Source: http://www.internationalarbitrationasia.com/vietnam-fair-and-equitable-treatment-in-investor-state-arbitration
Timestamp: 2019-04-21 18:03:57+00:00

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Globalisation has engendered the increasing popularity of transnational investment in developing countries, alongside a renewed interest in investment treaties in this region. Vietnam, no stranger to this trend, has witnessed a boom in foreign investment. Inevitably, this regional development has led to a rise in the number of disputes between investors and states. Lead Editor for IAA Vietnam Nguyen Phuong Dung briefly examines the parameters of Fair and Equitable Treatment (“FET”), commonly espoused in investment treaties, and in particular, its development in Vietnam.
Fair and equitable treatment (“FET”) is a provision commonly enshrined in investment agreements despite the absence of a rigid definition. Nonetheless, landmark cases and the construction of international investment agreements have provided some guidance as to the perimeters of FET.
FET was a term first utilized in the 1948 Havana Charter International Trade Organization under Article 11(2). It stipulated that “just and equitable treatment” should be granted to foreign investors within the specific fields of “enterprise, skills, capital, arts and technology brought from one Member country to another”. This was understood to mean that foreign investment shall be admitted and entitled to “just and equitable treatment” within the territory of each Member country.
Since FET’s initial appearance under the 1948 Havana Charter, the notion of FET has evolved in the context of international law, as reflected in some notable international agreements on investment.
Likewise, the OECD Working Paper on International Investment 2004/03, also indicates the correlation between FET and a standard of investor-treatment consistent with international law.
The Waste Management case highlights the central components of FET, namely transparency, non-discrimination, due process and non-arbitrariness.
These elements mainly rest on the making and implementation of statutory regulations of host States which shall be evidently explicit for the investment operations and shall be the fundament of any judgment or decision impacting on investors’ operations. The requirement of transparency overlaps the legitimacy of investors’ expectations, to major degree, in the way that any mandatory regulations inflicted on foreign investors shall be well-announced to them beforehand. Contemporarily, to determine an action attributable to a host state as a breach of FET or not, an allusion to applicable laws is a must for a non-native investor. This additionally means that an external investor is bears the responsibility of proving whether a contravention of FET by a host State has taken place.
These requirements are not interpreted to adversely affect the power or authority of host States or result in foreign investors supplanting the State’s manner of regulating the legal system. In this connection, any issuance, amendment or supplementation of regulations has to be bona fide or in a good faith, for host States to sustain their commitment to international conventions or protect public policies or welfare systems.
This standard is rooted in the meaning of “fair” and “equitability”, which means that domestic investors and non-domestic investors should be treated by host States as equal, without any priority or privilege given in favor of any investor. A critical case underscoring the meaning of this requirement is S.D. Myersin which the Canadian government was held to have violated FET requirements by shutting its borders to the import and export of new products manufactured with ‘polychlorinated biphenyl (“PCB”) and containing PCB waste, as PCB was found to be a highly toxic chemical which posed a risk to the environment. However this benefitted national investors since there was literally no threat to domestic PCB refinery. The Court in S.D. Meyers held that “the protectionist intent of the lead minister … at every stage that led to the enactment of the ban” was clear in this law, and further went on to hold that “a government might treat an investor in a harsh, injurious and unjust manner, but do so in a way that is no different than the treatment inflicted on its own nationals …”. Therefore, post S.D. Meyers, it is clear that governments cannot pass laws which have the effect of protecting domestic industries at the expense of foreign ones, as to do so would be a contravention of FET.
The hallmark of a breach of due process and the principle of non- arbitrariness is the “denial of a right to a fair hearing” process,  or absence of readily lucid evidence in administrative decision-making process. In general, under due process and non-arbitrariness, foreign investors are ensured that whether a fair hearing by independent judicial authority is given to them, whether they are well-informed prior to a hearing or a whole undertaking of making an administrative decision which may have significant influences on their investment. In the case of Middle East Cement  the host State’s action of failing to notify the investor before possessing and selling the investor’s asset via auction is considered as an example of contravention of due process. Similarly, in Metaclad Corporation, the Tribunal found in favour of Metaclad due to Mexico’s breach of FET for its omission to notify Metaclad about the meeting held by the Town Council which gave the red light to right of construct a hazardous landfill site, which had the result of adversely affecting the business activities of the company.
