Exclusive distribution is a commercial marriage with a term: a foreign manufacturer grants one distributor a whole territory, and disputes start when sales miss targets, grey goods leak in, or one side wants out early. This article goes straight to the four hot points — breach, termination, compensation, and post-split non-compete.
Handling breach and conditions for unilateral termination
Vietnam has no dedicated statute for distribution agreements; the relationship runs on Commercial Law 36/2005/QH11 (sale of goods, agency and general provisions) and Civil Code 91/2015/QH13. Unilateral termination is safe only where the contract carries a termination clause tied to concrete events (missing minimum sales targets, breaching exclusivity by selling rivals’ goods, insolvency) and the terminating party follows the contract’s notice and cure procedure exactly. Termination without grounds is itself a breach, triggering damages and possibly continued supply duties while a court or tribunal deals with the case.
Compensation on termination and non-compete clauses
Recoverable loss includes provable items: unsellable inventory where the contract promised a buy-back, amortised market-investment costs, and lost profit over a reasonable notice period. A breach penalty in a commercial relationship is capped at 8% under Article 301 of Commercial Law 36/2005/QH11. On post-termination non-compete: a clause reasonable in duration, product scope and territory between two businesses may be respected as a contractual promise, but a market-restricting agreement that forecloses rivals in the relevant market risks breaching Competition Law 23/2018/QH14 — the line lies in market share and the clause’s purpose.
Frequently asked questions
How is a breach by an exclusive distributor handled?
Work up the contract ladder: written breach notice with evidence; a cure demand within the contract’s cure period; then the agreed sanctions (penalty, suspension of supply, narrowing of exclusivity). If the breach is in the contract’s immediate-termination catalogue, terminate following the exact notice procedure. Avoid spontaneous moves such as locking the ordering system without notice — that can be treated as a counter-breach.
Can an exclusive distribution contract be terminated unilaterally?
Yes, but only in cases the contract or the law allows: a termination clause triggered by specified events, the other side’s serious breach, or expiry of the exclusivity term without automatic renewal. Terminating ‘to switch to a better distributor’ without grounds is unlawful termination, requiring compensation to the distributor and possibly an order to keep performing the contract.
How is compensation calculated when exclusive distribution is terminated?
Compensation covers actual, direct and provable loss: unsellable inventory (where a handling commitment existed), unamortised market costs, and profit lost over a reasonable notice period; plus an agreed breach penalty, capped at 8% of the breached obligation in commercial relations under Article 301 of Commercial Law 36/2005/QH11. Parties should write the termination-compensation formula into the contract in advance — the only way the number does not become a second dispute.
Can the former distributor be barred from competing?
Yes, if designed reasonably: confined to the directly competing product group, within the former exclusive territory and for a short period (usually 12–24 months), tied to a legitimate interest such as protecting trade secrets and the customer system. An over-broad clause in products, territory or duration risks non-recognition, and where the parties hold significant market share it may also be examined under Competition Law 23/2018/QH14.
A good exclusive distribution agreement is one that pre-writes the break-up script: measurable minimum targets, a warn–cure–terminate sequence, and a compensation formula. A foreign manufacturer that spends time on the exit part at signing saves many times that time when a dispute actually arrives.
This article has been quality-reviewed by the FLAW AI Legal Council