Arbitral Decision in Saipem v.

Bangladesh Revisited—
Contending Perspectives on Judicial Expropriation, Treaty Claims, and Interface between
International Arbitration and Municipal Courts

By Caf Dowlah, Ph.D.

I. INTRODUCTION

In order to protect foreign investors from mistreatment by a host-state, customary international law
traditionally prohibited a denial of justice and expropriation, and provided rules on international minimum
standard and diplomatic protection as principal means of dispute settlement.1 Historically, such rules and
principles were also extended to treatment of aliens’ life, property, and security in a host state,2 although the
Calvo Doctrine famously advocated that no state should be required to offer greater protection to foreign
investors than it offers to its own nationals as long as there is no discrimination against a foreign investor or
any infringement of international legal rule.3
In recent decades, however, a phenomenal rise in international investment treaties, the number of
investment-related disputes,4 and institutionalization of investor-state arbitration forums5 have ushered in
highly legalized foreign investment regimes which offer a wide range of legal standards that can be invoked by
foreign investors to seek redress to host-state actions before international arbitral tribunals.6 Foreign investors
can also challenge domestic judicial conduct under the treaty standards on expropriation, fair and equitable
treatment, and host-state’s obligation to ensure effective means of asserting claims.7
The Saipem S.p.A. v. The People’s Republic of Bangladesh (henceforth Saipem) brings forth many of these
vexing issues to the forefront as in a matter of protection of foreign investors adversely affected by
questionable actions of a host-state’s judicial system, the International Centre for Settlement of Investment
Disputes (ICSID) has established a claim for judicial expropriation for which the host-state was held liable.8
The Award raises several far-reaching questions pertaining to contemporary international investment law and
arbitration, such as: (a) where one can draw the line between the claims of denial of justice and lack of
exhaustion of domestic remedies; (b) how instrumental is the requirement of exhaustion of domestic judicial
remedies for moving an investment dispute to international arbitration; (c) what modus operandi govern the
intersection of international arbitration and domestic/municipal courts; (d) how international courts exercise
their jurisdictional rights in matters where domestic courts set aside international arbitral award; (e) how a
contract claim can be elevated to a state claim; and finally, (f) how to enforce international arbitral awards as
domestic judgments.

1 J. D’Aspremont, “International Customary Investment Law: Story of a Paradox,” in T. Gazzini and E.

Branandere, eds., International Investment Law: The Sources of Rights and Obligations, (Martinus Nijhoff, 2012), at 10-11.
2 S. Schill, The Multilateralization of International Investment Law (Cambridge University Press, 2009), p. 127. Also,
see R. Dolzer, “Permanent Sovereignty over Natural Resources and Economic Decolonization,” 7 Human Rights Law
Journal, 27 (1986).
3 Capital exporting countries however objected to the Calvo Doctrine by maintaining that capital importing
countries generally granted lower standards to their citizens compared with their countries. See R. Dolzer and C.
Schreuer, Principles of International Investment Law, 2nd ed., (Oxford University Press, 2012), at 2-3.
4 See UNCTAD Note on “International Disputes on the Rise.” Available at https://unctad.org/press-
material/international-investment-disputes-rise/.
5 Currently, there are more than 3,000 bilateral investment treaties (BITs) in the world involving over 150
countries, which entitle foreign investors to national treatment or most favored nation (MFN) treatment. Most of the
BITs also incorporate the international minimum standard, ‘fair and equitable treatment’ and ‘full protection and
security’ and so on. Also, there are now more than 75 Preferential Trade and Investment Treaties (PTIAs) in the world,
which go far beyond the traditional BITs to include rights of admission and establishment clauses. See E. Denters,
“Preferential trade and investment treaties,” in Gazzini and E. Branandere, supra note 1, at 49-68.
6 See M. Sattorova, “Judicial Expropriation or Denial of Justice? A Note on Saipem v. Bangladesh,” 2
International Law Review, 220-238 (2012).
7 See a good collection of essays on these issues in Gazzini and Brabandere, supra note 1.
8 Sattorova, supra note 6, at 226.

Electronic copy available at: https://ssrn.com/abstract=4151989

 The paper examines these questions in the context of the ICSID award in Saipem. The paper is
organized as follows: Section II provides the factual and procedural details of the case; section III examines
the jurisdictional issues from the standpoints of the claimant, the respondent, and the ICSID Tribunal;
Section IV provides a critical review of relevant questions and issues in light of the existing literature on
international investment law and arbitration; and Section V concludes the paper.

II. BACKGROUND AND PROCEDURAL MATTERS

An Italian oil and gas company named Saipem S.p.A, and a state-owned entity of Bangladesh named
Petrobangla (Bangladesh Oil, Gas and Mineral Corporation) entered into a joint venture agreement on
February 14, 1990 to build a natural gas pipeline in the north-eastern parts of Bangladesh.9 The contract
stipulated that any dispute between the parties would be resolved under the Rules of Conciliation and
Arbitration of the International Chamber of Commerce (ICC), and Dhaka, the capital of Bangladesh, would
be the venue of such arbitration.10
Initially the project was slated for completion by 30 April, 1991, but its completion was “significantly
delayed” because of resistance from local population.11 The parties then mutually agreed to extend the project
deadline to 30 April, 1992, but left unresolved the issues of compensation and additional costs involved in the
extension as well as the issues of the project’s Warranty Bond and Retention Money.12
Saipem completed the pipeline and handed it over to Petrobangla on 14 June, 1992—missing the
revised deadline by about 6 weeks. Three days later, Petrobangla returned the first half of the Retention
Money and issued the Certificate of Final Taking Over but reneged on releasing the Warranty Bond. The
dispute thus centered on Petrobangla’s failure to pay the additional costs involved in the extension of the
project and to return the Warranty Bond and the balance of the Retention Money.13 The ensued arbitration
process on the dispute then progressed in two phases.

Phase 1: The ICC Arbitration

In April 1994, Saipem initiated an ICC arbitration seeking approximately USD11 million in
outstanding payments from Petrobangla under the provisions of the original contract as well as under the
extension agreement, and demanded that Petrobangla return the Warranty Bond.14 Petrobangla however not
only opposed those claims but also filed a counterclaim of approximately USD10.6 million against Saipem.

9 The contract was for building a 409km long pipeline to transport condensate and gas to various locations of
the north-eastern Bangladesh. The project, with a price tag of USD 34.8 million (BDT 415,664,200), was sponsored by
the World Bank and financed largely by the International Development Association (IDA). See Saipem S.P.A. v. The
People’s Republic of Bangladesh, Decision on Jurisdiction and Recommendation on Provisional Measures, International
Center for Settlement of Investment Disputes. March, 2007. Henceforth ICSID (2007). Available at:
<https://arbitrationlaw.com/sites/default/files/free_pdfs/Saipem%20v%20Bangladesh%20-%20Jurisdiction.pdf>.
10 See M. Polasec, Saipem S.P.A. v. The People’s Republic of Bangladesh (ICSID Case No. ARB/0/7): Introductory Note
(2007), at 95. Available at: <http://icsidfiles.worldbank.org/icsid/icsidblobs/onlineawards/C52/DC850.pdf>.
11 See ICSID (2007), supra note 9, para 11.
12 The Saipem-Petrobangla contract, in Clause 1.2.5 provided that Petrobangla had the right to retain 10% of each
progress payment due to Saipem as “Retention Money,” which was to be released to Saipem in two tranches—half of it
not later than 30 days from the issuance of the “Final Taking Over Certificate” by Petrobangla, and the other half not
later than 30 days from the issuance of such a certificate. Saipem’s “Warranty Bond” was issued by Banque Indosuez,
and the contract stipulates that Petrobangla would release the bond no later than 30 days from the issuance of the
Certificate of final acceptance. Id. para 8.
13 Id., para 9.
14 As mentioned above, the original Saipem-Petrobangla contract stipulated that any dispute between the parties
would be subject to ICC Rules of Conciliation and Arbitration, and Bangladesh capital would be the venue of such
arbitration.

