In recent years umbrella clauses have become a frequent vehicle for safeguarding investment contracts and their interpretation a major challenge for the competent tribunals. In contrast to the common view umbrella clauses do not blur the distinction between international and municipal law provided that exactly this fundamental distinction is observed in the process of interpretation. This paper advocates a restrictive interpretation of umbrella clauses in order to achieve a balance between the interests of involved actors. In line with the wording and the original function of investment treaties it is argued that only sovereign conduct of the host state may constitute a violation of the umbrella clause obligation.
Table of content
Abstract
I. Problem outline.
II. Operational context of an umbrella clause.
III. General effect of an umbrella clause.
1. Arguments on the general effect of an umbrella clause.
a) The ‘ordinary meaning’ argument
b) The ‘exception’ argument
c) The ‘object and purpose’ argument
d) The ‘floodgates’ argument
e) The ‘superfluousness’ argument
f) The ‘location’ argument
g) The ‘exclusive dispute settlement clause’ argument
2. Alternative reading based on the ‘equivalence of application’ argument?.
3. Intermediate result on the general effect
IV. Scope of application of an umbrella clause.
1. Ratione Materiae.
a) Obligations covered.
b) Determination of a breach.
2. Ratione Personae.
V. Conclusion.