The G20 summit has come and gone, and so has a golden opportunity for Canada to ratify a key international arbitration convention.
Of course, that’s not to say the International Centre for Settlement of Investment Disputes (ICSID), an arbitration arm of the World Bank, is a household word. It has been in existence since 1966 following the signing of the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States.
Canada didn’t sign on until 2006. Constitutional law requires that the federal government and all provinces and territories enact implementing legislation before ICSID can take effect. In 2008, the federal government passed the enabling legislation, which received Royal assent.
However, it still hasn’t issued the order-in-council to implement it because only four provinces, British Columbia, Newfoundland and Labrador, Ontario, and Saskatchewan, and one territory, Nunavut, have passed the necessary legislation. Observers believe the impasse elsewhere is due in part to provincial resistance owing to the ongoing dispute over a national securities regulator.
“The failure to [ratify] the convention perpetuates a vast, gaping hole in Canada’s defences in the face of arbitrary measures against our companies by foreign governments,” says Barry Leon, an international arbitration lawyer at Ottawa’s Perley-Robertson Hill & McDougall LLP.
The ICSID convention creates a widely accepted international method to settle disputes between investors and states. Signatories agree to abide by arbitral awards in such cases. They can’t appeal the awards to any country’s courts and are subject to a limited review only by a second ICSID tribunal.
So far, 156 nations have signed the accord, of which 145 have ratified it. A country that hasn’t both signed and ratified ICSID can’t take advantage of it and isn’t bound by it.
“By ratifying the convention, Canada would protect both international investment in Canada, making us a more attractive place for foreign investors and Canadians who invest abroad,” Leon says.
The key obstacle to ratification has been the failure of six provinces - Alberta, Quebec, Manitoba, New Brunswick, Nova Scotia, and Prince Edward Island, as well as the Yukon and Northwest Territories - to pass enabling laws. “Ottawa passed the legislation in 2008 but has yet to issue an order-in-council to avoid upsetting Alberta and Quebec,” Leon says.
There is considerable speculation that the two provinces are resisting enabling legislation because they regard it as a useful bargaining tool in federal-provincial negotiations, especially those surrounding the Tory government’s proposal for a national securities regulator.
“ICSID ratification is a great opportunity for the provinces to extract concessions,” says Marc Lalonde, a prominent international arbitrator and former partner at Stikeman Elliott LLP who was a policy adviser and cabinet member in Pierre Trudeau’s government.
“It’s hard to get the true story from anyone at the federal or provincial level, but for Canada to be a laggard on something so obvious and relatively innocuous and non-controversial certainly casts a negative light on the country in the international arbitration and business communities.”
Still, the issue isn’t just a matter of reputation. Leon points to a number of instances in which Canadian companies have suffered significantly as a result of the ICSID deadlock.
In one case, First Quantum Minerals Ltd. of Vancouver invested US$765 million in a copper mining project in the Democratic Republic of Congo. The Congolese government seized the mine in September 2009 after citing a vague charge of violating domestic law.
“Because Canada hasn’t ratified ICSID, First Quantum must take the more laborious route of seeking arbitration through the United Nations Commission on International Trade Law,” Leon says.
“There’s also the Congolese court, but that’s less than inviting since that court has already fined First Quantum US$12 billion for its alleged violations of the law.”
Under ICSID, First Quantum could have included a dispute resolution clause in its agreement with the DRC, which explicitly allows such terms in its mining code. At the same time, an ICSID ruling in the company’s favour would have allowed it to seize international assets belonging to the Congolese.
The dispute played a role in Canada’s recent decision to abstain from a vote on granting debt relief to the DRC.
“If the provinces are using ICSID ratification as a bargaining chip in interprovincial dealings, they’re cutting off their nose to spite their face,” Leon says.
Still, a survey comparing ICSID with other forms of arbitration conducted by international dispute resolution firm Appleton & Associates suggests it would be a mistake to blindly choose the ICSID process without considered judgment of the alternatives.
It took an average of 191 days, for example, for ICSID tribunals to reach preliminary decisions on matters such as jurisdiction; UN commission proceedings took only 120 days.
In addition, the 310 days it took ICSID panels to reach a decision from the end of the merits hearing was 41 days longer than the UN route. Still, the study also shows ICSID is the first forum choice for more than 93 per cent of reported treaty claims, a fact that confirms its position as the primary venue for international investment arbitrations.
“The fact remains that ICSID provides considerable clout in the world of international law,” Leon says.
While federal officials couldn’t be reached for comment on the issue, Lalonde says Canada’s failure to ratify the convention is virtually incomprehensible to the international community.
“People don’t understand when I try to explain why Canada avoided signing ICSID for so long and they understand even less when I try to explain why we still haven’t ratified the convention.
The truth is that this has been dragging on for years to the point of being ridiculous.”