In 1990, Bangladeshi state-owned energy company Petrobangla entered into a gas pipeline construction contract with Saipem. The parties agreed that disputes would be settled through arbitration under the ICC Rules in Dhaka, Bangladesh.

In 1993, disputes arose between the parties, and Saipem initiated ICC arbitration. After the ICC tribunal rejected several of Petrobangla's procedural requests, Petrobangla turned to the Bangladeshi courts. Citing the ICC tribunal's procedural orders as evidence of misconduct, Petrobangla successfully persuaded a court to enjoin the arbitration. It then convinced the High Court Division of the Supreme Court of Bangladesh to revoke the ICC tribunal's authority outright. Saipem did not appeal because it perceived that Petrobangla was colluding with the national courts.

The ICC arbitration proceeded despite the orders of the Bangladeshi courts. In 2003, the ICC tribunal found Petrobangla to be in breach of the construction contract, and awarded damages to Saipem. Saipem could not enforce this award in Bangladesh, the only state in which Petrobangla had assets, because Bangladeshi courts ruled that the ICC award was "a nullity". In 2004, Saipem requested ICSID arbitration under the Italy-Bangladesh bilateral investment treaty (BIT). In the ICSID proceedings, Saipem argued that the Bangladeshi courts had indirectly expropriated its right to arbitration and to payment under the contract as determined by the ICC award.

The Italy-Bangladesh BIT, like a number of older investment treaties, contains a dispute settlement clause providing for arbitration of disputes "relating to compensation for expropriation … including disputes relating to the amount of the relevant payments …". The ICSID tribunal interpreted this clause as permitting it to determine not only the amount of compensation payable in the event of an established expropriation, but also whether or not an expropriation had occurred.

Next, the tribunal considered the merits of Saipem's expropriation claim. In Saipem's case, the tribunal found that the ICC award had crystallised Saipem's "residual contractual rights under the investment." In the tribunal's view, actions by Bangladesh that substantially deprived a party of the value of its contractual right to arbitration could have an expropriatory effect.

Further, the tribunal found that the actions of a state’s domestic courts could constitute expropriation. With respect to the Bangladeshi court’s annulment of the ICC award, the ICSID tribunal found that the mere fact of the annulment itself could not be deemed direct expropriation. However, the tribunal found that such an annulment could be expropriatory if it were "illegal" – that is, if the court's action fell short of "generally accepted standards of the administration of justice" or were grossly unfair and arbitrary. In addition, the tribunal found that Saipem was not required to exhaust local remedies before submitting an expropriation claim based on such allegedly illegal actions by the domestic courts.

Ultimately, the tribunal held that the Bangladeshi courts’ actions amounted to expropriation. Neither party disputed that the Bangladeshi courts had authority to supervise the ICC arbitration. However, the ICSID tribunal agreed with Saipem that the courts had abused that authority. In the tribunal’s view, the courts' actions were "grossly unfair" and inconsistent with international law, in that the courts "simply took as granted what Petrobangla falsely presented," did not rely on testimony from members of the ICC tribunal, and were unjustified. The ICSID tribunal also found that the court had disregarded its obligation to recognise arbitration agreements under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).

The Saipem award is notable in several key respects. First, it is the latest of several tribunal decisions finding that an investment treaty arbitration clause ostensibly limiting arbitration to disputes regarding compensation for expropriation in fact allows a tribunal to decide the threshold question of whether expropriation has occurred. Second, it holds expressly that the actions of domestic courts can effect an expropriation. Third, the award indicates that the factors relevant to establishing whether a court action is expropriatory are similar to those used to identify a "denial of justice" claim under customary international law. Fourth, the award treats the contractual right to arbitration before a given forum as a right having a value that can be expropriated.

Accordingly, the award should be of interest to those investors or prospective investors who are considering the benefits of an investment treaty with a limited dispute settlement provision, those who are concerned with the independence or reliability of a given host state’s courts, and those who are or may become engaged in simultaneous proceedings before arbitration tribunals and domestic courts in which the latter may attempt to interfere with the former.