1. Introduction

Cross-border investment management agreements (IMAs) are widely used where a Canadian investor, pension fund, family office, institutional investor, or corporation appoints a foreign investment manager, or where a foreign investor appoints a Canadian portfolio manager.

These agreements typically govern:

• discretionary portfolio management;
• asset allocation;
• investment strategy;
• risk limits;
• performance benchmarks;
• custody arrangements;
• fees;
• reporting obligations;
• compliance duties;
• conflicts of interest.

Disputes arise when investment managers allegedly:

• breach investment mandates;
• exceed delegated authority;
• make unauthorized investments;
• fail to disclose conflicts;
• mismanage foreign assets;
• violate regulatory obligations;
• improperly calculate performance fees;
• fail to follow risk instructions.

Cross-border investment disputes create additional arbitration issues involving:

• governing law;
• jurisdiction;
• recognition and enforcement;
• foreign regulatory standards;
• fiduciary obligations;
• conflict-of-laws principles.

International investment disputes involving Canadian entities have frequently proceeded through arbitration mechanisms, including treaty-based arbitration and commercial arbitration frameworks.

2. Legal Framework in Canada

A. Contractual Framework

The Investment Management Agreement is the primary source of obligations.

Typical clauses include:

Investment Mandate Clause

Defines:

• permitted assets;
• prohibited investments;
• leverage limits;
• geographic restrictions.

Standard of Care Clause

May require:

• reasonable skill and care;
• professional investment-manager standards;
• compliance with industry practices.

Fiduciary Duty Clause

Investment managers may owe duties relating to:

• loyalty;
• avoidance of conflicts;
• disclosure;
• protection of client interests.

B. Arbitration Framework

Cross-border IMAs commonly contain arbitration clauses selecting:

• ICC Arbitration;
• LCIA Arbitration;
• UNCITRAL Arbitration;
• ADR Chambers Canada;
• domestic Canadian arbitration institutions.

The arbitration clause usually determines:

• seat;
• procedural law;
• tribunal composition;
• confidentiality;
• enforcement mechanism.

3. Common Disputes in Cross-Border Investment Management Agreements

Issue 1 — Breach of Investment Mandate

Example

A Canadian pension fund instructs a manager:

"Invest only in investment-grade securities."

The manager invests in:

• speculative bonds;
• emerging-market derivatives;
• crypto assets.

Losses occur.

Arbitration Questions

• Was the investment authorized?
• Was discretion properly exercised?
• Was risk disclosed?

Issue 2 — Fiduciary Breach

Investment managers may breach duties by:

• favouring related funds;
• earning undisclosed commissions;
• allocating better opportunities to other clients.

The tribunal examines:

• conflict policies;
• disclosure documents;
• internal compliance records.

Issue 3 — Performance Fee Disputes

Common disputes:

• incorrect benchmark calculation;
• high-water mark interpretation;
• currency conversion;
• incentive fee entitlement.

Issue 4 — Regulatory Compliance Failures

A cross-border manager may be subject to:

• Canadian securities regulations;
• foreign securities regulations;
• anti-money laundering rules;
• sanctions requirements.

The dispute may involve whether regulatory compliance obligations were contractual promises.

Issue 5 — Custody and Asset-Control Disputes

Issues include:

• missing assets;
• unauthorized transfers;
• improper valuation;
• failure of custodians.

4. Key Arbitration Issues

A. Determining Applicable Law

A tribunal may consider:

1. express choice-of-law clause;
2. location of investment activity;
3. residence of parties;
4. regulatory environment.

Example:

Canadian investor + U.S. investment manager + European assets.

Possible laws:

• Ontario law;
• New York law;
• English law.

B. Fiduciary Standards Across Borders

A manager may argue:

"The investment was lawful in the foreign jurisdiction."

Investor may argue:

"The manager violated Canadian fiduciary expectations."

The tribunal must reconcile competing standards.

C. Damage Assessment

Possible damages:

Lost Portfolio Value

Difference between:

• actual portfolio performance;
• properly managed portfolio performance.

Lost Opportunity Damages

Where improper decisions caused missed gains.

Fee Recovery

Refund of:

• management fees;
• incentive fees;
• advisory charges.

5. Evidence Before an Arbitration Tribunal

Investment Records

• trade confirmations;
• portfolio statements;
• valuation reports;
• risk reports.

Communications

• emails;
• investment committee minutes;
• instructions.

Expert Evidence

Experts analyze:

• portfolio management standards;
• benchmark performance;
• investment strategy.

6. Important Canadian Case Laws

1. Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53

Principle

Contract interpretation requires reading the agreement as a whole and considering commercial context.

Application to Investment Management Agreements

Arbitrators examine:

• investment mandate;
• fee clauses;
• risk provisions;
• reporting obligations.

A manager cannot rely on isolated wording while ignoring the commercial purpose of the agreement.

Arbitration Importance

Frequently applied in contractual interpretation disputes.

2. Bhasin v. Hrynew, 2014 SCC 71

Principle

Canadian contract law recognizes an organizing principle of good faith and honest performance.

Application

An investment manager cannot:

• conceal material portfolio changes;
• misrepresent investment performance;
• secretly modify risk assumptions.

