CONVENTION VIOLATIONS AND INVESTMENT CLAIMS*
In theory, treaty commitments remain a foundation of international law, often expressed in the adage pacta sunt servanda: “agreements are to be kept”1 In practice, however, some treaty violations remain without realistic sanctions. Here as elsewhere, the divergence between theory and practice remains greater in practice than in theory.
Mature legal thinking implicates more than one principle. The Convention requires that signatory nations give effect to the treaty. Article II and Article III contain mandatory language, stating that contracting states “shall recognize” (respectively) arbitration agreements and arbitral awards. If a national constitution so requires, giving effect to agreements and awards might call for implementing legislation. If a country fails to implement the Convention, its national courts might well look to domestic constitutional law rather than treaty provisions. Such failure to implement the Convention nevertheless constitutes a breach of treaty obligation.
Similar lines of analysis obtain when national judicial decisions interfere unduly with respect for the New York Convention.2 However, the availability of remedies in such cases remains highly fact specific.3 In some instances, investment treaties offer a way to close the gap between theory and practice, permitting investors to bring private actions against a host country rather than relying on government-to-government measures.
Not all failure to respect the New York Convention fits within the framework of investment treaties. Many clear Convention violations remain without remedy, due to the absence of any relevant “investment” providing the jurisdictional hook on which to hang a claim.
The contours of national respect for the New York Convention might be addressed by comparing two strands of analysis. The first, represented by the ICISD decision Saipem v. Bangladesh, implicate arbitral tribunal jurisdiction with respect to domestic court decisions that allegedly run afoul of the New York Convention. By contrast, in another line of cases no practical mechanism seems to exist for challenge to the invocation of parochial American procedure to defeat award recognition under the Convention.
The modest aspiration of this chapter lies in an exploration of how and why the two types of cases differ. As we shall see, a key distinction lies in the existence of an “investment” to trigger arbitration of treaty breaches by the country allegedly failing to respect the New York Convention.
In March 2007, an arbitral tribunal opened the door to a damages award for breach of the New York Convention.4 An Italian construction company (Saipem) had contracted to build a gas pipeline in northeastern Bangladesh. The counterparty was a state entity, the Bangladesh Oil Gas & Mineral Corporation, commonly called Petrobangla. Ultimately, the transaction went sour. The contractor claimed additional costs that Petrobangla refused to pay. Controversy also arose with respect to return of a warranty bond and retention monies requested by the Italians.
Saipem referred its claim to arbitration, pursuant to a clause in the parties’ agreement that provided for dispute resolution in Dhakar under the Rules of the International Chamber of Commerce (ICC). An arbitral tribunal was constituted,5 and proceeded to render awards in favor of Saipem with respect to jurisdiction, liability and quantum of damages.6 During and after the proceedings, courts in Bangladesh made various orders with respect to the arbitration. The Supreme Court issued an injunction restraining Saipem from continuing with the ICC arbitration. Ultimately, that Court ruled that there was “no award in the eye of the law,” finding that the arbitral proceedings were illegal and without jurisdiction.7
In response to the alleged interference with the ICC arbitration by Bangladeshi courts, Saipem filed a second arbitration, this one under the rules of the International Centre for Settlement of Investment Disputes (ICSID). This new claim (for US$12.5 million plus relief concerning the warranty bond) was brought pursuant to the bilateral investment treaty between Bangladesh and Italy (the Italo-Bangladeshi BIT), with the respondent as the Republic of Bangladesh itself, rather than the state agency. Article 5 of the BIT provides that investments may not be expropriated (nor subject to measures equivalent to expropriation) without prompt, adequate and effective compensation.
Contending that immaterial rights can be expropriated, Saipem asserted that Bangladesh had expropriated not only its contract claims, but also an entitlement to arbitrate under the ICC Rules. According to Saipem, this was covered by the Italo-Bangladesh BIT, which in Article 1 extends its protection to any “right accruing by law or by contract”. In response, Bangladesh raised jurisdictional objections based on both the BIT itself and Article 25 of the ICSID Convention, which extends jurisdiction to “any legal dispute arising directly out of an investment” between the host state and the foreign investor.
The ICSID Tribunal accepted jurisdiction.8 In so doing, the arbitrators had to address multiple questions related to the nature of investments and the type of fact patterns capable of constituting an expropriation.
Noting that the notion of investment in the Italo-Bangladeshi BIT includes “credit for sums of money,”9 the Tribunal construed those words to cover rights under an award ordering payment of amounts due to the prevailing party. In so doing, the tribunal focused on the rights arising out of the underlying contractual relationship. These rights were found to have been crystallized by the ICC award.10 Consequently, the arbitrators did not need to make a final ruling on the argument that the arbitration agreement itself constituted a financial right covered by Article 1 of the BIT.11
Having determined that Saipem had made an investment as defined under the Italo-Bangladeshi BIT, the Tribunal went on to find that the facts as alleged by the Claimant were capable of constituting an expropriation under Article 5 of the BIT. The essence of the allegation was that an unlawful disruption and a de facto annulment of the ICC Arbitration by Bangladeshi courts deprived Saipem of the amounts awarded in the ICC arbitration, thus amounting to an illegal expropriation.
Finally, the Tribunal rejected the contention that the substance of Saipem’s claim constituted a private contract action rather than an investment treaty claim. Bangladesh had argued that the claim was nothing more than a contract action “dressed as a treaty claim”. In response, the Tribunal noted that Saipem did not request relief under its agreement with Petrobangla, but rather claimed that the alleged breach of the New York Convention constituted a violation of the protection mandated for foreign investors under the investment treaty.12
The Tribunal determined only that the alleged violation of the New York Convention could constitute a breach of the investment treaty. Whether the conduct of the Bangladeshi courts did in fact amount to a “denial of justice” (thereby breaching treaty protections against improper expropriation) was left to the merits phase of the arbitration. Doubtless the award will serve as a springboard for future claims related to the New York Convention.
Not all state practices that disregard the Convention will be actionable, however. Some investment in the offending country must provide a jurisdictional underpinning for actions against the breaching state. Breach without remedy will likely continue in instances exemplified by certain American decisions that invoke notions of forum non conveniens and lack of “minimum contacts” to justify failure to recognize arbitral awards. To these cases we now turn our attention.