Thailand Unfair Contract Terms Act by liaoqinmei

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									                               Thailand - Unfair Contract Terms Act /
                           Legal Analysis and a Comparative Point of View

                                         Roi Bak, Advocate



                      Thailand - Unfair Contract Terms Act /
               Legal Analysis and a Comparative Point of View
                                       Roi Bak, Advocate 1


I        Introduction


1. The purpose of this article is to provide a legal analysis of the Thai Unfair
     Contract Terms Act, as a unique legislation in the legal system of Thailand,
     which, when wisely implemented under the appropriate circumstances, can make
     a great deal of change and contribution to the commercial environment of
     Thailand. This article will also compare certain provisions of said Act with the
     corresponding legislation of the State of Israel in order to provide another legal
     approach and angle in similar cases.




II       General - Thai Legal System


1. Thailand legal system is based on a Civil Law model; originally based on the
     French and German civil codifications.


2. As such, Thailand’s main legislation dealing with civil legal aspects is the Thai
     Civil and Commercial Code (Books I-VI) [the “CCC”].


     2.1. The CCC is a comprehensive written legislation, covering mainly: (i) General
         Provisions (as legal capacity of individuals and juristic persons); (ii)
         Obligations (as contractual relationship); (iii) Specific Contracts (as contract
         of sale, gift, lease, mortgage, partnerships and companies, etc.); (iv) Property
1
  Advocate Roi Bak, a member of the Israel Bar Association and its Foreign Relations Committee -
East Asian Countries, holds LL.B. (cum laude) from Bar-ilan University, Israel, and LL.M. (Business
Law) from Chulalongkorn University, Bangkok, Thailand (in collaboration with University of British
Colombia and University of Victoria - Canada, and the Kyushu University - Japan). Adv. Bak
currently advises to an international law firm in Bangkok, Thailand, and acts as the Israel Broadcasting
Authority -"Kol-Israel" correspondent in the region. He can be reached by e-mail: Rbak77@gmail.com



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                             Thailand - Unfair Contract Terms Act /
                         Legal Analysis and a Comparative Point of View

                                      Roi Bak, Advocate

          (as ownership, possession); (v) Family (marriage, adoption, etc.), and (vi)
          Succession (inheritance, will, etc.).




III      Particular - Unfair Contract Terms Act


1. Despite the exhaustiveness of the CCC in all civil related areas, it is interesting to
      learn that more than a decade ago, the Thai legislator has adopted the Unfair
      Contract Terms Act B.E. 2540 (1997) [the “Act” or “Unfair Contract Terms
      Act”].




2. The Act, in contradictory to Thailand’s Civil Law doctrine, uses general and
      vague principles, that aim to guide the courts in this regard, while leaving the
      courts (and other competent authorities, when applicable) which enforce and
      implement the Act, the freedom and space to fill such principles with actual
      substance based upon the developing circumstances, legal era and appropriate
      policy.




3. The basic point of view of the Thai legal system is the one of freedom of
      contracts; allowing the parties to a contractual relationship to determine the
      contract terms and conditions as they themselves, deem feet, in accordance with
      their needs and expectations. The Unfair Contract Terms Act is therefore, an
      exception to the aforementioned rule, setting certain minimum standards and rules
      concerning contracts, which shall be binding upon the parties to a contractual
      relationship.




4. One should ask him/her self what was the reason for such exception, which
      motivated the Thai legislator to intervene in the basic concept of free contractual
      choice.



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                             Thailand - Unfair Contract Terms Act /
                         Legal Analysis and a Comparative Point of View

                                       Roi Bak, Advocate

     4.1. The answer to the above question can be found in the explanatory note of the
         Act 2 , stating that: “…However, the society at present has changed…causing
         the person who has economic bargaining power to grab an opportunity…to
         take advantage over the other contracting party whose economic bargaining
         power is far more inferior, thus rendering injustice and chaos in the society”.


     4.2. The wording of the Act suggest a point of view aiming to protect the weaker
         party to a contractual relationship, which is usually the “consumer” as quoted
         from the Act itself.




