Umbrella clauses: a trend towards its elimination

Abstract

Since 2003, when the issue of its scope was discussed for the first time in SGS v Pakistan, the umbrella clause have been stressing parties, lawyers, and more importantly, arbitrators. Arguably one of the most controversial standards of protection in investment treaties, through the past decade many arbitral tribunals reached different conclusions concerning the interpretation of this clause. From questions of whether the umbrella clause can elevate a contractual breach into a treaty breach, to whether it can bind non signatories to the investment agreement (privity of contract issues), arbitral tribunals are yet to reach consensus on these matters, and such inconsistencies, sooner or later, have its consequences. States are beginning to leave umbrella clauses out of their treaties and model BITs, in an attempt to make sure that only international law principles are protected and not merely contractual obligations. This piece analyses the different decisions that are resulting in a trend towards an elimination of the umbrella clause as a standard of protection.