MECHANISM AND MEASURES TO PREVENT INTERNATIONAL INVESTMENT DISPUTES – INTERNATIONAL EXPERIENCE AND LESSONS FOR VIETNAM

1
TABLE OF CONTENTS

1


2
LIST OF ABBREVIATIONS

Abbreviation

Description

AAA

American Arbitration Association

ACIA

ASEAN Comprehensive Investment Agreement

AF

Additional Facility

ANDI

Algeria's Agence National de Development des Investments

APR

Arbitration Procedures Rules

ASEAN

Association of Southeast Asian Nations

BIT

Bilateral investment treaty

BOT

Build-Operate-Transfer

BT

Build-Transfer

BTA

Bilateral Trade Agreement

BTO

Build-Transfer-Operate

DRCAFTA

Dominican Republic Central America Free Trade Agreement

ECT

Energy Charter Treaty

FDI

Foreign Direct Investment

FI

Foreign Investment

FTA

Free Trade Area

GDP

Gross Domestic Product

ICC

International Chamber of Commerce

ICDR

International Center for Dispute Resolution

ICSID

International Centre for Settlement of Investment Dispute

IIA

International investment agreements

ISD

Investor-State Dispute

ISDS

Investor-State Dispute Settlement

JCAA

Japan Commercial Arbitration Association

2


3

JIC

Jordan Investment Commission

JICA

Japan International Cooperation Agency

KOTRA

Korea Trade-Investment Promotion Agency

MOJ

Ministry of Justice

MoFA

Ministry of Foreign Affairs

MPI

Ministry of Planning and Investment

NAFTA

North American Free Trade Agreement

NHK-ITEC

NHK Integrated Technology Inc

ODA

Official Development Assistance

OECD

Organization for Economic Cooperation and Development

OFIO

Office of the Foreign Investment Ombudsman

OIO

Office of the Foreign Investment Ombudsman

OPIC

Overseas Private Investment Corporation

PCA

Permanent Court of Arbitration

PMU

Project Management Unit

SCC

Stockholm Chamber of Commerce

TPP

Trans-Pacific Strategic Economic Partnership Agreement

UCCI

Urban-Civil Works Construction Investment Management
Authority of Ho Chi Minh city

UNCITRAL

United Nations Commission on International Trade Law

UNCTAD

United Nations Conference on Trade and Development

US

United State

USA

United States of America

USD

United States dollar

VIAC

Vietnam International Arbitration Center

VND

Vietnam dong

3


4
VTV

Vietnam Television

VUS.BTA

Vietnam-United State Bilateral Trade Agreement

WIPO

World Intellectual Property Organization

4


5
LIST OF FIGURES

5


6

SUMMARY OF THESIS RESEARCH RESULTS
In the trend of international integration, up to now, Vietnam has signed nearly
70 investment treaties. Most bilateral investment treaties stipulate issues related to
the settlement of Investor-State dispute (ISD). Most investment treaty regulates that
ISDs can be settled according to the procedures of the International Centre for
Settlement of Investment Disputes (ICSID), under the ICSID Additional Facility or
any other arbitration organization. However, the ISD settlement at arbitration is not
only costly, but these arising ISDs will reduce the confidence of foreign investors in
Vietnam's investment environment. Therefore, the purpose of the thesis is providing
measures to prevent possible ISDs. After the research process, the thesis should give
the following results:
Firstly, give the concept of "Investor-State dispute".
Secondly, on the basis of studying the status of ISD settlement in some
countries, synthesizing mechanisms and preventive measures of ISD in those
countries.
Thirdly, assess the current status of legal provisions on investment dispute
settlement between foreign investors and the Vietnamese Government.
Fourthly, analyze some cases between foreign investors and the Vietnamese
government, thereby drawing lessons for Vietnam in the prevention and settlement
of ISD.
Fifthly, propose measures to prevent disputes between foreign investors and
the Vietnamese government.

