INTRODUCTION

Vietnam has taken yet another large step to broaden consumers' rights. The Law on Consumer Protection ("LoCP"), which took effect on July 1, 2011 and replaced the Ordinance on Consumer Protection ("Ordinance"), provides consumers with greater protection than before. While the LoCP has created more rights for consumers, it has correspondingly increased responsibilities for traders2. This piece will discuss the aspects of the LoCP that have the greatest impact on traders. This includes prohibited conduct, contracts between traders and consumers and general trading conditions 3, extent of warranty, liability for defective products, and litigation. We will also compare the state of the law as it existed before the LoCP went into effect and the state of the law now.

  1. Prohibited conduct

Decree 55/2008/ND-CP of the Government dated April 24, 2008 ("Decree 55") which specifies which conduct is prohibited for traders remains in effect. The LoCP, however, has broadened the range of prohibited conduct. A trader is now clearly prohibited from cheating or misleading consumers in its advertising, nor may it conceal information.4 A trader may not provide incomplete, false, or inaccurate information about the products or services it provides, about its ability to conduct business or to provide services, or about the contents and characteristics of transactions between it and its customers.

A trader is prohibited from harassing a consumer by marketing products or services on two or more occasions contrary to the wishes of the consumer. In addition, a trader may not do anything which hinders or adversely affects the normal working or living conditions of the consumer. A trader cannot require a consumer to make payment, even if products or services have been supplied, unless there is a prior agreement.

  1. Contracts between traders and consumers and general trading conditions

Contracts between traders and consumers, along with general trading conditions, are addressed by Vietnamese law for the first time in the LoCP. Under Article 14 of the LoCP, the language of a written contract must be clear and easily understood. Furthermore, the language of the contract must be in Vietnamese, unless the parties or the law provides otherwise. Traders must make it easy for consumers to review electronic contracts in their entirety prior to execution.

The law also specifies clauses and general trading conditions which are invalid; for example, a clause that allows the trader to assign rights and obligations to a third party without the consumer's consent is invalid under the LoCP.

The LoCP places particular focus on standard form contracts-that is, the trader's own form of contract-and general trading conditions. If a trader conducts business in products or services that appear on a list of essential products and services promulgated by the Government, it must register its standard form contract and its general trading conditions with the State administrative body for consumer protection.5

The State administrative body for consumer protection may, at its own discretion, rescind or amend, or require the trader to rescind or amend, a standard form contract or general trading conditions which breach consumers' rights. Ten articles in chapter III of Decree 99/2011/ND-CP of the Government dated October 27, 2011, which implement articles of the LoCP ("Decree 99"), relate to standard form contracts and general trading conditions. They specify general requirements for standard form contracts and general trading conditions, along with registration procedures and forms. They also deal with control of standard form contracts and general trading conditions which are not subject to registration.

Requirements on the terms and conditions of some particular contracts-including contracts entered into electronically, contracts for the supply of continuous services, and direct selling contracts-are specified in Decree 99.

  1. The extent of a warranty

The extent of a warranty has been clearly delineated in Articles 445 - 448 of the Civil Code ("CC"). If, for example, a purchaser discovers a defect in a purchased item during the warranty period, he has the right to demand that the seller repair the item free of charge, reduce its price, or replace it with another item. He also has the right to return the item and receive a refund.

Article 21 of the LoCP supplements the CC by providing details on the warranty obligations of traders, not just sellers as defined in the CC. Traders must provide consumers with a warranty certificate that clearly sets out that a repair under a warranty will restart the warranty. For example, if a trader replaces a product or its component, the warranty period for the product or the component is calculated from the time of replacement.

If a product or component cannot be used because it is under repair or is being replaced under warranty, the trader must provide a similar product, components, or spare parts for temporary use. It may propose other solutions, but such solutions should be as agreed upon with the consumer.

If by the expiration of the warranty work period, a trader fails to repair a product, the trader must replace the product or provide replacement components. If the trader cannot repair or replace a product, it must recall the products and refund the purchase price. In addition, if a trader is required to provide the same type of warranty service more than three times, but the defect remains, the trader must replace the product or component. If a replacement cannot be provided, the trader must recall the products and provide a refund.