Electronic copy available at: https://ssrn.com/abstract=4151989

 In May, 1994 a three-member ICC Tribunal was constituted.15 During the arbitration, the ICC
Tribunal rejected several procedural requests made by Petrobangla and overruled Petrobangla’s challenge to
its jurisdiction in this matter.16 Petrobangla then brought an action with the First Court of the Subordinate
Judge of Dhaka on 16 November, 1997, seeking revocation of the ICC Tribunal’s authority in this matter on
the ground of alleged misconduct of the ICC arbitrators and breach of procedural rights of Petrobangla.17
The next day, on 17 November, 1997, Petrobangla also filed a separate petition with Bangladesh
High Court seeking a decision to stay all further proceedings of the ICC arbitration and/or restrain Saipem
and/or the ICC Tribunal from moving ahead with the arbitration.18 The High Court granted the stay within a
week rejecting Saipem’s objection that the Bangladeshi courts lacked jurisdiction to revoke the authority of
the ICC Tribunal.19 Then, on 5 April, 2000, the Subordinate Judge of Dhaka also issued an order revoking the
authority of the ICC Arbitral Tribunal in this matter.20
Despite its authority being revoked, the ICC tribunal continued its proceedings holding that the
Bangladeshi courts lacked jurisdiction to decide on a challenge or replacement of the arbitrators in an ICC
arbitration as such matters fell within the exclusive jurisdiction of the ICC International Court of
Arbitration.21 On 9 May, 2003, the Tribunal rendered its award holding that Petrobangla breached its
contractual obligations by not paying Saipem the compensation for the extended time and additional works,
and ordered Petrobangla to pay Saipem USD6.15 million plus EUR110,996 (unpaid part of Retention Money)
plus interest at 3.375% from 7 June, 1993, and return the Warranty Bond to Saipem.22
Petrobangla then brought a cause of action before the Bangladesh High Court to set aside the ICC
award pursuant to Sections 42(2) and 43 of the Bangladesh Arbitration Act, 2001.23 The High Court however

15 The ICC Tribunal was constituted on 22 August, 2005 with Dr. Werner Melis as chairman, and professors
Riccardo Luzzatto and Ian Brownlie as members. See Case Details, Saipem S.P.A. v. The People’s Republic of Bangladesh.
Available at: <https://investmentpolicy.unctad.org/investment-dispute-settlement/cases/207/saipem-v-bangladesh>.
16 Petrobangla’s procedural requests included the following: (i) striking out from the record the witness statement
of Mr. Clark—a key witness on behalf of Saipem; (ii) allowing all witnesses to be present in the hearing room during the
entire hearing; (iii) addition of a letter from Petrobangla which was not on record during cross-examination of a witness;
(iv) striking out from the record a “draft aide-mémoire” of the World Bank and certain cost calculations prepared by
Saipem; and (v) making available the transcripts and tape recordings of the hearing. See ICSID (2007), supra note 9, para
31.
17 See “Saipem vs. Bangladesh-A Complete Study,” Bangladesh Journal of Legal Studies, 14 February, 2017. Available
at <https://bdjls.org/saipem-vs-bangladesh-complete-study/>.
18 See Bangladesh High Court case: Saipem S.p.A. vs. Petro-Bangla: (5 MLR(AD) (2000) 45), cited in supra note 15, at
2.
19 See S. Sattar, “National Courts and International Arbitration: A Double-edged Sword?”, 27 Journal of
International Affairs, 72 (2010).
20 Apparently, the Bangladeshi courts derived authority from Article 5 of Bangladesh Arbitration Act, 1940,
which allows the courts to revoke the powers of international arbitrators. The article reads as follows: “‘The authority of
the appointed Arbitrator or umpire shall not be revocable except by leave of the court, unless a contrary intention is
expressed in the arbitration agreement.’ See L. Fortier, “ Investor-State Tribunals and National Courts—A Harmony of
Spheres in Practicing Virtue,” in D. Caron et al. (Oxford University Press, 2015), at 291.
21 Id., at 69.
22 ICSID (2007), supra note 9, paras 20-21.
23 Section 42 (2) of Bangladesh Arbitration Act, 2001 states that the High Court Division may set aside any
arbitral award made in an international commercial arbitration held in Bangladesh on the application of a party within
sixty days from the receipt of the award. Section 43 of the Act provides the following grounds for setting aside arbitral
award: (a) the party making the application furnishes proof that- (i) a party to the arbitration agreement was under some
incapacity; (ii) the arbitration agreement is not valid under the law to which the parties have subjected it; (iii) the party
making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or
was otherwise unable due to some reasonable causes to present his case; (iv) the arbitral award deals with a dispute not
contemplated by or not falling within the terms of the submission to arbitration or it contains decision on matters
beyond the scope of the submission to arbitration; (v) the composition of the arbitral tribunal or the arbitral procedure
was not in accordance with the agreement of the parties, and the court or the High Court Division, as the case may be, is
satisfied that (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time
being in force in Bangladesh; (ii) the arbitral award is prima facie opposed to the law for the time being in force in

Electronic copy available at: https://ssrn.com/abstract=4151989

denied the petition arguing that “a non-existent award can neither be set aside nor can it be enforced,”24 by
maintaining that “the authority of the (ICC) Arbitral Tribunal to proceed with the Arbitration” was revoked.
The Court however did not make any reference to alleged deficiencies of the ICC Tribunal or
jurisdiction/merits of the dispute.25

Phase II: The ICSID Arbitration

Although Bangladesh High Court’s verdict effectively rendered the ICC award non-existent and
unenforceable within the country’s territory, Saipem refrained itself from appealing the decision to the
country’s highest court—the Bangladesh Supreme Court—as “any expectations to succeed (in higher court)
appeared unsustainable under the circumstances.”26 Depending on the ‘obvious futility’ principle, Saipem
rather proceeded to place its arbitration request before the ICSID.
Saipem’s Arguments. Saipem brought its case before the ICSID on 5 October, 2004, framing its
charges against the Government of Bangladesh, not against Petrobangla, and making a treaty claim based on
the alleged breach of Article 5 of the Italy-Bangladesh bilateral investment treaty (BIT).27 Saipem argued that
the undue intervention of the Bangladeshi courts in the ICC arbitration, which precluded the enforcement of
the ICC award, as a matter of fact, constituted a judicial expropriation without compensation.28 Saipem thus
switched a contract claim to a treaty claim to hold the government of Bangladesh accountable for the alleged
breach of contract by one of its SOEs.
Saipem pressed six specific charges before the ICSID tribunal: i) Petrobangla colluded with
Bangladeshi courts to “sabotage the ICC arbitration” in order to deny Saipem’s right to “arbitrate under the
Contract and obtain satisfaction of its claims;” ii) per the ICC Arbitration Rules, the parties “validly excluded
the authority of the Bangladeshi courts as “the seat of arbitration;” iii) the Saipem-Petrobangla Contract
constitutes “an investment” under the Italy-Bangladesh BIT; iv) intangible rights could be subject to
expropriation; v) Saipem had “contractual right” of “an economic value” to settle dispute with Petrobangla
through arbitration; and vi) the actions of Petrobangla and the Bangladeshi courts could be attributed to the
Republic of Bangladesh.29
Bangladesh’s Arguments. Before the ICSID tribunal Bangladesh argued that Saipem’s claim was
“in reality a contractual claim dressed up as a treaty claim,” and maintained that the Tribunal lacked

