Investor–State Arbitration 2025 Comparisons

Bangladesh maintains a policy favourable to foreign direct investment (FDI) and recognises investor‒state arbitration as a crucial mechanism for protecting investments. The government actively seeks FDI through bilateral investment treaties (BITs) and national legislation. Bangladesh remains focused on fostering an investment climate conducive to economic growth, particularly as the country prepares for graduation from Least Developed Country (LDC) status (expected in 2026).

Bangladesh is a signatory to the major international arbitration conventions. It ratified the ICSID Convention in 1980 and acceded to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the “New York Convention”) in 1992. The Arbitration Act 2001 (based on the UNCITRAL Model Law on International Commercial Arbitration (1985) (the “UNCITRAL Model Law”) serves as the implementing legislation.

Investor–state arbitration is an established method for resolving disputes. Foreign investors strongly prefer arbitration over domestic litigation, which is often perceived as time-consuming.

Arbitration activity involving the state and state-owned entities (SOEs) is concentrated in two main sectors, as follows.

• Energy and power ‒ historically the most active area, involving oil and gas exploration (contracts with Petrobangla) and power generation (power purchase agreements (PPAs) with the Bangladesh Power Development Board (BPDB)). Disputes frequently concern tariffs, capacity payments, and contract termination.
• Infrastructure – increasingly prominent owing to large-scale PPPs for expressways (eg, Dhaka Elevated Expressway and Hatirjheel-Demra Highway), bridges, and port developments. Disputes often arise concerning project delays, cost overruns, variations, and land acquisition.

Several arbitrations have defined the scope of investment protection and the consequences of state actions, as follows.

• Saipem SpA v People’s Republic of Bangladesh (ICSID Case No ARB/05/7) (“Saipem”) ‒ this seminal case established the doctrine of “judicial expropriation”. The ICSID tribunal held that the actions of Bangladeshi courts (which revoked the authority of an ICC tribunal seated in Dhaka and nullified its award) constituted an unlawful indirect expropriation of the investor’s contractual rights.

• Smith Cogeneration (Bangladesh) Private Limited v BPDB (ICC arbitration and enforcement) ‒ this case highlighted the risks of SOE non-participation in arbitration. Crucially, the subsequent enforcement action led the Supreme Court of Bangladesh (Appellate Division, 2015) to rule decisively that SOEs cannot use procedural mechanisms outside the Arbitration Act 2001 (specifically Order XXI Rule 29 of the Code of Civil Procedure (CPC)) to stay the enforcement of foreign arbitral awards.

• Niko Resources (Bangladesh) Ltd v BAPEX and Petrobangla (ICSID Case Nos ARB/10/11 and ARB/10/18) (“Niko Resources”) ‒ these were consolidated, contract-based ICSID cases involving claims related to gas field blowouts and unpaid invoices, featuring complex jurisdictional debates.

• Chevron v People’s Republic of Bangladesh (ICSID Case No ARB/06/10)‒ although Bangladesh prevailed on the merits, the tribunal notably awarded costs against Bangladesh owing to Bangladesh’s dilatory conduct during the proceedings.

Bangladesh and its SOEs typically utilise available legal recourse, including jurisdictional challenges and annulment proceedings. While the state vigorously contests claims, the ultimate rejection of the annulment application in Niko Resources (2023) demonstrates that the review mechanisms within the ICSID framework are utilized, respecting the finality of the process.

According to UNCTAD (United Nations Conference on Trade and Development) data, Bangladesh has signed 33 BITs ‒ of which, 25 are currently in force. Key treaty partners include the USA,the UK, China, Germany, Japan, and India. Bangladesh is also a party to several treaties with investment provisions (TIPs).

Bangladesh does not utilise a single “model BIT”. Its treaties reflect the prevailing standards at the time of negotiation. Older BITs typically include broad protections. A notable development is the Joint Interpretative Notes (JIN) adopted in 2017 for the India–Bangladesh BIT (2009), which refined the scope of protections, pegging the Fair and Equitable Treatment (FET) standard to the customary international law minimum.

Bangladesh is a signatory to regional trade agreements – for example, SAFTA (South Asian Free Trade Area) and BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation). However, these currently lack the detailed investor protections and robust investor–state dispute settlement (ISDS) mechanisms found in BITs.

Bangladesh generally does not publish extensive commentaries. Interpretation typically relies on the Vienna Convention on the Law of Treaties (VCLT). The primary exception is the 2017 JIN concerning the India–Bangladesh BIT (2009).

