Arbitration generally involves a binding determination of a dispute by a neutral third party-illustrate and explain.


‘The philosophy of Alternate Dispute Resolution systems is well-staged by Abraham Lincoln: “discourage litigation, persuade your neighbors to compromise whenever you can. Point out to them how the normal winner is often a loser in fees, expense, cost and time.” Litigation does not always lead to a satisfactory result. It is expensive in terms of time and money. A case won or lost in court of law does not change the mindset of the litigants who continue to be adversaries and go on fighting in appeals after appeals. Alternate Dispute Resolution systems enable the change in mental approach of the parties………… A Conference on ADR systems is being held in Mumbai on 20th November this year where, leading experts in the world on ADR system would be available for launching the movement on a large scale’.

In a developing country like Bangladesh with major economic reforms under way within the frame-work of rule of law, strategies for swifter resolution of disputes for lessening the burden on the Courts and to provide means for expeditious resolution of disputes, there is no better option but to strive to develop alternative modes of dispute resolution by establishing facilities for providing settlement of disputes through arbitration, conciliation, mediation, negotiation, etc.

The GoB by virtue of Section 89A, 89B, 89 C in the Code of Civil Procedure (Amendment) Act 2003 encouraged ADR in the civil matters. It also repealed the old Arbitration Act, 1940 and introduced new and effective arbitration system by enacting the Arbitration Act, 2001. The objectives of this Act are to make provision for an arbitral procedure which is fair, efficient and capable of meeting the needs of the specific arbitration; and to permit an arbitral tribunal to use mediation, conciliation or other procedures during the arbitral proceedings to encourage settlement of disputes.

One distinct advantage of ADR over traditional court proceedings is its procedural flexibility. It can be conducted in any manner to which the parties agree. It may be as casual as a discussion around a conference table or as structured as a private court trial. Also unlike the courts, the parties have the freedom to choose the applicable law, a neutral party to act as Arbitrator/Conciliator in their dispute, on such days and places convenient to them and also fix the fees payable to the neutral party. ADR being a private process offers confidentiality which is generally not available in court proceedings. While a court procedure results in a win-lose situation for the disputants, in an ADR process such as Mediation or Conciliation, it is a win-win situation for the disputants because the solution to the dispute emerges with the consent of the parties. Lastly, as compared to court procedures, considerable time and money is saved in ADR procedures.

 In June 2000, formalized ADR was introduced in Bangladesh by means of court annexed judicial settlement pilot projects, in an effort to decrease delays, expenses, and the frustrations of litigants laboring through the traditional trial process. The pilot program began in a collaborative effort with ISDLS in a series of Bangladeshi legal studies of Californian ADR systems. Three Pilot Family Courts were established in the Dhaka Judgeship, which exclusively used judicial settlement to resolve family cases including: divorce, restitution of conjugal rights, dower, maintenance and custody of children. An amendment to the Code of Civil Procedure was not necessary due to an existing 1985 Family Courts Ordinance, which authorized the trial judge to attempt reconciliation between parties prior to and during trial. The pilot courts were staffed by 30 Assistant Judges selected from all over Bangladesh, lawyers and non-lawyers, who were given training by a United States mediation expert (organized by ISDLS). During this assignment, the Assistant Judges were relieved of all other formal trial duties107. All three pilot programs were fully functioning by January 2001. Once judges had begun successfully settling cases, the program was expanded slowly to additional courts throughout the country. By the end of the first year of the program, the judicial settlement procedure in family disputes had effectively been introduced in 16 pilot family courts in 14 districts of Bangladesh. Due to the high settlement rates these courts were achieving, the Law Minister convened a conference in 2002 in order to spread awareness of the achievements. Bangladeshi mediation is a facilitative, informal, non-binding, confidential process directed by judicial officers. The case, once filed, is immediately assigned to either an ADR track or a trial track. For cases assigned to ADR, mediation proceedings take place within two months of filing. If a settlement is not reached within this period, the case begins a continuous trial over the course of six months. If a resolution is reached through mediation, arties can request a refund of the fees paid to the court. Under this system, each case assigned to the ADR track is resolved by adjudication or by mediation within six months of filing. The majority of ADR in Bangladesh is court-annexed; a private mediation facility has not yet developed. Judicial mediators are compensated in the same amount as the traditional trial judges. The mediation program is coordinated through the court registration process, which assigns cases to either the mediation or the regular trial track.

Types of ADR.

  1. Arbitration generally involves a binding determination of a dispute by a neutral third party following agreement to such by the disputants.

                        a. The agreement to arbitrate usually specifies the number of arbitrators and their manner of selection.

                        b. Many states enforce agreements to arbitrate and bar suits attempting to litigate issues reserved for arbitration.

                        c. Judicial review of the arbitrator’s decision is limited to determining whether that arbitrator had jurisdiction over the dispute and, if so, whether the award was procured by fraud or violates public policy.

                        d. Arbitration is an informal process where the technical rules of evidence and precedent are not followed.

