Commercial Agency Disputes in Vietnam

The commercial agency regime under the 2005 Commercial Law

Under Article 166 of the 2005 Commercial Law, commercial agency is a commercial activity in which the principal and the agent agree that the agent, in its own name, buys and sells goods for the principal or supplies the principal’s services to customers for remuneration. Article 167 defines: the principal is the trader delivering goods to the agent for sale (or delivering money to the agent for purchase, or authorizing service supply); the agent is the trader receiving goods to act as sales agent (or receiving money to act as purchasing agent, or receiving authorization to supply services).

Three legal characteristics give the agency relationship its “identity”, distinguishing it from every other commercial relationship:

• The agent acts in its own name dealing with customers — but the economic benefit of the transaction belongs to the principal; the agent only earns remuneration;
• Ownership does not transfer: goods or money delivered to the agent remain the principal’s property (Article 170) — this is a mandatory rule the parties may not contract around;
• A special termination and compensation regime in Article 177 — protecting the agent when the principal terminates unilaterally.

On form, Article 168 requires the agency contract to be made in writing or in another form of equivalent legal validity. In practice, many “agency” relationships exist only on email and purchase orders — when disputes arise, proving the agreed contents (especially the remuneration level and agency scope) becomes very difficult.

Forms of agency: full-volume, exclusive, general agency

Article 169 of the 2005 Commercial Law provides three typical forms of agency (the parties may also agree on other forms):

• Full-volume agency: the agent undertakes to buy or sell the entire agreed quantity of goods or supply the full agreed service for the principal. This is the most binding form on volume — the agent commits to “cover” the entire agreed output/input;
• Exclusive agency: within a defined geographic area, the principal assigns only one agent to buy or sell one or more specified goods (or supply one or more specified services). The exclusivity here belongs to the agent — but note: the law does not impliedly prohibit the principal from selling directly in that area, unless the contract clearly so provides. This is a common dispute point: the agent believes “exclusive” means no one else may sell, including the principal itself;
• General agency: the agent organizes a system of sub-agents to buy and sell goods and supply services for the principal; the general agent represents the sub-agent system, and sub-agents operate under the general agent’s management and in its name.

Correctly identifying the agency form has major practical significance: volume commitments, the geographic exclusivity scope, and the general agent’s multi-tier remuneration structure are all points prone to disputes if the contract describes them unclearly.

Ownership of goods and money in agency relationships

Article 170 of the 2005 Commercial Law states briefly but with great weight: the principal is the owner of goods or money delivered to the agent. This is a mandatory rule — the parties may not agree that ownership passes to the agent upon delivery.

Practical consequences of this rule:

• On termination of the agency contract, the agent must return remaining goods (or money) to the principal — and may not retain them to “offset” remuneration without an agreement or a competent authority’s decision;
• If the agent goes bankrupt, goods delivered for agency do not form part of the agent’s liquidation estate but belong to the principal (provided ownership can be proven);
• The agent may not dispose of goods at will (clearance sale, pledge) beyond the authorized scope — such acts may constitute a serious breach of contractual obligations.

Precisely because ownership does not transfer, the law also provides corresponding protection for the principal: the principal may require the agent to take measures securing performance of obligations (Article 172(3)), and on contract end must return the security assets to the agent (Article 173(4)).

Agency remuneration: commission or price difference — the most disputed clause

Remuneration is the “soul” of the agency contract and also its most disputed clause. Article 171 of the 2005 Commercial Law provides:

• Forms of remuneration: unless otherwise agreed, agency remuneration is paid as commission or price difference;
• Commission: applies where the principal fixes the purchase price, sale price of goods, or service supply price to customers — the agent earns commission calculated as a percentage of that price;
• Price difference: applies where the principal does not fix the sale price to customers but only fixes the agency delivery price — the agent earns the difference between the actual sale price to customers and the agency delivery price;
• No agreement on remuneration level: applied in order — the actual remuneration previously paid by the parties; if inapplicable, the average remuneration the principal has paid to other agents for the same goods or services; if still inapplicable, the ordinary market remuneration for the same goods or services.

Typical remuneration disputes: the principal delays payment or deducts remuneration on the ground of customer complaints about goods sold (while the fault is not the agent’s); disputes over the commission base (gross versus net revenue, whether tax is included); the principal selling directly in the exclusive agency territory but refusing to pay the agent commission. For prevention, the contract should detail: the calculation formula, payment periods, reconciliation documents, and the handling mechanism for end-customer complaints.

