INVESTOR STATE DISPUTE SETTLEMENT ON THE FAIR AND EQUITABLE TREATMENT STANDARD AND LESSONS FOR VIETNAM

MINISTRY OF EDUCATION AND TRAINING
FOREIGN TRADE UNIVERSITY

MASTER THESIS

INVESTOR-STATE DISPUTE SETTLEMENT
ON THE FAIR AND EQUITABLE TREATMENT STANDARD
AND LESSONS FOR VIETNAM

Major: International Economics
Specialization: International Trade Policy and Law
Code: 8310106

Full name: Truong Thi Kim Xuyen
Supervisor: Dr. Vo Sy Manh

Hanoi - 2019


ii

Table of Contents
STATEMENT OF AUTHORSHIP ..................................................................... V
ACKNOWLEDGEMENTS ................................................................................ VI
ABBREVIATIONS ........................................................................................... VII
LIST OF FIGURES ............................................................................................ IX
SUMMARY OF THESIS RESEARCH RESULTS ........................................... X
ABSTRACT ........................................................................................................ XI
INTRODUCTION ............................................................................................ XII
1. BACKGROUND OF THE STUDY.............................................................. XII
2. LITERATURE REVIEW ......................................................................... XIII

3. OBJECTS AND SCOPE OF THE STUDY .......................................... XVIII
4. OBJECTIVES OF THE STUDY .............................................................. XIX
5. METHODOLOGY OF THE STUDY ........................................................ XX
6. EXPECTED CONTRIBUTION OF THE THESIS................................... XX
7. STRUCTURE OF THE THESIS ............................................................... XX
CHAPTER 1 AN OVERVIEW OF THE INVESTOR-STATE DISPUTE
SETTLEMENT AND THE FAIR AND EQUITABLE TREATMENT
STANDARD .......................................................................................................... 1
1.1

AN OVERVIEW OF INVESTOR-STATE DISPUTE SETTLEMENT .. 1

1.1.1 DEFINITION OF INVESTOR-STATE DISPUTE SETTLEMENT
1
1.1.2 THE SPECIFIC FEATURES OF INVESTOR-STATE DISPUTE SETTLEMENT 2
1.2

AN OVERVIEW OF FAIR AND EQUITABLE TREATMENT .............. 6

1.2.1 THE LITERAL MEANING OF FAIR AND EQUITABLE TREATMENT
1.2.2 SPECIFIC FEATURES OF FAIR AND EQUITABLE TREATMENT

6
9

SUMMARY ......................................................................................................... 11
CHAPTER 2 REGULATION AND APPLICATION OF THE FAIR AND
EQUITABLE TREATMENT ............................................................................ 12
2.1 REGULATION OF FAIR AND EQUITABLE TREATMENT IN
INTERNATIONAL INVESTMENT AGREEMENTS ..................................... 12

2.1.1 NO FAIR AND EQUITABLE TREATMENT STANDARD
2.1.2 FAIR AND EQUITABLE TREATMENT AS AN UNQUALIFIED STANDARD
2.1.2.1 Stand-alone Fair and Equitable Treatment Standard

14
14
14


iii

2.1.2.2 Fair and Equitable Treatment combined with other standards
15
2.1.2.3 FET standard with an open-ended list of State obligations
20
2.1.3 FAIR AND EQUITABLE TREATMENT AS A QUALIFIED STANDARD
21
2.1.3.1 Fair and Equitable Treatment with references to Minimum Standard
of Treatment
21
2.1.3.2 Fair and Equitable Treatment with references to international law 22
2.1.3.3 Fair and Equitable Treatment with references to international law 22
2.1.3.4 Fair and Equitable Treatment with “exhaustive list” of State
obligations
23
2.2 APPLICATION OF FAIR AND EQUITABLE TREATMENT BY
ARBITRAL TRIBUNALS ................................................................................. 25
2.2.1 AN OVERVIEW OF FAIR AND EQUITABLE TREATMENT IN ARBITRAL
TRIBUNALS
25

2.2.2 INTERPRETATION OF FAIR AND EQUITABLE TREATMENT STANDARD BY
ARBITRAL TRIBUNALS
26
2.2.2.1 Interpretation of “No Fair and Equitable Treatment Clause”
26
2.2.2.2 Interpretation of Unqualified Fair and Equitable Treatment
28
2.2.2.3 Interpretation of the Qualified Fair and Equitable Treatment
34
2.3

FAIR AND EQUITABLE TREATMENT CASES OF VIETNAM ....... 37

2.3.1
2.3.2
2.3.3
2.3.4

MICHAEL LEE MCKENZIE V. THE SOCIALIST REPUBLIC OF VIETNAM
DIALASIE SAS V. THE SOCIALIST REPUBLIC OF VIETNAM
RECOFI V. THE SOCIALIST REPUBLIC OF VIETNAM
TRINH VINH BINH V. THE SOCIALIST REPUBLIC OF VIETNAM

