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Presented in "Celebrating Success: 25 Years United Nations Convention on Contracts for the International Sale of Goods" (Collation of Papers at UNCITRAL -- SIAC Conference 22-23 September 2005, Singapore), published and copyright by the Singapore International Arbitration Centre at 178-185. Reproduced with permission of the SIAC.

International Sales Law: the CISG and Thailand

Tithiphan Chuerboonchai [*]

    [Introduction]
  1. Legal system in Thailand
    1. The laws
         (a)    The Constitution
         (b)    Statutes
         (c)    Subordinate laws
    2. Institutions
         (a)    The National Assembly
         (b)    The Council of Ministers (the Cabinet)
         (c)    The courts
  2. Laws applicable to international sales
    1. The Civil and Commercial Code
    2. The Electronic Transactions Act, BE 2544 (2001)
    3. The Unfair Contract Terms Act, BE 2540 (1997)
  3. The need for a specific law on contracts for the international sale of goods
  4. The attempt to enact a specific law on contracts for the international sale of goods

[INTRODUCTION]

Thailand has long been participating in international trade. Recently, the trade volume has been expanding substantially. The statistical figures gathered by the Ministry of Commerce show the following trade volume for the year 2004 and half of 2005:

Unit: Billion USD
Year Export Import
2004 96.53 94.26
2005 (Jan-Jun) 51.83 59.98
Source: Ministry of Commerce at http://www.ops2moc.go.th/meeting/trade1.xls

Notwithstanding the high trade volume, Thailand does not have a specific law on international sales. It still applies the basic Civil and Commercial Code to the transactions. This causes certain unexpected adverse results. There has long been an attempt to enact a specific law applicable to contracts for the international sale of goods. This paper will give an overview of the current status of laws on contracts for international sale and the pros and cons of adopting the United Nations Convention on Contracts for International Sale of Goods 1980 ('CISG').

I. LEGAL SYSTEM IN THAILAND

Thailand is a civil law country. All laws are legislated in statutes or Codes. The decisions of the court are considered as interpretative guidelines for subsequent cases, though, in fact, most subsequent cases follow the precedents. The three main branches of the government consist of the National Assembly (as a legislative branch), the Council of Ministers (as an executive branch) and the courts (as a judicial branch). The details of the legal system in Thailand may be summarised as follows.

1. The laws

The laws in Thailand are classified as follows. [page 178]

(a) The Constitution

The present Constitution is the 16th Constitution in the history of democracy in Thailand. It was enacted and promulgated on 11 October 1997. The 1997 Constitution includes provisions that demonstrate the adoption of market economy as the country's fundamental economic policy. Several economic laws were enacted following the promulgation of the Constitution.

(b) Statutes

At the statute level, the laws in Thailand may be divided into Codes, Acts and Emergency Decrees. Currently, there are six Codes and hundreds of Acts and Emergency Decrees.

The Codes are codified by the legislative branch and consist of the following:

The Acts are statutes passed by the National Assembly. The Acts are mostly considered as public law though certain Acts may contain provisions that govern private relationships.

The Emergency Decrees are laws promulgated by the Executive branch in an emergency circumstance under certain criteria and need ratification by the National Assembly thereafter.

(c) Subordinate laws

Subordinate laws are laws issued by the Executive branch under the authority granted by the substantive laws. They are in the form of Royal Decrees, Ministerial Regulations and Notifications, Departmental Orders, etc.

2. Institutions

As mentioned above, the King exercises sovereign power through the National Assembly, the Council of Ministers and the courts. These three institutions [page 179] constitute the main vehicle in driving the economic and social development in Thailand.

(a) The National Assembly

The National Assembly consists of the House of Representatives and the Senate. The House of Representatives consists of 500 members, 100 of whom are elected on a party list basis and the other 400 members are elected on a constituency basis. The House of Representatives is charged with the duty of enactment of the Constitution and statutes; oversight of the administration of the Council of Ministers; approving certain matters as required by the Constitution, etc.

The Senate consists of 200 members to be elected on a constituency (by Changwat or the province) basis. The Senate is granted with authority to approve the proposed laws passed by the House of Representatives, appoint and to remove persons to certain committees or tribunals, and has the right to submit a motion for a general debate without a resolution to be passed.

Under section 224 of the Constitution, any agreement (for example, the Convention, etc) that needs an enactment of law to comply with the agreement requires the approval of the National Assembly.

(b) The Council of Ministers (the Cabinet)

Under the present Constitution, the Cabinet consists of one Prime Minister and 35 Ministers. The Cabinet is charged with the general functions of the Executive branch.

(c) The courts

Thailand has adopted a dualistic court system, i.e. the courts of justice and the administrative courts.

