Aside from the commonly seen dispute resolution methods in other Conventions such as mediation and ad hoc arbitration, the EU – Vietnam Investment Protection Agreement (EVIPA) has one more notable method of dispute resolution, namely, the Investment Court System (ITS or ICS).

EVIPA and Investment Dispute Resolution Mechanism

EU-Vietnam Free Trade Agreement (EVFTA) is a new generation free trade agreement (FTA) between Vietnam and 28 member countries of the EU. Regarding EVFTA, parties to the Agreement have agreed to divide the FTA into two parts, with the Euro-Vietnam Free Trade Agreement (EVFTA) forming one part and the Euro-Vietnam Investment Protection Agreement forming the other part.

The stipulation on the mechanism of investment dispute resolution in EVFTA is situated in Section 3 and Annexes 7 to 13. Disputes in EVIPA are categorized into 2 types: Disputes between governing bodies and Investor-state dispute settlement (ISDS).

One of the most important points of the EVIPA’s dispute resolution mechanism is the investor’s ability to begin legal proceedings at the Investment Court in investor-state dispute settlement.

Considering other FTAs, to which Vietnam has become a member, this is a dispute resolution mechanism completely foreign to Vietnam.

Investment Court EVIPA – Permanent Investment Court System

The traditional ISDS dispute resolution mechanism contains many imperfections, which often favor the investors over the public interests of the receiving state. This has resulted in many opposing voices as well as discussions to figure out the solution to improve this system.

As such, with the EU’s suggestion acting as the basis, the Investment Court System within EVIPA has been established, thereby rectifying the demerits of the traditional ISDS system.

The Court System

Investment Court EVIPA

Tribunal (Article 3.38)

Number of Tribunal members

The Tribunal is always present, and its members are appointed by the EVIPA Committee. To be specific:

• 3 members are citizens from EU member countries.
• 3 members are citizens of Vietnam; and
• 3 members are citizens of third countries.

However, the Committee may decide to increase or decrease the number of members of the Tribunal by multiples of three and additional appointments are made on the basis of that which upholds the balance of each members nationality.

Term of Office

The Members of the Tribunal are appointed to a four-year term-renewable once. However, the terms of five of the nine persons appointed immediately upon the date of entry into force of this Agreement, are determined by lot and extended to six years. Vacancies are filled as necessary. A person appointed to replace a person whose term of office has not expired, holds that office for the remainder of the predecessor’s term.

The Tribunal hears cases in divisions consisting of three Members, of whom one is a national of a Member State of the Union, one a national of Viet Nam, and one a national of a third country. The division is chaired by the Member who is a national of a third country.

The President and Vice-President of the Tribunal are responsible for organizational issues and are drawn by lot from among the Members who are nationals of third countries and appointed for a two-year term, served on a rotation basis drawn by lot. The Vice-President replaces the President whenever the President is unavailable.

Appeal Tribunal (Article 3.39)

Number of members

The Appeal Tribunal is composed of six Members, of whom two are nationals of a Member State of the Union; two are nationals of Viet Nam; and two are nationals of third countries.

The Committee may decide to increase or decrease the number of the Members of the Appeal Tribunal by multiples of three and additional appointments are made on the same basis as provided for in paragraphs 2 and 3.

Term of Office

The Appeal Tribunal Members are appointed to a four-year term, renewable once. However, the terms of three of the six persons appointed immediately after the entry into force of this Agreement, to be determined by lot, are extended to six years. Vacancies are filled as necessary, and a person appointed to replace a person whose term of office has not expired holds that office for the remainder of the predecessor’s term.

The Appeal Tribunal hears appeals in divisions consisting of three Members selected among the members of the Appeal Tribunal. The structure of the Appeal Tribunal is similar to that of the Tribunal.

Likewise, the appointment, term of office, and responsibilities of the President and Vice President of the Appeal Tribunal are also similar to that of the President and Vice President of the Tribunal, respectively.

Generally speaking, both levels of the Investment Court System are permanently organized. As for the Tribunal and the Appeal Tribunal, they are established on an as needed basis.

Such permanent organization ensures stability and enhances the uniformity of the resolution in accordance with the provisions of EVIPA. This is a positive change, remedying the flaws that have always been present in the traditional ISDS system since the Tribunal in the system is established on a case-by-case basis and upon the request of disputing parties, which would result in the lack of uniformity and structure.

Legal procedures in accordance with the Investment Court System

Legal procedures in accordance with the Investment Court System

Consultation

If a dispute cannot be resolved via Amicable Resolution, to begin the litigation process at the Investment Court, EVIPA stipulates that the investor initially submits a request for consultation to the other party and this request must include all the information – in it entirety – as specified in Clause 1 Article 3.30 of EVIPA.