 2. Private court systems are similar to arbitration and provide for voluntary submission of disputes to a third party acceptable to both disputants.

 3.  Mediation is a process where an impartial third party attempts to guide the disputants to a mutually acceptable settlement rather than to issue a final decision.

 4. A mini-trial is a process whereby lawyers of both sides present their case to an impartial third party approved in advance by both disputants and then both sides retire without their lawyers to a private session in which they attempt to negotiate an agreement.

 5. A summary jury trial allows for the presentation of a summary version of the case before a judge and jury.

The Seven Cannons of the Arbitrator’s Code of Ethics

            Canon 1: An arbitrator will uphold the integrity and fairness of the arbitration   process.

            Canon 2: If the arbitrator has an interest or relationship that is likely to affect his or her impartiality or that might create an appearance of partiality or bias, it must be disclosed.

            Canon 3: An arbitrator, in communicating with the parties, should avoid impropriety or the appearance of it.

            Canon 4: The arbitrator should conduct the proceedings fairly and diligently.

Canon 5: The arbitrator should make decisions in a just, independent, and deliberate manner.

            Canon 6: The arbitrator should be faithful to the relationship of trust and confidentiality inherent in that office.

            Canon 7: In a case where there is a board of arbitrators, each party may select an arbitrator. That arbitrator must ensure that he or she follows all the ethical considerations in this type of situation.

ADR compared to Litigation (i.e. lawsuits)

            1. ADR offers: open lines of communication; permits creative remedies; the parties set the timetable; parties have privacy; it is cheaper and more flexible; the parties select the arbitrator/mediator.

  1. Litigation: is bound by the technical rules of discovery and evidence; is public and controlled by lawyers; tends to be less flexible, more costly and slower.

The Arbitration Act, 2001 principally based on the UNCITRAL Model Law on International Commercial Arbitration (1985), consolidates the law relating both to domestic and international commercial arbitration. The new Act thus creates a single and unified legal regime for arbitration in Bangladesh which has also been the trend in recent years elsewhere. However, in the context of international commercial arbitration, the Act has specific prescriptions which are not applicable to domestic arbitration. In certain respects it has drawn on the Indian Arbitration and Conciliation Act, 1996. This is obviously in tune with the reality of the region as a growing popular destination for foreign investment.

The new Act represents a significant improvement over its predecessor, the Arbitration Act (X of 1940), a legacy of the British Raj in the Indian subcontinent. Until recently, the 1940 Act governed arbitration in India and Bangladesh, and it still does in Pakistan. Thus the 1940 Act is the common heritage of all these countries. Experience had taught that a change in the arbitral legal regimes in these countries was a must.

As the Supreme Court of India once noted:

Interminable, time consuming, complex and expensive court procedures impelled jurists to search for an alternative forum, less formal, more effective and speedy for resolution of disputes avoiding procedural claptrap and this led them to Arbitration Act of 1940. However, the way in which the proceedings under the Act are conducted and without an exception challenged in Courts, has made lawyers laugh and legal philosophers weep. Experience shows and law reports bear ample testimony that the proceedings under the Act have become highly technical accompanied by unending prolixity, at every step providing a legal trap to the unwary. Informal forums chosen by the parties for expeditious disposal of their disputes has by the decisions of the Courts been clothed with “legalese” of unforeseeable complexity. (The Gurunanak Foundation case, (AIR 1981 SC 2075), per Justice D.A. Desai.)

In light of their common historical experience as such, both Bangladesh and India have recently modernized their arbitration laws along the lines of the UNCITRAL Model Law. The modernization of law relating to international commercial arbitration in Bangladesh by the 2001 Act gives  her a facelift as an attractive place for dispute resolution in the field of international trade, commerce and investment.

A commercial dispute between two Bangladeshi nationals having places of business even in different States cannot be considered the subject matter of international commercial arbitration under the new Act, which would be otherwise possible under the Model Law. In this context the internationality of the nature of the transactions, in that they take place in different jurisdictions, has been subjugated to the nationality of the disputing parties. Nationality thus remains one of the determinative factors of the international character of arbitration. Such a prescription, however, is found in recent legislation of some other countries.

On the definition and form of the arbitration agreement, the Arbitration Act, 2001 adopts verbatim the Model Law provisions. Thus an arbitration agreement, either in the form of an arbitration clause in a contract or in the form of a separate agreement, may be concerned with future and existing disputes respectively. The Act requires the arbitration agreement to be in writing exactly in the same manner as the Model Law prescribes. In other words, the new Act follows verbatim the Model Law prescription on the matter which has, in fact, wider scope than that of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958. However, unlike the Model Law or the New York Convention, the new Act specifically mentions “fax” and “e-mail” as the modes of writing amongst others, which are, of course, implied in the expression “other means of telecommunication” in the former.

