Enabling Private Ordering - the University of Minnesota Law School

90 MINNESOTA JOURNAL OF INT’L LAW [Vol. 18:1
clauses, covering not only contractual promises but also
administrative acts and promises contained in domestic
legislation. While the precise wording of the umbrella clause in
question is, of course, determinative, the clauses are regularly
worded broadly as applying to the observance of “commitments”
or “obligations” that the host State has entered into vis-à-vis
foreign investors without limitations to contractual obligations
or commitments.
Furthermore, the functional understanding of umbrella
clauses as backing up private ordering between host States and
foreign investors also militates for a broad scope of application
ratione materiae of the clauses. What is decisive from this
perspective is not the form of the host State’s commitment, but
whether it is at the basis of an investment-related and
transaction-specific relationship between the foreign investor
and the host State, independent of its legal basis in an investor-
State contract, a concession, a license, an administrative act, or
legislation. Instead from an economic perspective, it makes no
difference whether an investor starts carrying out a specific
investment on the basis of an investor-State contract or a
specific commitment of the host State in another legal
instrument. 253 As long as the administrative or legislative
promise by the host State was the reason an investment was
made and was intended to induce such investment, such
promises should, just like contractual promises, qualify as
commitments for the scope of application of umbrella clauses. It
must be born in mind, however, that the regulatory and
legislative framework underlying the granting of individual
administrative acts usually contains grounds for revocation.
These grounds become part of the legal framework governing
relations between the investor and the host State and may allow
revocation of a license without a breach of the host State
promise. 254
A broad interpretation of the type of commitments covered
by an umbrella clause is also shared by most of the arbitral
jurisprudence. It emphasizes—the wording of the umbrella
253. See GEORG SCHWARZENBERGER, DER SCHUTZ VON AUSLANDSINVESTITIONEN
16 (1969) (considering that the essence not the form is decisive in the context of
public contracts).
254. However, the guarantee of fair and equitable treatment may offer relief, for
example, if the revocation is disproportionate, the host State misused its discretion
in revoking a license, or did not grant due process. See Schill, supra note 13, at
24−26.