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Official Gazette

Monday, September 26, 2022

Commercial Law under scrutiny

Updated: 15:30’ - 28/09/2011

The Commercial Law has been implemented for six years during which Vietnam has deeply integrated into the global economy. It has joined the World Trade Organization, acceded to the ASEAN Framework Agreement on Services, participated in the ASEAN Investment Area (AIA) and joined ASEM and APEC forums.

The international integration has on the one hand, opened up plenty of development opportunities for Vietnam but, on the other hand, required strict adherence to numerous commonly acknowledged principles.

Prompted by the need to further complete Vietnam’s laws, especially the commercial law, to be in line with international laws, the Vietnam Chamber of Commerce and Industry (VCCI) is now taking the main charge of reviewing 16 laws concerning business operations. In light of this, a commercial law review group (the review group) has been set up, composed of legal experts and businesspersons, to carry out a thorough revision of the Commercial Law.

“After six years of implementation, some provisions of the Commercial Law, especially those on pyramid selling, commercial franchise, logistics, conditions for commercial operations and handling of violations, have become outdated and, consequently, adversely affected traders,” said Tran Huu Huynh, head of VCCI’s Legal Affairs Department.

“Problems have also been seen in the relation between the Commercial Law and other laws which must be tackled to create a fair and transparent environment for commercial operations,” he added.

Based on four criteria of transparency, consistency, reasonability and feasibility, the review group pointed out 11 contents of the Commercial Law in need of comprehensive consideration and revision, of which such matters as the concept of trader, goods trading via commodity exchanges, sales promotion, franchise, commercial remedies and warranty concern most legal experts.

Definition of “trader”

According to Doctor Vu Dang Hoang Yen, head of the review group, a clear and precise definition of trader can serve as a crucial basis for the Commercial Law to promote its state management effect while improving the business environment. However, the term “trader” defined in the Commercial Law is somewhat vague, incomprehensive and repetitive, Yen sai.

According to Article 6 of the Commercial Law, a trader means a lawfully established economic organization or person that conducts commercial activities on an independent and regular basis and has a business registration certificate.

An entity is naturally regarded as lawful when it goes through all legal establishment formalities. In many cases, an entity could be considered lawfully established only after it obtained a business registration certificate. In other words, “being lawfully established” implies “having a business registration certificate” and, for that reason, either of these two expressions, preferably the former, should be crossed out.

Similarly, the condition that traders must conduct commercial operations on an independent and regular basis should be abolished.

“This provision narrows the scope of application of the Commercial Law. In reality, there exist many profit-making activities which, due to their specific characteristics, are not conducted on a regular basis. Car dealing or real estate trading can be used as an example. This condition has unwillingly excepted business registration certificate holders who do conduct commercial activities but on an irregular basis,” Yen further explained.

Goods trading via commodity exchanges

At present, operations of commodity exchanges are governed by the Commercial Law and Government Decree No. 158 of December 28, 2006.

A commodity exchange is defined in Article 6 of Decree No. 158 as a legal entity established and operating as a limited liability company or a joint-stock company under the Enterprise Law. Under Article 67 of the Commercial Law, it has three functions: (i) providing technical-physical foundations for goods sale and purchase; (ii) administering trading operations; and (iii) quoting commodity prices formed at its trading floor at each time.

 This definition, according to the review group, only spells out the organizational form of commodity exchanges but fails to highlight their role as goods trading intermediaries.

Additionally, as argued by Tran Thi Quang Hong, deputy head of the Legal Science Institute’s Civil and Economic Law Department, the prime function of commodity exchanges is to act as an intermediary in goods trading. To perform this function, commodity exchanges should always take drastic measures to assure goods supply by sellers and payment by buyers. Furthermore, commodity exchanges are usually developed in association with building of warehousing and forwarding systems.

The review group proposed that the organizational structure of commodity exchanges should be re-defined after an exclusive model under which each exchange would consist of an executive board, a trading floor, a clearing payment section, a brokerage section, a price quoting section, an information center and a warehousing system.

There should also be separate regulations governing commodity exchanges’ dissolution and bankruptcy rather than general provisions in the Enterprise Law as currently.      

