Enabling Private Ordering - the University of Minnesota Law School

62 MINNESOTA JOURNAL OF INT’L LAW [Vol. 18:1
conception of international law when it comes to the clauses’
enforcement function, it is thus crucial to distinguish clearly
between the law governing the substance of the relations on the
inter-State and the investor-State level. 166
In the terminology of conflicts of laws, the questions of
whether a commitment of the host State exists and whether this
commitment has been breached are preliminary questions that
have to be answered positively before examining whether an
umbrella clause under an investment treaty has been breached.
The content of the host State’s commitments vis-à-vis a foreign
investor and the question of whether such commitments have
been breached have to be determined according to the law
governing the investor-State relations. This encompasses
questions of contract formation, contract validity, contract
interpretation, and the influence of factual developments taking
place after the conclusion of the contract, such as impossibility
of performance, frustration of purpose, etc. All these questions
are governed by the law applicable to the investor-State
relations. For example, if an investor-State contract is governed
by Philippine law, it is Philippine law that determines how gaps
in a contract are to be filled and which legal instruments are
applicable in this regard. It is, by contrast, not a question that is
answered by the umbrella clause under the investment treaty,
which only governs the inter-State relations. Thus, umbrella
clauses only engage the host State’s international responsibility
once a breach of the law governing the investor-State relations
has occurred. The competence to determine whether this is the
case rests with the treaty-based forum seized. 167
166. See Mayer, supra note 19, at 37 (“Cette position [i.e., that of Prosper Weil]
méconnait qu’il existe deux rapports distincts et parallèles: le rapport inter partes,
entre parties au contrat d’Etat, qui reste soumis à la lex contractus, et le rapport
interétatique, qui relève du droit des gens. Que la violation par l’Etat de ses
obligations nées du contrat constitue en même temps la violation du traité ne suffit
pas à altérer la nature de l’un ou de l’autre.”).
167. The application and construction of domestic law has played a role in a
number of international cases. See, e.g., Questions relating to Settlers of German
Origin in Poland, Advisory Opinion, 1923 P.C.I.J. (ser. B) No. 6, at 29 (Sep. 10);
German Interests in Polish Upper Silesia (F.R.G. v. Pol.), 1926 P.C.I.J. (ser. A No. 7,
at 19 (May 25) (“From the standpoint of International Law and of the Court which is
its organ, municipal laws are merely facts which express the will and constitute the
activities of States, in the same manner as do legal decisions or administrative
measures.”); Mavrommatis Jerusalem Concessions (Greece v. U.K.), 1925 P.C.I.J.
(ser. A) No. 2, at 29–33 (Mar. 26) (concerning the question of validity of a concession
governed by national law); Serbian Loans, supra note 49, at 15–19 (discussing
interpretation of bonds governed by national law).