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Get to Know: Breach of Contract in Thailand
Contracts are essential documents for business transactions. Properly negotiated and drafted, contracts lay out the rights and obligations of the involved parties so that the transaction or project can be executed and completed as effectively and efficiently as possible. However, even with the most well-written and thought-out contracts, there may be occasions when parties are unable to fulfill their side, resulting in a breach of contract.
In Thailand, as in most jurisdictions, there are laws that address situations involving a breach of contract and its remedies. This article will discuss the nuances and mechanisms of Thai law regarding breaches of contract.
What is a breach of contract?
As discussed above, a breach of contract occurs when a party to a contract does not satisfy their obligations. This could be an immaterial or minor breach whereby the injured party is not significantly affected. Or the breach could be material, in which case the injured party can claim significant damage that puts that party and/or the contract’s underlying transaction at risk. Typically, a contract will include clauses defining what would be considered a breach of contract and its remedies. With these clauses, parties should be able to resolve breaches without having to pursue litigation, such as through more amenable alternative dispute resolution (e.g., arbitration, mediation, or negotiation).
In Thailand, parties have greater leeway in setting out such obligations and remedies as the concept of “free contracts” is generally accepted by the law. In this regard, parties can expand or limit their rights and liabilities to each other within the contract terms. However, there are restrictions as to how much leniency or constraints are allowed under Thai laws, such as the Unfair Contract Terms Act.
How to respond to a breach of contract in Thailand?
Once a party believes that a breach of contract has occurred, there are several options that they can pursue. Generally, they should refer to their contract terms to see what triggers and mechanisms are in place. Certain criteria might need to be met, and they may need to go through specific actions. One such action might be a notification of some sort. Even if no clauses address breaches, an injured party may seek to remedy the situation through an informal process, such as a demand letter. Properly drafted, a demand letter can notify the breaching party of the issue and suggest a resolution, either already stipulated in the contract or otherwise. This could include alternative dispute resolution, such as negotiation or arbitration, to avoid complicated litigation in court. If such informal means are unfruitful, and one or more parties believe they cannot receive fair treatment through these means, there may be a formal notification, which lays out a more detailed account of the issues in question and demands specific remedies within a prescribed period. If these demands are not met, a court action is often pursued.
What remedies are available for contract breaches in Thailand?
Thai law describes remedies, or damages, available to injured parties relatively broadly. First, there are stipulated damages, which the parties agreed to in the contract in question. The non-breaching party generally must only prove the breach and not that the actual damages equal the stipulated amount. However, the other party could request that the court reduce the amount. Second, there are general or actual damages to which the injured party must prove they are entitled. Finally, there are consequential or punitive damages, which the complainant can demand if they can prove that the other party foresaw and could have prevented the breach. It is worth noting that Thai civil courts award damages to make the injured party whole and eschew additional punitive damages, except in special circumstances.
THAC can assist with breach of contract questions in Thailand
There is much to consider when negotiating and drafting a contract, especially regarding breaches, as well as when a breach occurs. The Thailand Arbitration Center (THAC) can be an excellent resource for learning about the various strategies and contract options, including how to handle breaches of contract. This ranges from offering model dispute resolution clauses that address breaches of contract to providing a forum for arbitrating or mediating remedies for a breach.
THAC is a dispute resolution center that meets international standards for all forms of alternative dispute resolution (ADR). Interested parties can confer with THAC for assistance with drafting ADR clauses and agreements, finding experienced ADR professionals to act as arbitrators or mediators, and other ADR-related enquiries. THAC is also ideal for local and international ADR proceedings, as it is located in central Bangkok and is easily reached by domestic and international visitors. Furthermore, THAC offers state-of-the-art in-person and remote hearings facilities, including full administrative support.
