447CHAPTER SIX RULES GOVERNING SOME OTHER INTERNATIONAL BUSINESS TRANSACTIONS OVERVIEW 446 TEXTBOOK ON INTERNATIONAL TRADE AND BUSINESS LAW 19 P Todd, Cases and Materials on International Trade Law, L[.]
Trang 1447 CHAPTER SIX RULES GOVERNING SOME OTHER 446
19 P Todd, Cases and Materials on International Trade Law, London:
Sweet and Maxwell, (2002)
20 Indira Carr, International Trade Law, Cavendish Publishing
Limited, 3rd edn., (2005)
21 Technical Officers, Global International Trade & Business Finance,
National Australia Bank Limited, Finance of International Trade,
(2000)
22 D X Trinh and D T Nhan, Financing of International Trade
Textbook, Hanoi, Science and Technology Publishing House,
(2011)
USEFUL WEBSITES
Pace University, http://www.cisg.law.pace.edu
UNIDROIT, http://www.unidroit.org
ICC, http://www.iccwbo.org/
http://pecl.php.net/
CHAPTER SIX.
RULES GOVERNING SOME OTHER INTERNATIONAL BUSINESS TRANSACTIONS - OVERVIEW
Trang 2448 CHAPTER SIX RULES GOVERNING SOME OTHER 449
This Chapter provides an overview of rules governing some other
international business transactions than international sale of goods, such
as international franchising, international logistics and e-commerce
Upon completion, students are expected to have a basic understanding
of the concepts of franchising, logistics and e-commerce; the important
roles of franchising, logistics and e-commerce in international business;
the international rules and Vietnamese legal framework governing these
three international business transactions Students are also expected to
be able to make further research into related rules, and work out possible
legal sources applicable to any particular transaction in respective areas
Section One RULES GOVERNING INTERNATIONAL FRANCHISING -
OVERVIEW
1 The Franchising Concept
Franchising is a method of business operation that has revolutionized
the distribution of goods and services in virtually all industry sectors,
and has transformed the business landscape of most countries The
original meaning of ‘franchising’ refers to granting a freedom; it is
derived from the French verb ‘affranchir’, i.e ‘to free’.1 Today, however,
the term ‘franchise’ usually refers to a commercial relationship for
distributing products or services.2 In the widest meaning, franchising
may be explained as
‘Transactions in which one person grants rights to another to
exploit an intellectual property right involving, perhaps,
trade-names, patents, trademarks, equipment distribution, a fictitious
character, or a famous name, but not amounting to the entire
package, or business blueprint, which is the essential feature of
the business format franchise.’3
Franchising is frequently divided into three main types: ‘the
1 Dov Izraeli, Franchising and the Total Distribution System (1972), at 3.
2 Andrew Terry, ‘Business Format Franchising: The Cloning of Australian Business’, in Business
Format Franchising in Australia (1991), at 2.
3 Martin Mendelsohn, The Guide to Franchising (1992), at 37.
RULES GOVERNING SOME OTHER INTERNATIONAL BUSINESS TRANSACTIONS - OVERVIEW
product franchise’, ‘the processing or manufacturing franchise’, and ‘the business format franchise’ In ‘the product franchise’, the franchisee is a
distributor, either a wholesaler or a retailer, for a specific product within
a territory and in conjunction with the franchisor brand In a ‘processing
or manufacturing franchise’, the franchisor grants an essential ingredient
or know-how to the franchisee, which can be applied in conjunction with the franchisor brand in a territory These types of franchising are
called collectively ‘product and trade-name franchises’ In ‘the business
format franchise’ mode, the franchisor permits the franchisee to use a
unique method of doing business in a territory in conjunction with the franchisor brand
Franchise relationships comprise both single-unit franchise and multi-unit franchise arrangements The single-unit franchise is an agreement under which a franchisor licenses the franchisee to open one franchise unit The multi-unit franchise is an agreement where a franchisor licenses the franchisee to open more than one unit The
multi-unit franchise includes two types: ‘the area development franchise’ and
‘the master franchise’ ‘The area development franchise’ is an agreement
under which a franchisor grants to a franchisee (the ‘area developer’) the rights - and the obligations - to open and operate more than one
unit within a specified area ‘The master franchise’ is an agreement under
which the franchisor grants to the franchisee the rights to exploit a territory through granting franchises to sub-franchisees, as well as in most cases operating its own outlets
2 The Development of Franchising
It has been suggested that the first examples of franchising were the licensing and financing agreements between beer brewers and tavern owners in Germany and England before the eighteenth century Other scholars assert that franchising was first used when Queen Isabella
of Spain granted the license/franchise to Christopher Columbus for finding a new way to the East.4 It is nevertheless generally accepted that the earliest franchise appeared in the US when the Singer Sewing Machine Company began setting up a dealer network in around 1850 However, it was not until the beginning of the twentieth century that franchising became popular The success of the industrial revolution in the US at the turn of the century led to great progress in technology, improved transportation and communication, and resulted in the mass
