Enabling Private Ordering - the University of Minnesota Law School

2009] UMBRELLA CLAUSES 93
VI. CONCLUSION: TAMING THE SPIRITS
The application and interpretation of umbrella clauses have
posed significant problems for arbitral tribunals and brought
about incompatible and conflicting decisions. Inconsistencies
have arisen with respect to the construction of umbrella clauses,
the scope of commitments covered by them, the effect of the
clauses on the jurisdiction of treaty-based tribunals, and their
effects on the regulatory power of States regarding investor-
State cooperation. Above all, what has been unsettled since
arbitral tribunals began applying umbrella clauses is their
function and relation to customary international law, with its
limited protection of investor-State contracts. In this regard, it
is essentially two views that compete. One regards the clauses
as a codification of customary international law that merely
clarifies that investor-State contracts are protected against
expropriatory conduct. Consequently, umbrella clauses in this
view require that the host State engages in conduct à titre de
souverain in breaching one of its earlier promises vis-à-vis the
foreign investor. The opposite position attributes a more
expansive function to umbrella clauses. In this view, the clauses
allow investors to bring a claim for the violation of an
investment treaty based on the breach of an investment-related
promise by the host State, independent of whether the breach
was based on sovereign or commercial conduct.
This article argues that the more restrictive view that
requires host State conduct à titre de souverin is unconvincing
and does not give a convincing account of the function of
umbrella clauses, since the protection against sovereign conduct
is already afforded by other investors’ rights, in particular by
the protection against direct and indirect expropriation and the
fair and equitable treatment standard. The restrictive approach
thus turns umbrella clauses into superfluous treaty provisions.
Furthermore, arguments concerning the historical emergence of
umbrella clauses suggest that the clauses were intended to
serve a proper function in filling gaps resulting from the
traditional dualist conception of international law that
distinguished categorically between international law and
national law, the investor-State and the inter-State relations, as
well as claims for the breach of contracts and treaties. The
function of umbrella clauses, it was argued, thus consists in
opening recourse to an international dispute settlement forum
in order to enable investors to enforce contractual and quasicontractual
promises made by the host State and to counter