International contract disputes can become significantly more complicated than domestic contract disputes because the parties may be located in different countries, use different legal systems, conduct business in different languages, and hold assets in different jurisdictions.
For Thai companies doing business with foreign partners — and for foreign companies entering into contracts with Thai businesses — the contract should clearly establish the parties' rights, obligations, governing law, dispute resolution mechanism, and procedures for enforcing a judgment or arbitral award.
A well-drafted international contract can help reduce uncertainty and may significantly lower the legal and financial risks associated with a cross-border dispute.
What Is an International Contract Dispute?
An international contract dispute occurs when parties from different countries disagree about their contractual rights or obligations.
Common examples include:
- Failure to make payment
- Late payment
- Non-delivery of goods
- Delayed performance
- Defective or non-conforming goods
- Failure to provide agreed services
- Breach of confidentiality obligations
- Breach of distribution agreements
- Failure to meet technical specifications
- Wrongful termination
- Failure to comply with a settlement agreement
- Disputes concerning commissions or fees
- Disputes involving international construction or commercial projects
For example, a Thai manufacturer may enter into a supply agreement with a company in the United States. If the foreign buyer refuses to pay after receiving the goods, the parties may disagree about which country's law applies, where proceedings should take place, and how a judgment or arbitral award can ultimately be enforced.
These questions should ideally be addressed before the dispute occurs.
Why Are International Contract Disputes More Complicated?
A domestic contract dispute may involve one principal legal system and one court system. A cross-border dispute may involve several legal questions at the same time:
- Which country's law governs the contract?
- Which court has jurisdiction?
- Is there a valid arbitration agreement?
- Where should arbitration take place?
- Which language should be used?
- Where are the defendant's assets located?
- Can a judgment be enforced in another country?
- Can an arbitral award be recognized and enforced internationally?
- Which country's mandatory laws apply?
A dispute can therefore become expensive even before the parties reach the substantive question of whether a breach actually occurred.
Governing Law: Which Country's Law Applies?
One of the most important clauses in an international contract is the Governing Law clause.
For example:
“This Agreement shall be governed by and construed in accordance with the laws of Thailand.”
Alternatively, the parties may agree that the contract is governed by the law of England and Wales, Singapore, Hong Kong, or another jurisdiction.
The governing law may affect important questions such as:
- Whether a contract is valid
- How contractual terms are interpreted
- Whether a party has breached the contract
- Available remedies
- Damages
- Interest
- Termination rights
- Limitation periods
- Validity of contractual clauses
However, selecting governing law does not necessarily exclude all laws of other countries. Mandatory laws relating to taxation, customs, employment, licensing, consumer protection, sanctions, foreign investment, or regulated products may still apply depending on the transaction.
Businesses should therefore distinguish between contractual governing law and other mandatory legal requirements applicable to the transaction.
Jurisdiction: Which Court Should Hear the Dispute?
The parties should also consider the jurisdiction clause.
For example:
“The courts of Thailand shall have exclusive jurisdiction over any dispute arising out of or in connection with this Agreement.”
This provision attempts to establish where a court dispute should be brought. Alternatively, the parties may agree to the courts of another country.
A jurisdiction clause can become extremely important when a dispute arises because the parties may otherwise argue about which court should hear the case. Before agreeing to a jurisdiction clause, businesses should consider:
- Where the counterparty is located
- Where the contractual obligations are performed
- Where evidence and witnesses are located
- Where the defendant's assets are located
- Whether a judgment can realistically be enforced
- Whether local legal representation will be required
Choosing a court should therefore be based not only on convenience but also on enforceability.
Arbitration or Court Litigation?
International contracts frequently provide for arbitration instead of litigation before national courts.
An arbitration clause may state:
“Any dispute arising out of or in connection with this Agreement shall be finally resolved by arbitration in accordance with the rules of [the agreed arbitral institution].”
The parties may specify:
- Seat of arbitration
- Arbitration institution
- Applicable arbitration rules
- Number of arbitrators
- Language of arbitration
- Governing law
- Confidentiality
- Appointment procedure for arbitrators
International arbitration can be particularly useful where the parties want a neutral dispute-resolution forum. However, arbitration is not automatically the best option for every dispute. Costs, the value of the claim, urgency, available remedies, location of assets, and enforcement considerations should all be evaluated.
Why Is the New York Convention Important?