  1. Defective products

Oddly, there is no definition of a "product" even in the LoCP. Generally, however, a "product" is an item that has been supplied by a trader, whether or not the item is manufactured in Vietnam. It includes such diverse offerings as agricultural produce, games, components, electricity, vehicles, and pharmaceutical products. As these examples show, the concept of a "product" as the term is used in the LoCP is very broad. Traders may have difficulties in determining whether the item they are offering is a "product," and may also have difficulty assessing defects of the product or determining who is liable for a defect. For example, are blood, body organs, and second-hand products considered "products"? If the answer is "yes", to what extent and in what respect can they be considered defective? Who is liable for "defects" in such a product?

The Law on Quality of Products and Goods ("LoQPG")6 mentions "defect" of products. However, the word "defect" seems to mean only "poor quality". Article 3.3 of the LoCP goes beyond this. Under the LoCP, a defective product is a product which is not safe for consumers and which can cause death, personal injury, or property damage, even if those products have been manufactured in accordance with current technical standards or specifications, and even if the manufacturer is not aware of the defects at the time the products are sold. There may be defects in the technical design of mass manufactured products. Defects may arise from the manufacture, processing, transport, or storage of singly manufactured products. Defects may also result from a failure to provide adequate instructions or warnings on potentially dangerous products.

In other words, quality is not the only factor involved in determining whether a product is defective under the LoCP. One must also consider design, whether consumers are properly instructed on use, or whether the consumer has been warned of dangers.

  1. Recall of defective products

Under Article 22 of the LoCP, manufacturers and/or importers7 are liable, at their own cost, for the recall of defective products. They must recall a product that they discover is defective. They must announce the recall in five successive issues of a central daily newspaper or broadcast the news of the recall on a central radio or television station five times on five successive days. The announcement must include the following:

  • Description of the product;
  • Reason for the recall and warnings of injury which may be caused by the defective product;
  • Time, location, and form of the recall;
  • Time and method to repair the defect; and
  • Measures taken to ensure the consumers' interests are protected.

There is no clear separation of responsibility between the manufacturer and the importer in respect to a recall.

  1. Strict liability and defenses
  • Strict liability

Article 630 of the CC says "individuals, legal persons, or other persons manufacturing [or] distributing product without ensuring the quality standards thereof, thus causing damage to a consumer, shall be liable for damages." The Supreme Court's Committee of Judges has interpreted this article.8 It stipulates that liability in tort arises when the following elements exist: (1) a loss is suffered and the loss is be material or mental; (2) an illegal act/omission has occurred; (3) there is a causal relationship between and the illegal act/omission and the loss; (4) the person who causes the loss must be at fault or was negligent. In other words, when at fault, traders must pay damages for defective products.

However, Article 23 of the LoCP has changed the standards detailed under Resolution 03. Under Article 23, traders are now liable to pay compensation for death, personal injury, or property damage caused by their defective products (but not "defective services") even if they were unaware of or not at fault for the defects.

  • Defenses

Traders have real defenses under the LoCP. Traders can be excused from liability if they can prove that the defects could not have been found by scientific or technical standards at the time the traders supplied the products to consumers.9 This defense is different from those defenses allowed in the LoQPG. Under the LoQPG, manufacturers, importers, or sellers are not liable when the world's scientific and technological knowledge may not be sufficiently advanced to detect the risks in products before they cause damage.10

In other words, to assess the state of scientific and technical knowledge in relation to the potential defects of products, the LoCP provides that the period to be evaluated is the point in time at which the traders supply the products to the consumers. On the other hand, the LoQPG is more demanding. It requires the trader continually to evaluate the state of scientific and technical knowledge leading up to the time the damage occurs. Also, the defense in the LoCP is intended to be based upon objective standards, but it is not clear whether it is the scientific and technical standards of the world or of Vietnam. The defense in the LoQPG is unfavorable for traders because the evidence costs may be high, and products with a long life-span carry risks of liability that increase with the evolution of scientific and technical standards. That is, the risk is measured by the status of scientific and technical knowledge at the time the damage occurs, even though the product may have been produced before such knowledge was known.