4 Donald W Hackett, Franchising: The State of the Art (1977), at 5.
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production society In this situation, manufacturers discovered that
the distribution of their products to local markets was a key factor in
their success.5 The soft drink and automobile producers were pioneers
of the use of franchising as an effective method of distribution, which
expanded rapidly in the period between 1920 and 1949 Since the
late 1940s, after World War II ended, franchising has experienced a
phenomenal development in many countries Despite a recent slowing
in the development of franchising because of the impact of the global
economic crisis, franchising is still a popular economic trend and may
lead to economic recovery.6
An embryonic franchise sector has existed in Viet Nam since
the mid-1990s As for most other countries, franchising first appeared
in Viet Nam through the international expansion of foreign franchisors
The foreign fast-food systems Jollibee (from the Philippines, in 1996),
Lotteria (from Japan, in 1997) and KFC (from the US, in 1997) were early
entrants The entry of the foreign franchisor pioneers introduced the
practical image of franchising to Viet Nam and attracted the interest of
local businesses Viet Nam’s domestic businesses quickly absorbed the
franchising model introduced by these pioneers Although domestic
companies were attracted to franchising introduced by the foreign
franchise pioneers, the development of franchising was constrained
during the period 1996 to 2005, because of a lack of a clear legal
framework for the sector Franchising has shifted to a period of steady
development since Viet Nam introduced a specific franchise law in 2005
3 International Franchising
International franchising is ‘a foreign market entry mode that involves
a relationship between the entrant (the franchisor) and a host country
entity, in which the former transfers, under contract, a business
package (or format), which it has developed and owns, to the latter’.7
Franchising has rapidly been developing throughout the world in recent
years under the influence of expanding US franchise systems facing
increasing concentration in home market The international expansion
of franchising began in the late 1960s and early 1970s by US pioneer
5 Donald W Hackett, supra, at 12.
6 Alisa Harrison, ‘Franchise Businesses Can Help Lead the Economic Recovery with Access to
Capital’ (10 June 2009), http://www.franchise.org/Franchise-News-Detail.aspx?id=45912>
7 F N Burton and A R Cross, ‘Franchising and Foreign Market Entry’, in Stanley J Paliwoda and
John K Ryans (eds), International Marketing Reader (1995).
