A Guide to Contractual Breach Under Thai Law

A Guide to Contractual Breach Under Thai Law

Written By
Joy Cunanan
Updated on
December 12, 2023
Reading time:
0
minutes

Contracts are at the heart of business dealings, providing a framework for agreements between parties. However, when one party fails to uphold its obligations, it can lead to a breach of contract. In Thailand, similar to many jurisdictions worldwide, breach of contract is a significant legal issue with its own set of implications, rights, and remedies.

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Defining Breach of Contract in Thailand

In Thai law, a contract is a legally binding agreement between two or more parties, encompassing an offer, acceptance, consideration, and a lawful purpose. A breach occurs when one party fails to perform its obligations as outlined in the contract. 

A breach of contract occurs when one party fails to fulfil its obligations as outlined in a legally binding agreement between two or more parties. The breach could manifest in various forms, each with its own legal implications and consequences. Here's an expanded overview:

Elements of a Contract in Thailand

Offer and Acceptance

An offer must be made by one party and accepted by the other, forming the basis of the contract. According to the Thailand Civil and Commercial Code (TCCC), “A contract between persons at a distance comes into existence at the time when the notice of acceptance reaches the offeror.” 

Consent

Title IV, Chapter 1 of the TCCC outlines the principles of juristic acts governing contracts in Thailand, emphasising their voluntary nature aimed at establishing relations or altering rights between individuals (Section 149, TCCC). 

Lawful Purpose

An act is deemed void if its objective is expressly prohibited by law, impossible, or contrary to public order or morals. However, deviations from laws unrelated to public order or morals do not automatically render an act void. (Section 150-151, TCCC) Additionally, acts not following the prescribed legal form are considered void (Section 152, TCCC).

Legal Capacity

Acts failing to meet the requirements regarding a person's capacity are voidable, meaning they can be invalidated. (Section 153, TCCC)

Forms of Breach in Thai Contract Law

Material Breach

This type of breach goes to the heart of the contract, significantly affecting its essence and purpose. It could include:

Non-performance: Failure to fulfil substantial obligations as agreed upon.  

Defective Performance: Providing inadequate or substandard goods or services.

Fundamental Breach: Undermining the core purpose of the contract, making it impossible to achieve its objectives.

Minor Breach

Unlike a material breach, this doesn’t substantially affect the essence of the contract. Examples include:

Partial Non-performance: Failing to fulfil only a small portion of obligations.

Temporal Non-performance: Delay in fulfilling obligations without fundamentally impacting the contract.

Actual Breach

An actual breach occurs when a party fails to perform its obligations as agreed upon within the specified time frame. It's a failure to fulfil contractual promises at the agreed-upon time, leading to immediate consequences outlined in the contract or under Thai law.

Anticipatory Breach

An anticipatory breach happens when a party indicates, explicitly or implicitly, its unwillingness or inability to fulfil contractual obligations before the performance is due. In Thailand, this might include:

Express Repudiation: Explicitly stating the intention not to perform the contract.

Implied Repudiation: Actions or circumstances implying an inability or unwillingness to perform, such as insolvency or clear indication of non-compliance.

Rights and Remedies in the Event of Breach

When faced with a breach of contract in Thailand, several avenues are available to the aggrieved party:

Seeking Damages

Rights: The injured party has the right to seek compensation for the losses suffered due to the breach. These losses can encompass general, consequential, and stipulated or liquidated damages as a result of the breach.

  1. Under Thai law, general damages, directly resulting from a breach, are known simply as 'damages.' To claim these, the plaintiff must substantiate the incurred losses. (Section 222, TCCC)
  1. Consequential damages—extra damages beyond general losses—are termed 'compensation.' To pursue compensation, the complainant must demonstrate foreseeability by the contract parties and prove the damages incurred. (Section 222, TCCC)
  1. Stipulated or liquidated damages involve an agreed-upon amount established when entering the contract, referred to as a 'Penalty' in Thai law. While the complainant doesn't need to prove these damages, the court might adjust the amount if deemed unreasonable. To justify reduction, the defendant must provide evidence. (Section 379-383, TCCC) As to entry into contracts, if the parties agreed upon consequential damages, this agreement often aligns with what the court refers to as "stipulated" or liquidated damages.

Remedies: The remedy for damages involves monetary compensation aimed at restoring the aggrieved party to the position they would have been in had the breach not occurred. This compensation covers actual financial losses incurred, including lost profits or expenses resulting from the breach.

Specific Performance

Rights: When monetary compensation isn't adequate or feasible, the innocent party has the right to demand specific performance. This involves compelling the breaching party to fulfil its contractual obligations as originally agreed upon.

Remedies: The remedy of specific performance is sought when the subject matter of the contract is unique or when monetary compensation cannot adequately remedy the harm caused by the breach. For instance, in cases involving rare goods or unique services, specific performance might be the preferred remedy.

