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UMBRELLA CLAUSE ȃ ADDITIONAL PROTECTION OF INVESTMENT BY CLAUS…
system, such as the Czech Republic, Switzerland, and Germany, classify an umbrella
clause in the provisions as relating to other liabilities, “Other Commitments”, in
addition to editing dispute resolution and a subrogation clauses.
The United Nations Conference on Trade and Development (UNCTAD)
observed in its survey of BITs in the mid-1990s that “as a result of [an umbrella clause
in a BIT], violations of commitments regarding investment by the host country would
be repressible through a BIT.” The study also notes that “the language of [a typical
umbrella clause in a BIT] is so broad that it could be interpreted to cover all kinds
of obligations, explicit or implied, contractual or non-contractual, undertaken with
respect to investment generally.”66 The subsequent UNCTAD study was less precise,
but likewise concluded that “as a result of this provision, violations of commitments
regarding investment by the host country would be redressible through the dispute-
settlement procedures of a BIT.”67 Umbrella clauses have nothing to do with assigning
liability; rather, they are jurisdictional clauses that provide for international dispute
resolution.68
Theory views
The understanding of commentators and drafters of the umbrella clause provision
at the time of the draft OECD Convention was that, while the clause probably
did cover international obligations, its intended focus was contractual obligations
accepted by the host state with regard to foreign property.69
Joachim Karl observed in his survey of German BITs that an umbrella clause
“relates particularly to investment contracts between the investor and the host
country” and “transforms responsibility incurred towards a private investor under
a contract into international responsibility.” He also noted that “[the] protection
of such contracts is now a standard clause in bilateral investment agreements” and
“transforms responsibility incurred towards a private investor under a contract into
international responsibility.” He went on to state that “[the] protection of such
contracts is now a standard clause in bilateral investment agreements.”70
66 UNCTAD, Bilateral Investment Treaties in the mid-1990s, United Nations Publications Publication
date: 11/18/2007.
67 Ibid. note 6, page 56.
68 See UNCTAD, Dispute Settlement: Investor-State 41, Geneva, Switz., May 2003, U.N. Doc UNCTAD/
ITE/IIT/30 (noting that in a survey of 335 BITs in force in 1992, 334 contained provisions for
arbitration), available at:
ItemID=2314.
69 A.C. Sinclair, “The Origins of the Umbrella Clause in the International Law of Investment Protection”,
Arbitration International 2004, Vol. 20, No 4, pp. 411-434. in ibid note 6.
70 Joachim Karl, The Promotion and Protection of German Foreign Investment Abroad, 11 ICSID Rev.-
Foreign Investment L.J. 1, 23 (1996). 70 Id .