In keeping pace with the recent developments in the field of international commercial arbitration, the new Bangladesh Act has adopted the doctrines of competence-compétence and autonomy of the arbitration clause in the context of the jurisdiction of arbitral tribunals. Unlike the Model Law and the Indian Act of 1996, which have identical provisions on the matter of compétencecompétence and allow the arbitral tribunal unbridled freedom in this regard, the new Bangladesh Act restricts such freedom with the words “unless otherwise agreed by the parties.” Subject to such proviso, the arbitral tribunal may rule on its own jurisdiction or any questions concerning its jurisdiction. Section 17 of the new Act, thus dealing with the matter, has enumerated, as a matter of guidance, five jurisdictional questions, not meant to provide an exhaustive list, on which the arbitral tribunal may exercise its power of compétence de la compétence. The enumerated questions are as follows: (a) whether there is in existence a valid arbitration agreement; (b) whether the arbitral tribunal is properly constituted; (c) whether the arbitration agreement is against public policy; (d) whether the arbitration agreement is incapable of being performed, and (e) what matters have been submitted to arbitration in accordance with the arbitration agreement. The arbitral tribunal may, subject, of course, to the aforementioned proviso, rule on its own jurisdiction on any questions beyond the above list. It is probable that the arbitral tribunal may decide questions of jurisdiction not only at the instigation of the parties but also on its own motion. Thus, whatever the parties might have agreed otherwise, if, for instance, public policy issues arise concerning the arbitration agreement or generally in other respects, it seems incumbent on the arbitral tribunal to look into the matter in order to decide its own jurisdiction.

Autonomy of the Arbitration Clause

The second doctrine, i.e. “autonomy of the arbitration clause” described by some as “a conceptual cornerstone of international arbitration,” buttresses the first one, i.e. the compétence-compétence doctrine. As far as the arbitral jurisdictional issues are concerned, both doctrines prove to be the “two sides of the same coin,” or, for that matter, “the birds of the same feather.” As Judge (as he then was) Schwebel noted, “If it is inherent in the arbitral (and judicial) process that a tribunal is the judge of its own jurisdiction, that it has competence de la compétence, it is no less inherent in that process that an arbitral tribunal shall have the competence to pass upon disputes arising out of the agreement which is the immediate source of the tribunal’s creation even where those disputes engage the initial or continuing validity of that agreement.” The autonomy of the arbitration clause doctrine is sometimes expressed as the “separability” or the “severability” of the arbitration clause. The new Bangladesh Act opted for the latter expression. Whatever is the expression – “autonomy,” “separability,” or “severability” of the arbitration clause–it means that the arbitration clause is separate from the principal contract in which it is contained. Thus the arbitration clause is given an enclave status. Whatever happens to the principal contract in which it is contained should not affect it.

Thus the arbitration clause will always survive the principal contract. The theoretical foundation on which the doctrine stands has been well described by Schwebel in the following words : “Thus when the parties to an agreement containing an arbitration clause enter into that agreement, they conclude not one but two agreements, the arbitral twin of which survives any birth defect or acquired disability of the principal agreement.” This twin sister analogy between the arbitration clause and the principal agreement might sound like a fiction. International arbitral practice has, however, embraced the doctrine as a matter of practical exigency because of the legitimate expectation that the arbitration clause creates for the parties when it is inserted in the principal agreement. The insertion of such a clause at least provides the parties with the chance to ventilate their grievances through it about the principal agreement whatever they may be. If the clause is considered to die with the presumed death of the principal agreement, there would be nothing left for the parties to look for, at least for one party who is so genuinely hopeful. This is how the practical exigency lends support to the survival of the arbitration clause even in the case of the death of the principal agreement in which it is contained.

Like the Model Law, the new Bangladesh Act specifies the time within which an objection to the jurisdiction of the arbitral tribunal may be raised. Thus, it provides that such an objection “shall be raised not later than the submission of

the statement of defense.” However, it should be mentioned that any International Chamber of Commerce (“ICC”) arbitration taking place in Bangladesh under the 1998 ICC Arbitration Rules, according to which such jurisdictional objections may be raised throughout the proceedings and not just at the time of the submission of the statement of defense, might contradict the prescription of the new Bangladesh Act . In such a conflict the Bangladesh courts would prefer the lex fori, i.e. the Act 2001, as the lex arbitri on the matter concerned over the parties’ chosen international institutional arbitration rules as the procedural law. One may wonder whether with the tide of delocalization of international arbitration in the age of globalization the parties’ choice would still be subservient to the lex fori as represented in the “jurisdictional or the arbitral forum theory of arbitration.” International business people intending to arbitrate in Bangladesh might suffer from the John Holland or the Dermajaya syndrome of uncertainty, only to be cured by a legislative prescription for clarification as has recently happened in Singapore. There is no denying the fact that following Article 19(1) of the Model Law the new Bangladesh Act, 2001 provides in Article 25(1) that “[s]ubject to this Act, the arbitral tribunal shall follow the procedure to be agreed

on by all or any of the parties in conducting its proceedings.” The questions still remain as to what extent the parties’ choice of the arbitral procedural law will prevail when such choice proves inconsistent with the Act itself, or simply whether the choice of any foreign procedural law or any international institutional arbitration rules will automatically exclude the application of the Act to the procedural matters unless the parties have expressly so stated in their contract.

