Selling goods directly from Thailand to customers in Switzerland is often one of the simplest ways to enter the Swiss market. In principle, there is no need to establish a Swiss subsidiary or appoint a local distributor. Products can, for example, be sold directly to Swiss importers, wholesalers, retailers or industrial customers.

For a cross-border transaction, however, agreeing only on the product and the price is not enough. An international sales contract should also define who bears the transport and payment risks, what happens in the event of late delivery or defective goods, and which law governs the contract.

For Thai companies in particular, it is important to understand that some basic principles of Swiss sales law differ from the rules and business practices they may be familiar with in Thailand.

What should an international sales contract cover?

The contract should first describe as precisely as possible what is being sold. For manufactured products, this may include not only the product name and quantity, but also technical specifications, materials, quality requirements, tolerances, packaging, certificates and any particular intended use.

The more clearly these characteristics are defined, the easier it will be to determine later whether the goods were delivered in accordance with the contract.

In particular, the contract should address:

• purchase price, currency and payment terms,
• place and date of delivery,
• transport and transfer of risk,
• consequences of late delivery,
• inspection of the goods and notification of defects,
• warranties and possible repair or replacement,
• limitations of liability,
• where appropriate, payment security such as advance payments, bank guarantees or letters of credit,
• governing law and dispute resolution.

For recurring supply relationships, it may be useful to set out these general terms in a framework agreement or standard terms of sale, while individual purchase orders specify only the product, quantity, price and delivery date.

Incoterms: Who bears the costs and transport risk?

When goods are shipped from Thailand to Switzerland, transport arrangements are particularly important.

In international trade, the Incoterms rules of the International Chamber of Commerce are commonly used for this purpose. Among other things, they determine which tasks and transport costs are borne by the seller and the buyer, and at what point the risk of accidental loss or damage to the goods passes from the seller to the buyer.

An Incoterm should always be agreed together with a precisely identified location, for example:

FCA [specific place], Thailand, Incoterms

The exact location matters because key delivery obligations and the transfer of risk may depend on it.

Yet, incoterms do not replace a sales contract. They do not comprehensively regulate matters such as payment terms, warranties, liability or governing law. In addition, the transfer of risk is not the same as the transfer of ownership. If necessary, the parties should separately regulate when title to the goods passes to the buyer.

Warranties, notification of defects and liability

Under Swiss sales law, the goods delivered must in principle have the agreed and expected characteristics. If the goods are defective, the buyer may have statutory warranty rights. In B2B relationships the parties generally have considerable freedom to modify these rights contractually.

For industrial products, for example, the contract may provide that the manufacturer must first be given the opportunity to repair the defect or supply replacement goods before the buyer may exercise further remedies.

A particularly important feature of Swiss law is the buyer’s duty to inspect the goods and notify the seller of defects. The buyer must generally inspect the goods as soon as this is feasible in the ordinary course of business and must notify the seller of identifiable defects in due time. Hidden defects discovered later must likewise be notified after discovery.

For a Thai seller, this rule can in principle be advantageous. Swiss buyers sometimes seek to agree longer or different notification periods in their purchasing terms. Such clauses should not be accepted without review.

The contract should clearly specify the time limits for notifying defects, what information a notice of defects must contain, what remedies are available to the buyer and how long the warranty period lasts.

Manufacturers should also consider liability for consequential losses. A relatively minor defect may, for example, lead to production downtime or lost profits for the buyer. Therefore, the contract should expressly address whether, and to what extent, liability for such losses is accepted.

An important pitfall: In Switzerland, the contract generally does not need to be signed

One particularly important difference for Thai companies concerns the form of the sales contract.

In Switzerland, ordinary contracts for the sale of movable goods are generally subject to freedom of form. A contract may therefore be concluded orally, by email or through conduct. A signed written agreement is generally not required.

Thailand, by contrast, has a special requirement for the judicial enforcement of sales of movable goods with a purchase price of THB 20,000 or more. As a rule, there must be written evidence signed by the party against whom enforcement is sought, unless, for example, a deposit has been paid or the contract has already been partially performed.

This can create a practical pitfall for Thai companies.

A company accustomed to treating an important transaction as legally relevant only once the contract has been signed should not automatically apply the same assumption in Switzerland. Under Swiss law, correspondence during negotiations, a confirmed purchase order or other conduct may already result in a binding contract.

If the parties want to ensure that no binding agreement arises before signature, this should therefore be stated expressly, for example by providing that the contract enters into force only once signed by both parties.

