International Franchise Disclosure Laws
Authors: Nguyen Anh Tuan, bizconsult law LLC and Mai Minh Hang, Russin & Vecchi, Hanoi, Vietnam. Published by American Bar Association (ABA) 2009.
I. WHAT IS A FRANCHISE?
A. Scope of law
In Vietnam, the basic regulations on franchising are provided in the Commercial Law adopted by the National Assembly on 14 June 2005 ("Commercial Law"). These regulations are elaborated in Decree No. 35/2006/ND-CP of the Government dated 31 March 2006 ("Decree 35"), and Circular No. 09/2006/TT-BTM of the Ministry of Industry and Trade ("MOIT") (MOIT was formerly known as the Ministry of Trade) dated 25 May 2006 ("Circular 09"). Related regulations on franchising can also be found in the Intellectual Property Law ("Intellectual Property Law") adopted by the National Assembly on 29 November 2005, and the Technology Transfer Law ("Technology Transfer Law") adopted on 29 November 2006.
The Vietnamese franchise law adopts a familiar regulatory model with prior disclosure obligations supplemented by moderate registration and relationship requirements. It nevertheless displays a high level of official involvement in franchising activities which is not unusual in developing countries. However, the general obligations of the Commercial Law are prefaced with the words "unless otherwise agreed," thus raising issues as to the mandatory prescriptions of Decree No.35 and Circular No.09.
The Commercial Law defines franchising as a commercial arrangement under which a party - the Franchisor - grants the Franchisee the right to conduct on its own behalf the business of selling goods or supplying services under the following conditions: (1) the Franchisee may carry out the business under a format determined by the Franchisor and may affix the trademarks, trade names, business logos, slogans, and advertisements of the Franchisor at the Franchisee's business premises; and (2) the Franchisor has the right to control and assist the Franchisee in the conduct of the franchised business. The definition does not incorporate any "fee" or "payment" requirement.
Decree 35 further expands the definition of franchising to include master franchising and sub-franchising and area development arrangements. The definition of "franchise" includes: (1) rights received by a party (i.e., the Franchisee) from a party (i.e., the Franchisor) to carry out the business of selling goods and supplying services under a system determined by the Franchisor and to affix trademarks, trade names, business logos, slogans, and advertisements of the Franchisor at the Franchisee's business premises; (2) rights received by a primary Franchisee from a Franchisor under a master franchise agreement; (3) rights received by a Sub-Franchisee from a Sub-Franchisor (i.e., the primary Franchisee) under a master franchise agreement; and/or (4) rights received by a Franchisee from a Franchisor under a franchise contract, which allows a Franchisee to carry out the franchised business at more than one location within a territory.
The legal relationship between the Franchisor and the Franchisee is established by a franchise agreement that is made in writing and is governed by the Commercial Law. Although franchisors must register "franchising activities" prior to commencing franchising (ie prior to the offering and sale of franchise agreements), the franchise agreement itself need not be registered
In addition to registration Decree 35 imposes two further prerequisites to franchising: (1) the business system to be franchised must have been operating for at least one year and (2) the goods and services of the franchise area not on the list of goods and services in which business is prohibited. The only prerequisite for a franchisee is that it must have the business registration appropriate to the subject of the franchise.
B. Applicability to Master Franchises
A Franchisor is defined to include: (a) a person who grants a franchise, and (b) a Sub-Franchisor in its relationships with a Sub-Franchisee. Under Decree 35, a Master Franchise is defined as a franchise in which the Franchisor grants to a Sub-Franchisor or Master Franchisee the right to grant a sub-franchise. That is, the terms "Master Franchisee" and "Sub-Franchisor" have the same meaning: they are a Master Franchisee in relation to a Franchisor, or a Sub-Franchisor in relation to a Sub-Franchisee.
When a Master Franchise originates from abroad, the local Master Franchisee cannot sub-franchise to a Sub-Franchisee unless that local Master Franchisee has already run the business for at least one year and has obtained a written consent from the Franchisor to sub-franchise. The purpose of this restriction, as we understand, is to help ensure the sustainable development of a franchising network. The theory is that the Master Franchisee should gain certain experience to run the franchised business before sub-franchising to others.
Vietnam's franchise law is silent on requirements for territorial development obligations or a contractual right/obligation to open and operate more than one franchised unit in a Master Franchise granted by a foreign Franchisor.
The definition of a franchise is broad. Although there are no expressed exemptions, exclusions or exceptions as to what is a "franchise", partnership relationships, trademark licensing, and wholesale and distribution agreements are most likely not considered to be a franchise. Specifically, a partnership relationship is governed by the Enterprise Law, trademark licensing is governed by the Intellectual Property Law, credit card service arrangements are governed by the Law on Credit Organisations, and a distribution agreement is simply seen as a sale and purchase agreement governed by the Commercial Law.
