Enabling Private Ordering - the University of Minnesota Law School

2009] UMBRELLA CLAUSES 71
to grapple with the contracting parties’ opportunistic behavior
to benefit from subsequent defects from contractual obligations.
Long-term contracts are also confronted with the occurrence of
unforeseen contingencies. 191 Contingencies are fundamentally
different from opportunistic behavior. While the latter consists
in rent-seeking behavior contrary to the risk allocation of the
contract, the former is plainly outside the scope of the
obligations assumed by the parties. The occurrence of
contingencies is therefore an exogenous factor that, although it
may offset the contractual bargain, does not result from
opportunistic actions of one of the parties. Even though contract
drafting techniques exist that aim at addressing the effect of
future contingencies, such as renegotiation clauses, 192 the
occurrence of contingencies can never be excluded completely
due to the expenses connected to drafting a complete contract. 193
While umbrella clauses clearly target opportunistic
behavior of host States, they do not, it is submitted, prevent the
intervention of the host State in adapting an investor-State
contract in light of contingencies, or its refusal to perform based
on contingencies. Such conduct does therefore not constitute a
violation of an umbrella clause. Even though umbrella clauses
are worded without hinting at the possibility of recognizing
exceptions to the sanctity of contracts in case of contingencies,
such an exception has to be implied. This can be based on a
number of arguments. Apart from the fundamental difference
between opportunistic rent-seeking behavior and contingencies
that are outside the risk allocation of the contract in question,
the acceptance of contingencies as excusing contractual
performance has been accepted with respect to the predecessors
of present-day umbrella clauses and is accepted as a general
principle of law in a number of domestic legal system and
general international law.
With respect to the umbrella clauses in the Abs-Shawcross
Draft and the OECD Draft Convention, commentators opined
that these provisions implicitly accepted exceptions to the
191. On the difference between opportunism and contingencies, see RICHARD A.
POSNER, ECONOMIC ANALYSIS OF LAW 93 et seq. (6th ed. 2003).
191. Stefan Kröll, The Renegotiation and Adaptation of Investment Contracts, in
ARBITRATING FOREIGN INVESTMENT DISPUTES, supra note 89, at 425; Klaus Peter
Berger, Äquivalenzstörungen, Neuverhandlungsklauseln und Vertragsanpassung bei
internationalen Konzessionsverträgen sowie Probleme der Streitschlichtung, in
RECHTSPROBLEME VON AUSLANDSINVESTITIONEN 65 (Jürgen F. Baur & Stephan
Hobe eds., 2003).
193. See sources cited supra note 190.