Guide On Agency and Distribution Legislation in Vietnam

February 17th, 2023
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In Vietnam, there is no explicit general definition of ‘agency’.  An agent is understood to be a type of commercial intermediary. Agency is manifested in several forms. In this chapter, we limit our discussion to commercial agency, the most popular form of agency. Commercial agency is regulated by the Commercial Code.[1] The Commercial Code considers commercial agency to be a commercial act and the rights and obligations of the parties participating in such a relationship are regulated by Articles 166–177.

Likewise, there is no legal definition of ‘distribution’ although some of the terms used in a traditional agency relationship are also used to describe a distribution relationship. Practically, distribution is understood as a relationship in which one party (seller) sells a product and another party (distributor) purchases the product, acquiring ownership, but with the understanding that the distributor will resell it, sometimes under terms and conditions imposed by the seller. Distribution, as it is understood in the law, is merely a sale and purchase as defined in the Commercial Code. Regulations on the sale and purchase of goods and services are provided in Articles 24–87 of the Commercial Code.

Perhaps the principal difference between an agency relationship and a distribution relationship is transfer of ownership of the goods. In an agency, ownership of goods remains with the principal until it is transferred to a customer. That is, the agent sells goods to a customer that are actually owned by the principal. Similarly, if an agent purchases goods for the principal, the ownership of the goods is transferred directly from the seller to the principal. Conversely, in a distribution relationship, ownership is transferred from the seller to the distributor at the time of sale. The distributor then resells the goods to its customers. That is, the distributor resells goods which it owns to a buyer and does so on its own terms.

Agreements that establish agency or distributor relationships are subject to the Commercial Code. Unless the Commercial Code provides otherwise, general regulations of contract law, as provided in Vietnam’s Civil Code,[2] apply.

Certain agency/distribution relationships, such as insurance agency or multilevel selling, are also subject to special laws. The discussion in this chapter, however, is limited to the general regulations of commercial agency and distribution, as regulated in the Commercial Code and the Civil Code.

There is one more preliminary matter. Vietnam recognizes that some commercial transactions involve at least one party that is a foreign individual/entity, or that the transaction is one in which (i) the assets involved are located overseas; (ii) the basis for the establishment, modification, or termination of the transaction is the law of a foreign country; or (iii) the basis of the transaction arose in a foreign country. In such cases, the parties may choose foreign law, provided that such law does not conflict with the fundamental principles of Vietnamese law.

  1. AGENCY
  • Definition of Various Types of Agency and Criteria to Distinguish
  • Independent Commercial Agency

According to the Commercial Law, commercial agency is a commercial activity in which a principal and an agent agree that the agent, in its own name (as agent for the principal), will sell or purchase goods for the principal or will provide the principal’s services to customers for remuneration.[3] In a sales agency, ownership of goods remains with the principal until the goods are transferred to a customer. Similarly, if the agent is to purchase goods for the principal, ownership is transferred directly from the selling party to the principal.[4]

In a commercial agency, the principal and agent must both be traders.[5] A trader is an individual/entity that has been licensed to conduct trading activities.

The Commercial Code recognizes and specifically defines three forms of agency:

  • (1) Off-take agency: A form of agency in which the agent acts to sell or purchase a whole quantity of goods or provides a complete service for the principal.[6]
  • (2) Exclusive agency: A form of agency in which a principal appoints only one agent, within a specified geographical area, to sell or purchase one or a number of specified lines of goods or to provide one or a number of specified types of services.[7]
  • (3) General agency: A form of agency in which the agent (called a general agent) organizes a network of sub-agents to conduct the sale or purchase of goods or to provide services for the principal. A general agent represents the sub-agents vis-à-vis the principal. Sub-agents operate under the management and in the name of the general agent,[8] rather than in the name of the principal.
  • The Commercial Code also provides that parties can agree on other forms of agency.

1.1.2     Sales Representatives

Without a written agency agreement, use of a sales representative does not create an agency relationship in Vietnam. The sales representative relationship is generally governed by the rules on employment and remuneration as between an employer and employee.

1.2      Basic Aspects of Commercial Agency Agreements under the Commercial Code (and Court Practice) [9]

1.2.1    Formalities

A commercial agency agreement is required, and it must be in writing or in another form with equivalent legal validity.[10] An acceptable equivalent form includes telegrams, telexes, facsimiles, or data messages.[11] Data messages are information created, sent, received, and saved by electronic means,[12] and they may be in the form of electronic data interchange, electronic documents, emails, telegrams, facsimiles, and other similar forms.[13]

As the law requires a commercial agency agreement to be in writing or in an equivalent form, failing to comply will automatically invalidate the agreement in most cases. Article 117 of the Civil Code reads ‘the formality of a civil transaction is a condition for its validity, if it is so provided by law’. Article 119 of the Civil Code further emphasizes: ‘In case a civil transaction, as provided by law, must be made in writing, notarized, certified, or registered, such requirement must be complied with.’

