Singing in the Rain

Developments in the Interpretation of Umbrella Clauses

in The Journal of World Investment & Trade
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Singing in the Rain

Developments in the Interpretation of Umbrella Clauses

in The Journal of World Investment & Trade

References

1 P.C.A., Palrnas Island, 4 April 1928, Unique Arbitrator Max Huber, R.LA.A., Vol. u, at 838. 2 L.B. Sohn and R.R Baxter, Responsibility of States for Injuries to the Economic Interests qfalieris, 55 Am. J. Int'l L., 1961, at 545. 3 G.F. Patrick and R.J.C. Deane, Foreign Investment Protection under Investment Treaties: Recent Developments under Chapter 11 of the NAt=T,S, 16 ICSID Rev.-F.LL.J., 2001, at 312. ^ In the beginning of the 1990s, the number of Bus amountcd to 500. Today, this number has risen to more than 2,200 ; see E. Gaillard, Centre International your le reglement des dierends relat fe aux investissements: chronique des sentences arbitrales, 131 Journal du droit international, 2004, at 214. 5 The first Ic sW Award where the Tribunal's jurisdiction was based on a BIT was adopted 27 June 1990 in Asian Agricultural Products Lirnited v. Democratic Socialist Republic of Sri Lanka, Aks/87/3, Award, 4 !csiD Rep., 1997, at 246-295; the second Award was adopted 21 February 1997 in American Manufacturing & Trading Inc. v. Republic of Zaire, Award, ARB/93/1, 5 ICSID Rep., 2002, at 14-58. 6 In 2003, 29 requests for ICSID arbitration of a total of 31 were based on Bits; the total number of arbitration requests in 2004 was 27, of which 22 were based on Bil s. 7 Seej. Paulsson, Arbitration without Privacy, 10 Icsll) Rev.-F.I.L.J., 1995, at 232-257.

8NobleVenturesv.Romania (hereafter Noble Ventures), ICSID Award of 12 October 2005, ARB/Ol/l1, para. 48; available at: (last visited 3 December 2005). 9 See Article 2 of the International Law Commission's Draft Articles on Responsibility of States for Internationally Wrongful Acts, in Report of the Intemational Law Commission on the work of its Fifty-third Session, UN G.A.O.R., 56th Session, Supp. No. 10, at 43, UN Doc. A56/10 (2001); available at: (last visited 10 December 2005). U.S.A. (L.F. Neer) v. United Mexican States, 21 Am. J. Int'l L., 1927, at 556.

rr Illustratively, it may be noted that in Waste Management the ICSID Tribunal ruled that transparency and the possibility to rely on representations made by the host State were inherent elements of the fair and equitable treatment standard in Article 1105(1) of the North American Free Trade Agreement (NAFTA); Waste Management, Inc. v. United Mexican States, ICSID Award of 30 April 2004, Atur(AF)/00/3, para. 98, available at: Aur Group Inc. v. United States of America, ICSID Award of 9 January 2003, APB(AF)/00/1, 6 ICSID Rep., at 527-528, para. 179; see also Mondev Intemational Lirnited v. United States ofAmerica, ICSID Award of 11 October 2002, AnH(AF)/99/2, 6 ICSID Rep., at 192. r3 Article 1 110(1) NAFTA reads as follows: "No Party may directy or indirectly nationalize or expropriate an investment of an another Party on its territory or take a measure tantamount to nationalization or expropriation of such an investment ..." " 14 Robert Azinian, Kenneth Davanian and Ellen Baca v. United Mexican States, ICSID Award of 1 November 1999, ARB(AF)/97/2, 14 ICSID Rev.-F.LL.J., 2001, at 563, para. 87. 15 Joy Mining Machinery Ltd v. Arab Republic of Egypt (hereafter Joy Mining), ICSID Award on Jurisdiction of 6 August 2004, para. 75, available at: 16 Compania de Aguas del Aconquija �.�4. and Vivendi Universal v. Argentine Republic (hereafter Vivendi, Annulment Committee), Decision of Annulment of 3 July 2002, ARn/97/3, para. 105; available at: (last visited 20 November 2005).

