Luận văn Environmental Protection Right toward Fair and Equitable Treatment and Indirect Expropriation regulations in EVIPA and Recommendations for Vietnam

HO CHI MINH CITY UNIVERSITY OF LAW
THE MANAGING BOARD OF ADVANCED PROGRAMS

----

TRAN MINH THAO
STUDENT ID: 1753801012182

ENVIRONMENTAL PROTECTION
RIGHT TOWARD FAIR AND
EQUITABLE TREATMENT AND
INDIRECT EXPROPRIATION
REGULATIONS IN EVIPA AND
RECOMMENDATIONS FOR VIETNAM
BACHELOR’S THESIS
ACADEMIC YEAR: 2017 - 2021
MAJOR: INTERNATIONAL LAW
HO CHI MINH CITY - 2021


Acknowledgement
I want to express my sincere thanks to Ms. Nguyen Thi Lan Huong from Ho Chi Minh
City University of Law for her guidance on outline of this essay. Thanks to her I am
able to visualize the purpose and method to research on this interesting topic.

Besides, I also extend my thanks to Mr. Ngo Hoang Kim Nguyen, my academic
advisor, who was always concerned and helpful to me during my four years at
university.
Last but not least, I would like to thank my family and all of my friends for their
spiritual support and encouragement as I strive towards my goal.

Commitment
I hereby declare that this thesis “Environmental Protection Right toward Fair and
Equitable Treatment and Indirect Expropriation regulations in EVIPA and
Recommendations for Vietnam” is wholly my own work, unless otherwise referenced
or acknowledged. I will bear complete responsibility for my commitment.

Tran Minh Thao
rd

July 3 , 2021


Table of Contents
PREAMBLE ..................................................................................................................................................... 1
1.
JUSTIFICATION OF THESIS:......................................................................................................... 1
2.

LITERATURE REVIEW ................................................................................................................. 4
2.1.

Materials in Vietnamese ....................................................................................................... 4

2.2.

Materials in foreign languages ............................................................................................ 5

3.

PURPOSE OF THESIS .................................................................................................................... 5

4.

RESEARCH DELIMITATION......................................................................................................... 6

5.

RESEARCH METHODOLOGIES.................................................................................................... 6

6.

STRUCTURE OF THESIS ............................................................................................................... 6

CHAPTER 1: OVERVIEW ON ENVIRONMENTAL PROTECTION RIGHT TOWARD FAIR
AND EQUITABLE TREATMENT AND INDIRECT EXPROPRIATION REGULATIONS IN
INTERNATIONAL INVESTMENT LAW ...................................................................................................
1.1.

8

OVERVIEW ON FAIR AND EQUITABLE TREATMENT STANDARD IN INTERNATIONAL

INVESTMENT LAW ....................................................................................................................................... 8
1.1.1.

The historical origin of Fair and Equitable Treatment standard ....................................... 8

1.1.2.

Definition and content of Fair and Equitable Treatment standard .................................. 10

1.1.3.

Requirements of Fair and Equitable Treatment ................................................................ 13
1.1.3.1.The obligation of vigilance and protection ................................................................................ 13
1.1.3.2.Due process including non-denial of justice .............................................................................. 13
1.1.3.3.Lack of arbitraness and non-discrimination ............................................................................. 15

1.1.3.4.Transparency and stability of legal and business framework and the protection of
investors’ legitimate expectations ................................................................................................................... 15

1.2.

OVERVIEW ON INDIRECT EXPROPRIATION IN INTERNATIONAL INVESTMENT LAW ............. 17

1.2.1.

Definition of indirect expropriation ................................................................................... 17

1.2.2.

Requirements for a lawful Indirect Expropriation ............................................................ 20

1.2.2.1.

Public purpose ............................................................................................................................. 20

1.2.2.2.Non-discrimination ...................................................................................................................... 22
1.2.2.3.Due process of law ....................................................................................................................... 22

1.2.2.4.

Payment of compensation ........................................................................................................... 24

1.2.2.5.Additional requirements under IIAs .......................................................................................... 28

1.3.

ENVIRONMENTAL PROTECTION RIGHT IN INTERNATIONAL INVESTMENT LAW ................... 28


1.3.1.

Conflict of interest between the foreign investors’ right and the Environmental

Protection right in International Investment Law............................................................................28
1.3.2.

Police powers doctrine..................................................................................................... 30

1.3.3.