There is, however, one important exception to this rule. According to Article 129.1 of the Civil Code, where the law requires the formality of a civil transaction to be made in writing, but the parties fail to do so and one or all parties have fulfilled at least two-thirds of their obligations in the transaction then, at the request of one or all of the parties, a Court shall issue a decision on recognition of the validity of the transaction.

That is to say, if a commercial agency agreement is not made in writing (e.g., if a principal and an agent conclude an agency relationship verbally and between themselves), that agreement will be considered invalid until a party has fulfilled two-thirds of its obligations under the agency agreement (most likely after the principal transfers two-thirds of the agreed quantity of goods to the agent).

There is no requirement regarding the language of a commercial agency agreement. The parties are free to agree on any language for their agreement.

1.2.2     Exclusivity

As mentioned in section 1.1.1, a principal may appoint an exclusive agent for one or a number of products/services within a specified territory. Of note, by law, an exclusivity clause only governs the exclusivity of an agent vis-à-vis a principal. It means that, under an exclusive agency, the principal is only restricted from appointing a second agent to sell or purchase products/goods within a specified territory. A principal is not, itself, restricted from selling or buying the products/goods within such territory. It is, therefore, advisable that the parties should address this issue when drafting the agency agreement.

Unless an exclusive agency is established (as agreed by the parties or as required by law), a principal may appoint more than one agent for one or a number of products/services for a specified territory. Similarly, an agent has the right to accept appointment from many principals. In other words, an agent may act for many principals for many products/services within a certain territory.[14]

1.2.3     Remuneration of an Agent (Commissions)

Agency remuneration may be freely agreed between the principal and agent.

In case the parties do not otherwise agree, the Commercial Code provides two methods to calculate agency remuneration. They are:[15]

  • (a) Commission method: In cases where the principal fixes the sale/purchase price of goods or a service charge to the customer, an agent is entitled to a commission. In that case, the commission is calculated as a percentage of the sale/purchase price of goods or the service charge fixed by the principal.[16]
  • (b) Price differential method: An agent is entitled to a price differential in the case where the principal does not fix the sale/purchase price of goods or a service charge to the customer. Instead, the principal determines a fixed amount that it wants to receive (in the case of sales agency) or to pay (in the case of purchase agency). The agent is free to sell/provide the goods/service or to purchase the goods at a price determined by the agent (more exactly, the agent is free to negotiate price with the customer), provided that the principal receives only its fixed amount. Anything above (in the case of a sales agent) or below (in the case of a purchase agent) the fixed amount determined by the principal belongs to the agent.[17]

In case there is no agreement on remuneration, the amount will be:[18]

  • (a) the actual agency remuneration previously paid by the principal to the agent;
  • (b) if (a) does not apply, the average amount of remuneration for an agent applicable to the same type of goods and services which the principal has paid to other agents; or
  • (c) if neither (a) nor (b) can be applied, the normal market price for an agent applicable to the same type of goods and services.

1.2.4     Territory

The territory is usually geographically limited and is related to exclusivity. The parties can agree on the territory within which the agency applies. If there is no agreement, the agent is not limited to a specific territory.

1.2.5     Main Obligations of a Principal

Unless otherwise agreed, a principal has the following obligations:[19]

  • (a) to provide guidelines and information to facilitate the performance of the agency agreement by the agent;
  • (b) to be liable for the quality of goods that an agent sells or purchases and for the quality of services its agent provides;
  • (c) to pay consideration and other reasonable expenses as agreed with the agent;
  • (d) to return any security required from the agent after the agency agreement terminates; and
  • (e) to be jointly liable for a breach of law by the agent if the breach was caused, in part, through the fault of the principal.

1.2.6     Main Obligations of an Agent

Unless otherwise agreed, an agent has the following obligations:[20]

  • (a) to sell or purchase goods and to provide services to customers at the price fixed by the principal;
  • (b) to comply with agreements made with the principal with respect to the delivery or receipt of goods or money;
  • (c) to provide security (if agreed by the parties) for performance of its contractual obligations;
  • (d) in the case of a sales agent, to pay proceeds to the principal from the sale of goods; in the case of a purchase agent, to deliver the goods purchased to the principal; in the case of an agent providing services, to pay the principal the charges it collects for providing the services;
  • (e) in the case of a sales agent, to preserve the goods after receiving them from the principal; in the case of a purchase agent, to preserve the goods it purchases and before it delivers the goods to the principal;
  • (f) to be jointly liable to third persons for the quality of goods or services if the agent commits any fault;
  • (g) to comply with inspection and supervision by the principal and to report to the principal on its activities; and
  • (h) where the law requires that the agent may only sign an agency agreement with one principal – for example, with respect to a specified type of goods or service – the agent must comply.