38
40
42
45

SUMMARY ......................................................................................................... 47
CHAPTER 3 INVESTOR-STATE DISPUTE SETTLEMENT ON THE FAIR

AND EQUITABLE TREATMENT ON THE PERSPECTIVE OF THE HOST
STATE AND LESSONS FOR VIETNAM GOVERNMENT........................... 50
3.1 THE REFORM OF THE FAIR AND EQUITABLE TREATMENT IN
INTERNATIONAL INVESTMENT AGREEMENTS ..................................... 50
3.1.1 OPTIONS FOR REFORM OF THE FAIR AND EQUITABLE TREATMENT
CLAUSE
51
3.1.1.1 The FET standard with reference to the minimum standard of
treatment under customary international law
51
3.1.1.2 The Fair and Equitable Treatment clause with an open-ended list of
obligations
53
3.1.1.3 The Fair and Equitable Treatment clause with an “exhaustive list” of
obligations
54


iv

3.1.1.4 Omitting the FET clause
56
3.1.2 OTHER PROVISIONS LINKING TO FAIR AND EQUITABLE TREATMENT
CLAUSE
57
3.1.2.1 Exception Provision
57
3.1.2.2 Most-Favoured Nation Treatment Provision
59
3.2 LESSONS FOR VIETNAM GOVERNMENT IN RESOLUTION OF

INVESTOR-STATE DISPUTES ON THE FAIR AND EQUITABLE
TREATMENT .................................................................................................... 61
3.2.1 THE CIRCUMSTANCES OF VIETNAM IN THE FAIR AND EQUITABLE
TREATMENT CLAIMS
3.2.2 THE INVESTOR’S OBLIGATIONS IN THE FAIR AND EQUITABLE
TREATMENT CLAIMS

62
63

3.3 LESSONS FOR VIETNAM GOVERNMENT IN PREVENTION OF
INVESTOR-STATE DISPUTES ON THE FAIR AND EQUITABLE
TREATMENT .................................................................................................... 66
SUMMARY ......................................................................................................... 68
CONCLUSION ................................................................................................... 70
BIBLIOGRAPHY ............................................................................................... 73
APPENDIX: LIST OF FORMULATIONS OF FET CLAUSES IN
INTERNATIONAL INVESTMENT AGREEMENTS OF VIETNAM ........... 82
A. LIST OF FORMULATIONS OF FET CLAUSES IN BILATERAL
INVESTMENT TREATIES OF VIETNAM
82
B. LIST OF FORMULATIONS OF FET CLAUSES IN TREATIES WITH
INVESTMENT PROVISIONS OF VIETNAM
86


v

STATEMENT OF AUTHORSHIP

I, Truong Thi Kim Xuyen hereby declare, in fulfilment of the requirements of the
Foreign Trade University that the thesis is my original work under the supervision of
Dr. Vo Sy Manh.


vi

ACKNOWLEDGEMENTS
Firstly, I would like to express my gratitude to my supervisor Dr. Vo Sy Manh who
gives me guidance, support and encouragement to complete this thesis.
Secondly, I am also grateful to the Foreign Trade University for providing a
wonderful environment for whole my period time of study.
Finally, a special thanks goes to Dr. Cao Thi Hong Vinh for all her prompt and
enthusiastic responses and support during my course.


