2. Basic Principles of Contract
Civil & Commercial Code
Obligations
Sections 194 – 353 (Book II, Title I)
Principles (Formation, Effect, Rescission)
Sections 354 - 394 (Book II, Title II)
Quasi-contracts
Undue Enrichment Sections 406 – 419 (Book II, Title IV)
Management of Affairs without Mandate Sections 395 – 405 (Book II,
Title III)
Specific Contracts
Sections 453 – 1011 (Book III, Titles I to XXI) – Sale, Hire, Mortgage,
Insurance, Bills, etc.
Slide 2 – Commercial Contracts Thailand by Kelvin Chia (Thailand)
3. Fundamentally, Thailand’s foundation for the
recognition of contracts is the -
Freedom to Contract
Much significance is attached to this freedom and
the intent of the parties to a contract – so long as
they adhere to the boundaries provided for in the
Thai legal regime.
Failure to observe these boundaries may result in
contractual terms being void and unenforceable.
Slide 3 – Commercial Contracts Thailand by Kelvin Chia (Thailand)
4. Typically:
The Bare Contract
a colloquial, bare contract spelling out the bare necessities.
Inherent risks, will be discussed in the next part of this presentation
“Poorly drafted contracts equals a Pandora’s Box”.
The Extensive (Super) Contract
typically professional-drafted, detailed and comprehensive contract.
One party is generally in a much stronger position than the other(s).
May achieve desired effect of putting “weaker” party in a suppressed
state.
Conversely, properly advised “weaker” party is full aware of what is
not enforceable, having at all times a leverage and tactical advantage
in managing its affairs in relation to the contract.
False security of stronger party may be exploited in face of dispute.
Slide 4 – Commercial Contracts Thailand by Kelvin Chia (Thailand)
5. Obscurity
in Thailand’s Contract Regime
Thai law does not have clear cut rules:
Definitive rules of construction
Defined rules of interpretation
Specific legislation governing contracts
Sparse case law and precedents
Stare decisis
Doctrine of fundamental terms or clear distinction between
conditions and warranties
Clear recognition of concepts such as anticipatory breach,
repudiatory and non-repudiatory breaches
So, what are the boundaries?
Slide 5 – Commercial Contracts Thailand by Kelvin Chia (Thailand)
6. What is or is not enforceable?
Slide 6 – Commercial Contracts Thailand by Kelvin Chia (Thailand)
7. Unfair Contract Terms Act
[“UCTA”]
Restrictions on contractual clauses, falling foul of the
UCTA may render terms void and unenforceable.
Wide discretion granted to the Courts.
Primary aim to protect parties in a weaker position.
Exacerbated by lack of stare decisis, inconsistency in
case law, insufficient guidelines and only a handful of
precedents.
Inherently difficult to pinpoint the blurred borderline
between fair and unfair.
Non-exhaustive.
Slide 7 – Commercial Contracts Thailand by Kelvin Chia (Thailand)
8. Terms that attempt to restrict the applicability of the
UCTA.
The UCTA is overriding and may not be excluded.
Terms excluding or limiting liability arising from
breach of contact.
Liabilities for breach may not be limited or excluded.
Terms exposing the contract to termination without
reasonable grounds or granting such right of
termination even though the other party is not in
material breach.
No party shall be allowed to arbitrarily terminate the contract.
UCTA Unfair
Slide 8 – Commercial Contracts Thailand by Kelvin Chia (Thailand)
9. Terms granting a party the right to claim or compel
the other party to carry more obligations that that
which existed at the time of making the contract.
Terms not covered in the initial contract may not be imposed
subsequently on a party without its consent.
Terms excluding or limiting the liability of the
business, trading or professional operator for a defect
or disturbance of right.
Cannot exclude or limit liabilities for defects and deficiencies (such
exclusions or limitations typically in the form of disclaimers).
Terms allowing for non-compliance or postponed
compliance without reasonable grounds.
Cannot allow for non-compliance or unjustified postponed
compliance.
Slide 9 – Commercial Contracts Thailand by Kelvin Chia (Thailand)
10. UCTA Reasonable
UCTA’s catch-all provision.
Overarching rule of ‘reasonableness’ for enforceability.
Considerations in the UCTA, “In determining to what extent
the terms be enforceable as fair and reasonable”, include:
Good faith, bargaining power, knowledge and
understanding attributed to economic status, aptness,
anticipation, precedent guidelines, alternatives, and all
advantages / disadvantages of the contracting parties
according to actual conditions.
Ordinary / Customary usages / contexts applicable to such
type of contract.
Time and place of making the contract or performing the
contract.
The heavier burden borne by one contracting party as
compared to that of the other party.
Slide 10 – Commercial Contracts Thailand by Kelvin Chia (Thailand)
11. Trade Competition Act
[“TCA”]
Thailand's primary legislation against anti-competitive practices
having significant bearing on commercial contracts.
Particularly applicable to supplier, distributorship, joint venture,
franchise and other agreements governing business relationships.
Once again, as all business operators aim to derive maximum
commercial advantage from their commercial contracts, caution
has to be exercised to prevent from impinging on “fair”
competition.
Price-Fixing
Where retail prices or price ranges are determined in contracts,
improper drafting of such terms that is essentially a limitation of a
party’s freedom to determine its own selling prices may be in
violation of TCA ′s anti-price-fixing provisions.
Slide 11 – Commercial Contracts Thailand by Kelvin Chia (Thailand)
12. Exclusive Supplier
Companies are expressly restricted from ‘fixing persons from whom
business operators may purchase goods or services’. Of especial
address to foreign-Thai agreements, the TCA expressly enables Thais
to purchase directly from foreign suppliers and prohibits any
agreement incorporating exclusive local distribution rights.
