Mr. Speaker, I am pleased to speak today in support of Bill C-9, An Act to implement the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention), which I will refer to as “the convention”.
The convention was sponsored by the World Bank to facilitate and increase the flow of international investment. It establishes rules under which investment disputes between states and nationals of other states may be resolved by means of conciliation or arbitration. It also creates the international centre for the settlement of investment disputes, known as ICSID.
Bill C-9 implements the ICSID convention for Canada. It deals with enforcement of ICSID awards for or against the federal government and foreign governments, including the constituent subdivisions designated by foreign governments.
The convention deals with what is commonly called the resolution of investor-state disputes. Such disputes arise in a variety of situations. For example, they can arise when a state where a foreign investor has invested adopts laws affecting the activities of the investor in a discriminatory manner or nationalizes the investment.
International arbitration is a recognized method for resolving disputes. It provides a way of resolving legal issues without resort to the domestic judicial process.
It has long been recognized that when parties to a dispute have recourse to arbitration, the result of the arbitral process ought to be recognized by the courts. Thus, for example, the awards resulting from commercial arbitration, in other words from arbitrations between business enterprises, are recognized and enforced by courts.
The decision as to whether to have recourse to arbitration or the judicial process is a decision for the parties to dispute. This flexibility is welcomed in many types of situations.
In the case of the convention being implemented by Bill C-9, one of the big advantages of having recourse to arbitration is that it “denationalizes” the process. Let me explain.
When a dispute arises between a foreign investor and the host country, one of the options is for the investor to pursue the case before the courts of that host country. In most cases, as would be the case in Canada, the foreign investor would benefit from a fair and equitable process; the national court would not prejudge the matter and would render a decision in conformity with the law.
However, in some situations this might not happen. The tribunal might favour its government to the detriment of the foreign investor.
The fact that the parties to an arbitration can select the arbitrators who will hear and decide the case is another advantage of the arbitral process. If the dispute involves a specialized matter, for example, petroleum exploration, or maritime issues, the ability to choose arbitrators with specialized knowledge on the subject matter of the dispute can make the entire process work much better and can lead to better decisions.
The arbitration mechanism established by the ICSID convention is one that is used for disputes between investors and states. The convention has been ratified by 143 states, making it one of the most widely ratified of all international instruments.
The distinguishing feature of ICSID, what makes it uniquely valuable, is the enforcement mechanism which this legislation will implement for Canada. The ICSID enforcement mechanism is very effective. This effectiveness contributes to the protection of the investor. ICSID's enforcement mechanism lies at the heart of the effectiveness of the ICSID convention.
An arbitral award from any other arbitral body is subject to review by a domestic court before it can be enforced, but an ICSID award merely has to be presented to a domestic court with a request that the court enforce it. Under Bill C-9 the award must be recognized and, with this recognition, enforcement mechanisms become available immediately. Enforcement could include payments seized by officers of the court.
In the great majority of cases the losing party in an arbitration will pay the award of an arbitral tribunal without the need for the successful party to take any enforcement proceedings. The same is true for investor-state arbitration.
In Canada, arbitral awards, including investor-state arbitral awards, are currently enforced pursuant to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
The New York convention permits a limited review of an arbitral award by domestic courts. It allows a court to refuse to enforce an award if to do so would be contrary to the public policy. In addition, it permits a state to exclude certain subjects from the application of the convention and thus from enforcement.
The ICSID provides a better enforcement mechanism. It does not permit a state to exclude from dispute settlement any matter which the state has consented to submit to arbitration. The ICSID awards are enforceable as if they were final decisions of a local court. This simple, efficient mechanism guarantees better protection for Canadian investors abroad.
Clause 8 of the bill authorizes any superior court in Canada to recognize and enforce awards as described in the bill. The Federal Court is a superior court. The Federal Court would have jurisdiction over awards involving the Government of Canada and awards involving foreign governments or their constituent subdivisions designated under the convention.
In addition, the ICSID convention provides explicitly that the ICSID awards are binding between the parties and once parties have agreed to arbitration they cannot seek remedy before another body, such as courts of justice.
