The role of Canadian courts in the legitimization of NAFTA Chapter Eleven tribunal decisions.

• Author: Whitsitt, Elizabeth
• Position: The Impact of International Law on Canadian Law

INTRODUCTION

Over the past several years Canada has actively sought to expand its trade and investment networks in an attempt to provide Canadian industries with increased opportunities to do business abroad and to ensure that Canadian businesses remain competitive in the global marketplace. (1) As a result, Canada has signed seven free trade agreements (FTAs) with ten different countries since 2009. (2) Canada's most recently signed FT A with South Korea on March 11, 2014 is the first to be concluded in the Asia-Pacific region and promises to create thousands of jobs for Canadians by increasing Canadian exports to South Korea by 32 percent and boosting Canada's economy by $1.7 billion. (3) Less than twelve months ago, Canada also concluded negotiations for a comprehensive economic and trade agreement (CETA) with the European Union. (4) Considered by some to be Canada's most ambitious trade initiative yet, CETA is unlikely to come into force anytime soon. (5) Some aspects of the deal still need to be clarified and ratification of the agreement will require the approval of the Canadian and European Parliaments as well as each of the 28 EU member states. (6)

In addition to securing more liberal trade partnerships, Canada has deepened its investment ties with some of the largest and most rapidly emerging markets in the world. (7) A relative latecomer to negotiating and ratifying bilateral investment treaties (BITs) (Canada prefers the term foreign investment promotion and protection agreements (FIPAs)), (8) Canada has aggressively pursued such arrangements in the last few years. In 2012 Canada concluded, signed or brought into force FIPAs with 4 countries - Senegal, China, the Slovak Republic and the Czech Republic. (9) That number more than doubled in 2013 with Canada concluding, signing or bringing into force FIPAs with 9 countries. (10) Six of those agreements were with African countries, including Tanzania, Benin, Cote d'Ivoire, Nigeria, Zambia, and Guinea. (11)

Notwithstanding Canada's determined efforts to conclude FIPAs over the past few years, it was one of the last OECD countries to ratify the Convention on the Settlement of Investment Disputes between States and Nationals of other States (12) (ICSID Convention). (13) Consistent with its strategy to create investment opportunities for Canadian businesses abroad and given its recent success in concluding FIPAs and FTAs, Canada's ratification of the ICSID Convention in late 2013 was inevitable. That development has been heralded by some members of the Canadian legal community as providing greater certainty for Canadian investors abroad by providing for an investment law dispute resolution process contained entirely within the ICSID Convention. (14) At the same time others have cautioned against viewing Canada's ratification of the ICSID Convention as a panacea for Canadian investors, noting that the ICSID annulment procedure also has its own risks. (15)

This controversy is particularly meaningful in the context of disputes commenced under Chapter eleven of the North American Free Trade Agreement (16) (NAFTA). As discussed in further detail below, Canadian courts have been engaged as actors potentially impacting NAFTA Chapter eleven arbitration in circumstances where the parties to an investment dispute have designated a Canadian locale as the seat for the arbitration. To date, there have been five challenges to NAFTA Chapter eleven panel decisions heard by Canadian courts (collectively the NAFTA Chapter eleven cases). (17) In the wake of Canada's ratification of the ICSID Convention, this paper explores the role Canadian courts have played in those disputes.

There are six parts to this paper. Following this introduction, Part two provides a brief discussion of international investment law and in particular the review process of NAFTA Chapter eleven tribunal decisions. Part three introduces the current debate over the legitimacy in international investment law. Part four reviews the NAFTA Chapter eleven cases. Part five discusses how Canadian courts have been a legitimizing and de-legitimizing force in the context of NAFTA Chapter eleven panel decisions. And part six provides this paper's conclusions.