Example:

Manager reports a strategy as "conservative" while internally pursuing aggressive leverage.

3. Canson Enterprises Ltd. v. Boughton & Co., [1991] 3 SCR 534

Principle

Remedies for breach of fiduciary duty may differ from ordinary contractual damages.

Application

Where an investment manager breaches fiduciary obligations, claims may include:

• restitution;
• equitable compensation;
• recovery of improper gains.

4. Galambos v. Perez, 2009 SCC 48

Principle

A fiduciary relationship depends on undertaking responsibility and discretionary power.

Application

A professional investment manager exercising discretionary authority over client assets may create fiduciary obligations.

Key questions:

• Did the manager undertake responsibility?
• Did the client reasonably rely on expertise?

5. Peoples Department Stores Inc. (Trustee of) v. Wise, 2004 SCC 68

Principle

Decision-makers must exercise reasonable care and informed judgment.

Application

Investment managers must:

• investigate investments;
• understand risks;
• maintain proper controls.

A poor investment outcome alone is insufficient; negligence or breach must be proven.

6. BCE Inc. v. 1976 Debentureholders, 2008 SCC 69

Principle

Decision-makers must consider legitimate stakeholder interests while acting within legal duties.

Application

Relevant for:

• pension investment managers;
• institutional investors;
• governance committees.

Investment decisions must balance:

• return objectives;
• risk obligations;
• stakeholder interests.

7. TELUS Communications Inc. v. Wellman, 2019 SCC 19

Principle

Commercial arbitration agreements are generally enforceable according to their terms.

Application

A sophisticated institutional investor entering a cross-border IMA will generally be bound by an arbitration clause.

Issues considered:

• scope of arbitration agreement;
• stay of court proceedings;
• commercial certainty.

8. Uber Technologies Inc. v. Heller, 2020 SCC 16

Principle

An arbitration clause may be invalid where enforcement is unconscionable or creates an unfair access barrier.

Application

Relevant where:

• small investors;
• retail investment products;
• foreign arbitration costs.

A foreign investment manager cannot always rely on expensive overseas arbitration provisions.

9. Mobil Investments Canada Inc. v. Canada (ICSID Case No. ARB/15/6)

Principle

Cross-border investments may generate international arbitration claims involving treatment of investments and regulatory measures.

Application

Demonstrates how Canadian-related investments may involve:

• foreign investors;
• international obligations;
• arbitration tribunals.

10. Mesa Power Group LLC v. Government of Canada (NAFTA Arbitration)

Principle

Investment arbitration requires careful analysis of:

• jurisdiction;
• investment ownership;
• treaty obligations. 

Application

Relevant where investment management structures involve:

• foreign investors;
• Canadian assets;
• treaty protections.

7. Typical Arbitration Scenario

Facts

A Canadian pension fund appoints a European asset manager.

Agreement:

• discretionary management;
• global equities mandate;
• low-risk strategy.

Manager:

• invests heavily in volatile foreign securities;
• fails to disclose related-party transactions;
• charges performance fees.

Portfolio loses CAD 200 million.

Investor Claims

1. Breach of Contract

Manager exceeded mandate.

2. Negligence

Manager failed professional standards.

3. Fiduciary Breach

Manager failed loyalty and disclosure duties.

4. Restitution

Recovery of improper fees.

Manager Defences

1. Investment Discretion

Manager argues:

• losses resulted from market volatility.

2. Contractual Risk Disclosure

Manager argues:

• risks were disclosed.

3. Business Judgment

Manager argues:

• investment decisions were commercially reasonable.

8. Tribunal Decision Framework

Step 1 — Identify Contractual Duties

Review:

• mandate;
• restrictions;
• reporting obligations.

Step 2 — Determine Standard of Conduct

Was manager required to:

• achieve returns?
• exercise reasonable care?
• guarantee performance?

Step 3 — Analyse Causation

Did breach cause:

• portfolio loss;
• additional fees;
• missed opportunities?

Step 4 — Calculate Damages

Methods:

• benchmark comparison;
• counterfactual portfolio;
• expert valuation.

9. Drafting Recommendations for Cross-Border IMAs

Arbitration Clause

Should specify:

• institution;
• seat;
• governing law;
• emergency arbitrator mechanism.

Investment Control Provisions

Include:

• risk limits;
• prohibited investments;
• approval thresholds.

Transparency Clauses

Require:

• fee disclosure;
• conflict reporting;
• valuation methodology.

Technology and Data Clauses

For modern investment management:

• cybersecurity obligations;
• algorithmic trading controls;
• data security requirements.

Conclusion

Arbitration involving cross-border investment management agreements in Canada requires balancing contract law, fiduciary principles, securities regulation, and international arbitration principles.

The decisive questions are usually:

1. Did the investment manager act within the mandate?
2. Were risks and conflicts properly disclosed?
3. Did the manager meet professional standards?
4. Was the arbitration clause enforceable?
5. What financial loss was caused by the breach?

Canadian jurisprudence shows that investment managers are not guarantors of investment success, but they remain accountable for honest performance, contractual compliance, fiduciary responsibility, and professional investment standards.