��ConsortiumR.F.C.C.v.Mororco (hereafter Consortium), ICSID Award of 22 December 2003, ARB/OO/6; available at: "Chacune des Parties contractantes assurera un traitement juste et équitable aux investissements des investisseurs de I'autre Partie contractante. Chacune des Parties contractantes assurera lagestion, le maintien, I'utilisation ou ['affectation des investissements sur son territoire des investisseurs de I'autre Partie contractante contre toutes les mesures injustifiees ou discriminatoires." "Each of the contracting Parties shall ensure a fair and equitable treatment towards the investments of the investors of the other contracting Party. Each of the contracting Parties shall ensure the maintenance, utilisation or assignment of the investments on its territory of the investors of the other contracting Party towards all unjustified or discriminatory measures." (author's translation). 19 Consortium, supra, footnote 17, para. 36: "... rights related to every contractual performance having a commercial value" (author's translation). 20 Id.: "... due to its particular gravity and systematic character" (author's translation). 21 Id. zz Ibid., para. 40: "... unjustified or discriminatory measures towards the foreign investor and not the maintenance or enjoyment of contractual rights of the investor" (author's translation; emphasis added). z3 Ibid., para. 41: "... of contractual violations to violations of a bilateral investment treaty" (author's translation). 24 "While the Central Bank's decision to revoke the EIB'S licence invites criticism, it does not rise the level of violation of any other provision of the BiT"; Alex Genin, Eastern Credit Limited Inc. and A.S. Baltoil v. Estonia, ICSID Award of 23 June 2001, Ax.B/99/2, 17 ICSID Rev.-F.IL.J., at 395, para. 365, quoted in Consortium, supra, footnote 17, para. 41. zs Joy Mining, supra, footnote 15, para. 82.

Vivendi, Annulment Committee, supra, footnote 16, para. 95. See also Impregilo S.p.A. v. Islamic Republic of Pakistan (hereafter Impregilo), ICSID Decision on Jurisdiction of 22 April 2005, ARB/03/3, para. 259; available at: (last visited 28 November 2005); Consortium, supra, footnote 17, para. 48. Vivendi, Annulment Committee, supra, footnote 16, para. 60; See Salini Construttori S.p.A. and Italstrade S.p.A v. Kingdom of Morocco, ICSID Decision on Jurisdiction of 23 July 2001, ARIJ/00/4, 42 LL.M., 2003, at 624, para. 62. Z$ Vivendi, Annulment Committee, ibid., para. 113. 29 Impregilo, supra, footnote 26, para. 267. SGS Societe Generale de Surveillance v. Republic qfphilippine-q (hereafter Scs v. Philippines), ICSID Decision on Jurisdiction of 29 January 2004, Atts/02/6, para. 97; available at: (last visited 15 November 2005). 31 Scs Société Generale de Surveillance v. Islamic Republic of Pakistan (hereafter Scs v. Pakistan), ICSID Decision on Jurisdiction of 6 August 2003, ARB/02/6; available at: (last visited 2 December 2005). For an illustrative example, see Joy Mining, supra, footnote 15, para. 70, where the Claimant contests the correctness of this interpretation in Scs v. Pakistan.

12 Joy Mining, ibid., at 491, para. 16. 3; Ibid., at 492, para. 20. aa Ibid., at 504, para. 68. 35 Id. 3° Ibid., at 506, para. 72. 37 Article 2(4) of that BIT reads as follows: "Each Contracting Party shall create and maintain in its territory a legal framework apt to guarantee the investors the continuity of legal treatment, including compliance, in good faith, of all undertakings assumed with regard to each specific investor." 11 Salini CiUfmMon S.�./t. and Italstrade .S.p.�. v. 11Ie Hashemite Kingdom ofJordall (hereafter Salini v. Jurdan), ICSIIJ Decision on Jurisdiction of 29 November 2004, Aitl3/02/13, para. 23; available at: �www.investmentclaims.com� (last visited 29 November 2005).

31 Ibid., para. 126. a Id. 41 lid. 42 Noble Ventures, sura, footnote 8, para. 50. 43 Ibid., para. 56. a4 Ibid., para. 60. °� E. Gaillard, Centre international pour le reglement des differends relatfc aux illvestissemellts (CIRDI), Journal du droit international, 2002, Vol. 129, No. at 214.