Consultations in ISDS disputes take place by videoconference or other means, therefore, a request for consultation is not required to be in written form.

Duration for Request for Consultation

According to Article 3.30, the request for consultation must be submitted within:

• Three years from the date on which the investor first acquired, or should have first acquired, knowledge of the measure alleged to have violated and knowledge of incurred damages; or
• Two years from the date on which the investor ceases to pursue claims or proceedings before a Tribunal or Court under domestic law and, in any event, no later than seven years after the date on which the investor first acquired, or should have first acquired knowledge of the measure alleged to have violated nad knowledge of incurred damages.

Moreover, another point that deserves attention in the ISDS system is the lack of requirements for information confidentiality in an effort to remain consistent with the transparent principle of the Investment Court’s litigation procedural mechanism.

Regarding the consultation and place of consultation, the Agreement respects the agreement of the parties to the dispute. Furthermore, EVIPA takes into account cases in which disputing parties did not agree on the time and place of consultation as specified in Clauses 3 and 4 Article 3.30. (In cases where no agreement is made on the time and place of consultation, Clauses 3 and 4 Article 3.30 apply).

To be specific:

Place of consultation:

• Ha Noi where the consultations concern measures of Viet Nam;
• Brussels where the consultations concern measures of the Union; or
• The capital of the Member State of the Union concerned, where the request for consultations concerns exclusively measures of that Member State.

Submission of a Claim

Within the duration specified in Clause 1 Article 3.33 (within six months of the submission of the request for consultations and at least three months have elapsed from the Claimant’s submission of the notice of intent to submit a claim pursuant to Clause 1 Article 3.32), if the dispute has yet to be resolved, the investor may submit a claim to the Tribunal (Clause 1 Article 3.33). A claim may be submitted to the Tribunal under one of the following sets of rules on dispute settlement:

• The ICSID Convention;
• The Rules on the Additional Facility for the Administration of Proceedings by the Secretariat of the International Centre for Settlement of Investment Disputes, provided that the conditions for proceedings pursuant to subparagraph (a) do not apply
• The arbitration rules of UNCITRAL; or
• Any other rules by agreement of the disputing parties.

In the event that the investor has yet to submit a claim within 18-months from the submission date of the request for consultation, the investor is deemed to have withdrawn from the litigation process and is no longer eligible to submit a claim via this mechanism. However, this period may be extended by agreement between the parties involved in the consultations.

Litigation process by the Tribunal and Appeal Tribunal

Principles in litigation process by the Tribunal and Appeal Tribunal

Throughout the litigation process, the tribunals shall comply with certain rules, such as:

Principles of applicable laws: Chapter 3, Article 3.42 (clause 1,2,3) EVIPA

The purpose of the Tribunal is to evaluate whether or not the measure mentioned in the claim violates Chapter 2 of the EVIPA as claimed by the claimant. The legal basis utilized by the Tribunal includes:

• Provisions in Chapter 2 and other provisions (if any) of the EVIPA;
• Rules or principles of international law applied by both Parties;
• Domestic rules of parties to the disputes for issues relevant to the dispute.

Principles of law interpretation: Chapter 3, Article 3.42 (clause 4) EVIPA

Similar to the stipulations of the WTO and other International Treaties, the Tribunal interprets this Agreement in a way consistent with the custom of interpretation of Treaties, which is stipulated in the Convention on the Law of Treaties 1969.

Principles of transparency and openness:

Contrary to the approaches of commercial arbitration in previous international investment disputes where the majority of the information on the dispute is kept confidential and the awards are not disclosed publicly, the principles of transparency are completely reflected in the procedures of the investment court system within the framework of EVIPA

Article 3.46 of EVIPA has detailed specifications on the responsibilities of disputing parties to ensure transparency during the litigation process by complying with and expanding upon the UNCITRAL Rules on Transparency. Accordingly, almost all materials used during the litigation process as well as during the consultation, notices of intent to submit a claim, notice of request for appointment of Members of the Tribunal,  documents submitted by Parties, memorandum of the trials, orders, decisions, and awards of the Tribunal must be publicly disclosed, except information that is determined to be confidential.

Principles on Litigation Period

Aside from the detailed principles above, EVIPA also sets out strict regulations pertaining to the duration of each litigation phase to ensure the promptness of the litigation process.

