments then a order to comply with the Doha
new product is produced, and Declaration. In this case, Thai-
such computer software can be land can issue a compulsory
protected. license to produce required
pharmaceutical products and
3. Patent Registration Process: to export to countries in need
• Setting up a 2-phase and to ask for importation of
system for the publi- pharmaceutical products from
cation of patent appli- other countries if necessary.
cations: the first
phase is the publica- 5. Licensing of Patent Rights:
tion of unexamined replacing the requirement of
applications which registering licenses with simply
will be published informing the Department of
within 18 months Intellectual Property within 90
days from the date of the li-
from the date of ap-
plication; and the censing.
second phase is the
publication of appli- 6. Fee: reducing the annual fee
cations after the com- by half.
pletion of substantive
examination by the After a long pause, it seems a
examiner. huge movement has finally
come for Thailand’s patent
• Changing from the
pre-grant opposition system. It can be ensured that
to a post-grant oppo- many backlog applications can
sition system. The be resolved with the new sys-
period of submitting tem. Many incoming new appli-
the request for oppo- cations will also be considered
sition is 6 months more rapidly. Most importantly,
there will be better protection
from the date of the
second publication of system for industrial property in
the patent applica- the country. ■
tion. The process of
considering opposi-
tions will be handled
by a trial.
• Reducing the period
of time for requesting
substantive examina-
tions from 5
years to 3 years
from the patent
application’s
first publication
date.
4. Doha Decla-
ration and Pub-
lic Health Impli-
cation: chang-
ing the system
of issuing a
compulsory
licensing or a government use
of pharmaceutical products in
VOLUME 1, ISSUE 1 PAGE
Caveat Emptor: Let the Buyer Beware
THESE days many people from all
walks of life and corners of the
globe are attracted to Thailand not
only as a holiday destination but
also as a potential residence. Thus,
many foreigners are keen to invest
in the local property market.
Thankfully,
Thailand of-
fers an abun-
dance of
property to
suit anyone’s
pocket, to-
gether with
an exotic
lifestyle and,
perhaps, the
home of
one’s
dreams.
It is how-
ever important that all interested
buyers try and ensure that this
‘dream’ becomes a reality without
the (unwanted) complimentary
windfall of mounting legal problems
after completing a purchase.
Interested buyers or those
who have already decided to buy a
home in the Land of Smiles should
answer these two simple questions:
...continued from page 1
immaterial issue: business operators
instead have to prove in court that
they were not responsible, i.e. (1) that
the product was not unsafe, (2) the
injured consumer already knew that
the product was unsafe prior to us-
age, and (3) that the harm arose from
incorrect usage of the product or ser-
vice.
Punishment for guilty business
operators is paying compensation as
assessed by the court to the injured
party, although the court has the dis-
cretion to award punitive damages as
befits
t h e
case’s
sever-
i t y .
N o t e
though
3
1. Would you happily sign con- lease
tracts for a property purchase in the
without firstly seeking inde- first
pendent legal advice? place because of the rules of
the Land Allocation Act; “It is
2. Would you complete a property • The land being leased is subject
purchase without having un- to a mortgage; surprising how
dertaken a Title • The executed Lease has not
Search? been properly registered at the many people
Land Office;
It is likely that for most consider legal
people, the answer to • The house a buyer thought he
both of the above ques- purchased turns out not to be in
his name; etc.
advice
tions is no. It is, how-
ever, always surprising inessential
how many people, per- Whilst it is of course true to say that
haps too lulled by the there are many successful property
when dealing
sun and the compara- transactions in Thailand, the onus is
tively cheap real estate on the Buyer to exercise caution and
with property
prices, consider legal common sense when considering a
property purchase, whether here in
advice inessential issues or
when dealing with prop- Thailand or indeed elsewhere in the
world.
erty issues or transac- transactions in
The simple premise is that pur-
tions in Thailand.
chasing property abroad is almost
Resultantly, some end up Thailand.”
always a daunting experience and
finding that the cost is high, both foreigners in particular should
financially and emotionally, when never attempt to do so without
enquiries after the event reveal first consulting experienced and
one or more of the following unfor-
reputable legal practitioners.■
tunate facts:
Jane Haddow
• The person/entity whose Business Consultant
name is on the Lease was not
Chavalit Finch & Partners Limited
entitled to enter into such
jane@the-haddows.com
“Most importantly, duty of care can’t be eschewed.”
that claims must be made within three being the disadvan-
years from the date the unsafe nature taged party will con-
of the product is known or the date of tinue to foster a re-
actual damage, or within ten years of signed attitude that
the product’s purchase, otherwise consumers will never
such claims would be time barred. win against multimil-
The implications of this law for the lionaire operators.