In any event, this defense is narrow, regardless of whether the LoCP or LoQPG standard is used. Therefore, traders may be unable or unwilling to invoke this defense.

The LoQPG provides that a trader's liability for defects may be limited or eliminated in a few other circumstances that relate to separating liability among traders.

For example, manufacturers and importers are not liable for defective products if retailers sell and consumers use products whose shelf-life has expired.11 Similarly, retailers will not be liable for defective products if consumers use products whose shelf-life has expired,12 or if the damage is caused as a result of the purchaser's or the consumer's own fault.13 In cases where the damage is the fault of the sellers, the manufacturer may be free of liability. Likewise, the seller may be free from liability when the damage is the fault of the consumer.

Manufacturers, importers, and sellers are exempt from liability when the statute of limitations for a complaint or the initiation of a lawsuit has expired. 14 Under the LoQPG,15 the statute of limitations is two years from the time the manufacturer, the importer, or the seller and a customer are notified of the damage, provided that the damage is caused during the shelf-life of the products. If products do not specify a shelf-life, there is no liability after five years from the date of delivery to the manufacturer, importer, or seller.

In addition, manufacturers or importers are not responsible for damage caused by a defective product when notice of a recall of the defective products has been issued before the products cause damage.16 Moreover, the sellers will not be liable to purchasers or consumers where notice that the products are defective has been properly issued, yet they still purchase and use the products.17

The last defense for traders subject to product liability is that products are defective because they comply with regulations of competent state agencies.18 This defense is already quite narrow. However, the term "competent state agencies" is not defined. Are they central or local agencies or neither? This defense may prove difficult to invoke.

  1. Litigation

Conflicts between consumers and traders can be resolved through negotiation, mediation, arbitration, or in court.19 However, a dispute that relates to damage to the State, the interests of a number of consumers, or the public interest is not subject to negotiation or mediation.

  • Who is a petitioner?

The LoCP gives consumers and social organizations the right to petition for remedies if they discover violations of consumers' rights. A social organization can represent consumers to carry out the petition, or it may petition on behalf of the public's interests in its own name.20 To clarify, consumers are purchasers and/or users of products or services for the purpose of consumption (as opposed to manufacture or resale) by an individual, a family, or an organization.21 Social organizations, in these circumstances, are organizations whose by-laws state that they are entitled to participate in activities involving consumer protection.22

Although the law is silent on what claims customers can bring in an action against sellers, manufacturers, importers, or brand owners, consumers can bring a claim against a trader with whom they interact directly (usually the seller) or a trader that is clearly stated to be responsible for the product in the manual or other similar documents.

  • Who is liable for product defects?

According to Article 23 of the LoCP, traders are liable to compensate for any damage caused by defective products. In this context, traders are organizations that manufacture or import products, or hold themselves out to be manufacturers or importers by affixing their own name or trademark to the products ("brand owners"). Sellers may be liable if they fail to identify the manufacturers, importers, or brand owners of the defective products. However, the LoCP has not separated liabilities among manufacturers, importers, or brand owners. They must arrange among themselves who will ultimately be liable for defective products in their business contracts.

  • Burden of proof

Under articles 25, 26, and 42 of the LoCP, petitioners bear the burden of proof in cases involving a trader's alleged violation of consumers' rights. In other articles, however, the burden is on traders to prove they are not at fault. The provisions placing the burden of proof on petitioners make the most sense in relation to service liability. However, articles 25, 26, and 42 are difficult to understand when applied to defective products. That is, traders bear liability for defective products whether or not they are at fault. Therefore, we believe that in claims relating to product defects, the burden is on traders to prove that their products are safe for use by consumers or that, for other reasons, they are exempt from payment or compensation.

  • Remedies

If consumers and traders have entered into a contract, damages will be assessed according to their contract and applicable law. The LoCP is of particular interest to traders, as it applies to standard form contracts and general trading conditions between traders and consumers.