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ABBREVIATIONS

AANZFTA

ASEAN-Australia-New Zealand Free Trade Agreement

ACIA

ASEAN Comprehensive Investment Agreement

ASEAN

Association of Southeast Asian Nations

BIT

Bilateral Investment Treaty

CBDR

Common but Differentiated Responsibility

CIL

Customary International Law

COMESA

Common Market for Eastern and Southern Africa

CPTPP

Comprehensive and Progressive Agreement for
Trans-Pacific Partnership

DPI

Department of Planning and Investment

ECJ

European Court of Justice

ECT

Energy Charter Treaty

FCN

Friendship, Commerce and Navigation

FDI

Foreign Direct Investment

FET

Fair and Equitable Treatment

FPS

Full Protection and Security

FTA

Free Trade Agreement

GATT

General Agreement on Trade and Tariffs

ICJ

International Court of Justice

ICSID

International Center for Settlement of
Investment Disputes

IIA

International Investment Agreement

IMS

International Minimum Standard

IPA

Investment Protection Agreement


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ISDS

Investor-State Dispute Settlement

LCIA

London Court of International Arbitratio

MFN

Most-Favoured Nation Treatment

MPI

Ministry of Planning and Investment

MST

Minimum Standard of Treatment

NAFTA

North American Free Trade Agreement

NT

National Treatment

OECD

Organization for Economic Cooperation and Development

PCA

Permanent Court of Arbitration

SCC

Stockholm Chamber of Commerce

SFC

South Fork Company

SFT

Swiss Federal Tribunal

SPC

Supreme People’s Court

TIP

Treaty with Investment Provision

UNCITRAL

United Nations Commission on International Trade Law

UNCTAD

United Nations Conference on Trade and Development

VIAC

Vietnam International Arbitration Center

WTO

World Trade Organization


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LIST OF FIGURES

1

Figure 1.1

Known ISDS cases filed by arbitral rules, from 1987
to 31 July 2017 (Per cent)

4

Number and share of BITs with unqualified,
2

Figure 2.1 qualified and no FET clause, signed between 1959
and 2016

13


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SUMMARY OF THESIS RESEARCH RESULTS
Being an attractive investment destination with a huge number of international
investment agreements (IIAs) signed with other member states, apart from the
economic benefits achieved, Vietnam has to face more legal risks arising from the
claims of foreign investors on the ground of the IIAs, and one of the most concern is
the breach of FET clause. The study provides the legal risks arising from the
unqualified FET clauses in most IIAs of Vietnam. To have such conclusion, the
research firstly examines the formulations of the FET in IIAs and then make a
comparison between the thresholds of investors’ protection regarding to these
formulations.
The study also examines the investor-state dispute settlement (ISDS) cases on the
FET claims, specifically four cases in which Vietnam government was a respondent
and the provides the elements that Vietnam government should take them into
account when being sued by the foreign investors on the ground of the FET standard.
The thesis also goes further by analyzing the reform of FET clauses in new-generation
IIAs which is one of the most important goals in World Investment Forum in 2018.
As a result, the study then argues the advantages and disadvantage of each
formulation of FET so that Vietnam government can easily make a comparison and
consideration between these formulations of FET when it comes to negotiating and
signing new IIAs.
Last but not least, the study provides the Vietnamese authorities lessons and
recommendations for better practice in prevention the disputes with foreign investors
regarding to FET claims as well.


xi

ABSTRACT
Fair and equitable treatment (FET) as an international investment treatment standard,
has been incorporated in most international investment agreements. According to

UNCTAD’s IIA Mapping database, which includes over 2500 mapped BITs
(UNCTAD 2016), there are only 117 BITs with no FET clauses out of 2538 BITs
signed between 1959 and 2016. The standard, however, as interpreted by investorstate arbitration tribunals, is an ambiguous, imprecise and unclear obligation that
turns it into a “catch-all” provision. FET is therefore frequently invoked by investors
in investor – state arbitration that the awards sometimes cost for billions of dollars.
For these reasons, it is time for the government to pay more attention to this standard,
especially developing country as Vietnam. As a small contribution, the thesis attemps
to find the best approach for Vietnam government when it comes to sign a new IIA
in order to balance the interest between the state and foreign invertors as well as
analyzing the legal problems that Vietnam government should handle to minimize
the violation of FET clause. Moreover, the thesis desires to give some
recommendations for Vietnam government when it comes to be a respondent with a
claim on the FET clause during the hearing of investment arbitral tribunal.


INTRODUCTION
1. Background of the study
According to United Nations Conference on Trade and Development (UNCTAD)
(UNCTAD 2018) as of 2018, Vietnam has signed about 65 Bilateral Investment
Treaties and 26 Treaties with Investment Provisions (hereinafter collectively referred
to as the International Investment Agreements- IIAs). It should be noted that in most
of the IIAs that Vietnam has signed such as the ASEAN Comprehensive Investment
Agreement (ACIA), the Comprehensive and Progressive Agreement for TransPacific Partnership (CPTPP), the Agreement on Investment among the Governments
of the Hong Kong Special Administrative Region of the People’s Republic of China
and the Member States of the Association of Southeast Asian Nations, KoreaVietnam Bilateral Investment Agreement and France - Vietnam Bilateral Investment
Agreement or others like the EU-Vietnam Free Trade Agreement and the Regional
Comprehensive Economic Partnership that Vietnam has been negotiating and shall
sign as a member in the near future, they all include the standard of fair and equitable
treatment (FET).
Being an attractive investment destination with a huge amount of IIAs signed with

other member states, apart from the economic benefits achieved, Vietnam has to face
more legal risks arising from the claims of foreign investors on the ground of the
IIAs, and one of the most concern is the breach of FET clause since this standard is
commonly regulated in unqualified way (which shall be discussed further in Chapter
II). In practice, Vietnam’s law, particularly foreign investment law, treats foreign
investors fairly and equitably; however, in practice State authorities, when applying
the law, have not fully accorded such treatment in administrative and court
proceedings (Tuan 2016, p.288). As a result, the government of Vietnam could be
sued in the international arbitral tribunals where the awards can cost billions of dollars
(as in the case between Occidental Petroleum Corporation and Occidental
Exploration and Production Company v. The Republic of