D. Discretion of Regulatory Authorities
The regulatory authorities for franchise activities include the MOIT and provincial Department of Industry and Trade ("DOIT"). The MOIT has the power: (a) to provide guidance for implementation of policies and legislation on franchising; and (b) to organize the registration of franchises.
The MOIT receives the registration of (a) franchises from abroad to Vietnam, and franchises from an export processing zone, a non-tariff area or a separate customs area within Vietnam to other locations within Vietnam; and (b) franchises from Vietnam to a foreign country, and franchises from locations within Vietnam to an export processing zone, a non-tariff area or a separate customs area within Vietnam.
The DOIT of the province in which a Franchisor registers its business incorporation receives the registration of the franchise to be granted to the local Franchisees. Based on the documentation that is submitted for registration, MOIT or the DOIT has discretion to determine whether or not a particular distribution or licensing arrangement is a "franchise". A distribution arrangement is seen as a sales arrangement. It is subject only to the condition that the distributor must have registered its retail or wholesale business.
Vietnam's franchise law applies to the distribution of goods and services in Vietnam. It applies to franchising activities between Vietnamese parties. It applies to a foreign Franchisor who grants a franchise to a Franchisee in Vietnam, or a Vietnamese Franchisor who grants a franchise to a Franchisee in a foreign country.
The franchise law does not govern relationships involving the sale of goods, including sales to citizens, sales to franchised businesses, and sales that occur in Vietnam. Purchase and sale of goods is simply a commercial activity and is generally subject to the Commercial Law.
II. WHO MUST PROVIDE DISCLOSURE?
The Franchisor must provide a prospective Franchisee or Master Franchisee with a disclosure document entitled "Introduction of the Franchise Business" and a copy of the draft franchise agreement at least fifteen working days prior to the execution of a franchise agreement, unless the parties otherwise agree. Introduction of the Franchise Business must be prepared according to the standard form provided in Circular 09.
B. Master Franchisee
The terms Master Franchisee and Sub-Franchisor are defined as an entity that is a Franchisee in relation to a master franchise, and a Franchisor in relation to a sub-franchise granted under a master franchise. Accordingly, a Sub-Franchisor must comply with pre-sale disclosure requirements as if it were a primary domestic Franchisor. In addition, the domestic Sub-Franchisor is also required to provide a Sub-Franchisee with the contents of the Master Franchise Agreement and information about the Franchisor. A Sub-Franchisor is also required to inform a Sub-Franchisee of remedies in case the Master Franchise Agreement is terminated.
C. Franchise Consultant/Agent/ Broker
There is no requirement that a franchise consultant, agent or broker disclose information to a prospective Master Franchisee or Franchisee.
D. Franchisor or Others in Master Franchise Arrangement
As mentioned in Section II.B., in a sub-franchise agreement, pre-sale information disclosure to Sub-Franchisees is the obligation of the Master Franchisee/Sub-Franchisor only. Vietnam's franchise law does not require a foreign Franchisor to disclose pre-sale information to a Sub-Franchisee who receives the franchise from the Sub-Franchisor under a sub-franchising agreement. If a foreign Franchisor franchises its business to a local Master Franchisee, the local Master Franchisee becomes a Sub-Franchisor and has the sole responsibility to its Sub-Franchisees in Vietnam to disclose the required information.
III. WHO MUST RECEIVE DISCLOSURE?
A. Scope of Law
Decree 35 provides that the Introduction of the Franchise Business must be sent to prospective Franchisees, including a primary Franchisee and a Master Franchisee who has a direct relationship with the Franchisor, and to a Sub-Franchisee who is granted the franchise by the Master Franchisee/Sub-Franchisor.
A prospective Franchisee must receive the Introduction of the Franchise Business. However, it is unclear who may receive the Introduction of the Franchise Business on behalf of the Franchisee. Generally, as the prospective Franchisee must be a company incorporated under the Enterprise Law, the legal representative must receive the Introduction of the Franchise Business on behalf of the Franchisee. Full name and signature of the legal representative of a company are identified in the business registration certificate of that company.
B. Types of Franchisees
Vietnam's franchise law is unclear on disclosure requirements in the case where a franchise agreement is renewed or is transferred to a prospective Franchisee. In the case of renewal, the disclosure requirement does not seem to apply. This is because the law requires the Franchisor regularly to update its Franchisees on changes in the franchise system. See Section V.BB below. Therefore, a Franchisee should be aware of all information about the Franchisor and the franchise system until its franchise agreement expires.
