ISLAMABAD, Aug 11: The International Centre for Settlement of Investment Disputes (ICSID) has ruled that it has no jurisdiction to direct Islamabad to pay damages for breaching the pre-shipment inspection (PSI) contract with Swiss company, SGS, and asked the firm to approach arbitrator in Pakistan for getting damages.

The Swiss company is demanding $128 million from Pakistan government for prematurely terminating its contract.

The ICSID, however, has ruled that it has jurisdiction to decide if Pakistan breached Bilateral Investment Treaty with Switzerland by prematurely terminating the pre-shipment inspection contract of the SGS.

The SGS was accused of acquiring pre-shipment inspection contract by allegedly bribing the then prime minister, Benazir Bhutto, and her spouse, Asif Ali Zardari. The company had denied the charge in its statement before the arbitrator.

The ICSID, a forum which functions under the umbrella of World Bank, had, after hearing the parties, reserved its judgment in Feb 2003 only to the extent of its jurisdiction. The judgment which was announced in Paris two days ago reached Pakistan on Monday.

The Swiss company had contended that Islamabad by terminating the contract had violated the Bilateral Investment Treaty between Pakistan and Switzerland signed on May 6, 1996, for the promotion of reciprocal protection of investment.

The company had argued that the contractual commitments of Pakistan under the PSI agreement had formed a part of its commitments under international law. So, every violation of contract would be regarded as a violation of international law.

Only the ICSID tribunal and not the arbitrator appointed under the PSI agreement could determine breaches of international law and treaty, it was contended.

Pakistan, despite having a favourable judgment from Supreme Court of Pakistan, had decided to appear before ICSID, and challenged its jurisdiction on the ground that Swiss firm had brought no investment in Pakistan and it was only contracted for providing “service” in the form of pre-shipment inspection.

The ICSID has not accepted Pakistan’s contention and held that whatever, the Swiss company was doing in Pakistan came within the ambit of the definition of the word “investment”.

Attorney General Makhdoom Ali Khan, who represented Pakistan, said that after a long time an international arbitration tribunal has given a favourable decision to Pakistan.

The ICSID which had recommended that the arbitration proceeding in Pakistan should be stayed, has withdrawn its order.

Justice Nasir Aslam Zahid (retired), who has been appointed as arbitrator, will take up the matter on Aug 22.

Pakistan had argued that the dispute was within the scope of the arbitration clause contained in the PSI agreement.