Enabling Private Ordering - the University of Minnesota Law School

2009] UMBRELLA CLAUSES 31
investor-State cooperation more efficient.
However, even under modern investment treaties the scope
of the host State’s incapacity to make credible commitments
under investor-State contracts persists. Although these treaties
provide for a number of specific investors’ rights, such as fair
and equitable treatment and the protection against
expropriation, and contain the host State’s general and advance
consent to arbitration, the protection of contractual promises is
still limited in the absence of an umbrella clause. In particular,
fair and equitable treatment and the concept of expropriation,
both direct and indirect, are interpreted in arbitral practice as
being limited to breaches of a sovereign nature, thus excluding
commercial State conduct. The traditional contract claim/treaty
claim distinction therefore persists in investment treaty
arbitration and limits the host State’s capacity to fully make
credible commitments under treaties that do not contain an
umbrella clause. The contract claim/treaty claim distinction
plays out on two levels: the jurisdiction of treaty-based tribunals
for breaches of investor-State contracts and their substantive
protection.
With respect to jurisdiction, arbitral tribunals consistently
differentiate between contract and treaty claims. The tribunals
support the holding that contract claims are, in principle,
excluded from the jurisdiction of treaty-based tribunals. 76 The
Annulment Committee in Aguas del Aconquija v. Argentina, for
example, explained:
A state may breach a treaty without breaching a contract, and vice
versa . . . . In accordance with this general principle (which is
undoubtedly declaratory of general international law), whether there
has been a breach of the BIT and whether there has been a breach of
contract are different questions. Each of these claims will be
determined by reference to its own proper or applicable law—in the
case of the BIT, by international law; in the case of the Concession
Contract, by the proper law of the contract. 77
Arbitral tribunals have applied this distinction consistently.
The result is the “well established” jurisprudence78 that a
76. Exceptions to this principle exist, independently of the existence of an
umbrella clause, if the treaty includes a broadly worded arbitration clause covering
“any disputes relating to investments.” See infra Part III.B.2.
77. Compañia de Aguas del Aconquija, S.A. and Vivendi Universal v. Argentine
Republic, ICSID (W. Bank) Case No. ARB/97/3, Decision on Annulment, paras. 95–
96 (July 3, 2002).
78. Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of
Pakistan, ICSID (W. Bank) Case No. ARB/03/29, Decision on Jurisdiction, para. 148