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Ecuador, ICSID Case No. ARB/06/11, in 2012, the arbitration award is roundly equal
to 1.77 billion USD).
Because of the increase of ISDS in both scale and severity, specially the ISDS on
FET clauses, the author attemps to find the best approach for Vietnam government
when it comes to negotiation of a new IIA in order to balance the interests between
the state and foreign invertors as well as analyzing the legal problems that Vietnam
government should handle to minimize the violation of FET clause. Moreover,
regarding to the ISDS, the author would like to give some lessons for Vietnam
government when being sued before the arbitral tribunals in a dispute related to the
FET clause.
2. Literature review
Due to the fact that FET is controversial topic in international investment law, there
are a large number of foreign authors and scholars writing about this topic. In general,
the FET standard can be analyzed from the historical background to the definition1 as
well as the arbitral practice on the FET claim2 while the others address the balance of

1

See more in: (1) Abhijit P.G. Pandya, Interpretations and Coherence of the Fair and Equitable Treatment Standard in

Investment Treaty Arbitration, Ph.D thesis in Law, London School of Economics, London in 2011; (2) D. Hauksdóttir, The
Fair and Equitable Treatment Standard in International Investment Treaties, Master thesis in Law, Reykjavík University,
Reykjavík in 2015; (3) Deng Ting Ting, The impact of the Fair and Equitable Treatment Standard on State Sovereignty,
Ph.D thesis in Juridical Science, City University of Hong Kong, Hong Kong in 2012; (4) Julien Fouret, The notion of Fair
and Equitable treatment, Master thesis in Law, McGill University, Montreal in 2003; (5) J. Roman Picherack, The
Expanding Scope of the Fair and Equitable Treatment Standard: Have Recent Tribunals Gone Too Far?, Journal of World
Investment & Trade, Vol. 9, Issue 4, 2008.
2

See more in (1) Fulvio Maria Palombino, Fair and Equitable Treatment and the Fabric of General Principles, T.M.C.

Asser Press, The Hague and Springer-Verlag, Berlin Heidelberg, 2018; (2) Ioana Tudor, The Fair and Equitable Treatment
Standard in the International Law of Foreign Investment, Oxford University Press, 2007; (3) Roland Klager, Fair and
Equitable Treatment in International Investment Law, Cambridge University Press, 2011; (4) Marc Jacob & Stephan Schill,
Fair and Equitable Treatment: Content, Practice, Method, ACIL Research Paper 2017-20, 2017; (5) OECD, Fair and
Equitable Treatment Standard in International Investment Law, 2004; (6) Rudoff Dolzer, Fair and Equitable Treatment:
A Key Standard in Investment Treaties, The International Lawyer Vol. 39, 2005; (7) Thomas J. Westcott, Recent Practice
on Fair and Equitable Treatment, The Journal of World Investment & Trade, Vol. 8, Issue 3, 2007; (8) UNCTAD, Fair
and Equitable Treatment: UNCTAD Series on Issues in International Investment Agreement II – A Sequel, 2012.


xiv

the rights between the investors and the host states.3 More specifically, there are so
many studies focusing on the formulations of the FET standard.

According to one of the earliest studies about the FET of the OECD in 2004 (OECD
2004), there are three main formulations of the FET, which are:
-

FET is linked to the international minimum standard required by customary

international law;
-

FET is linked to the international law including all sources;

-

FET is an independent self-contained treaty standard.

The sequent study of UNCTAD in Bilateral Investment Treaties 1995-2006: Trends
in Investment Rulemaking (UNCTAD 2007, pp.30-33) grouped FET into seven
formulations:
-

Treaties that grant investments fair and equitable treatment without making

any reference to international law or to any other criteria to determine the content of
the standard.
-

Treaties that state that investments will receive fair and equitable treatment no

less favourable than accorded to its own investors or to investors of any third State.
-

Treaties that couple the fair and equitable treatment standard with an

obligation to abstain from impairing the investment through unreasonable or
discriminatory measures.
-

Treaties that require investments to be granted “fair and equitable treatment in

accordance with the principles of international law”.