The 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards is one of the most important international instruments for cross-border arbitration. The Convention establishes common standards concerning recognition of arbitration agreements and recognition and enforcement of foreign and non-domestic arbitral awards. Thailand is a party to the Convention.
This can be particularly important where:
A Thai company obtains an arbitral award against a foreign company, but the foreign company's assets are located outside Thailand. The winning party may need to seek recognition and enforcement of the award in the jurisdiction where the relevant assets are located.
Likewise, a foreign company with an arbitral award against a Thai company may need to consider enforcement procedures in Thailand.
The existence of the New York Convention does not mean that enforcement is automatic. The applicable national law and the specific circumstances of the award must still be considered.
What If the Contract Does Not Contain an Arbitration Clause?
If a contract does not contain a valid arbitration agreement, a party generally cannot simply impose arbitration on the other party. The parties may instead need to determine which court has jurisdiction based on the contract, applicable procedural law, and relevant jurisdictional rules.
This is why businesses should decide how disputes will be resolved before signing the contract. A poorly drafted dispute-resolution clause can create additional litigation concerning jurisdiction before the substantive contractual dispute is even addressed.
Common International Contract Breaches
International contract disputes commonly arise from:
Failure to Pay
The buyer receives goods or services but fails to make payment. The seller may seek payment, interest, damages, or other remedies depending on the contract and applicable law.
Delayed Performance
A party fails to perform its contractual obligations by the agreed deadline. The contract should establish whether time is essential and what remedies are available for delay.
Non-Delivery
A seller or supplier fails to deliver goods or services as agreed. The buyer may have contractual remedies depending on the nature and seriousness of the breach.
Defective or Non-Conforming Goods
The goods may fail to meet the agreed specifications, quality standards, quantity, or technical requirements. The contract should establish inspection, notification, replacement, repair, refund, and warranty procedures.
Wrongful Termination
One party terminates the agreement without satisfying the contractual or legal requirements. This can lead to substantial claims for damages, unpaid amounts, or other remedies.
What Damages Can Be Claimed?
The available remedies depend on the governing law and contractual provisions. Potential claims may include:
- Unpaid contractual amounts
- Direct losses
- Consequential losses, where recoverable
- Interest
- Costs incurred as a result of the breach
- Replacement costs
- Losses resulting from delayed performance
- Contractually agreed damages or liquidated damages, where enforceable
However, not every financial loss will automatically be recoverable. The claimant may need to establish matters such as:
- 01The existence of a valid contract
- 02The contractual obligation
- 03The breach
- 04The resulting loss
- 05The legal basis for recovery
- 06The amount of damages claimed
The rules concerning recoverable damages can vary considerably between jurisdictions.
Can a Party Terminate an International Contract?
Termination is another major source of international contractual disputes. A contract should clearly explain:
- When termination is permitted
- What constitutes a material breach
- Whether notice must be given
- Whether there is a cure period
- When termination becomes effective
- What happens to outstanding payments
- What happens to confidential information
- What happens to goods, documents, or intellectual property
- Whether termination affects existing claims
A party should be cautious about terminating an international contract without first reviewing the governing law and contractual termination provisions. An improperly exercised termination right may itself constitute a breach.
Evidence Is Critical in International Contract Disputes
Evidence can determine whether a contractual claim succeeds. Businesses should preserve:
- Signed contracts
- Amendments
- Purchase orders
- Invoices
- Delivery documents
- Shipping documents
- Bank records
- Emails
- WhatsApp or other business communications
- Technical specifications
- Inspection reports
- Photographs
- Meeting records
- Notices of breach
- Payment demands
- Settlement negotiations
Electronic communications can be particularly important in international disputes because negotiations and contractual performance often take place across multiple countries. Businesses should preserve original documents and maintain an organized record of communications.
What Should a Company Do When a Contract Dispute Arises?
When a serious international contract dispute develops, a company should avoid immediately taking actions that could unintentionally damage its legal position. A practical approach is to:
Step 1: Review the Contract
Identify:
- Governing law
- Jurisdiction
- Arbitration clause
- Payment terms
- Termination provisions
- Notice requirements
- Limitation of liability
- Force majeure
- Warranty provisions
- Dispute-resolution procedure
Step 2: Preserve Evidence
Keep all relevant contracts, communications, invoices, payment records, and supporting documents.
Step 3: Identify the Breach
Determine exactly which contractual obligation was allegedly breached.