business sector are, understandably, Consequently, injured consumers may still be
many. Quality control and vigilance reluctant to file claims, viewing them as futile.
must be up to the mark to mitigate Such attitude would surely undermine the
possibilities of negligence. Greater very intention of the new law, but it is hoped
insurance coverage or a variation to that with time and positive responses, Thai
existing policies to cover against the consumers will have more
scenario of product liability claims confidence in exercising
must be thoroughly considered. Most their legal rights.■
importantly, duty of care can’t be es-
chewed. Napas Na Pombejra
Whether or not consumers will Associate
actually use this new law to their bene-
fit remains to be seen. It is feared that Siam City Law Offices Limited
a long history of consumers always napas@siamcitylaw.com
 The One Month’s Notice Myth
PAGE 4
WHEN termi-
nating employ-
ment without
cause, one of
the major
points of atten-
tion that em-
ployers in Thai-
land need to
mind is the
effecting of an
appropriate termination notice and/or
payment in lieu of notice to undesirable
or redundant employees. In practice, it is
understood by most employers that to
effect a termination, a period of one
month’s notice in advance is required in
order to terminate employees under non-
fixed term contracts, whereas employees
in probation may be terminated at any
time or upon being given notice at the
prior time so prescribed in their employ-
ment contract or company’s work rules
(e.g. as one, seven, or fifteen days in
advance); or in certain circumstances,
such employees may even be summarily
dismissed without notice.
Yet, are the above understandings
correct and in compliance with actual
provisions of Thai labour laws?
The issue of termination notices as
well as payment in lieu of notice is gov-
erned by Section 17 of the Labour Pro-
tection Act B.E. 2540 (1997) (“the 1997
Act”) as Amended by the Labour Protec-
tion Act No 2 B.E. 2551 (2008) (“the
2008 Act”), which has the effect of auto-
matically terminating employment con-
tracts when the period of hire specified
under those contracts expire. Where the
term of employment is not fixed, both the
employer and the employee are entitled
to terminate such contracts of employ-
ment by notifying the
other party expressly
in advance on or
before the date when
wages are paid, in
order for such termi-
nation to be effective
by the next pay day.
Conversely, a con-
tract of probationary
employment shall be
regarded as a con-
tract of hire for an
indefinite period. In
terminating contracts
of this kind, employ-
“Therefore, though common enough, the so-called
“one month’s notice” is a major misconception among
employers.”
THE CHAVALIT LAW
ers may pay wages according to the
amount payable until the time of termi-
nation, at which employers may then
immediately cease hiring. In any case, it
is unnecessary to give notice any time
beyond three months in advance.
All in all, Section 17 is a lengthy
and convoluted provision, far from
straightforward. For clarification, careful
attention must be paid to the following
material points:
If a period of hire is specified in an
employment contract, such contract
shall be terminated at the expiration
date prescribed without necessitating
any advance notice. This applies to
situations where an employee has been
engaged to work on a fixed-term basis,
such as for one year beginning from 1
June 2007 until 31 May 2008. In this
regard, the contract will automatically
cease effect on 31 May 2008 without
prior notice, provided that neither the
employer nor employee had stipulated
any provisions to shorten or extend the
employment period, as such provisions
have the consequence of deeming the
contract as being one of indefinite term.
If an employment contract does not
specify a fixed term, it may be termi-
nated either by the employee or em-
ployer by giving written notice to the
other party on or before any time wages
are paid out in order to be effective by
the date of the next pay
day cycle, as mentioned
above. Clearly, the intent
of Section 17 is for em-
ployers to give correct and
reasonable advance notice
to their employees when
terminating employment,
but its wording does not
expressly qualify the period of time for
advance notices. Note in particular
where Section 17 provides that employ-
ers must “give notice at or before any
time of payment to take effect at the
following time of payment,” which
deems that the interval between now
and the next pay day is to be considered
as the time for giving advance notice.
So, if wages are paid on a weekly basis,
say on every Friday, then accordingly,
advance notice of termination must be
given on or at any time before the up-
coming Friday in order to take effect on
the Friday after that. Likewise, if remu-
neration is paid monthly on the last
Siam City Law Offices Limited
tadas@siamcitylaw.com
GROUP
calendar day of every month, advance
notice must be given on or prior to the
last calendar day of the current month
in order for termination to be effective
by the end of the next month. There-
fore, though common enough, the so-
called “one-month’s notice” is a major
misconception among employers.
