Contracts are an essential part of commercial and personal transactions in Thailand. They establish obligations between parties and provide a framework for transactions involving property, employment, business services, construction, loans, sales, and many other activities. When one party fails to perform an obligation required by a valid agreement, the other party may have legal remedies for breach of contract.
Thai contract law is primarily governed by the Civil and Commercial Code (CCC). Understanding how Thai law treats contractual obligations, default, damages, termination, and other remedies is important for anyone entering into an agreement in Thailand. This is particularly important for foreign individuals and companies, who may be unfamiliar with Thai legal procedures and contractual requirements.
What Is a Breach of Contract?
A breach of contract occurs when a contracting party fails to perform an obligation in accordance with the agreement. The failure may involve refusing to perform, performing incorrectly, performing only part of an obligation, or failing to perform within the required period.
For example, a seller may agree to transfer property but fail to complete the required transaction. A contractor may fail to complete construction according to the agreed specifications. A company may fail to pay for services that were properly provided. In each situation, the legal consequences depend on the contract terms and applicable Thai law.
Not every disagreement between contracting parties constitutes a breach. The parties must first establish that a valid contractual obligation existed and determine what each party was required to do.
Formation of Contracts in Thailand
The first step in analyzing a breach-of-contract dispute is determining whether a legally enforceable contract exists. Thai contract law generally recognizes agreements where the parties have reached the necessary consent and the legal requirements for that particular type of contract have been satisfied.
Certain contracts may require a particular form or written documentation to be legally enforceable or complete. For example, some transactions involving immovable property are subject to specific formalities and registration requirements.
The parties should therefore clearly document important commercial agreements and ensure that any legally required formalities have been satisfied.
Common Types of Breach
There are several ways a party may breach a contract. One common example is non-payment. A buyer or customer may fail to pay the agreed price despite receiving the goods or services.
Another form is non-performance, where a party simply fails to carry out its contractual obligations. A contractor, for example, may fail to complete a project within the agreed requirements.
Improper performance can also constitute a breach. This occurs when a party performs an obligation but does so in a way that does not comply with the agreement.
Delay is another common problem. Where timing is an important contractual obligation, failure to perform within the agreed period may place the responsible party in default and potentially expose that party to damages or other remedies.
Default and Delay
Thai law contains provisions concerning default, or mora, of a debtor. The consequences can depend on the terms of the agreement and whether a demand or notice is required.
In some circumstances, a debtor may be considered in default after receiving a demand from the creditor. In other situations, default may arise automatically, such as where the parties have agreed on a definite time for performance and the circumstances make that deadline legally significant.
Because default can affect the right to claim damages, interest, or other remedies, parties should carefully review the contractual payment and performance provisions.
Damages for Breach of Contract
One of the principal remedies for breach of contract is compensation for losses caused by the breach. The Civil and Commercial Code contains provisions governing damages resulting from non-performance or improper performance.
The purpose of damages is generally to compensate the injured party for losses that are legally attributable to the breach. The claimant should therefore be able to demonstrate both the breach and the resulting damage.
Potential losses can include additional expenses, financial losses, costs associated with obtaining substitute performance, and other losses recognized under applicable law.
A claimant should maintain invoices, receipts, correspondence, financial records, and other evidence supporting the claimed amount.
Foreseeable and Consequential Losses
Not every loss following a breach will necessarily be recoverable. Thai contract law contains principles concerning losses that ordinarily arise from the breach and losses that could reasonably have been foreseen by the parties.
This makes the circumstances surrounding the contract important. If a party wants protection against particular types of losses, the contract should clearly address those risks.
Businesses should avoid relying on vague language when significant financial consequences are possible. Carefully drafted provisions concerning liability, damages, indemnities, and limitations of liability can reduce uncertainty.
Contractual Penalties and Liquidated Damages
Thai contracts may contain clauses specifying an amount payable if a party fails to perform a particular obligation. These provisions can be useful because they establish consequences in advance.
However, Thai law gives courts authority to consider whether a stipulated penalty is disproportionately high. Under the Civil and Commercial Code, a court may reduce an excessive penalty to a reasonable amount.
Therefore, simply including a large penalty in a contract does not necessarily guarantee that the entire amount will ultimately be recoverable.
Termination of Contracts
Depending on the circumstances and the contract terms, a serious breach may give the innocent party grounds to terminate the agreement.
