Investment treaty practice
Does the state have a model BIT?
In May 2021, Canada published an updated model bilateral investment treaty named the Model Foreign Investment Promotion and Protection Agreement updating its 2004 predecessor. The 2021 model BIT made substantial changes, as outlined below.
- The procedure for investment arbitration under article 25 of the 2021 model BIT now requires the investor to submit a written request for consultations to be held within 90 days of the delivery of the request for consultations in the capital city of the receiving party. The request for consultations is a mandatory prerequisite to commencing arbitration, and the request for arbitration must be filed within one year of the delivery of the request for consultations.
- article 27 of the 2021 model BIT permits the investor to submit a claim to dispute settlement under different arbitration rules, including:
- the ICSID Convention, provided that both parties are parties to the ICSID Convention;
- the ICSID Additional Facility Rules, if only one party is a party to the ICSID Convention;
- the UNCITRAL Arbitration Rules; or
- any other rules on agreement of the disputing parties.
- In promoting efficient processes, article 47 of the 2021 model BIT provides for expedited arbitration when the damages claimed do not exceed C$10 million, providing a practical avenue for lesser value claims and more accessibility for smaller investors.
- Indirect expropriation was previously defined as ‘measures having an effect equivalent to nationalisation or expropriation’. Article 9(3) of the 2021 model BIT provides a much more comprehensive consideration on a case-by-case fact-based inquiry to determine whether an act is indirect expropriation, including considering:
- the economic impact of the measure or the series of measures, although the sole fact that a measure or a series of measures of a party has an adverse effect on the economic value of a covered investment does not establish that an indirect expropriation has occurred;
- the duration of the measure or series of measures of a party;
- the extent to which the measure or the series of measures interferes with distinct, reasonable investment-backed expectations; and
- the character of the measure or the series of measures.
- The most-favoured-nation treatment now provides under article 6(7) of the 2021 model BIT that ‘substantive obligations in other international investment treaties and other trade agreements do not in themselves constitute “treatment”, and thus cannot give rise to a breach’. The new language in the 2021 model BIT restricts investors from treaty shopping and picking protections and procedures available under other Canadian bilateral investment treaties.
- article 8 of the 2021 model BIT excludes fair and equitable treatment from the minimum standard of treatment and instead provides a list of actions that would determine a breach, including denial of justice; breach of due process; manifest arbitrariness; targeted discrimination; abusive treatment; and failure to provide full protection and security.
The 2021 model BIT also focuses on small and medium-sized enterprises; corporate social responsibility; indigenous-owned businesses and peoples; and women’s economic empowerment.
Does the state have a central repository of treaty preparatory materials? Are such materials publicly available?
The Treaty Law Division maintains the original text or a certified copy of treaties signed by Canada. It also maintains a registry of many non-treaty arrangements or understandings entered into by the government of Canada; government departments and agencies; and Canadian provinces. The Treaty Law Division of the Department of Foreign Affairs and International Trade is part of the Department’s Legal Affairs Bureau.
The Treaty Law Division is also responsible for publishing on an annual basis in the Canada Treaty Series the texts of those agreements that have come into force for Canada, as well as the registration with the United Nations, in accordance with the relevant provisions of the United Nations Charter, of those treaties to which Canada becomes a party.
In the few cases where Canada has been designated as a depository for the treaty, the Treaty Law Division carries out the obligations that the role entails. These include providing certified copies of the text of the treaty to each of its signatories; receiving instruments of ratification or accession from states becoming parties to the treaty and ensuring that they are in good and due form; and informing each individual signatory government through diplomatic channels of ratifications or accessions.
As of 1 April 2014, the treaties published in the Canada Treaty Series are only available in electronic format.
Scope and coverage
What is the typical scope of coverage of investment treaties?