46 P. Weil, Problemes relatifs aux cotitrats passés entre un Etat et an particulier, 128 Recueil des cours de I'Acad6mie de droit international 3, 1969, at 130. 47 C. Schreuer, Travelling the Btf Route—Q/' Waiting Periods, Umbrella Clauses and Forks in the Road, 5 J.W.LT. 3, June 2004, at 256; F.A. Mann, British Treaties Jor the Promotion and Protection of Investments, 52 B.Y.I.L., 1982, at 246. 48 Article 11 of that BIT reads as follows: "Either Contracting Party shall constantly guarantee the observance of the commitments it has entered into with respect to the investments of the investors of the other Contracting Party." Available at: (last visited 12 December 2005). '9 Article x of that BIT reads as follows: "Each Contracting Party shall observe any obligation it has assumed with regard to specific investments in its territory by investors of the Contracting Party." Available at: (last visited 12 December 2005). 50 SGS v. Pakistan, supra, footnote 31, paras. 97 and 166. sl Id. 52 Ibid., para. 170. 53 E. Teynier, Les umbrelln dauses, Gazette du Palais, Recueil November-December 2004, at 3637.

S4 Sgs v. Pakistan, supra, footnote 31, para 162. 55 See 19 Mihaly Int'l Arb. Rep., 2004, at 1; referred to in Teynier, supra, footnote 53, at 3638. 56 Joy Mining, supra, footnote 15, para. 81. 57 Article 2(2) reads as follows: "Each Contracting Party shall observe any obligation it may have entered into with regard to investments of nationals or companies of the other Contracting Party." 5g Article 9(1) of the BIT concluded by Italy and Pakistan reads: "... any dispute arising between a Contracting Party and the investors of the other..." (emphasis added). See Impregilo, supra, footnote 26, para. 188. s9 Impregilo, ibid., para. 189.

6U I.C.J., Elettronica Sicula S.p.a., United States v. Italy, Award of 20 July 1989, I.C.J. Rep., 1989, at 42. s� In Impregilo, the Claimant relied subsidiarily on the MFN clause in the BIT concluded by Italy and Pakistan and indirectly referred to the umbrella clause inserted in the Bit concluded by Pakistan and Switzerland. The Respondent refuted this argument on the basis that the Bus differed in nature. The Tribunal followed the Respondent's view. See Impregilo, supra, footnote 26, para. 96. 62 I. Fadlallah, Lea distinction "Treaty Claims-Contract Claims"et et competence de l'arbitre (Ctxut: Jaisons-nous fausse route?), Gazette du Palais, Recueil November-December, at 3614: "There is no principle of the division of the work task of the ICSID arbitrator, committed to ensure that intemational law is respected, and the arbitrator of thc contract, to whom should be delegated the less noble task that consists of verifying that the contract has been duly exercised." (author's translation). 11 This issue was expressly adressed by the ICSID tribunals constituted in Noble Ventures, supra, footnote 8, para. 50; SGS v. Pakistan, supra, footnote 31, para. 116; and Salini v. Jordan, supra, footnote 38, para. 95. (,4 Scs v. Pdrilippines, supra, footnote 30. ss Ibid., paras. 115-116. ss Ibid., para. 127.

NobleVeI1tures,supra, footnote 8, para 51. 1. 6X Extract of Article n(2)(c) of the BIT concluded by the United States and Romania. Noble Ventures, supra, footnote 8, para. 51. 70 Ibid., para. 52. Consorzio G"'"pemel1t L.E.S.I.-Dipenta v. Algeria, Award on Jurisdiction of 10 January 2005, ARB/03/08, para. 25; available at: (last visited 30 November 2005). "This interpretation is a contrario confirmed by provisions that are inserted in some treaties. Certain treaties contain a provision which is called a commitment obligation or what have been denominated 'umbrella clauses'. These clauses have the effect to transform the broach of contractual obligations of the State into a violation of the treaty." (author's translation; emphasis added).

72 Noble Ventures, supra, footnote 8, para. 55. �3 The Vienna Convention on the Law of Treaties, 23 May 1969, 1155 U.N.T.S. 331. 74 Noble Ventures, supra, footnote 8, para. 55. 75 This line of thinking finds support in the Third Restatement of the Forei;qn Relations Law of the United States (1987), §712: "... international law is not implicated if a state repudiates or breaches a commercial contract with a foreign national for commercial reasons as a private contractor might, i.e. due to inability of the state to pay or otherwise perform, or because performance has become uneconomical ..." (emphasis added).

