Enabling Private Ordering - the University of Minnesota Law School

2009] UMBRELLA CLAUSES 57
any other Party.” 155 With its provisions on inter-State and
investor-State dispute settlement, 156 the primary effect of this
provision was to enable effective enforcement of investor-State
contracts. The provision was, however, not intended to change
the governing law of covered investor-State contracts, but
merely to stabilize them procedurally against ex post breaches.
The same holds true for other umbrella clauses that were
inspired by the Abs-Shawcross Draft and included in other draft
conventions and BITs in the late 1950s and 1960s. 157 The 1967
OECD Draft Convention on the Protection of Foreign Property,
for example, provided in Art. 2 that “[e]ach Party shall at all
times ensure the observance of undertakings given by it in
relation to property of nationals of any other Party.” 158 Like the
earlier Abs-Shawcross Draft, this provision aimed at providing
an international law remedy for the enforcement of host State
promises. By contrast, as explained in a committee report by the
American Bar Association,
[i]t would not turn private contracts into treaties; it would not create
obligations where none arose under the applicable law; it would not
impair sovereignty or the police power; but it would provide for giving
effect in an international forum to acquired rights arising from State
contracts, and in this way it would ensure the application of an
international standard where under international law that standard
should be applied. 159
What the historic development of umbrellas clause suggests
is that the clauses focused primarily on providing procedural
remedies for breaches of host State promises, in particular
investor-State contracts, in order to make such bargains
enforceable. Historically, umbrella clauses were a reaction to
the insufficient protection of investor-State contracts and quasi-
155. Draft Convention on Investments Abroad art. 2, The Proposed Convention
to Protect Private Foreign Investment: A Round Table, 1 JOURNAL OF PUB. LAW 115–
18 (1960), reprinted in UNCTAD, 5 INTERNATIONAL INVESTMENT INSTRUMENTS: A
COMPENDIUM, 395 (2000) [hereinafter Abs-Shawcross Draft]. The draft was a
combined and revised instrument of two earlier proposals made separately by Abs
and Shawcross; for more information on this and a discussion of the earlier separate
drafts, see Sinclair, supra note 2, at 418 ; Ignaz Seidl-Hohenveldern, The Abs-
Shawcross Draft Convention to Protect Private Foreign Investment: Comments on the
Round Table, 10 J. PUB. L. 100 (1961).
156. Abs-Shawcross Draft, supra note 155, art. 7.
157. See Sinclair, supra note 2, at 427 (making reference, inter alia, to similar
clauses that were subsequently introduced into the investment treaties of Germany,
France, the United States, and the United Kingdom).
158. OECD, Draft Convention on the Protection of Foreign Property, Publication
No. 23081, Nov. 1967, reprinted in 7 I.L.M. 117, 123 (1968).
159. ABA, THE PROTECTION OF PRIVATE PROPERTY INVESTED ABROAD, 96 (1963).