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favorable of the MAI or those investor-state agreements prevailed. If a decision were
taken to pursue either the second (procedural) or third (substantive and procedural)
approach, there would be subsidiary questions, the most important being the scope
of coverage. Should the provision apply broadly to all investor rights under investor-
state agreements? If not, should it be limited to, for example, distinguishing between
rights arising under essentially commercial agreements (presumably excluded) and
those under which a state is acting as a sovereign (presumably covered) – a distinction
which may be difficult to make in practice; or enumerating or defining categories of
covered rights, such as those arising out of investment agreements and authorizations
on which an investor has relied. The Group examined the strategic choices and issues
thoroughly, in the time available, and clarified their implications. Given the range
of views, the Group did not elaborate draft provisions for inclusion in the MAI.
However, it agreed to provide the above-mentioned provisions to aid in understanding
the basic choices although these texts were not examined by the Group and did not
represent specific recommendations.80
Conclusion
The review of jurisprudence and comments could lead to the idea that the
umbrella clause would – as per the principle of pacta sunt servanda – be a very effective
way of protecting investors through internationalization of investment agreements, if
used appropriately and consistently interpreted, despite the performance level, which
can be the wording itself of the umbrella clause by its users.
The decisions of investment tribunals could illustrate that there is continuing
disagreement amongst some tribunals as to the precise scope and meaning of
umbrella clauses. Basically, this uncertainty may be the result of nuances in the text
of each treaty, which underscores the importance of reading the text very closely
when evaluating the strength of potential contract-based treaty arbitration. The
umbrella clause can potentially be a powerful tool for foreign investors in the event
of a contractual dispute with a host state. It is essential, however, for investors and
corporate counsel to stay abreast of continuing developments in the jurisprudence
and to seek expert guidance where appropriate.81
Many countries, during the negotiations BITnegotiation of BITs, work with
different variations of words that can accommodate the English term “commitment”
or very complex wordings such as those stipulated in Article 8 of the US Model
BIT 2012, which. This Article provides that “(1) Neither Party may, in connection
with…an investment of an investor…in its territory, impose or enforce any requirement
80 See “Report of The Drafting Group Concerning the Protection of Investor Rights Arising from Other
Agreements”, DAFFE/MAI/DG1(96)1/REV1, 18 March 1996, available at:
daf/mai/pdf/dg1/dg1961r1e.pdf.
81 Wilmer Cutler Pickering Hale and Dorr LLP, Ethan G. Shenkman, D. Jason File, Developments in
Investment Treaty Jurisprudence, 2003-2008: Arbitrating Contract Claims Under Umbrella Clauses,
Chapter 1, available at:
Files/Editorial/Publication/IA08_Chapter%201_DevelopmentsInvestmentTreatyJurisprudence.pdf.