IV      The Contract / Its Terms


1. The Act refers to the following contracts; all consist of a powerful party versus an
     inferior one, as the legislator tries to prevent from being unfairly abused: contracts
     between consumer and trading or professional business operator, standard-form
     contracts, contracts of sale with right of redemption which places an excessive
     advantage over the inferior party. The terms of such contracts that consist an
     excessive advantage, as described above, shall be deemed as unfair contract terms
     and shall be enforceable in so far as they are fair and reasonable in such
     circumstances only.




2. The Act mainly refers to a Standard-Form Contract, and presumes that “In case of
     doubt, the Standard-Form Contract shall be interpreted in favor of the party that
     does not prescribe the said Standard-Form Contract”.


     2.1. Said presumption is similar to the Israeli legal concept of which the
         interpretation of a Standard-Form Contract shall be in favor of the party that
         did not draft it 3 . Please note that in a similar manner to the Thai Unfair

2
 Published on the Government Gazette, Decree Issue, Volume 114, Part 72 Kor., 16th November, 1997
3
  As explained by the Israeli Supreme Court in Civil Appeal Permit 3577/93 Hafenix Haisraeli,
Insurance Company Ltd. v. Aharon Moriano, P”di 48(4), 70: “The reason for said rule


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                               Thailand - Unfair Contract Terms Act /
                           Legal Analysis and a Comparative Point of View

                                          Roi Bak, Advocate

          Contract Terms Act, the Israeli approach will apply only when there is a
          doubt concerning the interpretation of a contract, and such contract can be
          interpreted into more than one meaning 4 .


         2.1.1. A "Standard-Form Contract" is defined under the Unfair Contract
               Terms Act as “a contract already written in which there have been
               prescribed significant contract terms in advance, regardless whether it
               be executed in any form, and is used by either contracting party in his
               business operation”.


         2.1.2. The Israeli Standard Contracts Act 5743 - 1982 defines a "Standard
               Contract" as "a contract which its terms, all or part of, were determined
               in advance by one contracting party to be used as terms in numerous
               contracts between such party and other persons, unidentified in terms of
               quantity or identity".


         2.1.3. We can learn that both legal systems use similar approach and
               definition with respect to standard contracts, which concentrates on the
               fact that only one contracting party drafts the terms and conditions of
               said contract. The Israeli Standard Contracts Act, however, further refers
               to the other contracting party, as an unidentified one, in the manner
               prescribed therein.




3. The Act provides a non-exhaustive list of terms that may be regarded as rendering
    an excessive advantage over the other party; hence, considered as unfair terms 5 .


(interpretation against the party drafting the contract - R.B.) is based on such party’s control over the
substance of the text. The presumption is that the party drafting the contract has guaranteed his rights
while drafting the document, especially when such litigant has power and influence… versus the
individual citizen”.
4
  See Civil Appeal 300/97 Yehuda Chason v. Shimshon Insurance Company Ltd.: "during the
interpretation process one must consider…the possibility to interpret the document against its drafter
when the contract is unclear and may be interpreted into several interpretations… when the interpreter
faces two reasonable meanings, then one should prefer the meaning which is more comfortable to the
party who did not draft the document".
5
  Section 4 of the Act.


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                                 Thailand - Unfair Contract Terms Act /
                             Legal Analysis and a Comparative Point of View

                                           Roi Bak, Advocate

      3.1. The non-exhaustive list of unfair terms includes:
           •   The exemption or restriction of liability arising from breach of contract;
           •   A wider liability or heavier burden than that prescribed by law;
           •   Terminating a contract without reasonable ground, or when the other party
               is not in breach of material parts of the contract;
           •   A right of a party not to comply with any of the contract’s clauses or to
               comply within a delayed period without reasonable ground ;
           •   A party’s right to place on the other party a heavier burden that that existed
               at the time of making the contract;
           •   The buyer’s (against right of redemption) fixing of a redeemed price
               higher than the selling price plus annual interest rate exceeding fifteen
               percent (15%);
           •   An excessive hire-purchasing price or excessive burdens shouldered on the
               hire-purchaser;
           •   The excessive payment of fine, expenses or any other benefits in case of
               default of payment concerning a credit card contract;
           •   A method of computation of compound interest that creates excessive
               burdens upon the consumer.