3

As in (1) Rumana Islam, The Fair and Equitable Treatment (FET) Standard in International Investment Arbitration:

Developing Countries in Context, Springer, Singapore, 2018; (2) Gaukrodger D., “Addressing the balance of interests in
investment treaties: The limitation of fair and equitable treatment provisions to the minimum standard of treatment under
customary international law”, OECD Working Papers on International Investment 2017, OECD Publishing, Paris, 2017;
(3) Graham Mayeda, Playing Fair: The Meaning of Fair and Equitable Treatment in Bilateral Investment Treaties, Journal
of World Trade, Vol. 41, No. 2, 2007; (4) Srilal M. Perera, Equity-Based Decision-Making and the Fair and Equitable
Treatment Standard: Lessons from the Argentine Investment Disputes – Part I & Part II, The Journal of World Investment
& Trade Vol. 13, Issue 3, 2012; (5) Om Krishna Shrestha, A Host State Regulatory Right in Fair and Equitable Treatment
(FET) in Bilateral Investment Treaties (BITs), Master thesis in Law, University of Lapland, Rovaniemi in 2016.


xv

-

Treaties that similarly require fair and equitable treatment in accordance with

the principles of international law, but that in addition expressly identify some
requirements of the standard. These specific inclusions may broaden the scope of the
standard.
-

Treaties that make the fair and equitable treatment standard contingent on the

domestic legislation of the host country.
-

Finally, some recent BITs and free trade agreements provide a more precisely

defined scope of the fair and equitable treatment standard. They oblige the contracting
parties to accord covered investments treatment in accordance with the minimum
standard of treatment under customary international law. Some also make it express
that fair and equitable treatment is part of the minimum standard and does not create
additional substantive rights.
In a survey of I.Tuona, she classified FET into five formulations (I.Tuona 2008, p.22):
-

In the first one, the standard appears alone;

-

In the second one, together with the FET, there is a reference to international

law;
-

In the third one, besides the reference to the FET standard, the States give

examples of concrete acts that amount, in their view, to a breach of the FET standard
and of international law,
-

In the fourth one the standard is referred to jointly with the notions of

arbitrariness and discrimination and
-

In the fifth one, the standard appears next to the “full protection and security”

clause.
According to other study of UNCTAD (UNCTAD 2012): The most important and
widespread approaches to the FET standard in treaty practice are the following:
-

No FET obligation;

-

FET without any reference to international law or any further criteria (referred

to as unqualified, autonomous or self-standing FET standard)
-

FET linked to international law;

xvi

-

FET linked to the minimum standard of treatment of aliens under customary

international law;
-

FET

with

additional

substantive

content

(denial

of

justice,

unreasonable/discriminatory measures, breach of other treaty obligations, accounting
for the level of development).
Moreover, in a book of Roland (R.Kläger 2011), the FET was categorized as three
main type in IIAs. The first one is “no reference to fair and equitable treatment”, the
second one is “hortatory references to fair and equitable treatment” and last one is

“legally binding references to fair and equitable treatment.” In “legally binding
references to fair and equitable treatment”, there are five different formulations can
be found as follow:
-

Fair and equitable treatment in combination with other standards;

-

Fair and equitable treatment combined with a reference to general international

law;
-

Fair and equitable treatment combined with a reference to customary

international law;
-

Fair and equitable treatment contingent on domestic law.

Also about FET, Rumana Islam has other idea by listing FET into three main types
namely: FET minus, simple FET and FET plus (Islam 2014).
-

FET minus - which refers to those treaties where treaty framers have connected

the definition of the standard to other concepts that define, and appear to limit its
scope. The FET standard then simply means the standard which international law or
customary international law guarantees for aliens (Islam 2014, p.62) or [t]his appears

to be a clear way of limiting the scope of the FET. The denial of justice in
administrative or legal proceedings is clearly narrowing the obligation. The FET
clause then only relates to judicial or quasi-judicial processes. Clauses like this
therefore can potentially provide much clearer limits to the scope of the FET than
invocation of international law or customary international law (Islam 2014, p.77).4

4

The FET standard then simply means the standard which international law or customary international law guarantees for
aliens. (p.62) Or [t]his appears to be a clear way of limiting the scope of the FET. The denial of justice in administrative or
legal proceedings is clearly narrowing the obligation. The FET clause then only relates to judicial or quasi-judicial


xvii

-

Simple FET where the FET clause is formulated without any reference to

international law, customary international law, or any other limitation.5 The second
category of treaties stipulate FET without any reference to international law,
customary international law, or any other limitation, thereby implying that FET in
these treaties is an unqualified, autonomous, and separate standard.
-

FET plus – which refers to treaties which combine the FET standard with an

additional substantive obligation, such as full protection and security, prohibition of
denial of justice, prohibition of arbitrary or discriminatory measures, obligations of
MFN, or guarantee of protection and security. The notions of arbitrariness,

unreasonableness, and discrimination are understood as inherent to the FET standard.
Therefore, it appears that such clauses give further substance to the otherwise general
wording of the standard.6
In Vietnam, there are some studies examining the FET clause as follow:
-