2. International Investment Law: NAFTA Chapter Eleven Dispute Settlement

   As a sub-discipline of public international law (but one with a distinctive private element), international investment law has emerged and evolved over the last fifty years. It is comprised of a large number of BITs or FIPAs, and a much smaller number of regional free trade agreements (FTAs), such as NAFTA, that contain investment chapters. (18) Created by inter-state treaties, the international investment law regime is undoubtedly influenced by those areas of public international law governing the behavior of states. (19) In particular, it is a regime that draws upon the law of treaties (especially the interpretation of treaties), which has been codified by the Vienna Convention on the Law of Treaties (20) (VCLT), and the law of state responsibility, which has been codified in a set of Draft Articles adopted by the International Law Commission in 2001. (21)

   As mentioned above Canada actively negotiates FTAs and FIPAs. However, on January 1, 1994, when NAFTA came into effect, it created the world's largest free trade area (at that time) and was the first comprehensive trade agreement of its type. (22) Consistent with the aim of facilitating investment between Canada, the United States (US) and Mexico, Chapter eleven of NAFTA contains provisions, which protect foreign investment. Such protections include prohibitions against unlawful expropriation and obligations of non-discrimination. (23) NAFTA Chapter eleven also establishes a mechanism for the settlement of investment disputes before an impartial tribunal. (24) Prior to submitting a claim under this mechanism, an investor must consent to arbitration in accordance with the procedure set out in NAFTA, and, with respect to the measure of the disputing party that is alleged to be a breach of the substantive protections delineated in the Chapter, must waive its right to take proceedings (except for injunctive or other relief not involving payment of damages) before any administrative tribunal or domestic court of any NAFTA Party. (25)

   For disputes arising under NAFTA Chapter eleven, investors may commence arbitral proceedings under the ICSID Convention, the Additional Facility Rules of the International Centre for the Settlement of Investment Disputes (ICSID Additional Facility Rules), (26) or the United National Commission on International Trade Law Arbitration Rules (UNCITRAL Rules) (27,28) Up until recently neither Canada nor Mexico were ratifying parties to the ICSID Convention with the result that NAFTA Chapter eleven disputes were only conducted under the ICSID Additional Facility Rules or UNCITRAL Rules. (29) In contrast to arbitrations conducted under the ICSID Convention, those taking place under either of these regimes are subject to subsequent review by domestic courts. (30) Which court is cast in this supervisory role and the rules governing review applications depends upon the "seat" of the arbitration. The "seat" is often not a function of where the arbitration actually occurs but rather an express choice of the parties, or, failing agreement, a decision of the arbitral tribunal. (31)

3. The Debate Over Legitimacy in International Investment Law

   The topic of legitimacy in international investment law is one that has generated a breadth of literature with varying opinions. (32) To some, the international investment law regime is one of the great success stories in international law over the past decade. '3 To others, the regime lacks legitimacy for a number of reasons, some of which are elaborated below. (34) The intricacies of that debate, however, are not the focus of this paper. Instead, as alluded to above, this article is concerned with a narrower question. That is, whether Canadian courts have been a legitimizing or delegitimizing force within the international investment law regime. But what does it mean for a system of law to be legitimate or for a participant within that system to be a legitimizing force?

   The pre-eminent work on legitimacy within international law and its organizations is that of Professor Thomas Franck. (35) According to Professor Franck, without clarity and consistency of both the rules of law and their application, those governed by those rules lose their ability and desire to adhere to such rules, which can undermine the legitimacy of any legal order. Conversely, a belief in the law's legitimacy re-enforces the perception of its fairness and encourages compliance. (36) According to Professor Franck each rule is likely to be perceived as more or less legitimate as evidenced by certain indicia, including determinacy and coherence. (37)

   (A) Legitimacy Through Textual and Interpretive Determinacy

   Synonymous with clarity, determinacy involves using rules to convey clear and transparent expectations. (38) In international investment law, determinacy may be evidenced in two different ways. First, there may be 'textual determinacy'. (39) That is, a foreign investor's rights and a host state's obligations may be clearly articulated in the written text of an investment treaty. However, investment treaties often outline vague standards of protection. The typical investment treaty provision setting out the standard of 'fair and equitable' (FET) treatment is just one example of a standard that often lacks clarity. Indeed, governments, tribunals and commentators often bemoan the lack of definition of FET and attempt to define the standard's normative content in an effort to establish coherence regarding this popularly invoked discipline. (40)

   While such textual indeterminacy may facilitate agreement between the parties and allow for flexible responses to problems in an ever-changing international...