The courts of justice are divided into three levels, i.e. the Courts of First Instance, the Courts of Appeal and the Dika Court (Supreme Court). The Courts of First Instance are further divided into general courts and specialised courts. The general Courts of First Instance are scattered around Thailand. The specialised courts, i.e. the Central Labour Court, the Children and Juvenile Courts, the Central Tax Court, the Central Intellectual Property and International Trade Court and the Central Bankruptcy Court, are mainly situated in Bangkok but have jurisdiction throughout the country. Upon judgment by the general Court of First Instance, the parties may appeal the judgment to the Court of Appeal and finally to the [page 180] Dika Court. As for the specialised courts, the parties may appeal directly to the Dika Court. In appealing the case, the parties may appeal both issues of fact and the issues of law. The courts of justice have jurisdiction over cases other than those falling within the jurisdiction of the Constitution Tribunal, the Administrative Courts and the Military Courts.

As for the administrative court, it is divided into the Administrative Courts of First Instance and the Supreme Administrative Court. The Administrative Courts have jurisdiction over the administrative cases including certain categories of government contracts.

II. LAWS APPLICABLE TO INTERNATIONAL SALES

Thailand does not have a specific law on contracts for the international sale of goods. The basic Civil and Commercial Code and other laws apply to the transactions. The following are the laws that may apply to the international sale of goods contract, though the list is not conclusive.

1. The Civil and Commercial Code

The Civil and Commercial Code constitutes the basic laws applicable to private relationships and commercial transactions. It contains six Books, i.e. Book I: General; Book II: Obligations; Book III: Specific Contracts; Book IV: Property; Book V: Family and Book VI: Succession. The contract of sale is subject to several provisions under the Civil and Commercial Code, i.e. Book I, II and III for the formation of the contract, rights and obligations of the seller and the buyer and other provisions.

2. The Electronic Transactions Act, BE 2544 (2001)

This Act was promulgated to cope with the legal problems arising from the new method of contract conclusion due to the development of technology. The Act covers both the acknowledgment of the legal status of the transactions concluded electronically and the electronic signature.

3. The Unfair Contract Terms Act, BE 2540 (1997)

This Act was promulgated to limit the application of the principle of freedom of contract. A contract with unfair contract terms or concluded under a standard form may be subject to judicial review. The court will enforce the contract to the extent it deems fair and appropriate. Interestingly, the Act does not exclude international contracts from the application. [page 181]

III. THE NEED FOR A SPECIFIC LAW ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS

As there is no specific law on contracts for the international sale of goods, the provisions of Book III of the Civil and Commercial Code regarding the contract of sale applies to such transactions. The application of Book III to contracts for the international sale of goods renders undesirable results to the transaction contrary to international practice. This is evidenced by the Supreme Court Decision No 3046/2537 in 1994. The facts and the decision of this case are as follows:

Parties: Plaintiff:       Woodhouse Drek and Carrey SA Limited Company
Defendant:   Thaimapan Trading Limited Company
 
Facts: The plaintiff, a South African company, and the defendant, a Thai company, concluded a sale contract for Thai parboiled rice (5%) through a series of exchanges of telexes. The term agreed between the parties was FOB Bangkok. The plaintiff opened a letter of credit in favour of the defendant in accordance with the term of the sale contract and informed the defendant to arrange for the delivery of the goods so purchased. However, the defendant refused to take on the letter of credit issued by the bank and rejected the existence of the sale contract. As a result, the plaintiff could not provide such rice to its subsequent buyer. The plaintiff thus took the action to the courts to claim for damage from the defendant as its remedy.

The defendant argued that it had never contacted nor made any arrangement with the plaintiff. Therefore, the plaintiff was not eligible to such remedy.
 

Decision:        Court of First Instance -- Finding for the defendant
Court of Appeal -- Decision upheld

The plaintiff appealed to the Supreme Court. The Supreme Court decided the case based on these two issues:

1. Was there a contract between the parties?

The Supreme Court decided that under section 361 of the Civil and Commercial Code, a contract between persons at a distance comes into existence at the time when the notice of acceptance reaches the offeror. It was evidenced that the defendant did reply to the plaintiff's telex (but the defendant was not able to provide the agreed parboiled rice). Consequently, such contract came into existence. [page 182]

2. Was the contract enforceable?

Under section 456 of the Civil and Commercial Code, a contract of sale of movable property where the agreed price is 500 Baht or upwards,[1] is not enforceable by action unless there is some written evidence signed by the party liable or unless earnest is given, or there is part performance. According to the facts in this case, either of these was performed. This resulted in the unenforceable contract between the parties.

The Decision was upheld by the Supreme Court.

