Breach of Contract in Thailand

Breach of Contract in Thailand. Contracts are central to business and personal dealings in Thailand, from property sales and construction agreements to service contracts and joint ventures. When one party fails to perform their obligations, a breach of contract arises, and the aggrieved party may seek remedies through negotiation, litigation, or arbitration. Thai contract law is codified primarily in the Civil and Commercial Code (CCC), which provides detailed rules on formation, performance, and consequences of breach.

This article examines the legal framework, common types of breaches, remedies available, and practical considerations for enforcing rights in Thailand.

1. Legal Framework for Contracts

The Civil and Commercial Code (CCC)

• Sections 369–456: General rules on obligations.

• Sections 657–810: Special rules on hire of work, sale of goods, agency, loans, leases, partnerships, etc.

• Contracts in Thailand can be oral or written, unless the law requires a specific form (e.g., land transfers must be in writing and registered at the Land Office).

Requirements for Validity

For a contract to be enforceable under Thai law:

1. Offer and Acceptance: Agreement on essential terms.

2. Capacity: Parties must have legal capacity (e.g., age of majority, sound mind).

3. Lawful Purpose: Object of the contract must not be illegal or against public order.

4. Compliance with Formalities: Certain contracts (e.g., land, mortgages) require registration.

Failure to meet these requirements may render a contract void or voidable, distinct from breach.

2. Types of Breach of Contract

Breach of contract in Thailand can take several forms:

1. Non-Performance

• One party fails entirely to perform their obligations (e.g., seller refuses to deliver goods).

2. Defective Performance

• Performance is rendered, but not in accordance with contractual terms (e.g., construction defects).

3. Delay in Performance

• Performance occurs after the agreed deadline. The CCC recognizes delay (default) as a breach entitling the other party to damages.

4. Repudiatory Breach

• A party clearly indicates they will not perform (anticipatory breach). This allows the aggrieved party to terminate before actual default.

3. Remedies Available

The CCC provides a structured set of remedies:

A. Specific Performance

• Courts can compel the breaching party to perform the contract as agreed (e.g., transfer land at the Land Office).

• Specific performance is discretionary. If damages would be sufficient, the court may deny specific performance.

B. Damages

• The most common remedy.

• Damages aim to place the aggrieved party in the position they would have been in if the contract had been properly performed.

• Only foreseeable damages are recoverable unless the breach was intentional or grossly negligent.

• Types of damages:

  • Compensatory: Actual loss.

  • Consequential: Loss arising indirectly, if foreseeable.

  • Liquidated damages: Pre-agreed in the contract. Courts may reduce them if considered excessive.

C. Termination and Rescission

• If the breach is material, the aggrieved party may terminate and claim damages.

• For rescission, both parties must restore what they have received (restitution).

D. Retention Rights

• Creditors may withhold their own performance until the other performs. Example: a buyer may refuse to pay until goods are delivered.

E. Interest on Late Payments

• The CCC sets a default statutory interest rate (revised periodically; currently 5% per annum as of 2021 reforms).

4. Litigation and Enforcement

Civil Courts

Most breach of contract cases are filed in the Civil Court of First Instance. Claims above THB 300,000 typically fall under this jurisdiction, with appeals possible to the Court of Appeal and Supreme Court.

Evidence

• Written contracts, correspondence, and witness testimony are critical.

• Thai courts value documents with signatures or official seals, but emails and electronic evidence are increasingly accepted under the Electronic Transactions Act.

Interim Measures

Courts may grant injunctions to prevent property transfers or order provisional seizures to secure debts.

Enforcement

Successful judgments can be enforced through the Legal Execution Department, which may seize assets, garnish wages, or auction property.

5. Arbitration as an Alternative

Many commercial contracts include arbitration clauses. Thailand is a party to the New York Convention (1958), making foreign arbitral awards enforceable in Thai courts. Arbitration is especially common in:

• Construction contracts (often using FIDIC forms).

• Joint ventures with foreign investors.

• High-value international commercial contracts.

The Thai Arbitration Institute (TAI) and Thailand Arbitration Center (THAC) administer cases domestically.

6. Case Examples

Example 1: Real Estate Sale Breach

A seller contracted to sell land but failed to appear at the Land Office. The buyer sued for specific performance. The court ordered the transfer, emphasizing that land sale contracts registered at the Land Office must be honored.

Example 2: Construction Delay

A contractor completed a condominium project 12 months late. The employer claimed THB 40 million in liquidated damages. The court upheld the clause but reduced damages to THB 25 million as the original amount was deemed excessive.

Example 3: Defective Goods

A supplier delivered machinery that did not meet contractual specifications. The buyer successfully claimed damages for lost production profits, as the supplier could have foreseen the consequences of defective machinery.

7. Common Challenges in Breach of Contract Cases

1. Ambiguous Contracts: Vague drafting leads to disputes over obligations.

2. Oral Agreements: While enforceable, they are harder to prove in court.

3. Cultural Practices: Informal agreements or trust-based arrangements often lack sufficient documentation.

4. Foreign Parties: Contracts with foreign companies may raise issues of jurisdiction and applicable law.

5. Lengthy Litigation: Court proceedings may last years, increasing pressure to settle.

8. Preventive Strategies

While disputes cannot always be avoided, parties can minimize risk by:

• Drafting clear contracts with detailed obligations, remedies, and dispute resolution mechanisms.

• Including liquidated damages clauses tailored to actual risks.

• Registering contracts when required (e.g., land, leases).

• Keeping thorough records of performance and communications.

• Considering arbitration clauses for complex or cross-border contracts.

9. Public Policy and Contract Enforcement

Thai courts will not enforce contracts that:

• Violate public order or good morals (e.g., contracts for illegal activities).

• Circumvent foreign ownership restrictions in land transactions (e.g., nominee structures).

In such cases, contracts are void and unenforceable, regardless of performance.

10. Conclusion

Breach of contract in Thailand is governed by a well-established statutory framework under the Civil and Commercial Code, which provides remedies such as damages, specific performance, termination, and restitution. While the law is predictable, practical challenges—including lengthy litigation, evidentiary issues, and inconsistent drafting—make careful contract management essential.

Parties should anticipate that courts will prioritize fairness and foreseeability in awarding damages, and may reduce excessive penalties. For high-value or international contracts, arbitration often provides a more efficient forum.

Ultimately, the key to minimizing disputes lies in precise drafting, documentation of performance, and a clear understanding of available remedies. When breaches occur, the choice between litigation, arbitration, or negotiated settlement depends on the value of the contract, the nature of the breach, and the ongoing relationship between the parties.