Breach of Contract in Thailand

Breach of Contract in Thailand. Contracts in Thailand are governed by the Civil and Commercial Code (CCC), which establishes general principles of obligations, performance, and liability. A breach of contract occurs when one party fails to perform a contractual obligation without lawful excuse. The CCC does not categorize breaches as “material” or “minor” in the same manner as some common law jurisdictions, but it provides a framework to evaluate non-performance, determine causality, assess damages, and seek judicial redress.

In practice, contractual disputes in Thailand often arise in commercial transactions, construction, employment, lease agreements, supply contracts, and real estate sales. Foreign parties should pay close attention to Thai substantive and procedural law when drafting and enforcing contracts, especially as choice of law and jurisdiction may significantly affect available remedies.

1. Legal Framework

Breach of contract is governed mainly under the following provisions of the Thai Civil and Commercial Code:

• Section 204–218: Performance and failure to perform

• Section 219–237: Damages and compensation

• Section 338–395: Specific types of contracts (e.g., sale, hire, agency)

• Section 395: Termination and rescission rights

The CCC operates under civil law principles, meaning the written contract and codified statutes prevail, and judicial precedent plays a limited interpretive role.

2. Formation of a Valid Contract

To claim breach, there must first be a valid contract. A legally binding contract in Thailand requires:

1. Mutual consent (Section 150)

2. Capacity of parties (Section 19, 21)

3. Lawful object (Section 150)

4. Possibility of performance

5. Compliance with formality (in writing and registered, if required—e.g., land sales)

Certain types of agreements (e.g., land leases over 3 years, loan guarantees, marriage settlements) require registration with a competent official to be enforceable.

3. Types of Breach

3.1 Non-performance

The promisor fails to perform the obligation at all. For example, a seller who never delivers goods or a tenant who refuses to pay rent.

3.2 Delay (Mora)

Under Section 204, if a party fails to perform an obligation within a fixed period or upon demand, that party is considered in default (mora). Delay becomes contractual breach if not excused under force majeure or lawful cause.

3.3 Defective or Incomplete Performance

Partial or substandard performance that does not conform to contract specifications (e.g., delivering goods of wrong quantity or failing to complete construction to required standards).

3.4 Anticipatory Breach

Thai law does not explicitly codify anticipatory breach as in common law, but parties may treat clear refusal to perform as breach under Section 213, which covers performance becoming impossible through the act of the debtor.

4. Excuses and Defenses

A party may be excused from performance in cases of:

• Force Majeure: Natural disasters, war, or other unforeseeable and unavoidable events rendering performance impossible.

• Illegality: If the object of the contract becomes illegal after formation.

• Creditors’ fault: If the obligee obstructs performance or refuses lawful tender (Section 214).

In these cases, the defaulting party is typically released from liability unless otherwise agreed.

5. Legal Remedies for Breach

5.1 Specific Performance (Section 213)

The injured party may demand that the court compel the breaching party to perform the contract. This is available when performance is still possible and not contrary to public interest. For example, compelling the transfer of land or delivery of specific goods.

Specific performance is not automatically granted and is at the discretion of the court.

5.2 Compensation for Damages (Sections 222–227)

If specific performance is not appropriate or sufficient, the injured party may claim monetary compensation. Damages can be:

• Actual losses (damnum emergens)

• Loss of profit (lucrum cessans), if foreseeable at the time of contract

Claimants must prove the breach, the causation, and the quantum of damages with reasonable certainty (contracts should therefore include liquidated damages clauses where appropriate).

5.3 Interest

Under Section 224, statutory interest is payable on unpaid debts from the date of default. As of the 2021 amendment, the default interest rate is 3% per annum, unless otherwise agreed.

5.4 Termination and Rescission (Section 395)

A party may terminate the contract upon the other party’s breach if the contract allows it or if the breach frustrates the purpose of the agreement. Upon termination:

• Each party must return what was received (Section 391)

• The innocent party may still claim damages

Note: Termination clauses must be precisely drafted to enable unilateral termination without a court order.

6. Litigation and Enforcement

6.1 Civil Court Jurisdiction

Contractual disputes are usually filed in Provincial Civil Courts or the Civil Court in Bangkok, depending on jurisdiction. Specialized courts exist for:

• International trade and IP

• Labor disputes

• Bankruptcy and reorganization

Litigation typically involves:

1. Filing a plaint (complaint)

2. Defendant’s answer

3. Exchange of evidence and witness lists

4. Oral hearings with witness examination

5. Judgment and possible appeal

Time to judgment: 12–24 months at first instance, longer if appealed.

6.2 Evidence Requirements

Courts favor written contracts and objective proof. Oral evidence is admissible but often insufficient without documentary corroboration.

Common documents include:

• Signed contract

• Invoices and delivery notes

• Bank payment records

• Correspondence and notices

• Expert reports (especially for defective performance or construction)

Foreign documents must be translated into Thai and notarized/legalized if from outside Thailand.

6.3 Enforcement of Judgments

After a judgment is final:

• The injured party can apply for a writ of execution

• Court enforcement officers may seize and auction debtor assets

• Bank accounts, land, vehicles, and shares can be attached

Judgment creditors may also petition for bankruptcy proceedings if the claim exceeds statutory thresholds.

7. Damages Clauses and Penalty Provisions

Thailand recognizes liquidated damages clauses (Section 383), but courts retain authority to reduce excessive penalties. A penalty that is deemed unreasonable, punitive, or disproportionate may be adjusted downward.

Therefore, while enforceable, such clauses must be drafted reasonably and supported by commercial rationale.

8. Arbitration and Alternative Dispute Resolution (ADR)

Contracts may include arbitration clauses. Thailand is a party to the New York Convention, making foreign arbitral awards enforceable in Thai courts. Arbitration is governed by the Arbitration Act B.E. 2545 (2002).

ADR (mediation or court-annexed settlement) is increasingly encouraged, particularly in business and international contracts.

9. Commercial Implications and Contract Drafting

Foreign and local parties should:

• Clearly define obligations, timeframes, and triggers for default

• Include force majeure clauses with applicable standards

• Specify governing law and jurisdiction

• Attach performance schedules, milestone payments, and penalties

• Avoid ambiguity, as Thai courts tend to interpret unclear clauses narrowly

Contracts written solely in a foreign language must be supported by Thai translations during litigation.

Conclusion

Breach of contract under Thai law is a structured legal concept governed by codified provisions in the Civil and Commercial Code, supplemented by case-specific doctrines such as impossibility and fault. While the system provides for remedies such as specific performance, damages, and termination, successful enforcement depends heavily on the clarity of the contract, the admissibility of evidence, and procedural compliance.

Foreign parties should be especially careful to ensure that contracts are localized to Thai legal requirements, particularly with respect to registration, language, dispute resolution clauses, and statutory limitations. Legal advice and precise drafting are essential to reduce risk and enhance enforceability.