Enabling Private Ordering - the University of Minnesota Law School

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44 MINNESOTA JOURNAL OF INT’L LAW [Vol. 18:1 reduce the ability of host States to make credible commitments and therefore lessen efficient cooperation between investors and host States. It is also unnecessary with regard to the feared flood of disputes under investment treaty arbitration. First, a broad interpretation of umbrella clauses that allows bringing any claim for the violation of an investor-State contract would not allow investors to bring every commercial dispute or every dispute about the violation of municipal law within the ambit of investment treaty arbitration as some commentators and tribunals fear. 113 Instead, the limits imposed on investment treaty arbitration by the scope of applicability of the relevant investment treaty and the subject matter jurisdiction of the ICSID Convention remain relevant. Both limit recourse to arbitration under an investment treaty to investment-related contracts. 114 By contrast, contractual disputes arising out of simple sales contracts, for instance, will not be upgraded by means of an umbrella clause to a dispute that can be brought under an investment treaty. 115 Umbrella clauses do not affect 113. See El Paso Energy Int’l Co. v. Argentine Republic, ICSID (W. Bank) Case No. ARB/03/15, Decision on Jurisdiction, para. 72 (Apr. 27, 2006); SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID (W. Bank) Case No. ARB/01/13, Decision on Objections to Jurisdiction, para. 166 (Aug. 6, 2003) Cf. infra note 117. 114. See Gaffney & Loftis, supra note 4, at 13–15 (on the requirement of the investment-related nature of the investor-State contract with respect to the host State’s promise vis-à-vis the foreign investor); Schreuer, supra note 4, at 253. On Article 25 of the ICSID Convention as a jurisdictional limit to investment-related disputes, see, for example, Burkhard Schöbener & Lars Markert, Das International Centre for Settlement of Investment Disputes (ICSID), 105 ZEITSCHRIFT FÜR VERGLEICHENDE RECHTSWISSENCHAFT [ZVGLRWISS] 65, 81 et seq. (2006) (pointing out that even if the definition of investment is broad enough to cover simple contractual claims, for instance out of a simple sales contract, the definition of investment in Art. 25 ICSID draws an outer limit to the definition of investment by IIA or by the parties to an investment agreement even if they contractually submitted a dispute by a choice of forum clause to the exclusive jurisdiction of ICSID). See also Joy Mining Mach. Ltd. v. Egypt, ICSID (W. Bank) Case No. ARB/03/11, Decision on Jurisdiction, para. 50 (July 30, 2004) (“The parties to a dispute cannot by contract or treaty define as investment, for the purpose of ICSID jurisdiction, something which does not satisfy the objective requirements of Article 25 . . . and its reliance on the concept of investment, even if not specifically defined, would be turned into a meaningless provision.”); Carolyn Lamm, Jurisdiction of ICSID, 6 ICSID REV.- FOREIGN INV. L. J. 462, 475 (1991). 115. See also the example given in Thomas W. Wälde, International Investment under the 1994 Energy Charter Treaty, J. WORLD TRADE L., Oct. 1995 at 48, of a French village breaching a sales contract with a foreign petroleum company. Such constellations would, however, be outside of the scope of the umbrella clause not because the wording of the clause is overly broad and requires restrictive interpretation, but because a simple sales contract is not covered by the notion of
2009] UMBRELLA CLAUSES 45 the classification of a contract as investment-related. They merely allow breaches of investment-related contracts that qualify as investment under the relevant investment treaty to be brought under the treaty-based dispute settlement procedure. 116 Allowing claims for commercial breaches of investmentrelated contracts to be brought before treaty-based tribunals as a violation of an umbrella clause does not run counter to the nature of investment arbitration either. 117 Instead, the ICSID Convention has not exclusively, nor even primarily, been designed for disputes to be heard under investment treaties, but rather intended to establish a forum for the settlement of disputes concerning the interpretation and breach of contracts between investor and States based on a contractual arbitration clause. 118 In fact, the earliest disputes under the ICSID Convention have all been contract-based disputes. 119 Nor does the settlement of contractual investor-State disputes under investment treaties threaten the sustainability of the system of investment arbitration because of an unmanageable increase in the number of disputes. Instead, the structure of investment arbitration based on ad hoc arbitration panels allows setting up third-party dispute resolvers in a flexible manner whenever the need arises. Unlike a standing court with a fixed number of judges, the institutional dispute settlement structure is therefore able to adapt flexibly as the demand for dispute resolution by the parties arises. Clogs of the docket or judicial backlog are therefore not a concern that should militate for a restrictive interpretation of umbrella investment and is therefore outside of the scope of application of umbrella clauses ratione materiae. 116. See infra Part V.A. 117. But see Wälde, Contract Claims, supra note 4, at 226 (“If the pacta sunt servanda clause applied to ‘any contract’ of foreigners with any governmental entity or State enterprise, then there is a risk that BIT tribunals would indeed become courts of first instance or an appeal authority for any of the innumerable contract disputes likely to arise.”). 118. See Aron Broches, The Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 136 RECUEIL DES COURS 331, 342–48 (1972-II) (on the historical backdrop of establishing the ICSID Convention, which consisted in a lack of dispute settlement mechanisms); see also id. at 352–54 (pointing out that consent to arbitration under the ICSID Convention could be given either in an investor-State contract, in an investment treaty, or in domestic legislation). 119. See CHRISTOPH SCHREUER, THE ICSID CONVENTION: A COMMENTARY, 89– 94 (2001).
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