Set-off in Thailand lets two people who owe each other debts of the same kind cancel those debts against each other, up to the matching amount. Sections 341 to 348 of the Civil and Commercial Code set when set-off is available, how a party declares it, and which claims the law excludes.
This guide takes each section in turn for lenders, suppliers and finance teams that hold claims and debts against the same Thai counterparty.
Set-off by one of several joint debtors is covered by Section 292, as the guide to joint and several liability in Thailand explains.
What is set-off in Thailand?
Set-off in Thailand is a way of ending an obligation. Thai law calls it หักกลบลบหนี้. When two parties owe each other debts that meet the statutory conditions, each debtor is discharged from his own debt by set-off. Part 3 of Chapter 5 of Book II of the Code, Sections 341 to 348, governs it.
When does set-off in Thailand apply?
First, Section 341 sets the basic conditions. The two persons must owe each other obligations, both obligations must have the same kind of subject matter, and both debts must be due. Set-off then discharges each debtor to the extent of the matching amount.
However, the section also carves out two cases. Set-off does not apply where the nature of one debt does not allow it. The parties can also agree otherwise, because the rule does not apply where it would contradict an intention they expressly stated. A third party who acted in good faith, though, can ignore that agreement.
| Condition in Section 341 | What the text requires |
|---|---|
| Mutual debts | Two persons are each bound to the other by an obligation. |
| Same subject matter | Both obligations have the same kind of subject matter. |
| Both debts due | Both debts have fallen due for payment. |
| Matching amount | Each debtor is discharged only to the extent of the amount the two debts share. |
| Nature of the debt | Set-off is unavailable where the nature of one debt does not allow it. |
| Contrary intention | An expressly stated contrary intention of the parties displaces the rule, but a good-faith third party can disregard it. |
How does a party declare a set-off?
Under Section 342, a party declares set-off by expressing its intention to the other party. The declaration cannot carry a condition, and it cannot carry a starting or ending date. Because of the retroactive rule in the second paragraph, the effect runs back to the moment the debts first met.
- Express the intention. Section 342 makes set-off effective when one party tells the other party that it sets off.
- Keep the declaration unconditional. The section bars any condition and any starting or ending time.
- Count from the first moment of set-off. The declaration takes effect retroactively to the time when the two debts first became capable of set-off.
Section 343 adds a rule on place. In this case, set-off is allowed even when the two debts are payable at different places. In that case, the party who requests set-off must compensate the other party for the damage caused by the difference in places.
Which claims fall outside set-off in Thailand?
Four sections remove claims from set-off. Section 344 excludes a claim that is still open to a defence. Next, Section 345 excludes a debt that arises from an unlawful act. A claim that the law forbids a court to attach also falls outside set-off under Section 346. Finally, Section 347 limits a third-party debtor who has received a court order prohibiting payment.
| Section | Excluded or limited |
|---|---|
| 344 | A claim that is still subject to a defence cannot be set off. |
| 345 | A debtor cannot set off an obligation that rests on an unlawful act against the creditor’s claim. |
| 346 | A claim that the court cannot order seized under the law cannot be set off. |
| 347 | A third-party debtor who has received a court order prohibiting payment cannot raise a debt acquired after that order against the creditor who sought the seizure. |
Does expiry of the limitation period block a set-off?
Section 344 says that prescription does not defeat set-off in every case. Instead, a claim that has become time-barred can still be set off, provided it had not yet become time-barred at the moment when the two debts first became capable of set-off.
The test therefore looks at one point in time. It asks whether the claim was still within its limitation period when the debts met, and it does not ask whether the claim is time-barred today. Our guide to the statute of limitations in Thailand covers the limitation periods themselves.
How does a party choose between several claims?
Section 348 covers the case where both parties hold several claims that suit set-off. In that case, the party requesting set-off may specify which claims it sets against which. If it declares set-off without specifying, or if the other party objects to the specification without delay, Section 328, paragraph 2 applies with the necessary adjustments.
The same section also covers interest and costs. If the party requesting set-off owes the other party interest and court costs besides the principal debt, Section 329 applies with the necessary adjustments. Neither Section 328 nor Section 329 sits inside Part 3, so a reader applying Section 348 reads those two sections as well.
What does the Civil Code ask, in order, before a set-off?
Read together, Sections 341 to 348 give a fixed order of questions. The order below is a reading aid built from the text of the sections, and each step names the section that answers it.
- Are the debts mutual, of the same kind and due? Section 341, paragraph 1.
- Does the nature of either debt, or an express agreement of the parties, rule out set-off? Section 341. A good-faith third party can disregard the agreement.
- Is either claim excluded? Sections 344 to 347 list the defence, unlawful-act, non-attachable and post-order cases.
- Has a party declared set-off without condition or date? Section 342.
- Do several claims need allocating? Section 348, with Sections 328 and 329.
For a related Civil Code topic, see our guide to the assignment of claims in Thailand.
Frequently asked questions about set-off in Thailand
Do both debts have to be due for set-off in Thailand?
How does a party exercise a set-off?
From what date does a set-off take effect?
Can a time-barred claim still be set off?
Can the parties agree to exclude set-off in Thailand?
Conclusion: set-off in Thailand
Set-off in Thailand rests on eight short sections. Mutual, due debts of the same kind meet in Section 341, a declaration under Section 342 puts set-off into effect, and Sections 344 to 347 remove four categories of claim. For recovery work built on these rules, see our debt recovery lawyer in Thailand page, and read the statutory text on the Krisdika legal database of the Office of the Council of State.
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