6


7
INTRODUCTION
1. Rationale of the study

The implementation of opening policy, attraction of foreign investment (FI) in
Vietnam makes economic relationship in general and foreign investment
relationship in particular in Vietnam become more and more diversified and
complicated. In that context, it is difficult to avoid investment disputes. The
disputes can be a foreign investor-domestic investor dispute or a foreign investor to
foreign investor dispute or foreign investor- Vietnamese Government dispute.
In recent years, foreign investor-Vietnamese Government disputes in
investment activities are increasing. Practice of international investment dispute
settlement shows that arbitration is a dispute settlement method that investor and
State usually take precedence to choose; and practice also shows that Vietnam has
not had experience in the dispute settlement at arbitration yet. Unfruitful dispute
settlement will harm Vietnam’s attraction for foreign investment and reduce
Vietnam’s completion in drawing foreign investment. Therefore, besides good
settlement of international investment dispute, it is important to prevent
international investment disputes. It is the reason the author selects the theme:
“Mechanism and measures to prevent international investment disputes –
International experience and lessons for Vietnam” as my graduation thesis.
2. Research situation

2.1 Situation of research topics oversea
In overseas, there have been many studies mentioning the theoretical issues
about ISD and ISD resolution. Some projects can be listed as follows:
- Dr. David A. Gantz: “Settling international investment disputes through
arbitration” (2004) – The aim of this study is to take stock of and to analyse the
Investor-State Arbitration under ICSID, the ICSID Additional Facility and the
UNCTAD Arbitral Rules

7

8
- Research "Investor-State Dispute Settlement Public Consultation: 16 th May –
23rd July 2012" (2012) which gathers reports of experts at the 16th round table of
the Organization for Economic Cooperation and Development (OECD).
- Research "Investor - State Dispute Settlement and Impact on Investment
Rulemaking" (2008) study of the United Nations Conference on Trade and
Development (UNCTAD). The aim of this study is to take stock of and to analyse
the major developments in the interpretation of procedural and substantive
international investment agreement (IIA) provisions as contained in bilateral
investment treaties and economic integration agreements with investment
provisions. It addresses the implications of those developments for countries,
emphasizing the particular needs of developing countries. It presents some
conclusions and reflections on possible next steps that countries could take to
implement the lessons learned from the investor-State dispute settlement
experience.
- Research “Dispute settlement provisions in international investment
agreements: A large sample survey” by Joachim Pohl, Kekeletso Mashigo and
Alexis Nohen (2012). This document surveys Investor-State Dispute Settlement
(ISDS) provisions in a sample of 1,660 bilateral investment treaties (BITs) and other
bilateral agreements with investment chapters (mainly Free Trade Agreements,
FTAs). The treaties in the sample were concluded by the 54 countries that
participate in the “Freedom of Investment” (FOI) Roundtables with any other
country. The survey presents a statistical portrait of ISDS provisions of this treaty
sample that is both comprehensive and detailed. The intention is to provide a factual
and statistical catalogue of treaty content and not to in any way engage the OECD
or countries participating in the FOI process regarding interpretation of treaty
language in an arbitral setting, regardless of whether these treaties are in force or
not. In some cases, the bilateral treaties are also compared with selected multilateral
agreements with investment chapters (e.g. NAFTA, Energy Charter Treaty)
- Research “Reform of Investor-State Dispute Settlement: In search of a

roadmap” (2013) .This note outlines five main reform paths: Promoting alternative

8


9
dispute resolution; Tailoring the existing system through individual IIAs; Limiting
investor access to ISDS; Introducing an appeals facility; Creating a standing
international investment court. And “Global Value Chains: Investment and Trade
for Development” by UNCTAD. – The world investment report by UNCTAD
In general, these works investigate theoretical and practical issues of ISD
resolution based on international investment agreements (IIA), bilateral investment
agreements (BIT) and on the basis of ISD solving experience. But each study only
touches on certain issues, but there is no comprehensive study on preventing ISD.
These studies study the resolution of ISD by developed and developing countries,
but there is no separate study for Vietnam.
Regarding ISD mechanisms and precautions, there are a number of studies
abroad mentioned, such as :
- Research “Investor-State Disputes: Prevention and Alternatives to
Arbitration I” by UNCTAD (2010). This is reports summarizing the opinions of
experts in this field around the world from both direct and online. The arbitration
experts of the Center for Effective Dispute Resolution (CEDR) are active and
offer many analysis and recommendations to promote the use of alternative
methods in international investment disputes.
- Publications “Stocktaking of Investment Dispute Management and
Prevention in the Southern Mediterranean Region” by OECD (2018). It provides an
overview of the region's recent ISDS trends, an analysis of each country’s
regulations and international agreements, as well as the current mechanisms set up
for the management of investment disputes. It also presents selected case studies
and good practices in investor-State dispute prevention.

