Enabling Private Ordering - the University of Minnesota Law School

2009] UMBRELLA CLAUSES 63
B. UMBRELLA CLAUSES AND FORUM SELECTION CLAUSES
Another question concerning the interplay between
international law and the law governing the relations between
the State and the foreign investor concerns the contentious
question of whether an investor can initiate investment treaty
arbitration based on the violation of an umbrella clause despite
the existence of the forum selection clause in the investor-State
contract in favor of the courts of the host State or arbitration.
Prima facie, two solutions seem possible. The contractual forum
selection could exclude investment treaty arbitration based on
the argument that this is the forum the parties to the contract
envisaged as the competent forum to decide on claims for the
breach of contract. As long as host State and investor abide by
this choice, one could argue, no violation of the contractual
framework that was chosen as the governing framework for the
investor-State relations has occurred. Alternatively, one could
accord primacy to the treaty-based forum to resolve contractual
disputes between the investor and the host State as violations of
the umbrella clause and emphasize the separability between the
substantive obligations that govern the content of investor-State
relations and the forum selection as an agreement relating to
enforcement and dispute settlement.
In arbitral practice, however, the conflict between
contractual forum selection and treaty-based arbitration in the
context of umbrella clauses has received different solutions.
Some tribunals and commentators argue that the jurisdiction of
treaty-based tribunals trumps any contrary forum selection for
claims for the violation of the treaty. The opposing approach
considers that forum selection clauses should take precedence
over treaty-based dispute settlement concerning the violation of
an umbrella clause. The Tribunal in SGS v. Pakistan, for
example, considered that a broad understanding of umbrella
clauses would enable an investor to “render any mutually
agreed procedure of dispute settlement, other than BIT-specified
ICSID arbitration, a dead-letter, at the investor’s choice. The
investor would remain free to go to arbitration either under the
contract or under the BIT.” 168 Similarly, the majority in SGS v.
Philippines accorded primacy to the forum selection clause in
the case at hand in alluding to “[t]he basic principle . . . that a
168. 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.
168 (Aug. 6, 2003); see also Eureko, supra note 6, para. 11 (Rajski, dissenting).