An update on new regulatory tools to deal with the increased number of international investment claims in Vietnam

Nguyen Thi Nhung^[1]
Ministry of Justice of Vietnam
thinhungnguyenvn1210@gmail.com

Introduction

Since its renovation in the ‘Doi Moi’ economic reforms in 1986 to date, Vietnam has successfully transformed from a centrally planned to a free market economy; from one of the poorest countries into a lower middle-income country; and, according to Work Bank’s latest assessment, Vietnam is now one of the most dynamic emerging countries in the East Asia region.^[2] The nation’s remarkable 30-years of economic progress can be traced back to many policy strategies, including foreign direct investment attraction programmes and the improvement of legal frameworks governing trade and investment.^[3] By signing 67 Bilateral Encouragement and Protection of Investment Treaties (BITs)^[4] and 13 Free Trade Agreements (FTAs),^[5] with continually rising levels of commitments of investment protection, Vietnam has sent an ever-clearer message on deepening its integration into the global market and accepting international standards in protecting foreign investment. Regardless of the bright aspects of foreign direct investment (FDI) that are undeniable, Vietnam has been exposed to many of FDI’s downsides^[6] and serious related problems.^[7] Among these factors, international investment claims by foreign investors against Vietnam are one of the significant concerns of Vietnamese policy makers.^[8]

From 2004 to date, Vietnam has been the respondent in eight investor-state claims, with an increasing frequency of claims.^[9] To prevent disputes, the country has issued a number of regulatory measures, including:

• Decision No 680/QD-TTg of the Prime Minister, dated 3 May 2013 on approval of a masterplan for resolving investor-state disputes;^[10]

• Decision No 04/2014/QD-TTg of the Prime Minister dated 14 January 2014 on regulating the coordination between the Vietnamese state bodies in international investment dispute settlement (Decision No 4);^[11]

• Decision No 2007/QD-TTg of the Prime Minister, dated 16 November 2015 on approval of a project on enhancing knowledge and improving skills for state officials working on international integration;^[12]

• Decision No 1063/QD-TTg of the Prime Minister, dated 14 June 2016 on approval of a project on capacity-building for state officials of ministries, sector, and local administrations on international law, and settlement of international investment disputes for the term of 2016 to 2020;^[13] and most recently; 

• Decision No 14/2020/QD-TTg of the Prime Minister, dated 8 April 2020 on regulating the coordination between the Vietnamese state bodies in international investment dispute settlement (Decision No14)^[14]

Decision No 14 and updates on some specific features

Overview

Decision No 14 will come into effect on 1 June 2020,^[15] replacing Decision No 4. It aims to help state agencies deal more effectively with investor-state disputes, minimising losses that may come from mishandling and weak cooperation between state agencies in such cases.^[16] The Decision includes three Articles and a Regulation with 32 Articles. There are two newly-added provisions on keeping confidential information in regard to the proceeding and settlement of the pending dispute. Although a number of revisions have been made to Decision No 4, the new Decision retains its original structure, basis principles, and governing subject matters. In particular, the new Decision governs the issues of coordinating principles, contents of coordination. It defines:

• the lead agencies, the legal representative agency, the supporting agencies, and their roles and tasks (Chapter 1);

• coordination in early step of negotiation and consultation with foreign investors (Chapter 2);

• coordination in litigation steps of investment arbitration (building litigation strategies, drafting submissions, hearing, implementation of arbitral awards, hiring outside counsels, working with witnesses and experts), settlement and establishment of the task force or intergovernmental working team (Chapter 3); and

• financial issues (Chapter 4).

Attention should therefore be paid to some new specific features of Decision No.14.

Defining types of dispute

Decision 14 defines international investment disputes as those from which foreign investors bring a case against the Vietnamese government, state or state agencies,organisations authorised for state management (collectively referred to as state agencies) on two grounds. First, the Agreement on Encouragement and Protection of Investments or Free Trade Agreements or Other International Treaties of which the Vietnam government is a party (collectively referred to as investment treaties), which provides for the international investment dispute settlement at international arbitration (referred to as international investment treaties claims or ‘IIAs claims’). Second, the contracts, the agreements between Vietnamese state agencies and foreign investors, which provides that disputes arising from these contracts and agreements shall be resolved by international arbitration tribunals (contract claims).

Defining lead agency

In the past, as provided for in Decision No. 4, the Ministry of Justice was the lead agency for IIAs claims.^[17] Under Article 5.1 of the new Decision, the lead agency could be any governmental agency whose acts give rise to the dispute. These are ministries, line ministerial agencies, governmental agencies, or provincial committees, whose actions, decisions or measures are being sued or threatened to be sued. There are three exceptions to this rule. First, according to Article 5.2, the ministries, line ministerial agencies, governmental agencies, or provincial committees that take lead in negotiating or signing, or acting on behalf of Vietnamese government in signing contracts and agreements with foreign investors, shall be the lead agency for resolving disputes arising on the basis of those contracts and agreements (contract claims).^[18] Second, according to Article 5.3, the Ministry of Finance shall be the lead agency for resolving disputes arising in cases where foreign investors sue the Vietnamese government or state involving loans, debts of government or loans, debts guaranteed by government according to laws on the management of public debts, international disputes concerning application of tax and finance (both IIAs claims and contract claims). Third, according to Article 5.4, the Prime Minister, where necessary, and after having considered the recommendation of the Minister of Justice, may decide to appoint a lead agency in cases where the measure being challenged involves more than two agencies, or in cases where the measure being challenged is complex, seriously affecting the foreign relations or security and defence policies of the country.