These studies focus on analyzing the practice of dispute resolution of some
countries, from which draw lessons, synthesize mechanisms and preventive
measures in those countries, but there is no content which is related to Vietnam.

9


10
2.2 Situation of research topics in Vietnam
In Vietnam, there have been a number of studies on ISD settlement but few
and only focus on theoretical and practical issues to resolve disputes between
foreign investors and the Vietnamese government, including:
- Assoc. Prof. Dr. Hoang Phuoc Hiep "Theory and practice on the position,
role and participation of government agencies in handling government-related
international trade and investment disputes", research works (2012). It provides an
overview of the role of government agencies in solving investment disputes base on
theory and practice in Vietnam. Thereby it makes suggestions to improve the legal
regulations on the role and operation of state agencies in settling investment
disputes.
- Phan Hong Nguyen "Law on settlement of disputes in the field of foreign
direct investment by arbitration in Vietnam" master thesis – Hanoi Law University
(2012). The dissertation provides an overview of the legal provisions on settlement
of investment disputes in the field of direct investment from abroad into Vietnam;
the current situation of application and to finalize the relevant legal system to
ensure the quick and convenient settlement of investment disputes.
- Tran Phuong Thao "Settling investment disputes between the Government of
Vietnam and foreign investors", Master thesis – Diplomatic Academy of Vietnam
(2015). The thesis provides an overview of the Law and the actual status of
investment disputes between foreign investors and the Vietnamese government;
propose to improve the legal regulations on resolving disputes between foreign

investors and the Vietnamese government.
An overview of the research works on theoretical and practical issues of
investment dispute resolution between foreign investors and the Government of
Vietnam, found that in the country there has been research on this issue, although,
the number of research works is still limited. Although there has not been any study
to introduce the concept of "investment disputes between foreign investors and the
Government of investment host- countries", there have been studies to introduce the

10


11
concept of "disputes in foreign direct investment". The research in this group
mainly refers to the Department of Justice's focal position in international dispute
resolution, the research on dispute settlement mechanism and the methods of
dispute settlement are only complementary for the main content of the study.
Therefore, there has not been comprehensive research on the theory and practice of
resolving investment disputes between foreign investors and the Government of
Vietnam. Master's thesis "Settling investment disputes between the Vietnam
Government and foreign investors" by Tran Phuong Thao carefully analyzed some
disputes between foreign investors and the states of Vietnam, withdrew the lessons
learned in dispute resolution. However, the introduction of ISD precautions is not
mentioned in this study.
Thus, the above works and articles only stop at dealing with small issues or
content related to investment disputes, there is not a complete and comprehensive
study of investment disputes between foreign investors and the Government of
Vietnam and there has not been any research to introduce or systematize
mechanisms and measures to prevent investment disputes between foreign investors
and the Government of Vietnam. Therefore, the thesis will focus on solving
theoretical issues about ISD, based on research, referring to mechanisms and

preventive measures of ISD of countries, derived from practical experience in ISDS
of Vietnam to draw up mechanisms and measures to prevent investment disputes
between foreign investors and the Government of Vietnam.
3. Objectives of the study

International investment dispute can be foreign investor - domestic investor
dispute; foreign investor-to-foreign investor dispute; foreign investor - State
dispute. However, in the scope of the study, author only concentrates in investment
dispute between the investor and the host country. Therefore, the objectives is
finding the mechanism and measures to prevent the dispute between foreign
investor and Vietnam state after researching the experiences from other countries

11


12
4. Scope of the study

The thesis research ISD and prevention of investment dispute between the
foreign investor and the Vietnamese Government on the basis of international
experience and practice, theory and practice of ISD settlement in Vietnam.
On international experience, based on the source of the material, the thesis
focuses on the experiences of Jordan, Peru, Columbia, and Korea.
5. Methodology of the study

