Canada: BITS - An Overlooked Part Of The International Investor’s Toolbox

Last Updated: March 29 2006

Article by Ken Purchase, ©2006, Blake, Cassels & Graydon LLP

This article was originally published in Blakes Bulletin on International Trade, March 2006

The greatest value of a BIT is the ability of an investor to pursue a claim for monetary damages directly against the offending state without the involvement or consent of their own government.


Bilateral investment treaties (BITs) have not received the same media attention attracted by NAFTA’s investment provisions. Like NAFTA Chapter 11, however, BITs provide investors with powerful rules protecting their investments in many far flung corners of the world. Critically, investors can enforce these rules against foreign governments directly by submitting claims for monetary damages to binding arbitration.


Canada began negotiating BITs, which it calls Foreign Investment Protection Agreements (FIPAs) in 1989. Since then, Canada has negotiated 21 FIPAs. Globally, the number of BITs has grown from about 300 in 1990 to well over 20,000 agreements involving 176 countries today. Each FIPA is the product of lengthy negotiations, but there is a high degree of commonality between the agreements. To aid in ensuring such consistency, Canada uses a model FIPA, based on NAFTA Chapter 11, as a template for negotiations with each prospective partner.

Core Protections Provided

Each BIT obligates a country to obey certain rules respecting foreign investors and their investments. The rules governing who may bring a claim are very liberal and it is rare that a claim is denied because an investor does not have standing to make the claim.

The recent decision in Encana v. Ecuador illustrates both the flexibility and limits of an investor’s ability to bring a claim founded on the breach of a BIT obligation. Encana is a Canadian energy company that entered into oil exploration and exploitation contracts with Ecuador through a subsidiary incorporated in the Barbados. Encana claimed that Ecuador’s refusal to continue refunding value-added taxes (VAT) paid on oil exports expropriated Encana’s investment, and violated the terms of the contracts and, therefore, the Canada – Ecuador FIPA. The arbitrators refused to consider Encana’s argument that Ecuador breached the terms of these contracts and that these breaches constituted a breach of the FIPA because Encana was not a party to the contracts and the Barbados corporation had no standing under the Canada – Ecuador FIPA. Nevertheless, Encana was permitted to argue that the refusal to refund the VAT expropriated its investment, although that argument ultimately failed.

The precise protections contained in a BIT will vary from one agreement to the next and are subject to reservations and exceptions, but certain core protections are common to all, in one form or another.

Key to these protections are anti-discrimination rules, including national and most-favoured nation (MFN) treatment. National treatment generally prohibits a state from treating foreign investors and their investments less favourably than its own investors and investments. MFN treatment requires a nation to treat investors and investments of one country as well as it treats those of any other third country.

Aside from anti-discrimination rules, BITs protect investors against the imposition or enforcement of performance requirements, such as local content requirements, minimum levels of exports, links between imports and exports or foreign exchange inflows, and obligatory technology transfers. They also prohibit using certain performance requirements as conditions of subsidies, tax incentives or other advantages. These prohibitions are not absolute and exception is made for subsidies tied to locating production in a certain area, training or employing workers, or performing research and development. Exception is also made for measures that require the use of specific technology to meet generally applicable health, safety or environmental requirements.

Like NAFTA Chapter 11, BITs impose rules concerning both direct and indirect expropriation. Although these rules have been the source of much controversy in the context of NAFTA Chapter 11, the rules do not prohibit expropriation. Rather, they clarify in what circumstances property may be expropriated. Specifically, expropriations must be made for a public purpose and undertaken in accordance with due process of law, in a non-discriminatory manner, in exchange for prompt, adequate and effective compensation. Compensation is to be based on “fair market value” and interest must be paid at a “commercially reasonable rate”.

Canada’s most recent FIPA model attempts to address some of the concerns surrounding expropriation of investment rules by clarifying that only in rare circumstances will a non-discriminatory measure designed and applied to protect legitimate public welfare objectives, such as health, safety and the environment, constitute indirect expropriation and give rise to a duty to pay compensation.

BITs As A Valuable Business Tool

A number of distinctive features of BITs make them powerful and flexible business tools for protecting overseas investments.

The greatest value of a BIT is the ability of an investor to pursue a claim for monetary damages directly against the offending state without the involvement or consent of their own government. The agreement’s obligations are made all the more real by the availability of a remedy that compensates the aggrieved party in a quantifiable manner, rather than attempting to secure the compliance of the offending state’s laws with international obligations, as is the case under WTO agreements.

This value is further enhanced by deciding claims through binding arbitration rather than the domestic judicial system. Not only does this avoid concerns with judicial systems in some parts of the world, it greatly enhances the ease with which an investor may make use of these tools. There is no need to retain local counsel familiar with the intricacies of the local legal system and who hopefully has some knowledge of the investment agreement and the issues in dispute. Instead the client can rely on counsel who are well-versed in the terms and treatment of many different BITs as well as the investment provisions of NAFTA Chapter 11.

In this regard, Canadian trade lawyers are ideally suited to litigate BIT claims. Their experience with NAFTA and its significant body of investment jurisprudence, coupled with the cost-effectiveness of Canadian counsel vis ŕ vis their U.S. counterparts gives Canadian trade lawyers a significant edge in interpreting and applying BITs to their client’s international investment issues.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
27 Oct 2016, Seminar, Toronto, Canada

Please join members of the Blakes Commercial Real Estate group as they discuss five key provisions of a commercial real estate purchase agreement that are often the subject of much negotiation but are sometimes misunderstood.

1 Nov 2016, Seminar, Toronto, Canada

What is the emotional culture of your organization?

Every organization and workplace has an emotional culture that can have an impact on everything from employee performance to customer or client satisfaction.

3 Nov 2016, Seminar, Toronto, Canada

Join leading lawyers from the Blakes Pensions, Benefits & Executive Compensation group as they discuss recent updates and legal developments in pension and employee benefits law as well as strategies to identify and minimize common risks.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.