Therefore, it is not open to a foreign tribunal to refuse to enforce an award on the basis that the ICSID arbitration tribunal has exceeded its jurisdiction or was not validly constituted. These kinds of issues can affect enforcement of awards other than ICSID awards, thereby delaying resolution of the dispute. The ICSID does not permit such dilatory tactics.
Section 7 of the bill provides that an ICSID award is not subject to any remedy by a Canadian court. Remedies thus prohibited would include appeal, review and nullification. The decision to have recourse to arbitration is entirely voluntary, but once the parties have consented to ICSID arbitration they cannot seek review in another forum, such as the courts.
The only review of an ICSID award, if a party to a dispute considers it contains errors, is the review process provided by the convention itself. It provides that a request for revision, interpretation or annulment of an award must be made to the secretary-general of the ICSID. This procedure allows the parties to avoid having national courts involved in assessing allegations that claim there is something wrong with an award, while at the same time ensuring the awards which are erroneous can be corrected.
There are numerous reasons to support Canada's adherence to the convention. It would provide additional protection for Canadian investors abroad by allowing them to have recourse to the ICSID arbitration in their contracts with foreign states.
It would also allow investors of Canada and foreign investors in Canada to bring investment claims under the ICSID arbitral rules where such clauses are contained in our foreign investment protection agreements and free trade agreements.
To date, 143 states have ratified the ICSID convention. The majority of our trading partners are parties to it, except for Mexico, India and Brazil. Ratifying the ICSID would bring Canadian policy into line with our OECD partners. In a survey conducted by the ICSID center in 2004, 79% of the respondents said that the ICSID played a vital role in their country's legal framework and 61% said that the ICSID membership had contributed to a positive investment climate.
We know, anecdotally, that Canadian investors are trying to find ways to benefit from the ICSID, even though Canada is not party to the convention. Firms have, for example, arranged investments through a third country that is party to the ICSID. However, such convoluted financing is not possible for all investments by Canadian investors.
International investment arbitration is growing in importance. The stock of Canadian direct investment abroad in 2005 increased to a record $469 billion. As a result of the globalization of investment, the number of investment disputes has greatly increased in the last five years.
ICSID arbitration has soared: only 110 ICSID arbitrations have been completed over the past 40 years but 105 proceedings are now under way. The NAFTA parties alone have faced over 40 investor-state arbitration claims since NAFTA entered into force.
The tremendous growth in investment and investor-state disputes has made Canada's failure to ratify the ICSID the focus of attention by Canadian businesses, the Canadian legal community and our trading partners.
The ICSID regime provides several important advantages. Compared to other arbitration mechanisms, the ICSID regime provides better guarantees regarding enforcement of awards and more limited local court intervention.
Any arbitral award rendered under the auspices of ICSID is binding and any resulting obligation must be enforced as if the award were a final domestic court judgment. Moreover, all ICSID contracting states, whether or not parties to the dispute, are required by the convention to recognize and enforce the ICSID arbitral awards.
Investors often prefer to rely on such arbitrations rather than on the local courts of the country whose measures are in dispute to ensure an independent resolution of the dispute.
The ICSID's relationship with the World Bank assists investors in obtaining compliance with the ICSID award and its roster of arbitrators gives investors access to well-qualified arbitrators at ICSID controlled rates, with extensive experience in international investment arbitration.
The ICSID also provides important institutional support for litigants. The ICSID convention is a well known tool for settlement of investment disputes. Therefore, the interpretation of the convention and its usefulness are predictable.
Canada already has numerous links with the ICSID. Provisions consenting to ICSID arbitration are commonly found in contracts between governments of other countries and Canadian investors. The NAFTA in chapter 11, the Canada-Chile FTA and most of our bilateral foreign investment protection agreements known as FIPAs all provide for the ICSID as a dispute settlement option that can be chosen by an investor if both the state of the investor and the host state for the investment are party to the ICSID.
However, Canada and Canadian investors cannot benefit from this choice if Canada is not a member.
It is important that Bill C-9 be passed in order to facilitate adherence by Canada to the ICSID convention as soon as possible.
