Enabling Private Ordering - the University of Minnesota Law School

60 MINNESOTA JOURNAL OF INT’L LAW [Vol. 18:1
contractual obligations governed by municipal law into treaty
obligations governed by international law. The Tribunal in SGS
v. Pakistan, for example, referred to the “transubstantiation of
contract claims into BIT claims,” 160 suggesting that the contract
was ipso iure transformed into an obligation under international
law. 161 This view is also echoed in the connection drawn by
various commentators between the umbrella clause and
internationalization clauses that subject a contract between a
State and a private individual to international law. 162
However, umbrella clauses differ fundamentally from choice
of law clauses and leave the applicable law that governs an
investor-State contract unaffected. This difference becomes clear
from the fact that umbrella clauses occasionally appear parallel
to choice of law clauses in international investment treaties. 163
While umbrella clauses constitute a substantive obligation
under an investment treaty, choice of law clauses determine the
applicable law in an investor-State dispute. Choice of law or
applicable law clauses would thus determine whether an
umbrella clause as part of an international treaty applies as
part of the governing law in a specific investor-State dispute. An
160. 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.
172 (Aug. 6, 2003).
161. The idea that the umbrella clause “transforms” investor-State contracts
into international obligations also lurks behind Prosper Weil’s conceptualization of
umbrella clauses. See Weil, supra note 3, at 130.
L’intervention du traité de couverture transforme les obligations
contractuelles en obligations internationales et assure ainsi, comme on l’a
dit, ‘l’intagibilité du contrat sous peine de violer le traité’; toute inexécution
du contrat, serait-elle même régulière au regard du droit interne de l’Etat
contractant, engage dès lors la responsabilité internationale de ce dernier
envers l’Etat national du cocontractant.
Id. (footnote omitted). Cf. U.N. CONFERENCE ON TRADE & DEV., supra note 3, at 56
(suggesting that an umbrella clause “might possibly alter the legal regime and make
the agreements subject to the rules of international law”).
162. See Wälde, “Umbrella Clause” in Investment Arbitration, supra note 4, at
205 (pointing out that a “treaty’s umbrella clause . . . partly replaces the need to
negotiate in the contract with the host State an internationalization regime
consisting of stabilization, arbitration and an international-law clause”). See also
Weil, supra note 3, at 171 (observing that the umbrella clause leads to an
internationalization of investor-State contracts because “elle reflète la volonté des
Etats de hisser en quelque sorte ces contrats sur la scène internationale”).
163. See, e.g., Agreement Between the Government of the United Kingdom of
Great Britain and Northern Ireland and the Government of the Republic of
Argentina for the Protection and Promotion of Investments, U.K.-Arg., Dec. 11,
1990, entry into force Feb. 9, 1993 (containing an umbrella clause in Art. 2(2) and a
choice of law clause for investor-State disputes in Art. 8(4)).