Cross-Border Consumer Goods Distribution Contract Disputes in Vietnam

Sep 22

1. Overview of Cross-Border Consumer Goods Distribution Disputes in Vietnam

When a local company enters into a distribution agreement with a multinational corporation, disputes may arise for various reasons: disagreements over contract terms, differences in applicable laws, delivery deadlines, product quality, payment issues, exclusivity rights, or risks in transportation and storage. This is especially true for consumer goods, which are subject to strict requirements regarding standards, safety, packaging, environmental impact, and labeling — making disputes more likely.

In Vietnam, there are several new legal points worth noting:

The Commercial Arbitration Law 2010 allows parties to agree to resolve disputes through arbitration if a suitable clause exists. However, in disputes involving consumers and businesses, the consumer has the right to choose either arbitration or court.
The trend of using electronic contracts is being strongly promoted, particularly in line with the National Strategy on digital economy and digital society development toward 2025, with orientations to 2030. Electronic contracts are legally recognized if they meet criteria of safety, authenticity, digital signatures, and proper storage of the signing process.
In international distribution or commercial contracts, some parties agree to apply international standards or select the applicable law (“choice of law”). This must be clearly stated in the contract. For instance, if the contract applies CISG (the Vienna Convention on International Sale of Goods), or English/Singapore law, such choices must be respected. In the absence of such agreements, the law most closely connected to the transaction shall apply.
Recent analyses also indicate that regulatory instability in local distribution markets is a major source of risk. When local laws, technical standards, or labeling requirements change, distributors may face compliance issues, potentially breaching the contract.

2. Common Risks and Disputes in International Distribution Agreements — and How to Prevent Them

2.1. Common Types of Disputes

Violations of product quality, labeling, or shelf life: Consumer goods are highly sensitive to quality. If the international supplier fails to meet the required standards in the importing country (e.g., regulations from Vietnam’s Ministry of Health or Ministry of Industry and Trade), the goods may be returned or fined.
Payment, exchange rates, and delivery conditions (INCOTERMS): Disputes often arise from delayed payments, disagreements over payment methods (L/C, T/T, wire transfer…), or misunderstandings about delivery risks.
Delivery deadlines and product custody responsibilities: Late delivery, damage during transportation, or spoilage due to improper storage — who bears the responsibility? The contract must clearly specify this.
Violation of exclusivity or territorial rights: A distributor may sell in unauthorized regions or appoint sub-distributors in exclusive zones, causing disputes.
Changes in domestic or international law/standards: If labeling, packaging, or safety standards change and the contract fails to address these potential changes, the distributor may incur unexpected liabilities.
Dispute resolution: Court vs. International Arbitration: Even if arbitration is specified, issues can arise around enforceability or jurisdiction. If a party refuses to honor an award in the opposing country, legal complications follow.

2.2. New Legal Regulations in Vietnam to Be Aware Of

Electronic contracts are legally recognized in Vietnam if they meet safety standards, use digital signatures, and follow proper procedures.
Choice of law in international commercial contracts: If clearly agreed upon, it must be honored. If not, the governing law most closely connected to the transaction will apply.
Consumer protection provisions under the Law on Consumer Protection: If a distribution contract impacts consumers, they have the right to choose their preferred method of dispute resolution.

3. Practical Dispute Resolution Solutions

A. Before Disputes Arise – Prevention Measures

Draft detailed and clear contracts

Include full product names (with HS codes for import/export if needed), quality specifications, standards applied, quantities, permissible variances, packaging, and labeling details.
Define payment terms clearly: method, deadline, late interest, responsibility for transport costs, customs duties, import taxes, if any.
Clarify transportation and storage risks: in case of damage, who’s responsible, how it is handled, and whether insurance is in place.
Specify applicable law and dispute resolution method (court or arbitration; if arbitration, name a reputable international institution).

Assess local regulations and import standards

For cross-border consumer goods distribution, verify local regulations from the Ministry of Health, Ministry of Industry and Trade, etc., to check whether product certification, labeling, expiry date declaration, or sample testing is required.
Stay updated on new laws, especially circulars and decrees.

Set up quality control and close collaboration mechanisms

Implement quality checks at source, upon receipt, through testing, and during storage/transport.
Include appendices or reinspection conditions in case of non-conformities.
Communicate clearly about any discrepancies with the contract — minimize disputes through goodwill.

B. After a Dispute Arises – Steps to Resolve Effectively

Collect full contract documentation and evidence

Main contract, appendices, delivery notes, invoices, transport documents, quality inspection reports, and payment records.
Emails, messages, product reports, inspection records, photos, videos if available.

Review the dispute resolution clause

If international arbitration is agreed upon, verify jurisdiction, seat of arbitration, and applicable law.
If choice of law is clearly stated, apply it. Otherwise, determine the most closely related legal system.
Check if a force majeure clause applies in case the dispute results from uncontrollable events.

Prioritize mediation and negotiation before litigation or arbitration

Mediation helps preserve business relationships.
Re-negotiate with the partner to reach a settlement, share risks, or revise the contract if market conditions change.

Proceed to arbitration or court if necessary

Arbitration advantages: confidentiality, speed, and the ability to select a neutral institution.
Court may be needed if the partner refuses to cooperate, or if statutory requirements mandate it (e.g., consumer-related issues).
Prepare for cross-border litigation if the partner or their assets are abroad.

Enforce awards and settle post-dispute matters

For arbitration awards, assess enforceability in Vietnam or the partner’s country.
For court judgments, ensure asset recovery and enforcement measures are possible.
Consider additional damages: late payment interest, storage costs, and reputational loss if the contract impacts public image.

4. Conclusion

Cross-border distribution contracts for consumer goods carry inherent risks — from product quality to payments, legal frameworks to enforceability. By crafting detailed contracts, staying current on legal developments, and choosing an appropriate dispute resolution strategy, businesses can minimize losses and protect their commercial interests.