Legal Aspects of Franchise Contract Disputes in the F&B Sector in Vietnam
In the rapidly growing F&B market in Vietnam (restaurants, cafés, bubble tea, etc.), the franchise model has become a popular option for fast network expansion. However, alongside opportunities come legal risks — and franchise contract disputes in the F&B sector are among the recurring issues between franchisor and franchisee. The following article examines key legal issues, sources of disputes, resolution approaches, and preventative measures under the current Vietnamese legal framework.
1. Legal Foundation & Specific Features of F&B Franchising in Vietnam
1.1 Legal Basis in Force
Franchising is regulated by the Law on Commerce 2005, especially Articles 284–289 concerning franchise business. It is further governed by relevant decrees and circulars such as Decree 35/2006/NĐ‑CP (detailing franchising) and Decree 120/2011/NĐ‑CP (amendments, supplements).
A franchise agreement must be in writing or a form having equivalent legal effect. If the parties choose to apply Vietnamese law, the contract must be in Vietnamese.
The franchise agreement may stipulate the rights, obligations, fees, term, termination, renewal, and dispute resolution procedures of the parties.
1.2 Particularities in the F&B Field
F&B franchising typically involves transfer of operating procedures, recipes, proprietary techniques, preservation methods — all of which are prone to disagreements regarding technical support, quality control, and marketing support.
Because food and beverage products must comply with strict hygiene and food safety standards, any breach by the franchisee may generate legal liability and contractual disputes.
Competition and brand sensitivity are higher in F&B, so disputes over intellectual property, marketing, advertising, and brand management are more likely compared to some other industries.
2. Common Types of Disputes in F&B Franchise Contracts
2.1 Disputes about Validity or Invalidity of the Contract
A franchise agreement may be annulled in whole or in part if it contains prohibited provisions under law, is signed by an unauthorized person, or involves fraud or duress.
For instance, if a contract includes an unlawful clause — e.g. imposing an “mandatory advertising fee” exceeding legal limits or using opaque terms to the detriment of the franchisee — the court may render that clause invalid.
2.2 Disputes over Fees & Payments
The franchisee is typically obliged to pay (among others) an initial fee, royalty, advertising fees, system support fees, and costs of standardized materials. Disputes may arise when the franchisee claims that the franchisor did not fulfill its obligations to merit those fees.
There are cases where the franchisee refuses payment, arguing that national marketing support or promotional commitments were not met, eroding trust between parties.
2.3 Disputes over Technical Support, Training, and System Control
Under Articles 287, 288 of the Law on Commerce 2005, the franchisor has a duty to provide initial training and periodic technical assistance, and the franchisee has the right to request such support.
However, since the law does not stipulate specifics (such as how much support, number of hours, scope of inspections), practical disputes arise: the franchisee claims the support was insufficient, while the franchisor argues noncompliance by the franchisee.
Disputes may also concern supervision and inspections (e.g. hygiene checks, layout, food quality) if the franchisee feels unduly pressured or excessively audited.
2.4 Disputes over Intellectual Property & Brand Use After Termination
Pursuant to Article 289 of the Law on Commerce 2005, upon termination of the franchise agreement, the franchisee must cease using the trademark, trade name, slogan, logo, system of the franchisor (unless otherwise agreed).
In practice, many franchisees continue to use the brand name, proprietary know-how to self-operate or illegally resell franchise rights — causing intellectual property and trade secret disputes.
2.5 Disputes upon Termination or Unilateral Suspension
Disputes about unilateral early termination when one party asserts the other breached contractual obligations (e.g. support, control, payment).
Disputes over renewal or refusal to renew franchise agreements at the end of term.
In force majeure situations (e.g. pandemic, supply chain disruption), the affected party may request to extend performance time or suspend obligations. If the other party refuses, disputes may arise. Under Article 296 of the Law on Commerce 2005, the parties may agree to extend the term in a force majeure case; if it exceeds a reasonable time, either party may decline to perform without being liable for compensation.
3. Dispute Resolution Methods & Key Considerations
3.1 Negotiation & Mediation
This is the preferred method because of its low cost, speed, and confidentiality.
However, the outcome is not enforceable unless the parties voluntarily comply.
3.2 Commercial Arbitration
If the franchise agreement includes an arbitration clause (specifying a particular arbitration center), the dispute may be submitted to arbitration. Under Article 317 of the Law on Commerce 2005, if there is an arbitration agreement, franchise disputes may be resolved by arbitration.
Advantages: professionalism, faster resolution than courts, confidentiality.
Drawbacks: potentially high fees for large disputes, and if one party refuses to accept the arbitration clause, alternative methods must be adopted.
3.3 Litigation in Court
If negotiation, mediation fail or no arbitration agreement exists, parties may file a lawsuit in the competent court.
Under civil procedure law, the competent court is where the defendant is located or where the contract is performed (if agreed).
Drawbacks: the court process may take a long time, litigation costs, risk of technical or IP disputes beyond the court’s specialized expertise in franchising.
4. Preventing Franchise Disputes in F&B Contracts
4.1 Drafting Clear & Comprehensive Agreements
Precisely define each fee type (initial fee, royalty, marketing fee, support cost) along with payment methods and schedule.
Clearly stipulate technical support, training, supervision — specify timelines, repair responsibilities, support costs.
Set out termination, unilateral termination, renewal, force majeure, and dispute resolution clauses in detail.
Include confidentiality, trade secret clauses, and non‑compete commitments after termination (as allowed by law) to protect the brand.
4.2 Vetting Legal & Financial Capacity of the Franchisee
Ensure the franchisee holds valid business registration and relevant licenses (e.g. food safety permits in F&B).
Check financial capacity and prior experience operating similar F&B models.
4.3 Ongoing Monitoring & Audit of the System
Proactively conduct audits and operational inspections of franchisees to detect violations early.
Predetermine sanctions for system standard breaches (e.g. penalties, suspension, termination).
4.4 Flexibility in Handling Force Majeure & Supply Chain Risks
Include clauses for force majeure (pandemics, natural disasters, supply disruptions).
Allow for contractual agreement to extend performance time or suspend obligations reasonably under the law (under Article 296, Law on Commerce 2005).
4.5 Maintaining Clear Evidence
Preserve the executed contract, handover minutes, training records, email correspondence, promotional records, revenue data, audit reports, violation records… When a dispute arises, these become crucial evidence to prove breach.
5. Conclusion
In the F&B sector, franchise contracts offer promising paths for system growth but carry complex legal risks — from fee disputes, technical support, intellectual property, to termination and performance issues. To safeguard the interests of both franchisor and franchisee, it is essential to draft rigorous contracts, monitor compliance, and prepare dispute resolution strategies from the outset.
If your business is facing a franchise contract dispute in F&B or you need a franchise agreement that can “withstand dispute challenges,” our team of lawyers is ready to accompany you — from contract review, strategy development, to representation in negotiation, mediation, arbitration, or litigation. Contact us for tailored, optimal legal solutions.
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