Rights and obligations of the principal

Article 172 provides the principal’s rights (unless otherwise agreed): fixing the purchase price, sale price of goods, and service supply price to customers; fixing the agency delivery price; requiring the agent to take performance security measures; requiring the agent to pay money or deliver goods under the contract; inspecting and supervising the agent’s contract performance.

Article 173 provides the principal’s corresponding obligations:

• Guiding, providing information to, and facilitating the agent’s performance of the agency contract;
• Bearing responsibility for the quality of goods of goods-trading agency and the quality of services of service-supply agency — an important obligation: when end customers complain about quality, responsibility first lies with the principal;
• Paying remuneration and other reasonable costs to the agent;
• Returning security assets to the agent at contract end;
• Bearing joint liability for the agent’s unlawful acts where partly at the principal’s fault.

In practice, disputes often arise from the information and support obligations: the principal changes designs or technical specifications without timely notice, causing the agent to face customer complaints; or delays supplying goods to the agent, causing the agent to breach commitments to customers — in such cases, the agent may require the principal to bear responsibility for the consequences.

Rights and obligations of the agent

The law sets out the agent’s rights (Article 174) and obligations (Article 175) — among which the following obligations are often the focus of disputes:

• Buying, selling goods and supplying services to customers at exactly the prices fixed by the principal — the agent unilaterally discounting to “chase sales” is a breach of contractual obligations;
• Correctly performing the agreed handover of money and goods with the principal; paying for goods sold (sales agency), delivering goods purchased (purchasing agency);
• Preserving goods after receipt (sales agency) or before delivery (purchasing agency); bearing joint liability for the quality of goods and services where at the agent’s own fault — e.g., improper storage damaging the goods;
• Submitting to the principal’s inspection and supervision and reporting on agency operations;
• Complying with specialized legal provisions where the law permits the agent to contract agency with only one principal for a particular type of goods or services.

Note: the agent’s “joint liability for quality” obligation arises only where at the agent’s fault — the agent does not bear all liability arising from contracts with customers. When end customers complain, fault must be clearly allocated between the goods’ original quality (the principal’s responsibility) and the agent’s storage or transportation.

Payment in agency: by installments, not at will

Article 176 of the 2005 Commercial Law provides: unless otherwise agreed, payment for goods, service supply, and agency remuneration is made in installments, after the agent completes the purchase or sale of a certain quantity of goods or the supply of a certain quantity of services.

This provision is a “default” — the parties may well agree otherwise (monthly, quarterly payment, or after settlement). But if the contract says nothing about payment, the mechanism of “installments after completing a certain quantity” applies, and disputes often arise from the parties understanding “a certain quantity” differently.

Practical recommendation: the agency contract should specify the payment period (e.g., no later than the 10th of each month for the previous month’s sales), reconciliation documents (confirmed sales reports), and sanctions for late remuneration payment — including late payment interest under Article 306 (the average market overdue debt interest rate) if the principal delays remuneration.

Terminating the agency contract and compensation: a rule many companies don’t know they enjoy

Article 177 of the 2005 Commercial Law is dedicated to the duration and termination of agency relationships — and this is the “protective” provision for the agent that many Vietnamese companies do not know to invoke when terminated:

• Notice period: unless otherwise agreed, the agency relationship terminates only after a reasonable period, but no earlier than 60 days, from the date one party gives written notice of termination to the other. Abrupt termination without the 60 days violates this rule;
• The agent’s right to compensation: unless otherwise agreed, where the principal gives notice of termination, the agent may require the principal to pay compensation for the period it acted as agent. The compensation equals one month’s average agency remuneration during the agency period for each year as agent; where the agency period is under one year, the compensation is one month’s average remuneration during the agency period;
• Exception: where the agency contract terminates at the agent’s own request, the agent has no right to the above compensation.

Returning to the opening scenario: the Vietnamese company as exclusive agent for 6 years unilaterally terminated by the German manufacturer — even though the contract contained no compensation clause, the company still has the right to claim compensation equivalent to 6 months’ average remuneration under Article 177(2), provided the termination was initiated by the principal (not at the agent’s request) and the parties had no other agreement excluding this right. Additionally, if the termination did not observe the 60-day notice period, the agent may also claim damages arising from the unlawful termination.