      3.2. I would opine that from the Act’s wording, an objective criteria is being
            used of “more than that could have been anticipated by a reasonable person
            in normal circumstances”.


      3.3. The Act further provides under Section 10 general principles applicable for
            the above paragraph as shall be further described.


      3.4. The Israeli Contracts Act [General Part] 6 determines that in the execution of a
            contract, one must act in "good faith and customary manner" 7 .             The
            principle of good faith has based itself as a major legal principle. The Israeli
            Supreme Court, led by the approach of its former president, the honorable


6
    The Contracts Act [General Part] 5733 - 1973 (the "Israeli Contracts Act")
7
    Section 39, the Israeli Contract Act.


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                            Thailand - Unfair Contract Terms Act /
                        Legal Analysis and a Comparative Point of View

                                      Roi Bak, Advocate

         judge Aharon Barak, has subjected all forms of contractual relationships,
         commitments and rights under the wings of the good faith principle 8 . Section
         12 of the Israeli Contract Act applies said good faith principle on the
         contractual negotiation stage as well, while the Israeli Supreme Court also
         used Section 61(b) of the same Act to implement its wide ruling and
         interpretation with respect to the principle of good faith. Although the Unfair
         Contract Terms Act uses an objective criterion to determine whether any
         specific term is unfair or not, the Israeli approach is slightly different;
         According to the Israeli Supreme Court, the criterion used to determine the
         principle of good faith is generally an objective one, per the appropriate
         standards and values determined by the Court, in relation to the "reasonable
         person". However, said objective criterion is also subject to an extent of
         subjectivity. It means, that although the court will implement the appropriate
         standard and values according to a "reasonable person" objective criterion,
         one must bear in mind that every case and contract is affected by its own
         unique circumstances and facts 9 .




4. The Act further uses the principle of reasonability, by determining that terms and
    conditions "restricting the right or freedom in professing an occupation or an
    execution of a juristic act related to the business, trading or professional
    operation which are not void" but cause a heavier burden than could have been
    anticipated under normal circumstances, will be enforced only "to the extent that
    they are fair and reasonable according to such circumstances 10 ". Such statement
    actually means a combined examination of both reasonability measured by an
    objective aspect, however, affected by "such circumstances"; meaning a
    subjective (even if inferior) aspect.




8
  See Supreme Court of Justice 59/80, Public Transportation Services Beer-Sheva Ltd. and others
v. The National Labour Court in Jerusalem and others, p"d 35(1) 828 (the "Public Transportation
Case").
9
  Ibid. See also Civil Appeal 3180/05 Dr. Riad Naim Zrik v. Oda Jreis and others.
10
   Section 5 of the Act.


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                              Thailand - Unfair Contract Terms Act /
                          Legal Analysis and a Comparative Point of View

                                       Roi Bak, Advocate

     4.1. The Israeli legal system attributes to the freedom of occupation a status of a
         "super principle"; some say even a constitutional right 11 , determined under
         the Fundamental Act - Freedom of Occupation, 1992. Said principle shall
         usually prevail over other rights or obligations, and shell be derogated only in
         specific and extreme circumstances, when other fundamental right prevails, in
         according with the balance prescribed under the above-mentioned
         Fundamental Act, as was implemented from time to time by the Israeli
         Supreme Court 12 .


     4.2. when determining whether the burden placed is not than could be anticipated,
         the Thai Unfair Contract Terms Act uses the following criteria: "the scope of
         the area and the period of restriction of right or freedom, including whose
         ability and opportunity to profess occupation or to execute juristic act in
         other form or with other person, as well as all legitimate advantages and
         disadvantages of the contracting parties" 13 .




5. One pf the important issues that are usually affecting end-users (as customers), is
     the matter of liability for defects. The Act prescribes14 that any restriction of
     liability for a defect or disturbance of right is prohibited, "except where the
     consumer knew of the defect or the cause of such disturbance of right, at the time
     of making the contract". Even if such awareness occurred, the Act will enforce
     such restriction of liability to the extent it is "fair and reasonable according such
     circumstances".