Bangladesh; (iii) the arbitral award is in conflict with the public policy of Bangladesh; or (iv) the arbitral award is induced
or affected by fraud or corruption. For greater details see <https://www.biac.org.bd/arbitration-act-2001/>.
24 ICSID (2007), supra note 9, para 36.
25 See “Award: Saipem S.p.A v. The People’s Republic of Bangladesh,” ICSID Case No. ARB/05/7. 30 June, 2009, para
107. Henceforth ICSID (2009). Available at: <https://www.italaw.com/sites/default/files/case-
documents/ita0734.pdf>.
26 Saipem argued: “Because of the hostile climate in Bangladesh and because we were firmly convinced that the
revocation of the authority of the Arbitral Tribunal was completely illegal by all standards, we knew that we had no
alternative but to proceed with the arbitration…it was clear that we would not be in a position to defend ourselves
before the local courts and that the climate was incompatible with a fair trial…our witnesses, including the members of
the arbitral tribunal, would have risked being in physical danger had they come to testify in Dhaka.” ICSID (2007), supra
note 9, at para 103.
27 The Republic of Italy and the People's Republic of Bangladesh signed the BIT on March 20, 1990, and it came
into force on September 20, 1994. See M. Polasec, supra note 8, at 95.
28 Article 5 of the BIT defines expropriation as follows:
(1) The investments to which this Agreement relates shall not be subject to any measure which might limit permanently
or temporarily their joined rights of ownership, possession, control or enjoyment, save where specifically provided by
law and by judgments or orders issued by Courts or Tribunals having jurisdiction;
(2) Investments of investors of one of the Contracting Parties shall not be directly or indirectly nationalized,
expropriated, requisitioned or subjected to any measures having similar effects in the territory of the other Contracting
Party, except for public purposes, or national interest, against immediate full and effective compensation, and on
condition that these measures are taken on a non-discriminatory basis and in conformity with all legal provisions and
procedures. See ICSID (2007), supra note 9, para 117.
29 ICSID (2007), supra note 9, paras 61-62.

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jurisdiction over the matter as Saipem had not proven a prima facie case, and demanded that the claim be
dismissed in its entirety, and an award of costs made in favor of Bangladesh.30
Bangladesh made the following specific claims: i) Saipem did not make an investment in Bangladesh
within the meaning of the Italy-Bangladesh BIT; ii) since the seat of the ICC Arbitration was Dhaka, the
courts of Bangladesh had jurisdiction to revoke the authority of the ICC Arbitral Tribunal; iii) in Article 5(1)
of the BIT, Bangladesh had expressly excluded consent in respect of “judgments or orders issued by Courts
or Tribunals having jurisdiction;” iv) Saipem elected not to lodge an appeal to a higher court, and thus
deprived Bangladesh of the opportunity to rectify the alleged wrongdoings of its lower courts in connection
with the ICC arbitration; and v) by agreeing on the ICC Arbitration in Dhaka, Saipem accepted any potential
failure to enforce an ICC award in its favor in Bangladesh as a calculated business risk.31

ICSID’s Determination of Jurisdiction

The ICSID Tribunal, composed of three arbitrators, 32acknowledged at the outset that its jurisdiction
over the dispute was contingent upon the provisions of the Italy-Bangladesh BIT as well as the ICSID
Convention, not the law applicable to the merits of the dispute,33 and claimed its jurisdiction over the matter
per Article 25(1) of the ICSID Convention34 and Article 9 of the BIT.35
During the hearing, Bangladesh reiterated its objection that the Washington Convention36 did not
allow the ICSID Tribunal to use the ICC Tribunal’s findings. Bangladesh also challenged the admissibility of
Saipem’s claim of investment within the meaning of Article 1(1) of the Italy-Bangladesh BIT and claimed that
the alleged breach did not cross “the necessary threshold for establishing that the actions were that of the
state of Bangladesh in the exercise of its sovereign authority,” and accused Saipem of abusing the arbitration
process.37
Saipem, on the other hand, maintained that it had “invested substantial technical, financial and
human resources in the project, which gave a substantial contribution to Bangladesh’s economic
development, and it assumed risks for a significant duration” as the performance phase lasted two and a half
years.38 Referring to the ICC proceedings, Saipem also asserted that Bangladesh’s “disavowal of its
undertaking to arbitrate a contractual dispute” had a “confiscatory effect” as it “resulted from a complex
behavior of the whole state, which reneged on its obligations to enforce the arbitration award and to respect
the proper conduct of the arbitration proceedings.”39
The ICSID tribunal rejected Bangladesh’s plea that the Washington Convention did not allow it to
use the ICC Tribunal’s findings and that Saipem did not request the Tribunal to “accept and use” the ICC
Tribunal’s findings. The Tribunal clarified that it was rather requested to review whether the ICC Award was

30 Id. paras 64 and 87.

31 Id. para 63. For Article 5 (1) of Italy-Bangladesh BIT see footnote 29.
32 Saipem appointed Christoph Schreuer, an Austrian professor; Bangladesh appointed Sir Philip Otton, a British
national; and they jointly picked Gabrielle Kaufmann-Kohler, a Swiss professor to chair the tribunal. See Polasec, supra
note 10, at 96.
33 For greater details see G. Kaufmann-Kohler, “Arbitral Precedent: Dream, Necessity or Excuse? Freshfields
lecture 2006,” 23 Arbitration International (2007) at 357-378.
34 Article 25(1) of the ICSID Convention reads as follows: “The jurisdiction of the Centre shall extend to any
legal dispute arising directly out of an investment between a Contracting State (or any constituent subdivision or agency
of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the
parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party
may withdraw its consent unilaterally.” See ICSID (2007), supra note 9, para 69.
35 Article 9 (1) of the Italy-Bangladesh BIT provides ICSID arbitration on the following grounds: “Any disputes
arising between a Contracting Party and the investors of the other, relating to compensation for expropriation,
nationalization, requisition or similar measures including disputes relating to the amount of the relevant payments shall
be settled amicably, as far as possible.” Id. para 70.
36 The World Bank sponsored convention on the “Settlement of Investment Disputes between States and
nationals of other States,” which established the ICSID Tribunal, is also known as the Washington Convention (1965).
37 Id. para 76.
38 Id. para 100.
39 Id. para 129.

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contrary to the protection provided in the Italy-Bangladesh BIT,40 and in its opinion, Article 9 of the BIT
provided the Tribunal clear jurisdiction in this matter.41
The Tribunal then focused on the disputed concept of ‘investment.’ At the hearing, Bangladesh
invoked Soabi v. Senegal42 to argue that Saipem was never a “net creditor vis-à-vis Petrobangla in respect of the
Pipeline Contract having actually put its own money into the project.” Saipem countered the argument by
claiming that in “construction and similar projects it is often the case that the foreign investor receives a part
of the funds by way of advances or partial payments form the host State prior to completion of the project”
and this fact was never given any relevance to case law which characterized this type of contract as
investment.43
To determine whether Saipem had made an ‘investment’ in Bangladesh, the ICSID Tribunal then
applied the ‘Salini Test,’ which underscores the presence of four elements for an ‘investment’: a) a
contribution of money or other assets of economic value; b) a certain duration; c) an element of risk; and d) a
contribution to the host State’s development.44 Based on the test, the Tribunal then determined that Saipem
had made an investment within the meaning of Article 25 of the ICSID Convention.
The ICSID Tribunal then considered whether the vested rights of Saipem, that is, the right to
arbitration and the right to the proceeds of the ICC award, were capable of being protected under
international law. Citing the jurisprudence of the European Court of Human Rights as well as several other
precedents, the Tribunal held that under widely accepted principles of international law such intangible rights
were capable of being expropriated, and hence were entitled to be protected from expropriation, and that the
Bangladeshi court decisions could amount to expropriation under international law.45
The Tribunal however held that the “substantial deprivation of Saipem´s ability to enjoy the benefits
of the ICC Award is not sufficient to conclude that the Bangladeshi courts’ intervention is tantamount to an
expropriation,” and in order to give rise to such a claim for expropriation, the actions of Bangladeshi courts
must be illegal as well. The Tribunal then applied the ‘legality test’ to adjudge “the unlawful character of the
actions’ of the Bangladeshi courts,”46 while maintaining that such a test in Saipem “should not be understood
as a departure from the “sole effects doctrine.”47

The ICSID Award

The ICSID Tribunal rendered its Final Award on 30 June, 2009.48 The Award focused on two
interrelated issues: a) whether the Bangladeshi court’s interventions were within the limits of their supervisory