Decree 35 requires a Franchisee who intends to transfer a franchise to another prospective Franchisee to make a written request to its direct Franchisor. The direct Franchisor must give a written response within fifteen days from the date on which it receives the request. If the direct Franchisor approves the transfer, the transferee of the franchise will replace the transferor in the relationship. However, it is unclear whether the disclosure requirement must be repeated in order for the transferee to become a Franchisee.
A Master Franchisee, as the original Franchisee, must receive the Introduction of the Franchise Business.
Vietnam's franchise law does not distinguish among Franchisees for purposes of the disclosure requirement. Disclosure must be made even if a Master Franchisee/an existing Franchisee is buying an additional franchise, even if the prospective Franchisee is a sophisticated, large or experienced Franchisee, and even if the prospective Franchisee is the sole Franchisee or a Master Franchisee.
IV. WHEN MUST DISCLOSURE BE FURNISHED?
A. Timing for Disclosure
Decree 35 requires that disclosure be made at least fifteen working days before a franchise agreement is executed, unless the Franchisor and Franchisee agree on a longer time. That is, the Franchisor and Franchisee can agree on the timing for disclosure, but it cannot be less than fifteen working days.
B. Letters of Intent
Letters of intent are not specifically included in the definition of a franchise agreement, but they could easily fall within the broad definition of a franchise agreement.
If the effect of a letter of intent is to bind the parties to sign a definite franchise agreement, upon, say, the clear occurrence of certain events, we believe that disclosure must be made to a prospective Franchisee/Master Franchisee before it signs such a letter of intent.
C. Methods of Delivery of a Disclosure Document
Vietnamese franchise law does not prescribe how a Disclosure Document is delivered by the Franchisor to a prospective Franchisee. However, given the requirement for strict adherence to the time frame, the need to obtain signed receipts from the Franchisee, and the importance of ensuring that the franchise agreement and related documents are correctly signed means that, in almost all situations, disclosure should be given in hard copy by hand or by normal mail.
D. Ongoing Disclosure Obligations
As mentioned in Section III.B., a Franchisor is required to update its Franchisees with all significant changes related to its franchise system. A "significant change" is defined as any change that may have an impact on the franchised business activities of a Franchisee.
Circular 09 further requires the Franchisor to report to the MOIT or the DOIT (as the case may be) any change in the: (a) name of the Franchisor; (b) address of the head office; (c) telephone and fax number; (d) scope of business; (e) type of business to be franchised; or (f) industrial property rights associated with the franchise. The report must be made within thirty days from the date on which the change occurs and must be enclosed with all documents that support such changes. The report must be made on the standard form provided in Circular 09.
V. INFORMATION TO BE INCLUDED IN DISCLOSURE DOCUMENT
Information to be disclosed is specifically described in the standard form of the Introduction of the Franchise Business attached to Circular 09. A prospective Franchisee is urged to look at all relevant regulations on franchising, to talk with existing Franchisees, and to seek advice from independent legal, accounting, and business advisors before entering into a franchise agreement.
A. The Franchisor and Other Parties
The Introduction of the Franchise Business must contain the Franchisor's name, address of head office, incorporation date, scope of business, and type of business to be franchised. The Franchisor must indicate whether it is a primary Franchisor or a Sub-Franchisor and whether it has registered the franchising activities with the appropriate agencies. The Introduction of the Franchise Business must also contain a description of the Franchisor's organizational structure, including the department in charge of the franchising activities of the Franchisor.
The law requires the Franchisor to provide a prospective Franchisee with a description of the general market and the Vietnamese market for the products and services being franchised, including the market where the franchise business will operate. The Franchisor must provide the Franchisee with information on prospects for development of these markets.
The law does not require the Franchisor to disclose information regarding its parent, affiliates, and predecessors.
B. Business Experience of Management of Franchisor
The Introduction of the Franchise Business must provide a prospective Franchisee with information on the business and management experience of the Franchisor. The Franchisor must disclose background information on members of the Board of Directors, including their names, positions and business experience. In addition, the Franchisor must provide information on its experience in the franchising business. However, Vietnam's franchise law and the Introduction of the Franchise Business do not require a minimum term of relevant business experience.
C. Litigation History
The Franchisor is required to disclose pending lawsuits in which the Franchisor is involved and which relate to its franchising activities, plus all lawsuits that occurred during the preceding year. This includes disclosure of civil actions by Franchisor against a Franchisee or vice-versa. We note that an entity such as a Franchisor is not subject to criminal lawsuit under the Penal Code. The Franchisor is not required to disclose information on civil, administrative or criminal proceedings that are not related to its franchising activities.
Because the law refers only to "litigation," it appears that a Franchisor is not required to disclose information about governmental orders to which the Franchisor is subject because of past conduct. However, we believe that information on both litigation in the courts and before arbitrators must be disclosed.