Foreign investors may take advantage of the ambiguous nature of the concept of FET by construing it in their favour and filing frivolous and vexatious actions against host States, which can undermine the ethics of investment to the detriment of the wider business community.
Michael L. McKenzie v. The Socialist Republic of Vietnam was a case arising under the chapter of investment of the USA – Vietnam Bilateral Trade Agreement 2000. The crux of this case rested on the progress of constructing a resort located in Binh Thuan Province, Vietnam.
In this case, the Claimant sought to arbitrate the State’s failure of conveying land use rights to permit a mining company to exploit the area destined for the construction of the resort.
The Claimant alleged a contravention of FET principles and a lack of transparency by Vietnam. The tribunal rejected the Claimant’s argument, upholding Vietnam’s claim that the act of executing agreements with the mining company by the investor himself had constituted consent to let the mining company utilize the area.
The tribunal additionally noted that this consent, and therefore, the investment by the Claimant was not in accordance with the aims of the USA – Vietnam trade agreement.
In the case of DialAsie SAS v. The Socialist Republic of Vietnam, the Claimant, a French company, alleged that Vietnam had breached the FET requirement of fairness contained in the France – Vietnam Bilateral Investment Treaty by imposing the operating standards of a hospital on the nephrology and dialysis facility of DialAsie. The Claimant claimed that the facility was merely a clinic and did not qualify as a hospital.
The Tribunal found in favour of Vietnam and held that the State had not in fact imposed unfair criteria on the medical facility of DialAsie, and that it had instead merely expressed its concern regarding the advantageousness and convenience of patients.
Recofi v. The Socialist Republic of Vietnam is yet another case arising under the France – Vietnam Bilateral Investment Treaty. The Claimant claimed for the reimbursement of monies invested in its food program to aid the State in coping with food scarcity, which was a result of a prohibition by the USA since 1987. The grounds of decision of this case have not yet been publicized, nevertheless, it could be perceived that this case will turn on whether FET standards have been breached, due to the fact that there is a reasonable expectation by a non-native investor to receive reimbursement from the State due to the critera set forth by the State itself in its legal framework and mechanism on debt management.
Vietnam also enjoyed another victory in a case brought under the International Court of Arbitration on the basis of the International Chamber of Commerce (“ICC”) Rule of Arbitration. In this case, a consortium of international oil companies claimed against the State for its refusal to grant a tax reduction for the operation of an offshore oil concession under a production sharing contract executed with PetroVietnam – a State-owned entity. In light of economic equality enshrined under the contract entered into with PetroVietnam, the consortium argued that it shall have enjoyed tax redemption for holiday – impartially for the first year and partially for the following year, and thus, it sought for a tax refund by PetroVietnam. The claim, nonetheless was ultimately denied because the tribunal held that the consortium was not entitled to benefit from the tax holiday. In the same vein, it also concluded that there was no provision under the contract between the consortium and PetroVietnam stipulating that a tax relief was granted by competent Vietnamese authorities to the consortium. On the other hand, the tribunal endorsed the power of competent Vietnamese authorities, at their own discretion as the case may be, to grant tax redemption or tax reduction to particular cases of block in light of contractual provisions.
It is undeniable that the ambiguity inherent in FET poses a challenge in the principle’s development. Despite this, FET can be determined on a case-by-case basis under the governing ambit of international investment treaties. After an overview of the milestone cases and recent cases with which Vietnam is engaged as a Respondent, it appears that tribunals have sought to redressed the balance of power between non-native investors’ and host States. Tribunals have also been willing to acknowledge that consideration should be given to host States since they might be under pressure to shoulder constitutional responsibilities– this is readily displayed in investor-Vietnam cases. However, this has not been to the detriment of non-national investors and tribunals have considered the requirements of reasonableness, legitimacy and profitability when making investment in host States. In general, the distortion of FET either in favour of foreign investors or host States should be circumvented for the overall development objectives of the investor-State treaty arbitration system.