The primary national legislation is the Foreign Private Investment (Promotion and Protection) Act 1980 (the “FPIP Act”). It guarantees FET, full protection and security, national treatment, protection against expropriation (requiring adequate compensation), and the repatriation of capital and returns. The FPIP Act provides a baseline level of protection but does not contain provisions referring investors directly to international arbitration.

Direct arbitration clauses in contracts between investors and SOEs or state authorities are standard practice – although their robustness varies.

• Infrastructure PPPs – agreements for major projects typically include multi-tiered dispute resolution clauses culminating in international arbitration, often specifying recognised institutional rules (SIAC or ICC).
• PPAs – PPAs exhibit diverse approaches, as follows.
1. International standard – many PPAs, particularly for large-scale fossil fuel projects (eg, Bibiyana II PPA), adopt international best practices, specifying a foreign seat (eg, Geneva and Singapore) and recognised institutional rules (ICC and UNCITRAL). Some explicitly provide pathways to ICSID.
2. Domestic risk – conversely, some PPAs (including certain renewable energy agreements) stipulate arbitration under the Bangladesh Arbitration Act 2001 with a seat in Dhaka. This poses significant risks of judicial interference, as evidenced in Saipem.

• The BERC conflict and the hierarchy of dispute resolution – the Bangladesh Energy Regulatory Commission (BERC) Act 2003 grants the BERC statutory authority to arbitrate disputes between licensees in the energy sector. However, this statutory mandate operates within a clear legal hierarchy, as follows.

3. Treaty arbitration (ISDS) – international treaty obligations supersede domestic law. If a foreign investor invokes a BIT, they can access international arbitration (eg, ICSID), bypassing BERC entirely.
4. Contractual arbitration – the Supreme Court of Bangladesh has affirmed that specific, mutually agreed arbitration clauses within a PPA (eg, specifying ICC/SIAC rules) supersede the BERC’s general statutory arbitration mandate.
• Regional mechanisms – certain regional agreements mandate the South Asian Association for Regional Cooperation (SAARC) Arbitration Council (“SARCO”) as the dispute resolution forum (eg, SAARC Framework Agreement for Energy Cooperation).

The most frequently cited complaints by investors against Bangladesh centre on breaches of contract by SOEs and allegations of expropriation.

• Breach of contract ‒ disputes frequently arise from alleged breaches of production sharing contracts (PSCs), PPAs, and PPP agreements, including issues related to cost recovery, tariffs, failure to make payments, and premature termination.
• Expropriation – claims of indirect expropriation are significant. The Saipem case established that judicial interference with an arbitration and the nullification of an award by domestic courts can constitute an unlawful expropriation of contractual rights.

Parties generally enjoy broad autonomy in selecting arbitrators, subject to the applicable BIT or contract and the chosen arbitration rules. The Arbitration Act 2001 reflects this autonomy; Section 12(2) explicitly states that a person of any nationality may be an arbitrator, unless otherwise agreed by the parties.

If the parties’ chosen method for selecting arbitrators fails, the default procedure is governed by the applicable arbitration rules. If the Arbitration Act 2001 applies, Section 12 provides a default mechanism, involving judicial assistance from the Chief Justice of Bangladesh or a designated Supreme Court judge for international commercial arbitration (Section 12(5)).

Courts in Bangladesh intervene in the selection of arbitrators primarily as a default appointing authority when the agreed mechanism fails, as prescribed under Section 12 of the Arbitration Act 2001.

The Arbitration Act 2001 governs challenges to the arbitrators. Section 13 outlines the grounds, which are that:

• there are justifiable doubts as to the arbitrator’s independence or impartiality; or
• the arbitrator lacks agreed qualifications.

The tribunal decides on the challenge. If unsuccessful, the party may appeal the decision to the High Court Division (Section 14(4)).

Independence and impartiality are fundamental requirements. Section 13 of the Arbitration Act 2001 mandates that a prospective arbitrator must disclose any circumstances likely to give rise to justifiable doubts regarding their independence or impartiality. This duty is ongoing.

An arbitral tribunal seated in Bangladesh is permitted to award binding preliminary or interim relief. Under Section 21 of the Arbitration Act 2001, the tribunal may order any interim measure of protection it considers necessary in respect of the subject matter of the dispute.

Domestic courts play a supportive role. A landmark decision by the Appellate Division (Italian Thai Development v Export-Import Bank of China) confirmed that Bangladeshi courts have the authority to grant interim measures in support of arbitration, even if the seat is outside Bangladesh (Section 7A). Courts can grant relief before, during or until the enforcement of the award.

