Commercial Agency Contracts in Vietnam

In Vietnam, there is no specific term that is translatable either literally or in the EU legal sense as “commercial agent”.

The Vietnamese prefer “Intermediary Commercial Activities” when it comes to the activity of agency.

The Vietnamese legislator put its eyes on such intermediary commercial activities indeed rather late. In the beginning, with a centrally planned economy, commercial activities were mainly performed by state-owned enterprises and conducted by direct transactions, hence the intermediary’s role was not being paid the attention that it deserves in a market economy. However, during and after the Đổi Mới-based reforms of 1986, agency, brokerage, and authorised dealers have started to be operated by state-owned organisations with the purpose of achieving the economic and social goals for the State, i.e. not exactly for the goal of conducting the business of those organisations themselves. In the activities of sale and purchase of export and import goods by authorised dealers, due to the implementation of the State monopoly policy on foreign trade, only the state-owned enterprises were allowed to be the entrusting / entrusted subjects. Such activities were carried out on the basis of an annual plan proposed by the President of the local People's Committee and accepted by the Ministry of Foreign Trade (Circular No. 03-BNgT / XNK dated 11 January 1984 of the Ministry of Foreign Trade regulates the mandate of import and export of goods).

For the activities of commercial agency, in the first places, a transition from Communism to private-owned businesses in the Southern provinces of Vietnam was introduced by giving the right to private business owners to sell the goods on the behalf of the State (Decision no. 100/CP dated 12 April 1977) and that very right belonged to state-owned enterprises too. After Đổi Mới, the activities of commercial intermediaries have been developed into four categories which are Representative of Business Entities, Commercial Brokerage, Sale and Purchase of Goods by Authorised Dealers and Commercial Agency, this subdivision being primarily of historical nature.

Agency Agreements are regulated partly by the Law on Commerce 2005 no. 36/2005/QH11 and for certain aspects by the Civil Code 2015.

Commercial Agency

According to Art. 166, Law on Commerce 2005 “Commercial agency means a commercial activity whereby the principal and the agent agree for the agent to conduct in its own name the sale or purchase of goods for the principal or to provide services of the principal to customers in order to receive remuneration.”
The operation of commercial agency contains two types of relationships: (1) The relationship between the representative and represented entity; (2) The relationship between the representative and any third parties. The represented entity and the third party do not deal with each other but perform such acts through the representative, the representative shall, on his/her own name, purchase or sell the goods the for represented entity or provide the services of the represented entity to the third party. This is clearly a crucial difference with how agency agreements are regulated in the European Union.

• The representative and the represented entity must be business entities.
• In commercial agency activities, the representative establishes transactions with a third party on its own behalf for the benefit of the principal to receive remuneration.
• A contract for commercial agency must be made in writing or “in another form with equivalent legal validity” (i.e. in writing).
• All the rights and obligations of the parties are stated in the Law on Commerce 2005.

Representation of Business Entities

According to Article 141, Law on Commerce 2005 no. 36/2005/QH11, “Representation of business entity means the agreement of one business entity (referred to as the representative) to act as authorised by another business entity (referred to as the represented entity) to conduct commercial activities in the name and under the instructions of the [represented] entity and to be entitled to receive remuneration for acting as representative.”.

• The representative and the represented entity must be business entities.
• The parties may agree for a representative to conduct a part or all of the commercial activities falling within the scope of activities of the represented entity (Art. 143, Law on Commerce 2005).
• A contract for representation of business entity must be made in writing or in another form with equivalent legal validity (Art. 142, Law on Commerce 2005).
• All the rights and obligations of parties are stated in the Law on Commerce 2005 and ancillary legislation.

Commercial Brokerage

According to Article 150, Law on Commerce 2005, “Commercial brokerage means a commercial activity whereby a business entity acts as an intermediary (referred to as the broker) between parties purchasing and selling goods and providing services (referred to as the principals) during the course of negotiations and signing contracts for purchase and sale of goods or provision of services, and is entitled to remuneration, pursuant to a brokerage contract.”

• The broker must be a business entity and possess broker license.
• The scope of brokerage is rather wide, it could be any business activities that is not forbidden by law.
• The contract of commercial brokerage must be made in writing.
• All the rights and obligations of parties are stated in the Law on Commerce 2005 and ancillary legislation.

Sale and Purchase of Goods by Authorised Dealers

According to Art. 155, Law on Commerce 2005, “Sale and purchase of goods by authorised dealer means a commercial activity whereby an authorised dealer carries out the sale and purchase of goods under its own name subject to terms agreed with the principal and is paid remuneration of a dealer.”

• The entrusting party may or may not be business entity but the entrusted subject (the dealer) must be a business entity.
• The scope of work: the dealer performs the sale and purchase of goods according to the principal’s requests and to the contract.
• A contract for sale and purchase of goods by authorised dealers must be made in writing or in another form with equivalent legal validity.
• All the rights and obligations of parties are stated in the Law on Commerce 2005 and ancillary legislation.

Under Vietnamese law, there is no explicit requirement regarding the appointment of agent to foreign organisations. It is considered simply as an ordinary commercial activity, being regulated by the Law on Commerce 2005 and the Civil Code 2015. Bearing similarities with any other civil transactions, such activity needs to meet three essential conditions for its validity, which are i) the subjects have civil legal capacity and capacity for civil acts appropriate to the established civil transaction; ii) the subjects participating in the transaction act entirely voluntarily and iii) the objective and contents of the civil transaction are not contrary to the law or social morals according to the Civil Code.

