To effectively protect your business, it is best to pay attention to the clauses and terms to frame the business contracts. The drafting of business contracts is a complex process that requires the skills of a professional to preserve your rights and anticipate conflicts with your business partners. Beyond the drafting of the legal act, Themis Partner advises and assists you by providing all the business contracts you need for the management of your company: general meeting, notice of meeting, lease agreement, sales contract, partnership agreement, or even memorandum of understanding between shareholders and many others. With all our features, you can upload your document in English and Thai or benefit from the assistance of a Thai lawyer specialized in business law.
By definition, a contract is qualified as commercial or business when its object is commercial or when a company in its activity concludes it. Its scope of application is therefore extensive. The term business contracts covers a large number of contracts defined by the law.
➤ If the contract is concluded between a trader and a non-trader, it is called a "mixed" act. Before, it has both a civil and a commercial character
➤ If the contract is cross-border, it is an international commercial contract
What are the standard clauses of business contracts?
It is essential to detail as much as possible the clauses of business contracts to avoid any confusion, especially in case of litigation. Several points must be provided for by the parties, in different standard provisions:
The preamble is not mandatory. It can be useful in the event of a dispute. It indicates the will of the parties to enter into the business contract, the context in which the business contract has been concluded and any special features.
It must indicate the surname, first name, addresses of the contractors, the trade and company register number, the trade for craftsmen, or the liberal professions if the person(s) carry out a professional activity.
The object of the contract
This is a concrete description of the work or services to be performed, the places where they will be performed and the respective expectations. The description of the services and work can be included in an annex to be signed by both parties and the main contract attached.
Terms of Performance
It is essential to set out the conditions of performance of the services or work, possibly for some business contracts, participation in:
➤ Competitive studies
➤ Exhibitions or other fairs
➤ The drafting of supporting documents and arguments, if the rights on this drafting are free of rights of use by the customer and the thirds, or only reserved to the customer, the sanctions envisaged in this last case in the event of infringement
➤ Recovery and databases, information to be specified
Duration of business contracts
Business contracts must include a start date for the execution of the work or service if it is to be performed over several days/months and an end date. If the service is performed on the same day, it is not necessary to specify it. However, it is a good idea to indicate this: the conditions for termination or non-performance may have consequences.
Price of the services or work, terms of payment
It is compulsory to specify the price of the services or work by indicating the amount exclusive of tax and the list of the material supplied for the service – and its value – used.
It is necessary to specify the terms of payment – cash, down payment, or not at signature and then during execution, any other step, the schedule of deadlines, and possibly late penalties, etc.
Non-mandatory confidentiality clauses may exist for specific sensitive work or services such as know-how, documents, etc. It is advisable to consult a professional to draft this type of clause, as they often require reciprocity between the parties, an exchange of information and commercial protocols.
End of business contracts
In order to avoid disputes that could lead to conflicts with heavy sentences before the judges, it is recommended to draft this clause with great care and to pay attention to the following points:
➤ To imagine the possible situations of rupture with the customers or partners, with the conditions of this one, by taking into account that not to risk a requalification by a judge, it is necessary to envisage a counterpart for the other signatory. Definition of the automatic termination, or of a fact that may lead to the decision to terminate the contract
➤ Formulation of the termination of the contract, reasonable time to inform the other party, this termination can be automatic and if so, under what precise conditions
➤ Determination of penalties and financial compensation in case of breach of contract or in case of sudden termination by one of the parties
➤ Cases of force majeure that cancel the contract or prevent its performance without triggering penalties or sanctions
Specify how disputes will be settled: by mutual agreement, by arbitration by a person outside the two parties but designated by mutual agreement, recourse to the courts for the appointment of a conciliator, or to settle the dispute. Possibly other means.
Drafting the end of the contract
Business contracts are completed by the following elements:
➤ The place and date of the agreement
➤ The signature of the parties with the handwritten mention above or below them of the following text "good for commitment without reserve, after having carefully read the whole of this contract
What are the essential clauses of the international contract?