Exclusive Line of Products
One example is the Honda Motorcycles (Thailand) case where the
motorcycle distributor’s refusal to allow any of its resellers to carry
non-Honda motorcycles was deemed a violation of the TCA by the
Trade Competition Board.
Geographical Exclusivity
The TCA expressly prohibits agreements that constrict:
Distribution – “geographical areas in which each business
operator may distribute . . . goods or services”.
Procurement – “geographical areas in which each business
operator may purchase goods or services”.
Slide 12 – Commercial Contracts Thailand by Kelvin Chia (Thailand)
13. Other Legislation
Other legislation and secondary legislation thereunder may have
overreaching effects on contractual clauses.
For instance:
The Civil & Commercial Code itself bars agreements “.. made in
advance exonerating a debtor from his own fraud or gross
negligence…”.
The Ministerial Regulation No. 25/2542 was introduced in view
of preventing contractual oppression by the party with more
bargaining power in patent licensing contracts, setting out a
number of restrictions on clauses in such contracts.
Slide 13 – Commercial Contracts Thailand by Kelvin Chia (Thailand)
14. Crucial Considerations
Cannot Contract Out of Law
Clauses that infringe the law or contracts which subject is
unlawful are unenforceable.
e.g. contracts enshrining nominee shareholding arrangements in
circumvention of Thailand’s foreign business restrictions or foreign
land ownership restrictions; leases of land for lease terms >30 years.
Clauses that depart from terms provided for in statute or
secondary legislation are unenforceable.
e.g. employment contracts not requiring notice for termination thereof.
Unenforceable if Unregistered
Certain contracts are required to be registered and are unenforceable
if not so compliantly registered.
e.g. lease contracts for lease terms >3 years; leases of land; patent
and trademark licensing contracts.
Slide 14 – Commercial Contracts Thailand by Kelvin Chia (Thailand)
15. Cannot Oust Jurisdiction of the Court
Parties to a contract may not exclude the jurisdiction of the Thai
Court.
Language of Contract
Contracts should be provided for in dual-language to prevent one
party from asserting that it did not understand what it was
entering into. This also prevents any future Thai translation from
departing from the initial one agreed upon as an accurate reflection
of intent.
A clause stipulating that the Thai (or English) version contained in,
or any Thai/English translation of, the contract is for mere
reference purposes only.
Arbitration Clauses
Arbitration clauses are valid and enforceable and should be
incorporated in accordance to the form and content of Thailand’s
Arbitration Act.
Slide 15 – Commercial Contracts Thailand by Kelvin Chia (Thailand)
16. Non-compete Clauses
The enforceability of non-compete provisions will be limited if they are
deemed as imposing “…more burden than that could have been anticipated
under normal circumstances…”. In determining if the provisions are overly
restrictive, consideration need be made of the specificity of:
Geographical and time scopes of the restrictions.
Scope of restrictions in terms of restrictions on the competing employer
or competing establishment.
The restricted party’s ability to profess occupation or perform such
juristic act in light of the restrictions and its freedom to do so.
Other legitimate advantages and disadvantages of parties.
? Severability Clauses
While severability clauses are always recommended to try and “save”
clauses or portions thereof that may be affected by an unenforceable
clause/part – in light of the considerable discretion of the Courts and the
main aim of legislation being to protect the party in the weaker position,
these clauses may not provide adequate recourse.
Slide 16 – Commercial Contracts Thailand by Kelvin Chia (Thailand)
18. Responsibility
Refers to specific obligations one needs to perform
according to the terms specified in the relevant
agreement/contract.
Poor drafting may result in:
Delay of work due to ambiguities, such as with
respect to the scope of work, milestones, parties’
obligations and others.
Liability towards the counter-party or third parties
such as with respect to payment terms, etc.
Slide 18 – Commercial Contracts Thailand by Kelvin Chia (Thailand)
19. Liability
Refers to the state of being responsible in law or
contract, as a result of certain acts or omissions in
relation to an agreement/contract.
Poor drafting may result in:
Difficulty in determining or establishing penalties,
indemnifications, or other remedies.
The other parties being able to deny the liability
due to vague or ambiguous clauses.
Liability to third parties due to an unclear
agreement/contract.
Slide 19 – Commercial Contracts Thailand by Kelvin Chia (Thailand)
20. Termination
Refers to an action to terminate or otherwise
invalidate the agreement/contract.
Poor drafting may result in:
A party not being able to lawfully terminate the
agreement/contract.
A party being at risk for default.
A party being at risk to pay unnecessary
compensation or penalty resulting from the
termination of the agreement/contract.
Slide 20 – Commercial Contracts Thailand by Kelvin Chia (Thailand)
21. Dispute Resolution
Refers to a process of resolving disagreements
between parties to an agreement/contract.
Poor drafting may result in:
The lack of a specific or alternative dispute resolution
mechanism.
Delay in the resolution process.
Difficulty in the enforcement of remedies and the
like.
Slide 21 – Commercial Contracts Thailand by Kelvin Chia (Thailand)
22. Governing Law
Refers to the system of law specified in the
agreement/contract, which will be used to interpret
the same.
Poor drafting may result in:
The Court controlling the final interpretation of the
agreement/contract, as a result of the lack of
specification of the governing law.
The agreement/contract becoming invalid due to
conflict with the governing law.
Slide 22 – Commercial Contracts Thailand by Kelvin Chia (Thailand)
23. Case Study
Experiences or cases in which clients/parties were
affected by the pitfalls of a poorly-written
agreement/contract.
Summary/key points and take-aways from our
discussion.
Slide 23 – Commercial Contracts Thailand by Kelvin Chia (Thailand)