40 ICSID (2007), supra note 9, at para 115.

41 Article 9 (2) of the Italy-Bangladesh BIT states:
In the event that a dispute cannot be settled amicably within six months of the date of a written application. The
investor in question may submit the dispute, at his discretion, for settlement to:
a) the Contracting Party’s Court, at all instances, having territorial jurisdiction;
b) an ad hoc Arbitration Tribunal, in accordance with the Arbitration Rules of the “UN Commission on International
Trade Law” (UNCITRAL),
c) the “International Centre for the Settlement of Investment Disputes” for the application of the arbitration procedure
provided by the Washington Convention of 18th March 1965 on the “Settlement of Investment Disputes between States
and nationals of other States”, whenever, or as soon as both Contracting Parties have validly acceded to it. Id., at 116.
42 ICSID Case No. ARB82/1 Award of 25 February, 1988, 2 ICSID Reports 190.
43 ICSID Case No. ARB/05/07, supra note 9, at paras 103 and 104.
44 See Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on
Jurisdiction of 23 July 2001, 42 International Legal Matters (2003). Available at: <https://www.italaw.com/cases/958>.
45 The ICSID Tribunal, for example, cited Phillips Petroleum Iran v. Islamic State of Iran (Iran-US Claims Tribunal
Case No. 39; Stran Greek Refineries v. Greece—13427/87 (1994); and Brunarescu v. Romania, 10 Human Rights Case Digest,
Nos. 10-12,237-41 (1999). ICSID (2009), supra note 25, paras 129 & 130.
46 Id., para 123.
47 Id., para 115. The ‘sole effect” doctrine, developed by the ICSID in Compania Del Desarrollo de Santa Elena, S.A.
v. Republic of Costa Rica, stipulates that the most important element for determination of an ‘indirect expropriation’ lies
with the question whether the deprivation is substantial. For greater details, see ICSID Final Award. February 17, 2000.
Available at: <https://www.cambridge.org/core/journals/international-legal-materials>.
48 ICSID (2009), supra note 25.

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jurisdiction; and b) whether those interventions amounted to an expropriation. To seek answers to these
issues, the Tribunal framed five questions: i) did Bangladeshi courts’ actions meet the general conditions of an
expropriation; ii) are the disputed actions of the Bangladeshi courts of Bangladesh illegal; iii) did Saipem have
to exhaust local remedies; iv) did Saipem accept the risk of the revocation of the arbitrators’ authority by
accepting Dhaka as the seat of the arbitration; and finally (v) were the disputed actions of Bangladeshi courts
attributable to the host-country Bangladesh.49
In its earlier ‘Decision on Jurisdiction,’ issued in March 2007, the ICSID Tribunal determined
Saipem’s claim of ‘investment” under Article 25 of the ICSID Convention by considering “the entire
operation” including “the Contract, the construction itself, the Retention Money, the warranty and the related
ICC Arbitration,”50 and concluded that the expropriated “property” consisted of “Saipem´s residual
contractual rights under the investment as crystallized in the ICC Award.”51 The Tribunal’s final award
maintained the same stance by ruling that “Bangladesh has not put forward convincing arguments that such
rights should not be considered expropriable rights.” 52
Similarly, in its ‘Decision on Jurisdiction,’ the Tribunal held that the actions of the Bangladeshi courts
did not constitute a direct expropriation but they had “similar effects” within the meaning of Article 5(2) of
the Italy-Bangladesh BIT as they deprived Saipem of the benefit of the ICC Award, and that the decision of
Bangladesh High Court that the ICC Award was a nullity tantamounted to “an expropriation within the
meaning of Article 5 of the BIT.”53 The Tribunal’s final award also reached the same conclusion.54
In respect to the question whether the disputed action of Bangladeshi courts was illegal, the Tribunal
in its “Decision on Jurisdiction” emphasized that “there is an expropriation if the deprivation is substantial.”55
The Final Award of the Tribunal maintained the same position by asserting that different Bangladeshi
courts de facto frustrated the arbitration agreement by issuing several injunctions against the continuation of
the ICC Arbitration. 56 The Tribunal however ruled out that the Bangladeshi courts acted in collusion or
conspired with Petrobangla as “the courts refused the orders sought by Petrobangla on at least two
occasions.”57
In its final award, the Tribunal however pointed out that although the Bangladeshi courts had
discretion to revoke arbitrators’ authority in cases of misconduct, they cannot use this discretion “based on
reasons wholly unrelated to such misconduct.”58 The Tribunal also maintained that the Bangladeshi courts
“exercised their supervisory jurisdiction for an end which was different from that for which it was instituted
and thus violated the internationally accepted principle of prohibition of abuse of rights.” 59 In its sharpest
rebuke, the Tribunal concluded that the revocation of the ICC arbitrators’ authority by the Bangladeshi courts
was contrary to international law, in particular to the principles of the New York Convention.”60
Referring to exhaustion of local remedies, the Tribunal maintained that although Article 26 of the
ICSID Convention required exhaustion of local remedies in claims based on denial of justice, unless
contracting parties waive such a precondition, “exhaustion of local remedies did not apply in expropriation

49 Id., paras 116 & 117.

50 ICSID (2007), supra note 9, paras 110 and 111.
51 Id., supra note 9, para 129.
52 ICSID (2009), supra note 25, para 128.
53 ICSID (2007), supra note 9, paras 132 and 133.
54 ICSID (2009), supra note 25, para 129. The Tribunal even went further to assert that “the intervention of the
Bangladeshi courts culminating in the declaration of the Supreme Court that the ICC Award was “non-existent”
substantially deprived Saipem of its rights and thus qualifies as a taking.” Id., para 130.
55 The Tribunal referred to Case Law of Compañía del Desarrollo de Santa Elena, S.A. v. Republic of Costa Rica, ICSID
Case No. ARB/96/1, Award of 17 February 2000, 5 ICSID Reports 153, at 77-78. Id., para 124.
56 Id., para 147.
57 Id., para 147.
58 The Tribunal stated: “… taken together, the standard for revocation used by the Bangladesh courts and the
manner in which the judge applied that standard for the facts indeed constituted an abuse of rights.” Id., para 157.
59 Id., para 161.
60 Id., para 170.

Electronic copy available at: https://ssrn.com/abstract=4151989

law” as a matter of principle.61 The Tribunal thus concluded that “exhaustion of local remedies does not
constitute a substantive requirement of a finding of expropriation by a court.”62
The Tribunal also dispelled Bangladesh’s claim that by accepting Dhaka as the seat of arbitration,
Saipem had accepted the risk of interference by local courts, and maintained that Saipem’s submission to local
courts implied that “the courts (would) exercise their jurisdiction to ends for which it is created and do not
abuse their powers,” and that the Tribunal had already established that Bangladeshi courts’ “intervention (in
the matter) was abusive.”63
Regarding the question whether the disputed actions of Bangladeshi courts can be attributed to the
host state Bangladesh, the Tribunal maintained that different Bangladeshi courts de facto frustrated the
arbitration agreement by issuing several injunctions against the continuation of the ICC Arbitration,64 and as
the courts of Bangladesh are “part of the State” in the meaning of Article 4 of the International Law
Commission (ILC), the state of Bangladesh was accountable for indirect expropriation by its organ of
courts.65
The ICSID Tribunal then determined that Saipem was entitled for a compensation for expropriation,
which should be “the real market value of the investment,” per Article 5(1)(3) of the Italy-Bangladesh BIT. 66
But then Tribunal backtracked itself by acknowledging that the principle was not applicable in Saipem as such
compensation was applicable to lawful expropriation. Finally, the Tribunal determined its Award following
the principle set out by the Permanent Court of International Justice (PCIJ) in the Chorzów Factory case,67
and awarded an amount equivalent to the ICC Award plus 3.375% interest per annum with effect from 7
June 1993.68