Termination is an important legal step and should not be undertaken casually. The party seeking termination should determine whether the contract provides a termination right and whether Thai law imposes additional requirements.
Some contracts contain specific provisions allowing termination after notice and an opportunity to cure the breach. Others may provide immediate termination rights in defined circumstances.
A carefully drafted termination clause can therefore be extremely valuable when a contractual relationship deteriorates.
Notice of Breach
A written notice can play an important role in a contractual dispute. The notice can identify the contractual obligation, explain how the other party failed to perform, request corrective action, and establish a deadline for compliance where appropriate.
Written communication also creates evidence of the dispute and may help demonstrate that the injured party attempted to resolve the matter before commencing litigation.
The notice should be carefully prepared because an inaccurate or overly aggressive notice can sometimes create additional complications.
Evidence in Contract Disputes
Evidence is fundamental to breach-of-contract claims. The parties should preserve the signed contract, amendments, purchase orders, invoices, receipts, emails, messages, meeting records, delivery documents, photographs, and other relevant materials.
The claimant must generally establish the contractual obligation and demonstrate how the defendant failed to comply with it.
Electronic communications can also be important evidence in modern commercial disputes. Businesses should therefore maintain organized records rather than relying solely on oral discussions.
Negotiation and Mediation
Litigation is not always the best first response to a breach of contract. Negotiation can allow the parties to resolve their dispute without the time and expense of court proceedings.
Possible settlement arrangements include payment plans, replacement performance, revised delivery schedules, partial refunds, or termination by mutual agreement.
Mediation can also provide a structured process through which an independent mediator assists the parties in reaching a voluntary settlement.
Alternative dispute resolution can be particularly useful where the parties want to preserve their commercial relationship.
Arbitration
Some commercial contracts contain arbitration clauses. Arbitration allows contractual disputes to be determined by an arbitral tribunal rather than through ordinary court proceedings.
Thailand has an established arbitration framework, and parties may agree to arbitration for appropriate disputes. The contract should clearly specify the arbitration mechanism, applicable rules, seat or location where relevant, and other procedural matters.
International businesses should pay particular attention to dispute-resolution clauses because the wording can affect how and where a dispute is resolved.
Breach of Contract and Foreign Businesses
Foreign companies operating in Thailand frequently enter into agreements with Thai businesses, suppliers, contractors, employees, and customers. Contractual disputes may therefore arise across jurisdictions.
Foreign parties should carefully consider governing-law clauses and dispute-resolution provisions before signing agreements. A contract may specify Thai law, another governing law where legally appropriate, arbitration, or a particular court.
However, a choice-of-law clause does not eliminate the need to consider mandatory Thai legal requirements. Certain transactions and activities may remain subject to Thai laws regardless of contractual wording.
Preventing Contract Disputes
The best way to manage a breach-of-contract dispute is often to prevent it through careful drafting.
Important contracts should clearly identify the parties, describe the obligations, establish payment terms, specify deadlines, address quality standards, explain termination rights, allocate risks, and provide an appropriate dispute-resolution mechanism.
Parties should also avoid signing agreements they do not fully understand. Important contracts involving substantial financial commitments should be reviewed by a qualified Thai lawyer before execution.
Importance of Legal Assistance
Contract disputes can involve complicated questions concerning interpretation, evidence, damages, default, termination, and limitation periods. A lawyer can review the contract and determine whether the other party’s conduct constitutes a breach.
Legal counsel can also assist with preparing notices, negotiating settlements, calculating potential damages, conducting mediation, initiating arbitration, or filing court proceedings where appropriate.
Early advice can be especially valuable because taking action before the dispute escalates may preserve evidence and create opportunities for settlement.
Conclusion
Breach of contract in Thailand can have significant financial and legal consequences. Thai contract law provides remedies for parties who suffer losses because another party fails to perform its contractual obligations, but the availability and extent of those remedies depend on the contract, applicable provisions of the Civil and Commercial Code, evidence, and circumstances of the dispute.
Businesses and individuals should carefully document their agreements, understand their contractual rights and responsibilities, preserve evidence, and respond promptly when a breach occurs. Negotiation and mediation may provide efficient alternatives to litigation, while arbitration can be appropriate where the contract contains a valid arbitration agreement.
Because contractual disputes can become increasingly complex once a breach occurs, professional legal advice before signing important agreements—and promptly after a serious breach—is an important part of protecting contractual rights in Thailand.