franchisors such as McDonald’s, KFC and Pizza Hut Their international expansion introduced the franchising concept to other countries and stimulated the development of local franchising The process of foreign penetration of US franchisors first occurred in developed countries, such as the UK, Australia, and Canada, then spread to DCs The local franchisors in the host countries not only absorbed and applied the techniques; they were eventually franchising overseas
Six methods of international expansion are available as entry mode for foreign franchisors: direct franchising, master franchising, area development agreement, branch, subsidiary, and joint-venture Direct franchising means that franchisors themselves directly enter into franchise agreements with each individual franchisee in the host country, without any intervention of a third party In the case of entering foreign countries through a subsidiary, the franchisor establishes a subsidiary in the host country This subsidiary is a legal entity with an independent legal status in comparison with the franchisor The subsidiary may open its owned outlets or enter into franchise agreements with a franchisee in the host country In the case of establishing a branch in the host country, the branch is not an independent legal entity, thus the franchisor still has to assume legal responsibilities for the branch’s business in the host country In the entry mode through establishing a joint-venture,
a franchisor enters into a joint-venture agreement with a partner who usually holds the nationality of the host country, in which a joint-venture company is usually established; sometimes, though, the establishment
is only a contractual relationship The franchisor then enters into either
an area development agreement or a master franchise agreement with the joint-venture, which leads to the establishment of joint venture-owned outlets or franchised outlets
4 Regulations on International Franchising
International franchising, as an international business activity, would
be subject to domestic law as well as to international agreements and international mercantile customs To date, there are no particular international agreements or customs dedicated to international franchising However, it is subject to regulation through the international agreements and customs generally applied to international transactions, such as the CISG, PICC, legal mutual assistance agreements between countries and INCOTERMS, etc
Trang 4452 CHAPTER SIX RULES GOVERNING SOME OTHER 453
The ICC and UNIDROIT have attempted to encourage uniformity
of franchising regulation In 2000, the ICC produced a Model International
Franchise Contract, revised in 2010, while the UNIDROIT introduced a
Model Franchise Disclosure Law in 2002 In 1998, the UNIDROIT also
published a Guide to International Master Franchise Arrangements
However, there is no common way to regulate franchising worldwide
The majority of countries in the world rely simply on underlying
commercial law to govern franchising or even adopt voluntarily
self-regulatory codes of practice and consumer The last two decades
have nevertheless experienced an accelerating trend towards specific
franchise regulations To date, around 33 countries, including Viet
Nam, have enacted specific franchise regulations However, only a few
countries - such as China, Indonesia, Malaysia and Viet Nam - impose
some special provisions on foreign franchisors; these are generally
approval and registration issues Franchising, although generally not
being directly governed by a specific franchise law even in the regulated
regimes, is still influenced by the totality of underlying commercial law
In the countries adopting specific franchise regulations, there
are generally four regulatory strategies used to govern franchising:
disclosure, alternative dispute resolution, registration, and standards of
conduct These have led to the creation of nine regulatory modes for
franchising, as illustrated in the table here below
The Regulatory
Disclosure Belgium, Brazil, France, Japan, Sweden and Taiwan
Disclosure and
Conduct
Albania, Canada (Alberta, New Brunswick, Ontario, Prince Edward Island, Quebec), Georgia, Italy and Romania
Disclosure and
Registration Indonesia, Mexico and Spain
Disclosure,
Registration and
Conduct China, Macau, Malaysia, Moldova and Viet Nam
Disclosure, Conduct
and Dispute
Resolution Korea and Australia
Registration Croatia and Barbados
Conduct Estonia, Lithuania, Russia, Ukraine and Venezuela
Registration and Conduct Belarus, Kazakhstan, Kyrgyzstan, Saudi Arabia
USA
Disclosure: federal Conduct: federal (auto/petrol) and most States (general, sector or issue specific)
Registration: State (14 States)
A Registration and Reporting
A registration regime was introduced into the US very early in the development of franchising under the California law and it has been embraced by 13 other States However, it has received little support from other countries Only 14 US States and 14 other jurisdictions require registration obligation, the degree of which varies from a full audit to a mere recording 14 US States introduced the most onerous registration and audit mechanisms that, though, have different levels of control between states as well as between franchisors These States and five other registration countries, including China, Indonesia, Malaysia, Spain and Viet Nam, also impose an annual reporting obligation
B Disclosure
Prior disclosure is considered to be a key feature of franchising regulation It is widely accepted as a tool to deal with the information imbalance inherent in the typical franchising relationship It facilitates the approach of full and reliable information of the franchise, both useful for and necessary to prospective franchisees in making an informed decision to buy into the franchise Although franchisors would generally not welcome other aspects of any regulation of franchising,
‘there is a consensus among franchisors that comprehensive disclosure
of information to prospective franchise buyers improves the franchisee recruitment process and is generally good for franchising’.8 In one of the earliest government reports in Australia, prior disclosure was not regarded as a restriction on business; rather, it was a ‘common sense and firm basis for doing business within the peculiarly close relationship of a franchise and in accordance with normal business practice’.9
8 Lewis G Rudnick, ‘Trends: Where Do Franchisors and Franchisees Stand on Regulation?’, in
Franchising World (1999), at 24.
9 Parliament of Australia Trade Practices Consultative Committee, Small Business and the Trade Practices Act (1979), [11.32].