     5.1. The Act takes advanced steps to protect the consumer, being generally the
         weak party to a contract/standard-form contract, against "business, trading or


11
   See: Association of Investment Managers in Israel v. the Minister of Finance, P"d 51(4), 367.
See also Supreme Court of Justice 1/49 Bejarano v. the Minister of Police, P"d 2(80) - of which the
Supreme Court acknowledged the freedom of occupation as a fundamental right, several decades prior
to the enactment of the Fundamental Act - Freedom of Occupation, 1992.
12
   See Association of Investment Managers caser (footnote 11 above). Such are also laws that
require certain licensing as a condition for certain professions, as law, accounting, etc.
13
   Section 5 (second Paragraph) of the Act.
14
   Section 6 of the Act.


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                   Thailand - Unfair Contract Terms Act /
               Legal Analysis and a Comparative Point of View

                            Roi Bak, Advocate

professional operator", usually being the strong party to a contractual
relationship, and the drafter of a standard-form contract. Said party in most
cases enjoys a better bargaining power and ability to abuse and "force" the
other weak party to accept any terms and conditions the strong party deems
fit. Many of such terms might be considered as unfair, placing a heavier
burden than the other party's expectation, and giving the stronger party an
excessive advantage over the other party - all as this Act aims to prevent. A
pure example of such unfair conditions is the restriction of liability, as the Act
tries to restrict. The Act tries to create the appropriate balance between the
contractual freedom of the contracting parties and abusing of the weaker
party, by allowing such restriction of liability only in certain cases, "where
the consumer knew of the defect of the cause of such disturbance of right, at
the time of making the contract".         Although a restriction of liability is
permitted in certain cases as described above, I opine that such act is
considered as an exception to the general rule, prohibiting any restriction of
liability. Thus, the Act subjects such exception to the criteria of "fair and
reasonable according such circumstances".


5.1.1. Please note that Thailand has recently enacted the Unsafe Product
    Liability Act, 2007 (to be effective within one (1) year from its
    publication in the Government Gazette).                 Said Act finds both
    manufacturer and distributor (each, a "Business Operator") jointly liable
    towards end-users (consumers) in case of Unsafe Product (as defined
    therein) that caused harm, unless either one of them can prove one of the
    defences prescribed under this Act.. The injured party is not required,
    under the Product Liability Act, to prove which of the Business
    Operators caused the harm, and only the proof of casual linkage between
    the Unsafe Product and the harm is required. The Product Liability Act
    further determines that a prior agreement or memorandum between the
    consumer and the Business Operator or a notice to limit or exempt the
    Business Operator from its liability to an Unsafe Product shall not release
    the Business Operator from such liability. We can see that in the Unsafe



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                                Thailand - Unfair Contract Terms Act /
                            Legal Analysis and a Comparative Point of View

                                         Roi Bak, Advocate

                 Product Liability Act, the Thai legislator follows the same pattern of the
                 Unfair Contract Terms Act, of which the end-users/consumers, are
                 considered as the weak parties versus the Business Operator, who has
                 enough bargaining power and resources (deep pockets) to "force" the
                 consumers to accept its terms. As such, the legislator aims to provide the
                 end-users with additional and appropriate legal remedies for their
                 protection and achievement of the proper public-policy balance.


           5.1.2. The Israeli Damaged Products Liability Act, 1980 15 (the "DPLA"),
                 deals with body injuries, and uses a similar and perhaps even more
                 advanced concept as the Thai one described above. The DPLA includes
                 both manufacturer and supplier of a Product in the definition of
                 "Manufacturer". Unlike the general principle whereby the burden of
                 proof lies upon the shoulders of the party who makes a claim, the DPLA
                 applies the rule of absolute responsibility on the Manufacturer, by
                 determining that a Manufacturer is obliged to compensate any person
                 injured from the defect Product, whether or not it was the Manufacturer's
                 fault.   The Manufacturer itself may defend against such liability by
                 applying the four (4) sole defences available under the DPLA. As such,
                 one cannot condition or exempt itself from liability to body injuries. Any
                 condition or exemption from liability according to the DPLA shall be
                 void.




