In Saipem S.p.A. v. Bangladesh, ICSID ruled that judicial interference leading to loss of contractual rights is indirect expropriation. This case broadened protection for foreign investors under international investment law.
This case comment analyses the landmark decision in Saipem S.p.A. v. The People’s Republic of Bangladesh, adjudicated by the International Centre for Settlement of Investment Disputes (ICSID). The case presents crucial issues regarding judicial expropriation, the intersection of domestic judicial conduct and international arbitration, and the elevation of contractual disputes to treaty claims. The ICSID award in this case underscores the legal standards that protect foreign investors against judicial misconduct by host states.
Citation: ICSID Case No. ARB/05/7
Date of Award: 30th June, 2009
Institution: International Centre for Settlement of Investment Disputes (ICSID)
Panel: Prof. Gabrielle Kaufmann-Kohler (President), Prof. Christoph H. Schreuer (Arbitrator), Sir Philip Otton (Arbitrator) and Mrs. Eloïse Obadia (Secretary to the Arbitral Tribunal)
Facts
- Saipem S.p.A., an Italian oil and gas company, entered into a contract with Petrobangla, a state-owned entity in Bangladesh, on February 14, 1990, to build a natural gas pipeline in Bangladesh. The project faced significant delays due to local resistance, leading to an extension of the completion deadline to April 30, 1992.
- Saipem completed the project in June 1992, missing the extended deadline by six weeks. Although Petrobangla initially released part of the retention money and issued the Certificate of Final Taking Over, it withheld the Warranty Bond and failed to pay additional costs for the project extension. Consequently, disputes arose, leading to arbitration under the Rules of the International Chamber of Commerce (ICC), with Dhaka designated as the venue.
ICC Arbitration
In April 1994, Saipem initiated ICC arbitration, seeking approximately USD 11 million in unpaid dues and the return of the Warranty Bond. Petrobangla counterclaimed for approximately USD 10.6 million. The ICC Tribunal, constituted in May 1994, rejected Petrobangla’s jurisdictional challenges and procedural requests. In response, Petrobangla sought judicial intervention from the Dhaka Subordinate Court, which revoked the ICC Tribunal’s authority in 2000. Despite this order, the ICC Tribunal continued its proceedings and awarded Saipem USD 6.15 million plus interest.
The Bangladesh High Court subsequently declared the ICC award a nullity, arguing that the Tribunal’s authority had been validly revoked. Saipem chose not to appeal this decision, citing a lack of confidence in the Bangladeshi judiciary.
ICSID Arbitration
Saipem filed a claim with the ICSID on October 5, 2004, against the Government of Bangladesh, alleging judicial expropriation and a breach of the Italy-Bangladesh Bilateral Investment Treaty (BIT). Saipem contended that the undue intervention of Bangladeshi courts deprived it of its contractual rights and amounted to an expropriation.
Award
The ICSID Tribunal delivered its final award on June 30, 2009, ruling in favour of Saipem in a case against Bangladesh. The Tribunal concluded that Bangladesh had violated its obligations under the Italy-Bangladesh Bilateral Investment Treaty (BIT) by expropriating Saipem’s rights through judicial misconduct. As a result, Bangladesh was ordered to compensate Saipem for the damages suffered.
Key determinations by the Tribunal clarified important principles in investment arbitration. Firstly, it recognized that intangible contractual rights could be subject to expropriation, broadening the scope of protected investment rights under international law. Secondly, the Tribunal affirmed that judicial actions, when conducted illegally and resulting in significant deprivation, can constitute expropriation. Lastly, the application of the Salini test was crucial in establishing that Saipem’s operations in Bangladesh qualified as an investment under the BIT framework. These rulings underscored the importance of judicial integrity and investment protection in international legal disputes.
Key legal issues discussed
1. Did the actions of the Bangladeshi courts constitute an expropriation under international law?
Yes
The ICSID Tribunal held that the judicial actions deprived Saipem of the benefit of the ICC award, effectively amounting to an expropriation within the meaning of Article 5 of the BIT.
2. Were the actions of the Bangladeshi courts’ illegal under international law?
Yes
The Tribunal applied the legality test and concluded that the courts exercised their supervisory jurisdiction for reasons unrelated to procedural misconduct, rendering their actions unlawful.
3. Did Saipem have to exhaust local remedies before bringing the claim to ICSID?
No
The Tribunal accepted Saipem’s argument that pursuing further legal remedies in Bangladesh was futile, given the judicial context.
4. Did Saipem accept the risk of judicial intervention by agreeing to Dhaka as the seat of arbitration?
No
The Tribunal ruled that accepting a venue for arbitration does not imply consent to judicial misconduct that undermines international arbitration standards.
5. Were the actions of the Bangladeshi courts attributable to the Government of Bangladesh?
Yes
The Tribunal determined that judicial actions are attributable to the state under international law.
6. Was Saipem a case of expropriation or denial of justice?
Yes
It was treated as a case of expropriation. The ICSID Tribunal concluded that the Bangladeshi courts caused "indirect expropriation" by abusing judicial power, which deprived Saipem of meaningful arbitration. The Tribunal invoked Article 4 of the ILC[1] as part of DARSIWA (2001) to attribute judicial acts to the host-state. Although denial of justice might have been a more fitting claim, the Italy-Bangladesh BIT limited arbitration claims to expropriation, prompting Saipem to frame its claim accordingly.
7. Did the Bangladesh judiciary abuse its power in its interface with international arbitration?
Yes
According to the ICSID Tribunal. The Bangladeshi courts exercised their authority under domestic arbitration laws by restraining the ICC arbitration and declaring its award void. However, the ICSID Tribunal found that these actions violated the New York Convention and international arbitration principles by preventing the continuation of ICC arbitration in bad faith, thus constituting an abuse of judicial power.
8. Was it just for the ICSID Tribunal to rule out the need for exhaustion of local remedies?
No
The ICSID Tribunal ruled that exhaustion of local remedies is not a substantive requirement for expropriation claims by the judiciary. However, under international law, exhaustion is a key precondition for denial of justice claims. By bypassing this requirement, the Tribunal set a precedent for investors to circumvent local remedies in judicial expropriation cases.
9. Was treating a contract claim as a treaty claim proper for the ICSID Tribunal?
No
The ICSID Tribunal effectively elevated a contractual dispute between Saipem and Petrobangla to a treaty claim by holding the host-state liable for judicial interference. Treaty claims derive from alleged violations of international investment treaties, while contractual claims arise from specific investment agreements. The Italy-Bangladesh BIT did not contain an umbrella clause that could justify treating a contract claim as a treaty claim.
10. Did the ICSID Tribunal's approach undermine the supervisory jurisdiction of domestic courts?
Yes
By asserting jurisdiction and validating Saipem's claims despite Bangladeshi courts' supervisory authority under national law, the ICSID Tribunal effectively diminished the role of domestic courts in reviewing arbitration awards. The Tribunal's decision implied that international law and BIT obligations could override the supervisory functions granted by national legislatures.
11. Was the ICSID Tribunal's interpretation of expropriation consistent with international law principles?
No
It was controversial. The Tribunal broadened the scope of expropriation to include judicial interference, which many scholars view as an improper extension of ICSID's arbitral authority. Traditional expropriation claims require substantial deprivation of investment, typically through executive or legislative actions rather than judicial acts.
[1] Article 4 of the International Law Commissions.