Environmental Protection right in New Generation Internation Investment law............34

SUB-CONCLUSION:................................................................................................................................. 39
CHAPTER 2: ENVIRONMENTAL PROTECTION RIGHT TOWARD FAIR AND EQUITABLE
TREATMENT AND INDIRECT EXPROPRIATION REGULATIONS IN EVIPA AND
RECOMMENDATIONS FOR VIETNAM............................................................................................... 40
2.1.

ENVIRONMENTAL PROTECTION RIGHT TOWARD FAIR AND EQUITABLE TREATMENT AND

INDIRECT EXPROPRIATION REGULATIONS IN EVIPA............................................................................40
2.1.1.

Preamble of EVIPA.......................................................................................................... 40

2.1.2.

Provisions affirming the State’s right to enact policies and implement measures for

environmental protection.................................................................................................................. 41
2.1.3.

Provisions on Fair and Equitable Treatment...................................................................42

2.1.4.

Provisions on Indirect Expropriation...............................................................................44

2.1.5.

Evaluating Environmental Protection Right on Fair and Treatment and Indirect

Expropriation regulations in EVIPA................................................................................................ 46
2.2.

RECOMMENDATIONS FOR VIETNAM ON THE APPLICATION THE FAIR AND EQUITABLE

TREATMENT AND INDIRECT EXPROPRIATION REGULATIONS IN EVIPA TOWARDS ENVIRONMENTAL

PROTECTION GOAL................................................................................................................................. 46

2.2.1.

Maintaining the legal framework's stability and uniformity............................................46

2.2.2.

Ensuring the suitability of environmental protection measures.......................................47

2.2.3.

Strengthening the capacity of the competent authorities.................................................47

SUB-CONCLUSION:................................................................................................................................. 48
CONCLUSION.......................................................................................................................................... 49


Lists of abbreviations
ASEAN

Association of South East Asian Nations

BIT

Bilateral Investment Treaty

COMESA

Investment Agreement for the Common

Investment Area of the Common Market

for Eastern and Southern Africa
CPTPP

The Comprehensive and Progressive
Agreement for Trans-Pacific Partnership

EU

European Union

EU – CADANA CETA

EU – Canada Comprehansive Economic

and Trade Agreement
EVFTA

EU – Vietnam Free Trade Agreement

EVIPA

EU – Vietnam Investment Protection
Agreement

FCN

United States treaties on Friendship,
Commerce and Navigation

FDI

Foreign direct investment

FET

Fair and Equitable Treatment

FTA

Free Trade Agreement

GATS

General Agreement on Trade in Services

GATT

General Agreement on Tariffs and Trade

1994
GSO

General Statistics Office

ICJ

International Court of Justice

ISDS

Investor – State dispute settlement

NAFTA

North American Free Trade Agreement


OECD

The Organisation for Economic Cooperation and Development

UNCTAD

United Nations Conference on Trade and
Development

WTO

World Trade Organization


PREAMBLE
1. Justification of thesis:
Despite the negative effects of COVID-19, Vietnam is one of the few
countries that recorded positive growth in foreign direct investment in early 2021.

1

As per the statistics of General Statistics Office (GSO), The total investment capital
in the first quarter of 2021, estimated at US$ 10.13 billion, increased by 18.5% over
2

the same period last year. As pointed out, foreign investment, especially foreign
direct investment (FDI), plays a significant role in Vietnam’s economy in the current
period.
To enhance the international trade and foreign investment in Vietnam
between Vietnam and the EU, in July 2015, Vietnam had successfully negotiated the
EU – Vietnam Free Trade Agreement (EVFTA) to the intensive economic
corporation. However, in 2017, to ensure investment protection and investment
dispute settlement issues, EU and Vietnam considered separating the original
EVFTA to EVFTA and EU – Vietnam Investment Protection Agreement (EVIPA).
Although in August 2020, EVFTA officially entered into force, EVIPA has not had
EU members’ ratification yet. However, the EVIPA is expected to attract investment
and modern technology from Europe into Vietnam and protect investors and
investments in EU and Vietnam.

1The COVID-19 crisis caused a dramatic fall in FDI. The Global FDI flows decreased by up to 40% in 2020
and are projected to decrease by 5 to 10 % in 2021. For more details, see: UNCTAD, “World Investment
Report 2020, International production beyond the pandemic”, UNCTAD (2020), “World Investment Report
2020, International Production beyond the Pandemic”, United Nations Publications, New York, available at:
(last accessed on: April 13, 2021)
2 Statistic on Foreign Indirect Investment in the first quarter (from 01/01/2021 to 20/3/2021) by General
Statistics Office of Vietnam (GSO), available at (last accessed on: April 10, 2021).

