Breach of Contract in Thailand

Contracts are the backbone of commercial and personal transactions in Thailand, as in most countries. Whether it involves buying property, supplying goods, hiring services, or entering into joint ventures, contracts create legally binding obligations between the parties. When one party fails to fulfill their contractual obligations, it constitutes a breach of contract, giving rise to legal consequences under Thai law.

Thailand’s Civil and Commercial Code (CCC) provides the main legal framework for contracts and remedies in case of breach. Both Thai nationals and foreigners engaged in business or personal agreements should understand how breaches are defined, what remedies are available, and the practical steps for enforcing rights.

This article explores the key principles of breach of contract in Thailand, the types of breach, available remedies, procedures for making claims, and considerations for both local and foreign parties.

Understanding Contracts Under Thai Law

Under the Civil and Commercial Code, a contract is defined as an agreement between two or more parties creating obligations enforceable by law. Contracts in Thailand can be:

• Written or oral – Oral contracts are generally valid, though certain types (e.g., real estate sales, hire-purchase, or marriage settlements) must be in writing.

• Express or implied – Terms may be expressly agreed or implied by law or practice.

• Standard form or negotiated – Many contracts use templates, but negotiated contracts may contain specific terms tailored to the parties’ needs.

To be enforceable, a contract requires:

1. Mutual consent of the parties.

2. A lawful and possible objective.

3. Legal capacity of the parties.

4. Compliance with formal requirements (if applicable).

What Constitutes a Breach of Contract in Thailand?

A breach of contract occurs when a party fails to perform, improperly performs, or refuses to perform contractual obligations. Under Thai law, breach can take several forms:

1. Non-performance – One party completely fails to deliver goods, provide services, or pay as agreed.

2. Defective or partial performance – Obligations are performed, but not in accordance with the agreed quality, quantity, or timeframe.

3. Delay in performance – Obligations are performed late, causing loss or inconvenience.

4. Repudiation – One party clearly refuses or expresses inability to perform obligations.

The injured party may claim damages or seek other remedies provided by law, depending on the nature of the breach.

Legal Framework Governing Breach of Contract

The Civil and Commercial Code (CCC) is the primary source of contract law in Thailand. Key sections include:

• Section 369 – Obligations must be performed properly and in good faith.

• Section 370 – Performance must be made at the proper time and place.

• Sections 386–398 – Cover default of debtor and remedies available.

• Section 420 (Tort law) – In some cases, wrongful acts related to contracts may also trigger tort liability.

• Section 222 onwards – Provide general rules on compensation for damages.

Remedies for Breach of Contract

Thai law provides several remedies for breach of contract. The appropriate remedy depends on the circumstances and the contract terms:

1. Damages (Compensation)

   • The most common remedy.

   • Compensation includes actual losses and lost profits that were foreseeable at the time of contract (CCC Section 222).

   • The injured party must prove the amount of damage suffered.

2. Specific Performance

   • The court may order the breaching party to perform their obligations as agreed.

   • Common in contracts involving unique goods, real estate, or services that cannot easily be substituted.

3. Termination or Rescission

   • The injured party may terminate the contract if the breach is fundamental.

   • Upon termination, both parties must return what they have received under the contract (restitution).

4. Penalty Clauses

   • Many contracts in Thailand include liquidated damages or penalty clauses.

   • Courts generally enforce such clauses if they are reasonable and not excessive.

5. Interest on Late Payments

   • Under Thai law, if a debtor defaults on monetary obligations, interest is owed at the legal rate (currently 5% per annum under Section 224, unless otherwise agreed).

Filing a Breach of Contract Claim in Thailand

The process for enforcing contractual rights depends on the dispute’s context:

1. Negotiation and Settlement

   • Many breaches are resolved through negotiation. Settlement agreements should be put in writing to avoid further disputes.

2. Mediation or Arbitration

   • Mediation is encouraged by Thai courts to promote quick resolution.

   • If the contract includes an arbitration clause, the dispute may be referred to arbitration (e.g., before the Thai Arbitration Institute).

3. Court Proceedings

   • If settlement fails, a lawsuit can be filed in civil court.

   • The plaintiff must prove the existence of the contract, the breach, and damages suffered.

   • Court judgments may award damages, order specific performance, or allow contract termination.

Statute of Limitations for Contract Claims

The time limit for bringing a breach of contract claim depends on the type of contract:

• General contractual claims – 10 years (CCC Section 193/30).

• Claims for installment sales, hire of work, or similar contracts – 2 years.

• Claims for transport contracts or insurance contracts – 1 to 2 years depending on the case.

Failure to file within these time limits may bar the claim.

Burden of Proof

In breach of contract cases, the burden of proof rests on the injured party. The claimant must establish:

1. The existence of a valid and enforceable contract.

2. The specific obligations agreed.

3. The breach or failure to perform.

4. The damages suffered as a result.

Documentary evidence—such as contracts, emails, receipts, invoices, and witness statements—is critical.

Challenges in Breach of Contract Cases

1. Lengthy Proceedings – Civil litigation in Thailand can take years, depending on complexity and appeals.

2. Conservative Damages – Thai courts generally award compensation based on actual provable losses, not speculative damages.

3. Enforcing Judgments – While Thai judgments are enforceable domestically, foreign judgments are not directly recognized unless re-litigated in Thai courts.

4. Language Barriers for Foreigners – Court proceedings are conducted in Thai, requiring professional translation and legal representation.

5. Cultural Emphasis on Settlement – Thai business culture often favors compromise over litigation.

Practical Advice for Businesses and Individuals

1. Draft Clear Contracts – Ensure contracts are detailed, covering performance obligations, timelines, governing law, dispute resolution, and penalties.

2. Include Arbitration Clauses – Arbitration can be faster and more efficient than court proceedings, especially for international parties.

3. Keep Written Records – Oral agreements are harder to enforce; always document transactions.

4. Act Promptly – Do not delay in pursuing claims, as statutes of limitations are strictly applied.

5. Seek Legal Assistance – Engaging a Thai lawyer ensures proper handling of claims, especially for foreign parties unfamiliar with local procedures.

Breach of Contract and Foreign Parties

Foreign investors and businesses in Thailand frequently enter contracts governed by Thai law. Common areas of dispute include joint venture agreements, property leases, construction contracts, and service agreements.

Foreigners should be aware of:

• Choice of law – Contracts may specify Thai law or foreign law, but if disputes are litigated in Thailand, Thai courts apply Thai law.

• Arbitration in Thailand – International arbitration is available under the Arbitration Act B.E. 2545 (2002).

• Enforcement of foreign arbitration awards – Thailand is a member of the New York Convention (1958), meaning arbitral awards from other member states are enforceable in Thailand.

Conclusion

Breach of contract in Thailand is a common source of disputes in both commercial and personal contexts. Governed primarily by the Civil and Commercial Code, the law provides remedies such as damages, specific performance, termination, and enforcement of penalty clauses.

While Thai courts offer structured processes for resolving contract disputes, challenges such as lengthy litigation and conservative damages make clear contracts, negotiation, and arbitration especially important. For both Thai nationals and foreigners, understanding the legal framework and acting promptly are essential to protecting contractual rights.

Ultimately, breach of contract law in Thailand seeks to balance fairness between the parties, ensure accountability, and uphold the reliability of agreements in both domestic and international transactions.