ICSID rejects Turkish Co $756m claim against Pak

The Nation, Pakistan

ICSID rejects Turkish Co $756m claim against Pak

6 September 2009

ISLAMABAD (APP) - An arbitral tribunal appointed by the International Centre for Settlement of Investment Disputes (lCSID) of the World Bank hearing a claim brought by a Turkish investor against the Islamic Republic of Pakistan has rejected all claims for breach of a bilateral investment treaty between the two countries.

The company, Bayindir Insaat Turizm Ticaret Ve Sannyi AS (Bayindir) had sought damages of $756 million arising out of a dispute over the construction of highway between Islamabad and Peshawar, said a press release issued here Saturday.

However, in an award released on Friday it was held that Pakistan’s highway agency did not act in a politically motivated manner when it terminated its contract with the Turkish company following performance disputes.

The Tribunal was presided over by Prof. Gabrielle Kaufmann-Kohler and its members were Sir Franklin Berman and Prof- Karl-Heinz Boeksticgel.
Pakistan was represented by the then Attorney General Makhdoom Ali Khan, Umar Bandial, Iftikharuddin Riaz, Prof. Chris Greenwood (now a judge of the International Court of Justice) and Sam Wordsworth. Bayindir was represented by Sidley Austin, a Washington based law firm and Mr. Furrukh Karim Qureshi Advocate.

According to the case,in 1997 the National Highway Authority of Pakistan (NHA) and Bayindir entered into an agreement to construct a six -lane motorway between Islamabad and Peshawar.

As per contract, the NHA was to pay Bayindir 30 percent of the contract price as an advance payment.In return, Bayindir was to provide the NHA with bank guarantees equivalent to the advance payment. The bank guarantees were to decrease as further interim payments were made by the highway authority for the work performed.

The project completion date was slated for July 2000, and construction began in June 1998. However, the project experienced numerous delays and by April 2000 the completion date was revised, so that Bayindir would complete two priority sections of the highways by March 2001, and the remainder by December 2002.

Failure on the part of Bayindir to adhere to this schedule could result in the cancellation of the contract.

For reasons that were in dispute between the parties, Bayindir failed to complete the priority sections by March 2001.As a result, the NHA terminated the contract in April shortly thereafter, the NHA sought to redeem the bank guarantees provided by Bayindir seemed more favourable than those previously given to Bayindir.

In April 2002 Bayindir turned to the World Bank’s ICSID, alleging that Pakistan breached the Pakistan-Turkey BIT.

In particular, Bayindir claimed that Pakistan had dealt it fair and equitable treatment by canceling the contract and expelling it for political reasons unrelated to its actual performance.

By frustrating its residual contractual rights and by attempting to redeem its bank guarantees. Although the Pakistan- Turkey BIT does not contain any guarantees of fair and equitable treatment, Bayindir sought to invoke such guarantees from other Pakistani treaties by way of the most favoured nation (MFN) clause.

Bayindir further claimed that these same allegations resulted in discrimination contrary to Pakistan’s obligations to accord national treatment and MFN treatment.Based on the same factual allegations,Bayindir claimed that Pakistan had unlawfully expropriated its investment without compensation.

Finally,the Turkish company also claimed that Pakistan discriminated against it when a new contract was awarded to a local contractor on more favorable terms.

On the facts of the case, the tribunal determined that there was simply not enough evidence to back-up Bayindir’s assertions that the treatment it received was based on political motivations unrelated to its contractual performance. To the contrary, the tribunal found that the NHA’s concerns about Bayindir’s performance were well founded ,and as much, that the agency had been legally entitled to terminate the contract.

With respect to the actions taken by the NHA after the termination of the contact, the tribunal held the NHA had merely - - in its capacity as the contractual counterpart of Bayindir.Accordingly the tribunal held that with respect to these contractual measure there was in fact no exercise of sovereign power that could be attributable to the state of Pakistan under the treaty.

This is Pakistan’s third success before an ICSID tribunal.It also won its cases against SGS where it was represented by Makhdoom Ali Khan, Umar Bandial V.V. Veedr QC, Prof Greenwood and Sam Wordsworth.