Hanoi Law University, Textbook on International Investment Law, Youth

Publishing House, 2017; (2) Trinh Thi Hai Yen, Textbook on International
Investment Law, National Political Publishing House, 2017.
-

Nguyen Phuong Dung, The Fair and Equitable Treatment Standard in

Investor-State Arbitration in Vietnam, International Arbitration Asia, 2016.
-

Nguyen Quoc Tri, The principles of investor treatment in Comprehensive and

Progressive Agreement for Trans-Pacific Partnership, Journal of Democracy and
Law, 2018.
-

Nguyen Thu Huong, Investment policy under the Vietnam-EU Free Trade

Agreement (EVFTA), Institute of State and Law, 2018.
However, it should be noted that in most of those studies, FET standard is merely
analyzed as a principle among other principles of investment law.

processes. Clauses like this therefore can potentially provide much clearer limits to the scope of the FET than invocation

of international law or customary international law (R.Islam 2014, p.77).
5
The second category of treaties stipulate FET without any reference to international law, customary international law, or
any other limitation, thereby implying that FET in these treaties is an unqualified, autonomous, and separate standard.
6
Fair and Equitable Treatment, UNCTAD Series on Issues in International Investment Agreements Vol. II (n 42) 31.


xviii

It also can be found the Ph.D thesis related to FET as follows: Nguyen Van Tuan,
The Protection of the Fair and Equitable Treatment Standard under International
Investment Law: A Case Study of Vietnam, Ph.D thesis in Philosophy, La Trobe
University, Victoria in 2016. According to Dr. Nguyen Van Tuan (Tuan 2016), FET
in IIAs can be classified as two main types: no FET Standard in IIAs and FET
Standard in IIAs. The second type includes six main formulations:
-

FET in Preambles

-

FET as an Unqualified Clause

-

FET with Reference to International Law

-

FET Linked to the Minimum Standard of Treatment under Customary
International Law

-

FET Linked to Full Protection and Security

-

FET Linked with Other Investment Standards

In comparison with other studies, my thesis has followed different approach by
broadly grouping IIAs into three categories as follow: the IIAs with no FET clause,
the IIAs with unqualified FET clause and the IIAs with qualified FET clause. In every
category, I will clearly state the main language utilized in the IIAs and illustrate how
it is interpreted by the arbitral tribunals in practice. Moreover, by carefully analyzing
the negative and positive effects of each type, I will suggest the superior formulation
of each category in the perspective of Vietnam government when it comes to draft
new IIAs. In my opinion, it is quite a crucial issue since it has also linked to the
sustainable development and the reform of new generation IIAs; however, in Vietnam
it has not received adequate attention.
3. Objects and Scope of the study
The thesis aims to provide the understanding of FET through its historical
background. The thesis also describes the regulation of FET in IIAs as well as its
application in arbitral tribunal.


xix

The study focuses on the formulations of FET in the IIAs in which Vietnam is a

member, in some cases, specific IIAs such as the North American Free Trade
Agreement (NAFTA) or the new generation of the IIAs shall be invoked to analyze
the new approach of FET in the reform IIAs regarding to FET clauses. The thesis
does not aim to analyze the relation between the FET standard and other standards
since this issue has been carefully studied7 but merely expressing how these standards
could be regulated together in treaties practice. Moreover, merely the ISDS cases of
Vietnam regarding to FET claims shall be carefully studied in the thesis.
The thesis has been conducted from September 2018 to February 2019. However, the
data and information have been collected in various periods of time, not merely in
2018 and 2019 (for instance, the survey conducted in 2008 by Tudor or the mapping
of BITs carried out in 2016 by UNCTAD.)
4. Objectives of the study
Through the analysis, the study figures out the reasonable way to regulate the FET
standard so that the Vietnam government can limit the disputes at the very beginning
by setting a threshold of investors’s protection. In addition, according to the elements
that investors frequently utilize to claim the states for the breach of FET clause, the
author consumes the features of Vietnamese law, domestic court as well as
administrative proceedings should improve to ensure fair and equitable treatment for
investors and their invesments in the territory of Vietnam.
In particular, the study also attempts to highlight some lessons learned from other
countries during the hearing of arbitral tribunal so that Vietnam government can
consider these lessons in case being sued by foreign investors on the ground of FET
clauses.