A Franchisor is not required to provide information on its bankruptcy history, nor information on liquidation or reorganization.
E. Initial Fees
The Introduction of the Franchise Business must specify the types and amount of initial fees that the Franchisee must pay. It must also specify the time of payment and conditions for reimbursement of fees paid.
There is no requirement that fee sharing arrangements or commissions paid to consultants, agents or a Master Franchisee be disclosed.
F. Other Fees
Other fees, including periodic payment of franchise fees (royalty fees), advertising fees, training fees, service fees, rents, etc., must also be disclosed. For each type of such fees, the Franchisor must provide the fixed amount or method of calculation, time of payment, and conditions for reimbursement.
G. Initial Investment
The Introduction of the Franchise Business must provide information on the money that a prospective Franchisee must initially invest in the Business. It includes costs for the business premises, facilities and equipment, decoration, and the security system. It must also specify costs that a prospective Franchisee has to pay for the initial inventory required to operate the franchise business. Necessarily, some of these costs will be estimates.
Vietnamese franchise law does not provide guidance for a foreign Franchisor that has neither operational nor franchising experience nor an understanding of the cost to establish a business in Vietnam.
H. Sources of Products and Services
The law does not require disclosure of requirements that the Franchisee buy products or services only from the Franchisor, its affiliates or other approved or designated suppliers. However, Circular 09 requires that the Introduction of the Franchise Business include a description of goods, services and equipment that the Franchisee must purchase or lease in order to ensure the consistency of the franchise system. The Franchisor is also required to indicate if the Franchisee may adjust standards and regulations within the franchise system. If permitted, the Franchisee must be informed of procedures necessary to make such adjustments.
I. Franchisee Obligations
The Commercial Law generally provides that a Franchisee has the following obligations: (a) to pay the franchise fees and other expenses stipulated in the franchise agreement; (b) to make the initial investment to acquire the rights and business know-how franchised by the Franchisor; (c) to be subject to the supervision, monitoring and guidance of the Franchisor; (d) to comply with the Franchisor's requirements regarding design and layout of the franchised business; (e) to keep the franchised business information confidential during and after termination of the franchise agreement; (f) to stop using trademarks, service marks, trade names, business slogans, business symbols and other intellectual property rights of the Franchisor upon termination of the franchise agreement; (g) to operate in conformity with the franchised business system; and (h) not to sub-franchise without the prior consent of the Franchisor.
However, the Introduction of the Franchise Business does not require a description of the Franchisee's obligations, except for the Franchisee's financial obligations (see Sections V.E., to V.G.). Decree 35 only generally requires a prospective Franchisee to disclose information that the Franchisor reasonably requires in order to consider granting the franchise.
J. Franchisor Financing
There is no requirement that the Franchisor provide Franchisees with information on its own financing arrangements.
K. Franchisor Obligations
The Commercial Law and Circular 09 generally require a Franchisor to provide a Franchisee with a description of the Franchisor's obligations to the a Franchisee including: (a) obligations prior to entering into the franchise agreement; (b) obligations while the Franchisee participates in the franchise system; (c) obligations to consider the Franchisee's proposed premises for the franchised business; and (d) obligations to provide initial and ongoing training, and other training programs.
The Franchisor does not have obligations to disclose advertising activities or its obligation to provide computer and cash register systems for the Franchisee.
L. Protected Territory
The Franchisor is not required to describe the Franchisee's territorial rights, nor the Franchisor's reservation of rights to engage in businesses that compete with the Franchisee.
M. Trademarks and Domain Names
In the Introduction of the Franchise Business, the Franchisor must disclose information on its trademarks, service marks and any other intellectual property rights that will be used in association with the franchised business. It must indicate whether trademarks are registered. If so, details of registration must be provided. However, it is not a condition precedent that the trademarks or service marks must be registered. Under the Intellectual Property Law, a trademark licensing agreement need not be registered in order to be effective vis-à-vis the two parties.
Circular 09 also generally requires that the Franchisor describe the Franchisee's rights to use the marks.
There is no provision requiring disclosure of pending legal actions related to the marks. However, if there is any such a legal action, it must be disclosed under the category of litigation history as discussed in Section V.C.
The Introduction of the Franchise Business is not required to provide detailed information on the use of domain names owned by the Franchisor.
N. Patents and Copyrights
As mentioned in Section V. M., the Franchisor must describe its intellectual property rights, including patents and copyrights, in the Introduction of the Franchise Business. Details of duly registered intellectual property rights must be disclosed to the prospective Franchisee. The Introduction of the Franchise Business is silent on the extent to which information on a patent or copyright must be described.
