Sales Contract Review in Thailand

In Thailand’s dynamic and globally connected economy, sales contracts form the foundation of nearly every commercial transaction — from local product supply agreements to large-scale international trade deals. Whether you are a Thai company or a foreign investor entering into a sale or distribution arrangement, understanding and carefully reviewing sales contracts is crucial. A properly drafted and reviewed sales contract not only protects your business interests but also ensures compliance with Thai law, minimizes risks, and helps avoid costly disputes.

Legal Framework Governing Sales Contracts in Thailand

Sales contracts in Thailand are primarily governed by the Civil and Commercial Code (CCC), which sets out the essential elements, obligations, and remedies related to contracts. Under the CCC:

• A sales contract is defined as an agreement where one party (the seller) transfers ownership of property to another party (the buyer) in exchange for a price, usually in money.

• The formation of a contract requires mutual consent between parties — meaning there must be a valid offer and acceptance.

• The contract becomes enforceable once the essential elements are present: lawful purpose, capable parties, definite terms, and mutual consent.

For certain transactions — such as the sale of real estate, corporate shares, or specific regulated goods — additional requirements may apply, including written contracts, registration, or notarization. Foreign companies entering Thai markets should also comply with the Foreign Business Act (FBA) if the transaction involves a restricted business activity.

Importance of Contract Review

A thorough sales contract review serves several critical purposes:

1. Legal Compliance – Thai contract law has unique provisions compared to common law jurisdictions. Reviewing contracts ensures they comply with local laws, especially regarding consumer protection, taxation, and dispute resolution.

2. Risk Mitigation – Sales contracts often involve large financial commitments. Reviewing the terms helps identify potential risks, such as unclear payment conditions, warranty obligations, or liability exposure.

3. Clarity and Enforceability – Ambiguous or incomplete clauses can lead to disputes. A legal review ensures the agreement clearly outlines rights and duties so that it can be enforced in Thai courts or through arbitration if needed.

4. Cross-Border Protection – For international contracts, review is vital to confirm that the governing law, dispute resolution mechanism, and enforcement provisions are fair and practical for all parties.

Essential Clauses to Review in a Sales Contract

A detailed sales contract in Thailand should include specific clauses to ensure both clarity and protection. The following are key sections that must be carefully reviewed and negotiated:

1. Parties to the Contract

Verify the legal status and authority of each party. For companies, check registration documents to confirm that the signatories have the legal power to bind the company. If the other party is a foreign company, ensure they are legally permitted to conduct business in Thailand under the Foreign Business Act.

2. Description of Goods or Services

Ensure the goods or services are clearly described — including specifications, quality standards, quantity, and packaging. Ambiguity in product details often leads to disputes over performance or delivery.

3. Price and Payment Terms

Review how the price is determined, including any taxes, tariffs, or duties. Payment terms should specify the currency, method (bank transfer, letter of credit, etc.), and timeline. Consider including a clause for late payment interest and a clear payment schedule.

4. Delivery and Transfer of Risk

Thai law generally holds that ownership transfers upon delivery unless otherwise agreed. The contract should specify:

• The delivery terms (e.g., Incoterms 2020 such as FOB, CIF, or EXW)

• The place and time of delivery

• Which party bears transportation costs and risk of loss during shipment

5. Inspection and Acceptance

Include procedures for inspection upon delivery and time limits for reporting defects or non-conformity. This is particularly important for imported goods or manufacturing contracts.

6. Warranties and Liability

Clearly state warranties for quality, performance, and compliance with specifications. Thai law recognizes implied warranties in certain cases, but parties should define their scope and duration. Also, consider limiting liability to a specified amount to avoid excessive damages claims.

7. Termination and Remedies

Set out the grounds for termination — such as breach, insolvency, or force majeure. Include notice requirements and consequences of termination, including return of goods, refund obligations, or damages.

8. Dispute Resolution

Specify the method for resolving disputes — negotiation, mediation, arbitration, or litigation.

• Arbitration is often favored for international contracts because Thailand enforces arbitral awards under the Arbitration Act B.E. 2545 (2002) and the New York Convention.

• For domestic transactions, parties may choose to litigate in Thai courts, including the Civil Court or the Central Intellectual Property and International Trade Court if applicable.

9. Governing Law

Parties may choose the governing law of Thailand or another jurisdiction. For contracts executed and performed in Thailand, Thai law typically applies. Foreign parties should ensure that the governing law clause aligns with their ability to enforce judgments or arbitral awards.

10. Force Majeure

Include a clause outlining what happens if performance becomes impossible due to unforeseeable events such as natural disasters, pandemics, or government restrictions. The clause should define what constitutes force majeure and the procedure for notification.

11. Confidentiality and Intellectual Property

If the contract involves proprietary information or trade secrets, a confidentiality clause is crucial. Intellectual property rights related to trademarks, designs, or technology should be clearly allocated.

Special Considerations for Foreign Parties

Foreign entities doing business in Thailand must pay attention to several additional factors during contract review:

• Language and Translation: Thai courts require official documents to be in Thai. It is advisable to have a bilingual (Thai–English) version of the contract, with the Thai version usually taking precedence in disputes.

• Tax Implications: Cross-border sales may trigger withholding tax or value-added tax (VAT) obligations.

• Exchange Control Regulations: Payments in foreign currency may be subject to the Bank of Thailand’s exchange control rules.

• Compliance with Trade and Customs Laws: Goods imported or exported must comply with Thai customs regulations and product standards under the Ministry of Commerce and the Thai Industrial Standards Institute (TISI).

Best Practices for Effective Contract Review

1. Engage a Qualified Thai Lawyer – Local lawyers familiar with commercial and contract law can identify issues that foreign businesses might overlook.

2. Use Standardized Templates Carefully – Avoid relying solely on foreign templates; adapt them to Thai law.

3. Verify All Supporting Documents – Confirm business registration, licenses, and tax identification numbers of the parties.

4. Negotiate Clear Dispute Resolution Terms – Ensure both parties agree on a practical and enforceable dispute mechanism.

5. Keep Detailed Records – Store all versions, communications, and delivery receipts to support potential future claims.

Common Risks of Inadequate Contract Review

Failing to properly review a sales contract can result in serious consequences such as:

• Unenforceable agreements due to missing legal formalities

• Financial loss from unclear payment or warranty terms

• Liability for breach due to misunderstanding of delivery or quality requirements

• Lengthy and costly disputes before Thai courts or arbitration tribunals

Many of these risks can be avoided by conducting proper due diligence before signing.

Conclusion

A well-drafted and thoroughly reviewed sales contract is a vital safeguard for businesses operating in Thailand’s competitive and regulated marketplace. It ensures legal compliance, minimizes risk, and provides a clear roadmap for the rights and obligations of both parties. Whether you are a Thai entrepreneur entering a new supply agreement or a foreign investor engaging in cross-border trade, investing time in contract review — guided by experienced Thai legal professionals — is an essential step toward sustainable and secure business success.