Umbrella Clauses Since SGS v. Pakistan and SGS v. Philippines - A Developing Consensus

Abstract

This paper conducts a review of all publicly available international arbitral decisions to address the ‘umbrella clause’, a controversial provision found in many bilateral investment treaties. ‘Function’, ‘scope’, ‘jurisdictional precedence’ and ‘privity’ are identified as the four key considerations in the operation of the umbrella clause, and the jurisprudence is discussed in relation to these considerations. It is found that the vast majority of tribunals have favoured an interpretation giving the umbrella clause an essentially jurisdictional function. A general consensus has developed that the scope of the umbrella clause extends at least to contractual obligations and potentially beyond provided that a specific obligation is entered into with regard to an investment. A consensus also appears to be developing that the jurisdiction of an international arbitral tribunal to hear umbrella clause claims is not affected by the presence of a contractual forum selection clause in an underlying contract. No consensus appears to have developed in relation to the issue of privity, with the jurisprudence being evenly divided both in relation to the ability of investors to base umbrella clause claims on underlying contracts they are not party to and the applicability of the established principles of international law on attribution to the State of actions by sub-state entities.