Canada Ratifies International Arbitration Protocol

Canada will finally adopt the International Centre for Settlement of Investment Disputes (ICSID) convention as of December 1, 2013.  The convention, which has been adopted by 150 other countries including most of Canada’s frequent trading partners, will have significant impact on the arbitration of international contract disputes between investors and foreign states.

Background

Canada signed the ICSID convention in 2006, and adopted federal legislation to implement it in March, 2008.  However, each province and territory was also required to adopt implementing legislation.  That process took five years.

What is the ICSID Convention?

The convention, established in 1966, provides a mechanism to resolve international investment disputes between a signatory state and individual investors of another contracting state through settled and internationally enforceable arbitration provisions.  The convention has growing relevance in an increasingly global economy, particularly since many modern international trade agreements (such as NAFTA) give investors rights to sue foreign governments directly.

Several of Canada’s frequent trading partners have already ratified the convention.  Notable exceptions include Brazil, India, South Africa and Mexico.

Significance of Ratification to Canadian Investors

The convention creates an autonomous and self-contained system for the conduct of arbitration proceedings between signatory states and foreign investors.

The convention will apply comprehensively to all elements of a legal dispute arising out of an investment between a signatory state and individual investors of another signatory state.  It also provides for the recognition and enforcement of any arbitral awards; awards will be binding on any signatory state, and any pecuniary obligations imposed will be enforced like a final judgment of the state’s domestic court.  The convention requires that all signatory states, whether or not parties to the dispute, recognize and enforce ICSID arbitral awards.

As of December 1, 2013, Canadians who invested in other ICSID member states may, with the written consent of the parties to the dispute or after the member state has exhausted local administrative or judicial remedies, rely on the dispute settlement process and the guaranteed enforcement of arbitral awards.  Foreign investors in Canada will also have reciprocal rights.