Contributing Lawyers

Canada

Cyndee Todgham Cherniak

United States

Susan Kohn Ross

Australia

Andrew Hudson



Finally - The ISCID Bill Receives ROYAL ASSENT in Canada!

On March 14, 2008, Bill C-9 "An Act to Implement the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention)" reached its final point in Canada's legislative process and received royal assent.  Canada is only one step away from joining the ISCID club.  All that is left is the formal ratification of the ISCID Convention.

The ICSID Convention establishes the International Centre for Settlement of Investment Disputes (ISCID).  The ICSID was created by the World Bank in 1965 under the Treaty of Washington.  At the present count, there are 156 member countries to the ICSID Convention. Most of Canada's largest trading partners (such as the United States, China, the European Community, Japan, Russia, France, etc.) are signatories to the ICSID Convention.

The purpose of ICSID is “to provide facilities for conciliation and arbitration of investment disputes". Pursuant to Article 25 of the Convention, the jurisdiction of ICSID extends to “any legal dispute arising directly out of an investment” between a contracting state and a national of another contracting state, with the written consent of the parties to the dispute.  The ISCID Convention provides for a mechanism through which ICSID member countries and foreign investors in those countries can settle disputes relating to investments made by such investors.

In recent years, ICSID arbitration has soared.  The fact s are that only 110 ICSID arbitrations have been completed over the past 40 years.  However and importantly, 105 proceedings are now under the ISCID dispute settlement mechanisms. The NAFTA parties alone have faced over 40 investor-to-state arbitration claims since NAFTA entered into force; however, not all of these cases were brought under ISCID additional facility dispute settlement mechanisms (available to non-signatories to ISCID).  Some of the NAFTA cases were brought or are currently being pursued under the UNCITRAL dispute settlement mechanism.

It is very important for Canada to finally, at long last, ratify the ICSID Convention.  This will give Canadian investors another dispute settlement option for investment disputes under investment chapters of its free trade agreements (such as Chapter 11 of NAFTA) and its bilateral investment treaties  (BIT)(called Foreign investment Protection and Promotion Agreements (FIPA)).

One of the significant features of the ISCID Convention is that it provides for the recognition and enforcement of arbitral awards issued by ICSID arbitral tribunals.  Awards issued by ICSID tribunals are binding on contracting states that are parties to the Convention and, as a result, such states must enforce the pecuniary obligations imposed by ICSID arbitral tribunals as if they were contained in a final judgment of their domestic courts.  If a Canadian mining company (or any Canadian investor for that matter) is the winning party in a dispute, it may receive compensation from a foreign government if that government has been found by an ISCID arbitral tribunal to have breached its  obligations under a FIPA/BIT or FTA.

To read Bill C-9, please click on ISCID Bill C-9.

Some of the important statements made about Bill C-9 and the ICSID Convention during the legislative process are as follows:

  • Mr. Byron Wilfert, Lib, Richmond Hill (Janaury 28, 2008) - "There is no question that 156 countries have signed on to this and over 144 now have ratified this agreement. Therefore, it is important that Canada be one of those, considering some of our major trading partners, including the United States and Japan, have signed on to it.... Clearly, we need to be aggressive in international markets. It is important that our investors have certainty in terms of the investment climate, the investment regime when they are investing abroad. The vast majority of countries, as I said, have signed the ICSID. Therefore, it is incumbent upon Canada to do so."
  • Mr. Deepak Obhrai, CPC (Janaury 28, 2008) - "The decision as to whether to have recourse to arbitration or the judicial process is a decision for the parties to dispute. This flexibility is welcomed in many types of situations."
  • Mr. Deepak Obhrai, CPC (January 28, 2008) - "In the case of the convention being implemented by Bill C-9, one of the big advantages of having recourse to arbitration is that it “denationalizes” the process. Let me explain.When a dispute arises between a foreign investor and the host country, one of the options is for the investor to pursue the case before the courts of that host country. In most cases, as would be the case in Canada, the foreign investor would benefit from a fair and equitable process; the national court would not prejudge the matter and would render a decision in conformity with the law. However, in some situations this might not happen. The tribunal might favour its government to the detriment of the foreign investor. The fact that the parties to an arbitration can select the arbitrators who will hear and decide the case is another advantage of the arbitral process. If the dispute involves a specialized matter, for example, petroleum exploration, or maritime issues, the ability to choose arbitrators with specialized knowledge on the subject matter of the dispute can make the entire process work much better and can lead to better decisions. The arbitration mechanism established by the ICSID convention is one that is used for disputes between investors and states."
  • Mr. Deepak Obhrai, CPC (January 28, 2008) - "The distinguishing feature of ICSID, what makes it uniquely valuable, is the enforcement mechanism which this legislation will implement for Canada. The ICSID enforcement mechanism is very effective. This effectiveness contributes to the protection of the investor. ICSID's enforcement mechanism lies at the heart of the effectiveness of the ICSID convention.  An arbitral award from any other arbitral body is subject to review by a domestic court before it can be enforced, but an ICSID award merely has to be presented to a domestic court with a request that the court enforce it. ...Enforcement could include payments seized by officers of the court.  In the great majority of cases the losing party in an arbitration will pay the award of an arbitral tribunal without the need for the successful party to take any enforcement proceedings. The same is true for investor-state arbitration."
  • Mr. Deepak Obhrai, CPC (January 28, 2008) - "The only review of an ICSID award, if a party to a dispute considers it contains errors, is the review process provided by the convention itself. It provides that a request for revision, interpretation or annulment of an award must be made to the secretary-general of the ICSID. This procedure allows the parties to avoid having national courts involved in assessing allegations that claim there is something wrong with an award, while at the same time ensuring the awards which are erroneous can be corrected."
  • Mr. Deepak Obhrai, CPC (January 28, 2008) - "Over 45% of Canada's GDP is based on imports and exports. We are a trading nation. We need prosperity. We need mechanisms that not only provide for foreigners to invest in Canada but provide Canadians with the opportunity to invest overseas as well. That is the way our country prospers. We need mechanisms in place that would give confidence to both sides of the coin."
  • Mr. Byron Wilfert, Lib, Richmond Hill (Janaury 28, 2008) - "Having a stable investment regime is important. Having a mechanism to deal with arbitration is critical. This has been around since 1966. It is interesting that of the 143 countries that have ratified those instruments, many of them are our major trading partners. We need to be in lockstep with them to ensure we are on the same playing field. ...It is obviously a mechanism that people are using. It is a mechanism in which people believe. It is a mechanism that this side of the House supports."
  • Mr. Serge Cardin, BQ - Sherbrooke, Quebec (Janaury 29, 2008)- " There are two potential kinds of conflicts: first, there are disputes relating to compliance with bilateral foreign investment protection agreements, and second, there are disputes relating to agreements between governments and foreign investors. These are agreements of the kind that the Government of Quebec and other governments regularly enter into to encourage foreign investment, with the promise, for example, to supply electricity at an agreed price.Canada’s membership will have no impact on the provinces and Quebec, other than that they will also be able to allow for recourse to the centre when they enter into agreements with investors. The bilateral treaties signed by the federal government already provide for recourse to arbitration by the centre, but by way of the supplementary arbitration mechanism rather than a regular mechanism, which is available only to countries that have ratified the convention.In fact, the only thing that Canada's joining the centre will change is that it will be able to participate in negotiations to amend the centre's convention or by-laws and will have the assurance that it may participate in appointing arbitration tribunals. There will therefore be direct participation in the centre. Ultimately, the centre is merely a tribunal, and the problem is not the tribunal, but the bad investment protection treaties that Canada signs. "
  • Mr. Serge Cardin, BQ - Sherbrooke, Quebec (January 29, 2008)- "In May 2007 there were over 2,400 bilateral investment protection agreements in the world. If we add the tax conventions dealing with the tax treatment of foreign investments and income, there are about 5,000 bilateral treaties relating to foreign investments. The Bloc is in favour of signing agreements like this and recognizes that they promote investment and growth. These agreements are all based on more or less the same principles."
  • Mr. Serge Cardin, BQ - Sherbrooke, Quebec (January 29, 2008) - "The first principle that could be mentioned is respect for property rights regardless of the owner's nationality. Second, there can be no nationalization without fair and prompt financial compensation. Third, there is a prohibition against treating property located within a country's territory differently depending on the owner's origin. Finally, there is free movement of capital resulting from the operation and the disposal of investment.In every case, when these rights are violated, states may submit disputes over compliance with an agreement to an international arbitration tribunal. In the majority of cases, investors themselves may submit the dispute to an international tribunal, but only with the consent of the state. In many cases, the international arbitration provided in the agreement takes place before the ICSID. By belonging to it, as Bill C-9 provides, we are also agreeing to an international order in the field of investment."

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