O. Participation in Business
The Franchisor is not required to describe obligations of the owner of the Franchisee to participate personally in the management of the franchised business.
P. Restrictions on Sales
The Franchisor is not required to describe restrictions on types of goods or services the Franchisee can provide, or types of customers to whom the Franchisee can sell.
Q. Renewal, Termination, Transfer, and Dispute Resolution
The Introduction of the Franchise Business must provide major terms and conditions of the franchise agreement. These include conditions to renew the franchise agreement, as well as conditions for either the Franchisor or the Franchisee to terminate the franchise agreement, and the respective obligations that arise out of such termination. The Introduction of the Franchise Business must also set out conditions under which a Franchisee can transfer the franchised business to another Franchisee.
R. Public Figures
The law does not require the Franchisor to provide information on a public figure who promotes the sale of the franchised business.
S. Financial Performance Representations
The Franchisor is not required to provide information as to a specific level or range of actual or potential sales, income, or profit that the Franchisee may hope to achieve in operating the franchised business. Vietnamese franchise law has no provision stating whether financial performance representations are permitted or prohibited.
T. Information on Outlets
The franchisor is required to disclose the number of business establishments that the franchisor itself operates as well as the number than have ceased operation. The Franchisor is also required to disclose the number of franchised outlets as well as the number of contracts that franchisees have assigned (to the third parties or the franchisor), the number of contracts that have been terminated (by franchisor or franchisee) and the number of contracts which have and have not been renewed or extended. However there is no requirement for the franchisor to disclose names and contact information of franchisee, or geographical distribution.
U. Financial Statements
The Introduction of the Franchise Business requires the Franchisor to provide a prospective Franchisee with the Franchisor's audited financial statements for the preceding year. The Introduction of the Franchise Business does not specify the specific types of financial statements to be disclosed by the Franchisor. However, as generally understood in Vietnam, financial statements include: (1) balance sheet; (2) profit and loss statement ; (3) cash flow statement; and (4) a written explanation of the financial statements.
V. Franchise Contracts
The Introduction of the Franchise Business must include a summary of the franchise contract, but not the contract itself. The summary must contain: (a) heading of terms and conditions of the franchise contract; (b) duration of the franchise contract and conditions for renewal; (c) conditions and obligations of the Franchisor/Franchisee in connection with a unilateral termination of the franchise contract; (d) circumstances under which the franchise contract can be modified; (e) conditions under which the Franchisee can transfer the franchise contract to another prospective Franchisee; and (f) circumstances under which neither the Franchisor nor Franchisee is legally entitled to be a party to the franchise contract.
This summary of the franchise contract is only for the purposes of registration with the regulatory authorities. For purposes of disclosure to a prospective Franchisee, Decree 35 requires that a complete draft franchise contract must be delivered together with the Introduction of the Franchise Business at least fifteen working days before the date the agreement is intended to be signed.
The Introduction of the Franchise Business contains no place for the Franchisee to sign in order to acknowledge receipt. However, as noted above, given the requirement for strict adherence to the time frame, it is certainly advisable to obtain a signed receipt from the Franchisee.
X. Other Information/Documents
As noted above, the Franchisor is required to provide a prospective Franchisee with a draft of the franchise contract and the audited financial statements of the Franchisor, together with the Introduction of the Franchise Business.
In addition, the Introduction of the Franchise Business may disclose information on awards or recognition that the Franchisor may have received.
Y. Other Legal Disclosures
Neither Decree 35 nor Circular 09 requires a description of laws relating to franchising, restrictions on termination or restrictions on non-competition arrangements. However, the Introduction of the Franchise Business must advise a prospective Franchisee to do research on franchise legislation and related regulations. Further, as noted in Section V, the Introduction of the Franchise Business must include a summary of clauses in the franchise contract that deal with the conditions and obligations of either the Franchisor or the Franchisee in connection with the unilateral termination of the franchise contract.
Z. "Material" Information
The preamble of the Introduction of the Franchise Business must recommend that, before entering into a franchise agreement, a prospective Franchisee must: (1) look carefully at the Commercial Law, Decree 35, and Circular 09; (2) consult with existing Franchisees; and (3) seek advice from independent legal, accounting, and business advisors.
AA. Use of Supplemental Disclosure Documents
There is no requirement that necessary information must be provided only in the body of the Introduction of the Franchise Business. Some information may be provided in a separate or supplemental disclosure document. However, evidence of receipt of the supplemental document is highly recommended.
BB. Updating Requirements
Decree 35 and Circular 09 require the Franchisor to report to the MOIT or the DOIT (as the case may be) any change in the information described and registered in the Introduction of the Franchise Business; in information on the Franchisor, such as (a) the name of the Franchisor; (b) address of the head office; (c) telephone and fax number; (d) scope of business; and (e) type of business to be franchised; and in the intellectual property rights used in association with the franchised business. The report must be made within thirty days from the date of the change.