1.2.7     Duration

The parties can agree on the duration of the agency. The parties can also agree on the conditions under which a party can unilaterally terminate or cancel an agency agreement.

Unless the parties otherwise agree, an agency will terminate after a reasonable period of time but no less than sixty days from the date on which either party serves a notice of termination on the other party.[21] This means that either party can unilaterally terminate the agency relationship after a ‘reasonable period of time’ by giving sixty days prior notice. The law does not elaborate on a ‘reasonable period of time’. Defining this concept may be a matter of judgment that accounts for specific conditions of the agency relationship, past practice between the parties, and/or existing commercial practice.

1.2.8     Indemnification upon Termination

If the principal terminates the agency agreement by giving sixty days prior notice as mentioned in section 1.2.7, the agent has the right to request the principal to pay termination compensation for the period of time during which the agent acted as agent for the principal.[22]

Termination compensation, for each year, will be the average monthly consideration, with a minimum payment of one month.

If the agent gives notice to terminate the agency agreement, the agent does not have the right to request termination compensation. In such case, similarly, the principal does not have the right to request termination compensation from the agent.[23]

The parties can, of course, agree otherwise in the agency agreement. For example, the agent may agree to waive its right to request termination compensation or the agent may agree to compensate the principal if the agent unilaterally terminates the agency agreement.

The termination compensation mentioned in this section is additional to other remedies available under the agency agreement and/or the law in the case where termination is caused by breach of a party.

1.2.9     Non-competition after Termination

The Commercial Code does not specifically mention this matter. However, the parties can agree on conditions of non-competition that will apply after terminating the agency agreement.

1.2.10  Agency with Foreign Elements

Under the Law on Foreign Trade Management,[24] a Vietnamese trader is permitted to act as an agent to sell or purchase goods in Vietnam for a foreign principal, provided that the goods are not on the lists of banned or suspended goods for import/export. Such lists are provided under a number of legal documents guiding the implementation of the Law on Foreign Trade Management in different sectors.

Furthermore, when a trading license is required for particular goods, the agency agreement should not be entered by the parties prior to the trading license being obtained by the Vietnamese agent. Otherwise, the validity of the agreement may be questioned as it was signed without necessary licenses in place.

  1. DISTRIBUTION

2.1        Definitions

As mentioned above, there is no definition of distribution in the law. As discussed at the beginning of this chapter, the Commercial Code considers ‘distribution’ as a sale/ purchase relationship. Unlike agency, title to goods passes from the selling counterparty to the distributor.

2.2       Basic Aspects of Distribution Agreements under Commercial Law and (Court Practice) [25]

2.2.1     Formalities

There is no requirement for particular formalities for a domestic distribution agreement. It can be made in writing, verbally, or by an act of the parties.[26] However, the Commercial Code expressly provides that an international sale and purchase agreement must be executed in writing or in another form with equivalent validity. Thus, a distribution agreement between a foreign principal and a Vietnamese distributor cannot be made orally nor be inferred from the conduct of the parties.

Similar to the case of agency agreements, there is no requirement for the language of a distribution agreement. The parties can agree on the language of the agreement.

2.2.2     Exclusivity

The parties can agree that a distributor will be the seller’s exclusive distributor for one or more products/services within a specified territory. Such an agreement is, however, subject to the regulations of the Competition Law.[27] If an exclusivity clause is considered to have the effect of restraining competition or to abuse a dominant market position and if one of the counterparties has a certain minimum market share, the parties may be required to remove the clause from the agreement. In such case, the whole agreement will not be void; only the exclusivity clause will be invalidated. In addition to the removal of the exclusivity clause, the parties to an agreement which restrains competition or the party who abuses its dominant market position may be subject to severe fines. Those fines are set forth in the Competition Law and its guiding regulations.

2.2.3     Territory

The parties can agree to limit the distributor’s activities to a certain territory. Such an agreement is also subject to regulations under the Competition Law.

2.2.4     Obligations of Supplier

The Commercial Code outlines the main obligations of the seller vis-à-vis the distributor:

  • (a) Delivery of goods and vouchers relating to the goods: The seller is obliged to deliver goods and the vouchers that relate to the goods. They must be delivered in a specified quantity and quality, within a specified time-limit, and at the location and in the manner agreed.[28]
  • (b) Ensure the ownership of goods: The seller must ensure that (i) its title in the goods sold to the distributor is not subject to dispute, (ii) the goods are lawful, and (iii) the transfer of the goods is lawful.[29]
  • (c) Warranty: If goods are sold with a warranty, the seller is liable for the goods for the entire term agreed in the warranty.[30] This warranty extends to the distributor and to any party purchasing the goods from the distributor.

