The dispute resolution mechanism between foreign investors and a contracting state (commonly known as ISDS) is an effective solution to promote investment, protect the interests of foreign investors, and at the same time, limit diplomatic tensions and conflicts escalating at the national level.

The differences between the ISDS and the dispute settlement mechanism at courts and commercial arbitration are:

i. Unilateral administrative decisions of state agencies may become subject to lawsuits by investors;

ii. International inter-governmental arbitration institutions are entrusted to resolve disputes (such as ICSID, UNCITRAL, …);

iii. The mechanism of settlement is set out in the Free Trade Agreements (FTA) ​​or the Bilateral Investment Treaty (BIT) that the Vietnamese Government has with the country of which the investor is a national.

In the event of Vietnam becoming a member of the Comprehensive Partnership & Trans-Pacific Partnership (the “CPTPP”) and the Vietnam-EU Free Trade Agreement (the “EVFTA”), this special edition is a summary of the ISDS dispute settlement mechanism under these two agreements.

A- Comprehensive Partnership for Trans-Pacific Partnership

A brief on the ISDS mechanism is as following:

  1. Claimant

The Claimant is a foreign investor who has a dispute over investment in the receiving country. An investor can be a national or a juridical person that is trying to make an investment, is implementing, or has invested in the territory of a partner country. Investors covered by the CPTPP are entitled to initiate lawsuits on behalf of themselves or on behalf of Vietnamese enterprises that they own or control directly or indirectly. Where that investor is a natural person, who permanently resides in a Party and a national of another Party, that natural person may not submit a claim to arbitration against that latter Party.

  1. Methods of dispute resolution

a) Alternative dispute resolution

  • Consultations and negotiation

When there is an investment dispute, the Claimant will send a written request for consultations to the Respondent (including a summary of facts involving one or more of the measures) to immediately seek resolution through consultation and negotiation. The commencement of consultation and negotiation procedures is not a basis for the recognition of arbitration.

  • Non-binding, third-party participation procedures

Most of these procedures are political-diplomatic methods, including good office, mediation or conciliation.

b) Initiate a lawsuit through arbitration

The procedure for initiating a lawsuit has two phases:

Stage 1: Pre-arbitration

  • The Claimant may submit a claim to the tribunal when the investment dispute is not resolved within six months from the date the Respondent receives the written request for consultation.
  • The Claimant shall send written notice of intent to settle the dispute through arbitration (“Notice of Intention” – NOI). The content of NOI must be in accordance with Article 9.19.3.

Stage 2: Proceedings

i. Step 1: Claimant submits a claim:

  • At least 90 days after the Claimant sent NOI to the Respondent;
  • The contents of the claim are specified in Article 9.19.1;
  • The submission of a claim is not considered if it is more than 3 years and 6 months from the date the Claimant knows or acquires knowledge of (i) the alleged violation and (ii) the damage or loss suffered by Claimant or the enterprise of the Claimant.
  • Vietnam has its reservation on this issue, in which the investor covered by CPTPP will lose the rights to initiate a lawsuit under the ISDS if that investor has complied with the complaint proceedings according to the administrative complaint procedure or brought a lawsuit to the Vietnamese Court.

ii. Step 2: Parties’ consent to arbitration

Each party is required to express its consent to the submission of an arbitration claim in accordance.

The Claimant’s consent is usually expressed in writing, together with Notice of Arbitration (“NOA”) and the waiver of any rights to initiate a lawsuit, or to continue the lawsuit in a court or administrative arbitration under the domestic law of a Party, or any other dispute resolution procedures or any proceedings relating to the alleged action.

iii. Step 3: Select the arbitrators

iv. Step 4: Conduct dispute resolution and render an award

According to the Ministers’ Joint Statement of the 11 Member States, some of the provisions in Chapter 9, including those relating to ISDS, are suspended until the applicable legal procedures (i.e. ratification) is completed and the parties agree to terminate the suspension.

