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 Of the 34 remaining claims, nearly half are now inactive or have been withdrawn by investors.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 .