Example: In order to prevent the claimant from prolonging the litigation period, thereby incurring costs and loss of time to both parties, EVIPA has stipulated that whenever the Claimant, following the submission of a claim, fails to take any steps in the proceedings during the 180-consecutive days or such periods as the disputing parties may agree, the claimant is deemed to have withdrawn its claim and after the issuance of the order on the discontinuance of the proceedings, the claimant MAY NOT subsequently submit a claim on the same matter.

With regarding to the appeal procedures, EVIPA has stipulated that such proceedings are not to exceed 180-days as calculated from the date on which a party to the dispute formally notifies its decision to appeal to the date on which the Appeal Tribunal issues its decision. Unless exceptional circumstances so require, the proceedings shall in no case exceed 270 days.

Litigation process by the Tribunal

Within 90-days from the date of the claim’s submission, the President of the Tribunal appoints members of the Tribunal to manage the case. The litigation process by the Tribunal follows one of the dispute resolution rule sets listed in clause 2 Article 3.33 of the EVIPA

Throughout the litigation process, depending on the content of the case, the tribunal could give its decision on:

Interim measure of protection: EVIPA, Chapter 3, Article 3. 47

These measures are similar to Provisional Emergency Measures found in laws on court proceedings. Accordingly, the Tribunals, in emergency cases, may order an interim measure to preserve the rights of a disputing party, or to ensure that the Tribunal’s jurisdiction is entirely effective, or to give recommendations on application of interim measures of protection for timely protection from violations.

Security for costs: EVIPA, Chapter 3, Article 3.48

In case the investor’s financial capability is not adequate to pay for the arbitration costs upon the loss, the receiving state would be affected. Therefore, EVIPA has detailed the claimant’s obligation to provide security for the entire or part of the costs in the event that the decision on costs is not in favor of the claimant; if the security for costs is not provided in full (within 30-days of the Tribunal’s order), the Tribunal may order the suspension or termination of the proceedings.

Provisional Award:

After meticulous evaluation of the materials, evidence of the case, the Tribunal issues a provisional award within 18-months from the date of the claim’s submission. However, it should be noted that applicable measures by the Tribunal in the award are somewhat restricted.

To be specific, according to Article 3.53 of the EVIPA, the Investment Court could only issue awards to compel the violating state to:

• Compensate for monetary damages and any applicable interest; and
• Perform restitution of property to investors or legal persons which were in possession or under the control of the investor.

The Tribunal will not issue a compensation award as a punitive measure or order the repeal of the treatment concerned by the State. This is to ensure the principles of balance between investment protection and respect for one’s state sovereignty, a principle deemed important by EVIPA and expressed throughout all of EVIPA’s provisions on dispute resolution.

Appeal Procedures and Litigation Process by Appeal Tribunal

After the issuance of the provisional award, if either of the parties were to find it unsatisfactory, an appeal may be made within 90 days of the award’s issuance.

The grounds for appeal are:

• That the Tribunal has erred in the interpretation or application of the applicable law
• That the Tribunal has manifestly erred in the appreciation of the facts, including the appreciation of relevant domestic law; or
• Those provided for in Article 52 of the ICSID Convention, in so far as they are not covered by the reason listed above.

Grounds for appeal

The Appeal Tribunal consisting of 3 members is established to evaluate the appeal, and if the appeal is well founded, the Appeal Tribunal modifies or reverses the legal findings and conclusions in the provisional award in whole or part. Cases in which the Appeal Tribunal modifies or reverses the legal findings without being permitted by the facts established by the Tribunal, are referred back to the Tribunal

Moreover, during this phase, EVIPA also requires the appealing party to perform security measures, including appeal fees and a reasonable sum determined by the Appeal Tribunal after evaluating the specific circumstances of the case.

Final Award and Enforcement

Final Award

• A provisional award becomes final and binding if neither disputing party appeals within the allotted time or the Appeal Tribunal dismisses the appeal.
• Whenever a provisional award has been appealed and the Appeal Tribunal has rendered a final decision, the provisional award as modified or reversed by the Appeal Tribunal becomes final and binding.
• When a provisional award has been referred back to the Tribunal by the Appeal Tribunal for modification, the Tribunal seeks to issue its revised award within 90-days of receiving the decision of the Appeal Tribunal. The revised provisional award will become final 90-days after its issuance.

Enforcement

EVIPA is an important milestone as this Agreement allows the immediate enforcement of awards by the Investment Court within the territory of the member states without the domestic procedures for recognition and enforcement.

Based on Article 3.57 EVIPA, the final award rendered by the Investment Court is binding upon both Parties and enforced within the parties’ territory as if it were a final judgment of a court in that Party and IS NOT subject to appeal, review, set aside, annulment or any other remedy.