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Prior disclosure obligations are a unifying feature of franchise
regulation internationally, except under the laws of Kazakhstan,
Lithuania and Russia.10 The publication of the UNIDROIT’s Model
Franchise Disclosure Law, which suggests a minimum content of the
disclosure document, is expected to be influential both in accelerating
the acceptance of disclosure laws and in shaping their content.11
Although prior disclosure is widely adopted in the franchising
regulation of almost all countries, few countries require a template
for disclosure in the form of a prescribed disclosure document In the
countries requiring a prescribed disclosure document there is generally
a requirement of an annual update The template for disclosure and also
the annually updated filing requirement are believed to facilitate the
compilation of sector statistics
C The Franchise Agreement
The franchise agreement is the ultimate reference point for classifying
the relationship between the franchisor and the franchisee However,
not all countries definitely require the agreement to be in written form
Moreover, only a minority of countries introduce a prescribed content
of a franchise agreement Of the countries that do not require the
prescribed content of the agreement, the majority request that the prior
disclosuree has to include at least some of the key contractual provisions
Only Australian law requires the sensible provision that, before entering
into a franchise agreement, the perspective franchisee must certify that
advice has been received from an independent legal or business advisor
or independent accountant, or that the obtaining of such advice has
been recommended but has not been sought Australian and Malaysian
laws also give the franchisee a ‘cooling off’ period in which the franchisee
may withdraw from the agreement and be reimbursed fees paid, less
an amount to cover reasonable expenses incurred by the franchisor
provided that this is stipulated in the agreement
D Relationship/Conduct Issues
Of the countries adopting franchise regulation, most address
10 Andrew Terry, ‘A Census of International Franchise Regulation’, Paper presented at the 21 st
Annual International Society of Franchising Conference, Las Vegas, Nevada, the US, (2007).
11 Lena Peters, ‘UNIDROIT Prepares a Model Franchise Disclosure Law’, in Business Law
International (2000), at 279.
particular issues in the franchisor/franchisee relationship Almost all regulated countries (except for Japan) impose restrictions on unilateral termination by the franchisor with the most common formula including the prescribed termination events and/or notice of default and an opportunity to remedy Instead of specifying a fixed term for the relationship, most regulation regimes simply require a term long enough for the franchisee to recover the initial investment No mandatory right to renew the agreement is imposed by the majority of regulated jurisdictions; however, an advance notice of non-renewal is more commonly required Most prior disclosure regimes request a notice of the franchisee’s entitlement to assign the agreement, but few of them mandate a right of assignment Many other relationship issues are also redressed idiosyncratically, such as encroachment, unilateral variation, general releases from liability, rights to associate, confidentiality, or non-competition, although there is no ‘consistent international approach to relationship regulation.’12
General standards of conduct are imposed by some countries, including the Canadian Provinces, China, Italy, Korea and Malaysia, where there are requirements of ‘fair dealing in performance and enforcement’ (Canada); ‘compliance with principle of fair dealing and honesty’ (China);
‘good faith’ (Italy and Korea), and ‘the best franchise business practice
of the time and place’ (Malaysia) In other countries, these issues may
be prescribed in the underlying law of general application Australian law is a typical example as the prohibitions of ‘misleading conduct’ and
‘unconscionable conduct’ under the Competition and Consumer Act
2010 has been influential in raising standards of conduct within the franchising sector Some countries such as Korea and Japan provide the prohibitions on various vertical restraints that usually fall under competition laws in other jurisdictions It is also important to note that in certain countries, particularly in developing economies, the statements
of the prescribed rights and obligations of franchisors and franchisees are also provided, which factor is considered significant with respect to
‘educational’ impact
E Dispute Resolution
Many countries require dispute resolution processes to be introduced into the franchise agreement or prior disclosure However, only some jurisdictions including Australia, Alberta (Canada) and Korea impose