7

See more R.Islam, Interplay between Fair and Equitable Treatment (FET) Standard and other Investment Protection
Standards Bangladesh Journal of Law, Vol. 14 Nos. 1&2, pp. 117-142, 2014; and Roland Klager, Fair and Equitable
Treatment in International Investment Law, Cambridge University Press, 2011.

xx

5. Methodology of the study
To carry out the study, the author combines the method of synthesizing information
and using the statistics to compare, analyze and clarify the problems. Moreover, the
author also incorporates investment dispute cases to clarify theoretical issues.
To be more specific, in Chapter 1, the thesis uses legal analysis to examine provisions
regarding to investor-state dispute settlement and the FET clauses in international
investment.
In chapter 2, cases will be examined to interpret the meaning of the FET standard in
practice. Moreover, the thesis also analyze investor-state cases in which Vietnam has
been a respondent.
Last but not least, in chapter 3, by comparing the advantages and disadvantages
between different formulations of the FET standard, the thesis suggests the lists of
FET clauses that can be used to negotiate in the future international investment
agreements.
6. Expected contribution of the thesis
The thesis could become one of reference sources for further research of the FET
standard in Vietnam. In particular, Vietnamese authorities can use the information
and recommendations in the thesis for having superior practice when tackling the
disputes with foreign investors, specially the disputes related to the FET clause.
7. Structure of the thesis
Chapter 1

An overview of Investor - State Dispute Settlement and Fair and

Equitable Treatment
This chapter aims to provide the overview of Investor-State Dispute Settlement
(ISDS) mechanism and specifically, the ISDS in Vietnam before analyzing the

historical background of FET and its literal meaning.
Chapter 2
Standard

Regulation and Application on Fair and Equitable Treatment


xxi

The formulations regulated in international investment law that can be broadly
categorized into three groups: (1) No FET clauses; (2) unqualified FET clauses and;
(3) qualified FET clauses. This chapter then analyzes how these formulations have
been defined by arbitral tribunals.
After analyzing the FET clauses in treaty practice, the thesis then attempts to express
the arbitral practice of FET claims in general and then carefully examining the ISDS
cases of Vietnam related to FET claims. There are five cases in total: (1) Trinh Vinh
Binh and Binh Chau Joint Stock Company v. The Socialist Republic of Vietnam (in
2004); (2) Michael L. McKenzie v. The Socialist Republic of Vietnam (in 2010); (3)
DialAsie SAS v. The Socialist Republic of Vietnam (in 2011); (4) RECOFI v. The
Socialist Republic of Vietnam (in 2013) and (5) Trinh Vinh Binh v. The Socialist
Republic of Vietnam (in 2014).8
Chapter 3

Investor-State Dispute Settlement on the Fair and Equitable

Treatment on the perspective of the host state and lessons for Vietnam
government
In the last Chapter, the author makes a comparison between different formulations of
FET clauses in order to figure out the best approach for the Vietnam government
when drafting the FET clauses in the IIAs and then the author goes further by suggest

the suitable model of every formulation of FET clause. Apart from these FET clauses
that have direct effects on the decisions of the arbitral tribunals in investor-state
disputes on the FET claims, there are other provisions such as “MFN provision” and
“Exception provision” that may impact these decisions as well. For this reason, the
thesis takes these provisions into account and analyzes them in detail in order to
determine its impact on the ISDS awards. Moreover, the thesis also provides the
model of these provisions in case the government desires to consider these provisions.
At this end, the thesis analyzes the elements that may affect the ISDS awards in favour
of the states in arbitral practice. These elements are the circumstances of the host state

8

In this thesis, the author has examined the two cases of Trinh Vinh Binh together so that the facts appear to be more
coherent.


xxii

and the investor’s obligations within the FET standard that the government should
consider to protect its own legal rights and benefits when being sued by the investors.
Last but not least, the thesis then comes to conclusion that the government should
remain good governance and should not act without a lawful basis for its conducts in
order to provide the transparent investment environment for the investors. That is the
best way to prevent the investor-state disputes on the FET claims.


1

Chapter 1 AN OVERVIEW OF THE INVESTOR-STATE DISPUTE
SETTLEMENT AND THE FAIR AND EQUITABLE TREATMENT

STANDARD
This chapter aims to provide the overview of Investor-State Dispute Settlement
(ISDS) mechanism and its special features that turns it into controversial topic
worldwide. This chapter also examines the historical background of FET before
analyzing the literal meaning of FET, and the main features of FET. The
determination of FET’s literal meaning is an essential prerequisite for analysis of how
the standard is protected under investor-state arbitration.
1.1 An overview of Investor-State Dispute Settlement
1.1.1 Definition of Investor-State Dispute Settlement
According to UNCTAD, in 2017, countries concluded 18 new international
investment agreements (IIAs): 9 bilateral investment treaties (BITs) and 9 treaties
with investment provisions (TIPs) [that] brought the size of the IIA universe to 3,322
agreements (2,946 BITs and 376 TIPs), of which 2,638 were in force at year-end
(UNCTAD 2018a, p.2). The defining feature of IIAs is that of investor-state
arbitration, or investor-state dispute settlement (ISDS)9, where investors can legally
challenge a wide range of State measures, including laws, regulations, safeguards and
administrative decisions in economic sectors or the decisions of domestic courts
(Muchhala 2018).
Date back to the history, the States started to include ISDS in their investment treaties
in the late 1960s and early 1970s; by the 1990s this treaty element had become
standard (UNCTAD 2014, p.23) because of the disadvantages in regards to

