Claim by Turkish investor against Pakistan over highway project dismissed on the merits

By Damon Vis-Dunbar
2 October 2009

A claim by a Turkish investor against Pakistan has been dismissed on its merits after the Tribunal concluded that Pakistani government officials did not conspire in bad faith to expel the investor.

The Claimant, Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. was contracted to build a six-lane motorway between Islamabad and Peshawar by the National Highway Authority (NHA), an agency of the Pakistani government. But the project was marred over the course of 8 years by disagreement over delays in the construction schedule.

Bayinder blamed these delays on factors outside of its control, such as a lack of available land, while an independent engineer overseeing the project owed the slow progress to Bayinder’s failure to invest sufficiently in equipment.

The dispute came to a head in 2001, when the NHA terminated its contract with the Turkish firm and the Pakistani army secured Bayinder’s work site.

Bayinder initially responded by threatening arbitration under the contract, but in 2002 elected instead to settle the dispute under the Pakistan-Turkey bilateral investment treaty. Bayinder claims that Pakistan breached a number of obligations, including the duty to provide fair and equitable treatment, Most Favoured Nation and National Treatment, and to provide compensation in the case of expropriation.

Bayinder’s fair and equitable treatment (FET) claim faced a preliminary hurdle, due to the fact that the Pakistan-Turkey BIT does not contain its own provision on FET. As such, Bayinder argued that a FET obligation could be imported from the numerous other Pakistani bilateral investment treaties that do contain FET clauses, on the grounds that it was owed such treatment under the Most Favoured Nation obligation.

Bayinder bolstered its argument by pointing to the preamble of the Pakistan-Turkey BIT, which states that “fair and equitable treatment of investment is desirable in order to maintain a stable framework for investment and maximum effective utilization of economic resources.”

While the Tribunal considered that the preamble did not establish an effective FET obligation, it took it as a signal that Pakistan and Turkey contemplated the importance of FET. Moreover, the Tribunal noted that the Pakistan-Turkey BIT does not explicitly prevent the MFN provision from applying to more favourable substantive standards of treatment found in Pakistan’s other BITs.

In the view of the Tribunal, the ordinary meaning of the MFN clause, combined with the language of the preamble, weakened Pakistan’s argument that the lack of a FET clause in the Pakistan-Turkey BIT was an intentional decision. The Tribunal, therefore, permitted the use of the FET provision in the Pakistan-Switzerland BIT: a treaty signed a few months after to Pakistan-Turkey BIT.

Having determined that Bayinder could import an FET clause from another BIT, it would go on to conclude that Pakistan had not treated Bayinder unfairly or inequitably.

Bayinder complained that its highway project was unpopular with General Pervez Musharraf’s administration, prompting a government conspiracy to expel the Turkish investor.

However, Bayinder failed to convince the Tribunal that its dispute was more than a contractual disagreement with the NHS. After surveying the evidence, the Tribunal concluded that Bayinder had not demonstrated that the Pakistani government acted in bad faith; rather, the evidence suggested that Pakistan had reasonable concerns over Bayinder’s performance, and the NHA’s decision to terminate the contract was an entitled response.

The Tribunal also went on the dismiss Bayinder’s other claims against Pakistan. Regarding the breach of National Treatment, Bayinder argued that it was expelled so that the highway project could be handed to local contractors on more favourable terms. However, the Tribunal noted that the local contractors who took over the project did so in a different context from Bayinder. While the local contractors were given a more generous time allowance for completing the work, they were also offered different financial incentives, and had less experience with projects of this scope. As such, the local contractors could not be deemed to be in a “similar situation” to Bayinder.

Meanwhile, the claimed breach of the Most Favoured Nation obligation was dismissed for lack of evidence. Bayinder pointed to a press release from Pakistan’s Minister of Communications, announcing that a large number of NHA projects were behind schedule, yet Bayinder was the only contractor subject to expulsion, which it characterized as evidence of discrimination. However, the Tribunal determined that Bayinder fell far short of the evidence required to substantiate an MFN claim, leaving it “in no position to proceed to any meaningful comparison between the different situations at issue.”

Award, Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakista, ( ICSID Case No. ARB/03/29), is available at: http://ita.law.uvic.ca/documents/Bayandiraward.pdf