Canada Ratifies Convention on Settlement of Investment Disputes between States and Other States’ Nationals

Vol. 43 No. 3

By

Susan M. Hutton is a senior partner in Stikeman Elliott’s Competition and Foreign Investment and International Trade practice groups. She is based in the firm’s Ottowa office.

Douglas F. Harrison is a partner in Stikeman Elliott’s litigation section in Toronto.

Settling international investment disputes has changed for Canadians. With the coming into force of the Settlement of International Investment Disputes Act on November 1, 2013, Canada has now ratified the Convention on the Settlement of Investment Disputes between States and Nationals of Other States. The Convention is a multilateral international treaty that entered into force on October 14, 1966, and that has now been ratified by 150 of its 159 signatory countries (as of April 11, 2014). This facilitates international investment by providing a mechanism for settling disputes between governments and foreign investors. Although Canada signed the Convention in 2006 and passed the Act in 2008, ratification was delayed until all provinces and territories also passed implementing legislation.

Ratification means that Canada can join the International Centre for Settlement of Investment Disputes (ICSID), established in Washington, D.C., by the Convention under the auspices of the World Bank. Canadian international investors can now take advantage of this forum for the conciliation and arbitration of investment disputes between countries (“contracting states”) that are parties to the Convention and investors who are nationals of other contracting states (“nationals”). Consent of the parties is required and cannot be unilaterally withdrawn once given.

Arbitration and conciliation are presided over by tribunals chosen from panels of qualified arbitrators and conciliators with international investment expertise. Contracting states may each designate four representatives to sit on conciliation and arbitration panels.

Awards rendered by the tribunals are binding on contracting states and are not subject to appeal or other remedies except those provided under the Convention. Parties are limited to requesting a supplementary decision or rectification of the award, as well as its annulment, interpretation, or revision. The Act gives jurisdiction to Canada’s provincial superior courts to recognize and enforce awards and prohibits them from awarding other remedies, making interim orders, or determining a matter arbitrated under the Convention without agreement of the parties.

Although the ICSID Convention could not be applied to international disputes involving Canada or Canadian nationals prior to its ratification by Canada, Canadians did have access to the ICSID Additional Facility. Unlike the Convention, the ICSID Additional Facility Rules can be applied when only one party to the dispute is a contracting state or national. A number of Canada’s 26 bilateral investment treaties (BITs) are with contracting states such as Costa Rica and South Africa and contain provisions permitting arbitration under the Additional Facility Rules.

The Additional Facility Rules have also been available to Canadians in disputes involving the United States under Chapter 11 of the North American Free Trade Agreement (NAFTA). NAFTA provides for resolution of investment disputes between Canada, the United States, and Mexico using either the ICSID Convention Rules, the Additional Facility Rules, or the United Nations Commission on International Trade Law (UNCITRAL), depending on each nation’s status under the Convention. Now that Canada is a contracting state, it can use the Convention for disputes with the United States and the Additional Facility Rules for disputes with Mexico, which is not a contracting state (previously, disputes with Mexico had to be arbitrated under UNCITRAL).

When the Additional Facility Rules are used, awards are not insulated from national law, unlike awards rendered under the Convention. Therefore, Canadian foreign investors will likely welcome ratification, as it gives them a predictable, neutral, efficient, and expert mechanism for resolution of international disputes with other contracting states—an advantage where the alternative may be an unfamiliar and unpredictable legal system.

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