Termination or Cancellation

Rights: In cases of a material breach, the innocent party has the right to terminate or cancel the contract due to the failure of the other party to fulfil its obligations.

Remedies: Termination or cancellation of the contract releases both parties from their remaining obligations. Additionally, the innocent party might seek restitution, aiming to be restored to the position they were in before entering the contract.

Injunctive Relief

Rights: In situations where continuing with the contract would cause irreparable harm, the aggrieved party may seek injunctive relief to prevent the breaching party from taking certain actions.

Remedies: Injunctions are court orders that restrain a party from engaging in certain activities or compel them to take specific actions. This remedy aims to prevent further harm or maintain the status quo during the resolution of the dispute.

Liquidated Damages

Rights: Some contracts include clauses specifying the amount of damages in case of a breach. If such a clause exists, the innocent party has the right to claim the pre-determined amount as damages.

Remedies: The pre-agreed liquidated damages serve as a preset compensation for the breach, often used to avoid lengthy litigation over determining the actual losses incurred.

Legal Recourse in Thailand

Legal recourse in Thailand encompasses various avenues for individuals and entities seeking resolution to legal disputes or grievances. Below is an expanded overview:

Legal System in Thailand

Civil Law System

Thailand operates under a predominantly civil law system influenced by continental European legal principles. The legal framework comprises statutes, regulations, and codes, with judicial decisions not forming binding precedents but serving as persuasive guidance.

Courts and Jurisdiction

Court Hierarchy: The Thai court system includes several levels, starting from the Court of First Instance, the Court of Appeals, and culminating in the Supreme Court.

Specialised Courts: Thailand has specialised courts, namely the Tax Court, the Intellectual Property and International Trade Court, the Bankruptcy Court, and the Labour Courts, catering to specific legal matters.

Jurisdictional Reach: The jurisdiction of Thai courts extends to both civil and criminal matters. For civil disputes, the courts adjudicate cases related to contracts, property, torts, family law, and more.

Dispute Resolution Mechanisms

Litigation: Filing a lawsuit in Thai courts is a common method for resolving disputes. Litigation involves formal legal proceedings, including filing a complaint, presenting evidence, and attending hearings.

Arbitration: Arbitration is widely used for resolving commercial disputes. Parties agree to submit their dispute to an arbitrator or a panel, whose decision, akin to a court judgment, is binding.

Mediation and Negotiation: Alternative dispute resolution methods such as mediation and negotiation offer informal means to settle disputes outside of formal court processes. These methods emphasise voluntary agreement between parties facilitated by a neutral mediator.

Legal Representation and Procedure

Legal Counsel: Engaging a qualified lawyer or law firm well-versed in Thai law is crucial for navigating legal proceedings effectively. Lawyers provide guidance, representation, and advocacy throughout the legal process.

Court Procedure: Litigation in Thai courts follows established procedural rules. Parties must adhere to these rules regarding evidence presentation, timelines, and court appearances.

Enforcement of Court Decisions

Enforcement Mechanisms: Once a court delivers a judgment or order, enforcement mechanisms are available to ensure compliance. These may include asset seizure, wage garnishment, or other legal measures to enforce the court's decision.

Statute of Limitations

Time Constraints: Thailand imposes a statute of limitations within which parties must file lawsuits related to various legal matters, including breach of contract. This limitation period typically starts from the date of the incident or its discovery.

Understanding the legal landscape and available options for recourse in Thailand is crucial for individuals and businesses to protect their rights, seek remedies, and effectively address legal disputes. Choosing the most appropriate method of resolution based on the nature of the dispute, cost, time, and desired outcome is essential for a favourable resolution within the Thai legal framework.

Mitigate Breaches with Lexagle. 

In Thailand, as in many other legal jurisdictions, a breach of contract can have far-reaching consequences for businesses and individuals. Understanding the nuances of contracts, the types of breaches, available remedies, and the legal recourse is imperative for all parties involved in any contractual agreement.

Emphasis is also placed on clear and comprehensive contracts, adherence to obligations, and seeking legal counsel when faced with a breach. Utilising a contract management software like Lexagle can also fortify your contracting and ensure that the entire contract lifecycle is secure and efficient. Discover the benefits of streamlining and automating your contract processes today by booking a demo with Lexagle. 

A Guide to Contractual Breach Under Thai Law
Author
Joy Cunanan
Joy is the Digital Transformation Manager at Lexagle. As a marketing professional in the Tech and B2B industry for over seven years, she is always on the lookout for the next best solution in the ever-changing online world. With a passion for helping businesses thrive and optimize operations, she shares her expertise in the power of contract lifecycle management and its capacity of easing the contracting process for busy organizations worldwide.

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