III. REVIEW OF THE ICSID AWARD

As the discussion above indicate, Saipem has brought forth to surface scores of contentious issues
involving international law, international investment law, and international investment arbitration. Saipem has
not only provided protection to foreign investors from questionable actions of host country’s judicial system,
it has also established a claim of judicial expropriation for which the host-state was held liable. The case has
also thrown wide open the questions of precondition of exhaustion of local administrative or judicial
remedies for seeking international arbitration, the interface of international investment tribunals with
municipal/domestic courts, the proper spheres of contract claims and treaty claims, the jurisdiction of
international tribunals over SOEs, and the supervisory jurisdiction of domestic courts over foreign
investment.
It is thus not surprising that Saipem has stimulated considerable intellectual debate around the world.
At least four major strands of thought can be gleaned from available literature: a) the determination that the
acts of the Bangladeshi courts amounted to an indirect expropriation, rather than denial of justice, is highly
controversial; b) Saipem has set a rightful precedent to hold a host-state responsible for expropriation based

61 Id., para 151.

62 Id., para 181.
63 Id., paras 187, and 149.
64 ICSID (2009), supra note 25, paras 188-191.
65 Article 4 of ILC as incorporated in the United Nations Draft Articles on Responsibility of States for
Internationally Wrongful Acts states: “The conduct of any State organ shall be construed as an act of that State under
international law, whether the organ exercises legislative, executive, judicial or any other functions, and whatever its
character as an organ of the government of a territorial unit of the State. See “Responsibility of States for Internationally
Wrongful Acts 2001,” available at: <https://legal.un.org/ilc/texts/instruments/english/draft_articles/9_6_2001.pdf>.
Also see, J. Cayre, “Introductory note to the international center for settlement of investment disputes: Saipem S.P.A. v.
the People's Republic of Bangladesh,” 48 International Legal Materials 996-998 (2009).
66 Id., paras 188-191.
67 In Factory at Chorzow the court held that a State should be obligated to pay compensation for any actions which
causes a loss, and for a proven loss, the Hull doctrine of “prompt, adequate and effective compensation” must apply.
Judgment of the PCIJ of 13 September 1928, PCIJ Series A. Vol 17 at 47.
68 ICSID (2009), supra note 25, paras 209-212.

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on illegal interference by its judiciary in international arbitration proceedings; c) the Saipem Award provides a
mechanism for countering the interference of national courts supervisory jurisdiction with international
arbitration;69 and d) the Award is a unique departure from other arbitral awards in international investments.70
These strands of thought have been examined below in greater details.

A. Was Saipem a case of expropriation or denial of justice?

Despite extensive use in relevant literature, proper legal meaning of the term “expropriation” remains
highly controversial, even “notorious” both in the business and legal community.71 Generally, it is understood
as taking of any tangible or intangible assets of nationals or foreigners by the host-state or by an organ of a
host-state.72 Obviously, such taking can take place both legally and illegally. Under the Hull Formula, an act of
expropriation is deemed lawful if it satisfies four conditions: (i) carried out for a public purpose; (ii) non-
discriminatory in nature; (iii) done in accordance with due process; and (iv) accompanied by prompt,
adequate, and effective compensation for the expropriated investment.73
The concept of “indirect expropriation” is no less controversial. Some scholars maintain that the
difference between a direct and an indirect expropriation lies with the fact whether the legal title of the owner
is affected by the expropriation measure. They maintain that to avoid bad publicity which may jeopardize
investment climate, a host-state may refrain from taking conspicuous steps in taking a foreign property, and
may leave the investor’s title untouched while depriving the owner of the possibility of utilizing his
investment in any meaningful way in order to deny the existence of an expropriation and avoid the
responsibility of paying compensation.74
As mentioned above, in Compania Del Desarrollo de Santa Elena, S.A. v. Republic of Costa Rica, the ICSID
determined that the most important element for determination of an ‘indirect expropriation’ lies with the
question whether the deprivation is substantial.75 In recent years however the concept of ‘indirect
expropriation’ has been interpreted more widely and intensely than obvious indirect expropriations, or
intentional creeping expropriations to capture “the multiplicity of inappropriate regulatory acts, omissions,
and other deleterious conduct that undermines the vital normative framework created and maintained by
BITs.”76
The concept of ‘denial of justice,’ on the other hand, is inextricably interlinked with the broader
concept of ‘access to justice.’ Under customary international law, ‘access to justice’ served as an integral part
of the principles of minimum standard under which an individual who have suffered an injury in a foreign
country at the hands of public authorities or of private entities must be afforded the opportunity to obtain

69 See Sattar, supra note 11, at 72.

70 See F. de Roa, “Comments on the ICSID Award Saipem v. Bangladesh: Would its rationale be applicable in
future cases?” International Institute of Conflict Prevention & Resolution, May 5, 2011. Available at:
<https://www.cpradr.org/news-publications/articles/2011-05-05-comments-on-the-icsid-award-saipem-v-bangladesh-
would-its-rationale-be-applicable-in-future-cases-2011-writing-contest-winner>.
71 See R. Dolzer and F. Bloch. “Indirect Expropriation: Conceptual Realignment?” International Law Forum 5:155-
165. 2003. Also see R. Dolzer. “Indirect Expropriation of Alien Property.” Foreign Investment Law Journal, 2986, 41.
However, a contemporary legal definition of the term “expropriation” can be found in Article 11(ii) of the Multilateral
Investment Guarantee Agency (1985), which defines “Expropriation and Similar Measures” as: “any legislative action or
administrative action or omission attributable to the host government which has the effect of depriving the holder of a
guarantee of his ownership or control of, or a substantial benefit from, his investment.
72 See, J. Cayre, supra note 62, at 997.
73 The “Hull Formula’ emerged from the exchanges between the US Secretary of State, Cordell Hull and the
Mexican Minister for Foreign Affairs, in connection with the expropriation of agrarian land and oil fields owned by
American citizens in Mexico in the 1920s and the 1930s. For greater details see Dolzer and Schreuer, supra note 3, at 98-
100; and d’Aspremont, supra note 1, at 12-13.
74 See Dolzer and Schreuer, supra note 3, p. 101. Also see S. Fietta, “Expropriation and the Fair and Equitable
Standard: The Developing Role of Investors’ Expectations,” 375 International Arbitration 23-25 (2006).
75 See supra note 47.
76 See R. Michael and R. Sloane, "Indirect Expropriation and its Valuation in the BIT Generation," 118-119
(2004). Faculty Scholarship Series, Yale School of Law. Available at
<http://digitalcommons.law.yale.edu/fss_papers/1002>.

Electronic copy available at: https://ssrn.com/abstract=4151989

redress before a court of law or appropriate administrative agency. The same principle also required
exhaustion of local remedies as a precondition for diplomatic protection. Thus, the issue of ‘denial of justice”
may arise only when “justice is not delivered, either because judicial remedies are not available or the
administration of justice is so inadequate, deficient, or deceptively manipulated as to deprive the injured alien
of effective remedial process.”77
In recent decades, however, the scope for invoking “denial of justice” has widened further due to
prodigious developments in bilateral investment treaties, regional trade agreements, investment arbitration
forums, and so on. Such developments have also largely shifted the right of access to justice for foreign
investor from inter-state claims to the private-to-state arbitration where private actors have direct access to
‘international’ remedial proceedings without recourse to the traditional diplomatic protection.78
A watershed moment to such a universal belief came with the United Nations Draft Articles on
Responsibility of States for Internationally Wrongful Acts (DARSIWA, 2001), which provides a
comprehensive set of principles to determine a host-state’s responsibility for wrongful acts under
international law,79 by signifying that municipal/domestic courts do not somehow stand apart from other
institutions of a host-state, that they are rather instrumentalities of a host-state like the legislative and
administrative branches, and thus, their acts and omissions can be attributed to the host-state. 80
In Saipem, although the ICSID Tribunal ruled out any conspiracy between state organs, such as
Petrobangla and the Bangladeshi courts or the government, it had definitively held the Bangladeshi courts
responsible for “abusing its power” and causing “indirect expropriation.”81 The Tribunal thus most certainly
treated the Bangladeshi courts as an instrumentality of the host-state just like any other branch of
government, and held the host-state responsible for the acts and omissions of a state organ. The Tribunal did
so by specifically invoking Article 4 of the ILC, which forms an integral part of the DARSIWA (2001).
By doing so, the ICSID Tribunal however must have significantly, and perhaps improperly,
broadened its jurisdiction and arbitral authority. Saipem itself acknowledged during the arbitration that the
facts of the case most likely constituted denial of justice rather than expropriation, and that the reason they
based their claims to ICSID Tribunal on expropriation, not on denial of justice, was that the Italy-Bangladesh
BIT did not confer jurisdiction to the ICSID Tribunal over a claim based on denial of justice.82
As a matter of fact, the Italy-Bangladesh BIT granted the scope of investment arbitration only to
cases based on expropriation or nationalization.83 Bangladesh was thus right in claiming that Saipem “dressed
up a contact claim to a treaty claim” to place the dispute before ICSID.84 Moreover, Article 4 of the ILC, nor

