Japanese SMEs often hesitate when signing contracts with Thai counterparties: can we approach this the same way we would in Japan? Thai contract law belongs to the same civil law tradition as Japanese law, but practical differences emerge around language, governing law, stamp duty, and contract interpretation. This six-part “Thai Contract Practice” series walks Japanese companies through the key issues they should know before drafting or reviewing contracts in Thailand. Volume 1 offers an overview of Thai contract law and the foundational rules to keep in mind from day one.
Roadmap of the Six-Part Series
| Vol. | Topic |
|---|---|
| Vol. 1 (this article) | Basic rules — language, governing law, formation |
| Vol. 2 | Sale & distribution agreements under Thai law |
| Vol. 3 | Employment vs. independent contractor agreements |
| Vol. 4 | Lease agreements and the 30-year rule |
| Vol. 5 | Jurisdiction and arbitration clauses — Thai courts vs. international arbitration |
| Vol. 6 | Electronic contracts and digital signatures |
The Thai Civil and Commercial Code and Japanese Civil Law
Thai contract law is primarily codified in the Civil and Commercial Code (CCC). Book II, starting from Section 354, sets out the general rules on contract formation, interpretation, and performance, while Book III, starting from Section 453, governs specific contracts such as sale, lease, suretyship, and agency. When the CCC was enacted in 1925, it drew heavily on continental European civil codes and the Japanese Civil Code, so the structure and basic concepts are familiar to Japanese practitioners.
That said, “familiar” does not mean “identical.” Formality requirements, stamp duty, and everyday interpretation practice diverge from Japan in ways that can surprise you. Rather than assuming Japanese contract habits will work unchanged, it may be safer to re-examine your templates on Thai soil.
Contract Formation — Are Oral Agreements Enough?
Under Section 354 et seq. of the CCC, a contract is formed when an offer meets an acceptance. Oral contracts are in principle valid, just as in Japan.
However, the following categories require writing (and often registration) to be fully enforceable:
- Sale or gift of immovable property (registration required)
- Leases of immovable property exceeding three years (registration required; without registration, enforceability is limited to three years)
- Suretyship (unenforceable without a written instrument)
- Certain pledge and mortgage agreements
A practical difference from Japanese law is that Thai courts tend to weigh “certainty” — clear agreement on essential terms such as price, subject matter, and duration — more strictly. Where Japanese law often fills gaps via default provisions, in Thailand it may be wiser to spell essential terms out clearly in the written document.
The Language Question — Must Contracts Be in Thai?
One of the most common questions from Japanese clients is whether contracts must be drafted in Thai. The short answer is no: Thai law does not require contracts to be written in Thai. English, Japanese, or Thai are all legally acceptable.
In practice, however, three points deserve attention:
- Thai translation for court submissions. Contracts submitted as evidence to Thai courts must be accompanied by a Thai translation. A contract in a foreign language alone cannot be directly relied on in court.
- Priority among multiple language versions. When both English and Thai versions exist, the Thai version may be treated as controlling if a discrepancy arises. Including a governing language clause (“the English version shall prevail in case of inconsistency”) is a common way to manage this risk.
- Japanese-only contracts. If the document only circulates internally between a Japanese parent and its Thai subsidiary, Japanese is fine. But handing a Japanese-only contract to a Thai counterparty leaves room for them to argue they did not fully understand its terms.
A practical default is: English as the original, Thai as an attached translation, and Japanese as an internal reference version.
Choice of Governing Law — Can You Choose Japanese Law?
Thailand recognises freedom of contract, and under the Conflict of Laws Act B.E. 2481 (1938) parties are generally allowed to choose a foreign governing law such as Japanese law. This mirrors the approach under Japan’s Act on General Rules for Application of Laws. That said, “permitted by the rules” and “the right choice for your business” are different questions, and the relevant considerations shift from one situation to another.
What we actually see in practice
Looking at contracts used by Japanese SMEs, very few choose their governing law strategically. Often Japanese law ends up in the contract simply because the parent company’s legal team has always used a Japanese-law template, or — in the opposite direction — Thai law ends up there because a Thai lawyer was asked to draft. In practice the governing law tends to follow the party who held the pen, rather than reflecting a deliberate decision.
A point that is easy to overlook is that, for contracts performed in Thailand, choosing Japanese law cannot displace Thailand’s mandatory rules. The result is sometimes an awkward middle ground: the contract says “governed by Japanese law,” but key issues such as labour, real estate, and consumer protection are still decided under Thai law. It may be worth quietly checking whether your own contracts have ended up in this state.
Common choices by situation
The table below is a sketch of the governing law choices that come up most often in discussions — not a recommendation, but a reference point.
| Type of contract | Governing law often considered | Background |
|---|---|---|
| Sale / framework agreements between Thai entities | Thai law | Performance and likely disputes both sit in Thailand |
| Employment contracts of Thai entities | Thai law (effectively required by mandatory rules) | The Labour Protection Act cannot be displaced by choice of law |
| Factory / office leases | Thai law (effectively required by mandatory rules) | Thai real estate rules apply mandatorily |
| Licence agreements between Japanese parent and Thai subsidiary | Japanese law, English law | Sometimes aligned with the law of the IP licensor |
| International sale between Japanese parent and Thai counterparty | English law, Singapore law | Neutral third-country law is sometimes chosen (Thailand is not a party to the CISG, so automatic CISG application is not an issue) |
| Joint venture / shareholders’ agreements | Thai law, English law | Consistency with the company law provisions in the Thai CCC becomes a point |
In every case, the right answer depends on the nature of the deal, the relationship with the counterparty, and the chosen dispute resolution forum, so it is best worked out with counsel.