With respect to contracts of pro-
bationary employment, most employ-
ers also wrongly believe that termina-
tion can be effected at any time by
providing a shorter period of advance
notice than that which is required by
law, such as one or seven days or even
notice with immediate effect. Contrary
to such believe, this is not so as Sec-
tion 17 of the 1997 Act does not give
the employer any such rights to do so.
In fact, the 1997 Act as amended by
the 2008 Act now clearly states that
probationary employment is deemed
as being a contract of employment for
an indefinite period. Accordingly, it
follows that the effective notice period
as delineated in the foregoing para-
graph above shall also apply in this
case. Any other provision allowing for a
shorter notice period for termination
shall thus be invalidated on the
grounds that it is contrary to the ex-
press provision of the law pursuant to
Section 17 of the 1997 Act as
amended by the 2008 Act.
Notwithstanding the
foregoing, the em-
ployer is neverthe-
less not obliged to
give any advance
notice of termination
if there is just and
reasonable cause to
end employment,
such as dismissal due to an em-
ployee’s gross misconduct. Still, it is
hoped that this discussion has suc-
ceeded in pointing out the importance
in employers giving a proper advance
notice of termination to their employ-
ees, otherwise such an employer may
be liable for a higher amount of pay in
lieu of termination than as required by
law.■
Tada Sastarasatit
Partner
VOLUME 1, ISSUE 1 PAGE
Mergers or Acquisitions?
Asset Sale or Share Sale?
Chanida Leelanuntakul
Associate
Siam City Law Offices Limited
chanida@siamcitylaw.com
TAX CONSIDERATIONS
AS the financial crisis continues to spread throughout
the World, now arising in the aftermath is an influx of
Merger & Acquisition (M&A) transactions. This may be
a turbulent time for business reorganization to
strengthen financial and operational schemes of corpo-
rations and to reduce unnecessary inter-company
costs. Some financially sound corporations grab this
“Whether one is a buyer or a seller in M&A transactions, if a successful deal is desired, it’s important to properly
decide whether to buy/sell assets or to buy/sell shares.”
turmoil as an opportunity to expand their businesses by
merging with or a taking over deficient-cashflow target
companies at a cutting-down price on the table in order
to then brush them up.
The question here is which is the right path, a
merger or acquisition? Are there business grounds,
legal and/or tax reasons behind making the right
move?
A cornerstone of how to structure a merger or an
acquisition can be disguised in the following 5 leading-
role issues: tax, accounting practice, corporate law,
securities regulations, and antitrust control.
Corporate law plays its role in legitimating various
transactions and specifies voting rights as well as the
role shareholders play when there is a major change in
a company’s capital structure . Securities regulations
to be considered normally cover mechanisms for public
offering, tender offer regulations and disclosure re-
quirements. A corporate union can also trigger legal
concerns on antitrust control. The size of the acquisi-
tion and its effect on relevant product markets, regard-
less of whether it is a merger or a tender offer, form
the focus of antitrust legislation. The role of account-
ing practices is best left for auditing consultants and
will not be addressed in this article.
Sometimes, M&A transactions are motivated by
business or commercial reasons, not by tax considera-
tions, and the parties become aware of tax conse-
quences after ending up with an abysmal deal by
choosing an unfit M&A strategy. Tax considerations
should therefore be highlighted in
order to achieve the most successful
deal for both the buyer and the seller.
In many cases, the seller and
the buyer may have different views
on selective M&A structures. The
seller generally prefers an equity deal
(share sale) because a tax-free deal
can be structured by using legal pit-
falls or proper jurisdictions; on the
other hand, the buyer may prefer
an asset deal (asset sale) which
allows for a step-up of acquired
assets and their future-used depre-
ciations and to avoid hidden liabili-
ties. The seller may not suffer from
taxes imposed on the asset sale or
merger if entire assets and liabili-
ties are transferred from an entity
to another entity under the criteria
prescribed under the Thai Revenue
Code.
The allocation of purchase
prices or costs of assets, particu-
larly intangible assets (e.g. good
will), should be identified if an as-
set sale is selected. For share
acquisitions, all existing and con-
tingent liabilities of the target com-
pany including tax liabilities should
be thoroughly investigated by con-
ducting both legal & tax due dili-
gence. The availability of unuti-
lized tax losses, their expirations,
capital allowances, imputation
credits, etc. have to be considered
for future benefits of the acquirer
when selecting an equity deal
(share acquisition).
Given an example of whether
to acquire shares or assets in a
petroleum corporation, tax losses
of a petroleum corporation can be
utilized for 10 accounting periods
regardless of whether a share ac-
quisition or merger occurs (but
note that the amount of tax losses
available to carry forward in an
acquiring entity in the merger deal
is limited to some extent), unlike
other non-petroleum corporations
in which their tax losses can be
carried forward for a maximum
5
period of 5 years and a choice of
merger would not enable the
transfer of tax losses in the tar-
get.