It is noteworthy that unlike the Model Law and the Indian Act, 1996, the new Bangladesh Act does not contain any provision for interim measures by the court. This is a marked weakness of the new Act as far as it relates to the protection of parties who intend to arbitrate in Bangladesh. Even before the constitution of the arbitral tribunal or the commencement of arbitral proceedings, situations or circumstances might warrant interim measures to be taken by the

court to protect the interest of a party, otherwise the whole purpose of such arbitration will be frustrated. If there is no statutory obligation to offer such protection, the court may not take an interest in it.

It is desirable that the modern arbitration law of a country should demarcate the boundaries of authority between the court and the arbitral tribunal, though it is not always easy to do so. Thus, one scholar notes, “As powers to grant interim measures are shared between arbitral tribunals and domestic courts, it seems necessary to draw

boundaries between their respective areas of competence and to address the issue of the enforcement of such measures.


Section 22(1) of the new Bangladesh Act manifests a typical Asian approach to dispute resolution. It provides, “It shall not be incompatible with an arbitration agreement for an arbitral tribunal to encourage settlement of the dispute otherwise than by arbitration and, with the agreement of all the parties, the arbitral tribunal may use mediation, conciliation or any other procedures at any time during the arbitral proceedings to encourage settlement.” Thus, the encouragement of settlement between the parties is the main thrust of the provision, and is the role of the arbitral tribunal. The new Act also provides: “If, during arbitral proceedings, the parties settle the dispute, the arbitral tribunal shall, if requested by the parties, record the settlement in the form of an award on agreed terms.” The new Act does not distinguish between such an award on agreed terms and any other award in respect of

the dispute in terms of status and effect. In many other Asian countries the combination of conciliation/mediation and arbitration in the same proceeding subject,

of course, to the parties’ consent, seems to be a common trend. Thus Article 45 of the

China International Economic and Trade Arbitration Commission (“CIETAC”) Arbitration Rules provides, “If both parties have a desire for conciliation or one party so desires and the other party agrees to it when consulted by the arbitration tribunal, the arbitration tribunal may conciliate the case under its cognizance in the process of arbitration.” The CIETAC Arbitration Rules allow the arbitral tribunal to render the settlement reached through conciliation in the course of arbitral proceedings as an arbitral award. Similar provisions are found in the Hong Kong Arbitration Ordinance of 1996, Singapore International Arbitration Act of 1995, and the Indian Arbitration and Conciliation Act of 1996. It is noteworthy that in some of the aforementioned laws of various countries the same approach applies to both domestic and international arbitration.


Chapter VII of the Bangladesh Act deals with the rules applicable to the merits of the dispute, decision-making by the panel of arbitrators, form and contents of the award, decision on costs, finality and binding nature of the arbitral award, correction and interpretation of awards, and termination of proceedings. It has to be noted that although the Bangladesh Act followed in this chapter Articles 28, 29, 31, 32 and 33 of the UNCITRAL Model Law, it has deviated in some respects from the Model Law provisions and introduced some innovation and added new provisions. These deviations, innovations and additions are not surprising as they are in keeping with the post-Model Law recent developments in the field of international arbitration. Like the UNCITRAL Model Law, the new Bangladesh Act upholds party autonomy or the parties’ freedom of choice and allows the parties to choose any rules of law, not necessarily the law or the legal system of the country whose law is applicable to the substance of the dispute. This choice is so expansive that the parties can choose the lex mercatoria or the rules of transnational commercial law, rules of specific international trade or anything which is not characteristically the legal system of a particular country. It further provides that if the law or the legal system of a country is designated by the parties, such designated law is meant to refer directly to the substantive law of that country and not to its conflict of laws rules. Like the UNCITRAL Model Law, the Act thus expressly avoids the renvoi situation. However, unlike the Model Law, the new Bangladesh Act allows the arbitral tribunal, in the absence of the parties’ choice of applicable substantive law,

 It should be noted that this prescription reflects the recent trend in many international institutional arbitration rules as well as in some national legislative enactments on international commercial arbitration. It is striking that unlike the Model Law, the Bangladesh Act makes no provision on the matter of the arbitral tribunal’s authority to decide ex aequo et bono or as amiable compositeur, nor does it expressly prohibit such authority. This means that if the parties to a dispute refer to international institutional arbitration rules, for example, the ICC Arbitration Rules (1998), which provide for the arbitral tribunal’s authority as such (of course, provided the parties have expressly authorized it to do so), the arbitral tribunal having its seat in Bangladesh will have no problem deciding ex aequo et bono or as amiable compositeur. As under the Model Law, the tribunal is also mandatorily required under the new Bangladesh Act to decide in accordance with the terms of the contract and to

take into account the usages of the trade applicable to the transaction. However, unlike the Model Law, the Act expressly states the purpose of this specific requirement to be the “ends of justice.” But the question still remains – if justice is done otherwise, would this requirement be superfluous? It is noteworthy that the Act does not say expressly that this requirement is to obtain “in all cases” as does the Model Law. The upshot may be that if justice is done somehow, there is perhaps no need to fulfill the requirement by the arbitral tribunal, hence the omission of the phrase “in all cases” in the relevant provision of the new Bangladesh Act.

