Consutel Group SpA in liquidazione v People’s Democratic Republic of Algeria: Umbrella Clauses and Breaches of Contract by Public Entities

Abstract

The Consutel v Algeria (Consutel) Award (only available in French) is the latest investment award dealing with the substantive nature of umbrella clauses.3 Despite their controversial nature, umbrella clauses have emerged as robust instruments for protecting investments under State contracts.4 Through precedents, the unpredictability in the utilisation of the umbrella clause through the most-favoured nation (MFN) provision has been observed.5 If utilised, the MFN clause allows the claimant investor to import even an open-worded umbrella clause from any treaty signed by that respondent country.6 It must be noted that individual contracts do not fall under the protection of investment treaties. In Consutel, the Tribunal considered that a breach of specific undertakings covered by an umbrella clause will give rise to a substantive breach of a bilateral investment treaty (BIT).7 Importantly, the Tribunal rejected the Respondent’s argument that umbrella clauses are procedural in nature and hence cannot be imported through the MFN clause. This is because MFN clauses do not represent a unique standard of behaviour but rather provide a means of protecting contractual and similar undertakings.