Background :

Saipem S.p.A. (an Italian oil & gas company) and Petrobangla (Bangladeshi Oil, Gas & Mineral Corporation), a Bangladeshi Public
entity, entered into an agreement for building a natural gas pipeline in Bangladesh; which was governed by the laws of
Bangladesh and set forth an arbitration clause which referred any dispute between the parties to the Rules of Conciliation and
Arbitration of the ICC (International Chamber of Commerce) and established Dhaka, Bangladesh as the venue of the arbitration.

Because of strong opposition by the local population the whole project was significantly delayed. The parties agreed on
extending the completion date but could not reach an agreement regarding compensation and additional costs as a
consequence of such delay. Also, a controversy arose in relation to a warranty bond and retention monies.

The ICC Arbitration & Expropriatory Actions by the domestic courts:

Saipem initiated an ICC arbitration tribunal according to the original contract’s arbitration clause, seeking outstanding payments
owed under both the original contract and the subsequent extension agreement.

Petrobangla brought various procedural requests before the ICC tribunal during the ICC arbitration. The ICC tribunal denied
such requests and so Petrobangla brought an action before the First Court of the Subordinate Judge of Dhaka seeking the
revocation of the ICC Tribunal’s authority. The grounds of this action were an alleged misconduct of the arbitrators and a
breach of the parties’ procedural rights when deciding the above-mentioned procedural requests made by Petrobangla.

Additionally, Petrobangla filed an action in the High Court Division of the Supreme Court of Bangladesh [Saipem S.p.A. vs.
Petro-Bangla : 5 MLR(AD)

(2000) 45] to stay all further proceedings of the ICC arbitration. A week later, an injunction restraining Saipem from proceeding
with the ICC arbitration was issued by the Supreme Court of Bangladesh. Subsequently, Saipem filed an objection to the
injunction restraining it from proceeding with the ICC arbitration. Thereafter, a decision revoking the authority of the ICC
arbitration Tribunal was issued by the First Court of the Subordinate Judge of Dhaka. Even though this last decision was subject
to two degrees of appeals, Saipem decided not to do so. According to Saipem, “the latter decided not to file an appeal because
any expectations to succeed appeared unsustainable under the circumstances.”

Despite the decision revoking the authority of the ICC tribunal rendered by the Bangladeshi courts, the ICC tribunal decided to
resume proceedings. Subsequently, Petrobangla secured various injunctions from the High Court Division of the Supreme Court
of Bangladesh restraining the continuance of the ICC arbitration tribunal. Nevertheless, the ICC arbitration tribunal issued a
final arbitration award holding inter alia that Petrobangla had breached its contractual obligation to compensate Saipem for the
time extension and additional works.

In order to set aside the arbitration award, Petrobangla filed an action before the High Court Division of the Supreme Court of
Bangladesh under Sections 42(2) and 43 of the Bangladeshi Arbitration Act 2001. This court denied the petition stating that it
was “misconceived and incompetent inasmuch as there is no Award in the eye of the law, which can be set aside…A non-
existent award can neither be set aside nor can it be enforced.” According to this decision, the ICC award was rendered non-
existent and was unenforceable in Bangladesh. Nonetheless, Saipem did not appeal this decision.

The ICSID Arbitration :

Later Saipem filed a request for arbitration with the International Centre for Settlement of Investment Disputes (ICSID). The
parties in the ICSID arbitration were Saipem and the Government of Bangladesh and the claims were based on the breach of
the Bilateral Investment Treaty (BIT) between Italy and Bangladesh. The basis of Saipem’s claims was the undue intervention

of the Bangladeshi courts in the ICC arbitration, which precluded the enforcement of the ICC award in Bangladesh or elsewhere.
According to Saipem, those acts constituted an expropriation and deprived Saipem of any compensation. Thus, Saipem in its
request for arbitration sought inter alia a declaration that Bangladesh expropriated Saipem of its investments without
compensation and that Bangladesh breached its obligations under the BIT.
The ICSID Tribunal in it’s final award rendered that : the Tribunal considered that the expropriated “property” consisted of
“Saipem´s residual contractual rights under the investment as crystallized in the ICC Award.” Also, the ICSID Tribunal concluded
that the actions of the Bangladeshi courts were not a direct expropriation, but “measures having similar effects” within the
meaning of Article 5(2) of the BIT. These actions deprived Saipem of the benefit of the ICC Award. The decision of the Supreme
Court of Bangladesh that the ICC Award was a nullity “is tantamount to a taking of the residual contractual rights arising from
the investments as crystallized in the ICC Award. As such, it amounts to an expropriation within the meaning of Article 5 of
the BIT”.

The ICSID Tribunal concluded that the revocation of the arbitrators’ authority by the Bangladeshi courts was contrary to
international law, specifically to the principle of abuse of rights and the New York Convention and, therefore, such revocation
constituted an expropriation within the meaning of Article 5 of the BIT.

The ICSID Tribunal concluded that courts of Bangladesh abused their rights when exercising supervisory jurisdiction over the ICC
arbitration process. Although national courts have discretion to revoke an arbitrator´s authority in cases of misconduct, they
cannot use this discretion to revoke the authority of arbitrators based on reasons wholly unrelated to such misconduct. In
addition, the ICSID Tribunal determined that the actions of the courts of Bangladesh were against the New York Convention,
specifically Article II (1), which imposes on Contracting States the obligation of honoring arbitration agreements. Furthermore,
the ICSID Tribunal deemed that “the expropriation of the right to arbitrate the dispute in Bangladesh corresponds to the value
of the award rendered without the undue intervention of the court of Bangladesh.” Thus, the ICSID Tribunal established that
Saipem was entitled for relief, which was equivalent to the amount awarded in the ICC award plus interest.

The award is noteworthy for the following reasons :

 The applicable BIT provided that any dispute relating to compensation for expropriation that cannot be settled
amicably can be referred to ICSID arbitration.

 The ICSID tribunal found that : (1) the judgments and orders of a state court can have expropriatory effect, and (2) a
contractual right to arbitration and the orders contained in an arbitration award are the rights that are capable of
being expropriated.

 The ICSID tribunal criticized the Bangladeshi courts for abusing its supervisory jurisdiction over arbitrations conducted
within Bangladesh.