The seller has other obligations as agreed in the distribution agreement or as provided by law.

2.2.5     Obligations of Distributor

The Commercial Code outlines the main obligations of the distributor:

  • (a) Payment: The distributor is obliged to pay the amount due at the time, in the location, and in the manner prescribed in the distribution agreement.[31]
  • Unless otherwise agreed in the distribution agreement, the distributor has the right to suspend its payment[32] if:
  • the distributor has proof of fraud by the seller;
  • the distributor has proof that the goods are subject to a dispute; or
  • the distributor has proof that the seller has delivered goods which do not conform with the agreement.
  • (b) Acceptance of goods: The distributor is obliged to accept the goods in accordance with the agreement and to take reasonable steps to assist the seller to deliver the goods to it.[33]

The distributor has other obligations as agreed in the distribution agreement or as provided by law.

In a distribution agreement, the parties usually agree on certain terms under which the distributor will resell the goods. In such case, the distributor must comply. Those terms are, however, subject to the Competition Law.

2.2.6     Term

The Commercial Code does not mention the term of a distribution agreement and the parties can agree on the term. The parties can also agree on conditions that relate to unilateral termination or cancellation of their distribution agreement.

2.2.7     Indemnification upon Termination

There is no specific regulation in the Commercial Code on indemnity upon termination of a distribution agreement. Generally, it is subject to agreement of the parties. In many circumstances, termination may arise from a breach of a distribution agreement which causes damages to the non-terminating party. If this is the case, subject to agreement of the parties on limitation of responsibilities and a non-breaching party’s statutory duty to restrict loss, a breaching party is liable for the direct and actual losses which the non-breaching incurs.

2.2.8     Non-competition after Termination

Similarly, this matter is not mentioned in the Commercial Code and the parties may agree on terms.

 

This chapter has been reviewed by the Author and is up to date as of March 2021. 

[1]Code No. 35/2005/QH11 (Commercial Code) passed by the 11th National Assembly of Vietnam, at its 7th session on 14 Jun. 2005. The Commercial Code came into effect on 1 Jan. 2006.

[2]Code No. 91/2015/QH13 (Civil Code) passed by the 13th National Assembly of Vietnam on 24 Nov. 2015. The Civil Code came into effect on 1 Jan. 2017.

[3]Article 166, Commercial Code.

[4]Article 170, Commercial Code.

[5]Article 167, Commercial Code.

[6]Article 169.1, Commercial Code.

[7]Article 169.2, Commercial Code.

[8]Article 169.3, Commercial Code.

[9]Case law is a source of law in Vietnam, provided that it is selected and published by the Council of Justices of the Supreme People’s Court. However, as of April 2018, no case law on commercial agency agreements has been selected and published by the Council of Justices of the Supreme People’s Court as a source of law.

[10]Article 168, Commercial Code.

[11]Article 3.15, Commercial Code.

[12]Article 3.5, Commercial Code.

[13]Article 10, Law No. 51/2005/QH11 (Law on e-transactions) passed by the 11th National Assembly of Vietnam, at its 8th session on 29 Nov. 2005. The Law on e-transactions came into effect on 1 Mar. 2006.

[14]Article 174.1, Commercial Code.

[15]Article 171.1, Commercial Code.

[16]Article 171.2, Commercial Code.

[17]Article 171.3, Commercial Code.

[18]Article 171.4, Commercial Code.

[19]Article 173, Commercial Code.

[20]Article 175, Commercial Code.

[21]Article 177.1, Commercial Code.

[22]Article 177.2, Commercial Code.

[23]Article 177.3, Commercial Code.

[24]Law No. 05/2017/QH14 on Foreign Trade Management passed by the 14th National Assembly of Vietnam, at its 3rd session on 12 Jun. 2017. The Law on Foreign Trade Management came into effect on 1 Jan. 2018.

[25]Case law is a source of law in Vietnam, provided that it is selected and published by the Council of Justices of the Supreme People’s Court. However, as of April 2018, no case law on distribution agreements has been selected and published by the Council of Justices of the Supreme People’s Court as a source of law.

[26]Articles 24 and 74, Commercial Code.

[27]Law No. 23/2018/QH14 (Competition Law) passed by the 14th National Assembly of Vietnam, at its 5th session on 12 Jun. 2018. The Competition Law came into effect on 1 Jan. 2019.

[28]Articles 34 and 42, Commercial Code.

[29]Article 45, Commercial Code.

[30]Article 49, Commercial Code.

[31]Article 50, Commercial Code.

[32]Article 51, Commercial Code.

[33]Article 56, Commercial Code.

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