Step 4: Calculate the Loss
Prepare a clear calculation of the outstanding amount and other losses.
Step 5: Check Notice Requirements
Some contracts require formal notice before a party can exercise particular rights.
Step 6: Obtain Legal Advice
A lawyer experienced in international commercial disputes can assess the contract, applicable law, jurisdiction, available remedies, and enforcement strategy.
Can a Foreign Judgment Be Enforced in Thailand?
This is an important distinction between foreign court judgments and international arbitral awards. The recognition and enforcement of foreign court judgments in Thailand does not operate in exactly the same way as enforcement of foreign arbitral awards under the New York Convention.
Therefore, a foreign company should not assume that obtaining a court judgment in another country automatically means that it can collect the judgment from assets located in Thailand.
Before commencing litigation abroad, businesses should consider the enforcement position in the country where the opposing party's assets are located. This is one reason why the dispute-resolution clause should be reviewed together with the company's overall enforcement strategy.
International Contract Disputes and Thai Companies
Thai companies entering into international contracts should pay particular attention to:
- The identity and financial standing of the foreign counterparty
- Governing law
- Jurisdiction
- Arbitration
- Payment security
- Currency
- Incoterms®
- Delivery obligations
- Product specifications
- Warranty provisions
- Limitation of liability
- Force majeure
- Termination
- Confidentiality
- Intellectual property
- Tax and customs obligations
- Enforcement of judgments or arbitral awards
A contract that appears commercially attractive may create significant legal risks if these provisions are not carefully negotiated.
What Foreign Companies Should Know When Contracting With Thai Businesses
Foreign businesses entering into contracts with Thai companies should also conduct appropriate due diligence. Important issues may include:
- Whether the Thai company is properly incorporated
- Who has authority to sign the contract
- Whether the company has the necessary licences
- Where contractual obligations will be performed
- Whether Thai law contains mandatory requirements affecting the transaction
- Where assets are located
- Whether arbitration or Thai court litigation is more appropriate
- How documents will be translated and authenticated when required
- How a judgment or arbitral award could ultimately be enforced
Foreign businesses should not assume that a contract drafted under the law of their home country will automatically provide the same protection in Thailand.
International Contract Dispute Checklist
Before signing an international contract, businesses should consider:
- Have both parties been properly identified?
- Does the signatory have authority to bind the company?
- What law governs the contract?
- Is the governing law clearly stated?
- Which court has jurisdiction?
- Is there an arbitration agreement?
- Where is the arbitration seated?
- Which arbitration rules apply?
- What language will be used?
- Where are the counterparty's assets located?
- Can the resulting judgment or arbitral award realistically be enforced?
- Are payment terms clear?
- Are termination rights clearly defined?
- Are damages and limitations of liability addressed?
- Are notice requirements clearly stated?
- Are force majeure provisions included?
- Are confidentiality and intellectual property rights protected?
- Are all important commercial terms contained in writing?
Conclusion
International contract disputes require more than simply determining whether one party breached an agreement.
A cross-border dispute may involve multiple legal systems, competing jurisdictional rules, international arbitration, foreign judgments, evidence located in different countries, and complex enforcement issues.
For this reason, the best time to address international contract risk is before the contract is signed.
A carefully drafted agreement should clearly establish the governing law, jurisdiction or arbitration mechanism, payment obligations, performance requirements, termination rights, damages, notice procedures, and enforcement strategy.
When a dispute has already arisen, early legal assessment is equally important. Taking action without considering the contract's dispute-resolution provisions may result in unnecessary costs or procedural complications.
Legal Assistance for International Contract Disputes
Nathee Legal Firm assists Thai and foreign clients with international commercial contracts and cross-border disputes. Our legal services include:
- International contract review
- Drafting international commercial agreements
- Contract negotiation
- Breach of contract claims
- Payment disputes
- International sale of goods disputes
- Distribution and agency disputes
- Commercial litigation
- International arbitration
- Enforcement-related legal assistance
- Cross-border commercial disputes
- Legal advice for Thai and foreign businesses
If your business is facing a dispute involving non-payment, breach of contract, delayed performance, defective goods, wrongful termination, or another international commercial dispute, obtaining legal advice at an early stage can help protect your rights and determine the most appropriate legal strategy.
Nathee Legal Firm provides legal assistance to Thai and foreign businesses in international commercial matters, contract disputes, arbitration, and cross-border legal issues.