A business contract is considered international when there is an “externality element”, i.e. when at least one party has a connection with a foreign country. The final element to consider when entering into an international contract is cost and time. Taking into account cultural differences is sometimes a complicated exercise in Thailand but necessary to better understand your counterparty. Thus, it is essential to include specific clauses in your international business contract:
The clause of applicable law
The principle, in international law, is that the parties are free to submit their business contracts to the direction of their choice: Thai law, English law, Singaporean law, or others. The choice of the law applicable to the contract is important because the rules of law may be different from Thai law. It is therefore essential to choose the law that will be the most advantageous for your company in the context of international agreements.
Dispute Avoidance Clause
When a dispute arises, the first thing to do is review business contracts. A well-drafted international agreement can help avoid disputes. Termination, renegotiation or mediation clauses can be included to require the parties to meet before going to a state or arbitral tribunal. For example, in case of disagreement on the application of a clause, it would have been appropriate to insert a renegotiation clause in the contract to find a compromise.
In the event of any dispute arising from business contracts, the parties submit to the exclusive jurisdiction of the courts of the city of Bangkok. This exclusive jurisdiction clause shall apply in the broadest and most absolute manner, including in the event of a dispute relating to the pre-contractual phase or in the event of emergency or conservatory proceedings, notwithstanding multiple defendants or warranty claims.
Independence, adaptation and modification
If any provision of this agreement is invalid, the provision in question shall not be enforced, but the other provisions of the agreement shall remain in force. The parties shall use their best efforts to negotiate in good faith and with diligence such amendments to the contract as may be necessary. In any event, and in particular in the event of the application of a mandatory rule, the spirit, purpose and effect of the contract shall be taken into account to the greatest extent possible. The contract may only be modified by express, prior and written mutual agreement of the parties, in which case the modifications or exceptions shall be annexed to the contract and become an integral part thereof.
International arbitration is also an expensive solution, but it offers advantages in terms of confidentiality, pragmatism and coercion. To do so, one can either provide for an “ad hoc” arbitration in the contract, i.e. the substantive and formal rules are elaborated by the parties, or resort to an “institutional” arbitration by an international arbitration organization, by submitting to its charter or rules. The presence of an arbitration clause also obliges the State judge seized by a party to recognize his incompetence.
How to draft secure business contracts?
Whether you are a customer or a supplier, it is important to anticipate a breach of contract. When drafting business contracts, it is in a company’s interest to protect itself and to add to the contract a clear and precise penalty clause indicating the amount of compensation to be paid in case of abusive breach. This protection clause will provide the following benefits:
Enforce the obligations of the parties
In order to guarantee the respect of the parties’ obligations, the insertion of a penalty clause in business contracts allows the parties to ensure that their responsibilities are respected. They determine the financial penalty applicable in case of partial or total non-performance of their contract. They proceed to a lump sum evaluation of the damages suffered. The clause therefore stipulates a fixed price and not a ceiling. The contractor, victim of the non-performance, does not have to prove that he has suffered a prejudice to apply it.
Ensuring the performance of business contracts
The purpose of this clause is to promote the performance of the contract in which it appears, and the contract must still be in force for it to be applied. Thus, penalties for delay cannot be paid by a contractor to a project owner for abandoning the site for a period corresponding to the time required to complete the construction, regardless of the date of termination of the contract. However, the penalty clause, which is intended to compensate for the harmful consequences of the termination of an agreement, remains valid after the agreement has expired.
Application of the penalty clause
The sum fixed in the penalty clause must be paid when the conditions for its implementation are met. Such a clause will only work under precisely defined conditions. Judges interpret this type of provision in a restrictive way. For example, if a clause has been stipulated to cover the case where machine tools are not delivered, it cannot be applied in case of malfunction of these machines.
Revision and control of the clause
It is essential that the parties set the amount of the penalty clause so that the judge cannot challenge it.
