TERMINATION IN COMMERCIAL CONTRACTS

PRESENTED BY : PICHARN SUKPARANGSEE

at the Conference on

“Negotiating, Drafting & Managing Commercial Contracts 2016”

arranged by : Planet Pacific Forum Company Limited

From 21 to 22 January 2016

at Grande Centre Point Hotel RATCHADUMRI, Bangkok

Is a contract the same as an agreement ?

Contract

Civil Law

- offer

- acceptance

Common Law

- offer

- acceptance

- consideration or deed under seal

Contract or Agreement

TERMINATION IN COMMERCIAL CONTRACTS

DOCUMENTS AND AGREEMENTS

MOU

Letter of intent

Letter of comfort

Term Sheet

Terms of Agreement

Head of agreement

Purchase order

Agreement

QUESTIONS

Is contract entered into between the parties ?

Is contract valid, legal and enforceable ?

A gambling contract is illegal in Thailand.

A contract of sale of land cannot be enforced if the contract is not registered with a

land office.

A contract of lease of land for a period of more than 3 years cannot be enforced if

the contract is not registered with the land office.

A hire of work contract cannot be enforced if stamp duty is not properly affixed on

the contract.

COMMERCIAL CONTRACTS

Include

sale and purchase agreement, lease agreement,

syndicated loan agreement, guarantee agreement,

share pledge agreement, mortgage agreement ,

assignment agreement, technical assistance agreement,

franchising agreement and licensing agreement.

PROVISIONS OF THE CONTRACT

Obligations of the parties

Performance of obligations

Conditions precedent

Representations and warranties

Undertakings or covenants

Events of default including potential event of default

One party is in default in payment of the debts;

One party is in default of performance of any obligation under the agreement;

Any representation or warranty is false of misleading in any material aspect;

One party shall apply for or consent to the appointment of a receiver, a liquidator of itself or dispose of all

or a substantial part of its property;

One party admits in writing its inability to pay its debts due for payment;

One party commences a voluntary bankruptcy proceedings;

A judgment for the payment of money in excess of the threshold amount shall be rendered against one

party and the same shall remain unstayed and unsatisfied for a period of 30 days or more; or

One party fails to obtain or renew , maintain or comply with all licenses, approvals which is necessary for

the operation of the business.

FORCE MAJEURE

Is flooding a force majeure ?

Is a fire a force majeure ?

Are damages caused by a riot ?

Is an accident a force majeure ?

Is a force majeure considered to be termination of the agreement ?

BREACH OF OBLIGATIONS

Actual breach of contract

Potential breach of contract

Should a purchaser be aware of any defect of goods purchased ?

Should a seller of modern and sophisticated goods be liable for product liability ?

A grace period may be provided for a curable event.

TERMINATION OF CONTRACT

By law

By provisions of contract

TERMINATION OF CONTRACT BY LAW

In the case of sale of property, loss of property results in termination of contract.

In the case of lease of real property, loss of property results in termination of

contract.

In the case of hire of work, un-remedied long delay in work results in no completion

of the work which may lead to termination of contract.

In the case of employment , death of an employee results in termination of contract.

QUESTIONS

Is execution , and performance of obligations under the contract in violation of laws

and regulations ?

Is execution , and performance of obligations under the contract in violation of public

order or good moral ?

is a void contract required to be terminated with a written notice of termination ?

must a voidable contract be terminated with a written notice of termination ?

TERMINATION OF CONTRACT BY PROVISIONS OF

CONTRACT

No performance of obligations

No payment

Breach of provisions of agreement

Insolvency or bankruptcy of a party

Unability to pay debts

QUESTIONS

What is a material adverse change or a material adverse effect ?

Does a breach of provisions lead to automatic termination of contract ?

Is a remedy period required before termination of contract ?

Can a contract be terminated by a breaching party ?

Can termination of contract be made verbally ?

Can contract be terminated by action of one party ?

Can contract be automatically termination without any written notice ?

QUESTION

Can termination of contract without any cause or termination for convenience be enforceable under

law of Thailand ?

Waiver

Is a waiver of one breach of obligations deemed to be a waiver of other breaches of the contract ?