Governing law and dispute resolution as a single design
A choice-of-law clause does not really stand on its own — it has to be designed together with the dispute resolution clause. Combinations frequently seen in practice include:
- Thai law × Thai arbitration (THAC): the standard pairing for purely domestic Thai transactions
- English law × Singapore arbitration (SIAC): often selected where the parties want a neutral international forum
- Japanese law × Japanese arbitration (JCAA): chosen when the Japanese side has stronger bargaining power and prefers to handle disputes in Japan
Conversely, “Japanese law × Thai courts” is a combination that practitioners generally hesitate to recommend. For a Thai court to apply Japanese law, the party invoking it must prove the content of that foreign law — typically by submitting a written opinion from a Japanese lawyer or expert, accompanied by a Thai translation. The cost can easily run into the range of several hundred thousand to over a million yen (this is only a rough order of magnitude). And if the proof is found insufficient, the Thai court will simply apply Thai law, leaving the original choice of governing law without practical effect.
In international arbitration, by contrast, tribunals tend to be more comfortable applying foreign law, and the evidentiary bar is generally less rigid than in court proceedings. It is also worth noting that both Thailand and Japan are parties to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, so an award rendered in one jurisdiction has a clear basis for enforcement in the other.
Mandatory rules cannot be contracted out of
Whichever governing law is chosen, the following types of mandatory Thai rules generally continue to apply to transactions inside Thailand:
- Labour Protection Act — applies to employment in Thailand
- Real estate–related laws — apply to land and buildings located in Thailand
- Consumer protection law — applies to B2C transactions
- Foreign Business Act — restricts certain business activities by foreign-owned entities
“We chose Japanese law, so we’re fine” can therefore be a misleading comfort. These mandatory rules apply independently of the contract’s stated governing law.
Bottom line — there is no one-size-fits-all answer
The best governing law depends on the type of contract, where it is performed, and the dispute resolution forum the parties expect to use. Particularly for Japanese companies signing their first contracts in Thailand, working with a Thai-law-savvy lawyer at the drafting stage tends to be the safest path. The detailed design of governing law together with dispute resolution clauses is something I plan to revisit in Vol. 5 of this series (jurisdiction and arbitration).
Stamp Duty — An Unstamped Contract Is an Unusable Contract
From a Japanese practitioner’s viewpoint, stamp duty deserves the most attention. Under the Revenue Code, Title VI, Chapter 2, Thai stamp duty applies to various documents including leases, employment agreements, hire-of-work agreements, powers of attorney, and suretyships.
| Item | Thailand | Japan |
|---|---|---|
| Covered documents | Lease, employment, hire of work, suretyship, etc. | Listed taxable documents |
| Payment deadline | 15 days if executed in Thailand / 30 days if executed abroad | At the time of execution |
| Penalty for non-payment | 2x to 5x the original duty | Up to 3x surcharge |
| Effect on evidentiary value | Cannot be admitted as evidence in Thai courts | No effect on validity |
The bottom row is the critical one. In Japan, failing to affix a revenue stamp does not affect the validity of the contract. Under the Thai Revenue Code, however, a contract on which stamp duty has not been properly paid cannot be admitted as evidence in Thai courts. In other words, a Japanese company may hold a perfectly valid contract that it cannot actually rely on when a dispute arises. This is one of the biggest divergences from Japanese practice and worth internalising from day one.
Contract Interpretation — “Real Intention” and “Good Faith”
Section 171 of the CCC provides that in interpreting a juristic act, one must look for the parties’ real intention rather than the literal meaning of the words. Section 368 requires contracts to be performed in good faith, in accordance with ordinary usage — a provision close in spirit to Article 1(2) of the Japanese Civil Code on good faith.
Thai courts are said to give meaningful weight to the parties’ real intention and to reasonable commercial practice. Directionally this is similar to Japan, but because Thai law simultaneously emphasises “certainty,” abstract claims about intention will not go far without clear documentation of the essential terms.
Separately, the Unfair Contract Terms Act B.E. 2540 may void unfair terms where one party has exploited its economic power. While it is primarily applied to B2C contracts, there is academic debate over its application to B2B transactions, so heavily one-sided clauses in SME-to-SME dealings cannot be assumed entirely safe.
Takeaways
- The Civil and Commercial Code resembles Japanese civil law, but practical operation around formality, stamp duty, and interpretation differs.
- Contracts do not need to be in Thai, but include a governing language clause.
- Japanese law is a permissible choice of governing law, but the burden of proof in Thai courts may make Thai law the more practical choice in many cases.
- Unpaid stamp duty directly affects whether a contract can be used as evidence in Thai courts.
- Interpretation looks to real intention and good faith, but essential terms still need to be written out clearly.
Coming Up in Vol. 2
Volume 2 will cover sale and distribution agreements — the contract types Japanese companies sign most often — focusing on Thailand-specific issues such as transfer of title, payment terms, quality warranties, and termination clauses, with attention to points Japanese drafters frequently overlook.
Get in Touch
We advise on contract drafting and review in Thailand from both a Japanese law and Thai law perspective. Thai law matters are handled in cooperation with the Thai-qualified attorneys at our partner firm JTJB International Lawyers. Please feel free to contact us.
This article is for general informational purposes about Thailand’s legal system and does not constitute legal advice under Thai law. For specific matters, please consult a Thai-qualified legal professional. Our firm works in collaboration with JTJB International Lawyers’ Thai-qualified attorneys.