Enabling Private Ordering - the University of Minnesota Law School

2009] UMBRELLA CLAUSES 37
A. BREACHES OF A SOVEREIGN NATURE VERSUS COMMERCIAL
BREACHES
The view that umbrella clauses only protect against
breaches of contracts based on sovereign conduct or the abuse of
governmental power has only found support in more recent
scholarship 89 and particularly in two recent ICSID decisions in
related cases decided by the same set of arbitrators. In El Paso
v. Argentina and Pan American v. Argentina, the Tribunals held
that it was “necessary to distinguish the State as a merchant
from the State as a sovereign” 90 in the context of applying the
umbrella clause. In El Paso the Tribunal considered that:
the umbrella clause in Article II of the BIT . . . will not extend the
Treaty protection to breaches of an ordinary commercial contract
entered into by the State or a State-owned entity, but will cover
additional investment protections contractually agreed by the State as
a sovereign—such as a stabilization clause—inserted in an investment
agreement. 91
89. See Francesco Costamagna, Investor' [sic] Rights and State Regulatory
Autonomy: the Role of the Legitimate Expectation Principle in the CMS v. Argentina
case, 3 TRANSNAT’L DISP. MGMT. 10 (2006) (observing that the Tribunal’s “finding
provides further authority to the suggestion that umbrella clauses exclusively apply
to governmental activities iure imperii”); Richard Happ, Dispute Settlement under
the Energy Charter Treaty, 45 GERMAN Y.B. INT’L L. 331, 347–53 (2002) (discussing
the minimum governmental measures that a State, as a sovereign entity, must take
to ensure fair and equitable treatment and non-discrimination); Richard Happ &
Noah Rubins, Awards and Decisions of ICSID (W. Bank) Tribunals in 2004, 47
GERMAN Y.B. INT’L L. 878, 921 (2004) (“[T]here appears to be growing support for
the notion that before a breach of contract will amount to a breach of an investment
treaty, the state must have acted in the exercise of its sovereign powers, rather than
as an ‘ordinary’ contractual partner.”); Thomas W. Wälde, Investment Arbitration
under the Energy Charter: An Overview of Selected Key Issues based on Recent
Litigation Experience, in ARBITRATING FOREIGN INVESTMENT DISPUTES 193 (Norbert
Horn ed., 2004); Wälde, Contract Claims, supra note 8; Thomas W. Wälde & Kaj
Hobér, The First Energy Charter Treaty Arbitral Award, 22 J. INT’L ARB. 83, 94
(2005) (noting that the SGS v. Philippines tribunal avoided the question of whether
“commitments to be observed” meant “investment contracts” with the State); Wälde,
“Umbrella Clause” in Investment Arbitration, supra note 4, at 196 (“[D]isputes over
contracts that display merely commercial- and contract-law elements will not fall
under international law; such disputes do not involve the power of government . . .
.”).
90. Pan American Energy LLC, and BP Argentina Exploration Co. v. Argentine
Republic, ICSID (W. Bank) Case No. ARB/03/13, and BP America Production Co.,
Pan American Sur SRL, Pan American Fueguina, SRL and Pan American
Continental SRL v. Argentine Republic, ICSID (W. Bank) Case No. ARB/04/8
(consolidated claims), Decision on Preliminary Objections, para. 108 (July 27, 2006);
El Paso Energy Int’l Co. v. Argentine Republic, ICSID (W. Bank) Case No.
ARB/03/15, Decision on Jurisdiction, para. 79 (Apr. 27, 2006).
91. El Paso, ICSID Case No. ARB/03/15, at para. 81; see also Sempra Energy