Determining the amount of the penalty clause
The Thai judge can decide to modify the amount of a penalty clause, even if the parties have not asked him to examine the merits of its amount.
Case of total non-performance
Suppose that one of the contracting parties has not fulfilled all his obligations. In this case, the judge may reduce or increase the amount of the penalty that the parties have fixed in the penalty clause “if it is manifestly excessive or derisory. “Once concluded, the contract is binding on the parties. They cannot contest the application of the penalty clause. One of the contracting parties cannot impose a change in the terms of the agreement on its own initiative. Indeed, the agreement of both parties is necessary to proceed to a contractual modification.
A contractor cannot invoke economic circumstances, which would affect the performance of his contract, to obtain its revision. However, by inserting a revision clause, the parties can revise the content of their agreement in the event of the occurrence of circumstances external to the contracting parties, which result in an imbalance in the performance of their obligations. Such a clause must be carefully drafted, and it is advisable to mention the circumstances in which it can be implemented.
Providing for automatic modification through an indexation clause
The purpose of the indexation clause is to vary the number of payments due by a person according to different economic indices taken into account, on the one hand, on the day the contract was concluded and, on the other hand, on the day of payment. This allows the parties to protect themselves against currency fluctuations.
Adjusting the terms of performance without changing the contract
The contracting parties can insert provisions according to which only an amendment drawn up and signed by all parties can lead to a change in business contracts. They may also specify that the acceptance of deviations, for example with regard to quantity, cannot be considered as an acceptance by the other party of a change in the conditions of performance.
If a party performs its obligations in a manner different from that provided for in business contracts but does not wish the agreement to be modified in the future or for its counterparty to take advantage of this to demand new conditions, it will be prudent for it to object. Finally, it does not, by doing so, waive the original provisions of the contract.
What to do before signing business contracts?
While it is true that a contract must be well drafted to protect your interests and rights, it should always be kept in mind that in Thailand, the drafting of business contracts in the context of a business relationship is essential to secure your business activity. These important points that must be carefully analyzed before signing a contract are the following:
➤ Ensure that all parties are identified and attach a copy of their passport and address signed by them to the contract
➤ Always require that a contract be signed in the presence of two witnesses and attach signed copies of their documents
➤ Have the parties sign all pages of the document, not just the last page
➤ Always specify dates, including the "deadline" by which the contract must be signed
➤ Be specific about penalties and consequences for not meeting all the terms of the contract by the deadline
➤ Always provide as much detail as possible
➤ Indicate the court of jurisdiction in the event of a dispute; preferably the court where the contract was signed or where the goods and activities are located
➤ Keep in mind that if a contract is written in two languages, English and Thai, the law gives precedence to the Thai version. This is an essential point: a well drafted contract in Thai will avoid ambiguities. It will save you translation costs, but you should always ask for a certified translation in English or in your language
➤ Make sure that what you are signing is not against the law, because if it is, the contract will be invalid. No private agreement can go against the law
➤ Avoid using pre-written contracts: each contract is unique, personal, and the execution of a standard contract may bring more problems than benefits
➤ Before signing a contract proposed by a large company, such as a real estate developer, always seek the assistance of a Thai lawyer to ensure that your interests are well protected
➤ In any case, always pay any amount by check or bank transfer, two methods of payment whose traceability is indisputable. Under no circumstances should you pay in cash
If it is true that a contract must be well drafted to protect your interests and your rights, you must always keep in mind that it is forbidden to arbitrarily assert your rights in Thailand as in all the current legal states.
How to terminate business contracts?
Even for an indefinite period, a contract cannot be a perpetual commitment: it can always be revoked by either party. To terminate business contracts, a specific notice period must be respected in order to give the other party time to find a solution. The good faith of the termination must be proven.
