Canada ratifies international arbitration treaty

Thanks to an investment dispute resolution treaty ratified by Canada this month, Canadian investors can do business overseas with less risk, according to a leading international arbitration lawyer.

After considerable foot-dragging, Canada ratified the International Centre for Settlement of Investment Disputes (ICSID) Convention on Nov. 1 as it joined the ranks of other G8 nations with full membership. Canada had signed the convention in 2006. In total, the dispute resolution convention has 150 member states.

The convention provides a medium for conciliation of international investment disputes. Instead of going through host countries’ local courts, the convention allows for dispute resolution through internationally accepted arbitration provisions. The findings are considered final and enforceable as if the local courts had made them.

“The convention provides important means for Canadian investors to reduce their risk of investing abroad because the ICSID system enables Canadian companies to access the binding arbitration that ICSID provides for,” says Barry Leon, head of the international arbitration group at Ottawa’s Perley-Robertson Hill & McDougall LLP.

For Canadian companies, it means reassurance they have protection against the sometimes-corrupt legal systems in the countries they invest in, says Leon.

“If you think of Canadian companies — the mining companies, the forestry companies, the oil and gas companies, the technology companies, and engineering companies — they’re doing work in Latin America, African countries, eastern European countries, some of which have judicial systems that aren’t independent of the government,” he says.

“So being in the local courts system can be a disaster for a foreign company, particularly when your claim is against that country. You won’t really get a fair and independent hearing.”

Ratifying the convention will also boost Canada’s appeal among foreign investors who are comfortable and familiar with international arbitration clauses, Leon adds.

The convention will become law in Canada in December. Ed Fast, minister of international trade, said it would provide Canadian investors with access to less costly and impartial dispute resolution when they do work abroad.

“Our government is committed to helping protect Canadian investments around the world,” he said.

“Ratifying this investment treaty is an important step toward further ensuring predictability and stability for Canadian investors operating abroad. This is the latest example of how our pro-trade, pro-investment plan to help our businesses grow and succeed abroad continues to get results for our exporters, workers, investors, and businesses.”

The idea of giving arbitrators full authority to make calls without an opportunity for a review by local courts doesn’t sit well with everyone, however.

“Under the ICSID Convention, investor-state arbitration awards are not subject to any review in any court, domestic or international; thus, one has a situation where for-profit arbitrators are supervised by other for-profit arbitrators all appointed by the World Bank president. Also, I don’t see much advantage to Canadian investors given that they could always bring claims under the UNCITRAL rules or ICSID additional facility rules to essentially the same effect. It’s mainly a symbolic thing of particular interest, it seems, to the lawyers/arbitrators who work specifically in the field. I assume they pushed for this to happen behind the scenes,” says Gus Van Harten, an associate professor at Osgoode Hall Law School with a focus on international investment law.

But countries ratify the treaty because nobody wants to be in someone else’s courts, Leon responds. “Even if the court system is a reliable court system, there’s always a bit of a nagging concern about being in somebody else’s court. So if you’re out of national court systems, you then need some other mechanism and over last decade, arbitration has been the process that has been chosen,” he adds.

“My view is that it’s a good process,” he continues. “The parties have an involvement in the selection of who’s going to decide the dispute, and it gives them the opportunity to decide to chose somebody who is competent and knows the area.”

Often, the resistance towards the convention comes from countries that fear they wouldn’t fare well in the arbitration process, but the results don’t bear that out, according to Leon, who adds that states are in fact victorious in about 50 per cent of cases.

Although there isn’t a formal appeal system within the convention, parties can ask for an ICSID committee to conduct a review following an award.

Canada ratified the convention after a considerable delay while waiting for the provinces to pass the necessary legislation. It ratified the convention even though a few provinces, including Quebec and Alberta, are still working on putting the required laws in place.

The Canadian Chamber of Commerce and the Canadian Bar Association have given the convention their support.

For more, see "Critics slam Canada's record on arbitration deal."

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