B- Vietnam-EU Free Trade Agreement

The ISDS mechanism is specified in Chapter 8, Section 3 of the Agreement. Although the legal review of the EVFTA has ended, due to the specificities in competences of the European Union and its member states, the content of the investment and the ISDS must be approved and ratified by both the EU and each member state before it enters into force. The contents of this ISDS are as follows:

  1. The Claimant:

Basically, the EVFTA is similar to the CPTPP on the subject of the right to initiate a lawsuit, which is a foreign investor who is directly conducting investment activities in the receiving country. The EVFTA also determines that the Claimant may be a foreign investor on behalf of a company established under the laws of the receiving State (“Claimant’s Enterprise”). The EVFTA restricts investors’ rights to file lawsuits whose investments are made by fraudulent, misrepresentation, concealment, corruption or conduct amounting to an abuse of process.

  1. Methods of dispute resolution

a) Alternative dispute resolution

Unlike the CPTPP, the EVFTA encourages parties to take advantage of amicable forms of dispute resolution, such as negotiation, mediation or consultation. The provisions on consultation and negotiation in the EVFTA are designed in a very specific and unique way and are not identical to any FTA that Vietnam has signed.

It is only until the parties cannot resolve the dispute through  amicable resolution that a request for consultation is submitted. The time limits for sending a request for consultation are as follows:

  • 3 years from the date on which the Claimant or the Claimant’s enterprise is aware of the alleged offense, or aware of the loss or damage;
  • 2 years from the time the Claimant or the Claimant’s enterprise ceases to pursue a lawsuit or proceeding in a court or tribunal that applies domestic law.

b) Initiate a lawsuit through arbitration

Arbitration proceedings are conducted in 2 phases:

Stage 1: Pre-Arbitration

  • The Claimant can initiate a lawsuit to arbitration when the investment dispute is not resolved within 90 days from the date the Respondent receives the written request for consultations.
  • The Claimant sends a NOI to the EU or the Government of Vietnam.

Stage 2: Proceedings

i. Step 1: Claimant submits a claim:

  • Within 6 months from the date of sending the request for consultations and at least 3 months from the date the Claimant sent the NOI;
  • If the Claimant has a claim that is being dealt with in any domestic or international court or tribunal for the same measure that is alleged to be a breach of the Agreement, the claim shall be withdrawn, the Claimant shall provide evidence that the claim has been withdrawn, and waives the right to initiate a lawsuit at the said institution before commencing the arbitration under this section.
  • The procedure to be followed in the EVFTA is similar to the one in the CPTPP.

The remaining steps for settling disputes specified in the EVFTA are quite similar to those listed in the CPTPP, including:

ii. Step 2: Consent of the parties to arbitration

iii. Step 3: Selection of arbitrators

iv. Step 4: Conduct dispute resolution and render an award

The EVFTA is an ambitious agreement with the presence of a system of jurisdictions for investment, with the involvement of a Trade Committee; Specialized Committee on Services, Investment, and Procurement; a Tribunal, the permanent Appeal Tribunal with multilateral dispute settlement mechanisms based on negotiations and international agreements between the parties.

Chapter 17 of the Agreement represents the Trade Committee comprising representatives of both the EU and Vietnam, which have the most extensive and most general powers in the execution of the EVFTA: in particular, making decisions related to implementation and correction of the EVFTA; monitoring and coordinating all the bodies established under the Agreement, including the designation and change in the number of members of the arbitral tribunal and the Appeal Tribunal under ISDS; informing all parties concerned about the matters covered by the Agreement.

The Committee on Services, Investment and Procurement is one of the five agencies established under the auspices of the Trade Committee, responsible for examination (developments and difficulties arising in the implementation of the dispute resolution process, the implementation of a mutually agreed solution, the draft working procedures within the ISDS); making recommendations to the Trade Committee on matters relating to its authority.

Also in this chapter, the effectiveness of the EVFTA is clearly defined in relation to international commitments to which Vietnam and the EU are members and bilateral agreements, trade and investment protection agreements between Vietnam and each Member of the EU. Accordingly, the EVFTA will replace all existing trade and investment protection agreements between Vietnam and the EU members.