1


The regulatory regime of foreign investments in the modern international

investment agreement (IIAs) should generally respond to two different objectives.
On the one hand, the attraction of foreign investments is a crucial element to
promote the economic and social development of the host countries. On the other
hand, policy and lawmakers should ensure that the economic and social
development is sustainable, not detrimental to some fundamental values such as the
consumers' health, the environment, the workers' rights or any other domestic
objective considered essential for the community established in the investment-host
3

states. Therefore, in addition to the broader scope and more profound level of
commitments regarding investment issues, sustainable development is one main
characteristic of modern IIAs in general, as well as EVIPA in particular. While, the
primary purpose of the IIAs that is predominately protecting and enhancing the
investment considered to contrast with the environmental protection and social
development issues by the host states, which is inherent in the sovereignty of the
State. The dispute practice has indicated that the regulation of the environmental
policies can be challenged by claiming for breach of the investment principles.
Therefore, that makes the host states should take into consideration when
implementing the foreign investment protection commitments and pursuing the goal
of sustainable development and environmental protection simultaneously.
Vietnam is the potential investment market with foreign investors, however,
the majority of investment sections in Vietnam are concentrated in heavy industries
with a high ability to cause environmental pollution. In fact, by 2013, only 5% of FDI
investing enterprises in Vietnam had high technology, 80% had medium technology,
and the rest 14% were using low technology. This statistic reflects completely

3 Hanoi Law University (2017), Textbook on International Investment Law, Youth Publishing House, Preface
2

contradicts expectations as well as claims to bring advanced technologies and
4

applications into production in Vietnam of the foreign investors. Therefore, the
number of foreign investors who do not comply with environmental laws in
Vietnam and cause severe environmental consequences during the investment
process is highly alarming.
To restrict this problem, the government has conducted many different
solutions affecting foreign investors' investment and claimed those were the most
effective measures to environmental protection. However, those measures can be
brought lawsuits because violating the fair and equitable treatment obligation (FET)
or creating unlawful indirect expropriation conduct in the BIT or FTA that Vietnam
was the member. Therefore, the research on the relationship between FET and
indirect expropriation regulations and environment protection rights of the host
State in provisions of EVIPA to find out effective precaution measures against the
dispute between EU investors and Vietnam’s government in the future is extremely
necessary.
For these reasons, the author decided to study the topic: “Environmental
Protection Right toward Fair and Equitable Treatment and Indirect Expropriation
regulations in EVIPA and Recommendations for Vietnam” as the bachelor’s thesis.

4

Nguyễn Tuyền, (30/3/2016), “Ngày càng nhiều doanh nghiệp FDI gây ô nhiễm ở Việt Nam”, Dân Trí news,
available
at
(last accessed on June 25, 2021).

3

2. Literature review
There is no bachelor’s thesis about the issue the author studying, however,
the number of articles with related issues quite varies, which can be mentioned as
follows:
2.1. Materials in Vietnamese
In the article "Liên hệ tiêu chuẩn “đối xử công bằng và thỏa đáng” với
mục tiêu bảo vệ môi trường trong CPTPP – Một số đề xuất cho Việt Nam” (The
relationship between “Fair and Equitable” and environmental purpose in CPTPP –
Recommendations for Vietnam) of Nguyen Thi Lan Huong in Legal Science
Journal, Volume 06, 2019, the author focus on studying the theory of the FET
standard in international investment law, the practice on the interpretation of the
FET and investment dispute settlement related to FET standard. Thereby, the author
analyzes the relationship between "Fair and Equitable" and environmental purpose
in CPTPP and assesses those regulations to come up with some recommendations
for Vietnam. However, in terms of theoretical issue, the author only focuses on FET
standard regulations and not the indirect expropriation regulations with the majority
proportion in the investment dispute. Besides, regarding practical issues, this article
essentially studies environmental protection and proposes the recommendations for
Vietnam under CPTPP, without mentioning the provision of EVIPA that is the
subject of this thesis.
In addition, in the article "Áp dụng quy định trường hợp ngoại lệ về môi
trường trong pháp luật đầu tư quốc tế và một số so sánh với thực tế Việt Nam"
(Applying environmental exception to in international investment law and some
comparisons with the reality in Vietnam) of Tran Thang Long in Nghiên cứu lập pháp
Journal, Volume 04, 2019, the Author gives a general overview of international
investment exception and the practice of applying the exception in international