 payment. Thus the Bangladesh Act provides : “A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of two percent per annum which is more than the usual Bank rate from the date of the award to the date of payment.” The Indian Act provides for interest at the rate of eighteen percent per annum. Both Acts provide in identical provisions that, unless the parties agree otherwise, the arbitral tribunal shall fix the costs of an arbitration and also specify (i) the party entitled to costs; (ii) the party who shall pay the costs; (iii) the amount of costs or method of determining that amount; and (iv) the manner in which the costs shall be paid.


As far as the recognition and enforcement of foreign arbitral awards are concerned, the new Bangladesh Act differs in some respects from the Model Law as well as from the New York Convention. Concerning the rules about the recognition and enforcement and about the grounds for refusing recognition or enforcement of awards, the Model Law distinguishes between “international” and “non-international” awards rather than between “domestic” and “foreign” arbitral awards as traditional categories. It was noted that the grounds on which recognition or enforcement may be refused under the Model Law “are relevant not merely to foreign awards but to all awards rendered in international commercial arbitration.”The recognition and enforcement regime of the Model Law entertains an arbitral award “irrespective of the country in which it was made” so long it is an international award. Although the New York Convention distinguishes between foreign and domestic arbitral awards for the application of the Convention to the former, it also applies to awards that are domestic from the territoriality point of view in the sense that they are made in the country of enforcement but are considered non-domestic in that country for various other reasons.


Although many arbitration awards are voluntarily complied, enforcement of arbitration awards is a current challenge in international arbitration. S.p.A. v. The People’s Republic of Bangladesh1  (“Saipem v. Bangladesh”) apparently creates a new tier of protection when foreign investors are affected by the actions of a host country’s judiciary system. This might be an interesting trend, especially for those foreign investors that have investments in countries where the interference of the national court systems in arbitration proceedings is commonplace.

 Saipem S.p.A., an Italian oil & gas company, and Petrobangla (Bangladesh Oil, Gas & Mineral Corporation), a Bangladeshi public entity, entered into an agreement on February 14, 1990, to build a natural gas pipeline in Bangladesh. This contract was governed by the laws of Bangladesh and set forth an arbitration clause. Such clause referred any dispute between the parties to the Rules of Conciliation and Arbitration of the International Chamber of Commerce (ICC) and established Dhaka, Bangladesh as the venue of the arbitration.
The whole project was significantly delayed because of strong opposition by the local population. Although the parties agreed on extending the completion date, they 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. In accordance with the original contract’s arbitration clause, Saipem initiated an ICC arbitration tribunal seeking outstanding payments owed under both the original contract and the subsequent extension agreement.
During the ICC arbitration, Petrobangla brought before the ICC tribunal various procedural requests.2  Since the ICC tribunal denied such requests, 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 byPetrobangla.
1  Saipem v Bangladesh (ICSID Case No.ARB/05/7) Unreported award June 20, 2009.

2  “In particular (i) a request to strike from the record the witness statement of Mr. Clark [a key witness on behalf of Saipem], (ii) a request that all witnesses be allowed to be present in the hearing room during the entire hearing, (iii) a request that a letter from Petrobangla which was not on record be filed during cross-examination of a witness, (iv) a request to strike from the record a “draft aide-mémoire” of the World Bank and certain cost calculations prepared by Saipem, and (v) a request that transcripts be made of the tape recordings of the hearing.” Saipem v Bangladesh Unreported June 20, 2009, at 31.

 proceeding with the ICC arbitration. Thereafter, on April 5, 2000, 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.”3
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.4  Nevertheless, on May 9, 2003, 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 on April 21, 2004 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.”5  According to this decision, the ICC award was rendered non-existent and was unenforceable in Bangladesh. Nonetheless, Saipem did not appeal this decision

Saipem, on October 5, 2004, 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.6  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.
On June 30, 2009, the ICSID Tribunal rendered the final award. The Tribunal considered that the expropriated “property” consisted of “Saipem´s residual contractual rights under the investment as crystallized in the ICC Award.”7  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 theBIT.8

3 “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.

4  Petrobangla filed an action in the First Court of the Subordinate Judge of Dhaka in order to set aside the ICC tribunal’s decision to resume the proceedings. In addition, Petrobangla filed a request seeking a declaration that the ICC Arbitration Tribunal was unlawful based on the decision of the Dhaka Subordinate Judge that revoked the authority of the ICC Tribunal.

