Canada Signs Convention on Arbitration of Investment Disputes

On December 15, 2007, Canada signed the Convention on the Settlement of Investment Disputes Between States and National of Other States (often referred to as the ICSID Convention).

The Convention, which came into force in 1966, established a mechanism for the arbitration of investment disputes between states and private investors. Investment arbitrations under the Convention are administered by the International Centre for the Settlement of Investment Disputes (ICSID), an independent institution based in Washington. D.C. with close links to the World Bank. In addition to the arbitration mechanism, the Convention requires recognition and enforcement of ICSID awards by all contracting States, whether or not they were party to the particular investment dispute.

The Convention has been adopted by 143 countries, with Canada the last holdout of the industrialized world. Although Canada's signature is an important step, it does not mean that Canada has become a party to the Convention. That will happen only once Canada ratifies the convention, which is still many months away. Once Canada becomes a party, the Convention will enable Canadian investors to seek third-party arbitration of investment disputes against foreign states that are party to the convention, and will allow foreign investors in Canada to arbitrate investment disputes with the Canadian Government.

One reason it has taken Canada a long time to become a party to the Convention is that the subject-matter of the convention falls partly within provincial jurisdiction. Not all provinces have legislation in place that would allow implementation of the obligations under the Convention. Thus Canada is not now in a position to implement the Convention across the country. More recent private law treaties include what is known as a federal State clause, which enables Canada to become party to a convention with respect to only some provinces. In other words, when the subject-matter of a convention falls within provincial jurisdiction and implementing legislation has been adopted in only some provinces, Canada can limit the application of the Convention to those provinces. Canada will then extend application to other provinces as and when they adopt implementing legislation.

As the ICSID Convention has no federal state clause, Canada must be in a position to implement the convention across the country before it becomes a party to the Convention. Implementing legislation for the ICSID Convention has thus far been adopted in British Columbia, Newfoundland and Labrador, Nunavut, Ontario and Saskatchewan. Other provinces are likely to adopt implementing legislation in the coming year.

For more information, please call:
Valerie Hughes
Advocacy
(613) 781-0161
Valerie.Hughes@gowlings.com

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