4

investment disputes. Nevertheless, the author focuses only on analyzing
environmental exception in international investment law in general based on general
exceptions of GATT and GATS and fails to analyze in-depth environmental
exception in the new-generation IIAs.
2.2. Materials in foreign languages
Many foreign materials provide general knowledge regarding FET
standards, indirect expropriation, or environmental protection right, which are the
primary concepts in international investment law used in this thesis, such as
“Standards of Investment Protection” of August Reinisch or “Principles of
International Investment Law”, of Rudolf Dolzer and Christoph Schreuer and many
UNCTAD and OECD documents. However, the number of studies on the
relationship between those issues and the Vietnamese context, particularly in the
provisions of EVIPA, is still limited. Since EVIPA is entirely new and lacks actual
cases, that leads to the lack of detailed research and only stops at embrace.
In conclusion, there are no materials in Vietnamese or foreign languages
mentioning the environmental protection right in EVIPA in detail.
3. Purpose of thesis
This thesis will provide an overall perspective on the relationship between the
right to be ensured FET standards and lawful indirect expropriation of the investors and
the right to environmental protection of the host state in IIAs in general and EVIPA in
particular. As a result, the author will make comments and assessments on
environmental protection rights in EVIPA before recommending Vietnam on how to
apply EVIPA provisions to ensure the right to environmental protection.

5


4. Research Delimitation
Under the limitations of time and resources, the author can not be able to

study all the issues in the regulations of EVIPA deeply. Hence, the scope of this
thesis is theoretical and practical issues related to FET standard, indirect
expropriation, environmental protection right in international investment law,
EVIPA and some international investment agreements. It should be noted that the
theoretical issues are only some definitions and opinions considered as outstanding
and appropriate to the author's outlook. Besides, this research also studies some
remarkable disputes in international and Vietnam’s practice relating the researched
issues. Finally, the Author would like to concentrate on analyzing regulations in
EVIPA and IIAs to clarify the above issues.
5. Research Methodologies
To achieve all of the thesis's objectives, the author employs a variety of
research methodologies, including analytical, synthesis theory, historical, assessing,
and comparison methods.
The analytical, historical, and synthesis theory methods will be used to study
IIA provisions, synthesize, and analyze legal issues arising from those provisions.

The methods for evaluating and comparing will primarily be used to
identify differences and inadequacies in regulations between IIAs, EVIPA, and the
legal perspectives of scholars around the world.
6. Structure of thesis
This thesis shall be divided into two chapters. The first chapter will focus on
the definition, classification, content and related to FET, indirect expropriation and
right on environmental protection in international investment law in general. The
second chapter will provide the analysis and assessment on the link between the goal

6


of environmental protection of host state and the investment protection principles in
EVIPA, besides review and estimate the ability to be taken legal actions against

Vietnam's government by the EU investor, finally, focus on recommendations for
Vietnam related to investment dispute settlement and policy planning.

7


Chapter 1: Overview on Environmental Protection right toward Fair and
Equitable Treatment and Indirect Expropriation regulations in International
Investment Law
1.1. Overview on Fair and Equitable Treatment standard in International
Investment Law
In the majority of IIAs, with the main purpose that is to “protect the
investments that generate those revenues” and prevent them from being abused by
5

the host States , the provisions in the IIAs generally stipulated in favor of the
6

investors rather than the host state. Among several investment standards , FET
standard is the most important standard in modern IIAs because this standard
appears in the vast majority of IIAs and has been frequently invoked by foreign
investors in ISDS proceedings, with a high rate of success.
1.1.1.

The historical origin of Fair and Equitable Treatment standard

In some studies by several foreign scholars, the foundation of FET
7

regulations has been formed since the ancient Greek period , rooted in the basis of

8

natural law, and inherited and developed in national laws of some countries .
However, within the scope of the thesis, the Author will only focus on studying the

5 Hanoi Law University (2017), supra note 3, p. 80.
6 Almost all of them are the rules on the admission

of investments, including two non-discrimination
standards of most-favoured-nation as well as national treatment, absolute treaty standards, such as fair and
equitable treatment, full protection and security, as well as protection against arbitrary and unreasonable
measures, guarantees against uncompensated expropriations, and provisions on transfer of funds.
7 The famous Greek philosopher Aristotle (384-322 BC) laid the first foundation for the doctrine of natural
law. The doctrine of natural law was the core foundation for the development of fair and equitable treatment
in the right of states to defend themselves when invaded by other states in the doctrine of some philosopher
such as Marcus Cicero and Thomas Aquinas.
8 FET standard is first recognized in national law in Gemany. In European law, this standard was known
when applied by the European Court of Justice as a general principle of European Community (EC) law to
assess limitations on human rights.