6. As part of the public policy that the Thai legislator implemented through this Act,
       Section 7 of the Act allows the court to reduce any earnest forfeited, even though
       the parties agreed to such provision in their contract, in case such amount "is
       disproportionately high". The measurement being used to compare or evaluate
       the forfeited sum will be "the actual damage so occurred". This Section 7,
       combined with Section 4 which prohibits any excessive burden more than
       reasonable person would have been anticipated, are a clear case of jurisdictions

15
     The Damaged Product Liability Act 5740 - 1980, Laws Book 5740, 86.


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                           Thailand - Unfair Contract Terms Act /
                       Legal Analysis and a Comparative Point of View

                                    Roi Bak, Advocate

   that prohibit or restrict the amount of penalty damages. As discussed above, in the
   case of the Thai Unfair Contract Terms Act, the extent of penalty damages will be
   compared to "the actual damage so occurred".               As part of the appropriate
   interpretation concerning such penalty damages or other excessive amounts (as
   prior earnest), Sub-Section 4(8) determines that "terms in a credit card contract
   which compels the consumer to pay interest, penalty, expenses or any other
   benefits excessively, in the case of default of payment or in the case related
   thereto" shall be considered as unfair.




7. Section 8 of the Act repeats the same principles described under item 5 above, and
   determines that prior conditions excluding or restricting liability for tort or breach
   of contract with respect to "loss of life, body or health of another person as a
   result of an action deliberately or negligently committed by the person making the
   terms" or another party whom the above person is liable to, "shall not be raised as
   an exclusion or restriction of the liability". Any other alike restrictions that are not
   void, shall not be enforced as well, unless "they are fair and reasonable according
   to the circumstances". I would further opine that this Section aims to apply an
   objective criterion, combined with an extent of subjectivity, due to the specific
   circumstances of each case and case. Please refer to my comment concerning
   Section 6 of the Act and its Israeli equivalent (item 5 above).




8. Section 9 of the Act is a "catch all" provision, not recognizing as a valid defense
   any contractual arrangement which is "clearly prohibited by law or which is
   contrary to public order or good morals".




9. Section 10 - As discussed above, the Act's general point of view is the one
   restricting unfair contractual terms; meaning terms rendering an advantage over
   the other party by placing heavier burden than that could have been anticipated by
   a reasonable person in normal circumstance. Such unfair terms, according to



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                                  Thailand - Unfair Contract Terms Act /
                              Legal Analysis and a Comparative Point of View

                                           Roi Bak, Advocate

       Section 4 of the Act, "shall only be enforceable to the extent that they are fair and
       reasonable according to the circumstances".


       9.1. We can see that the Act actually uses an objective criterion of "fair",
            "reasonable person" and "normal circumstances". However, in the same
            time, the Act does apply a certain extent of subjectivity, by requiring a
            consideration of "according to the circumstances". This combined approach,
            lead by an objective criterion, is similar to the Israeli perspective, as
            discussed above.


           9.1.1. Section 10 of the Act deals with the circumstances to be taken into
                  consideration, as part of the subjective criterion that might affect the
                  objective one, when considering whether any specific contractual term is
                  an unfair one, and whether such term will be enforced.       According to
                  said Section 10, the circumstances of the case shall include the following:
           •    good faith, bargaining power, economic status, knowledge and
                understanding, adeptness, anticipation, guidelines previously observed,
                other alternatives, and all advantages and disadvantages of the contracting
                parties according to actual condition;
           •    ordinary usages applicable to such kind of contract;
           •    time and place of making the contract or performing of the contract, and
           •    the much heavier burden borne by one contracting party when compared to
                that of the other party.


10. The Act also empowers the court to seek for an expert opinion to be taken into the
       court's consideration 16




                                   *                *                *




16
     Sections 13, 14 of the Act.


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