The study uses the methodology of dialectical materialism and historical
materialism. The specific research methods of the study included analysis,
synthesis, going from general to specific and other scientific methods such as
comparison, statistics, case studies etc. to solve the problems that the topic has set.
The study focuses on assessing the advantages, limitations and obstacles of the

current legal provisions, identifying issues that have not been stipulated by law or
have been legal provisions or needed to be amended and supplemented accordingly
and better meet the requirements of practice preventing investment disputes
between foreign investors and the Vietnamese government.
6. Structure of the study

Excepting for the foreword, conclusion, and recommendations, reference, the
research includes 3 chapters:
Chapter 1: Basic theoretical issues on Investor - State dispute
Chapter 2: Mechanism and measures in preventing Investor - State
dispute - International experience
Chapter 3: Lessons for Vietnam in preventing Investor - State disputes

12


13
CHAPTER 1:
BASIC THEORETICAL ISSUES ON INVESTOR - STATE DISPUTE
1.1. An overview of international investment and Investor - State dispute
1.1.1. Conception of international investment
1.1.1.1. Conception of investment
Considering legal documents, we see that Investment law 2014 issued
conception of “business investment”, according that:
“Business investment is that the investor invests in order to implement
business activities through establishing economic organization; contributing
capital, buying shares of economic organization; investing under contract form or
implementing investment project” (Article 3, Item 5).
Popular conception of “Investment” is mentioned on BIT conventions signed
or participated by Vietnam with other countries. According to Chapter 4, Article 1,

Item 1 Vietnam-United States -Bilateral Trade Agreement (VUS.BTA):
"Investment" means every kind of investment in the territory of a Party owned
or controlled directly or indirectly by nationals or companies of the other Party ”
According to Article 4, item c ASEAN Comprehensive Investment Agreement
(ACIA):
“Investment” means every kind of assets owned or controlled an investor
including but not limited to:
Movable property and real estate, property rights

(i)

such as pledgement, mortgage or guarantee;
Stock, shares, bond, debentures, and every form of

(ii)

participating in a legal entity and rights and benefit received from it.
Intellectual property empowered according to law

(iii)

and regulations of each member state;

13


14
Right of demanding money or for every contract

(iv)

implementation related to business and having financial value;
Contractual

(v)

rights,

such

as

under

turnkey,

construction, management, manufacture contract or allocation of tariff contract;
and
Franchising is required in order to carry out

(vi)

economic activities and having financial value empowered according to law or
contract including any franchising for research, cultivation, extract or exploitation
of natural resources;
Term of “investment” also includes amounts of money be brought by
investment, in details: profit, interest rate, profit from capital, dividend, royalties,
and emoluments. Any change of form under that invested and reinvested assets does
not affect their classification as an investment
Although Conceptions of investment mentioned above are different, there are

general features as follows:
The first, the purpose of investment is profit. For enterprise, benefits tended by
them are recovery rate, profit, development of position of the enterprise. For the
State, investment activities tend to make social economic benefits such as
employment, supply of public products and services, protection of resources and
environment and firm development.
The second, the investment are only implemented when the investor or
procuring agency brings his capital in investment process. The client can be
organizations, individuals and the state. Investment capital can exist under many
forms such as tangible assets, intangible assets.
The third, the investment has hidden risks. Now investment activities surpass
territory of a state so the degree of risk of these activities is getting higher.
Restricting risk as well managing risk are issues interested in and studied by
investors, imported government or exported government.

14


15
Therefore, investment can be understood as sacrifice something in the present,
through that the investor put money, assets under forms, methods according to law
in order to carry out activities for profit.
1.1.1.2. Conception of international investment
Basing on different criteria, investment is classified as parts. Basing on
managing right of investment activities, there are two kinds of investment: direct
investment and indirect investment. Basing on an economic zone of receiving
capital, investment can be split into two main groups: investment in private zone
and investment in government zone. Basing on investment field, it is possible to
split investment into many kinds such as investment in manufacture, investment in
trade or services etc. Basing on capital resource, investment is split into domestic