8


historical origin of FET standard based on the formation and development of the
international investment.
In pre-date modern IIAs, the first reference of FET standard is found in
some IIAs appeared in the early international economic agreement such as the
Havana Charter for an International Trade Organization.
Agreement of Bogota

10

9

and the Economic

at the same time in 1948, as well as in the United States

treaties on Friendship, Commerce and Navigation (FCN).

11

Besides, under Article 1

(a) of the Draft Convention on Protection of Foreign Property by the OECD Council
on October 12, 1967, the FET was emphasized “Each Party shall at all times ensure
fair and equitable treatment to the property of the nationals of the other Parties.
Such property shall be accorded the most constant protection and security within
the territories of the other Parties and the management, use and enjoyment thereof
shall not in any way be impaired by unreasonable or discriminatory measure”.

12

Although those instruments were no binding at all, they laid the foundation
for FETs in modern IIAs.

9

Its Article 11(2) stipulates that the International Trade Organization may be appropriate to “make
recommendations for and promote bilateral or multilateral agreements on measures designed to assure just and

equitable treatment for the enterprise, skills, capital, arts and technology brought from one Member country to
another…”. The Article affirmed that the foreign investment of all member States should be assured "just and
equitable treament".

10
Article 22 of the agreement stipulates that "Foreign capital shall receive equitable treatment. The
States, therefore, agree not to take unjustified, unreasonable or discriminatory measures that would impair
the legally acquired rights or interests of nationals of other countries in the enterprises, capital, skills, arts or
technology they have supplied".
11
FCN developed after First World War provided a standard reference to international law in order
to protect the person and property of aliens from discriminatory treatment in foreign markets. In those
treaties, the terms "equitable" and "fair and equitable treatment" are used to safeguard against State action
that violated internationally accepted norms.
12
UNCTAD (2012), “Fair and Equitable Treatment, UNCTAD Series on Issues in International
Investment Agreement II”, United Nations, p. 5
9


1.1.2.

Definition and content of Fair and Equitable Treatment standard

FET standard is an absolute standard of protection and is referred as a
catch-all provision. While the relative standards of treatment, like MFN and NT
principles, do not provide an objective guarantee of good treatment toward foreign
investors, FET ensures that foreign investors are granted an adequate treatment,
independently of the treatment that the host States afford to its own investors or
investors from other countries.

13

Besides, as a catch provision with the flexibiity, it

is the most often invoked in almost every single claim brought by foreign against
host State with the purpose to fill gaps that the more specific standards may leave

14

even if the investor fails to demonstrate a breach of the remaining provisions of the
IIA. In fact, the Claimants alleged a violation of FET in over 80% of known ISDS
cases and breaches of FET provision were the most commonly found violation in
cases decided in favour of the investor.

15

Even though FET is broadly applied in practice, there has not been a unified
definition of FET in the long time because its meaning depends on the interpretations
of the ad hoc arbitral tribunals based on a case-by-case basis and how this principle is
recognized in each IIA. In the opinion of Professor Muchinski, "The concept of fair
and equitable treatment is not precisely defined. It offers a general point of departure
in formulating an argument that the foreign investor has not been well treated because
of discriminatory or other unfair measures being taken against its interests. It is,
therefore, a concept that depends on the interpretation of specific facts for its content.
At most, it can be said that the concept connotes the principle of non-

13
14

Hanoi Law University (2017), supra note 5, p. 119
Rudolf Dolzer, Christoph Schreuer (2012), Principles of International Investment Law, Oxford
University Press, United Kingdom, p. 122
15
UNCTAD (2020), International Investment Agreements: Reform Accelerator, OECD publishing,
p. 20

10


discrimination and proportionality in the treatment of foreign investors."16.
Accordingly, the meaning of FET standard is very broad and vague.
FET standard is considered to be the unified standard that is impossible to
separate to two standards - "fair" and "equitable", with independent meanings for
each concept.