Investment treaties that Canada is a signatory to generally provide protection to foreign investors for a broad range of investments in an enterprise, including:
- a share, stock or other form of equity participation in an enterprise;
- a bond, debenture or other debt instrument of an enterprise;
- a loan to an enterprise;
- an interest in an enterprise that entitles the owner to share in income or profits of the enterprise;
- an interest in an enterprise that entitles the owner to share in the assets of that enterprise on dissolution; or
- an interest arising from the commitment of capital or other resources to economic activity, such as under a contract involving the presence of an investor’s property, including a turnkey or construction contract, or a concession, or a contract under which remuneration depends substantially on the production, revenues or profits of an enterprise, or intellectual property rights, and any other tangible or intangible, movable or immovable, property and related property rights acquired in the expectation of or used for the purpose of economic benefit or other business purpose.
The 2021 model BIT excludes from covered investments a claim to money that arises solely from a commercial contract for the sale of a good or service by a national or enterprise, or the extension of credit in connection with a commercial transaction, such as trade financing, and an order or judgment in a judicial or administrative action.
The 2021 model BIT distinguishes between a foreign investor and a foreign enterprise. A foreign investor is considered a national or an enterprise of a party, that seeks to make, is making or has made an investment. A foreign enterprise is considered an enterprise that is lawfully constituted or organised and that has substantial business activities in the host territory, or an enterprise that is directly or indirectly owned or controlled by a national or an enterprise as recognised for foreign investor qualification purposes.
The qualifications of an investor and investment under the 2021 model BIT are generally reflective of the investment treaties Canada is currently a signatory to.
What substantive protections are typically available?
Substantive protections are similar across the investment treaties Canada is a signatory to, although modifications in scope and language may be seen in different instruments. However, most of the investment treaties Canada is a signatory to do not include an umbrella clause. The principal protections available include:
- national treatment and most-favoured-nation treatment whereby Canada cannot discriminate against foreign investors in favour of domestic investors or investors from another country;
- the requirement that Canada provides the minimum standard of treatment in accordance with customary international law for foreign investments;
- performance requirements that prevent Canada from placing conditions on investments in favour of the domestic market, such as mandating that a foreign investor purchase domestic goods;
- fair and equitable treatment provisions, which (as guided by findings of tribunals) include requirements for full protection and security; due process and access to justice; adherence to investors’ legitimate expectations; no coercion or harassment by the organs of the state; offering a stable and predictable legal framework; transparency of the legal framework; and no arbitrary or discriminatory treatment; and
- no direct or indirect expropriation that prevents Canada from taking property belonging to a foreign investor directly through mandatory transfer or physical seizure, or indirectly through regulatory measures, prevention of contractual rights, or other actions – including methods of ‘creeping’ expropriation where the expropriation occurs gradually.
What are the most commonly used dispute resolution options for investment disputes between foreign investors and your state?
Most investor-state claims against Canada so far have been triggered pursuant to the (now terminated) North American Free Trade Agreement (NAFTA), which permits arbitration proceedings to be conducted using ICSID or UNCITRAL arbitration rules. There have been about five NAFTA investment claims under ICSID rules and about 25 NAFTA claims under UNCITRAL rules.
Other recent cases – for example – have been triggered under other treaties such as the Canada–Egypt BIT and subject to ICSID rules.
Does the state have an established practice of requiring confidentiality in investment arbitration?
Canada is represented in investor-state disputes by internal counsel at the Trade Law Bureau and hence attempts to provide as much transparency as possible with respect to investor–state dispute settlement claims. For example, Global Affairs Canada maintains a list of NAFTA-related disputes with details and links to substantive documents.
Does the state have an investment insurance agency or programme?
Export Development Canada (Canada’s export credit agency and a state-owned enterprise wholly owned by the government of Canada) provides credit insurance and performance security insurance that covers commercial risks and political risks for outbound investments. Insurance is not contingent on the existence of an investment treaty between Canada and the host state.
Canada is also a member of the World Bank’s Multilateral Investment Guarantee Agency programme, which guarantees protect investments against non-commercial risks and can help investors obtain access to funding sources with improved financial terms and conditions.