Breach of Contract in Thailand

A breach of contract occurs when one party fails to fulfill their contractual obligations, whether by not performing as agreed or performing poorly. In Thailand, contract law is primarily governed by the Civil and Commercial Code (CCC), which provides the legal framework for contract formation, enforcement, and remedies in cases of breach. Breach of contract cases are common in various sectors, from personal transactions and real estate agreements to corporate dealings. Understanding the legal implications of breach of contract in Thailand is essential for both local and foreign parties engaging in agreements within the Thai legal jurisdiction.

Types of Contract Breaches in Thailand

1. Material Breach:
   • A material breach occurs when one party fails to perform a crucial part of the contract, affecting the contract’s overall purpose. For example, if a construction company fails to complete a building as specified, this would be considered a material breach, allowing the non-breaching party to seek remedies or terminate the contract.
2. Minor Breach:
   • A minor breach, or partial breach, happens when a party performs most obligations but fails to meet certain terms that are not fundamental to the contract’s purpose. For example, delivering goods slightly later than the agreed-upon deadline may be considered a minor breach if the goods’ delay does not impact the contract’s overall objective.
3. Anticipatory Breach:
   • An anticipatory breach occurs when one party indicates, either verbally or through actions, that they will not fulfill their obligations before the performance is due. This allows the non-breaching party to seek remedies immediately, rather than waiting until the breach actually occurs. For example, if a supplier informs the buyer that they will not deliver goods on the agreed date, the buyer can pursue legal remedies in advance.
4. Fundamental Breach:
   • A fundamental breach is a significant failure to meet the contract’s terms, often giving the non-breaching party the right to terminate the contract and claim damages. For example, if a service provider fails to deliver essential services required by the contract, it would be a fundamental breach, permitting the non-breaching party to cancel the agreement.

Legal Requirements for Contracts in Thailand

For a contract to be legally binding in Thailand, certain elements must be present:

1. Offer and Acceptance:
   • The contract must contain a clear offer by one party and acceptance by the other. Both parties should agree to the contract terms, and the acceptance must be communicated effectively.
2. Intention to Create Legal Relations:
   • Both parties must intend to form a legally binding agreement. Typically, contracts for commercial purposes are assumed to have this intention, while social or domestic agreements may not.
3. Consideration:
   • Consideration refers to something of value exchanged between the parties, whether it is money, services, or goods. Without consideration, the contract may be deemed void unless it falls under specific exceptions outlined in the CCC.
4. Legality and Capacity:
   • The contract must be legal and cannot violate Thai laws or public policy. Parties entering the contract must also have the capacity to do so, meaning they should be of legal age (20 years or older in Thailand) and mentally competent.
5. Written Form Requirement:
   • While verbal contracts are enforceable for most matters in Thailand, certain contracts must be in writing, such as contracts related to real estate, leases longer than three years, and marriage contracts.

Remedies for Breach of Contract in Thailand

The remedies available for breach of contract in Thailand are specified under the CCC and include the following options:

1. Compensatory Damages:
   • Compensatory damages are the most common remedy for breach of contract. The non-breaching party can claim compensation for any direct losses suffered due to the breach. Damages awarded aim to place the non-breaching party in the position they would have been in had the contract been properly performed.
2. Specific Performance:
   • Specific performance is an equitable remedy where the court orders the breaching party to fulfill their contractual obligations as specified in the agreement. This remedy is more common in cases where damages alone cannot adequately compensate the non-breaching party, such as in real estate contracts where the property’s unique characteristics may warrant specific performance.
3. Termination of the Contract:
   • If the breach is significant, the non-breaching party may have the right to terminate the contract. Termination is typically available for material or fundamental breaches and allows the non-breaching party to be relieved of further obligations under the contract.
4. Interest on Late Payments:
   • If the breach involves late payment, the non-breaching party can claim interest on the overdue amount. The CCC specifies a default interest rate of 7.5% per year unless a different rate is agreed upon in the contract.
5. Rescission:
   • Rescission allows the non-breaching party to cancel the contract and return to the position they were in before the contract. This remedy is often sought when the contract was formed under fraudulent or misleading circumstances.

Common Scenarios of Breach of Contract in Thailand

1. Real Estate Transactions:
   • Breaches in real estate agreements are common in Thailand, especially in cases where one party fails to meet the agreed timeline or specifications. For instance, a developer might not complete a property as per the contract’s terms, leading to claims for compensatory damages or specific performance.
2. Employment Contracts:
   • Breaches in employment contracts often occur when an employer or employee fails to fulfill their contractual obligations, such as payment delays or early termination without cause. In such cases, the non-breaching party may claim damages or other remedies stipulated within the contract or labor law regulations.
3. Business Contracts:
   • Breach of contract is also common in business agreements, including supply agreements, service contracts, and joint ventures. For example, if a supplier fails to deliver products on time, the buyer may seek compensatory damages or specific performance to rectify the breach.
4. International Contracts:
   • Breach of contract can be complex in international agreements due to the differences in applicable laws and jurisdictions. In Thailand, parties to an international contract often agree to a governing law and Thailand dispute resolution forum to avoid conflicts. If a breach occurs, the contract’s governing law determines the remedies available.

Enforcing Breach of Contract Claims in Thailand

When a breach of contract occurs, parties may seek remedies through negotiation, mediation, arbitration, or court litigation:

1. Negotiation and Mediation:
   • Many parties initially attempt to resolve a breach of contract through negotiation or mediation. This approach is cost-effective and allows the parties to maintain a business relationship. Mediation can be conducted through informal discussions or with a third-party mediator.
2. Arbitration:
   • Arbitration is common in Thailand for business and international contracts. Many parties include arbitration clauses in their contracts, designating a specific arbitration institution to handle disputes. Arbitration allows parties to avoid court litigation, which can be time-consuming and costly.
3. Court Litigation:
   • If negotiation and arbitration fail, parties may file a lawsuit in Thai courts to enforce their rights. Thai courts handle civil and commercial cases, including contract disputes. The plaintiff must present evidence of the contract, the breach, and the damages suffered. The court will then determine whether to award damages, specific performance, or other remedies.

Statute of Limitations for Breach of Contract

In Thailand, the statute of limitations for contract claims varies based on the nature of the contract:

1. General Contracts:
   • For general contracts, the statute of limitations is five years from the date of the breach.
2. Contracts for the Sale of Goods:
   • For sale of goods, the statute of limitations is two years from the breach date.
3. Employment Contracts:
   • Employment contract disputes generally have a two-year statute of limitations from the breach.
4. Other Contracts with Specific Limitations:
   • Some contracts may have shorter or longer limitation periods as specified by law.

Conclusion

Breach of contract cases are a significant aspect of Thailand’s legal landscape, and understanding the country’s approach to contract law helps individuals and businesses navigate these issues effectively. With remedies like compensatory damages, specific performance, and termination available, the Thai legal system offers a range of options to address breach of contract situations. Employing preventive measures, such as clear contract drafting and dispute resolution clauses, can further help avoid costly disputes. For both Thai citizens and foreign nationals, working with legal professionals knowledgeable about Thai contract law is invaluable in managing breach of contract risks and pursuing appropriate remedies when breaches occur.