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Canadian Investors Abroad Finally Gain Access to ICSID as Canada Ratifies Convention

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International Arbitration Bulletin

On November 1, 2013 Canada officially delivered its instrument of ratification of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the "Convention").  The Convention will enter into force for Canada on December 1st.

The Convention sets up the International Centre for Settlement of Investment Disputes ("ICSID").  ICSID operates as an arbitration institution specifically designed to settle disputes between international investors and member States.  Its jurisdiction covers "any legal dispute arising directly out of an investment" between a member State and an investor from another member State.  As a member State, Canada will be obliged to uphold and enforce arbitral awards in accordance with the Convention.

Importantly for Canadian businesses that are investing abroad, Canadian investors will now be able to avail themselves of the conciliation and dispute-settlement mechanisms of ICSID in their disputes with any of the 149 other member States who have also ratified the Convention.  Prior to ratification, Canadian investors abroad could access ICSID on a limited basis outside of the Convention through its Additional Facility Rules (such as disputes under Chapter Eleven of the NAFTA), but without the benefit of reciprocity of enforcement of arbitral awards within the territories of Convention member States.

Canada's ratification of the Convention will allow investors to access key features of the ICSID Convention, Regulations and Rules which provide the procedural framework for conciliation and arbitration of investment disputes arising between member countries and investors. Some of these key features include:

  • binding arbitration to settle disputes with States by way of rules that are separate from that State's own internal domestic laws;
  • no domestic appeal of arbitral awards by States, thus diminishing the host State home court advantage over investors from abroad;
  • Canadian representation on the governing council, which determines the organization's rules and procedures, as well as the ability to make Canadian appointments to the panel of arbitrators; and
  • the ability of investors to designate ICSID arbitration or conciliation as the exclusive dispute-settlement mechanism in their investment agreements with a foreign member State prior to making the investment abroad or even as a condition of such investment.

Generally, Canadian investors will be able to call upon ICSID to resolve their investment disputes upon satisfying three conditions :

  • The dispute must be between a member State and an individual or company that qualifies as a national of another member State;
  • The dispute must be a legal dispute arising directly out of an investment; and
  • The disputing parties must have consented in writing to the submission of their dispute to ICSID arbitration or conciliation.

Canada is the last G-8 country to ratify the Convention, although it has been a signatory since December 15, 2006.  Much of the delay in ratification has stemmed from the federal-provincial division of jurisdiction and the hesitance of some provinces to pass implementation legislation. Several provinces, such as Ontario, have passed such legislation, and others, such as Alberta, appear to be close to doing so.  Despite partial acceptance of the Convention by the provinces to date, the federal government issued its ratification for Canada as a whole, rather than exercising its option to ratify with respect to just those "constituent elements" (provinces) that have implemented the Convention already.  It is expected that whether the remaining provinces will decide to implement ICSID now that Canada has set the stage.

ICSID was established when the Convention came into effect in 1966. To date, 275 cases have been concluded through ICSID and a further 175 are pending resolution.  Within an international law context, it is considered to be one of the key institutions in assisting the free flow of capital amongst States, by providing for an adjudicative body that contributes to the development of international trade law.

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