Canada: Canada Ratified ICSID Convention

At long last, the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (generally known as the ICSID Convention, but also referred to as the Washington Convention) has entered into force for Canada, as of 01 December 2013. An important tool for the resolution of international investor-state disputes is now available to Canadians who invest abroad, and to foreigners who invest in Canada.

WHAT IS THE ICSID CONVENTION?

Unique challenges arise in the resolution of international investor-state disputes. Chief among them is finding an effective dispute resolution mechanism. Should investors rely on diplomatic channels, despite the delay and uncertainty that entails? Should they sue in the local courts of the host state, despite fears of discriminatory adjudication on foreign soil?

Realizing that such non-commercial concerns could discourage the free international flow of private investment, the World Bank sponsored negotiations in the 1960s to remove them, by establishing a specialized international dispute resolution framework. Those negotiations resulted in the ICSID Convention, a multilateral treaty that came into force in 1966.

The ICSID Convention offered a major step forward, by establishing neutral arbitration tribunals to resolve international investor-state disputes. Their neutrality would avoid the risk of discriminatory adjudication in the national courts. As well, ICSID awards would be enforceable with the same ease as other international arbitral awards. The sole mechanism for challenging a final ICSID award was the self-contained review regime established by the Convention itself.

As a result, and unlike many other forms of investor-state arbitration, awards under the ICSID Convention are not amenable to challenge in national courts. National courts cannot decline to recognize and enforce ICSID awards on the grounds in the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) or the UNCITRAL Model Law on International Commercial Arbitration.

Over the intervening four decades, the ICSID Convention has become the leading mechanism for the resolution of international investor-state disputes. After a slow start, the Convention became a cornerstone of international investor protection in the 1990s, with a proliferation of bilateral investment treaties that required disputes to be resolved under its auspices. More than 2,000 such treaties are now in place and, as of November 2013, 158 states have ratified the Convention and become members of the International Centre for Settlement of Investment Disputes, the impartial international institution established under the Convention.

Until now, Canada had remained on the sidelines – the only G8 country to do so. This delay was generally attributed to Canada's federal system of government: Canadian ratification of the ICSID Convention would require its implementation not only by the federal Parliament, but also by a least a critical mass of the provincial and territorial Legislatures. During that period, the only aspect of ICSID's operations in which Canada has been able to participate is the ICSID Additional Facility, which was established by the World Bank in 1978 to extend the availability of ICSID arbitration to certain types of international disputes between investors and states that are not ICSID members. For example, so long as Canada and Mexico were not ICSID members, disputes under the North American Free Trade Agreement were ineligible for resolution under the Convention, but have been eligible for resolution under the Additional Facility. Although many of the principles that guide arbitration under the Additional Facility are similar to those under the Convention, one key distinction remains: the Convention's self-contained provisions on recognition and enforcement of ICSID awards do not apply to Additional Facility awards. Additional Facility awards are as vulnerable to challenge in the national courts as any other international commercial arbitration award.

RATIFICATION AND ITS IMPLICATIONS FOR CANADA

Over the past 20 years, the government of Canada has been actively promoting Canadian ratification of the ICSID Convention. These efforts have now paid off. Since the subject matter of the Convention falls within provincial jurisdiction over property and civil rights, the Uniform Law Conference of Canada sought to facilitate implementation by drafting model legislation for adoption by the federal Parliament and each of the provincial and territorial Legislatures. The ULCC's model Settlement of International Investment Disputes Act is short (just 15 clauses) and aims to implement the Convention provisions concerning the jurisdiction and powers of the provincial superior courts to recognize and enforce ICSID awards (Clause 3). Under Clause 6 ICSID awards may be registered in the provincial superior court and thereafter are enforceable as a judgment of that court. Under Clause 8 an ICSID award is final and binding "and is not subject to appeal, review, setting aside or any other remedy except as provided in the ICSID Convention". If a provincial, federal or territorial government in Canada consents to resolve disputes with foreign investors under the Convention, Clause 5 allows for variation as to whether the resulting ICSID award will bind crown corporations, crown agents and other similar entities.

To date, several Canadian jurisdictions have enacted legislation implementing the ICSID Convention based on the ULCC's model statute. Although some jurisdictions have yet to legislate, it appears that there are firm understandings in place and that the appropriate steps will be taken in the near term, i.e., less than a year. Although some have suggested that Canada could or should have ratified the Convention without all provinces being onside, political reality has required a more subtle approach. The statutes enacted so far have followed the ULCC model statute template with only minor variations.

As a result of these developments, for the first time international investor-state disputes involving Canadians or their federal, provincial, and territorial governments will have direct access to the many advantages of dispute resolution under the ICSID Convention. Ratification provides important additional protections for the many Canadian companies of all sizes, and in a wide range of industries, that increasingly are investing in all parts of the world. Canada's ratification also serves as a strong vote of confidence in ICSID, which recently has been the target of strong criticism, including denunciation of it by Bolivia and Ecuador.

As with any major policy initiative, Canada's ratification of the ICSID Convention has attracted criticism from some quarters, including:

  • "We ratified only to placate the European Union!"
  • "Ratification compromises Canadian judicial sovereignty and puts our democracy into the hands of arbitrators rather than independent and accountable judges!"
  • "We have tilted the playing field to favour the interests of investors over those of states!"

Time will tell if this alarmism is well-founded, but early indicators suggest not. Around 75% of the world's countries have ratified the ICSID Convention, and only a small handful have subsequently withdrawn from it – namely, the states that are repeatedly hammered for treating foreign investors unfairly. Canada is not in that camp. Even if its ratification of the Convention did prove to be a disaster, Canada would be able to withdraw at any time. As for the suggestion that ratification reflects idiosyncratic policy values of the current government, Canada's Trade Law Bureau and members of the Canadian trade and arbitration community have been actively promoting Canadian ratification of the Convention for two decades, under governments of all political stripes.

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