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
TERMINATION IN COMMERCIAL CONTRACTS Contract or Agreement Is a contract the same as an agreement? Contract Civil Law - offer - acceptance Common Law - offer - acceptance - consideration or deed under seal
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
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