However, from EVIPA’s effective date of August 1^st, 2020, Vietnam has reserved the application of Article 3.57 to final awards in which Vietnam is the respondent for 5-years. Consistent with the reserved content, on June 18, 2020, Resolution 113/2020/QH14 was officially promulgated, accordingly:

Final awards in which Vietnam is the respondent rendered within 5-years beginning August 1^st, 2020 are treated as Foreign Arbitration Awards and go through the procedures of recognition and enforcement in accordance with the New York Convention of 1958. This also means that, within this five-year period, Vietnam’s Courts could reverse the final awards by the Investment Court.

Final awards in which Vietnam is the respondent rendered after the five-year period above are immediately recognized as if they were final judgments of Vietnamese Courts.

Merits and demerits of Dispute Resolution via Investment Court

Merits

Merits of Dispute Resolution via Investment Court

It could be viewed that the dispute resolution mechanism in EVIPA has significantly resolved the flaws of the traditional ISDS system, to be specific:

Firstly: the Agreement establishes the Investment Court System – permanent and divided into two levels

This affords the ability to modify, reevaluate, and review awards by Arbitrators, which was previously impossible under the traditional ISDS system in which the awards were final. The permanent Court system established by the EVIPA allows the Appeal Tribunal to evaluate, modify, and even reverse the legal findings of the Tribunal upon request of the parties to the dispute.

Secondly: stipulations on transparency

In previous Arbitration systems, almost all materials and awards were kept confidential according to the desire of disputing parties, however, in the mechanism established by EVIPA, the requirement for transparency during the litigation process is a mandatory obligation as specified in Article 3.46. Accordingly, almost all of the materials used during the litigation process are publicly disclosed. This not only ensures the transparency and openness of the litigation but also serves as one of the most important indications for investors to decide whether to file a lawsuit against the receiving state.

Thirdly: limitations on potential appeals

The application of the traditional ISDS system has led to the abuse of investment agreements by investors, causing damages to the public interests of the receiving state such as the environment and public health. This was due to the favoritism toward investors in dispute resolution awards.

Therefore, EVIPA has imposed limitations on the possibility of abuse by investors such as a prohibition on selections of multiple jurisdictions, limiting the possibility of simultaneous claim submissions at both the EVIPA Court and International Arbitration (Clause 1 Article 3.34 EVIPA) as well as grounds for dismissing baseless claims (Article 3.43, Article 3.45 EVIPA).

Finally: stipulations on third parties

Third parties in the litigation process at the Investment Court System could be understood to include: Third parties who are non-disputing parties and/or parties that sponsor or provide finance for dispute resolution

Pursuant to point e Article 3.28 on the definition of “non-disputing parties”, this term in all situations could be interpreted to include all parties to the agreement, which means it could be a country or an intergovernmental organization whose interest could be affected by the lawsuits filed by investors despite not being parties to the dispute. Therefore, in Article 3.51, EVIPA has set out certain requirements for the Respondent to provide the non-disputing Parties with information relevant to the dispute.

Aside from the aforementioned, another group of entities that could be considered third parties by EVIPA are parties that sponsor or provide finance for dispute resolution. In subparagraph (i) Article 3.28, “Third party funding” (TPF) means any funding provided by a natural or juridical person who is not a party to the dispute but who enters into an agreement with a disputing party to finance part or all of the cost of the proceedings in return for remuneration dependent on the outcome of the dispute. The recognition of TPF has, to some extent, aided investors financially in their pursuit of investment cases, where the costs are rather significant.

Demerits

Demerits of Dispute Resolution via Investment Court

Despite that it is commonly recognized that the permanent Court system by EVIPA has rectified most of the flaws of the traditional ISDS, such a system continues to have several imperfections. To clarify:

There are doubts regarding the qualifications and experience of Tribunal members chosen by the Government – especially in Vietnam.

Since EVIPA does not have any specific provision pertaining to the criteria for tribunal members and instead leaves such matters to the government’s sole discretion, this could potentially lead to disparity between the capabilities of tribunal members as Vietnam – generally speaking – is still relatively new to law and international trade in comparison to the EU.

Secondly, the Abuse of the TPF mechanism

Notwithstanding the above, this regulation could be seen as an advantage of the new mechanism. However, sponsoring via TPF is, in fact, existing as an industry, which inadvertently becomes one of the reasons that many investors sue the receiving state, thereby significantly impacting other receiving states.

Download the PDF version of this article here: [PDF] CNC Newsletter_Investment Dispute Resolution in EVIPA

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