Enabling Private Ordering - the University of Minnesota Law School

2009] UMBRELLA CLAUSES 15
relationship between the State and private individuals. A broad
interpretation of umbrella clauses is viewed as transforming
breaches of contract into breaches of a treaty, although the
investor is not a subject of international law. 27 The more
restrictive approach is, therefore, driven, as the Tribunal in El
Paso v. Argentina pointed out, by avoiding the “far-reaching
consequences of a broad interpretation of the so-called umbrella
clause, quite destructive of the distinction between national
legal orders and the international legal order”. 28 Under this
approach, tribunals treat the contract claim/treaty claim
distinction as a firm rule of customary international law that
could only be displaced by treaty provisions that express more
clearly the intention of States to break with the purportedly
strict distinction between international and municipal law. The
wording of umbrella clauses, by contrast, is not considered to be
sufficient for this objective. 29
27. El Paso Energy, ICSID Case No. ARB/03/15, para. 82 (“[A]n umbrella
clause cannot transform any contract claim into a treaty claim, as this would
necessarily imply that any commitments of the State in respect to investments, even
the most minor ones, would be transformed into treaty claims.”); see also id., para.
77 (pointing out that a broad interpretation of the umbrella clause would yield the
consequence that “the division between the national legal order and the
international legal order is completely blurred”); SGS v. Pakistan, ICSID Case No.
ARB/01/13, at para. 172 (describing umbrella clauses as resulting in a
“transubstantiation of contract claims into BIT claims”).
28. El Paso Energy, ICSID Case No. ARB/03/15, para. 82; see also SGS v.
Pakistan, ICSID Case No. ARB/01/13, at para. 166 (“As a matter of textuality . . . the
scope of Article 11 of the BIT, while consisting in its entirety of only one sentence,
appears susceptible of almost indefinite expansion.”). The emphasis on the
delineation between the national and the international legal order echoes some
earlier writings on umbrella clauses. In view of the blurring effect the clauses have
on the relationship between national and international law, Prosper Weil asserted
that his interpretation would have to focus on the delineation of the national and
international legal order. See Weil, supra note 3, at 101 (“[L]e problème ne soit plus
seulement, dans ce cas, de définir les droits et obligations respectives des deux
parties, mais également, et peut-être au premier chef, celui des frontières entre les
divers ordres juridiques.”).
29. See SGS v. Pakistan, ICSID Case No. ARB/01/13, at para. 171 (holding that
the clause in question in the Swiss-Pakistani treaty “would have to be considerably
more specifically worded before it can reasonably be read in the extraordinarily
expansive manner submitted by the Claimant”). Similarly on the relationship
between established rules and principles of international law and overriding treaty
provisions, see Elettronica Sicula S.p.A. (ELSI) (United States of America v. Italy),
1989 I.C.J. 15, 42 (Judgment of July 20), which states that “the Chamber finds itself
unable to accept that an important principle of customary international law should
be held to have been tacitly dispensed with, in the absence of any words making
clear an intention to do so.” See also Legal Consequences for States of the Continued
Presence of South Africa in Namibia (South West Africa) Notwithstanding Security
Council Resolution 276, 1971 I.C.J. Reports 16, 47 (Advisory Opinion of June 21);