In tort claims, damages are calculated based on "actual" loss under the CC and Resolution 03. For example, if a consumer suffers personal injury due to a defective product, the responsible trader may be held liable for the reasonable costs to treat, nurse, and rehabilitate the injured person. It may also be liable for functional losses and impairment, loss of or reduction in the actual income of the injured person, and reasonable costs and actual income losses of the care providers of the injured person during the period of treatment. If the injured person loses his or her ability to work and requires a permanent care provider, the trader must also pay reasonable costs for taking care of the injured person. The trader may also be responsible to compensate the injured party for mental suffering. Vietnam does not apply punitive damages.

Traders may also be held liable in other ways. Under Decree 19/2012/ ND-CP of the Government dated March 16, 2012 on administrative sanctions against violations in consumer protection, if a trader fails to observe regulations on contracts between traders and consumers and general trading conditions, the trader may be subject to penalties ranging from VND10 million to VND70 million. In accordance with Article 26 of the LoCP, they may be required to eliminate any clause which breaches consumers' rights from their standard form contract and/or general trading conditions. If a trader commits a repeat offence, its name will be placed on a list of traders who have breached consumers' rights. They may also be forced to recall and/or destroy the product, or to stop supplying the product. Their right to operate may be revoked or temporarily suspended.

CONCLUSION

The LoCP provides new protections for consumers, and places new burdens on traders. Despite the addition of a few defenses, since July 1, 2011 traders bear liability without fault for their defective products, including products of poor quality [regardless of whether the damage was caused during manufacture, processing, transport, or storage stage], products with a deficient technical design, or products with insufficient instructions or warnings. Both consumers and some special social organizations have standing to initiate a legal action against traders. The burden of proof necessary to prove a claim against traders is low, with claimants generally needed only to provide evidence of the damages they have suffered rather than evidence concerning the safety or design of the traders' products. In light of these challenges, traders should take proactive measures to minimize their risks of liability under the LoCP's new provisions.

Footnotes

1Pham Thi Phuong Anh is an attorney in Russin & Vecchi's Ho Chi Minh City office. She can be reached at < PTPANH@RUSSINVECCHI.COM.VN >
2By traders, we mean individuals or organizations that conduct business involving products and services. In this article we refer only to organizations. Under Article 3.2 of the LoCP, they are organizations that implement one, some, or all phases of the investment process from manufacture to the sale of goods or provision of services for a profit-making purpose. They include business entities as defined in the Commercial Law that conduct commercial activities independently and regularly but that are not required to have a business registration. They can be manufacturers, importers, or sellers.
3General trading conditions are rules and regulations on the sale of products and/or supply of services announced by a trader and applicable to consumers (Article 3.7 of the LoCP).
4See also Article 10 of the LoCP.
5See also Decision 02/2012/Q?-TTg dated January 13, 2012 of the Prime Minister.
6The LoQPG came into effect on July 1, 2008. It governs the rights and obligations of a trader in respect of product quality and the management of product quality. It is not clear if the LoQPG or the LoCP prevails in case of any conflict between the two laws; eg, the definition of "defect".
7The LoCP requires both manufacturers and/or importers to be responsible for the recall and to repair or replace the defect. If they fail to recall a defective product, they may be fined from VND10 million to VND30 million.
8See Point 1, Part I of Resolution No.
03/2006/NQ-H?TP dated 8 July 2006 ("Resolution 03").
9Article 24 of the LoCP.
10Articles 62.1.e & 62.2.e of the LoQPG.
11Article 62.1.a of the LoQPG.
12Article 62.2.a of the LoQPG.
13Articles 62.1.g, f of the LoQPG.
14Articles 62.1.b & 62.2.b of the LoQPG.
15Article 56.3.
16Article 62.1.c of the LoQPG.
17Article 62.2.c of the LoQPG.
18Articles 62.1.d & 62.2.d of the LoQPG.
19See Article 17 of the Law on Commercial Arbitration, if there is an arbitration clause in the general trading conditions for the sale of a product or services, and if a dispute arises, the consumer is still entitled to select either arbitration or a court to resolve the dispute.
20Article 28.1.b.
21Article 3.1 of the LoCP.
22Article 27 of the LoCP. See further Articles 24, 25 of the Decree 99.
23Articles 609.1, 2 of the CC.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.