There are some observations from this formulation. First, the role of the lead agency of the Ministry of Justice for IIAs claims virtually shifted from a permanent lead agency to ad-hoc assignment by the Prime Minister on a case-by-case basis. Under the new Decision, the lead agency can be any governmental agencies whose acts give rise to the dispute. Second, according to the definition of ‘measure being sued’ in Article 2(5) of the Decision, the lead agency is defined based on the agency having measure being sued and according to its involvement in the act giving rise to the dispute, including the violation of international treaties and contracts. That being said, from a practical standpoint, the agency which has measure, actions or decisions being sued, and the agency taking lead in negotiating and signing investment agreements could be the same, but could also be two different entities. In practice, measures by local agencies may rise due to their increased functions of investment management,^[19] while treaties, signing on behalf of the government were mostly done by central government agencies. Therefore, with the formulation in Article 5 of the Decision, the role of provinces and ministries in charge of signing IIAs and contracts as the lead agency in resolving disputes may be increased. Third, measure/measures being sued are often complicated,^[20] involving different levels of the Government and without a precise definition of measure ‘is complex, seriously affecting the foreign relations or security and defence policies of the country’, Article 5 of the Decision may also prefer an ad-hoc or case-by-case approach of assigning the lead agency whereby the Prime Minister may appoint the lead agency after having considered the recommendation of the Minister of Justice.

Confidential issue

Decision No 14 adds one provision on the principle of maintaining confidentiality during arbitral proceedings.^[21] It should be noted that internal legal advice, document, exchanges during arbitral proceeding shall be deemed confidential under Articles 3.13 and 9 of the IBA rules,^[22] and shall be treated confidential as common practice in drafting procedural orders in international investment disputes. In addition, the reference to the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (New York, 2014) has been increased and Vietnam also agrees to refer to it in the EU-Vietnam Investment Protection Agreement (EVIPA).^[23] With the Comprehensive and Progressive Agreement and Trans-Pacific Partnership (CPTPP)^[24] and EVIPA,^[25] Vietnam has been moving toward more transparency in investor-state dispute proceeding. Regardless of clear transparency provisions in these international agreements, the need for precise clarification and classification of ‘confidential information during arbitral proceeding’ in Decision No 14 and relevant laws and regulations of Vietnam on this subject matter should be noted, for future implementation of this provision. Therefore, more guidance should be available for officials and to ensure their rightful compliance and the consistency between domestic and international agreements.

Financial issue

Similar to Decision 4, the new Decision No 14 provides two sources of budget for resolving investment disputes (articles 28 to 30 of Chapter IV) based on the type of lead agency. If the lead agency is ministries, line-ministries or governmental agencies, the budget comes from the central government. If the lead agency is a local provincial committee, the budget comes from the local government. Once again, pairing these provisions with article 5 on defining lead agency, it is likely that the budget coming from local government may be bigger in parallel with their active roles in dealing with the disputes. From a financial standpoint, this may contribute significantly to the prevention of the dispute if local governments are well aware of the fact that their measures, or contracts that they signed later can be sued and they have to bear the cost.

Timeframe for the coordination

In a number of provisions of Chapter III, the timeframe for the coordination between state agencies in different steps of litigation is reduced from seven-to-ten days in Decision No 4 to just five days in Decision No 14.^[26] The Decision is designed to make a faster and more efficient manner of coordination among state agencies to respond to arbitral proceedings. The Decision also sets fine/warning signals for agencies failing to comply with the strict time schedule.^[27]

The role of the Ministry of Justice

As legal representative agency, the Ministry of Justice (MOJ) plays the role of in-house counsel for the Government of Vietnam. It could be lead agency in resolving dispute in the circumstance where the Prime Minister appoints it to be so. The MOJ actively carries out the role of counselling agency, in defining lead agency in cases which are controversial, in suggesting outside counsels, candidates for appointing arbitrator, determination of strategies pertaining to the settlement of disputes, commenting on submissions, participating in the hearings or implementing arbitral awards. While playing an intensively professional role, the participation of the MOJ sometimes is optional and consultative when the lead agency deems necessary.^[28]

When needed, a Task Force (an intergovernmental working team)^[29] will be established among members of the lead agency, legal representative agency and other relevant parties. Similar to Decision No 4, the new Decision No 14 lacks provisions on dispute prevention.

Conclusion

After more than three decades of renovation, regardless of the bright aspects of FDI that are undeniable, Vietnam has been exposed to some of its grim side effects, of which international investment dispute has been one of the major concerns of policy makers. It has required action in response to increasing frequency of disputes by issuing a number of regulatory tools with frequent revisions. Decision No. 14 in replacement of Decision No. 4 was introduced to establish more effective mechanisms in dealing with international investment disputes. With its updated new features, whether this becomes a useful tool remains to be seen, awaiting the outcome of future testing cases.