Contractual obligations and Thailand’s second wave of COVID-19

As Thailand grapples with its second wave of COVID-19 cases, provinces most affected by the virus’s resurgence have enacted several measures to curtail the outbreak such as imposing limitations on public gatherings, closing bars and nightclubs, and placing restrictions on inter-provincial travel. Naturally, these measures have posed significant challenges to businesses already struggling with limited international tourism industry and a slowdown in global economic activity. The lean times have made already embattled businesses struggle even more, and for the unfortunate few, to fall short on their contractual obligations to customers, suppliers, and employees.

Under regular circumstances, failure to meet contractual obligations for any reason is unacceptable and there are provisions under various acts and codes to address this, such as the Bankruptcy Act, Civil and Commercial Code and the Labor Protection Act. However, given the unexpected nature of the sudden spread of COVID-19 in Samut Sakhon and other ‘red zone’ areas, it is worth considering whether the current measures imposed by the Thai government constitute force majeure, which would mean that failure to meet their contractual obligations as a direct result of the restrictions would not be considered a breach of contract.

The question of whether government-imposed restrictions can be considered force majeure was previously looked at last year when the Thai government banned incoming passenger flights and imposed a nationwide curfew and lockdown following the rapid spread of the virus around the world. In the article, it was established that force majeure, which is defined as an event that is beyond the control of relevant stakeholders in conducting normal business operations, could not be applied because the lockdown had no direct effect on the ability of a company to conduct operations given that most businesses were still allowed to deliver goods and/or conduct business services. As a result, several businesses were forced to renegotiate terms of their contracts and, if applicable, put employees into furlough and continue to pay 75% of their wages while pausing their businesses or making changes to business operations.

Is force majeure relevant to these measures?

This begs the question of whether this year’s restrictions bear the same implications as those of last year. In order to answer this question, it is important to note force majeure’s definition under Thai law, which places significant emphasis on the direct effect of an unforeseen circumstance.  It is also worth noting that the Thai Government generally prefer to indicate when a force majeure event has occurred. In such a case, the first part of Section 219 of the Civil and Commercial Code (the “CCC”), which states “The debtor is relieved from his obligation to perform if the performance becomes impossible in consequence of a circumstance, for which he is not responsible, occurring after the creation of the obligation.” can be relied upon to relieve parties from their obligations under contract. For example, if a party is unable to provide goods or services as a result of being treated for COVID-19.

Despite the travel impediments in place for the general public, movement for logistics companies is being allowed. With that in mind, businesses are more likely to be affected by relatively minor disruptions and delays.

Where a seller is unable to perform their obligations as a result of force majeure, Section 205 of the CCC states “The debtor is not in default so long as the performance is not effected in consequence of a circumstance of a circumstance for which he is not responsible.”, which means that the seller has not defaulted on performing their commitment under a contract and would thus not be liable for any damages incurred as a result of any delays.

It is therefore important for businesses to consider whether the restrictions in place constitute an event that is beyond their reasonable control and whether they will be unable to perform their obligations. This is true for businesses that have been forced to close, such as nightclubs, schools and daycare facilities, because the restrictions prevent them from opening. Force majeure in Thailand’s current COVID-19 climate can only be invoked in such circumstances, though in practice it would be determined on a case-by-case basis.

How can force majeure be invoked?

If a business finds itself unable to perform its obligations as a result of the enforcement of measures to combat the spread of the virus, they will be required to produce evidence that supports this. The evidence can include being based in a red zone, being unable to deliver goods or services due to travel restrictions, or the inability of a supplier to deliver the necessary materials in order to deliver the goods or services needed. Regardless of the circumstances behind the failure to meet contractual obligations, it is important to be able to secure tangible evidence proving the inability to perform.

However, while the aforementioned may illustrate how these cases will be treated theoretically, it is worth noting that such matters have yet to be tested in Thai courts. Having said this, the vast majority of cases so far surrounding the inability to perform contractual obligations have largely been settled between the parties and were treated on a case-by-case basis.

Closing remarks

As mentioned in a previous article, there is currently no concrete legal basis that categorizes COVID-19 as an unforeseeable event that is beyond the control of stakeholders involved. Since that time, little has changed in terms of legislation that directly addresses the issue. Thus, as far as Thai law is concerned, avoiding disputes as a result of the current measures should involve parties revisiting the terms of their contracts and agreeing on an arrangement that addresses the needs and concerns of both sides.

For more information about the legal implications of COVID-19, force majeure, and other aspects of contract law, please contact [email protected]om or use the contact form provided.