77 F. Francioni, “Access to Justice, Denial of Justice and International Investment Law,” 20 European Journal of
International Law, 736 (2009).
78 Id., at 731.
79 S. Perera, “State Responsibility for Acts of State-Controlled Entities in Investor-State Dispute Settlement,”
Chapter 9 in Alan Anderson and Ben Beaumont, Eds., The Investor-State Dispute Settlement System Reform, Replace or Status
Quo, (Netherlands: Wolter Kluwer, 2021), at 175-200.
80 See J. Paulsson, Denial of Justice, (Cambridge University Press, 2005), pp. 2-33. Some however maintain that
some tribunals and commentators postulate even wider basis for 'judicial' denial of justice in relation to arbitration. They
argue that, even in the absence of evidence of collusion with the executive, the mere granting of relief by a state's court
at the request of its executive, which has the effect of nullifying the arbitration agreement, amounts to a denial of justice
and a breach of universal international arbitration law principles by the court. See R. Garnett, “National court
intervention in arbitration as an investment treaty claim,” 60 International and Comparative Law Quarterly, 489 (2011).
81 ICSID (2007), supra note 9, at 128.
82 See supra note 25.
83 At the ICSID arbitration, Saipem stated: “Article 9.1 of the BIT does not confer to your Tribunal jurisdiction
over a claim based on denial of justice, and restricts your jurisdiction to a claim for expropriation. This is why we did not
bring a claim on the ground of denial of justice before you.” ICSID (2007), supra note 9, para 121. Saipem also reiterated
the same position during the hearing.
84 Some scholars however maintain that the arbitral decisions regarding expropriation by the ICSID show that a
consistent case law is being developed in that area of regulatory expropriation where the approach is to assess the
legitimacy of the aim of the measure, the degree of impact upon the investor, and proportionality. The author however
agrees that “rule creation may not be always linear and that the road is necessarily bumpy, with dead-ends and u-turns.”
See Kohler, supra note 32, at 375-377.

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DARSIWA for that matter, is a binding law—they are rather extra-layers of moral protection to rights of
foreign investors vis-à-vis host-state.

B. Did Bangladesh judiciary abuse its power in its interface with international arbitration?
A broad consensus exists among national courts and legislatures around the world that national
courts should support, rather than interfere, in the international arbitral processes.85 Such an understanding is
grounded in the widely adopted and binding New York Convention as well as largely normative Model Law
of the United Nations Commission on International Trade Law (UNCITRAL), both of which authorize
national courts to assist, rather than intervene, in the conduct of arbitrations within their borders.86
Several cases have also established that the power of an arbitral tribunal is derived from the parties'
agreement and international law principles rather than the domestic law of the seat.87 In some cases arbitral
tribunals even went further when the host-state obtained an injunction from its courts restraining the investor
from proceeding with an ICSID arbitration against it, yet an ICSID arbitration proceeded with the matter
arguing that it derived its authority from its duty to protect the right of access to international adjudication
under the ICSID Convention, not from domestic law of the seat.88 Besides, the “Doctrine of a supplemental
and coercive function of international law” provides that in case of conflict between a host state’s law and
international law, international law prevails.89
At the same time, national legislatures in many countries entrust domestic judiciary with supervisory
power over foreign investment. In Saipem, for example, domestic/municipal courts, by dint of power granted
by the national legislature, restrained the ICC arbitration and eventually declared its award null and void. As
mentioned above, the Bangladeshi courts derived their authority from Article 5 of the Bangladesh Arbitration
Act, 1940, which allows the courts to revoke the powers of international arbitrators. Also, Section 42 (2) of
Bangladesh Arbitration Act, 2001 authorizes the Bangladesh High Court to “set aside any arbitral award made
in an international commercial arbitration held in Bangladesh on the application of a party within sixty days
from the receipt of the award.”90 The Bangladeshi courts thus exercised the authority and power vested in
them by the country’s legislature.91
The ICSID Tribunal acknowledged that the Bangladeshi courts had supervisory jurisdiction over
foreign investment because the Saipem-Petrobangla contract also specifically provided that the investment
would be governed by domestic law and Dhaka would be the seat of arbitration. At the same time, the
Tribunal concluded that the intervention of the Bangladeshi courts in Saipem not to allow the continuation of
the ICC Tribunal was abusive, and that the Bangladeshi courts violated Article 11(1) of the New York
Convention which provides that a domestic/municipal court must recognize arbitration international awards.
Yet, the ICSID Tribunal was so critical of the Bangladeshi courts’ revoking of the authority of the
ICC arbitrators as “a nullity” that it held that it was this absence of arbitration award, which allowed it to
assert its jurisdiction in this matter. To the Tribunal, it was the interference of the Bangladesh courts that
triggered “a new dispute” between Saipem and the Government of Bangladesh, “concerning Bangladesh’s
responsibility under general principles of international law, under a BIT, and under the New York
Convention.”92 The Tribunal concluded that the Bangladeshi courts failed to exercise their supervisory power

85 Garnett, supra note 77.

86 Paulsson, supra note 77, at 59-69.
87 See foe example, Himpurna v Indonesia interim award, 16 October 1999 and Salini Costruttori S.p. A v. The Federal
Democratic Republic of Ethiopia ICC Arbitration No. 10623/AER/ACS Award, 7 December 2001.
88 Garnett, supra note 77, at 490.
89 C. Schreuer, The ICSID Convention: A Commentary, (Cambridge University Press, 2001) at 622-631.
90 See supra notes 19 and 22.
91 Similarly, in Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, the Supreme Court of Pakistan
restrained SGS from participating in the ICSID arbitration noting that the Switzerland–Pakistan BIT had no legal effect
under Pakistani law because it had not been implemented into municipal law and that the parties’ contractual agreement
to arbitrate in Pakistan should be enforced. See ICSID Case No. ARB/01/13, available at
<https://www.iisd.org/itn/en/2018/10/18/sgs-v-pakistan/>
92 Teitelbaum. “Case Report on Saipem v. Bangladesh,” 26 Arbitration International, 321(2010).

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in good faith, and in accordance with the rule of law, and generally accepted principles of international
arbitration as envisaged by the New York Convention or the UNCITRAL Model Law. 93
It thus follows that the ICSID Tribunal was willing to acknowledge that the Bangladeshi court’s had
jurisdiction over foreign investment, but at the same time, unwilling to allow the courts to exercise that
authority. Second, the crux of the dispute—the ICC Award—by itself is not binding, it is rather subject to
review by national courts where the arbitration takes place. Third, recourse to the national courts against an
arbitral award is setting aside of the award—national courts cannot function as an appeals court to reverse or
order a retrial.94 Fourth, the grounds for setting aside of an arbitral award rendered by an institution like the
ICC squarely depend on the domestic law where the challenge is brought.95 And, fifth, the New York
Convention governs only recognition and enforcement of an arbitral award, not the setting aside of the
award, and the Convention even allows narrow grounds for refusing recognition and enforcement of the
arbitral award.96
Furthermore, in Saipem, the ICSID Tribunal went beyond what was agreed upon by the signatory
states in the Italy-Bangladesh BIT. The BIT protects foreign investments in respect to only two specific
circumstances—nationalization and expropriation—none of this occurred in Saipem. Neither ‘denial of
justice,’ nor ‘judicial abuse’ is a valid ground for holding Bangladesh responsible for violation of the BIT.
Second, the alleged judicial abuse or illegality of action committed by the Bangladeshi courts does not
necessarily rise to a claim for ‘indirect expropriation,’ and adjudging judicial mistakes or excesses of local
courts, or abuse of supervisory jurisdiction over arbitration awards, as ‘indirect expropriation’ might not be
the only recourse available to such abuses.97 Thus, the determination of ‘judicial abuse’ of the Bangladeshi
courts as ‘indirect expropriation’ can also be viewed as an undue extension of the ICSID tribunal at the
expense of the Bangladeshi courts.98 Finally, in Saipem, the ICSID Tribunal found no evidence of collusion
between judiciary and the executive branches, 99 and thus, by validating Saipem’s claims, the Tribunal literally
overtook the control of legality of investment arbitration away from Bangladeshi courts.