12 Andrew Terry, supra.
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mediation as a prerequisite to litigation Australia has been successful
in using mediation as an integral component of its regulatory scheme
Over 75 per cent of disputes referred to the Government-sponsored
office of the Franchising Mediation Advisor (established according to
the ‘Franchising Code of Conduct in Australia’) for mediation are solved
within one day only and at minimal cost compared to traditional dispute
resolution
5 Regulation of International Franchising in Viet Nam
On 12 July 1999, Ministry of Science, Technology and Environment (now
the Ministry of Science and Technology) of Viet Nam issued Circular
1254/1999/TT-BKHCNMT (hereinafter ‘Circular 1254’) implementing
Decree No 45/1998/ND-CP of the Government on the technology
transfer; here, the word ‘franchise’ (‘cap phep dac quyen kinh doanh’ in
Vietnamese) was first time used officially In this Circular, although
no definition of ‘franchise’ was given, the content of Item 4.1.1.a of
Circular 1254 suggests that franchising may be defined as a contract
which contains provisions in relation to the granting of a licence to
use a trademark accompanied by production or business know-how
This conception was only a simple combination of trademark licence
and a transaction of production or business know-how, which is quite
different from the franchising concept in Western countries, and reflects
in Circular 1254 a lack of understanding of franchising There was a
confusion between the ‘franchising’ and the ‘technology transfer’ Being
stipulated within a legal document that governed technology transfer,
under this Circular, franchising was classified as a form of technology
transfer yet not as a form of method of business organization
Approximately a decade after the year franchising first appeared
in Viet Nam, and for six years of being governed by the regulations
on technology transfer, Viet Nam introduced the dedicated franchise
regulations This was part of its extensive legal modernization process
preparatory to the WTO’s accession in January 2007 The franchise
legal framework comprises the Commercial Law 2005 (hereinafter
the ‘Commercial Law’) providing a framework regulating franchise
relationship; Decree No 35 Making Detailed Provisions for the
Implementation of the Commercial Law with Respect to Franchising
Activities 2006 (hereinafter the ‘Decree 35’); Decree No 120 Amending
and Supplementing Administrative Procedures Stipulated in a Number
of Decrees of the Government Detailing the Implementation of the Commercial Law 2011 (hereafter the ‘Decree 120’; this Decree amends several articles of Decree 35); Circular 09 of Ministry of Industry and Trade Providing Guidelines on Procedures for Registration of Franchising Activities 2006 (hereinafter ‘Circular 09’) addressing registration and prior disclosure which are key features of the regulatory regime; and Decision 106 of Ministry of Finance Providing Guidelines on the Levels and Regime for the Collection and Payment, Management and Use of Charges for Commercial Franchising Registration 2008
The franchise legal framework applies to all franchising activities
- by both Vietnamese and foreign business entities - within Viet Nam (Articles 1 and 2 of Decree 35) and adopts an increasingly familiar regulatory model with prior disclosure obligations supplemented by moderate registration and relationship requirements
A Definition
The Commercial Law contains a broad definition of franchising in
Article 284:
Franchising means a commercial activity whereby a franchisor authorizes and requires a franchisee to conduct on its own behalf the purchase and sale of goods or provision of services in accordance with the following conditions:
1 The purchase and sale of goods or provision of services be conducted according to the method of business organization specified by the franchisor and be associated with the trademark, trade name, business know-how, business mission statements, business logo and advertising of the franchisor
2 The franchisor has the right to control and offer assistance to the franchisee in the conduct of the business
Decree 35 further defines franchising to include ‘master
franchising’ (the rights granted by a franchisor to a secondary
franchisor to sub-franchise to secondary franchisees) and ‘franchise
development contracts’ (the rights granted a franchisee to set up more
than one establishment to conduct the franchise business within a specific geographical area) (Article 3) The Decree prohibits secondary franchisees from further sub-franchising (Article 3)
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B Qualifications of Franchisor and Franchisee
Under Decree 35, a ‘franchisor’ must satisfy the following conditions:
The business system to be franchised has been operating for at
least one year;
the business entity has registered the franchising activity with
the competent authority; and
the goods and services of the franchise are not on the list of
goods and services in which its business is prohibited
The only prerequisite for a ‘franchisee’ is that it must have the
business registration appropriate to the subject of the franchise (Article
6 of Decree 35)
One-year operating requirement: Decree 35 requires franchisors,
both foreign and Vietnamese, to have operated for at least one year
before, respectively, franchising into Viet Nam or franchising to another
Vietnamese (Article 5.1) In the case of a Vietnamese master franchisee
from foreign franchisor sub-franchising in Viet Nam, the Vietnamese
master must have operated the franchise business for at least one year
before sub-franchising (Article 5.1)
Goods or services permitted to be franchised: Any goods or services
may be franchised provided that: (i) they are not under the list of goods
and services prohibited from business; and (ii) if they are restricted
from business or they are conditional business activities, franchising
may be carried out only if the franchisee is granted a certificate to do
business in respect of such goods or services (Article 7 of Decree 35)
Foreign franchisors face an additional restriction A foreign-invested
enterprise specializing in the purchase and sale of goods or in activities
related thereto may conduct franchising only in those lines of goods for
which the distribution is permitted pursuant to Viet Nam’s international
commitments (Article 2.2 of Decree 35).13
C Disclosure
The franchisor must provide a copy of the franchise contract and the
‘Franchise Description Document’ at least 15 working days prior to the
13 Vietnam’s ‘international commitments’ have now been codified in domestic law by the then
Ministry of Trade’s Decision No 10/2007/QD-BTM dated 21 May 2007.