Assignment

Can a contract be assigned by one party to the contract to a third party ?

Should assignment of the contract be notified to the other party ?

Litigation or arbitration

Is a sale of contract by one party at the time of litigation between the parties in violation of public

order and good moral ?

CONSEQUENCES AFTER TERMINATION OF CONTRACT

Losses and damages

What are differences between losses and damages ?

Questions

Are losses or damages caused by the breach of the contract by the Defendant ?

How is the measurement of damages for a breach of contract determined ?

Can damages from misrepresentation be claimed under laws of Thailand ?

Can the Plaintiff demand for losses and damages if the contract is void at the outset ?

LOSSES AND DAMAGES

Costs and expenses

Include or exclude government fees and legal fees

Include or exclude professional fees

Include or exclude taxes and customs duties

Interest rate chargeable after termination of the contract

Normal interest rate

Default interest rate

LOSSES AND DAMAGES

Should losses and damages be in accordance with actual losses and damages ?

Liquidated damages and penalties

Can Liquidated damages be enforceable under laws of Thailand ?

Can and to what extent penalties can be claimed under laws of Thailand ?

Consequential damages

Can consequential be claimed under laws of Thailand ?

LOSSES AND DAMAGES

Punitive damages.

Can punitive damages be claimed under laws of Thailand ?

Can loss of profit or opportunity be claimed under laws of Thailand ?

Indemnification clause

Why is an indemnification clause inserted into the contract ?

QUESTIONS

Are losses or damages caused by the breach of the contract by the Defendant ?

Can damages from misrepresentation be claimed under laws of Thailand ?

Can the Plaintiff demand for losses and damages if the contract is void at the outset ?

Exclusion of liability

Exemption of liability in the case of fraud or gross negligence is void.

Limitation of liability

The liability of the contractor arising from or in connection with a breach of this

agreement shall not exceed the total price.

STRATEGIES IN DRAFTING TERMINATION CLAUSES AND

NOTICE

Clauses on events of default and termination of contract should clearly set forth.

Terms of the contract should be precise to avoid any interpretation of any term.

A contract can be automatically terminated upon occurrence of any event of default.

However, as an exception, remedy may be provided for a non-material breach of

provisions of the contract.

NEGOTIATION

Each of the parties may have different bargaining powers.

Levels of negotiating persons and a decision-making chief should be separately set

out.

Terms of contract should be seriously negotiated, revised and concluded.

Strength points should be immediately raised for bargaining.

Weak points should be silent.

Negotiation in good faith between parties before right to terminate an agreement

can be exercised.

PREPARING FOR POSSIBLE CONSEQUENCES OF

TERMINATION

A lot of plans should be drawn.

Exits in an emergency time should be planned in advance.

Strict enforcement of contract should be made in the case of a non-breaching party.

Negotiation for avoidance of termination of contract should be applied by a

breaching party.

MANAGING , RESOLVING AND PREVENTING CONTRACTUAL DISPUTES WHEN CONTRACT IS TERMINATED

set out clear provisions of rights and obligations under an agreement

manage contract executed

follow compliance with obligations by each party

explore ways of solving disputes

initial legal action at the end of the unsettled dispute

FORESEEING PROBLEMS BEFORE THEY ARISE

One sided agreement should be avoided.

Conditions are not fulfilled by one party.

Delay in implementation of obligations of the contract should be closely monitored.

Agreements and legal documentation are not well prepared.

Issues have not been thoroughly sorted out and resolved.

Search for any hidden liabilities, if any.

Provisions on events of default are ambiguous.

Terms are too legally strict but are not commercially feasible.

Leave or take it approach

CASE STUDY

A petrochemical company

A cement company

An automotive part company

THANK YOU VERY MUCH FOR YOUR KIND ATTENTION

Rajanakarn Building, 20th Floor

3 South Sathorn Road, Yannawa

Sathorn, Bangkok 10120, Thailand

E-mail: picharn@bgloballaw.com

Tel: +66 (0) 2 6766663-4 Fax: +66 (0) 2 6766188

http://www.bgloballaw.com

BANGKOK GLOBAL LAW OFFICES LIMITED