There are also differences regarding the transfer of ownership. Under Thai sales law, ownership of a specific item may in principle pass upon conclusion of the contract. Under Swiss law, by contrast, a sales contract for movable goods generally creates an obligation to transfer ownership, but ownership itself normally requires an additional transfer of possession.

In international transactions, it is therefore important to distinguish between conclusion of the contract, transfer of risk and transfer of ownership. These events may occur at different times.

Swiss sales law or the CISG?

International sales of goods involve another important issue: the United Nations Convention on Contracts for the International Sale of Goods (CISG), often referred to as the Vienna Sales Convention.

Switzerland is a contracting state to the CISG. Thailand is currently not a contracting state.

Nevertheless, the CISG may still be relevant to a contract between a Thai seller and a Swiss buyer. If the parties simply agree that the contract is governed by “Swiss law”, the CISG may also apply as part of the Swiss legal system.

A company that specifically wants the sales law of the Swiss Code of Obligations to apply should therefore expressly exclude the CISG.

A possible clause could read:

This Agreement shall be governed by substantive Swiss law, excluding the United Nations Convention on Contracts for the International Sale of Goods (CISG).

The differences are not merely theoretical. The Swiss Code of Obligations, for example, distinguishes more clearly between defects, delay, impossibility and other types of contractual breach. The CISG, by contrast, uses a more unified concept of breach of contract and in particular recognises the concept of a fundamental breach.

The rules on cure, damages, inspection and notification of defects also differ.

This does not mean that the CISG is inherently disadvantageous. For companies dealing with customers in many countries, a harmonised international sales regime can be useful. The important point is to make a deliberate choice as to which legal framework should apply, rather than leaving the question unresolved.

Governing Law, Jurisdiction and Arbitration

In addition to choosing the governing law, the parties must decide where any dispute should be resolved.

A clause stating that “Swiss law applies” determines only the governing law. It does not determine whether, for example, a Swiss or Thai court will have jurisdiction.

Governing law and jurisdiction should therefore be addressed separately, for example by choosing Swiss law and an exclusive place of jurisdiction in Switzerland.

For international contracts, another practical question is equally important: Where are the assets against which a judgment would ultimately have to be enforced?

For larger cross-border transactions, it may therefore be appropriate to agree on arbitration instead of litigation before a state court. Both Thailand and Switzerland are parties to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. This provides an internationally established framework for the recognition and enforcement of arbitral awards.

This may be particularly useful where a decision will ultimately need to be enforced in the other country.

But, arbitration is not automatically the better option. For smaller claims, the costs of arbitration may be disproportionate. For substantial or high-value supply contracts, the parties should at least consider which dispute resolution mechanism is better suited to the commercial relationship.

If arbitration is chosen, the agreement should specify the arbitral institution or procedural rules, the seat of arbitration, the number of arbitrators and the language of the proceedings.

Be careful with general sales and purchasing terms

Companies that sell goods regularly often use their own general terms and conditions or standard terms of sale. Swiss business customers, in turn, often use their own purchasing terms.

This can lead to a so-called battle of forms: the Thai manufacturer refers to its own sales terms in its offer, while the Swiss buyer states in its purchase order that its own purchasing conditions apply.

The two sets of terms may conflict significantly, particularly in relation to warranties, liability, payment terms or jurisdiction.

For important business relationships, the parties should clearly specify which terms form part of the contract and which provisions take precedence in the event of a conflict.

Conclusion

Direct sales from Thailand into Switzerland are legally relatively straightforward. Precisely because a Swiss subsidiary is not required, however, the international sales contract should clearly allocate the cross-border risks.

For Thai manufacturers, four issues are particularly important: delivery and transfer of risk should be clearly regulated using appropriate Incoterms, warranty and liability provisions should reflect the specific products involved, differences between Thai and Swiss contract law should not be underestimated, and the governing law and dispute resolution mechanism should be expressly agreed.

Particular attention should be paid to the fact that, in Switzerland, a sales contract can generally be concluded even without a signed written agreement. Likewise, where Swiss law is chosen, the parties should consciously decide whether the CISG should apply or be expressly excluded.

A good international sales contract does not need to regulate every conceivable risk in an excessively lengthy document. It should, however, clearly answer what must be delivered, who bears which risks on the journey from Thailand to Switzerland, and what rights the parties have if the delivery does not proceed as agreed.

This article provides a general overview of international B2B sales contracts between Thailand and Switzerland and does not constitute legal advice for any specific case.