Lawyer Ngo Viet Hoa from Russin & Vecchi law firm added that the Commercial Law also lacks specific regulations on operations of commodity exchanges such as those on administration mechanisms, risk management, transaction limits and brokerage members. Meanwhile, Vietnamese traders are also facing many challenges when trading in foreign commodity exchanges because of unavailability of guidance on the roadmap and conditions for entering into overseas trading and transferring foreign currencies abroad.

Sales promotion

Sales promotion is currently governed by the Commercial Law and some sub-law documents, including Government Decree No. 37 of April 4, 2006, detailing the Commercial Law regarding sales promotion, and Joint Circular No. 07 of June 6, 2007, of the Ministry of Trade and the Ministry of Finance, guiding some contents on sales promotion at trade fairs and exhibitions.

From the legal aspect, there are some specific features that help identify sales promotion activities. However, in some cases, it is quite difficult to distinguish one form of sales promotion from another. For example, what is the difference between giving free sample products or services and offering goods or services as gifts? It depends on the origin of goods and services used for sales promotion. Under current laws, sample goods or services must be those marketed by traders themselves while goods or services offered as gifts may be purchased from others. Problems arise when a trader gives goods or services, which it/he/she is allowed to lawfully trade in, to customers as gifts, unaccompanied with any sale or purchase activity.

Reality shows that traders often combine two or more forms of sales promotion within a single campaign. In these cases, not only traders but also state management agencies get confused in considering whether the form of sales promotion registered by traders is lawful or not.

To redress this situation, the review group recommended abolishment of provisions on forms of sales promotion while maintaining framework regulations on limits and duration of sales promotion. Additionally, penalties for law-breaking acts in the field of sales promotion should be increased.

Commercial franchise

In Vietnam, commercial franchise is seen as a sophisticated and fairly new domain.

Franchising is defined in Article 284 of the Commercial Law as a business format under which the franchisor permits and requires the franchisee to undertake by themselves the sale or purchase of goods or provision of services in accordance with the methods prescribed by the franchisor, associated with the brand, trade name, business know-how, slogan, logo or advertisement of the franchisor.

Legal experts seemed unsatisfactory with this definition, arguing that it failed to reflect the most fundamental characteristic of commercial franchise, i.e. the synchronism and systematism of chain stores within a franchise network. Additionally, it neither specified the independence of franchise parties in terms of legal status and business operation nor covered all aspects of their trading rights. Without such details, commercial franchise may be easily confused with licensing or technology transfer activities, the review group warned. 

Commercial remedies

The Commercial Law stipulates “substantial breach of a contract means a breach of a contract committed by a party which causes damage to the other party to an extent that the other party cannot achieve the purposes of the entry into the contract.”

According to Associate Professor-Doctor Tran Van Nam from the National Economics University’s Law Faculty, this provision is too general while, unfortunately, specific guidance and explanations are unavailable, making its enforcement very difficult.

For example, in case two parties enter into a goods sale and purchase contract without any terms referring to the buyer’s obligation to inform the seller of goods purchase purposes. After receiving goods from the seller, the buyer declares that such goods are unconformable and, therefore, its/his/her initial goods purchase purpose cannot be achieved. In this case, it is obvious that “the purpose of the entry into the contract cannot be achieved” but how will involved parties’ breaches of the contract be identified.

A representative from the Maritime Bank argued that as most commercial operations are conducted on the basis of agreement between involved parties, Article 293 of the Commercial Law on application of commercial remedies against insubstantial breaches is no longer necessary and appropriate. In addition, “the fine level for a breach of a contractual obligation or the aggregate fine level for more than one breach is agreed upon in the contract by involved parties but must not exceed 8% of the value of the breached contractual obligation portion” (Article 301) is too light and therefore, can hardly prevent violations.

Obligation to provide goods warranty

As the Commercial Law does not indicate goods purchasers’ right to request for warranty as well as sellers’ obligation to provide warranty in case no agreement on warranty is made between the two parties in goods sale and purchase contracts. In case of a dispute, the civil law and the law on protection of consumer interests will apply.

The problem lies in the fact that the Law on Protection of Consumer Interests (effective as of July 1, 2011) can apply only to cases involving consumers who purchase goods and services to meet their own demands. So how about remaining cases? According to experts, this matter can only be solved by amending the Commercial Law’s provisions to be clearer on rights, obligations and responsibilities of involved parties in the provision of goods warranty, warranty methods and procedures for application of warranty policies.-

VNL_KH1 

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