Enabling Private Ordering - the University of Minnesota Law School

2009] UMBRELLA CLAUSES 61
umbrella clause by itself cannot therefore determine its
application similar to a choice of law clause.
Assuming that umbrella clauses change the law governing
the investor-State relationship also confuses the inter-State
relationship, which contains the umbrella clause as part of an
international investment treaty, with the investor-State
relations. While the obligations in the BIT are obligations
entered into under international law, the relations between
investor and host State remain governed by whatever law the
parties to the investor-State contract have chosen as the
applicable law. Therefore umbrella clauses, as an inter-State
obligation, do nothing more than engage the host State’s
international responsibility for breaches of its investmentrelated
promises. In contrast, the content of the obligation and
the question whether a breach has occurred is to be determined
according to the law applicable to this promise. Umbrella
clauses do nothing more than back up the contractual bargain
struck between the parties and enable the investor to enforce
the commitments accepted by the host State in the treaty-based
forum. They do not, however, affect the content of the
substantive obligations between investor and host State.
The interplay between contract law and treaty law is well
illustrated in the decision in SGS v. Philippines where the
Tribunal commented upon the relationship between the law
applicable to the contract and the umbrella clause. It stated that
an umbrella clause:
does not convert non-binding domestic blandishments into binding
international obligations. It does not convert questions of contract law
into questions of treaty law. In particular it does not change the proper
law of the CISS Agreement from the law of the Philippines to
international law. Article X(2) addresses not the scope of the
commitments entered into with regard to specific investments but the
performance of these obligations, once they are ascertained. 164
Similarly, the Annulment Committee in CMS v. Argentina
states that “[t]he effect of the umbrella clause is not to
transform the obligation which is relied on into something else;
the content of the obligation is unaffected, as is its proper
law.” 165 Even though umbrella clauses break with the dualist
164. Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID
(W. Bank) Case No. ARB/02/6, Decision on Objections to Jurisdiction, para. 126 (Jan.
29, 2004) (internal citation omitted).
165. CMS Gas Transmission Co. v. Argentine Republic, ICSID (W. Bank) Case
No. ARB/01/8, Decision on Annulment, para. 95(c) (Sept. 25, 2007).