Enabling Private Ordering - the University of Minnesota Law School

54 MINNESOTA JOURNAL OF INT’L LAW [Vol. 18:1
would shield contract claims from treaty-based dispute
settlement.
In sum, there is sufficient State practice to support the
conclusion that, in principle, customary international law did
and does not prevent States from espousing the claim for breach
of contract by one of its nationals against the host State
independent of the existence of an independent breach of
international law. Consequently, there is no room for a
presumption of interpreting investment treaties, including
umbrella clauses, restrictively so as to uphold the allegedly
strict distinction between contract claims and treaty claims.
Such a presumption finds no basis in State practice or
international jurisprudence. Instead, the history of contract
claims in international dispute settlement fora as well as the
inclusion of broadly worded arbitration clauses in modern
investment treaties illustrate that the main problem in the
protection of investor-State contracts was more caused by the
lack of ready dispute settlement mechanisms for contract claims
than by any firm and dogmatic distinction between claims based
on international and those based on national law. 147
C. THE HISTORICAL PERSPECTIVE ON UMBRELLA CLAUSES
That the function of umbrella clauses is to establish
enforcement mechanisms for host State promises, independent
of whether a breach was of commercial or sovereign character, is
also supported by the historical background of the emergence of
umbrella clauses. 148 Arguably the first umbrella clause was
included in an Agreement between the United Kingdom and
Peru from 1921 that created an ad hoc tribunal for the
resolution of a dispute over a mineral concession granted to a
British-owned company. The object of this agreement was not to
change the applicable law of the concession but to “elevate the
status of the resulting award from that of an award simply
147. Cf. Jennings, supra note 58, at 165 (arguing that the view denying any
genuine protection to State contracts by international law largely stems from a
misperception about the relationship between substantive and procedural law. It
thus “fall[s] into the error of erecting the absence of a remedy into a dogma, and
suppos[es] that where no remedy is, none could be. This easily ripens into the error
of continuing to suppose that no remedy can exist even where one is already
provided.”).
148. For more information on this and the following, see Sinclair, supra note 2,
at 412–13, which provides an excellent study on the historical development of
umbrella clauses.