IV. THE ATTEMPT TO ENACT A SPECIFIC LAW ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS

With the above undesirable result, there occurred an attempt to enact a specific law to apply to contracts for the international sale of goods. An ad hoc committee under the Juridical Council was established almost 10 years ago to determine how to draft this specific law. Three alternatives were under consideration but, as of now, no final decision has been reported. The three alternatives under consideration were as follows:

(1) The first alternative is to amend the present Book III of the Civil and Commercial Code to cover contracts for the international sale of goods. The advantage of adopting this alternative is to have relevant provisions of law applying to both domestic and international sale transactions in the same Code. In addition, Thailand may draft the law to apply to the transactions in the manner it considers most beneficial to Thailand. The disadvantage is that it is not only Book III that needs amendment, Books I and II, which relate to General Provisions and Obligations respectively, also need to be amended. This complicates the amendment process and makes the Civil and Commercial Code more complex in relation to the contract of sale, both domestic and international. Further, there will be a problem on the acceptability of the law by the foreign business community.

(2) The second alternative is to draft a specific law on its own initiation. Under this alternative, the law will cover the issues that the drafter considers as necessary to support contracts for the international sale of goods and [page 183] beneficial to Thailand. Certain salient features from the CISG will be included together with other provisions. This alternative has an advantage over the first alternative as the drafters can draft the law as they see appropriate to the country and need not consider the amendment of the Civil and Commercial Code. The disadvantage is also the acceptability of the law by the foreign business community.

(3) The third alternative is to adopt the CISG by becoming a Contracting State to the Convention as provided under Article 91(3). This alternative has an advantage over the first two alternatives as the text has already been carefully drafted and widely adopted by most major trading partners of Thailand. The only thing needed for this alternative is to have the Convention translated into Thai and submitted to the National Assembly for approval. This would enable Thailand to become part of the international sales law unification community and avoid the problem of acceptability of an international sales law by the foreign business community. At the same time, it provides a convenient way for Thai businesses to become acquainted with the international sales law with its trading partners.

Notwithstanding the advantages of adopting the CISG, the disadvantages are also numerous. First, the translation is not an easy job. To translate the CISG from any language into Thai is very difficult, especially as there are certain phrases for which it would be extremely difficult to find a Thai phrase having the exact meaning as it appears in the original text. For example, phrases such as 'could not have been unaware' in Article 8(1) was translated into Thai by one as 'could have been aware'. Second, there is no clear distinction as to those provisions applicable to civil cases and those provisions applicable to commercial cases. In particular, the provisions of Books I and II of the Civil and Commercial Code apply equally to both civil and commercial cases. Thus, the provision of section 193/34(17) in relation to the prescription (10 years' limitation period) applies to the case where the bank took an action against the buyer on a letter of credit transaction (Supreme Court Decision No 266/2546 in 2003)[2] which would be contrary to international business practice. This may lead to the amendment of certain provisions of the Civil and Commercial Code and partly destroy the unification of sales law as the CISG is not conclusive by itself. [page 184]

While Thailand has not yet become a Contracting State to the CISG, the government has set up a committee to draft a Bill on the Commercial Sale of Goods to be applicable to both domestic and international sale of goods contracts. The Bill is being drafted in a way to accommodate international sale of goods, taking the provisions of the CISG into account.[3]

In conclusion, even though there may be several disadvantages in adopting the CISG, the advantages of adopting the CISG will prevail considering that, in particular, most major trading partners of Thailand are Contracting States to the Convention already. This view was confirmed in the National Congress organised by the National Research Council last July where most scholars and business lawyers agreed to support the proposal for Thailand to adopt the CISG, though not bound by the government. [page 185]


FOOTNOTES

* Tithiphan Chuerboonchai is an Assistant Professor of Law at the Faculty of Law, Chulalongkorn University, Bangkok, Thailand. He graduated from the Faculty of Law, Chulalongkorn University and was admitted to the Thai Bar Association. He also has an LLM from Harvard Law School and an MBA from Thammasat University, Thailand. He currently holds the Deanship of the Faculty of Law, Chulalongkorn University. Professor Chuerboonchai's interests are in the fields of taxation law, international business law and international trade law. He headed several research projects in Thailand.

1. On 23 November 2005, there were a number of amendments to the Civil and Commercial Code. Among other things, the agreed price that required a written instrument signed by the liable party under section 456 para 3 was amended to step up to 2,000 Baht or upwards.

2. Fortunately, the government adopted the notion to differentiate laws applicable to the civil cases and the commercial cases. A working committee has been established to undertake the task of segregating the commercial law from the civil law.

3. Notwithstanding the drafting of the Bill on the Commercial Sale of Goods, the Committee also strongly encouraged the government to adopt the CISG.


Pace Law School Institute of International Commercial Law - Last updated June 1, 2006
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