Reviewed by ThaiLawOnline, a licensed Thai law firm practising in Thailand since 2006. Thai lawyer of record: Wichuda Atthamethakon, LL.M., Thai Bar Licence 3149/2556.
Last updated on September 5, 2026
A penalty clause (เบี้ยปรับ, bia prap, also written bia prab) is a term by which a debtor promises to pay a fixed sum, or forfeit something, if he fails to perform a contract or performs it badly. Thai law does not distinguish, as English law does, between an enforceable liquidated damages clause and an unenforceable penalty: every such clause is valid, and the court’s control lies in Section 383 of the Civil and Commercial Code, which lets a judge reduce a disproportionately high penalty to a reasonable amount.
Table of Contents
How Sections 379 to 385 make penalties work
The mechanism. A penalty is forfeited when the debtor is in default (Section 379). If it was promised for non-performance, the creditor may claim it instead of performance, and if his actual loss is larger he may claim the excess as well (Section 380). If it was promised for improper performance, such as late delivery, the creditor may claim both the penalty and performance, but loses the penalty if he accepts performance without reserving it (Section 381): a client who takes the keys to a late house without a written reservation has waived the delay penalty.
Judicial reduction. Under Section 383 a penalty that is disproportionately high may be reduced by the court to a reasonable amount, taking into account every legitimate interest of the creditor, not only his financial loss. The debtor must ask, and once the penalty has been paid no reduction can be claimed. A penalty attached to an obligation that is itself void falls with it (Section 385). The Unfair Contract Terms Act B.E. 2540 (1997) adds a parallel power to moderate excessive penalties and forfeited deposits in standard form and consumer contracts.
Practical points for a foreigner drafting or facing one
Construction. A daily penalty for late completion, a small fraction of a percent of the contract price per day and often capped at around 10% of the price, is standard in Thai building contracts, and the guide on construction law in Thailand treats it as essential drafting. The mistake is not fixing the completion date and the extension mechanism in writing. Where the owner terminates at will under Section 605, a sum agreed as the price of that termination has been treated by the Supreme Court as agreed compensation, not a penalty, and enforced in full.
Leases and condominiums. Landlords write penalties for early termination and developers write forfeiture of instalments paid; both are subject to Section 383 and to the Unfair Contract Terms Act, and a tenant or buyer who can show the other side’s real loss was small often recovers most of the money. An employee’s training bond is enforceable but is routinely cut down by the Labour Court to the employer’s actual training cost.
Penalty, earnest and damages compared
| Term | What it is | Court control |
|---|---|---|
| Penalty (bia prap) | Sum promised for breach, Sections 379 to 385 | Reduced if disproportionate, Section 383 |
| Earnest (mat jam) | Deposit given on signing, Sections 377 and 378 | Forfeited on the payer’s default; excessive forfeiture can be moderated |
| Damages (kha sia hai) | Loss actually proved, Section 222 | Awarded only as proved |
An earnest is proof that the contract was made and security for performance; a penalty is a promise of a sum for breach; damages are what the court awards when nothing was agreed. A well drafted contract keeps the agreed amounts realistic enough to survive Section 383.
Frequently asked questions
Are penalty clauses enforceable in Thailand?
Yes. Thai law treats a penalty clause as valid, but Section 383 of the Civil and Commercial Code allows the court to reduce a disproportionately high penalty to a reasonable amount if the debtor asks before paying. Consumer and standard form contracts are also subject to the Unfair Contract Terms Act, which lets the court moderate excessive penalties and forfeited deposits.
What is the difference between a penalty clause and liquidated damages in Thailand?
None in Thai law. The Civil and Commercial Code uses a single concept, bia prap, for any sum agreed in advance as the consequence of breach, whether it is a genuine pre-estimate of loss or a deterrent. All of them are enforceable, and all of them can be reduced under Section 383 if disproportionate.
Can a developer keep my deposit and instalments if I cancel a condo purchase in Thailand?
The contract usually says so, but forfeiture of instalments is a penalty subject to Section 383 and, in a consumer contract, to the Unfair Contract Terms Act. A buyer who shows that the developer resold the unit or suffered little loss can ask the court to reduce the forfeited amount, and Supreme Court decisions have cut such forfeitures substantially.
See also: Earnest (mat jam), Damages, Void and voidable juristic acts, Construction law in Thailand, Condo deposit forfeiture in Thailand and Off-plan condos in Thailand.
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