C. Was it just for the ICSID Tribunal to rule out the need for exhaustion of local remedies?
Saipem obviously did not exhaust local remedies, which is a substantive precondition for initiating an
ICSID arbitration. Article 26 of the ICSID Convention states: “A Contracting State may require the
exhaustion of local administrative or judicial remedies as a condition of its consent to arbitration under this
Convention.”100 This precondition becomes more important, not less, when the claim of denial of justice has
been attributed to the acts of domestic judiciary, 101 as the rationale of the principle of exhaustion of domestic
judicial remedies is firmly rooted in the premise that it is the duty of a host-state to provide a fair and
effective system of justice for foreign investors. That, in turn, also implies that “until the whole system has
been tried and failed, no claim of denial of justice can arise in international law.”102 The claim of denial of
justice indeed rests on “the special nature of the administration of justice as a system,” which specifies that

93 Garnett, supra note 77, at 497.

94 G. Delaume, “The Finality of Arbitration Involving States: Recent Developments,” 5 Arbitration International 21
(1989) at p. 28.
95 Taida Begic, Applicable law in International Investment Disputes, (Utrecht, Eleven International Publishing, 2005), at
188.
96 A. van den Berg, “Recent Enforcement Problems under the New York and ICSID Conventions,” 5 Arbitration
International 2 (1989).
97 Id., at 321.
98 Also see, Teitelbaum, supra note 86, at 320.
99 Garnett, supra note 77, at 496.
100 ICSID Convention on the Settlement of Investment Disputes Between States and Nationals of Other States.
Available at: <https://icsid.worldbank.org/sites/default/files/documents/ICSID%20Convention%20English.pdf.>
101 Loewen v United States, ICSID Case No. ARB(AF)/98/3 (NAFTA), Award on Merits. Arbitration Law at 1-71
(2003). Available at: <https://arbitrationlaw.com/library/loewen-group-inc-and-raymond-l-loewen-v-united-states-icsid-
case-no-arbaf983-nafta-award>.
102 Sattorova, supra note 6, at 38.

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“any international wrong committed in the process of administering justice is actionable only after the whole
system has been unsuccessfully tried.”103
Interestingly, in Saipem, the ICSID Tribunal effectively applied a 'denial of justice' type test to assess
domestic court's actions, even though the claim was for expropriation and determined that, “as opposed to
denial of justice, exhaustion of local remedies is not a substantive requirement of a finding of expropriation
by acts of the judiciary.”104 The Tribunal thus separated preconditions for ‘denial of justice’ claims and that of
an expropriation claims, but provided no reasons why the exhaustion of local remedies applies to cases of
denial of justice, but not to those of expropriation by the judiciary.105
Bangladesh indeed brought up the case of Loewen,106 in which the ICSID Tribunal upheld the
objection by the United States that a host-state’s responsibility for a judicial act would arise only when there
was a final action by its judicial system as a whole—as a judicial decision is a single action, the host-state
should not be deemed to have spoken until all appeals had been exhausted.107 The Tribunal however refused
to apply Loewen in this matter arguing that Saipem’s claim was brought on the ground of expropriation, which
did not require exhaustion of judicial remedies available in Bangladesh.108 By applying a denial of justice-type
standard in the case of expropriation in Saipem, the ICSID thus have opened up a new avenue for investors
to plead denial of justice without having to exhaust local remedies.109

D. Was treating a Contact Claim as a Treaty Claim proper for the ICSID Tribunal?
The ICSID award in Saipem also literally converted a contractual claim to a treaty claim as it held the
host-state accountable for a breach of a contractual claim between a foreign investor and a state entity.110
Although a contractual claim may well be dressed as a treaty claim, and may well be adjudged as a treaty claim
by an international arbitral forum, as manifested in Saipem, and some other cases such as Amoco Finance v.
Iran,111 that however does not evaporate the strict distinction that most certainly exists between the two types
of claims.112
To begin with, treaty commitments serve as a foundation of international law, often they are
expressed in the principle called pacta sunt servanda meaning “agreements are to be kept,”113 which in essence
implies that neither a constitutional mandate nor the enactment of a statute provides an excuse for a treaty
violation. Even an act wrongful under the law of nations remains so even if a nation's internal law deems
otherwise, and a party may not invoke the provisions of its internal law as justification for its failure to
perform a treaty obligation.114 Obviously, no contractual right can claim such standards.

103 Id., at 38.

104 ICSID (2007), supra note 9.
105 See Sattorova, supra note 6, at 38. It is however notable that Article 26 of the ICSID Convention stipulates that
claims of local remedies were applicable to claims of denial of justice, but not a substantive requirement in matters of
admissibility or expropriation.
106 See Loewen v. United States, see supra note 93.
107 Similarly, in Diallo, the International Court of Justice flatly rejected the respondent state’s preliminary objection
to the admissibility of the case based on the alleged failure of the investor to exhaust local remedies. The Court stated:
”It is for the respondent to convince the Court that there were effective remedies in its domestic legal system that were
not exhausted.” See International Court of Justice, Ahmadou Sadio Diallo, Republic of Guinea v. Democratic Republic of Congo
(Preliminary Objections ), judgment of 24 May 2007, para 44. Available at: <https://www.icj-
cij.org/en/case/103/judgments>.
108 ICSID (2007), supra note 9, at 41-42.
109 Garnett, supra note 77, at 497.
110 Tietelbaum, supra note 86, at 313–322.
111 Iran-US Claims Tribunal, Amoco Int‘l Finance Corp. v. Iran, 15 IRAN-U.S. C.T.R., at 189 et seq. Available at
<https://www.trans-lex.org/231900/_/iran-us-claims-tribunal-amoco-int-l-finance-corp-v-iran-15-iran-us-ctr-at-189-et-
seq/>
112 A. Crivellaro, “Consolidation of Arbitral and Court Proceedings in Investment Dispute,” 4 Law and Practice of
International Courts and Tribunals, 371-397 (2005).
113 See Vienna Convention on the Law of Treaties, Article 26 and 27. Available at
<https://legal.un.org/ilc/texts/instruments/english/conventions/1_1_1969.pdf>
114 W. Park, “Convention Violations and Investment Claims,” 29 Arbitration International, 153 (2013).

