On November 1, 2013 Canada ratified the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the “Convention”).
Once this ratification comes into force on December 1, Canadian companies will have access to dispute resolution facilities at the International Centre for Settlement of Investment Disputes (“ICSID”).
What is ICSID?
ICSID is an international institution organized under the auspices of the World Bank that provides facilities and organizational support for the arbitration and settlement of international investment disputes.
In particular, the Centre provides an internationalized setting for the arbitration of disputes between foreign investors and the governments hosting their investments. Arbitrations at ICSID can be brought both under contracts between host governments and foreign investors, and under investment treaties such as found in Chapter 11 of the North American Free Trade Agreement.
Nearly 150 countries are parties to the Convention. Access to the ICSID will be helpful for some Canadian foreign investment.
What Does This Mean For Canadian Investors?
Canada’s ratification of the Convention allows Canadians investors to utilize the ICSID dispute-settlement mechanisms to resolve disputes with the governments of the 149 other contracting states.
The principal advantage of Canada’s ICSID membership is that Canadians will be able resolve disputes with the governments of the countries in which they invest before an independent and internationalized dispute resolution body.
ICSID Arbitrations Are Consensual
Arbitration and conciliation at ICSID are voluntary. The parties must give their consent in writing to submit their dispute to the ICSID.
Canadians investing abroad should thus consider whether they would benefit from ICSID and, if so, ensure that jurisdiction is properly provided in their investment agreements.
Parties to ICSID Arbitrations
While there are other arbitral institutions that focus on commercial arbitrations between private bodies (i.e. the London Court of International Arbitration) or public international law arbitrations between governments (i.e. the World Trade Organization or the International Court of Justice), the ICSID is somewhat unique as an institution in that its focus is on disputes between a private entity (i.e. a corporate investor) and a government.
“Government” is broadly defined and so encompasses subservient units of the state (i.e. provincial or state governments), and state agencies (i.e. state controlled non- or quasi-governmental bodies).
ICSID Mitigates Political Risk
The ICSID’s focus on investor-state dispute resolution makes it an excellent body at which to arbitrate disputes under concession agreements for resource or infrastructure development, licenses and tenures, and disputes under investment treaties.
Long-term foreign investments, such as those in the resource exploitation or infrastructure development are fraught with risk that the politics that once encouraged an investment become opposed to it, leading the government to act contrary to its commitments. Recourse to the host country courts may seem small consolation as the victimized investor may see them as less than independent. These are the disputes that the ICSID specializes in resolving.
Canada’s membership in ICSID should be seen as a measurable reduction in the political risk facing foreign investments by Canadians who are savvy enough to ensure that their investment agreements properly provide it with jurisdiction.