Franchise relationships are inherently fraught with potential conflicts and interest clashes between parties. To minimize disputes and protect the interests of each party in a franchise relationship, the law stipulates the obligation to provide information right from the pre-contractual stage (before signing the contract). If any party violates this obligation, the following legal consequences may arise.

1. The violating party will have to compensate for damages

Article 24.2 of Decree 35/2006/ND-CP stipulates that where traders conducting business by mode of franchising commit acts of violation, causing material damage to involved organizations and/or individuals, they must pay compensations therefore according to the provisions of law. Accordingly, violating the obligation to provide information in the pre-contractual stage, if it causes material harm to the interests of the Franchisor, the intended Franchisee, or other related organizations or individuals, the violating party must compensate for damages.

2. The contract may be invalid

According to the provisions of Article 127 and Article 407.1 of the Civil Code 2015, a contract can be invalid if it was established due to deception. Deception in civil transactions is the intentional act of one party or a third party to make the other party misunderstand the subject, nature of the object, or content of the civil transaction, leading to the establishment of that transaction.

Franchising businesses are conducted by the parties through a franchise contract. During the contract negotiation phase, the decision of the Franchisee to sign the contract is mainly based on the information provided by the Franchisor. Therefore, if the Franchisor provides incorrect, incomplete, or inaccurate information causing the Franchisee to misunderstand the subject, nature of the object, or content of the contract and sign the franchise contract, the Franchisee may request the Court to declare the franchise contract invalid due to deception.

3. Other legal measures

Based on Article 16.1 of Decree 35/2006/ND-CP referring to Article 287.1 of the Commercial Law 2005, the Franchisee has the right to unilaterally terminate the contract if the Franchisor violates the obligation “to provide documentation on the franchise system to the Franchisee”. The law stipulates this because the content of the franchise introduction is very important for the prospective Franchisee in deciding whether to join the franchise system of the Franchisor.

Furthermore, according to Vietnamese law, traders involved in franchising that breach the obligation to supply information in franchising, depending on the nature and severity of the violation, may also be subject to administrative penalties (Point c, Clause 1 of Article 24 of Decree 35/2006/ND-CP). Based on Article 75.2 of Decree 98/2020/ND-CP, individuals who fail to provide, provide incomplete, or inaccurate information in franchising businesses may be fined from 3,000,000 to 5,000,000 VND, and organizations committing the above act may be fined from 6,000,000 to 10,000,000 VND.

Above is the content of the article “Legal consequences of failing to fulfill the pre-contractual information providing obligation in franchising” that TNTP presents to readers. We hope the information provided is useful to those interested in this issue.