Entering into an illegal contract with a multi-level marketing company in Vietnam

In the process of entering into a multi-level sale business contract, many conflicts still arise because one of the contracting parties commits illegal acts. So how these arising disputes will be resolved by the Court through the application of the law is a matter of great interest to many people.

Specifically, in the first-instance civil judgment 15/2019/DS-ST dated April 25, 2019 on the dispute over the sales cooperation contract, the content is as follows:

“On April 24, 2015, Mr. Nguyen Van H and Vietnam Consumer Union Joint Stock Company signed a sales cooperation contract with a term of 1 year and took effect from the date of signing by both parties. The essence of this contract is a multi-level marketing business. The company explains that this is just a form of investment, participants pay money to receive a commission corresponding to the amount paid and pay money through the form of purchase. Therefore, he did not take the product, each time the company paid, the company did not make a receipt, but made an order form stating the number of goods and the amount the company collected.

During the performance of the contract, he paid 800,928,000 VND and received 81 orders, on the slip stating that the product is a functional food Red ginseng extract. By the time of ordering on October 28, 2015, he kept 234 votes (equivalent to 2,313,792,000 VND). When he learned that the company had problems with multi-level marketing activities, he stopped placing orders and proposed to terminate the contract and withdraw the order, but the company refused.

Therefore, Mr. H filed a lawsuit requesting to declare the contract invalid and ask the company to return the amount of 2,313,792,000 VND.

The People's Court of Bac Giang city, Bac Giang province declared the sales cooperation contract between Mr. H and the Vietnam Consumer Union Joint Stock Company invalid and forced the company to return Mr. H the amount of 1,723. VND 214,000 (minus the amount of commission Mr. H received from the company).

A multi-level sale participation contract is an agreement to establish a relationship between a person who wants to participate in multi-level selling and a multi-level selling enterprise in multi-level selling activities. According to the provisions of Clause 2, Article 24 of Decree 42/2014/ND-CP , the basic and mandatory contents of a contract of participation in multi-level sale include:

Article 24. Multi-level marketing contracts

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2. A multi-level marketing contract must contain the following basic information:

a/ Name, head office address and at-law representative of the multi-level marketing business;

b/ Full name, permanent residence registration (or residence registration, for a foreigner), place of temporary residence registration and identity card number (or passport number, for a foreigner) of the multi-level marketing participant; work permit number, for a foreigner;

c/ Name, uses, use methods, sale price, conditions and scope of warranty (if any), policies for change and repurchase of goods;

d/ Methods of calculating commissions, bonuses or other economic benefits to be received by the multi-level marketing participant from his/her sale activities and sale network he/she develops;

dd/ The multi-level marketing business’ liability for multi-level marketing activities of the multi level marketing participant in the payment of compensations for damage to consumers or to the multi-level marketing participant;

e/ Cases of termination, extension and liquidation of the multi-level marketing contract;

g/ Mechanism for settlement of contract disputes.

H and the Company did not specify the name, use, usage method, selling price, conditions and scope of warranty (if any), exchange policy, purchase of goods; the method of calculating commissions, bonuses, or other economic benefits that sales participants receive from their business activities and of the network they have built, so there is a breach of the contract content in accordance with the provisions mentioned above.

At the same time, the conclusion of a contract is only for the purpose of receiving commissions from the payment of money to the company, not for selling the company's products and goods. Therefore, the purpose of entering into the contract violated Point o, Clause 1, Article 5 of Decree 42/2014/ND-CP.

Article 5. Prohibited acts in multi-level marketing

1. Multi-level marketing businesses are prohibited to commit the following acts:

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o/ Supplying false or misleading information on benefits from participation in multi-level marketing networks or properties and utilities of goods or activities of multi-level marketing businesses in order to lure other persons into participating in multi-level marketing;

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