date of entry into the franchise contract, ‘if the parties do not have some other agreement’ (Article 8.1 of Decree 35) Decree 35 provides for the then Ministry of Trade (now the Ministry of Industry and Trade)
to provide regulations on the compulsory content of the Franchise Description Document; and these have been issued in Appendix III - Franchise Description Document attached in Circular 09 mentioned above The Franchise Description Document must include a ‘warning’ to the prospective franchisee to exercise with ‘due diligence’ and advises the franchisee to seek independent advice, talk to franchisees, in the system and attend training courses It requires a range of specific information to be given under the following general headings:
- General information about the franchisor and the franchise;
- trademarks/IPRs;
- initial costs of the franchisee;
- other financial obligations;
- initial investment by the franchisee;
- obligations of the franchisee to buy or lease equipment for compatibility with the business system as designated by the franchisor;
- obligations of the franchisor;
- description of the market of the goods/services to be franchised;
- the franchising contract;
- information about the franchise system;
- financial statements of franchisor; and
- rewards or acknowledgements to be received, and organizations to participate
In addition to the pre-franchise disclosure, Decree 35 also requires the franchisor ‘immediately [to] notify all franchisees of any important change to the franchise system which affects the franchise business of a franchisee’ (Article 8.2)
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In the case of sub-franchising, the ‘secondary franchisor’ (the
sub-franchisor) must provide to the ‘secondary’ franchisee not only
the Franchise Description Document, but also details of the master
franchisor, the contents of the master franchising agreement; and the
method of settlement of the sub-franchising agreement in the case
where the master franchising agreement is terminated (Article 8.3)
Decree 35 requires franchisee disclosure as follows: the proposed
franchisee must provide the franchisor with all information reasonably
requested by the franchisor in order to make a decision on granting a
franchise (Article 9)
D The Franchise Agreement
The Commercial Law simply provides that a franchise agreement ‘must
be made in writing14 or in another form with equivalent legal validity’
(Article 285) Decree 35 follows the principle of the 2005 Civil Code
(which came into effect on 1 January 2006) (hereinafter the ‘Civil Code’)
on the rights of parties to freely agree on contractual provisions in order
to establish rights and obligations provided that such commitments and
agreements are not prohibited by law or are contrary to public order
The Decree simply provides in Article 11 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 franchising fee, and payment method;
- term of the contract;
- extension and termination of the contract; and
- dispute resolution
The terms of the contract are as agreed by the parties (Article 13
of Decree 35) and the contract takes effect from the date of its signing,
except where the parties agree otherwise (Article 14 of Decree 35)
14 Except the case of a franchise granted from Viet Nam to overseas, in which the parties can
agree on the language, and such franchise contract must be made in Vietnamese (Article 12 of
Decree 35).