17

In general, The FET principle is understood that the conduct of the

host State towards foreign investors must be based on unbiased rules. This standard
protects investors against serious instances of arbitrary, discriminatory or abusive
conduct by host States

18

such as the arbitrary revocation or cancellation of licenses,

the imposition of unfair sanctions or creating barriers to disrupt business
activities.

19

Because of the broad scope of the FET, current arbitral practice shows

that all types of government conduct – legislative, administrative and judicial alike
– can potentially be found to breach the FET obligation.

20

In many scholars’ opinions, FET standard has been identified by some as one
of elements of minimum standard

21

of treatment of foreigners and of their property,

22

required by international law . NAFTA is an example to back up this point of view,
Article 1105.1 of the NAFTA stipulates that: “Each Party shall accord to investments
of investors of another Party treatment in accordance with international

16
17
18

Peter T. Muchlinski, (1995), “Multinational Enterprises and the Law”, The Oxford Press, p. 625
Rudolf Dolzer, Christoph Schreuer (2012), supra note 14, p. 122

August Reinisch (2008),” Standards of Investment Protection”, Oxford University Press, United
Kingdom, p. 111

19
Azernoosh Bazrafkan, Alexia Herwig (2016), “Reinterpreting the Fair and Equitable Treatment
Provision in International Investment Agreements as a New and More Legitimate Way to Manage Risks”,
European Journal of Risk Regulation, p. 441
20
OCED, (2004), Fair and Equitable Treament Standard in International Investment Law, OCED
Publishing, OCED Working Papers on International Investment, p. 12
21
The international minimum standard is a norm of customary international law which governs the
treatment of aliens, by providing for a minimum set of principles which States, regardless of their domestic
legislation and practices, must respect when dealing with foreign nationals and their property.
22
OCED, (2004), supra note 20, p. 8-9

11


law, including fair and equitable treatment and full protection and security”. As a
result, FET standard in NAFTA is clearly treated as part of the minimum standard. On
the other hand, there is also a view that FET is not limited to the minimum standard as
contained in the international customary law but takes into account the full range of
international law sources, including general principles and modern treaties and other
23

conventional obligations . However, some opinions also xem FET standard is a selfstanding standard that which is automomous and not explicitly linked to international
law. This issue is still controversial, in particular given the growing number of arbitral
24

awards which examine claims of denial of fair and equal treatment . Because, as
previously stated, there are numerous interpretations of the FET concept, there are
various types of FET standards in IIAs based on the language used in treaties, including
25

unqualified FET formulation , FET linked to international law, FET linked to the
minimum standard under customary international law
substantive content.

27

26

and FET with additional

On the other hand, the liability threshold for qualifying conduct

by the State is also based on the wording of the FET clause.

In conclusion, the FET clause may be interpreted differently depending on
how it is specified in the IIAs, and host countries must carefully understand this
standard to avoid litigation by investors.

23
24
25

OCED, (2004), supra note 20, p. 20
OCED, (2004), supra note 20, p. 22

Article 3, Belgium-Luxembourg Economic Union-Tajikistan BIT (2009); Article 4, ChinaSwitzerland BIT (2009).
26
The examples of provisions with a reference to international law: Article 3(2), Croatia-Oman BIT
(2004); Article 2(3)(a), Croatia-Oman BIT (2004); The examples of provisions with a reference to the
minimum standard under customary international law: Article 1105(1), NAFTA; Chapter 11, Article 4,
Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area (2009); Article 91, Agreement
between Japan and the Republic of the Philippines for an Economic Partnership (2006).
27
UNTACD (2012), supra note 15, p.17-18

12


1.1.3.

Requirements of Fair and Equitable Treatment
Because of lacking the exact definition of FET standard, based on dispute

settlement practices and perspectives of renowned scholars, requirements can be
analyzed in four categories: (1) obligation of vigilance and protection, (2) due process
including non-denial of justice (3) lack of arbitrariness and non-discrimination, and (4)
Transparency, stability and the protection of investors’ legitimate expectations.

1.1.3.1.

The obligation of vigilance and protection

The obligation of vigilance is considered a standard of customary
international law as an obligation to exercise due diligence in protecting foreign

investment in order to define an act or omission of the State as being contradicted to
FET and full protection and security.

28

The protection obligation is a standard

derived from customary international law that applies primarily when foreign
investment is harmed by civil strife and physical violence.

29

The protections

obligation, as known as full protection and security, is often included in treaties as a
separate obligation. As a result, in order to ensure that more important content is
thoroughly studied, the author will introduce the concept of this obligation, not
focus on researching this obligation within the scope of this thesis.
1.1.3.2.