It is unclear whether the Franchisor is required to inform a Franchisee of such changes. As Decree 35 generally requires that the Franchisor inform the Franchisee of any significant change that relates to the franchise system that may have an impact on the business of the Franchisee it can be inferred that the Franchisee should be informed of such changes.
The Franchisor is also required under Circular 09 to make an annual report to the MOIT or the DOIT on the following matters described in the Introduction of the Franchise Business before January 15 of each year: (a) information on the organizational structure of the Franchisor, as well as information on members of the Board of Directors; (b) information on litigation proceedings; (c) initial franchise fee and other financial obligations of a prospective Franchisee; (d) initial investment for a franchised business; (e) obligations of the Franchisee to purchase or rent specific equipment; (f) obligations of the Franchisor; (g) the market of the franchised business; (h) the franchise agreement form; (i) the franchising system; (j) the annual financial statement; and (k) any awards or recognition that the Franchisor has received during that year.
VI. GOVERNMENTAL FILINGS
A. Initial Filing Requirements
A Franchisor must register its franchising activity with the MOIT or the DOIT before franchising its business. Section I.D. specifies cases in which the Franchisor must register its franchise activities with the MOIT and cases in which it must register with the DOIT.
The registration dossier must include:
(a) Standard registration form as provided in Circular 09;
(b) Introduction of the Franchise Business;
(c) Certified copy of the Franchisor's business registration; and
(d) Certified copy of patents and certificates of intellectual property rights of the Franchisor, if any.
If any of the above documents is in a foreign language, a Vietnamese translation is required. The Vietnamese translation must be certified by a Vietnamese Notary Public, except Vietnamese translation of document (c), which must be certified by the Vietnam Consulate to country granting such document.
In addition, if the applicant is a Sub-Franchisor, it must present a document issued by the Franchisor permitting it to sub-franchise the business.
B. Other Filing Requirements
The prospective Franchisor must register the dossier and pay a registration fee as stipulated in Decision 106/2008/QD-BTCissued by the Ministry of Finance ("MOF") on 17 November 2008. Government's fee for a new registration of franchise from foreign country to Vietnam is 16,500,000 VND, fee for amendment of a registration is 6,000,000 VND and for re-issuance of a registration is 500,000 VND. Government's fee for a new registration of franchise from Vietnam to foreign country and within Vietnam is 4,000,000 VND. Govertnment's fee for amendment or re-issuance is 500,000 VND.
C. Discretion of Governmental Agency
As noted in Section I.D, the MOIT and the DOIT have discretion to determine whether the documentation submitted for registration meets disclosure and filing requirements. They may reject or require the Franchisor to make appropriate amendments or supplements to the Introduction of the Franchise Business.
The regulatory time frame for the MOIT or the DOIT to register the franchising activity is five working days from the date on which a registration dossier is submitted by the Franchisor, provided that no amendments or supplements to the registration dossier are required by the MOIT or the DOIT.
If any amendments or supplements are required, the MOIT or the DOIT must inform the Franchisor in writing within two working days from the date on which it receives the registration dossier. In such case, the time frame of five working days is counted from the date the Franchisor submits the amendments and supplements to the dossier.
E. Licensing of Brokers and/or Franchise Sales Personnel
There are no requirements that Brokers and/or Franchise Sales Personnel must obtain a license in order to sell franchises.
F. Ongoing Filing Requirements
Under Circular 09, if a Vietnamese Franchisor moves its head office to another city/province, it is necessary to re-register its franchising activity with the DOIT in the new city/province and send a written notice to the DOIT of the locality where its head office was previously located within five working days after completing the re-registration.
G. Filing or Registration of Executed Documents
There is no requirement to file or to register the executed franchise agreements or any other related documents with either the MOIT or the DOIT.
VII. OTHER REQUIREMENTS
A. Language Requirements
Under Decree 35, a franchise agreement must be made in the Vietnamese language. This restriction does not apply to a franchise agreement under which a Vietnamese Franchisor grants a franchise to a franchisee in a foreign country.
As the Introduction of the Franchise Business must be registered with the MOIT or the DOIT (as the case may be), it must be made in Vietnamese. According to Circular 09, if the Introduction of the Franchise Business is made in a foreign language, it must be translated into Vietnamese and the Vietnamese translation must be certified by a Notary Public.
B. English Language
English is acceptable only for a franchise agreement between a Vietnamese Franchisor and an offshore Franchisee. The Introduction of the Franchise Business can be made in English, but, as noted above, the dossier must be submitted in Vietnamese.