The national law allows both the courts and the arbitral tribunal to order security for costs. Section 21(2) of the Arbitration Act 2001 empowers the tribunal to require the party requesting an interim measure to provide appropriate security.

The Arbitration Act 2001 is silent on third-party funding. Although the status of common law doctrines of maintenance and champerty remains somewhat ambiguous, it is generally considered that funding agreements are likely permissible unless contrary to public policy. Third-party funding is not prevalent in Bangladesh.

There is no significant recent case law in Bangladesh specifically addressing third-party funding in the context of arbitration.

There are currently no statutory rules requiring the mandatory disclosure of a third-party funding arrangement.

Pre-arbitration procedural requirements are dictated by the specific BIT or contract. Commonly, these instruments require a mandatory negotiation or consultation period (cooling-off period), typically lasting three to six months, following a formal Notice of Dispute.

The Arbitration Act 2001 does not mandate confidentiality. In investor–state disputes, there is inherent tension between the private nature of arbitration and the public interest. Increasing demands for transparency are influencing modern institutional rules. However, most of Bangladesh’s existing BITs predate this trend and do not typically include extensive transparency provisions.

Arbitral tribunals generally have broad authority to award remedies, primarily focused on monetary compensation. Consistent with the international law principle of full reparation, the goal is compensatory; punitive damages are generally not awarded in ISDS.

The following standard international valuation methodologies are employed to quantify damages, typically aiming to establish the fair market value (FMV) of the investment:

• discounted cash flow (DCF) – commonly used for going concerns or long-term project;
• market value – used where reliable data exists, based on comparable transactions; and
• cost-based approaches (sunk costs) – used when future profitability is deemed too speculative.

Parties are generally entitled to recover interest (pre-award and post-award), often calculated at commercially reasonable rates (frequently compound interest). International practice increasingly follows the “costs follow the event” approach. Tribunals retain discretion based on conduct. As seen in Chevron v Bangladesh, dilatory conduct can lead to adverse cost awards even for the prevailing party.

Under established principles of international law, the investor has a duty to mitigate its losses. Failure to take reasonable steps may lead to a reduction in the compensation awarded.

The procedures and standards for enforcing an award in Bangladesh are as follows.

• ICSID awards – these are recognised as binding and enforced as a final decree of a domestic court (Article 54 of the ICSID Convention).
• Non-ICSID (foreign) awards – enforced under Section 45 of the Arbitration Act 2001 (New York Convention) via the District and Sessions Judge Court in Dhaka. The Supreme Court’s ruling in Smith Cogeneration v BPDB is crucial, preventing the use of generalised procedural tools under the CPC to stay the enforcement of a foreign award by citing pending challenges in other domestic courts.

Consequences of Non-Compliance with ICSID Awards

Failure by Bangladesh to comply with a final ICSID award constitutes a breach of Bangladesh’s international treaty obligations under the ICSID Convention. Although Article 27 of the ICSID Convention prohibits the investor's home state from exercising diplomatic protection during the arbitration, this prohibition ceases if the host state fails to honour the resulting award. In such instances, the investor's home state may exercise diplomatic protection, which can include formal protests, negotiations, or even the initiation of state-to-state dispute settlement proceedings to compel compliance.

Since the Arbitration Act 2001, the higher judiciary has generally adopted a supportive approach towards the recognition of international awards.

Sovereign Immunity

Bangladesh adheres to the restrictive theory of sovereign immunity, protecting assets used for sovereign purposes (jure imperii) but generally not those used for commercial activities (acta jure gestionis).

Consent to arbitration waives immunity from jurisdiction. Furthermore, PPAs and implementation agreements in Bangladesh typically contain explicit, broad waivers of sovereign immunity, covering jurisdiction, attachment of assets, and execution of awards – confirming the commercial nature of the activities.

However, the scope of these waivers varies. Some older PPAs include carve-outs that protect assets necessary for maintaining the electrical grid (“protected assets”) from execution, thus limiting recovery options.

Enforcement is typically pursued against the commercial assets of the state or SOEs. Sophisticated enforcement strategies may involve targeting international financial flows, such as funds held in Nostro accounts (correspondent accounts held by Bangladeshi banks abroad). Identifying the commercial purpose of such accounts, supported by contractual waivers of immunity, is crucial for successful execution in the jurisdiction where the account is located.