investment and foreign investment (international investment).
As per the classification mentioned above, Foreign Investment (International
Investment) is a form of investment activities.
From the point of view of a state, with the investment from a state to another
state or vice versa, we have the term "foreign investment". However, considering
general aspects of the world's economy, all the operation is called international
investment.
Considering its nature, investment is capital export because the capital is moved
across the frontier. In other words, investment activities will bring international
factors if the activities are carried out on the other state's territory by the investors,
perhaps natural person or legal entity having citizenship of the other states. Therefore,
while having features of the international investment in general, it has specific
features to be different from domestic investment: It is the movement of capital cross
the state's frontier. Therefore, it is possible to understand as follows: International
investment is the process that the investor moves capital or any value kinds from a
state to another state to carry out investment activities for profit or social economic
benefits.

15


16
1.1.2. An overview of international investment dispute
1.1.2.1. Conception of international investment dispute
"Dispute" is a legal conception that is understood and defined in different
ways. "Dispute" is used to mention "existing situation between two (or more)
individuals created by signals of complaints or in opposition ..."
According to Black's Law Dictionary, "dispute is contradiction, divergence;
contradiction of requirements or rights; demand of right, requirement or demand
from a party to be responded by an opposite requirement or argument of the other

party" (1999, p.17).
According

to

Vietnamese

Dictionary,

dispute

is

understood

that

"contradiction; doing or carrying out some opposite issues …; to cram the thing
that it is ambiguous to define which party it belongs to” (2000)
In order to define to exist of dispute in Mavrommatis case, on its decision in
1924, Permanent Court of International Justice gave a definition of dispute:
“dispute” is a disagreement on the legal or reality, a conflict of legal opinion or
benefit conflict between two or more people. (David A. Gantz 2004, p.10).
From the above definition, it is possible to understand that dispute is the
disagreement, conflict on the basis of law or reality on benefit or obligation
between subjects.
Therefore, international investment dispute is understood as disagreement,
conflict on economic benefit between subjects participating in international
investment in the implementation of rights and obligations occurred from
international investment activities.

1.1.2.2. Classification of international investment disputes
Basing on subjects taking part in dispute, International investment dispute can
be divided into dispute between investors, dispute between two states; dispute
between a foreign investor and state receiving investment.

16


17
The first kind: dispute between investors usually occur under two forms:
dispute between a foreign investor or foreign owned business and capital-importing
country; dispute between investors.
The second kind: dispute between two states. This is dispute between two
states on international investment relating to violation, conflicts, disagreement on
articles of bilateral agreements or multilateral agreement on trade or investment.
The disputes occur when the economic benefit of a state is violated due to noncompliance with signed agreements of a state or more and its consequence is that
the retaliation on benefit or political tensions of a part to be violated.
The third kind: dispute between a foreign investor and capital-importing
country. This dispute occurs in process of implementation of foreign investment
projects, treaties on encouragement and protection of bilateral or multilateral
investment. The dispute mainly relates to the implementation of contracts such as
BOT, BTO and BT.
1.1.3. Investor - State dispute (ISD)
1.1.3.1. Conception of Investor - State dispute
On Regulation on Coordination on investment dispute settlement attached to
Decision No. 04/2014/QD-TTg dated January 14th 2014 of the Prime Minister
conception of international investment dispute is mentioned in Article 2.1 as
follows:
International Investment Dispute as per the Regulation is the dispute
occurring from that a foreign investment sues Government, State of Vietnam

(hereinafter called the Government of Vietnam) or state organizations or
organizations authorized by the State to implement state management (hereinafter
called state organizations) on the basis of:
a) Agreement on encouragement and protection of investment or Trade
Agreement or other international treaty with regulation on encouragement and
protection of investment, of that Vietnam is a member, stipulates dispute settlement