Transaction costs, especially
taxes imposed on transactions
may affect the purchase price of
shares or assets. No VAT and
specific business tax are levied
in a share sale, except for a
stamp duty which can be man-
aged. Income tax imposed on
gains whether at the corporate or
shareholder level can be mini-
mized or exempted under a well-
planned structure. In general
but not in all cases, the merger
or asset sale constitutes higher
tax costs and deterrent-non-tax
costs than share sales. Never-
theless, in mergers, if entire busi-
nesses (assets and liabilities) of
the target are duly sold or trans-
ferred to an acquiring company
and the dissolution and registra-
tion of liquidation of the target
have been proceeded in an ac-
counting period in which the
entire business transfer occurs,
the income tax of the target com-
pany, 7% VAT, and 3.3% specific
business tax (reduced to 0.11%
until the following year) would be
exempted. However, quickly
jumping into the tax-exempt
merger regime offered by the
seller or advisor, the buyer could
suffer an inability to a step-up of
acquired assets as it would have
had from a merger and tax
losses in the target may not be
efficiently utilized. All in all, vari-
ous tax aspects of the seller and
the buyer should be taken into
consideration so as to achieve a
win-win scenario.
In reality, there may be
business reasons affecting the
planning of tax-free transact-
ions - the selling shareholders
(continuous page 6)
Siam City Law Offices Limited
Chavalit & Associates Limited
183 Rajanakarn Building, 20th Floor
South Sathorn Road
Yannawa, Sathorn
Bangkok, Thailand 10120
Phone: 02-676-6667; 02-676-6668
Fax: 02-676-6188; 02-676-6189
E-mail: siamcitylaw@siamcitylaw.com
chavalitlaw@chavalitlaw.com
URL: www.chavalitlaw.com
www.siamcitylaw.com
Chavalit Finch & Partners Limited
19/51 Hua Hin Soi 19 (Wat Klaikangwon)
Petch Kasem Road, Hua Hin
Prachuab Kiri Khan, Thailand 77110
Phone: 032-522-237
Fax: 032-522-273
E-mail: finch@chavalitfinchlawcom
URL: www.chavalitfinchlaw.com
FIRM NEWS
As of March 2, 2009, our office on the 26th
floor of Rajanakarn Building will move perma-
nently to the 20th floor of the same building.
However, all of our contact details remain un-
changed.
...continued from page 5
may not accept voting stock in the
buyer. Even if the target’s share-
holders prefer an equity stock in
an acquiring company, the ac-
quirer might prefer to swap securi-
ties and pay the difference in cash.
The acquirer might desire financial
leverage, deal flexibility, lack of
equity dilution, as well as income
tax deductions on the interest for
acquisition financing. Moreover,
buyers may fear a negative impact
on their stock prices when offering
The Chavalit Law Group consists of three firms,
Siam City Law Offices Limited (SCL), Chavalit &
Associates Limited (C&A), and Chavalit Finch &
Partners (CFP).
We provide a full range of legal services to serve
the needs of clients. We have structured our Group
in such a way that SCL handles general legal
works, such as corporate, securities, banking and
finance, corporate recovery services, expatriate
services, labour, merger& acquisition, real estate,
taxation, litigation and arbitration, etc. Intellectual
property, information technology and telecommu-
nication works are handled by C&A. With a dedi-
cated team of independent expatriate legal con-
sultants and Thai lawyers, Chavalit Finch & Part-
ners is able to do the utmost in order to achieve
stress-free and smooth property transactions on
behalf of clients whilst protecting their interests at
all times.
We represent individual and corporate clients both
Thai and foreign nationals in various industries.
We believe that with the combination of our exper-
tise, academic background and long experience,
we can serve clients efficiently and professionally.
Please feel free to send us your feedback, comments, or
queries on our articles or any other content of this
publication. The articles are intended for general reading
purposes only. No representation or warranty is made as
to the accuracy or completeness of the information
contained herein. Please seek legal advice or consult us
directly on any specific matters mentioned in this
publication prior to acting on them.
stocks.
Having been affected by the
above commercial reasons, a suc-
cessful deal may not end up being
a completely tax-free M&A transac-
tion. When one corporation ac-
quires another , it can pay for the
acquisition with stock, cash or a by the types and structures of M&A
combination of both. Some M&A most suitable for each situation.
deals combine taxable and tax-free Therefore, making the right choice
methods and such combined also depends on prospective buy-
structure makes satisfied parties ers and sellers considering their
concerned. Underlying results vary respective corporate goals.■