Due process including non-denial of justice

Due process is an elemantary requirement of FET standard and is referred
to by many contemporary IIAs as the minimum standard of treatment of aliens.

30

Denial of justice is a refusal to grant foreigners free access to the courts instituted in

28

29
30

OCED, (2004), supra not 20, p. 26
OCED, (2004), supra note 20, p. 26
UNTACD (2012), supra note 15, p.30

13


a State for discharge of its judicial functions, or the failure to grant free access a
particular case, to the foreigner who seeks to defend his rights, although, in the
31

circumstances, nationals of the States would be entitled to such access . It can be
understood that the obligation not to deny justice in criminal, civil or administrative
proceedings must be in compliance with due process.

32
33

There is no agreement, however, as to precise scope of the term . The
34

principle of “denial of justice” is used in three senses . In the broadest sense, it
“seems to embrace the whole field of State responsibility and has been applied to all
types of wrongful conduct on the part of the State towards aliens”. Accordingly, it
includes all acts or omissions of the authorities of any of the three branches of
government which are executive, legislative or judiciary branches. In the narrowest
sense, it is “limited to refusal of a State to grant an alien access to its courts or a

failure of a court to pronounce a judgment”. Besides, an intermediary sense referred
to in the majority of cases is “employed in connection with the improper
administration of civil and criminal justice as regards an alien, including denial of
access to courts, inadequate procedures, and unjust decisions”.
In general, this is an ambiguous element, and its understanding should be
based on the arbitral tribunal's interpretation on a case-by-case basis.

31
Oliver J. Lissitzyn (1936), “The Meaning of the Term Denial of Justice in International Law”, The
American

Journal of International Law, Vol. 30, No.4, p. 632-646
32Surya P. Subedi (2008), “International Investment Law – Reconciling Policy and Principle”, Oxford and
Portland, Oregon: Hart Publishing, p. 67
33
Oliver J. Lissitzyn (1936), supra note 31
34

OCED, (2004), supra note 20, p. 29

14


1.1.3.3.

Lack of arbitraness and non-discrimination

This requirement is considered as the indispensable part of FET standard
in each IIA. However, the application and interpretation of the FET standard has
been considered to be broader than the notions of arbitrariness, unreasonableness

and discrimination.

35

The arbitral tribunal considered the standard of protection

with two components in the case of CMS v. Argentina including arbitrary and
discriminatory treatment when considering FET violations. Similarly, in Waste
36

Management v. Mexico , the arbitral tribunal considers that state conduct violates
the FET-MST if it is arbitrary, unjust, unreasonable, or idiosyncratic, discriminatory,
37

and affects due process, causing damage to foreign investments .
1.1.3.4.

Transparency and stability of legal and business framework and
the protection of investors’ legitimate expectations
In history, protection of investors’ legitimate expectations is referred to by

arbitral tribunal as the FET standard's key element and derived from the doctrine of
“venire contra factum proprium” and “estoppel” which are foundational theories of the
38

FET standard . This provision is designed to ensure the respect of commitments of the
host state. These commitments will generate liability if the investors rely on them to
invest in the host State. In situations where an investor suffers losses due to

35

36

UNTACD (2012), supra note 15, p.31
Waste Management v. Mexico, ICSID Case No ARB(AF)/00/3 (NAFTA), Award, 30 April 2004, 43 ILM

967 (2004), para 98
37
Nguyen Xuan My Hien, “Sự phát triển của tiêu chuẩn đối xử công bằng và thỏa đáng trong hiệp định
thương mại tự do thế hệ mới”, Legal Science Journal, Vol. 06(127)/129, p. 48 – 59, available at:
638cce62a0cb
38

Nguyen Xuan My Hien, supra note 37

15


changes resulting from the host State’s measure, claims related to breach of
legitimate expectations may arise.
Even then, not all expectations under international investment legislation
are legitimate and only legitimate expectations under the FET standard are
protected. The investments that the investors based on legitimate expectations are
39

typically economic projects of significant duration, not one-off transactions , may
not have any time limitation at all because the risk that the operating conditions of
the investment will change, therefore lead to the negative impact on the investment.
Changes in the host state's business environment can occur for a variety of reasons
such as technological innovations, the rising and falling of prices and the relative
economic power of competitors or conduct of the host state government.