17


18
between a foreign investor and the Government of Vietnam at international
arbitration or proper foreign jurisdictional agency; or
b) Contract, agreement between the Government of Vietnam or state
organization of Vietnam and foreign investor, stipulates that organization of
settlement of dispute occurring from the contract or the agreement is international
arbitration or proper foreign jurisdictional agency;
Therefore, we generalize that: Investor - State dispute is the disagreement,
conflict on benefit or obligation between the foreign investor and the host state in
the investment relationship on the basis of international treaties signed or
participated by the host government, of which there are regulation on settlement of
dispute between a foreign investor and the host State and/or on the basis of
contract, agreement between the host State and the foreign investor.
In order to see conception of ISD, it is necessary to see two conceptions:
foreign investor and the host state.
Host state or Capital-importing country or the Government of Capitalimporting country is a term not defined on investment agreements. However, from
the point of view of “foreign investor”, the Government of capital-importing
country is a state that allows foreign investor to carry out investment activities on
the state’s territory. On IIA the Government of the capital-importing country is
understood as a party signing IIA that is legal basis for relationship with the investor

of other parties signing IIA. Therefore, the Government of the Capital-importing
country is the Government of the State that allows foreign investor to carry out
investment activities on the state’s territory and it is also the government of a party
signing IIA in the relationship with the investor of other parties signing IIA.
Foreign investors include natural person (Individuals) and legal entity
(enterprise, economic organizations) carry out investment activities. According to
IIA, a sign determining foreign investors is citizenship of the investor. The citizen
of the investor will affect a protection scope of IIA because agreements are signed
in order to achieve purpose of protection of foreign investor. The citizen of natural

18


19
person investor on IIA is determined according to law of parties to IIA. For
example, BIT between Vietnam and Argentina stipulates that "investor" being every
natural person is a citizen of a Party to the Agreement in accordance with law of the
party (Point a, Item 2 Article 1). Besides citizenship factor, some IIA add residence
factor: It is time of residence or residence (Point c, Item 1 Article 1 Australia Vietnam BIT). For legal entity, BIT is able to stipulate simply protection for legal
entity established according to Parties to the Agreement. IIA can add factor that
legal entity has to have head office (Point ii, Item a, Article 1 India - Germany BIT
1998) and/or to do business in the state signing the Agreement.
However, there are some difficulties in determining citizenship of investor on
IIA, for example:
Almost BIT does not mention conception of two citizenship and many
investment lawsuits related to two-citizenship issue. For natural person investor, the
implementation of BIT usually comes up against difficulties in case of that the
investor has two citizenships: citizenship of capital-importing country and
citizenship of capital-exporting country. According to international law, custom, a
state that is not the capital-importing country, the investor is its citizenship, the state

will carry out measures in order to protect its citizen when he/she sues the host state
(UNCTAD 2011, p.14). Some BIT mentions this issue and solution of determination
of citizenship of natural person: citizenship of natural person is "effective",
"controlled and effective" citizenship (Article 1, BIT Model Agreement of United
States 2004), therefore natural person is determined having citizenship of a state
with the natures mentioned above.
For legal entity investor, difficulties in determining citizenship occur from that
the investor takes advantage of its citizenship in order to be protected by IIA.
Especially, an investor of the third party could take advantage of legal entity
citizenship by establishing a legal entity in the territory of one of the Parties to the
agreement so that it is protected when it invests in the other Party. Similarly, an
investor of a party signing agreement can establish legal entity in the territory of the
other party in order to be protected when it invests in the state of which it is the

19


20
citizen. The above cases are examples for "treaty shopping" phenomenon which is
popular and brings about bad effects to the protection purpose of IIA.
Therefore, "Foreign investor" is a term that it is necessary to consider in
details in accordance with specific investment treaties especially in case that the
foreign investor has two citizenship of concerned states.
1.1.3.2. Features of Investor - State dispute
ISD has some specific features as follows:
The first, In reference to subjects: Depute arises between two subjects that
have different legal status: a foreign investor and host country (authorities in issuing
license, managing investment project or organizations entrusted by the State to be a
procuring agency in investment contract with foreign investor.
The legal status of foreign investor in the investment relationship is decided by

the investor's citizenship. Unlike investor, the legal status of the host Government
taking part in the relationship is decided by diplomatic custom. It means that the
host Government plays a role as a special subject in international private
relationship. The host government has special legal status giving expression to
judicial immunity and immunity for state’s assets, except that the Government
declares clearly to give up the immunity. Thanks to the immunity, when
participating in international investment relationship, the host government is in a
better position than the foreign investor because it is not adjudged or imperative
when it violates the investment agreement. This causes an inequality for the foreign
investor in the investment relationship with the host government. However along
with the development of international trade between states, many states applied a
relative immunity for the state so that the immunity is applied for non-trade
transaction. It is represented by the acceptance of states for that the investor has
dispute with the host government settled under international mechanisms (such as
PCA or ICSID Arbitration) and recognizes the investor's complaint right for
unsuitable regulation or policy of the host government (it is represented with that
many states signed ICSID convention. According to that the investor has right to