C. Filing of Trademark Licenses
A trademark licensing agreement need not be registered to be effective. However, according to Article 148 of the Law on Intellectual Property, a trademark licensing agreement is effective vis-à-vis a third party only if it has been registered with the National Office of Intellectual Property ("NOIP"). Therefore, the Franchisor and the Franchisee should register the trademark licensing agreement with the NOIP so that third parties are also bound.
VIII. FRANCHISOR-FRANCHISEE RELATIONSHIP LAWS
A. Applicable Laws and Regulations
The Commercial Law provides in relation to a franchise agreement that it "must be made in writing or in another form with equivalent legal validity." The agreement is not subject to any restriction relating to choice of law. The Commercial Law allows parties to a commercial contract to apply foreign law, provided that the foreign law does not conflict with the laws of Vietnam. Decree 35 provides that the franchise contract may contain the following main items if the parties choose to apply Vietnamese law: contents of franchising, rights and obligations of the franchisor, rights and obligations of the franchisee, price and periodic franchise fee, and payment method, term of the contract, extension and termination of the contract, and dispute resolution.
The Franchisee may unilaterally terminate a franchise agreement if the Franchisor breaches any of its obligations enumerated in Article 287 of the Commercial Law. These obligations include: (a) to provide the Franchisee with the Introduction of the Franchise Business; (b) to provide initial training and regular technical assistance; (c) to carry out the design and arrangement of business outlets; (d) to grant the intellectual property rights under the agreement; and (e) to treat all Franchisees equally.
The Franchisor may unilaterally terminate a franchise agreements if the Franchisee: (a) no longer holds a business license that is required by law to carry on the franchised business; (b) is liquidated; (c) becomes bankrupt; (d) commits a serious breach of the law that may cause substantial damage to the goodwill of the franchise system; or (e) fails to rectify its material breaches of the franchise agreement within a reasonable period of time after receipt of a written request from the Franchisor.
The Civil Code requires that the party that unilaterally requests termination of the franchise agreement must immediately inform the other party of its intention to terminate. The law is silent on the form and delivery of such notice. However, it is advisable that the terminating party send a written notice indicating the cause of the proposed termination and the date on which the agreement is considered terminated.
As noted in Section III.A., the Franchisee may transfer the franchised business only if the transfer is approved by the Franchisor. The Franchisor may refuse if: (a) the transferee has failed to fulfill its financial obligations under the existing franchise agreement; (b) the prospective transferee cannot satisfy the criteria to be a Franchisee as required by the Franchisor; (c) the transfer of the franchise may have an adverse impact on the existing franchise system; (d) the prospective transferee declines in writing to fulfill the obligations of the Franchisee under the franchise agreement; and (e) the existing Franchisee has not yet fulfilled its obligations toward the Franchisor and the prospective transferee does not provide a written commitment to fulfill the obligations it is about to assume.
The Competition Law and its implementing regulations provide restrictions in connection with territorial protections. However, these restrictions apply only to a buyer-purchaser relationship and they do not apply to a franchisor-franchisee relationship. If, under a franchise agreement, the Franchisor supplies products for resale by the Franchisee in a limited territory, the Franchisor might be seen to violate the Competition Law if it has a dominant market share (i.e., 30% or more) for that product.
Similar to territorial protections, "sale" restrictions (such as on price) imposed by the Franchisor in respect of a product it supplies to a Franchisee are prohibited under the Competition Law if the Franchisor has a dominant market share (i.e., 30% or more) for that product.
The Competition Law prohibits a seller of goods and services with a dominant market share from requiring its customers, as a condition to purchase its goods and services, from purchasing products and services from another identified seller. We believe, however, that the Franchisor-Franchisee relationship is not subject to this restriction under the Competition Law.
As defined in the Competition Law, unfair terms and practices include, among others, terms or practices that cause another party to do the business involuntarily. However, as required in Circular 09, the Introduction of the Franchise Business must include a statement urging the prospective Franchisee to examine the law and to seek advice from lawyers, consultants, and existing or ex-Franchisees. That is, a franchise agreement should be executed in good faith and is subject to fair dealing.
B. Remedies for Violation
Generally, a breach of the Franchisor-Franchisee relationship is subject to remedies that are available in a commercial dispute. These remedies include: (a) specific performance; (b) penalty for breach; (c) damages for loss; (d) stay [or adjournment or temporary cessation] of contractual performance; (e) suspension of contractual performance; (f) rescission of contract; and (g) other remedies as agreed by the parties, provided that such remedies are not contrary to the fundamental principles of law.
There are no criminal remedies for a breach of the regulations of the Franchisor-Franchisee relationship as described above.