If the franchisor licences IPRs along with the franchise of trading rights, the licensing of the IPRs may be made in a separate agreement or
be contained in the franchising agreement The licensing of IPRs in the franchising agreement must comply with Vietnamese laws on IP (Article
10 of Decree 35)
E Relationship/Conduct Issues
The Commercial Law contains five articles dealing, generally, with the rights and obligations of franchisors (Articles 286 and 287) and
franchisees (Articles 288, 289 and 290) The franchisor has the right to
receive royalties, organize advertising network and conduct inspections
to ensure the uniformity and quality control, and the obligation to
provide a prior disclosure document, initial training, ongoing technical assistance and the IPRs stipulated; to design at the franchisee’s cost the franchise outlet, and to treat franchisees equally The franchisee has the
right to require the franchisor to provide technical assistance, to treat all
franchisees equally, and to sub-franchise to a third party (referred to as
the sub-franchisee) with the consent of the franchisor, and the obligation
to pay amounts due under the contract; to invest in physical facilities, finance and human resources; to submit to the franchisor’s control, supervision and guidelines; to retain the confidentiality of business know-how during and after the contract term; to cease to use any trademark, trade name, business slogan, business logo and other IPRs (if any) or the system of the franchisor on expiry or termination of the contract; to operate the business in accordance with the system; and to not to sub-franchise without the franchisor’s consent
Transfer: Decree 35 gives a franchisee the right to assign the
franchise (Article 15) to a proposed assignee holding the appropriate business registration with the approval of the franchisor, which may be refused on one only of the following grounds:
The proposed assignee is unable to satisfy the financial obligations which it would have to discharge under the franchise contract; the proposed assignee has not satisfied the selection criteria of the franchisor;
the assignment will have a significantly adverse effect on the existing franchise system;
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the proposed assignee does not agree in writing to comply with
the obligations of the franchisee under the franchise contract; and
the assignee has not fulfilled its obligations under the franchising
agreement (unless the assignee provides a written obligation to
discharge such obligations)
The franchisee wishing to assign the franchise must provide
the franchisor with a written request to assign and, within 15 days, the
franchisor by written response must approve or not approve on one of
the grounds noted above If a written response is not received by the
franchisee within 15 days, the proposed assignment is deemed to have
been approved On assignment all rights and obligations relating to
the franchise of the assignor shall transfer to the assignee, unless other
agreements have been reached
Termination: The franchisee has the right unilaterally to terminate
the franchise agreement (Article 16 of Decree 35) if the franchisor
breaches the obligations under the Article 287 of the Commercial Law:
To provide the franchisee with the disclosure document on the
franchise system;
to provide the franchisee with initial training and ongoing
technical assistance to enable the operation of the franchise
system;
to design and lay out the goods or services sales outlet at the
cost of the franchisee;
to ensure the validity of the intellectual property rights in licensed
under the franchise contract; and
to accord equal treatment to franchisees in the franchise system
The franchisor has the right unilaterally to terminate the franchise
contract (Article 16 of Decree 35) in the following cases:
The franchisee ceases to have a business certificate or equivalent
documents required by law for the franchisee to carry out the
franchising business;
the franchisee becomes bankrupt or is dissolved in accordance
with Vietnamese law;
the franchisee commits a ‘serious breach of law’ which may significantly damage the reputation at the franchise system; and the franchisee fails to remedy a non-fundamental breach of the franchise contract within a reasonable time after the franchisee has received written notice from the franchisor to remedy such breach
F Registration and Reporting
The Commercial Law requires that prior to commencing franchising, ‘a
prospective franchisor must register with Ministry of Trade’ (now Ministry
of Industry and Trade) and provides that the government shall provide detailed regulations ‘on the conditions for operating in the franchise form and on the order and procedures for registration of franchises’ (Article 291) Registration is also addressed in Decree 35 which requires
franchising activities (in effect the franchise system) - not the prospective
franchisor - to be registered (Article 17) The registration detail is provided in Circular 09 The franchisor has to register only once, rather than separately for each franchising arrangement
Under Decree 35, the Ministry of Trade (now the Ministry of Industry and Trade) is responsible for registering franchising activities done from abroad to Viet Nam and from Viet Nam to abroad In other cases, the Department of Trade of the province where the franchisor has its business registration will register domestic franchising activities
(Article 18) However, Decree 120 (which became effective on 1 February
