Canada: Arbitration In Canada: Canada Ratifies The ICSID Convention

After a long delay, on November 1, 2013, Canada ratified the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the Convention). In so doing, Canada has become the 150th member state of the International Centre for the Settlement of Investment Disputes (ICSID).  Although Canada signed the Convention in December 2006, and passed implementing legislation in 2008, it had not ratified the Convention until recently. As a result of ratification, the Convention will become law in Canada on December 1, 2013, nearly seven years after Canada first became a signatory.

BACKGROUND ON ICSID

ICSID is a widely used institution that assists in resolving legal disputes between host states and foreign investors. Most nations, including nearly all of Canada's major trading partners and all G8 countries, are ICSID members. The Secretary-General of the organization is a Canadian, and Canadians have arbitrated ICSID disputes in the past. ICSID was established under the umbrella of the World Bank and receives its funding from that organization, though it operates as an autonomous body. Generally, ICSID offers institutional and procedural support in relation to conciliation or arbitration proceedings involving legal disputes between investors and member states.

ICSID aims to create a symbiotic relationship between states and investors. By providing consent to ICSID arbitration, member states can spur investment in their country by assuring foreign investors that they will have recourse to an independent body in the event the government unlawfully interferes with the investment. In addition, the Convention is beneficial to investors, as it protects their investment in foreign enterprises and comes with an effective regime for enforcing awards that are made against states.

The Convention seeks to remove impediments to the free flow of private international investment posed by non-commercial risks, such as an expropriation of assets without compensation by a host state, and to provide a mechanism for the settlement of investment disputes where the parties to a legal dispute provide consent.

Prior to ratifying the Convention, Canada's framework for resolving investor-state disputes was governed by a series of bilateral investment treaties, which are often styled as foreign investment protection agreements in Canada. Other international trade agreements may include mechanisms that are designed to address foreign investment disputes as well. In the past, Canada has been involved with investor-state arbitrations through these various mechanisms.

IMPLICATIONS OF RATIFICATION FOR FOREIGN INVESTORS AND CANADIANS DOING BUSINESS ABROAD

Canada's ratification of the Convention will provide a number of benefits to its investors with international operations, particularly in the oil and gas and mining industries, where concerns about state interference with investments in foreign countries may be especially acute.

Canadian investors now have direct access to a form of international dispute settlement that enables them to seek a remedy outside of the courts of the host state. These investors are no longer required to depend on the Canadian government's discretion to exercise diplomatic protection on their behalf if a foreign government unlawfully interferes with their investment. As well, the provisions of the Convention make it highly probable that investors will be able to enforce an award that is decided in their favour.

In addition to the benefits that Canadian investors stand to gain as a result of Canada's ratification of the Convention, the economic boost to Canada could prove significant. With access to a single institutional forum for resolving investor-state disputes that does not depend on domestic courts, foreign investors may gain a sense of security over their Canadian investments, in turn creating a more favourable climate for investment.

Canada's ratification of the Convention has significant implications for Canadian investors, and the country as a whole. Access to a single point of access for the resolution of investment disputes will protect the interests of Canadian businesses abroad and will encourage foreign investment in Canada. Accordingly, Canadians can expect substantial economic gain upon the Convention's coming into force.

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