Breach of Contract in Thailand. Contracts form the backbone of commercial transactions in Thailand, providing a legal framework that binds parties to their mutual promises. However, when one party fails to fulfill their obligations, it constitutes a breach of contract. Thailand’s legal system, rooted in civil law tradition and codified under the Civil and Commercial Code (CCC), provides clear rules for defining, proving, and remedying such breaches.
Understanding the intricacies of contractual breaches under Thai law is vital for businesses, investors, and private individuals engaged in commercial relationships in the Kingdom.
1. Legal Basis for Contracts in Thailand
Contracts in Thailand are governed by Book II, Title II of the Thai Civil and Commercial Code. A contract is defined under Section 369 as a “juristic act” created by mutual consent between parties intending to establish, modify, or extinguish obligations.
Key legal features include:
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Freedom of contract (except when restricted by law or contrary to public order/good morals).
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Written and verbal agreements are both enforceable (though some contracts require writing for validity or enforceability—e.g., land sales, leases over 3 years).
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A contract must have lawful cause, capacity of parties, and mutual consent.
2. What Constitutes a Breach of Contract?
A breach occurs when one party fails to perform, delays performance, or performs defectively in relation to agreed contractual obligations. This includes:
A. Non-performance
The defaulting party refuses or neglects to perform their obligation at all (e.g., a contractor fails to deliver a building).
B. Defective Performance
Performance is rendered, but not according to the agreed terms (e.g., goods are delivered but not in the agreed quality).
C. Delay in Performance
Timeliness is critical in some contracts (e.g., construction deadlines). Section 204 of the CCC stipulates that when time is of the essence, delay may constitute breach.
D. Anticipatory Breach
Although not expressly defined in Thai law, courts may interpret clear intent not to perform a future obligation as a breach, especially in cases involving substantial performance periods.
3. Burden of Proof and Legal Procedure
A. Burden of Proof
The plaintiff bears the burden of proving:
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The existence and enforceability of the contract.
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The specific obligation breached.
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The nature and extent of the breach.
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Resulting damages.
Documentary evidence (contracts, emails, invoices), witness testimony, and expert opinions (in construction, technical cases) are typically submitted.
B. Filing a Lawsuit
Cases involving contractual breaches are usually filed in the Civil Court or Provincial Court, depending on the jurisdiction and amount in dispute. The procedure includes:
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Filing a Statement of Claim.
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Submission of supporting evidence.
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Court hearings (preliminary and evidentiary).
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Judgment and enforcement (e.g., asset seizure, garnishment).
4. Types of Damages and Legal Remedies
The Civil and Commercial Code provides several forms of redress for aggrieved parties:
A. Compensatory Damages
Sections 222 and 223 allow for compensation equal to the loss suffered due to the breach. This includes:
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Direct damages (e.g., loss of expected payment).
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Consequential damages, if foreseeable by the parties.
Thai courts apply a but-for test and foreseeability principle in awarding damages.
B. Liquidated Damages
Contracts may include liquidated damages clauses, which pre-define the amount payable upon breach. Under Section 379 CCC, courts may reduce such amounts if found excessive.
C. Interest on Damages
The default interest rate is 5% per annum (Section 224), unless contractually agreed otherwise.
D. Specific Performance
Under Section 213, the aggrieved party may petition the court to compel performance (e.g., transfer of property, delivery of goods), especially in cases where monetary damages are inadequate.
E. Rescission
Section 386 allows the aggrieved party to rescind the contract due to non-performance. In bilateral contracts, rescission may also be exercised if performance is rendered impossible due to fault of the other party.
5. Special Considerations in Certain Contract Types
A. Sales Contracts
Common breaches involve defective products, late delivery, or failure to pay. Under Section 472–474, the buyer may demand repair, replacement, or price reduction. Time-sensitive delivery failures may justify rescission.
B. Construction Contracts
These often involve:
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Delay in completion.
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Substandard construction.
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Failure to comply with design specifications.
Disputes are typically complex and require expert testimony. Many construction contracts include retention clauses and warranty periods, which must be reviewed carefully.
C. Lease Agreements
Breach by lessee (non-payment, misuse) or lessor (failure to maintain, early eviction) may lead to cancellation and claim for damages. Leases over 3 years must be registered to be enforceable against third parties.
D. Employment Contracts
Termination without cause or failure to pay wages constitutes breach. Remedies are found under both the Labor Protection Act and the CCC.
6. Mitigation of Damages and Good Faith
A. Duty to Mitigate
Under Thai jurisprudence, though not explicitly codified, parties are generally expected to mitigate damages. Failing to do so may reduce recoverable compensation.
B. Good Faith Principle
Thai law emphasizes good faith performance and prohibits abuse of contractual rights (Sections 5, 368). Courts may deny claims where a party acts in bad faith—even if technically correct in law.
7. Force Majeure and Impossibility
A breach is not committed if non-performance results from:
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Force majeure events (e.g., natural disasters, war).
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Impossibility without fault (Section 219), e.g., legal prohibition, death of an obligated person.
However, the burden is on the defaulting party to prove the existence and impact of such events. Courts interpret force majeure narrowly, and business risks (e.g., currency fluctuation, cost increases) are not accepted excuses.
8. Arbitration and Alternative Dispute Resolution
Contractual disputes, particularly in international or high-value commercial agreements, often include arbitration clauses. The Arbitration Act B.E. 2545 (2002) governs arbitral proceedings in Thailand.
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Arbitral awards are enforceable under Thai law and the New York Convention.
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Mediation is also encouraged, especially in early-stage disputes or before litigation.
9. Enforcement of Judgments
If the court awards damages or specific performance, the winning party can request enforcement through:
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Asset seizure.
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Bank account garnishment.
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Court orders for third-party performance.
Enforcement proceedings are governed by the Civil Procedure Code and may take several months, especially if assets are concealed or located outside Thailand.
10. Foreign Parties and Contractual Breach
Foreign individuals or companies contracting in Thailand face additional risks:
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Language ambiguities (translations must be accurate and legally certified).
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Use of nominee structures, which may be unenforceable.
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Failure to register certain contracts (e.g., real estate leases).
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Jurisdictional and choice-of-law issues.
It is advisable for foreign parties to engage licensed Thai legal counsel to draft or review contracts and ensure enforceability.
Conclusion
Breach of contract in Thailand is governed by a well-structured legal framework that emphasizes contractual integrity, fairness, and proper remedies. Whether the dispute involves a commercial deal, construction project, or lease agreement, proper documentation, legal advice, and awareness of procedural rules are critical for protecting one’s interests.
Timely legal action, supported by clear evidence and a strong contractual foundation, offers the best prospect of enforcement and recovery. In high-risk or high-value contracts, preemptive structuring—through clauses on damages, arbitration, and governing law—can significantly reduce the impact of breach and litigation uncertainty.