9

According to WIR13 (UNCTAD: WIR13 2013): “The ISDS mechanism was designed to depoliticize investment disputes
and create a forum that would offer investors a fair hearing before an independent, neutral and qualified tribunal. It was
seen as a mechanism for rendering final and enforceable decisions through a swift, cheap and flexible process, over which
disputing parties would have considerable control. Given that investor complaints relate to the conduct of sovereign States,
taking these disputes out of the domestic sphere of the State concerned provides aggrieved investors with an important
guarantee that their claims will be adjudicated in an independent and impartial manner.”

2

diplomatic protection10 and the use of domestic courts11 in settlement of the disputes
between the investors and the host states.
ISDS can be seen as one of many innovations that have emerged from specific policy
and legal contexts and that have endowed international law with a rich array of
international judicial bodies, quasi-judicial procedures, implementation control
mechanisms and other dispute settlement bodies (Gaukrodger, Gordon, p.7). ISDS
also serves as a neutral forum that would offer investors the possibility of a fair
hearing before a tribunal unencumbered by domestic political considerations and able
to focus on the legal issues in the dispute (UNCTAD 2014, p.13).
1.1.2 The specific features of Investor-State Dispute Settlement
ISDS serves as a procedural enforcement mechanism for the core substantive
provisions of the treaty (UNCTAD 2014, p.20). Firstly, the ISDS provides the depoliticized forum for resolving disputes where any foreign investors could bring a
claim against host states. Secondly, international arbitration was expected to offer the
neutrality and independence of a qualified arbitrators. The institutional set-up of ISDS
draws heavily on that of commercial arbitration (e.g. ad hoc, party appointed
arbitration panels, emphasis on speed and finality of findings) (Gaukrodger, Gordon
2012, p.8). Thirdly, the advance consent to this form of adjudication, given by States
in IIAs, solved the problem of sovereign immunity (UNCATD 2012, p.24). Finally,
regarding to enforcement, the arbitral awards are readily enforceable in most
jurisdictions under international treaties (UNCTAD 2014, p.13).

10

There are certain requirements for diplomatic protection to be granted to an investor such as: (i) The investor has to be a
national of the state granting diplomatic protection; (ii) the investor must also exhaust all local remedies in the host state
prior diplomatic protection being granted; (iii) It is totally up to the discretion of investor’s home state’s government to

decide whether diplomatic protection will be granted to the investor or not.
11

From the investor’s perspective, the domestic courts are not desirable that the domestic courts can be impartial and biased
in favour of the state. Even if the court would decide in favour of the investor the executive branch of the host government
might ignore the court’s decision.


3

In fact, there are so many routes that investors can choose to resolve conflicts with
the host states such as conciliation, mediation or through domestic courts but in fact,
investors prefer to choose arbitral tribunals to settle the disputes because this forum
has significant advantages in comparison with the others.12 In addition, international
dispute resolution is not dominated by one or a few institutional models embodying
agreed standards of good practice’; instead various institutional designs have
emerged, reflecting the specificities of the related subject matters, political
considerations and historical circumstances (Gaukrodger, Gordon 2012, p.8). As of
31 July 2017, the total number of known treaty-based ISDS arbitrations has reached
817 in which the International Centre for Settlement of Investment Disputes (ICSID)
has been the most popular forum, followed by the United Nation Commission on
International Trade Law (UNCITRAL). Other disputes have been resolved in the
International Chamber of Commerce, the Stockholm Chamber of Commerce or the
London Court of International Arbitration. Moreover, some regional ISDS forums
have also established such as the China International Economic and Trade Arbitration
Commission set up in 1956, Cairo Regional Center for International Commercial
Arbitration established in 1979 or Investment Court System (ICS)13 in Europe.

12

Dispute settlement through negotiation and conciliation is not preferred because conciliation results depend on the
willingness of the parties and there is no legal mechanism to ensure the implementation of the conciliation agreements.
Regarding to domestic regime, the arbitration it is greater neutral as compared to a national court.
13
Canada and Vietnam have agreed on a standing investment court and appellate tribunal system for dispute settlement in
its Comprehensive Economic and Trade Agreement (CETA) and EVFTA simultaneously.