International Commercial Arbitration
Practising international arbitration includes advising as to the contractual provisions for arbitration and ADR, advising as arbitration rules and procedures, and conducting ad hoc arbitrations or arbitration under the rules of arbitration institutions. Arbitration is an alternative to litigation that has relevance to almost every area of business and business law.
In one of the largest recoveries ever in a dispute against a sovereign state, First Quantum Minerals Ltd. (FQM), a Vancouver-based copper producer, settled its claims against the Democratic Republic of the Congo (DRC) early in 2012 by selling its residual claims and assets to Eurasian Natural Resources Corporation for US$1.25 billion.
However, the events leading up to the settlement represented a painful chapter in FQM's history and a global scenario that is becoming uncomfortably common: underdeveloped resource-rich countries anxious to participate in the commodities boom go out of their way to attract foreign investment with various incentives. The companies invest heavily in the infrastructure necessary for extraction. With the major investments in place, governments try to renegotiate, and if they can't, resort to threats, taxes, regulatory hurdles or direct or indirect expropriation to get what they want. It's called resource nationalism and it's making a lot of headlines these days.
FQM's problems began when the DRC in 2009 revoked the company's Kolwezi tailings project after it refused to renegotiate its contract. By that time, FQM had spent US$765 million acquiring and developing the property. Soon after, a domestic court turned FQM's rights over to a government-owned entity. Another local court awarded the DRC a US$12-billion judgment against FQM.
Then there are the antics of Venezuelan president Hugo Chávez in relation to the Las Cristinas lode, which contains some 16.9 million ounces of gold. Venezuela granted Crystallex International Corporation, a Canadian gold miner, a licence to mine and develop the deposit, but the company needed an environmental permit to begin production. It had been pursuing the permit for almost six years when the Venezuelan Ministry of the Environment denied the application in April 2008. In September 2008, Chávez announced that he was “taking back the mines” and in August 2011 nationalized the mining industry.
In early 2012, Crystallex filed for protection under the Companies' Creditors Arrangement Act. Its principal asset was its US$3.8-billion arbitration claim against the Venezuelan government regarding Las Cristinas.
Given the ubiquity of Canadian resource companies abroad, it's no surprise that they are frequently exposed to resource nationalism and other forms of discrimination against foreign investors. With this in mind, the Canadian government has entered into 27 bilateral investment treaties (BITs) called Foreign Investment Protection and Promotion Agreements (FIPAs); 20 more are either being negotiated or explored.
As well, many free trade agreements contain provisions, like the ones found in the North American Free Trade Agreement's (NAFTA) Chapter 11, that emulate BITs by providing protection to Canadian foreign investors from arbitrary treatment by the countries in which they invest. Canada is party to four such agreements and nine more are at various stages of negotiation.
Canada isn't the only country seeking protection for its investors. Between 1992 and 2001, the number of BITs worldwide grew from 500 to more than 2000 and then to about 2650 by 2010.
BIT disputes are dealt with by way of international arbitration. The arbitration forum most often used to settle BIT disputes is the International Centre for the Settlement of Investment Disputes (ICSID), a division of the World Bank. Also popular is the International Court of Arbitration (ICA) of the International Chamber of Commerce, a private business organization. As well, both ICSID and ICA administer investor-state arbitrations under the United Nations Commission on International Trade Law (UNCITRAL) Rules or other dispute settlement processes.
ICSID is the progeny of the ICSID Convention, signed in 1966. The Convention creates a widely accepted international method to settle investor-state disputes. Signatories agree to abide by arbitral awards in such dispute. The awards cannot be appealed to or set aside by any country's courts and are subject to a limited review only by a second ICSID tribunal. One hundred and fifty-nine nations have signed the accord and 148 have ratified it.
Canada signed the Convention in 1966 but has not yet ratified it, likely for constitutional and domestic political reasons. However, Yves Fortier, the globally renowned arbitrator and former Canadian ambassador to the United Nations, recently predicted that “ratification may be just around the corner.” Meanwhile, Canada's failure to ratify means that Canadian companies cannot rely on Convention rules, most notably the prohibition against appeal to domestic courts. Canadians, however, may on consent resort to ICSID's Additional Facility for BIT arbitration.
Well-counselled Canadian companies with operations in risky countries can also obtain ICSID's full advantages through the back door, often by using a subsidiary in a country that has ratified the treaty and has a BIT with the host country. Such a strategy, however, would have to take a host of other considerations, like the tax consequences, under advisement.