If the Franchisor violates the Competition Law, it is subject to sanctions delineated in Decree 120/2005/ND-CP of the Government dated September 30, 2005. The sanctions include monetary and supplementary penalties. A monetary penalty is imposed on a dominant supplier and the penalty amounts to five percent (5%) of its total turnover (including turnover received from both legitimate and illegitimate activities) for the fiscal year prior to the year in which it committed the violation. Supplementary penalties include deprivation of all profit received under the agreement and removal of the anti-competitive clauses.
C. Other Applicable Relationship Requirements
The agreement between a Franchisor and a Franchisee is not subject to any restriction relating to choice of law. The Commercial Law allows parties to a commercial contract to apply foreign law, provided that the foreign law does not conflict with the laws of Vietnam. In addition, a dispute relating to a commercial relationship like the Franchisor-Franchisee relationship is not subject to mandatory arbitration or venue.
D. Time Period for Commencing Legal Action
Generally, the period during which a party may initiate legal proceedings in a commercial dispute is two years from the date on which the violation occurs.
IX. VIOLATIONS OF FRANCHISE DISCLOSURE LAWS
A. Penalties for Failure to Comply with Disclosure Laws
Decree 35 states generally that a Franchisor that fails to comply with the disclosure requirement is subject to administrative sanction. However, the details of administrative sanction for failure to comply with the disclosure requirement have not yet been promulgated. Normally, these details are provided in a separate decree on administrative sanctions against violations of commercial regulations. Such a separate decree exists; however, it was issued before Decree 35 and has not yet been updated.
A Franchisor's failure to comply with disclosure requirements, by itself, does not void the franchise agreement, but Decree 35 grants the franchisee the right to unilaterally terminate the franchise contract if the Franchisor breaches its obligations under Article 287 of the Commercial Law. These obligations include the provision of a disclosure document as well as initial training and ongoing technical assistance.
The Civil Code outlines the circumstances under which a contract is considered to be null and void. These circumstances, among others, include a contract that is executed by misleading information or by misunderstood information. In particular, a party to a contract may request a court to declare a contract to be void if: (i) it has a reason to believe that the counter-party intentionally misled it to sign that contract; or (ii) it believes that the counter-party unintentionally caused it to misunderstand the subject of that contract, but now refuses to change the contract. Therefore, a Franchisee may, through judicial process, claim a franchise to be void if a Franchisor fails to comply with the disclosure requirement and the failure of disclosure has caused the Franchisee to misunderstand the franchise agreement.
According to the Civil Code, if a contract is void, a party to that contract must return to its counter party what it has received from the counter-party in kind or in money. In addition, the defaulting party must compensate the other party for damages the other party has incurred. Since a franchise agreement is a commercial contract, compensation for damages is subject to provisions of the Commercial Code. That is, the damages include actual and direct damages caused by the Franchisor's failure to comply with the disclosure requirement, as well as the income that the Franchisee would otherwise have received if the Franchisor had complied with the disclosure requirement.
There are no criminal penalties for the Franchisor's failure to comply with the disclosure requirement. The Franchisor, as an entity, is not subject to criminal penalties in any circumstances.
B. Who May Bring a Legal Action?
The injured party, e.g., the Franchisee/Sub-Franchisee, may request the courts to declare that the franchise agreement is void and award damages if: (i) it has reason to believe that the Franchisor intentionally misled it to sign the franchise agreement; or (ii) it believes that the Franchisor/Sub-Franchisor unintentionally caused it to misunderstand the franchise agreement, but now refuses to change the franchise agreement.
As there are not yet specific regulations on sanctions against violations of the disclosure and filing requirements, it is unclear which authority may impose such sanctions.
C. Time Period for Commencing Legal Action
The statute of limitations for a legal action by a Franchisee/Sub-Franchisee against the Franchisor/Sub-Franchisor for providing misleading information is two years from the date on which the Franchisee knows or should reasonably have known of the misleading information.
The statute of limitations in connection with an administrative sanction against a Franchisor who violates the disclosure and filing requirements is one year from the date on which the Franchisor starts franchising its business without having registered, or one year from the date on which the Franchisor entered into the franchise contract without disclosing required information to the Franchisee.
A Master Franchisee or a Sub-Franchisor is liable to a Sub-Franchisee as if the Master Franchisee were an independent Franchisor. According to Decree 35, a Master Franchisee or a Sub-Franchisor must prepare its own disclosure document. A Franchisor is not liable to a Sub-Franchisee for misrepresentations made by a Master Franchisee in its disclosure document.
E. Enforcement by Government
The regulations on franchise, including Decree 35 and Circular 09, have been enforced since about June 2006. There is little information on how these regulations are being implemented.
F. Judicial Trends
There is nothing to report at this writing on judicial claims against a Franchisor. However, our impression is that none have been filed.