International Investment Law and Arbitration Commentary, Awards and other Materials

CHAPTER OUTLINE

This chapter deals with treaty clauses which stipulate that the host State shall observe the undertakings which it has assumed towards a protected investor, including but not limited to any obligations which the host State has assumed under an investor-State contract. We will explore the different interpretations given to various umbrella clauses by investment tribunals. These interpretations are varied and inconsistent. There is yet no real consensus on the precise scope and even the nature or character of the protection conferred by umbrella treaty clauses. Section 1 explains what umbrella clauses are and the lurking presence of the theory of internationalised contracts explained earlier in Chapter 2 of this book. Section 2 contains excerpts of some of the main arbitral awards. They show at least four different views adopted by tribunals regarding umbrella clauses. Section 3 contains illustrations of contemporary treaty umbrella clauses. Some ways in which tribunals have sought to limit the potentially very wide scope and effect of umbrella clauses are discussed in the Conclusion.

INTRODUCTION

An umbrella clause or ‘observance of undertakings’ clause may be defined as a treaty clause which extends the independent protection of the treaty to breaches of contractual or other commitments made by the host State in relation to the foreign investor's investment. We have seen how investment disputes are, today, often treaty-based. Prior to the growth of investment treaty arbitration since the 1990s, the field had been dominated by investment contract arbitrations. That process of evolution from investment contract to investment treaty protection, and from contractual to treaty-based arbitrations, has led to complex questions surrounding those situations in which a treaty requires the host State to fulfil its contractual undertakings; in other words, situations in which contractual and treaty obligations exist together.

THE UMBRELLA CLAUSE

The umbrella clause is sometimes attributed to Prosper Weil's Hague Lectures. According to Weil, there can be an ‘umbrella treaty’ between the host and home State ‘which turns the obligation to perform the contract into an international obligation of the contracting State’. It ‘transforms contractual obligations into international obligations’. We have already seen the notion that contractual obligations may be transformed into international obligations in the discussion on the theory of the internationalised contract.