Breach of Contract in Thailand

Contracts are the backbone of commercial and personal transactions in Thailand, governing agreements ranging from business partnerships and employment arrangements to property deals and service agreements. When one party fails to honor the obligations set out in a contract, it constitutes a breach of contract. Thai law provides detailed mechanisms for addressing such breaches, ensuring that aggrieved parties can seek remedies and enforce their rights. Understanding how breach of contract is defined, handled, and resolved under Thai law is crucial for both individuals and businesses operating in the country.

Legal Framework

In Thailand, contract law is governed primarily by the Civil and Commercial Code (CCC). The CCC sets out the rules for contract formation, validity, performance, and remedies for breach. A contract under Thai law can be oral or written, though written agreements are strongly recommended for clarity and evidentiary purposes.

A breach of contract occurs when one party fails to perform their contractual obligations without lawful justification. This can involve failure to deliver goods, non-payment for services, refusal to perform duties, or delayed performance. Thai law categorizes breaches broadly into two types:

1. Non-performance – where a party does not perform the promised obligation at all.

2. Defective or delayed performance – where performance is carried out, but not in the manner, quality, or timeframe agreed.

Common Types of Contract Breaches in Thailand

1. Failure to Pay or Deliver

   • One of the most common breaches occurs when a party fails to pay for goods or services, or when a supplier fails to deliver products as agreed.

2. Failure to Provide Services

   • Service providers may breach contracts by not providing services according to agreed standards or within stipulated timelines.

3. Construction Disputes

   • Breach of construction contracts often arises from poor workmanship, delays, or cost overruns beyond agreed budgets.

4. Lease and Rental Agreements

   • Common breaches include failure to pay rent, misuse of property, or landlords failing to maintain premises.

5. Employment Contracts

   • Breaches may occur when an employer wrongfully terminates an employee, or when an employee violates non-compete clauses or confidentiality agreements.

Remedies for Breach of Contract

The CCC provides several remedies to the non-breaching party. The main options include:

1. Specific Performance

   • The injured party may request the court to order the defaulting party to perform its obligations under the contract. This is especially common in cases involving unique goods, property, or services.

2. Damages (Compensation)

   • The most common remedy. Damages may cover actual financial loss and foreseeable losses directly resulting from the breach. For example:

     • Costs of finding a replacement supplier.

     • Lost profits due to non-delivery.

     • Extra expenses incurred because of delays.

3. Cancellation or Termination

   • If the breach is serious, the aggrieved party may cancel the contract and seek compensation for losses suffered due to non-performance.

4. Withholding Performance

   • In bilateral contracts, if one party fails to perform, the other party may withhold its own performance until obligations are met.

Burden of Proof and Evidence

In Thailand, the burden of proof lies with the party alleging breach. This means the claimant must present evidence such as:

• The existence of a valid contract.

• The specific terms of the contract.

• Proof of breach by the other party.

• Proof of damages suffered as a direct consequence.

Written contracts, invoices, correspondence, and witness testimony often play an important role in court proceedings.

Liquidated Damages Clauses

Many contracts in Thailand include liquidated damages clauses, where parties predetermine the amount of damages payable in case of breach. Thai courts generally uphold such clauses, provided the amount is not excessive or punitive. If the damages are deemed unreasonably high, courts have the discretion to reduce them to a reasonable level.

Defenses to Breach of Contract

A party accused of breach may raise several defenses under Thai law, including:

1. Force Majeure

   • If performance was impossible due to unforeseen events beyond control, such as natural disasters or government restrictions, the party may be excused.

2. Invalidity of Contract

   • If the contract is void due to illegality, lack of consent, or incapacity of one party, it cannot be enforced.

3. Performance Was Offered

   • If the accused party attempted to perform but the other side rejected the performance, they may not be held liable.

Dispute Resolution Mechanisms

Contract disputes in Thailand can be resolved through different avenues:

1. Negotiation

   • Often the first step, where parties attempt to resolve the issue privately.

2. Mediation

   • Thai courts encourage mediation both before and during litigation to reduce costs and time.

3. Arbitration

   • For international or high-value contracts, arbitration is often used. Thailand is a party to the New York Convention, meaning arbitral awards can be enforced in other member states.

4. Litigation

   • Civil courts in Thailand hear contract disputes. Litigation can be lengthy and costly, but it provides legally binding judgments.

Time Limits for Filing Claims

Under the CCC, the statute of limitations for contract claims is generally 10 years, unless specified otherwise. However, some specific contracts, such as sales or transport contracts, may have shorter limitation periods (as short as 1–2 years). Parties should be mindful of these deadlines when pursuing claims.

Breach of Contract in International Context

For foreign investors and companies doing business in Thailand, breach of contract can carry additional complexities. Cross-border contracts often raise issues such as:

• Choice of law – deciding whether Thai or foreign law governs the contract.

• Jurisdiction – determining whether disputes will be handled in Thai courts or through international arbitration.

• Enforcement of foreign judgments – Thai courts do not directly enforce foreign court judgments, but arbitral awards under the New York Convention can be recognized.

To avoid complications, foreign parties typically include arbitration clauses in their Thai contracts.

Practical Considerations for Businesses and Individuals

1. Always Use Written Contracts

   • Oral agreements are valid but difficult to prove. Written contracts with clear terms help avoid disputes.

2. Include Dispute Resolution Clauses

   • Clearly state whether disputes will be handled through Thai courts, arbitration, or mediation.

3. Specify Damages and Penalties

   • Liquidated damages clauses provide certainty and can speed up compensation.

4. Keep Records

   • Maintain detailed records of correspondence, payments, and performance to use as evidence if disputes arise.

5. Seek Legal Advice

   • Engaging a Thai lawyer is crucial when drafting, negotiating, or enforcing contracts, especially for foreigners unfamiliar with Thai legal processes.

Conclusion

Breach of contract in Thailand is a serious matter that can disrupt business and personal relationships. The Civil and Commercial Code provides a structured framework for addressing such disputes, offering remedies such as damages, specific performance, and contract cancellation. While litigation is available, parties are encouraged to resolve disputes through negotiation, mediation, or arbitration, particularly in cross-border transactions.

For both Thai nationals and foreigners, understanding how breaches are defined, proven, and remedied under Thai law is vital to protecting rights and minimizing risks. By drafting clear contracts, keeping thorough records, and seeking professional legal advice, parties can not only reduce the likelihood of disputes but also ensure effective resolution if a breach occurs.