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 Treaty claims are thus inherently and fundamentally different from contractual claims.115 First, the
legal source of a treaty claim arises under an alleged violation of a treaty right or standard that is set out and
defined in an investment protection treaty. In contrast, the source of a contractual claim arises from an
alleged violation of a right set out and defined in an individual investment contract. By the very definition, a
treaty right and a contractual right are thus distinct, and cannot be construed as the same.116 Second, a right to
claim under a treaty must necessarily arise from the breaches of the generally accepted principles of
international law set out in the treaty, while contractual rights relate to the particular investment in question,
and are thus, found within the framework of the contract itself, in the domestic law of the host country, or
within the scope of any other applicable international conventions or principles.117
Third, the parties to a treaty claim arise from an investment protection treaty—they are always the
investors of the “home state” and the “host state,” on the other hand, in contractual claims, the parties to the
proceedings are the contractual parties themselves. Fourth, such clear-cut distinction between a contractual
claim and a treaty claim however can be interpreted more liberally if a treaty includes broad terms such as
parties must oblige to “any right conferred by law or contract,” under which any breach, even at contractual
level, may be elevated to a breach of a treaty.
Finally, if there exists an “umbrella clause,” under which ostensibly separate rights under a treaty and
contract may well be treated as the same substantially.118 Under such a clause, each contracting party is
generally obligated to observe any obligations it has entered into with in investor or an investment of an
investor of any other contracting party.119The umbrella clause however has been variously interpreted by
arbitral tribunals with meanings ranging from a guarantee of the sanctity of a contract concluded between the
investor and the host-state to its literal meaning that it allows both treaty and contract claims to be submitted
to an international arbitration.120
Some tribunals relied on the terms of the BIT involved, and some adopted a restrictive approach
maintaining that “an umbrella clause cannot transform any contract claim into a treaty claim, as this would
necessarily imply that any commitments of the State in respect to investments, even the most minor ones,
would be transformed into treaty claims.”121 And, some tribunals adopted the opposite view maintaining that
that an umbrella clause ‘is usually seen as transforming municipal law obligations into obligations directly
recognizable in international law.’122 It is evident that the extent to which “contract claims and treaty claims
overlap, intersect or take entirely separate paths” is a highly fact-specific matter that will continue to be
fought in investment arbitration on a case-by-case basis.”123
To guide arbitration proceedings, Article 25(1) of the ICSID Convention, which regulates its
jurisdiction over “contacting States and Nationals of other States,” has broadly accepted the notion that the
SOEs enjoy a separate legal personality from the State, and it also emphasizes a “presumption of effective
separation” of the SOEs from the States in which they are incorporated.124 Such separation is also in line with
long-standing international law that recognizes that a State will not be responsible, for example, for breach of

115 See M. Dimsey, The Resolution of International Investment Disputes, (Eleven International Publishing, 2008), at 44-46.
116 See National Grid v. Argentina, UNCITRAL Arbitration Decision on Jurisdiction, 20 June, 2006. Available at:
<https://www.italaw.com/cases/732>.
117 B. Cremades and D. Carins, “Contract and Treaty claims and the choice of forum in Foreign Investment
Disputes,” in N. Horn, (Ed,), Arbitrating Foreign Investment Disputes: Procedural and Substantive Legal Aspects, at 328.
118 Dimsey, supra note 111, at 46.
119 Id., at 54-56.
120 Id., at 56.
121 Kaufmann-Kohler, supra note 32, at 369. The author cited Salini v. Jordan, Joy Mining v. Egypt, and the El Paso v.
Argentina and Pan American v. Argentina as examples.
122 Id., at 369. The author cited Eureko v. Poland; Noble Venture v. Romania; and Siemens v. Argentina, as examples.
123 Teitelbaum, supra note 86, at 320.
124 See B. Audit, Transnational Arbitration and State Contracts: Findings and Perspectives, 89 (1988).

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a contractual obligation except under specified circumstances, such as consideration of contractual breaches
under an ‘umbrella clause’ of a treaty. 125
Also, as state ownership of an entity does not, ipso facto, suggest that it is controlled by the State, and
as there lies a considerable grey area with respect to a State’s responsibility towards the acts of an SOEs,126
the ICSID has developed various tests/standards, such as the structural and functional tests in Emilio
Maffezini v. Kingdom of Spain, and the acta iure imperii (a sovereign act) versus acta iure gestionis (a commercial act)
as in Trendtex, to determine whether a particular SOE is in fact engaged in governmental functions or
commercial functions.127 Some tribunals also applied the “Broches Test” to distinguish between SOEs, which
may legitimately qualify as separate from host-state from those whose links with host-state are so tight that
they cannot be considered as distinct entities.128
Obviously, in Saipem, the ICSID Tribunal did not apply any of such tests or principles in determining
host-state’s culpability to a contract claim. 129 Also, the Italy-Bangladesh BIT had no special clause, such as
contracting parties must oblige to “any right conferred by law or contract,” under which any treaty or
contractual claim could be elevated to a breach of a treaty. Neither did it have any “umbrella clause” under
which distinct rights under a treaty nor could a contract be treated as substantially the same. The Saipem-
Petrobangla contract, as mentioned above, rather had a very distinct clause that states that any dispute
between the contracting parties would be resolved on the basis of Bangladeshi laws, and the seat of any
dispute would be Dhaka.130 The Tribunal still not only accepted Saipem’s dressing of a contract claim into a
treaty claim, but also held the host-state liable for “judicial expropriation.”

IV. CONCLUDING REMARKS

Traditionally customary international law provided protection to foreign investors from mistreatment
in host-states in respect of denial of justice, expropriation, and so on, through what is known as international
minimum standard and diplomatic protection. In recent decades, such protections have strengthened
manifold more. As a result, international arbitration, which had traditionally been in the realm of state-to-
state disputes, is now increasingly becoming available to ordinary individual investors, contractual claims are
increasingly being interpreted as treaty claims, and judiciary is increasingly being considered as
instrumentalities of a state just as the executive and legislative branches.
The Saipem claim was played out in such a backdrop. It is indeed the blurred dividing lines between
private investment/commercial arbitration and investor-state arbitration that makes Saipem a unique and
interesting case. In Saipem, the ICSID Tribunal not only blurred the distinction between contract claims and
treaty claims, it also held a host-state responsible for breach of contract between a private investor and a state
entity. This case is also remarkable for the fact that although the Tribunal found no evidence of collusion
between Bangladeshi courts and the executive branch, it still determined that the Bangladesh courts abused
their authority, the foreign investor had no duty to exhaust local remedies, and Bangladeshi courts actions
constituted “indirect expropriation.”

125 See Michael Feit, “Responsibility of the State under International Law for the Breach of Contract Committed
by a State-Owned Entity,” 28 Berkeley Journal of International Law, 142–176 (2010).
126 G. Cortesi, “ICSID Jurisdiction with Regard to State-Owned Enterprises - Moving toward an Approach Based
on General International Law,” 16 Law and Practice in International Courts and Tribunals 108, 111 (2017).
127 For greater details on these tests, see Perera, supra note 79.
128 The "Broches test" maintains that "[a] government-owned corporation should not be disqualified as a 'National
of another Contracting State' unless it is acting as an agent for the government or is discharging an essentially
governmental function." See Aron Broches, "The Convention on the Settlement of Investment Disputes Between States
and Nationals of other States", 136 R.C.A.D.I. 331 (1972).
129 P. Blyschak, “State Owned Enterprises and International Investment Treaties,” 6 Journal of International Law and
International Relations, 35(2011).
130 Garnett, supra note 77, at 496.

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 Such rather sweeping determinations of the ICSID Tribunal have not only widened its jurisdictional
determination, not only diminished the supervisory jurisdiction of domestic courts over foreign investment,
but also opened up a new avenue for foreign investors to plead denial of justice without having to exhaust
local remedies. Saipem also demonstrates yet another example of inconsistencies in the interpretation and
application of public international law by the ICSID.131 At the same time, it must also be pointed out that the
defiance of the Bangladeshi courts to universal norms of supporting, rather than opposing, international
arbitral processes, does not bode well for the country’s investment climate.132

131 See Perera, supra note 79. Based on critical analysis of major international investment disputes, covering the
periods both before and after the adoption of DARSIWA, the author concluded that many of those ICSID decisions
raised more questions than answers. Similarly, Dolzer and Bloch (supra note 71 at 155) also noted that “the international
takings doctrine is in disarray, that the jurisprudence is inconsistent, and the results are rarely predictable.”
132 A recent survey, that covered hundreds of cases around the world, found that courts around the world
overwhelmingly enforce foreign arbitration awards (in 73% of the cases) and overwhelmingly refuse to vacate arbitral
awards (vacated in only 23% of cases). See Roger P. Alford, Crina Baltag, Matthew E.K. Hall, Monique Sasson,
“Empirical Analysis of National Courts Vacatur and Enforcement of International Commercial Arbitration Awards.”
(2022), 39, Journal of International Arbitration, Issue 3, at 299-330.

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