More than 2,300 bilateral investment treaties (BITs) have been negotiated since World War II. The United Kingdom, Luxembourg and the Netherlands were leaders in this field, each negotiating over 100 BITs with developing countries. Canada was a relative latecomer to investment treaty scene, with only four foreign investment protection agreements (FIPAs in Canadian parlance) in force before the negotiation of the North American Free Trade Agreement (NAFTA).

When Canada, the United States and Mexico incorporated the terms of a typical BIT in Chapter Eleven of the NAFTA, three large neighboring economies agreed for the first time to give broad investment protection to each other’s investors, including national treatment, most-favored nation treatment, treatment in accordance with international law and protection from direct and indirect expropriation. Importantly, the NAFTA states also agreed to allow each other’s investors to make direct claims against them for compensation for breaches of those rights, either under the auspices and arbitration rules of the International Centre for Settlement Disputes (ICSID) or by ad hoc arbitration under the arbitration rules of the United Nations Commission on International Trade Law (UNCITRAL).

Canada now has 27 FIPA’s in force, and 20 more under negotiation or awaiting entry into force.There are seven FIPAs plus four free trade agreements (FTAs) containing FIPA protection with Latin American states.

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Investor-state arbitration has seen a massive increase over the past 15 years, beginning in 1996 with the first cases under NAFTA Chapter Eleven. As investor-state claims rarely seek compensation of less than US$10 million and very often exceed US$100 million, the growing number of claims has been a matter of considerable concern to the states involved, particularly where their fiscal resources are limited.

The treaty claims experience in Latin America is heavily weighted to three states – Argentina, Venezuela and Ecuador – which together account for more than 90% of the more than 110 treaty claims initiated to date in the region.

Argentina alone has faced over 50 claims, most arising from fiscal measures implemented in response to the collapse of its economy in 2001-2002. Argentina also faces judgments and ongoing actions in the United States, Germany and Japan by bondholders seeking to recover the face value of dollar-denominated bonds. In the meantime, foreign investors which have won arbitral awards against Argentina remain unpaid.

Although Venezuela first sought to settle claims of foreign investors whose business assets were expropriated or subjected to forced sale, there are now at least ten pending claims arising from expropriations in the oil and gas, mining, telecommunications and cement production sectors. Of interest to Canadian investors is the US$3.8 billion claim by Crystallex International Corporation for the expropriation of its Las Cristinas gold mining project. Crystallex recently announced a US$120 million public offering of rights to share in the proceeds of any award or settlement in the arbitration, as a means of meeting its current debt obligations and financing its claim.

Ecuador has faced at least 18 claims, most arising from a windfall profits tax on oil and gas concessions and other disputes in the energy sector. Bolivia has fewer claims but, like Ecuador, favors the re-establishment of domestic control over natural resources. Both Bolivia and Ecuador have expressed discontent with the investor-state arbitration regime and have renounced the ICSID Convention. As the Canada-Ecuador FIPA provides for both ICSID and UNCITRAL arbitration, Canadian investors will remain protected under that agreement. Canada does not have a FIPA or FTA with Bolivia.

In addition to claims arising from expropriation of natural resources, Canadian resource sector investors may find it necessary to consider FIPA claims arising from interference by local governments. A clue can be found in an unusual provision in the investment chapter of the recent Canada-Colombia FTA:


Each Party should encourage enterprises operating within its territory or subject to its jurisdiction to voluntarily incorporate internationally recognized standards of corporate social responsibility in their internal policies, such as statements of principle that have been endorsed or are supported by the Parties. These principles address issues such as labour, the environment, human rights, community relations and anti-corruption. The Parties remind those enterprises of the importance of incorporating such corporate social responsibility standards in their internal policies.

While this provision is not binding on investors, it may be interpreted by arbitral tribunals as notice that they should expect to encounter problems with local communities if they don’t engage in socially responsible practices and that they should manage their investment risks accordingly.

Finally, foreign investors should be mindful that investment treaty awards can be difficult to enforce. While states are deemed to have waived sovereign immunity for the purposes of enforcement of awards, immunity is not waived for the purposes of execution against their sovereign assets. Thus, if a state is unwilling or unable to pay an award, the claimant must find and execute against commercial assets it owns. Even the investors in Crystallex’s litigation participation fund face the risk that Venezuela may refuse to honor, or be unable to pay, the very substantial arbitral award sought by Crystallex.

Canadian investors in Latin America should be guided by the following basic points of advice:

  • With the notable exception of Bolivia, Canada has adequate investment treaty coverage with the Latin American states whose economic or political landscape currently present a significant risk. 
  • Canadians contemplating investment in Bolivia or other states that have no FIPA with Canada should consider investing through a third state that has treaty coverage, and obtaining political risk insurance.
  • Investor-state arbitration should be seen as remedy of last resort for Canadian investors who face unwarranted government interference with their business activities. When problems arise, domestic remedies should be considered and evaluated in light of the specific terms of the applicable treaty, including any “fork in the road” provisions. 
  • Although time consuming and expensive, in certain situations investor-state arbitration may be the only realistic means of obtaining compensation for losses arising from arbitrary, discriminatory or confiscatory measures.