Terminating a Distributor in Thailand: A Guide for Foreign Brands

Where a contract fixes compensation in advance, see our guide to liquidated damages in Thailand.

Definition. A distributor termination ends a contract under which a Thai company buys a foreign brand’s products and resells them on its own account. It also returns every licence, registration and relationship the distributor held for the brand.

Related reading: force majeure in Thailand under the Civil and Commercial Code.

What law governs terminating a distributor in Thailand?

No Thai statute deals with distribution agreements as such. Terminating a distributor in Thailand therefore falls under the contract rules of the Civil and Commercial Code and, where the relationship is really an agency, its agency provisions. The Unfair Contract Terms Act B.E. 2540 (1997) and the Trade Competition Act B.E. 2560 (2017) also apply. Product and brand assets follow their own statutes.

Unlike several European jurisdictions, Thailand has no statutory goodwill indemnity for a terminated distributor. That absence is the reason the contract itself carries so much weight. However, it does not mean the exit is free of statutory risk. Four bodies of law meet at the moment of termination:

Terminating a distributor or an agent in Thailand: why the label matters

The characterisation of the relationship decides which termination rules apply. A true distributor buys and resells, so its exit follows the general contract rules. An agent acts for the brand as principal. Section 827 of the Code therefore lets the brand revoke at any time, subject to liability for revoking at an inconvenient moment.

Section 827 reads simply. The principal may revoke the authority at any time. Except in cases of unavoidable necessity, however, the party who revokes at a time inconvenient to the other is liable for the resulting injury. For a brand, that is a wide freedom paired with an open-ended exposure.

By contrast, a brand cannot simply revoke a buy-sell distributor. Its contract ends through a right of rescission, either one the contract grants or one the law provides. Consequently, the first question when terminating a distributor in Thailand concerns substance, not notice periods: what is this relationship? An agreement may combine both features: the distributor resells stock but also signs customer contracts, collects payments or registers products on the brand’s behalf. Counsel should read each of those functions against the Code before drafting the notice.

The foreign-principal rule in section 824

One agency provision deserves particular attention from overseas brands. Section 824 makes an agent who contracts for a principal domiciled abroad personally liable on that contract. That holds even where the agent disclosed the principal’s name, unless the contract terms are inconsistent with such liability. Customer contracts signed by a Thai distributor for a foreign brand may therefore carry the distributor’s own liability, and that affects who can enforce them after the exit.

How does rescission work under the Civil and Commercial Code?

A party rescinds under the Code by a declaration of intention to the other party. Section 386 makes that declaration irrevocable once given. Where the contract grants no express right, section 387 requires the brand to fix a reasonable period for performance and notify the distributor before it may rescind for non-performance.

The irrevocability rule deserves emphasis. The brand cannot withdraw a termination notice once served. Terminating a distributor in Thailand by a notice meant only to open a negotiation is therefore a serious error. Every consequence of rescission follows automatically from the moment the declaration reaches the distributor.

Section 388 removes the notice requirement only where performance at a fixed time was essential to the contract. Section 389 permits rescission where performance has become impossible through the debtor’s fault. Otherwise, the section 387 route applies, and a notice that skips the cure period invites the argument that the termination itself was wrongful.

What happens after rescission

Section 391 then governs the unwinding. Each party must restore the other to its former condition, without impairing the rights of third persons. Money repaid carries interest from the date of receipt. A party restores services and the use of property by paying their value. Importantly, the final paragraph of section 391 preserves any claim for damages, so rescission and a damages action run together rather than as alternatives.

Which assets must a brand recover before terminating a distributor in Thailand?

Before terminating a distributor in Thailand, the brand should identify every asset the distributor holds in its own name. The contract can oblige the distributor to hand them back, but the contract alone cannot move a Thai FDA approval or a trademark registration. Those transfers run through the regulator or the courts.

Thai FDA approvals

The Thai FDA issues product approvals to the Thai licence holder, not to the overseas manufacturer. The same structural point runs through the medical device, food, cosmetic and drug regimes. If the distributor is the licence holder, the brand’s market access sits in the distributor’s hands. Whether a new holder can take over an approval, and on what documents, depends on the product regime. Confirm it with the FDA for the specific products. The FDA registration and licensing workstream for the successor importer should therefore start before the notice, not after it.

Trademark registrations

Sometimes the distributor has registered the brand’s mark in its own name. In that case, section 67 of the Trademark Act B.E. 2534 (1991) gives the owner a court route to cancellation on better-right grounds. The owner must bring that action within five years of the registration. After that window closes, the owner depends on the more limited grounds available before the Board of Trademarks.

Customer contracts, stock and receivables

Customer contracts signed by the distributor bind the distributor, and section 824 may make it personally liable on contracts made for a foreign principal. Meanwhile, stock on hand falls into the section 391 restoration exercise, and unpaid invoices become a claim with its own limitation period.

Can a terminated distributor sue under competition law?

Yes, in principle. Section 57 of the Trade Competition Act prohibits conduct that damages other business operators through unfair use of superior market power or bargaining power, or unfair trading conditions. Section 69 gives the injured party a damages action, and section 70 bars that action one year after the claimant knew or should have known of the damage.

