The Interpretation of Umbrella Clause in Investment Treaties Essay

The Interpretation of Umbrella Clause in Investment Treaties - Essay Example However, umbrella clause has been widely debated in academic discussions and arbitral practices during the recent years4. Commentators have illustrated the argument in terms of interpretation the umbrella clause in investment treaties that derived from different tribunals in order to know whether breaching contractual obligations amount to violating treaty obligations. Within the context of this argument, tribunals will be able to know if they have the jurisdiction to hear claims arising from an alleged investment contract breach. This essay aims to analyse the interpretation of umbrella clause in investment treaties. In the subsequent part of this paper first, the definition of umbrella clause has been provided according to some commentators, and different formulations of the umbrella terms have also been included in the part. Subsequent to that, the background of umbrella clause is accounted for. ... 1. Definition of Umbrella Clause Some authors and commentators tried during the last decade to explain the meaning of umbrella clause. Dolzer and Schreuer represented it as â€Å"a provision in an investment protection treaty that guarantees the observation of obligations assumed by the host state vis-a-vis the investor†.5 Moreover, Gallagher and Shan introduced the umbrella clause by revealing that the clause is taken its name from its main objective namely in order to â€Å"oblige the host state to observe any commitments it has entered into with regard to foreign investors†.6 Some also assume that the umbrella clause could be extended to beyond what it created for, as F.A. Mann stated that the umbrella clause â€Å"is a provision of particular importance in that it protects the investor against any interference with his contractual rights, whether it results from a mere breach of contract or legislative or administrative act†.7 As a matter of fact, umbrella cl ause is also known as ‘mirror effect’, ‘pacta sunt servanda clause’, ‘parallel effect’, ‘elevator’, ‘respect clause’ and ‘sanctity of contract’. Yet, the limit of subject matter rationale materiae jurisdiction does not remain uniform under the BITs.8 Some BITs encompass disputes pertaining to an ‘obligation under the agreement’ only for claims of violations of BIT. Other BITs extend the jurisdiction to ‘any dispute relating to investments’. Some others construct an international law obligation that a host state shall, for instance, ‘constantly guarantee the observance of the commitments it has entered to’; ‘observe any obligation it has assumed’, in respect to investments.9 Thus, a breach of such an obligation may consist of