Imagine your company investing millions of dollars in a mining operation in a foreign country. You do all the right things. You acquire all the required permits, you comply with all local laws, and you undertake all your operations responsibly. Yet, one day, the foreign government abruptly nationalizes your assets, revokes your permits, or undertakes other illegal measures to deprive your company of the millions of dollars it has invested, all without any compensation.
This is a risk that is familiar to all Canadian mining companies with operations in foreign countries. In recent years, there have been many examples of this happening to mining companies all around the world. So is there anything Canadian mining companies can do to protect themselves? Historically, there were few protections available. Assume, for example, that a Canadian mining company had an operation in Mongolia. What rights would that company have if the Mongolian government nationalized its assets? In the past, the only options were to sue the Mongolian government in Mongolian court, or to ask the Canadian government to diplomatically intervene. Neither option was particularly practical or attractive.
Bilateral investment treaties
This issue had a chilling effect on foreign investment internationally.
Thus, in recent years, states sought to address this by entering into “bilateral investment treaties” (BITs). Under these BITs, signatory states agree to provide certain protections to foreign investors from other signatory states. Typically, this includes protections from nationalization and discrimination, and guarantees of fair and equitable treatment, among many other protections. Where a signatory state violates those protections, BITs provide foreign investors with a direct right of action against signatory states before an independent international tribunal in “investor-state arbitrations.” What is more, these investor-state arbitrations are effective, enforceable, and have real teeth. With few exceptions, states almost always comply.
The number of BITs has exploded in recent years. In 1990, there were just a handful of BITs, and there are now over 2,500; Canada alone has some 50 BITs (or treaties with BIT protections), with more on the way. And it is estimated that more than 600 investor-state arbitrations have been brought to date, with the bulk of them commenced within the last decade.
Thus, BITs provide mining companies with operations in for eign countries with real, tangible, and effective protections from foreign states.
So what of our Canadian mining company in Mongolia? In 2017, a BIT came into force between Canada and Mongolia. Therefore, if the Mongolian government were to illegally nationalize the Canadian company’s assets, it would have a direct and enforceable right of action against the Mongolian government in an investor-state arbitration to seek compensation.
Structuring your investments
However, it is important to understand that BITs do not protect all foreign investors. A BIT only protects the nationals of the states that are parties to the BIT. Thus, for example, the BIT between Canada and Mongolia only protects Canadians investing in Mongolia, and Mongolians investing in Canada.
Therefore, whenever investing in a foreign country, a Canadian company needs to be certain that Canada has a BIT with the country in which it is investing. If Canada does not have a BIT with that country, the company needs to carefully structure its investment in such a way as to ensure that it is protected by a BIT with another country.
For example, Canada does not have a BIT with Paraguay.
Thus, if a Canadian mining company invests in Paraguay directly from Canada, it will not have any BIT protections.
Paraguay, however, has a BIT with more than 20 other countries.
Canadian mining companies investing in Paraguay can benefit from the protections under one of those BITs by carefully structuring its investment in such a way where it can be said that the investment is coming from one of those countries rather than Canada.
There is protection
There are very real and effective protections available to Canadian mining companies with operations in foreign countries.
However, careful consideration needs to be given to how those operations are structured in order to ensure that those protections are available to you, lest you be left to the mercy and whims of a foreign government with no legal remedies or protections.
VASILIS PAPPAS is partner, Calgary, Bennett Jones LLP. GEORGE VLAVIANOS is managing partner, Doha office, Bennett Jones (Gulf) LLP.