Investor-state arbitration and Canadian mining
On December 1, 2013, Canada became the 150th state to ratify the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID). It was a long time coming: the other members of the G7 all did so between 1966-71. This is a very important development for the Canadian mining industry. During an era of renewed resource nationalism in many countries where mining activity takes place, ICSID reduces the risks of investing abroad by providing an effective mechanism for the resolution of investor-state disputes.
International Centre for the Settlement of Investment Disputes (ICSID)
ICSID is widely considered to be the leading international arbitration institution devoted to investor-state dispute settlement. It is a unique mechanism in that it is insulated from national law and courts: any challenge to an ICSID award goes before an “annulment committee” constituted by ICSID, not before a national court. Also, countries that have ratified ICSID have committed to enforcing ICSID awards as if they were final judgments of their own courts. Finally, states have an important incentive to comply with awards issued under the rules of ICSID (a branch of the World Bank), since noncompliance could adversely affect the country’s borrowing ability with the IMF and the World Bank. Following Canada’s ratification of ICSID, Canadian mining companies now have access to this mechanism, as long as their investment is protected by an instrument in which they have agreed to ICSID arbitration, and the host state has also ratified the ICSID Convention.
Investments by Canadian mining companies in foreign countries may be protected by international investment agreements, such as Canada’s Foreign Investment Promotion and Protection Agreements (FIPA), or by investment chapters of bilateral free trade agreements or multilateral free trade agreements (such as Chapter Eleven of NAFTA). Protections may also be available under a contract with a host state or through the host state’s foreign investment legislation.
Protection under Investment Treaties
Protection that is provided under investment treaties commonly includes protection against uncompensated expropriation, the guarantee of a minimum standard of treatment (either as specifically defined in the treaty or as understood under customary international law) and the guarantee of nondiscrimination (whether vis-à-vis nationals of the host state or nationals of others states). Several recent cases demonstrate the importance of these safeguards. For example, in 2012, the Canadian company Rusoro filed an arbitration against Venezuela under the CanadaVenezuela bilateral investment treaty (BIT) following the state’s nationalisation of the company’s gold mining concession. More recently, and taking advantage of Canada’s ratification of ICSID, the Canadian company Infinito Gold Ltd. filed an arbitration against Costa Rica under the CanadaCosta Rica BIT and the ICSID Convention, alleging mistreatment by the state of the company’s mining project. While the outcome of these pending cases is unknown, all of the claiming companies are likely happier to be before an international arbitral tribunal applying international investment-protection standards rather than before the national courts of the host state applying the local law.
Protection under a Contract
Mining companies can also provide for investment protection in their contracts with foreign states. Such tailormade instruments are only effective, however, if they are insulated against changes in domestic law. This can be achieved by including a “legal stability” clause and selecting neutral law or international law to govern the contract. A valid and effective arbitration clause needs to be included as well. A recent example of an investor-state case under a contract involves Canada’s Brilliant Resources’ claim against Equatorial Guinea. The company alleges that the state failed to provide certain mining concessions that were due to its subsidiary Ivory Resources in exchange for the exploration work that it did in the country. By providing for international arbitration in the contract, the company has avoided the local courts of the host state for the resolution of this dispute.
Advice for Canadian Mining Companies
The best way to mitigate the risk of resource nationalism is to combine solid substantive protections with the procedural safeguards of ICSID arbitration. At a minimum, Canadian mining companies should insist on arbitration clauses in their contracts with foreign states. Where possible, they should incorporate ICSID arbitration rules, and also structure their investment so as to be protected by an investment treaty. Because the specifics relating to these matters are complex, and beyond the scope of this column, it is best to seek specialized legal advice in respect of any particular transaction or dispute.
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