In addition, commercial agency is also under the regulation of the Law on Commerce. Hence, two more specific requirements that any parties in the agency business need to satisfy, regardless of their nationality, are iv) both parties need to be legal entities and v) the contract for commercial agency must be made in writing or in another form with equivalent legal validity. As any civil transaction, the law leaves freedom for the parties to negotiate their own agreements.

Yes. According to point 2, Art. 5, Law on Commerce 2005 on the applicability of international treaties, foreign law and international commercial practice, “Parties to a commercial transaction with a foreign element may agree to apply foreign law or international commercial practice if such foreign law or international commercial practice is not contrary to the fundamental principles of the law of Vietnam.” Therefore, it is fully allowed by Vietnamese law. However, if parties are silent on the choice of governing law, the law of Vietnam shall be applied, since the Law on Commerce’s scope includes all commercial activities conducted within the territory of the Socialist Republic of Vietnam.

Any parties who obtained foreign judicial or arbitral decisions in their favour would need to consider very carefully the recognition of such decisions in Vietnam. Unfortunately, Vietnam notably possess one of the highest rate of refusal of arbitral awards in the world, with 46% of applications for enforcement of foreign arbitral awards from 2005 to 2014 reject by The Supreme Court. It is even harder when it comes to foreign judicial orders. According to Art. 423 regarding civil decisions and judgments of foreign courts recognised and permitted for enforcement in Vietnam, there are 3 cases where the above-mention decisions and judgements are recognised and permitted for enforcement in Vietnam, which are i) decisions and judgments of a foreign court prescribed in an international treaty to which such country and the Socialist Republic of Vietnam are members; ii) decisions and judgments of courts of a foreign country where such foreign country nor the Socialist Republic of Vietnam is a member of an international treaty containing provisions on recognition and permission for enforcement of judgments and decisions of foreign courts on the basis of the principle of reciprocity; iii) civil decisions and judgments of foreign courts the recognition and permission for enforcement of which are prescribed by Vietnamese law. Until now, Vietnam only has bilateral treaty regards recognition and permission of decisions and judgments of foreign courts with very few Countries that were primarily part of the then Soviet Bloc, namely Russia, Czechia, Slovakia, Poland, Hungary, Cuba, Laos, China, North Korea, Ukraine, Belarus, Mongolia and notably France. The cases mentioned in ii) and iii) above have not witnessed any specific guidance from Vietnamese legislator and regulator. It means that the enforcement of these cases is very much uncertain.

As for the enforcement of arbitral awards in Vietnam, Art. 39.2 Civil Procedure Code 2015 (CPC 2015), the enforcement of foreign awards is conditional upon either: (a) the award debtor being domiciled or having its headquarters in Vietnam, or (b) the asset(s) related to the enforcement being located in Vietnam. Also, all involved parties must bear in mind that there is a limitation to filing of an application for recognition and enforcement of a foreign arbitral award, which is three years of the date from which the award has legal effect. Furthermore, in Art. 453, CPC 2015, there are few formalities requirements for documents which are: “The petition must be accompanied by documents and materials prescribed in international treaties to which Vietnam is a member; where there is no such international treaty, or where international treaties are silent on this matter, the following documents and materials must accompany the petition: (a) Original copy or certified copy of the award of foreign arbitrators; (b) Original copy or certified copy of the arbitration agreement between the parties.
2. Documents and materials enclosed with the petition in foreign languages must be accompanied by their Vietnamese translations which are legally certified or notarised.” In practice, there are even more documents being required such as enterprise registration certificates, legal opinions on foreign laws, and written confirmations of couriers to prove service of certain documents which could lead to very much of hassle to any parties. Last but not least, all documents filed in for recognition and enforcement will be published, unless those documents are proven to be related to state secrets, trade secrets, or personal information relating to individuals’ private lives. The possibility of being a part of public records might not fit with the privacy protection which has become one of the strongest suit for arbitration.

In commercial agency, the agent only performs the purchase and sale of goods on behalf of the represented entity to receive remuneration. Therefore, the nature of the commercial agency is contract of service. Because of the service contract nature, the commercial agency contract shall terminate in the following cases:

• either party might terminate the commercial agency agreement without the obligation of presenting any reason but being obliged to give written notice to other party within a reasonable period of time which must not be less than 60 days prior to the termination date;
• the agency agreement terminates when there is a mutual consent by both parties;
• there is substantial violation to agreement of one party.

If the represented entity serves a notice of termination of contract pursuant to clause 1 of article 177, Law on Commerce 2005, the agent has the right to request the represented entity to pay damages for the period of time during which the agent acted as agent for the principal. The amount of such damages shall be the average monthly remuneration of an agent for each year that the agent acted as agent for the represented party.

If the term of agency was less than one year, the amount of such damages shall be calculated as the average monthly remuneration of an agent during the term of the agency. If an agency contract is terminated at the request of an agent, the agent does not have the right to claim damages from the represented entity for the term for which the agent acted as agent for the represented entity.

According to Art. 177 Law on Commerce, i) if the represented entity serves a notice of termination of contract pursuant to clause 1 of article 177, Law on Commerce 2005, the agent has the right to request the represented entity to pay damages for the period of time during which the agent acted as agent for the principal. The amount of such damages shall be the average monthly remuneration of an agent for each year that the agent acted as agent for the represented party. If the term of agency was less than one year, the amount of such damages shall be calculated as the average monthly remuneration of an agent during the term of the agency; if an agency contract is terminated at the request of an agent, the agent does not have the right to claim damages from the represented entity for the term for which the agent acted as agent for the represented entity.