40

The concept of legitimate expectation can be applied with other related
concept as transpacency which would require that the host state authorities act
consistently, without ambiguity and transparently, making sure the investor knows in
advance the regulatory and administrative policies and practices to which it will be
subject, so that it may comply.

41

In some cases such as PSEG v.Turkey

42

and

43

Occidental v. Ecuador , the tribunals suggest that any adverse change in business
orlegal framework of host state may give a breach of FET standard in that the investors’
legitimate expectations of predictability and stability are there by undermined. This
approach, however, is unjustified because it could prevent the host

39
40
41
42

UNTACD (2012), supra note 15, p.63

UNTACD (2012), supra note 15, p.64
UNTACD (2012), supra note 15, p.65

In PSEG v. Turkey case, the tribunal emphasized that the changes in both the legislative environment as
well as in the attitudes and policies of the administration relating to investments were contrary to the need to
“ensure a stable and predictable business environment for investors to operate in, as required […] by the Treaty”

43
In Occidental v. Ecuador case, the tribunal equated the requirement of a stable and predictable
legal and business framework for investment with the international law standard

16


44

state from implementing any legitimate regulatory change , whereas investors
should legitimately expect regulations to change over time as part of the normal
operation of the legal and policy processes of the economy in which they operate.
To avoid overexpansion of the FET standard through reference to legitimate
expectation, several awards

45

have sought to identify factors that limit the scope of

such expectations. However, in general, the concept of legitimate expectation is
ambiguous, which may narrow the criteria for considering violations of FET
46

standard .
1.2.

Overview on Indirect Expropriation in International Investment
Law
In international investment law, expropriation is a term used to refer to the

taking of property from its owner by the host state and in most cases, expropriation
is carried out for economic or public purposes. Expropriation can mainly take two
different forms, which are direct or indirect expropriation. However, in
contemporary IIAs, direct expropriation has been officially stipulated in the legal
documents on expropriation and has become relatively rare, while indirect
expropriation becomes the most controversial issue in international investment law.
In the scope of this thesis, the Author only focuses on indirect expropriation, which
is considered common in current dispute practice.
1.2.1.

Definition of indirect expropriation
Basically, indirect expropriation has the same effect as direct expropriation,

both are acts of the host State to interfere with the use or benefit of investors' assets.

44
45
46

UNTACD (2012), supra note 15, p.67
For example, Duke Energy v. Ecuador case
Nguyen Xuan My Hien, supra note 34

17


Unlike direct expropriation, indirect expropriation involves total or near-total
47

deprivation of an investment but without a formal transfer of title or outright seizure. .
In general, indirect expropriation can be the expropriation “through measures that,
although informally deny of investor status, yet affect their assets to a degree sufficient
to take the investor's interest in the investment, limit the investor's management, use, or
48

control substantially reduce the value of the investment” .

The 1992 World Bank Guidelines on “Expropriation and Unilateral
Alterations or Termination of Contracts”

49

as well as the 1994 Energy Charter

50

Treaty , were among the first instruments to address indirect expropriation.
As can be seen that the majority of IIAs refer to both direct and indirect
expropriation, whereas rare IIAs explicitly define the notion of indirect expropriation.
The exceptional example is Article 1110.1 of NAFTA, this provision stipulates that:
“No Party may directly or indirectly nationalize or expropriate an investment of an
investor of another Party in its territory or take a measure tantamount to
nationalization or expropriation of such an investment ("expropriation"), except:…”. It

can be seen that, NAFTA does mention the phrase "indirect expropriation" but does not
provide an official definition or how to define acts that are considered indirect
expropriation. Likewise, Article 4 in Egypt-Germany BIT (2005) still stipulates

51

:

47
UNCTAD (2012), Expropriation UNCTAD Series on Issues in International Investment Agreements II, New
York and Geneva, p. 7

48
Trịnh Hải Yến (2017), Textbook of International Investment Law, National Political Publishing
House, Hanoi, p. 259
49
Section IV(1) of the Guidelines states that: “A state may not expropriate or otherwise take in
whole or in part a foreign private investment in its territory, or take measures which have similar effects,
except where this is done in accordance with applicable legal procedures, in pursuance in good faith of a
public purpose, without discrimination on the basis of nationality and against the payment of appropriate
compensation.”
50
Article 13 provides that: “investments of investors of a Contracting Party in the Area of any other
Contracting Party shall not be nationalized, expropriated or subjected to a measure or measures having
effect equivalent to nationalization or expropriation”
51
Article 4 in Egypt-Germany BIT (2005)
18