20


21
sue directly the host government). However, the right is not recognized by all
states, therefore the absolute judicial immunity in trade transactions still exists and
blocks the international investment relationship.
The second, In reference to dispute: Normally, dispute is an issue arising from
or relating to relationship between the investor and the state. However, the scope of
dispute objects in details is stipulated on Convention/Agreement on related
investment and/or investment or domestic law in case of that there is not any
convention/agreement. For example, Article 1.10 Chapter IV VUS.BTA allows

using 3 kinds of dispute settlement: investment acceptance, investment agreement,
others investment rights. The dispute object has specific characteristics, typically as
follows:
- Although relating to State, the dispute has small scope and small effect,
mainly in the related case with the related investor and does not affect largely and
directly to large group of enterprises or business environment in general.
- Due to the dispute relating to individual investor, circumstance in the dispute
has a given confidential factor and so that in some cases (for example, settlement by
arbitration) a decision of settlement is not able to be public.
The third, In reference to dispute settlement mode, ISD is able solved through
judicial mode or unjudicial mode. Popular judicial mode is to sue at court or
arbitration. Moreover, it is possible to settle dispute through negotiation, mediation
but these modes are not popular. The dispute settlement mode is able to be
stipulated on IIA or contract (if any) between the investor and the state
organizations of the host State. However, in some cases (effective) dispute
settlement article on IIA is different from that on the contract. In that case, dispute
settlement mode is chosen depending on parties' claim is put out basing on IIA or
contract. If the claim bases on IIA, dispute settlement article will be applied and if
the claim bases on the contract, the dispute settlement article will be applied.
1.2. An overview of mechanism and measures to prevent international
investment disputes

21


22
1.2.1. Concept of investor-State dispute prevention
Prevention is an action to eliminate the cause of potential nonconformities or
other potentially unwanted situations.
Prevention of ISD is the action of “minimizing potential areas of dispute

through extensive planning in order to reduce the number of conflicts that escalate
or crystallize into formal disputes.” (UNCTAD, 2010:xiv). According to this
understanding, dispute prevention is conceptualized as the act of reducing the
number of conflicts that escalate into formal disputes. This idea stems from a
crucial conceptual distinction widely acknowledged by conflict theorists and
Dispute System Design (DSD) practitioners, i.e. the differentiation between the
notion of “conflict” in the one hand, and “dispute” in the other.
As understanding of investment disputes mentioned in Section 1.1.2.1,
preventing investment disputes is an activity to eliminate the causes of
disagreements and conflicts of economic interests between the participants in the
international private; when conflicts arise, conflicts of interest need to take actions
so that conflicts do not develop into disputes.
From the above definitions and analyzes, preventing investment disputes is
understood as an action to eliminate, minimize, and eliminate the causes and risks
of hidden risks to reduce conflicts and benefit between investors and local
government proactively according to the plan and predetermined plans.
According to the above definition, investment dispute prevention has the
following characteristics:
- Is an activity that minimizes the number of conflicts that may arise into
dispute.
- Being proactive in planning and anticipated plans.

