Clarifying the Scope and Meaning of Key Investment Principles
and Concepts
Over the past two decades, key concepts and principles found in free
trade agreements’ investment chapters have been interpreted differently
by tribunals, leading to inconsistent jurisprudence and an
unpredictability of dispute outcomes. In turn, unpredictable dispute
outcomes have led to the multiplication of claims brought to ISDS
tribunals, as firms see a chance to win their cases, or at least be able
to negotiate financial compensations.
With the multiplication of claims, Canada has become the most sued
country by foreign investors under NAFTA Chapter 11 and the sixth
worldwide, according to UNCTAD.11Sinclair, NAFTA Chapter
11 Investor–State Disputes .,22UNCTAD,
Investment Dispute Settlement Navigator—Filter by Country .
Those disputes lead to costs for Canada for the proceedings of each case
and for the damages paid to foreign investors when tribunals find the
government did breach its obligations under NAFTA. Since 1994, a total
of 40 claims have been made against the government of Canada. Out of
those, the Government of Canada had to pay damages (or settlements) in
only six cases, for a total of just over $185 million (compared with
$1.8 billion in damages claimed by the investors). 33Canada has
paid a total of $54 million in damages and at least $130 million in
settlements, based on publicly available information. See Global
Affairs Canada, NAFTA—Chapter 11—Investment . Of the 34
remaining claims, nearly half are now inactive or have been withdrawn by
investors.
Clarifying the scope and meaning of key investment principles and
concepts could thus improve predictability in dispute settlement and
avoid unreasonable claims made by foreign investors. In particular,
within the NAFTA 2.0 negotiations, countries should agree on the meaning
of the “fair and equitable treatment” standard. At the moment, the
interpretation of this standard can be subjective and divergent,
depending on the wording of the agreement, negotiation history, and
context.44OECD, ”Fair and Equitable Treatment.” In fact, there
has been jurisprudential divergence about the practical meaning of this
minimum standard of treatment and how to establish whether there is a
breach of this standard or not. In addition, further clarity should be
sought on which government actions, laws, regulations, or other measures
can be considered as “indirect” or “creeping” expropriation and
under which conditions compensation can be claimed. In that respect, as
in the TPP, interpretation guidelines on expropriation and compensation
provisions could be added to the investment chapter.55See Annex
9-B in the TPP; Cortes, Indirect Expropriation Under the TPP .