5  Saipem v Bangladesh Unreported June 20, 2009, at 50.
6  Agreement of 20 March 1990 between Government of the Republic of Italy and Government of the People’s Republic of Banglaesh on the Promotion and Protection of Investments. The treaty entered into force on 20 September 1994.
7  Saipem v Bangladesh Unreported June 20, 2009, at 128.
8  Article 5 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)

 These actions deprived Saipem of the benefit of the ICC Award.9  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”.10

However, the ICSID Tribunal 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.”11  Otherwise, any setting aside of an arbitration award would lead to a claim for expropriation. The ICSID Tribunal, accordingly, stated that in order to give rise to a claim for expropriation the actions of Bangladesh must be illegal in addition to fulfilling the requirements for expropriation as set forth in Article 5 of the BIT.12
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. As the ICSID Tribunal mentioned: “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.”13  In other words, the Bangladeshi courts exercised their supervisory jurisdiction for an end different from which it was instituted and, therefore, violated the principle of abuse of rights.

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. Even though the Bangladeshi courts did not target the arbitration agreement itself, the revocation of the arbitrators’ authority can amount to a violation of Article II (1) “whenever it de facto prevents or immobilizes the arbitration that seeks to implement that arbitration agreement.”14  In fact, this was the situation before the ICSID Tribunal, since different Bangladeshi courts de facto frustrated the arbitration agreement, by issuing several injunctions against the continuation of the ICC Arbitration.
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.”15  Thus, the ICSID Tribunal established that Saipem was entitled for relief, which was equivalent to the amount awarded in the ICC award plus interest.

9  Saipem v Bangladesh Unreported June 20, 2009, at 129.

10  Saipem v Bangladesh Unreported June 20, 2009, at 129; Accord “[t]he taking away or destruction of rights acquired, transmitted and defined by a contract is as much a wrong, entitling the suffer to redress, as the taking away or destruction of tangible property”. Rudloff Case (Interlocutory), American-Venezuelan Commission, IX United Nations Reports of International Arbitral Awards (Recueil des Sentences Arbitrales) 250. In Ruth Teitelbaum. “Case Report on Saipem v. Bangladesh”. Arbitration International, Volume 26, Issue 2 (2010), at 320
11  Saipem v Bangladesh Unreported June 20, 2009, at 133.
12  At this point the Tribunal mentioned that “[for] the sake of clarity the Tribunal emphasizes that the following analysis should not be         understood as departure from the “sole effects doctrine”

13  Saipem v Bangladesh Unreported June 20, 2009, at 159.
14  Saipem v Bangladesh Unreported June 20, 2009, at 167.

15  Saipem v Bangladesh Unreported June 20, 2009, at 204.

Saipem v. Bangladesh is most likely the first ICSID Award that holds a state responsible for expropriation based on the illegal interference by its judiciary in arbitration proceedings.16  Although some commentators foresee that the theory behind Saipem v. Bangladesh will be a mechanism for countering to some degree the interference by national courts with international arbitration,17  this article will show why the application of the legal rule established in Saipem v. Bangladesh is rather remote.18  The very unique circumstances of the case as well as the departure from previous ICSID awards would make the rationale of Saipem v. Bangladesh most likely inapplicable in other cases.

Although the ICSID Tribunal determined that the acts of the Bangladeshi courts amounted to an expropriation, even Saipem acknowledged during the ICSID Arbitration that the facts of the case most likely constituted denial of justice rather than expropriation.19 The BIT between Italy and Bangladesh narrows investment arbitration only to those cases based on expropriation. Indeed, Saipem acknowledged during the ICSID Arbitration that the reason why the plaintiff based its claims on expropriation and not on denial of justice was only because the Article 9.1 of the BIT did not confer jurisdiction to the ICSID Tribunal over a claim based on denial of justice.20  Additionally, Saipem made the same argument regarding equitable treatment.21
From the facts of the case, it is clear that the intervention of the Bangladeshi courts by not allowing the continuation of the ICC Tribunal was abusive. Even though the courts from Bangladesh abused their supervisory jurisdiction over the ICC Arbitration process, it should not allow the ICSID Tribunal to broaden the scope of the BIT beyond what was agreed upon the States. The BIT between Italy and Bangladesh protects investments in those situations specifically agreed by both States, that is, nationalization and expropriation. Hence, arbitrators should be bound to protect investments only under these two circumstances established in the BIT.
16  See S. Sattar, National Courts and International Arbitration: A Double-edged Sword? Journal of International Arbitration 27 (1): 51-73, 2010. p, 72.
17  See L. Radicati di Brozolo, “Interference by National Courts with International Arbitration: the Situation after Saipem v. Bangladesh. in C. Müller and A. Rigozzi (eds), New Developments in International Commercial Arbitration 2009 (Schulthess Éditions Romandes, 2009), pp 1-28.
18  C. Schreuer, ‘Diversity and Harmonization of Treaty Interpretation in Investment Arbitration’, 3(2) Transnational Dispute Management (2006) 11. in I. Kalnina. “Case Note: Saipem S.p.A. v. Bangladesh: Local Judiciary’s Interference with Claimant’s Right to Arbitration under Contract found to Constitute an Expropriation under the BIT”, 7 (1) Transnational Dispute Management (2010), at 5 (“As is well known, each [ICSID] tribunal is constituted ad hoc and therefore, at least in theory, ICSID tribunals should carry out their duties without any reference to the case law of other courts and tribunals”); I. Kalnina. “Case Note: Saipem S.p.A. v. Bangladesh: Local Judiciary’s Interference with Claimant’s Right to Arbitration under Contract found to constitute an Expropriation under the BIT”, 7 (1) Transnational Dispute Management (2010) at 5 (“While ICSID tribunals are usually clear as to their autonomy from previous decisions, most tribunals do stress the need to look at previous awards to acquire guidance and support.

