Finally, Membership Will Have its Privileges: Canadian Investors Abroad to Benefit as Canada Joins ICSID

Canada has announced, on November 1, 2013, that it has ratified the ICSID Convention and will at long last become a member of the principal international rule-making and administrative body for disputes between investors and their host states. This is welcome news for Canadian companies and individuals concerned about the protection of their investments abroad.

The ICSID Convention, known formally as the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (and in shorthand as the Washington Convention), entered into force in 1966. Canada did not sign the Convention until 2006 and two years later enacted the legislation required to give it domestic effect at the federal level. However, until today's ratification, the Convention was not legally binding on Canada, nor was Canada a member of the namesake organization established by the Convention, the International Centre for the Settlement of Investment Disputes.

The principal benefit of Canada's ICSID membership is that Canadian investors abroad will now have access to ICSID's arbitration regime when embroiled in a dispute with a foreign state in connection with an investment made in that state, provided that state is also an ICSID member, or Contracting State.

The key feature of investment arbitration under the ICSID regime (which consists of the ICSID Convention itself and ICSID's Arbitration Rules) is that it is largely divorced from the laws and courts of individual countries. In particular, in contrast to investment arbitration conducted under other rules, neither the jurisdictional competence of ICSID arbitral tribunals nor the awards of those tribunals may be reviewed or set aside by national courts. Awards are subject only to limited review by ICSID-appointed annulment committees and are to be immediately recognized and enforced by the courts of other ICSID Contracting States. The autonomy of the ICSID process offers an additional measure of confidence to claimants that arbitration proceedings will not be hindered by domestic court challenges and that they will be able to promptly realize on awards in their favour, a particular advantage to companies and individuals with investments in locations where the rule of law and confidence in the courts is lacking. It is therefore unsurprising that the ICSID regime is the preferred choice of investors for investment arbitrations.

ICSID arbitration can be used either pursuant to investor-State contracts containing ICSID arbitration clauses or pursuant to bilateral or plurilateral investment treaties. Canada's investment treaties have long provided for the use of the ICSID Arbitration Rules, but those Rules are only available when both the State party to a dispute and the investor's home State are ICSID Contracting States. Therefore, until now they have not been available to Canadian investors or in investment treaty claims against Canada, although ICSID as an institution has administered cases involving Canada under other rules.

Canada's ratification has ended many years of speculation as to why Canada had not previously joined an organization that counts nearly 150 other states as members, including the rest of the developed world. Moreover, the ICSID Secretariat, which assists the parties and tribunals in the arbitration process, has for several years been headed by a Canadian, making Canada's absence from the organization all the more difficult to explain.

The glacial pace at which Canada has proceeded to bind itself to the Convention is largely explained by Canada's federal structure. The Convention does allow for a Contracting State to designate the constituent subdivisions in which the Convention will apply. Nevertheless, successive Canadian governments have sought commitments from all provinces and territories that they would give effect to the Convention within their jurisdictions or, failing that, have sought to assure themselves that Canada can comply with the Convention's requirement that an award against a constituent subdivision be enforceable throughout Canada.

Although not all Canadian provinces and territories have enacted implementing legislation to give effect to the Convention within their jurisdictions, many have, including Ontario, British Columbia and Saskatchewan, and others, notably Quebec and Alberta, are poised to do so soon.

Canada's ICSID membership will take effect on December 1, 2013, 30 days after its ratification. 

Topics:  Arbitration, Canada, Foreign Investment, ICSID, Investors

Published In: Alternative Dispute Resolution (ADR) Updates, General Business Updates, Finance & Banking Updates, International Trade Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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