Enabling Private Ordering - the University of Minnesota Law School

56 MINNESOTA JOURNAL OF INT’L LAW [Vol. 18:1
that would subject the contractual obligations between the host
State and the investor directly to international law, and second,
the conclusion of an international treaty between the United
Kingdom and Iran that would have mirrored the settlement
agreement between the investor and the State. The effect of this
construct was intended to be “that a breach of the contract or
settlement shall be ipso facto deemed to be a breach of the
treaty.” 152 This arrangement would have offered a choice of
forum for the parties involved: AIOC could have either had
recourse to the arbitration mechanism under the investor-State
settlement agreement or had the United Kingdom government
pursue the claim as a breach of the umbrella treaty on an inter-
State level. 153 In case of an inter-State dispute, it seemed clear
that the ICJ would have had to decide whether a breach of the
settlement agreement had occurred and directly attach the
consequences of State responsibility to a breach of the contract.
Clearly, the primary purpose of Lauterpacht’s construction
of the umbrella treaty was to provide contract stability by
providing an enforcement mechanism for the contractual
arrangements between the investor and the host State. The
purpose was “to add an inter-state remedy for breach of the
settlement agreement to a process of internationalization
already underway in the choice of the governing law and the
watertight arbitration clause contained in the Consortium
Agreement [i.e. the settlement agreement].” 154 By contrast, the
umbrella treaty as such would not have affected the governing
law of the contract. It would have merely supplemented the
contractual obligation with a parallel obligation between the
State parties involved, without however at this point providing
for a direct right of action of the investor in an international
dispute settlement forum.
Lauterpacht’s suggestion of an independent treaty-based
protection of investor-State contracts soon made its way into
draft conventions for the protection of foreign investment. The
1959 Abs-Shawcross Draft Convention on Investments Abroad
contained a provision according to which “[e]ach Party shall at
all times ensure the observance of any undertakings which it
may have given in relation to investments made by nationals of
152. Elihu Lauterpacht, Anglo-Iranian Oil Company Ltd. Persian Settlement –
Opinion, Jan 20, 1954, p. 4 (as cited in Sinclair, supra note 2, at 415).
153. Sinclair, supra note 2, at 416.
154. Id.