19  Saipem v Bangladesh Unreported June 20, 2009, at 121.
20  Saipem v Bangladesh Unreported June 20, 2009, at 121 (“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.”); Accord L. Radicati di Brozolo, “Interference by National Courts with International Arbitration: the Situation after Saipem v. Bangladesh. in C. Müller and A. Rigozzi (eds), New Developments in International Commercial Arbitration 2009 (Schulthess Éditions Romandes, 2009), p. 15 (“Saipem’s claim was formulated as one for expropriation and not, as would perhaps been the more obvious solution, as one for denial of justice.”)
21  Saipem v Bangladesh Unreported June 20, 2009, at 121 (“Saipem does equally consider that through the misbehaviors of Petroblanga (a State organ) and its courts, Bangladesh has certainly, according to us, undoubtedly treated Saipem unfairly and inequitably, and in a manner that is below the standard required by international law. However, again, Article 9.1 of the BIT does not confer to your Tribunal jurisdiction over a claim based on breach of the standard of treatment, in particular of the fair and equitable treatment,

Moreover, the investor did not exhaust local remedies –as already mentioned, Saipem decided not to appeal the decisions of the Bangladeshi courts that revoked the authority of the arbitrators and the one that declared the ICC Award a nullity, which is normally a substantive condition to initiating an ICSID arbitration based on acts of the judiciary, particularly in cases related to denial of justice.22  The main rationale is that “the prohibition of denial of justice presupposes a duty of the host state to provide a fair and effective system of justice. Therefore, until the whole system has been tried and failed, no claim of denial of justice can arise in international law.”23  This explanation “rests on the special nature of the administration of justice as a system” and leads to the conclusion that “any international wrong committed in the process of administering justice is actionable only after the whole system has been unsuccessfully tried.”24  Nevertheless, the ICSID Tribunal 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.25  The ICSID Tribunal did not elaborate on the reasons why the exhaustion of local remedies applies to cases of denial of justice, but not to those of expropriation by the judiciary. In this regard, commentators have stated that “[if] the special application of the local remedies rule to denial of justice claims is rationalised by reference to the special nature of the judicial system, it would seem logical that the same considerations be applied to all forms of judicial misconduct, including expropriation by courts.”26  Thus, exhaustion of local remedies should also be a substantive condition to trigger the investor’s right to initiate arbitration based on expropriation by the judiciary.

The ICSID Tribunal when analyzing whether the acts of the judiciary constituted indirect expropriation27  did not base its decision on the so-called “sole effects” doctrine. According to this doctrine, the most important aspect for determining indirect expropriation is the impact of the measure; the deprivation has to be substantial in order to lead to expropriation.28  Although the ICSID Tribunal acknowledged that the fact of not enjoying the benefits of the ICC Award constituted a substantial deprivation, it considered that in this particular case the substantial deprivation was not sufficient to declare an expropriation, because it was also required that the actions of the Bangladeshi courts were illegal. For this reason, the ICSID Tribunal applied a legality test to determine whether the actions of the Bangladeshi courts amounted to an expropriation. In other words, in addition to the substantial deprivation, which characterizes the “sole effects” doctrine, the ICSID Tribunal also applied a legality test. The ICSID Tribunal pointed out that applying the legality test in this case “should not be understood as a departure from the ´sole effects doctrine´. It is due to the particular circumstances of this dispute and to the manner in which the parties have pleaded their case, both being in agreement that the unlawful character of the actions was a necessary condition.”29
22  See Loewen v United States (ICSID Case No.ARB(AF)/98/3) (2003) 42 I.L.M. 811 (award June 25, 2003), at 156-159
23  M. Sattorova. “Judicial expropriation or denial of justice? A note on Saipem v Bangladesh”. Int. A.L.R. 2010, 13(2), at 38
24  M. Sattorova. “Judicial expropriation or denial of justice? A note on Saipem v Bangladesh”. Int. A.L.R. 2010, 13(2), at 38
25  Saipem v Bangladesh Unreported June 20, 2009, at 181.
26  M. Sattorova. “Judicial expropriation or denial of justice? A note on Saipem v Bangladesh”. Int. A.L.R. 2010, 13(2), at 38
27  See Reisman, W. Michael and Sloane, Robert D., “Indirect Expropriation and its Valuation in the BIT Generation” (2004). Faculty Scholarship Series. Paper 1002. Error! Hyperlink reference not valid.. at, 118-119 (The concept of indirect expropriation includes “not simply intentional and obvious indirect expropriations, nor only intentional creeping expropriations, a frequent form of taking in prior generations. It also captures the multiplicity of inappropriate regulatory acts, omissions, and other deleterious conduct that undermines the vital normative framework created and maintained by BITs—and by which governments can…now be deemed to have expropriated a foreign national’s investment.”)
28  See Compañía del Desarrollo de Santa Elena S.A. v. Republic of Costa Rica ICSID Case No. ARB/96/1, Award of February 17, 2000, 5 ICSID Reports 153, at 77-78. In Saipem v Bangladesh Unreported June 20, 2009, at 133.
29  Saipem v Bangladesh Unreported June 20, 2009, at 134.