1.2.2. Investor-States dispute prevention mechanisms

22


23
The concept of "mechanism" which is the concept used in technical sciences
and physical, is introduced into legal science with a basic understanding as its origin

with appropriate adjustments (Nguyen Nhu Y (2001), Vietnamese dictionary,
Culture and Information Publishing House). The term "Mechanism" is the
transliteration of the word Mécanisme of the West. The Le Petit Larousse dictionary
(1999) defines "Mécanisme" as "the way in which a set of factors depends on each
other". The Vietnamese Dictionary (Institute of Linguistics, H.1997) defines the
mechanism as "how to follow a process of implementation".
Dispute prevention mechanism is one of the ways, measures or modes of
operation of different legal entities in a certain order and discipline to prevent
disagreements between those subjects. Dispute prevention mechanisms can be
developed and formulated on the basis of domestic laws or on the basis of
agreement between the relevant entities.
Therefore, the mechanism to prevent investment disputes can be understood as
the way, measures or modes of operation of foreign investors and the Government of
investment receiving countries in a certain order and discipline, to prevent
investment disputes between those entities.
Characteristics of ISD prevention mechanisms
Firstly, on the subject in the dispute prevention mechanism: In the mechanism
of preventing investment disputes, the parties to the dispute include foreign
investors and the State and related agencies.
Secondly, about the content of the mechanism: Mechanism to prevent
investment disputes includes measures, methods and procedures for preventing
investment disputes.
Thirdly, about the purpose of the mechanism: The investment dispute
prevention mechanism aimed at preventing investment disputes may arise and
resolve investment disputes that have arisen so that disputes that arise do not have
to be resolved through the judicial.
Classification ISD prevention mechanisms:

23

24
Firstly, classification by mechanism source: ISD prevention mechanisms by
contract and ISD prevention mechanisms by institutional.
- Investor-State dispute prevention mechanism by contract: foreign
investors and local governments will negotiate contractual agreements in addition to
terms of rights and obligations in investment relations, contracts will have Conflict
management provisions may occur in the future with the aim of not giving rise to
litigation disputes. This is a popular form of investment contracts.
ISD prevention mechanism's contracts may include mechanisms that allow
parties to consult directly to manage any conflicts that may arise during the
performance of the contract or require a problem-solving technique. specifically to
allow a third party to support conflict management parties such as a dispute
settlement, mediation, fact-finding or neutral evaluation panel that the parties may
agree on, before Any specific conflicts arise.
In theory, at least, ISD prevention mechanism's contracts have the advantage
of allowing parties involved in potential conflicts to adjust mechanisms according
to their specific needs. However, the main limitation of this type of ISD prevention
mechanism is that, as mentioned before, they may only apply in situations where
the relationship between investors and the State is adjusted by a contract.
-Investor-State dispute prevention mechanism by institution: Institutional
ISD prevention mechanisms can be defined as investor-State conflict management
mechanisms institutionalized within the structure of the public administration of the
host government. Contrary to contractual ISD prevention mechanisms, institutional
ISD prevention mechanisms would in principle apply horizontally to all
investments, regardless of whether or not they are governed by an investment
contract.
Experimental data shows that about half of the cases brought to state-investor
arbitration under IIA do not arise from measures adopted at the central or national
level of the Government which are the extent to which IIAs are negotiated. Instead,

a significant number of disputes between investors and the state tend to arise

24


25
regarding measures adopted by city or provincial governments or by state agencies
in charge of specific sectors of the economy (Franck, 2008). Therefore, ISD
prevention mechanism organizations may be particularly useful to address
investment-related conflicts stemming from the application of inconsistent policies
and measures of different governments - especially the inconsistency may entail the
host country's liability under IIA.
In most countries, the proper development of dispute prevention organizations
will likely require the implementation of a comprehensive program aimed at
regulating and modernizing parts of public administration infrastructure to allow
investment stakeholders to early manage conflicts between investors and the state.
The most common model of dispute prevention organizations includes the
following elements:
1) Investment stocktaking process should comprise at least three key
components: a regulatory audit, an empirical analysis of investment stock and flows
into the country, and third, a record of the investor-State conflict history of the
country.
2) Lead agency with the authority in charge of coordinating activities with
relevant government agencies.
3) Information sharing process: allowing the lead agency to disseminate
information to agencies involved in conflict. The lead agency is the head of
information for other agencies on issues of implementation of IIAs.
4) Early alert mechanism: allowing the Lead Agency to learn about the
existence of an investment-related conflict as soon as possible. This is an important
factor in preventing conflict to develop into a dispute.

5) Problem solving methods for the parties: once the problem-solving process
has enabled the parties to find a solution to the conflict. It is paramount that such
solution receives the approval of the adequate political instance of host State and the
investor.

25