Debt collection procedures
In case of non-payment, i.e. non-payment of the product or service according to the terms of the contract, it is possible to implement debt collection procedures, namely:
➤ The letter of formal notice, to remind the debt and settle the matter amicably
➤ The request for an injunction to pay, which goes through a judge, to give legal weight to the case
In case of difficulties with the debtor, he can go through a debt collection company to settle the debt in his place. For this procedure, it is not necessary to go to court.
Some simple rules must be respected to avoid abusive termination
The brutal termination of a commercial relationship is wrongful and obliges its author to repair the damage caused if the following conditions are met:
➤ The termination concerns an established commercial relationship between two partners, whether or not it is formalized by a contract
➤ The victim party has fully respected the terms of the agreement. In case of late delivery, non-payment or other fault, he has no chance to win a lawsuit
➤ The breach is sudden. It is likely to put the business partner at risk. Of course, no commitment lasts forever, and any company can terminate a contract or economic relationship. But what is important is that the notice period is long enough so that the partner is not caught off guard
The length of the legal notice period
The law is not precise. However, the length of time stipulated by the contracting parties in a business contract is not a sufficient guarantee. It is not uncommon for a judge to rule contrary to what is written in a contract. The judge bases his decision on the economic criterion. This is a question of fact, which depends on the degree of dependence of the financial partner and the scarcity of demand or supply. The greater the dependence, the longer the notice period or the more alternative solutions must be found. The length of the relationship between the partners and the size of the turnover are important criteria for determining the length of the notice period.
How to avoid disputes?
Before embarking on drafting a contract, it is essential to prepare the agreement that will serve as the basis for a good relationship. During the negotiations that precede the drafting, it is essential to ask the right questions:
In addition to sureties, it is also possible to protect oneself against unpaid invoices by certain specific clauses. The penalty clause specifies the rate of damages and interest due by the debtor in case of delay or failure to meet his obligation. Framed by the Thai civil and commercial code, a judge can control the clause: it can be judged derisory or excessive. How to properly evaluate the amount of the penalty? To avoid the risk of having the clause revised, it is more than advisable to consult a lawyer.
For a seller to a buyer, the retention of title clause allows the seller to retain full ownership of the property until the buyer has paid in full. It is a way to ensure that the goods are delivered in full. The goods will not become the property of the buyer until the full price has been paid. To be valid, however, this clause must comply with certain formalities, namely acceptance by both parties of the contract, its establishment before the delivery of the goods. The immobilization allowance is a clause in a unilateral promise to sell. The seller of reasonable reserves this property to the buyer without the letter committing to purchase it. It is then possible, for this reserve, to ask for an indemnity to compensate the seller if the buyer withdraws. In order to fully understand the clauses applicable to your contract and which will best protect you, do not hesitate to seek the assistance of a Thai contract law professional.
Contractual clauses and protection in case of dispute
In addition to the prevention of unpaid bills, some clauses allow to anticipate the dispute in a more general way by focusing on the dispute as such:
➤ The jurisdiction clause specifies the jurisdiction that will be competent in case of a dispute. It allows to prevent the judge's decisions by limiting the scope of his control
➤ The termination clause specifies that in case of non-performance of the obligation by one of the parties, the contract is cancelled without the intervention of a judge. This clause is not valid for all contracts
Poorly drafted, these clauses are generally impractical: to ensure that disputes are correctly anticipated, a legal professional will find the most appropriate clause for each business contracts.
Why use a Thai lawyer?
If you are considering drafting business contracts and wondering whether it is necessary to hire a Thai lawyer specialized in business law to do so, Themis Partner can put you in touch with a competent Thai lawyer. This is why, beyond the drafting of the legal document itself, our lawyers will assist you in defining together a real legal strategy to secure, enhance and perpetuate your commercial relations while ensuring you a certain serenity if your commercial partners challenge your responsibility.
It is important to remember that business contracts are a legal act. It is a real commitment binding the seller and his customer on the precise basis, accepted by both parties. Business contracts must be carried out in its terms until its term. In this respect, Themis Partner offers you business contracts in English and Thai written by professionals and allowing you to benefit from legal protection in case of litigation.
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