What Need to Know About Dispute between Foreign Investor and Host State?

In the globalization and international integration in general as well as economic integration in particular, foreign investment including foreign direct investment (FDI) and indirect foreign investment in countries are increasing significant. This trend also comes along with the growth of international investment dispute between foreign investor and host state (or related state agencies). This dispute is often complex with huge amount of compensation demanded by the investor.

Subjects of this dispute include foreign investor (plaintiff) and host state or related state agencies (defendant). In particular, Vietnam laws stipulate that foreign investor means an individual holding a foreign nationality or an organization established under foreign laws an making business investment in Vietnam. The second subject is state, a “special” subject because this subject is the beneficiary of “jurisdictional immunity”. Specifically, jurisdictional immunity is a right of a state which do not be judged by any international or national jurisdiction without the consent of such state.

This dispute shall relate to the investment of foreign investor in host state according to regulation of (i) investment law of host state; (ii) treaty of promotion and protection of investment (bilateral investment treaty – BIT) or investment chapter in bilateral/regional trade agreements; or (iii) contract relating to investment of foreign investor and competent state agencies.

To promote foreign investment and to protect investors, countries around the world as well as Vietnam have signed and will sign bilateral agreements on promotion and protection of investment (BIT), agreement between countries on promotion and protection of investment (international investment agreement – IIA), free trade agreement (FTA) having investment chapter. Accordingly, investor holding the nationality of a signatory to investment agreement (chapter) is entitled to have full protection and security, fair and equitable treatment, non-discrimination, no expropriation… of investment according to regulation of such investment agreement (chapter) in host state. Besides, to ensure that dispute between foreign investor and host state will be fairly and properly settled and to prevent the case of refering to jurisdictional immunity to avoid being sued, there are provisions on dispute settlement mechanisms between foreign investor and host state in most of these agreements.

Through investment agreement (chapter), the host state abandons its right of jurisdictional immunity to be sued and judged at competent jurisdiction. If the host state violates and harms the foreign investor, such country shall compensate according to judgement of that jurisdiction. Jurisdictions being competent to resolve disputes between foreign investor and host state may be arbitration, court of the host state; international arbitration; or other jurisdictions by agreement between the parties.

Behaviours which state violates commitment on investment protection may be very broad, including: (i) expropriation such as: requisition or nationalization without compensation; “indirect” requisition or “according to regulation” without reasonable compensation; (ii) no fair and equitable treatment; (iii) no full protection and security; (iv) there is discrimination such as violation of most favoured nation and national treatment; (v) and/or other violations such as: legal obligation/commitment, right of withdrawing investment and interest, compensation due to war or riot.

Dispute resolution process between foreign investor and host state usually takes place with three stages, including (i) conflict management stage means carrying out resolving complaints and consultation, mediation; (ii) dispute resolution stage; and (iii) implementation stage. In above process, consulting with international dispute lawyers to for resolution of international investment disputes is a very important and necessary.