This clarification, on one hand, confirms the very unique circumstances of the case and, on the other, illustrates the limited application of the analysis made by the ICSID Tribunal to future cases. That is because not any illegality by the judiciary can lead to a claim for expropriation. The notion of “illegality” should be also restricted to avoid that ICSID arbitrators’ jurisdiction being improperly broadened. This is because judicial errors are a kind of illegality. For instance, if a judge resolves a case by applying an improper law, or if the judge applies the right law but interprets it incorrectly, in both events the adopted decision would be illegal. Nevertheless, such illegality should not give rise to a claim for expropriation; otherwise, the ICSID tribunal would end up exercising a control of legality over local courts, which are vested with supervisory jurisdiction over commercial arbitration awards. This indeed would largely exceed the jurisdiction of any ICSID tribunal. Therefore, the notion of illegality for a claim for expropriation cannot encompass these kinds of judicial mistakes. In sum, the legality test of Saipem v. Bangladesh might only be applied in future cases with extreme circumstances like the ones where national courts, in abuse of their supervisory jurisdiction over arbitration awards, unlawfully impede the issuance of the award or deny its existence without even analyzing its grounds.

Furthermore, the facts of this case are unique; so a similar situation is very unlikely to happen in future cases. In Saipem v. Bangladesh the courts from Bangladesh did not respect the arbitration agreement. Although these courts did not specifically target the arbitration agreement, the decision to revoke the authority of the arbitrators and the decision of the Supreme Court of Bangladesh that the ICC Award was “a nullity” or “non-existent” frustrated the arbitration agreement. This absence of arbitration award allowed the ICSID Tribunal to hold that the disputes were within the jurisdiction of the ICSID and the competence of the ICSID Tribunal.30  The result would be different if the ICC Award would have existed, that is, if the Supreme Court instead of having declared that “there is no Award in the eye of the law”, the Supreme Court would have concluded –after examining its basis- that such award was null and void. Even if such conclusion were mistaking it will not lead to ICSID arbitration, as otherwise the ICSID arbitration would become another possibility to enforce ICC awards; and the ICSID arbitration is not intended to create a new tier of protection when the judiciary interferes with ICC arbitration. Given the fact that in most cases local courts will declare the nullity of an international commercial arbitration award based on its grounds, whatsoever the decision might be, it will not lead to investment arbitration. Indeed, miscarriage of justice is a risk that either national or foreign investors should equally bear. Additionally, the basis of the ICSID arbitration would be contractual matters, which are not within the scope of the ICSID Convention.31
30  Accord “The interference of the Bangladesh courts in finding that the ICC award was “no award in the eye of the law” is the point at which, according to Saipem ICSID tribunal, a new dispute was triggered, one 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”. R. Teitelbaum. “Case Report on Saipem v. Bangladesh”. Arbitration International, Volume 26, Issue 2 (2010), at 321.
31  “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”. R. Teitelbaum. “Case Report on Saipem v. Bangladesh”. Arbitration International, Volume 26, Issue 2 (2010), at 320.

 In sum, the circumstances of this case were unique and it is very unlikely that they will happen again. According to previous ICSID awards, an investor should exhaust local remedies in order to initiate investment arbitration based on acts of the judiciary. The ICSID Tribunal in this case found that this condition is not applicable in the case of expropriation, with no further explanation. Additionally, prior ICSID awards have used only the “sole effects” doctrine to determine whether the disputed actions amount to indirect expropriation, but the ICSID Tribunal here also applied a legality test. This test should be limited to those extraordinary cases where national courts, in abuse of their supervisory jurisdiction over arbitration awards, unlawfully impede the issuance of the award or deny its existence without even analyzing its grounds. Therefore, the ICSID Tribunal’s holding in Saipem v. Bangladesh seems to be restricted in such a way that most likely will not be applied in future cases


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