Note: the parties may agree differently from Article 177 (e.g., agreeing a higher compensation level or a longer notice period) — but they cannot unreasonably agree to eliminate this protective mechanism entirely without risking it being revisited in disputes.

Typical agency disputes and handling directions

• Remuneration disputes: late payment, unfounded deductions, disagreement over the commission base. Handling: reconcile per the contract’s formula; where the contract sets no remuneration level, apply the mechanism in Article 171(4); demand late payment interest under Article 306;
• Disputes on termination: termination without the 60-day notice, refusal of Article 177 compensation, failure to return security assets, failure to settle outstanding remuneration. Handling: send a written demand citing Article 177, calculating the specific compensation amount;
• Disputes over goods on termination: the agent retaining goods, or the principal refusing to take goods back. Handling: based on ownership under Article 170 — the agent must return; the principal must pay remuneration in full and return security assets;
• Quality disputes with end customers: allocating responsibility between the principal (original quality) and the agent (storage/transportation faults) under Article 173(2) and the agent’s conditional joint liability;
• Exclusivity disputes: the principal selling directly or appointing additional agents in the exclusive territory. Handling: check the exclusivity scope in the contract — whether it includes prohibiting the principal itself from direct sales.

On resolution methods, Article 317 of the 2005 Commercial Law provides: negotiation — mediation — arbitration/courts. Note the current legal framework: the 2010 Law on Commercial Arbitration (No. 54/2010/QH12) has been amended and supplemented by Law No. 81/2025/QH15 dated 24/06/2025, effective from 01/07/2025 — to be distinguished from Resolution No. 81/2025/UBTVQH15 (also effective from 01/07/2025), which concerns court organization, concentrating jurisdiction over requests to set aside arbitral awards in the People’s Courts of three cities: Hanoi, Da Nang, and Ho Chi Minh City. The limitation period for commercial disputes is 2 years (Article 319).

Distinguishing agency from distribution, entrustment, brokerage

These four commercial intermediary relationships are often confused, but their legal consequences differ fundamentally:

• Agency vs. distribution: the agent (Article 166) buys and sells for the principal for remuneration, with goods owned by the principal; the distributor buys outright, bears inventory risk itself, and earns the price margin. See the article on distributor disputes;
• Agency vs. entrustment for sale/purchase of goods: in entrustment, the entrusted party acts in its own name but for the entrustor’s benefit under specific per-transaction authorization; agency relationships are usually stable and long-term with defined goods/service scope and territory;
• Agency vs. commercial brokerage: the broker only intermediates between the transacting parties for brokerage remuneration — it does not directly buy or sell goods or supply services, and does not receive the parties’ goods or money.

Mislabeling the relationship leads to misapplying the regime: e.g., calling it “agency” when it is substantively distribution means Article 177 cannot be applied on termination; conversely, calling it “distribution” when it is substantively agency may cost the principal the goods ownership protection under Article 170. When drafting contracts, describe the true nature of rights and obligations rather than relying on the title alone. An overview of dispute resolution: commercial disputes and arbitration.

When to contact a lawyer

• Preparing to sign an agency contract and needing to determine the correct agency form, remuneration mechanism, and exclusivity scope;
• Disputes over agency remuneration: late payment, unfounded deductions, disagreement over the commission base;
• Being unilaterally terminated from an agency contract and needing to assess compensation rights under Article 177;
• Wanting to terminate an agency contract and needing to follow the 60-day notice procedure, handle goods and security assets;
• Quality disputes with end customers requiring fault allocation between principal and agent;
• Needing to determine whether the actual relationship is agency, distribution, entrustment, or brokerage to apply the correct regime;
• Negotiations have failed and suit must be filed before arbitration or courts within the limitation period.

How FLAT LAW FIRM helps

FLAT LAW FIRM advises both principals and agents in commercial agency relationships:

• Drafting and reviewing agency contracts: agency forms, remuneration, exclusivity scope, payment, termination, and compensation;
• Advising on remuneration dispute handling, reconciliation, and settlement;
• Advising on compensation rights on termination under Article 177, calculating compensation amounts, and representing in negotiations;
• Advising on the lawful agency contract termination procedure, handling goods, security assets, and debts;
• Representing clients in negotiation, mediation, and litigation before commercial arbitration or competent courts.

General contract breach issues are analyzed in the article on handling breaches of commercial contracts.

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