The International Centre for Settlement of Investment Disputes – Its Time Has Come

Canada’s ratification of the Convention on the Settlement of Investment Disputes between States and Nationals of other States (the “Convention”) has been a long time coming. Since signing the Convention in 2006 and passing implementing legislation in 2008 that has yet to come into force, Canada has made no further progress towards ensuring that the International Centre for Settlement of Investment Disputes (ICSID) is an enforceable option for Canadian businesses investing abroad.

Why is the ICSID important?

When Bill C-53, the predecessor to Bill C-9, An Act to implement the Convention on the Settlement of Investment Disputes between States and Nationals of Other States was introduced, the Minister of International Trade said that “The ICSID Convention will contribute to Canada’s prosperity by providing additional protection to Canadian investors and reinforcing Canada’s investment-friendly image abroad”.^[2]  So how is this accomplished?

The purpose of ICSID itself, as set out in the Convention:

To provide facilities for conciliation and arbitration of investment disputes between Contracting States and nationals of other Contracting States in accordance with the provisions of this Convention.

There are numerous reasons to support Canada’s adherence to this particular convention. In point of fact, Alan H. Kessel, Legal Advisor to the Department of Foreign Affairs and International Trade, stated before the Standing Committee on Foreign Affairs and International Development on November 22, 2007, the following:

“It would contribute to enforcing Canada’s image as an investment friendly country. It would provide additional protection to Canadian investors abroad by allowing them to have recourse to ICSID arbitration in their contracts and foreign states. And thirdly, it would allow investors of Canada and foreign investors in Canada to bring investment claims under its arbitral rules.”

Furthermore, ratifying the ICSID Convention would bring Canadian policy into line with other OECD countries.

The provision of facilities is innocuous enough; the Convention does not force anyone to use them. ICSID provides a neutral place and a roster of qualified arbitrators with expertise in international investments, appointed by the nation states that have ratified the Convention. ICSID’s decisions are final. The decisions are enforced by the combined pressure of the nation states that have committed to upholding them and the World Bank, under whose umbrella ICSID sits.

ICSID is a procedural being. It offers speed, expertise, neutrality and finality of decision making to foreign investors and host countries, but the Convention does not create substantive rights. The substantive rights that ICSID can enforce come from bilateral investment treaties, or Foreign Investment Promotion and Protection Agreements (FIPAs) in Canada. Both NAFTA and Canada’s 26 FIPAs^[3] provide the rights that may be pursued through arbitration at ICSID, once Canada ratifies the Convention. Without a FIPA, investors are likely to have to rely on host country legal protections. Until Canada ratifies the Convention the enforcement of these rights and protections must be pursued through other avenues, such as ad-hoc UNCITRAL arbitrations, or through national judicial systems, neither of which can offer the speed, expertise, neutrality or finality of an ICSID panel. Furthermore, as more and more disputes are arbitrated by ICSID, a large body of case law is developing. While previous orders are not legally binding on future decisions of the panel, they do add a large measure of predictability.

What is taking Canada so long?

The final text of the Convention was approved by the Executive Directors of the World Bank on March 18, 1965 and it came into force with 20 signatures on October 14, 1966.^[4] In its first fifteen years, ICSID saw only eleven disputes and issued only six awards.^[5] The advent of bilateral investment treaties filled two gaps in the Convention, namely that both parties need to consent to arbitration and that in the absence of agreement, ICSID is to apply the law of the host state and applicable international law.^[6] Many bilateral investment treaties provide nation state consent to arbitration and provide the agreement, outlining the substantive rights to be enforced. Canada’s first FIPA wasn’t signed until 1989 and didn’t come into force until 1991^[7] and NAFTA didn’t come into force until 1994.^[8] With these two gaps filled, investors have the assurance that those nations that have ratified the Convention will meet them at the arbitration tribunal with previously agreed upon protections and rules. With that assurance, use of ICSID as a dispute settlement option has exploded. According to ICSID, there are currently 200 concluded cases and 124 pending.^[9]

Canada signed the Convention on December 15, 2006. Bill C-9, An Act to implement the Convention on the Settlement of Investment Disputes between States and Nationals of Other States received Royal Assent on March 13, 2008, but still awaits an order of the Governor in Council to come into force.^[10]

Four provinces and two territories have passed implementing legislation.^[11] Ontario passed implementing legislation in 1999. British Columbia, Saskatchewan, Newfoundland and Labrador and Nunavut passed such legislation in 2006. The best explanation for the remaining provinces and Yukon is that in face of such a non-controversial issue, the issue keeps falling to the legislative backburner. With the eyes of the public so rarely trained on issues like international investment, a golden opportunity was missed at the G-8 and G-20 to bring ratification of the Convention to the foreground. Canada’s ratification is glaringly obvious to the international community, especially with the election of Meg Kinnear as Secretary-General of ICSID in 2009, formerly the Director General of the Trade Law Bureau of Canada.^[12] The upcoming International Bar Association Conference in Vancouver in October will offer another opportunity to focus the mind on Canadian lawmakers on the importance of ratifying the Convention and bringing the Act into force.

There are still holdouts to the Convention. Brazil, one of Canada’s major trading partners has still not signed on to the Convention, having voiced concerns at the origin of the Convention that it would infringe on the Brazilian judiciary’s administration of justice and violate the equality of law by granting a privileged position to foreign investors.^[13]  Also, both Bolivia and Ecuador have denounced the Convention. However, with 155 signatories, the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States offers the most comprehension investment dispute settlement option for foreign investment in Canada and Canadian investment abroad.

Perhaps Quebec’s Senator Pierre Claude Nolin has summarized it best when he stated:

“The tremendous growth in investment and investor state disputes has made Canada’s failure to ratify ICSID the focus of attention by Canadian business, the Canadian legal community and our trading partners.”