'6JoyMining,supra, footnote 15, para. 82. " Ibid., para. 72. 78 Ibid., para. 78. 79 Impregilo, supra, footnote 26, para. 266. 80 Ibid., para. 268. 81 Ibid., para. 278. 82 Id.

s3 See Metaldad v. Mexico, ICSID Award of 30 August 2000, ARB(AF)/97/1, 16 ICSID Pev.-F.I.Lj., 2001, at 198, para. 111; Antoine Goetz v. Burundi, ICSID Award of 10 February 1999, ARB/95/3, 14 ICSID Pev.-F.I.Lj., 2000, at 512, para. 124. See also Pope F� Talbot v. Canada, Final Award of 10 April 2001, para. 200, available at Tippetts, Abbett, McCarthy, Stratton v. TA.vts-ArF'A Consulting Engineers oflrati, Award of 29 June 1984, No. 141-7-2, Iran-U.S. C.T.R., Vol. 6, at 219-229. 81 D. Carreau and P. Juillard, Droit intenrational economique, Dalloz, Paris, 2003, at 501; see also T. Weiler, A First Look at the Interim Merits Aware in S.D. Myers Inc. v. Canada, 24 Hastings Int'l L. & Comp. Law Rev., 2001, p. 187. s5 Impregilo, supra, footnote 26, para. 281. 8fl Corr.sortium, supra, footnote 17, para. 69: "... in virtue of the prerogatives of the sovereign power and not in virtue of right foreseen in a contract ..." (author's translation). 87 Cmts Gas Transmission Company v. Argentine Republic (hereafter Cnas), I(:SID Award of 12 May 2005, ARB/Ol/8, para. 297; available at: www.investmentelaims.conn (last visited 1 December 2005). $s Article n(2)(c) of that BIT reads as follows: "Each Contracting Party shall observe any obligation it may have entered into with regard to investments."

89 Cms,supra, footnote 87, para. 299. 90 Ibid., para 303. 91 Ibid., para 300. y- BIT available at: (last visited 1 December 2005). ''3 Noble V01tllres, supra, footnote 8, para. 45. 9'� Ibid., para. 67. 9S Ibid., para. 44.

16 Ibid., para. 82. 97 Ibid., para. 86. 98 Ibid., para. 82. 99 Id.

tooConsortium,supra, footnote 17, para. 65: "... he had been subject to measures adopted by the State acting within a governmental act and not as a mere co-contractant ... If the State did not fully execute the contract it would not be sanctioned by the treaty provisions ... to the extent that it manages to prove that the State or its agency has exceeded its simple role as a co-contractant to take specific governmental acts." (author's translation). 101 C. Leben, Contrat d'Etat et droit international des investissements, 302 Recueil des cours de 1'Academie de droit international, 2003, at 323. 102 D. Anzilotti, Cours de droit international, Sirey, Paris, 1929, at 53: "... the term State ... refers to a different legal subject than to what the same term refers in international law ..." (author's translation). See also R. Ago, Lezione di diritto internazionale, Giufe, Milan, 1943, at 19-20. tos Hans Kelsen, Théorie géuérale du droit et de l'Etat, French translation by B. Laroche and V. Faure, L.G.D.J., Paris, 1997, at 422.

roa 1.�; J. Reparation for Injuries Syered in the Sen)ice of the United Nations, Advisory Opinion of 11 April 1949, LC.J. Rep., 1949, at 179. 105 LC.J., Lagrand Case, Germany v. United States of America, Judgment of 27 June 2001, I.C.j. Rep., 2001, at 104, para. 77. 106 See Article 27 of the ICSID Convention. 107 See A. Pellet and P. l7aillicr, Droit international public, 7th edition, L.G.D.J., Paris, at No. 763. roa Leben, supra, footnote 101, at 330. l09 Id.: "... the distinction of jure imperii and jure gestionis has no basis ..." (author's translation). llo Joy Mining, supra, footnote 15, para 78. 111 Leben, supra, footnote 101, at 331. 112 P.C.LJ., Greek and Bulgarian Communities Case, Advisory Opinion of 31 July 1930, Y.C.I J. Rep., 1930, Ser. B, No. 17, p. 32. See also P.C.LJ., 25 May 1926, Certain German Interests in Popish Upper Silesia, Merits, German v. Poland, P.C.1j. Rep., 1926, Ser. A, No. 7, at 19; P.C.1.J., 4 February 1932, Treatment of Polish Nationals and other Persons of Polish Origin or Speech in the Danzig Territory, Advisory Opinion, P.C.1j. Rep., 1932, Ser. A/B, No. 44, at 24.

113 P. Reuter, L'extension du droit international aux depens du droit national devant lejtige international, in Mélanges offerees a Marcel Waline, L.G.DJ, Paris, 1974, Vol. 1, at 251: "... if certain measures cannot be resolved by municipal law, the inverse is not sustainable: there is no issue which cannot be resolved by international law due to the object of the measures" (author's translation; emphasis added). See also P. Weil, Ecrits de drnit international, P.U.F., Paris, 2000, at 310-312 ; Hans Kelsen, Theorie du droit international public, 84 Recueil des cours de I'Acad6mie de droit international, 1953, at 115-117. ��4 Joy Mining, supra, footnote 15, para. 78. 115 Noble Ventures, supra, footnote 8, para. 52. 116 Ibid., para. 62.