The Trade Competition Commission’s guidelines on unfair trade practices explain how the Commission assesses superior bargaining power. The Royal Gazette published them on 18 February 2022, and they took effect on 19 February 2022. Under those guidelines, a business operator may hold superior bargaining power where the trading relationship represents at least 30 percent of the trade partner’s total revenue. Below that figure, the test looks at whether the partner has no realistic alternative, subject to a floor of 10 percent.

For a brand terminating a distributor in Thailand, the relevant question is therefore how dependent the distributor is on the brand’s products. A distributor whose revenue rests largely on one foreign brand is the profile the guidelines describe. In addition, section 82 exposes a violator of section 57 to an administrative fine of up to 10 percent of turnover in the year of the offence. Before planning an exit around them, confirm the current text of the Commission’s guidelines with the Commission.

Are post-termination restraints enforceable in Thailand?

A restraint on the distributor’s trade after termination is not void, but section 5 of the Unfair Contract Terms Act limits it. Where the restraint places a heavier burden on the restricted party than it could anticipate under normal circumstances, a court enforces it only to the extent that is fair and reasonable.

Section 5 directs the court to consider the geographical scope and the duration of the restraint. It also weighs the restricted party’s ability to trade in another form or with another person, and the legitimate interests of both parties. Accordingly, when terminating a distributor in Thailand, the broadest restraint faces the greatest risk that a court will cut it back.

Similarly, section 383 of the Code allows the court to reduce a disproportionately high penalty, taking into account every legitimate interest of the creditor. A liquidated sum payable on breach of a non-compete is therefore subject to two separate tests of reasonableness. Section 4 of the same Act adds a further layer of scrutiny where terms in a standard-form contract give one side an unreasonable advantage.

Where will a distributor termination dispute be heard?

Where the agreement provides for arbitration, the dispute belongs there, provided the brand protects the clause in time. Otherwise, a dispute over a distribution agreement with an overseas supplier may fall to the Central Intellectual Property and International Trade Court. That court hears civil cases on international sale of goods and on licensing agreements.

The Central IP and International Trade Court

The governing statute is the Act for the Establishment of and Procedure for Intellectual Property and International Trade Court B.E. 2539 (1996). Its section 7 covers civil cases on international sale and exchange of goods, international services and related juristic acts. It also covers civil cases on trademarks and on licensing agreements, and arbitration matters arising from those disputes. Under the transitional section 47, the Central Court’s jurisdiction currently covers the whole Kingdom. The court publishes its jurisdiction rules in English. Where the parties dispute which court should hear the case, section 9 refers that question to the President of the Court of Appeal for Specialized Cases, whose ruling is final.

Protecting the arbitration clause

Section 14 of the Arbitration Act B.E. 2545 (2002) lets a party sued in court despite an arbitration agreement ask the court to strike out the case. The party must file that motion no later than the date it files its defence, or within the period the law prescribes for doing so. A brand served with a Thai plaint that answers on the merits first may lose the forum it negotiated.

Which limitation periods start on terminating a distributor in Thailand?

Several limitation periods run from terminating a distributor in Thailand, and they differ sharply. The distributor’s competition claim under section 70 of the Trade Competition Act lapses after one year. Contract claims fall under the Civil and Commercial Code, where section 193/30 sets a general ten-year period unless another provision applies.

Two points follow from reading these provisions together. First, a brand’s claim for unpaid invoices concerns goods supplied for resale in the distributor’s own business. The carve-out in section 193/34(1) therefore points to the five-year period rather than two. Second, the distributor’s strongest statutory weapon, the competition claim, has the shortest life of any claim on the table.

A sequence for terminating a distributor in Thailand

When terminating a distributor in Thailand, the order of steps matters more than their speed. Because section 386 makes the notice irrevocable, each step that depends on the distributor’s cooperation belongs before the declaration, while the distributor still has a commercial reason to cooperate.

1. Map the assets. List every FDA approval, trademark filing, import licence, customer contract and stock position, and record whose name each sits in.
2. Characterise the relationship. Read the agreement and the course of dealing against the agency provisions and section 824.
3. Test the exit right. Identify whether the contract grants an express right of rescission. Then decide whether the brand needs a section 387 cure notice.
4. Assess dependency. Measure the distributor’s reliance on the brand against the Trade Competition Commission’s bargaining-power thresholds.
5. Prepare the successor. Start the successor importer’s licensing and product filings so market access continues without a gap.
6. Serve the declaration. Draft the notice to match the contract and the Code, and serve it in a manner you can prove.
7. Unwind and protect. Account for stock and money under section 391, and diarise the one-year competition window and the arbitration strike-out deadline.

Frequently asked questions on terminating a distributor in Thailand

Conclusion on terminating a distributor in Thailand

Terminating a distributor in Thailand succeeds or fails on preparation. The Code makes the notice irrevocable. The FDA and trademark positions do not move with the contract. Meanwhile, the Trade Competition Act gives a dependent distributor a short but real claim. A brand that maps its assets, characterises the relationship and prepares its successor before serving notice controls the exit. For the wider dispute context, see our litigation and dispute resolution practice.