UMBRELLA CLAUSES: A DIFFERENT PERSPECTIVE

A considerable number of currently in force investment treaties houses what investment tribunals and academics call an ‘umbrella clause’ provision. The umbrella clause is a provision in investment protection treaties whereby the investment hosting State is bound to respect the undertakings it has assumed with a foreign investor and/or with regard to its investments. This clause, and in particular how its function is interpreted, is the subject-matter of this thesis. Function is best described as the purpose that the clause fulfils within the treaty structure, viz enhancing the protection of commitments voluntarily undertaken in relation to foreign investors or their investments. After the first introductory chapter, which accounts for the many inconsistencies in the interpretation of the clause, as well as for the interpretive criteria tribunals have employed, the second chapter gathers some punctual data on the topicality of the umbrella clause debate. It pictures how the clause has been interpreted thus far, highlighting areas of consensus, and also dissensus, in investment decisions. In particular, around the issue of function consensus has failed to materialise. Conversely, around jurisdictional precedence, an interpretive concern which looks at the interference between dispute settlement fora designated in the contract and in the treaty respectively, tribunals seem to allow for parallel proceedings. Further, it is underscored how the decline in popularity of the clause in newly signed investment agreements is yet to translate in a waning relevance of the umbrella clause debate. Chapter 3 avers that out of the four known interpretations of the function of the umbrella clause, only two are prima facie compatible with the VCLT rules and are, for this reason, retained in the debate. Jurisdictional internationalisation (or third camp) and full internationalisation (or fourth camp) are identified as the most plausible interpretations of the clause’s function. Tribunals, pursuant to the former, have argued that it was a conceivable interpretation of the umbrella clause to turn the failure to observe a protected commitment into a breach of treaty, thereby allowing for the claim to be heard before an international tribunal. Compared to the forth camp, however, the assumption that the law applicable to the claim would be international law, as opposed to the proper law of the contract, was rejected. In an effort to discern between the two interpretations, chapters 4 and 5 advance the argument that the third camp interpretation would not allow for the jurisdictional precedence concern to be interpreted in a fashion which is compatible with the VCLT rules. In particular, it would cause commonly formulated contractual forum selection clauses to waive the offer to bring treaty disputes for the violation of the umbrella clause before an investment treaty tribunal. Additionally, compatibility problems might arise between fork- in-the-road provisions and choice of forum clauses in the contract. Even in the event of parallel treaty and contract proceedings issues of compatibility might arise. The lis pendens and res judicata principles, the applicability of article 53 of the ICSID Convention, as well as the frequent recourse of investment tribunals to comity in order to halt treaty proceedings pending the decision of the forum designated in the contract, all contribute to create uncertainty and arbitrariness. Arguably, the fourth camp interpretation, by allowing the umbrella clause claim to be decided in accordance with international law, not the law applicable to the contract, erects a separation between contract and treaty proceedings which renders parallel proceedings unproblematic. It is argued that this is the only solution compatible with the purpose of the treaty, the principle of good faith interpretation as well as with the consequent practice of the treaty Parties pursuant to article 31 of the VCLT.