2012) has removed registration obligations of franchisors who franchise domestically or from Viet Nam to overseas (Article 3.2) This means that only foreign franchisors who franchise into Viet Nam now have to register their system with Viet Nam’s Ministry of Industry and Trade
An application for registration must be made on the prescribed form and be accompanied by the Franchise Description Document and documents in respect of legal status of the franchisor and certificates of the IP registered in Viet Nam or abroad, in the case where the franchisor wishes to license, as inevitably it will, such IP If any of the application documents are made in a foreign language, they must be translated into Vietnamese and consularised in accordance with the law of Viet Nam (Article 3.4 of Decree 120) If the applicant is a sub-franchisor, it must present a document issued by the master franchisor permitting it
to sub-franchise the business (Article 19 of Decree 35; and Circular 09)
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Registration of franchising activities of the franchisor may be
revoked if the franchisor ceases its business or changes its business
activities, or if the business registration certificate or the investment
license of the franchisor is withdrawn (Article 22 of Decree 35)
There is also a requirement of annual report from franchisors
to the registration authority Franchisors must notify the registration
authority about the changes of the ‘general information’ about the
franchisors and their trademarks on goods, services and IPRs within 30
(thirty) days from the date of such change (Circular 09) They must also
annually report ‘information relating to the franchisor’, the initial costs of
the franchisee, other financial obligations, the initial investment by the
franchisee, the obligations of the franchisee to buy or lease equipment for
compatibility with the business system as designated by the franchisor,
the obligations of the franchisor, a description of the market of the goods
and services to be franchised, the franchising contract, information
about the franchise system, the financial statements of franchisor, and
rewards, acknowledgements to be received and organizations needed
to join to the registration authority at the latest by 15 January (Circular
09) Although Decree 120 has already removed registration obligation
of franchisors who franchise domestically or from Viet Nam to abroad,
it still requires those franchisors to comply with the reporting regime as
prescribed under Decree 35
G Foreign Franchisors
Viet Nam applies a quasi-unified regulatory regime for both foreign and
domestic franchisors, which is consistent with international practice;
however, there were restrictions on foreign-invested enterprises
engaged in franchising These have been removed in accordance
with Viet Nam’s WTO accession commitments in relation to services
All restrictions on the forms of foreign-invested enterprises were
due to end on 1 January 2009 Until 1 January 2008, foreign-invested
enterprises participating in franchising were required to be in the form
of a joint-venture with a maximum of 49 per cent foreign ownership
The foreign capital restriction was lifted on 1 January 2008, but the
joint-venture requirement remained From 1 January 2009, foreign-invested
enterprise franchisors established in Viet Nam could be 100 percent
foreign owned
Although Viet Nam’s franchise regulations do not prescribe directly the choice of laws for franchise agreements, the words ‘if the parties select application of the law of Viet Nam’ prefaces the provision
of Decree 35 addressing the contents of franchise agreements (Article
11 of Decree 35) These words imply the ability of the parties to choose foreign law as the applicable law the law for franchise agreements between foreign and domestic entities It means that although foreign franchisors have to follow Viet Nam’s franchise regulations in several issues including registration regime, qualifications and disclosure, they can choose the applicable law which will govern other aspects of their franchise agreements Franchising is a civil relationship, thus the choice
of law in the case of franchise agreements in Viet Nam follows the rule
of the Civil Code which is considered to be the ‘mother law’ governing civil relations in general
Section Two RULES GOVERNING INTERNATIONAL LOGISTICS -
OVERVIEW
1 Introduction
One of the challenges faced by logistics practitioners when managing the flow of goods, services and related information between nations,
i.e., international logistics, comes from the different systems of
jurisprudence.15 More specifically, when a logistics activity crosses a country border, it is no longer subject to the departing country’s laws
only Instead, laws of other nations (for instance, countries of destination
or in transit) or international rules apply Due to the breadth of systems
of logistics and logistics-related international laws and rules, this Section presents some popular governing rules that a logistics practitioner operating in Viet Nam should understand
In addition, while the breadth of laws and regulations on logistics and logistics-related services corresponds to the scope of logistics, the definition of the concept remains problematic A review of the literature that attempts to define logistics therefore proves to be necessary
The Section is divided into four subsections: (i) introduction; (ii) different approaches to defining logistics and logistics activities; (iii) a brief review of some relevant rules governing international logistics;
and (iv) some concluding remarks.
15 D F Wood, International Logistics (1995).