This article may be cited as follows: Nguyen Phuong Dung, “The Fair and Equitable Treatment Standard in Investor-State Arbitration in Vietnam” International Arbitration Asia (12 July 2016) <www.internationlarbitrationasia.com/vietnam-fair-and-equitable-treatment-in-investor-state-arbitration>.
 Roland Klager, Fair and Equitable Treatment in International Investment Law, Cambridge Studies in International and Comparative Law (1st edition, Cambridge University Press, 2013) p. 9.
 The 1948 Havana Charter for International Trade Organization.
 The 1994 North American Free Trade Agreement (NAFTA).
 Organization for Economic Co-operation and Development, ‘Fair and Equitable Treatment Standard in International Investment Law’ (2004/03) Working Papers on International Investment (The OECD Report on FET), p. 8.
 Waste Management Inc v. United Mexican States (Award)  ICSID Case No. ARB(AF)/98/2, 40 ILM 56 (“Waste Management”).
 Christoph Schreuer, ‘Fair and Equitable Treatment in Arbitral Practice’ (2005) 6 The Journal of World Investment and Trade 357, 374.
 The United Nations Conference on Trade and Development (UNCTAD), Fair and Equitable Treatment, Series on Issues in International Investment Agreements, 1999, p. 51.
 Schreuer C (n 9) pp. 374 – 375.
 S.D.Myers, Inc. v. Government of Canada (First Partial Award)  UNCITRAL/NAFTA 40 I.L.M. 1408 (“S.D. Meyers”).
 Ibid at paras. 162 and 252; Barnali Choudhury, ‘Evolution or Devolution? Defining Fair and Equitable Treatment in International Investment Law’ (2005) 6 The Journal of World Investment and Trade 297, 313.
 Ibid, at paras. 263 – 264.
 Kenneth J. Vandevelde, ‘A Unified Theory of Fair and Equitable Treatment’ (2006) 43 International Law and Politics 43, 89 – 96.
 Barnali Choudhury, ‘Evolution or Devolution? Defining Fair and Equitable Treatment in International Investment Law’ (2005) 6 Journal of World Investment & Trade 297, 305.
 Middle East Cement Shipping & Handling Co. S.A. v. Arab Republic of Egypt, ICSID Case No. ARB/99/6, Award, (Apr.12, 2002), 7 ICSID Rep.173 (2005) (“Middle East Cement”).
 Peter Muchlinski, ‘“Caveat Investor?” the Relevance of the Conduct of the Investor under the Fair and Equitable Treatment Standard’, (2006) 55 International & Comparative Law Quarterly 527, 528.
 Luke Eric Peterson, ‘U.S. Investor Pursues UNCITRAL Arbitration Claim Against Vietnam; Tribunal Empaneled to Hear Allegations of Treaty Breach’ at <http://tinyurl.com/p4xgtov>; Sebastian Perry, ‘Vietnam Defeats Treaty Claim over Tourist Resort’ at <http://globalarbitrationreview.com/news/article/32244/vietnam-defeats-treaty-claim-tourist-resort/>.
 Lacey Yong and Sebastian Perry, ‘Vietnam Wins Treaty Claim over Medical Facility’ at <http://globalarbitrationreview.com/news/article/33307/vietnam-wins-treaty-claim-medical-facility/>.
 Leo Szolnoki, ‘Vietnam Faces New Treaty Claim’ at <http://globalarbitrationreview.com/news/article/32414/vietnam-faces-new-treaty-claim/>.
 Clemmie Spalton, ‘Vietnamese Victory in Tax Case’ at <http://globalarbitrationreview.com/news/article/33856/vietnamese-victory-tax-case/>.

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