117 Schrcucr, supra, footnote 47, at 251. 118 Cms, supra, footnote 87, para. 302. "9 It is not the object of this article to discuss this subject in depth. Reference may be made to previous studies: G. Delaurne, La conventiorr pour le reglement des différends relatifs aux investissements entre Etats et ressortissants d'autres Etats, 82 Joumal du droit international, 1966, at 47; C. Schreuer, 1'he ICSID Convention: A Comrnentary, Cambridge University Press, Cambridge, U.K., 2001, at 607-611; A. Broches, Tlre Conventioa on dre Settlement qf Investment Disputes between States and Nationals of Other States, 136 Recueil des cours de 1'Acadcmie de droit international, 1972, at 391; 1. Shihata and A. Parra, Applicable Substantive Law in Disputes between States and Private Foreign Parties: The Case ofArbitration under the IcsiD Convention, 10 ICSID Rev.-F.I.L.J., 1995, at 193. '2° See Leben, supra, footnote 101, at 280-281. 121 Illustratively, reference may be made to Article 1131 NAFTA and Article 26 of the Energy Charter Treaty. rzz See Article 38 of the Statute of the International Court of Justice.

In SCS v. Philippines, supra, footnote 30, para. 126. 124 Sheikh c?fabii Dhabi v. Petroleum Development (Tnmial Coast) Ltd, Award reproduced in 1 LC.L.Q., 1952, at 247-261. 125 Ibid., at 251. rzh Ar�ibieiii American Oil Company r. Saudi Arabia, Award of 23 August 1958, 27 LL.R., at 179. 127 Sapphire International Petroleum Ltd 1'. National Iranian Oil Company, Award of 15 March 1963, 35 LL.R., 1963, at 136.

�z8 E. Gaillard, La jurisprudence du Cip-Di, Pedone, Paris, 2004, p. 903. rzv Sgs v. Philippines, supra, footnote 30, para. 153. �3° Salini v. Jordan, supra, footnote 38, para. 58. r3r The Annulment Committee in Vivendi, supra, footnote 16, para. 98, stated that "where the essential basis of a claim brought before an international tribunal is a breach of contract, the tribunal will give effect to any valid choice of forum clause in the contract". r3z P.C.I.J., Certain German Interests in Polish Upper Silesia, jtidgmetz otljllrisdictiotl, Germany v. Poland, 25 August 1925, P.C.I.J. Rep., 1925, Ser. A, No. 6, at 20.

�33SouthernPacificProperties(MiddleEast)Limitedv.ArabRepublicofEgypt, Decision on Jurisdiction of 27 November 1985, A2B/84/3, 3 ICSID Rep., at 129. 134 Salini II. jordall, supra, footnote 38, para. 19. t3s Extract of Article 9(2) of the BIT concluded by Italy and Jordan; see Salini v. Jordan, supra, footnote 38, para. 70. 136 Salini v. Jordan, supra, footnote 38, para. 94. �3� Tcrt's licence was granted by Decree No. 2457/92, 18 December 1992.

'3a Section 9.8 of the licence provides, inter alia, that in the event that a price control mechanism compelled the licensee to adjust to a lower level of tariff, "the Licensee shall be entitled to an equivalent amount in compensation to be paid by the Grantor". 139 See CMS, supra, footnote 87, para. 146. �;° Section 9.2 of the licence reads as follows: "Rates have been calculated in United States dollars. Adjustments ... shall be calculated in United States dollars." (emphasis added). 141 Section 9.4.1.1. of the licence reads as follows: "Transportation rates shall be adjusted semiannually pursuant to PW variation." 142 Cnas, supra, footnote 87, para. 232. 143 Ibid., para. 276. 'a� P. Juillard, L'ei'olution des sources du droit des investissements, Recueil des cours de 1'Academie de droit international, Vol. 245 (1994-1), p. 56; R. Higgins, The Taking of Property by the State: Recent Developments in International Law, 176 Recueil des cours de I'Acad6rriic de droit international, 1982, p. 259. 145 CMS, supra, footnote 87, para. 151. 146 Ibid., para. 281.

Ibid., para. 303. 148 Impregilo, supra, footnote 26, para. 260.

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