The International Comparative Legal Guide to International Arbitration 2009 (The International Comparative Legal Guide Series)

481 Pages·2009·4.64 MB·English

by  Steven Finizio, Wendy Miles

The International Comparative Legal Guide to:
International Arbitration 2009
A practical insight to cross-border International Arbitration work
Published by Global Legal Group with contributions from:
Advokaturbüro Dr. Dr. Batliner & Dr. Gasser Consortium Centro América Abogados Lee & Ko
ÆLEX Denton Wilde Sapte & Co. Lombardi Molinari e Associati
Aivar Pilv Law Office Dr. Colin Ong Legal Services M. & M. Bomchil
Alexiou & Kosmopoulos Law Firm Elvinger, Hoss & Prussen Matheson Ormsby Prentice
Anderson Mori & Tomotsune Freshfields Bruckhaus Deringer LLP Meitar Liquornik Geva & Leshem Brandwein
Azar Ortega y Gómez Ruano, S.C. Guevara & Gutiérrez S.C. Servicios Legales Norton Rose (Middle East) LLP
Baker Botts L.L.P. Pachiu & Associates
Homburger
Beiten Burkhardt Pinheiro Neto Advogados
Jenner & Block LLP
Blake, Cassels & Graydon LLP Roschier, Attorneys Ltd.
Borislav Boyanov & Co. Jingtian & Gongcheng Shalakany Law Office
Brick Court Chambers Jones Day Shook Lin & Bok
Carey & Allende Abogados Juridicon Law Firm Stibbe
Clayton Utz Kachwaha & Partners Werksmans Incorporating Jan S de Villiers
Clifford Chance CIS Limited Kalo & Associates, Attorneys at Law White & Case LLP
Coelho Ribeiro & Associados Karanovic & Nikolic Wilmer Cutler Pickering Hale and Dorr LLP
www.ICLG.co.uk
The International Comparative Legal Guide to: International Arbitration 2009
Preface:
1 Preface by Gary Born, Head of International Arbitration Group, Wilmer Cutler Pickering Hale and Dorr LLP
General Chapters:
1 Contract Claims in Investment Treaty Arbitrations: Recent Umbrella Clause Case Developments -
Ethan G. Shenkman & D. Jason File, Wilmer Cutler Pickering Hale and Dorr LLP 1
Contributing Editors
Steven Finizio and
Wendy Miles, Wilmer Asia Pacific:
Cutler Pickering Hale and
2 Overview Dr. Colin Ong Legal Services: Dr. Colin Ong 7
Dorr LLP
3 Australia Clayton Utz: Doug Jones & Björn Gehle 12
Brand Manager
4 Brunei Dr. Colin Ong Legal Services: Dr. Colin Ong 22
Oliver Smith
5 China Jingtian & Gongcheng: Xuejun Peng & Chungang Dong 29
Marketing Manager 6 India Kachwaha & Partners: Sumeet Kachwaha & Dharmendra Rautray 38
George Archer
7 Japan Anderson Mori & Tomotsune: Yoshimasa Furuta & Naoki Iguchi 46
Cover Design 8 Korea Lee & Ko: Jongkwan (Josh) Peck & Jin Soo Han 54
F&F Studio Design 9 Malaysia Shook Lin & Bok: Mohanadass Kanagasabai & Kevin Prakash 64
Editor
Caroline Blad Europe:
10 Overview Brick Court Chambers: Klaus Reichert 71
Senior Editor
Penny Smale 11 Albania Kalo & Associates, Attorneys at Law: Sophia Darling & Alban Caushi 74
12 Belgium Stibbe: Vera Van Houtte & Benoît Kohl 82
Managing Editor
13 Bulgaria Borislav Boyanov & Co.: Kina Chuturkova & Georgitsa Petkova 91
Alan Falach
v
14 Czech Republic White & Case LLP: Ivo Janda & Magdalena Licková 102
Publisher
15 England & Wales Wilmer Cutler Pickering Hale and Dorr LLP: Wendy Miles & Anna Holloway 111
Richard Firth
16 Estonia Aivar Pilv Law Office: Pirkka-Marja Põldvere & Ilmar-Erik Aavakivi 124
Published by
17 Finland Roschier, Attorneys Ltd.: Petri Taivalkoski & Aapo Saarikivi 132
Global Legal Group Ltd.
18 France Freshfields Bruckhaus Deringer LLP: Elie Kleiman & Nicolas Brooke 141
59 Tanner Street
London SE1 3PL, UK 19 Germany Beiten Burkhardt: Dr. Denis Gebhardt 152
Tel: [phone]
20 Greece Alexiou & Kosmopoulos Law Firm: Dr. Constantine Alexiou & Christine Derveni 160
Fax: [phone]
Email:
The International Comparative Legal Guide to: International Arbitration 2009
Latin America:
37 Brazil Pinheiro Neto Advogados: Gilberto Giusti & Renato Stephan Grion 306
38 Chile Carey & Allende Abogados: Luis Vidal & Nicolás Lama 313
39 Costa Rica Consortium Centro América Abogados Laclé & Gutiérrez: Rolando Laclé Zúñiga &
Fabián Fernández Faith 322
40 El Salvador Consortium Centro América Abogados - El Salvador: José Roberto Tercero 328
41 Guatemala Consortium Centro América Abogados Guatemala - Rodriguez, Archila, Castellanos,
Solares & Aguilar: Alvaro Castellanos Howell 335
42 Honduras Consortium Centro América Abogados-Honduras: Gustavo León-Gómez & Ulises Mejía 342
43 Mexico Azar Ortega y Gómez Ruano, S.C.: Elsa Ortega & Sofía Gómez Ruano 349
44 Nicaragua Consortium Centro América Abogados Taboada & Asociados: Gerardo Martín Hernández
& José Evenor Taboada Arana 358
North America:
45 Overview Baker Botts L.L.P.: Ryan E. Bull & Bryan H. Parr 364
46 Canada Blake, Cassels & Graydon LLP: Joel Richler & R. Seumas M. Woods 369
47 USA Jenner & Block LLP: Robert L. Byman & Lawrence S. Schaner 378
Middle East / Africa:
48 Overview Shalakany Law Office: Dr. Khaled El Shalakany 387
49 Bahrain Norton Rose (Middle East) LLP: Patrick Bourke & Adam Vause 390
50 Egypt Shalakany Law Office: Dr. Khaled El Shalakany 398
51 Israel Meitar Liquornik Geva & Leshem Brandwein: Dr. Israel (Reli) Leshem & Ron Peleg 407
52 Jordan Denton Wilde Sapte & Co.: Safwan Moubaydeen & Laura Reynaud 417
53 Nigeria ÆLEX: ‘Funke Adekoya SAN & Adedapo Tunde-Olowu 424
54 Oman Denton Wilde Sapte & Co.: Abdelrahman El Nafie & Jamie Kellick 431
55 Qatar Denton Wilde Sapte & Co.: Paul Stothard & Julie Tuck 438
56 Saudi Arabia Norton Rose LLP & Abdulaziz Al-Assaf Law Firm in association with Norton Rose
(Middle East) LPP: Alain Sfeir & Joe Tirado 445
57 South Africa Werksmans Incorporating Jan S de Villiers: Des Williams 453
58 UAE Norton Rose (Middle East) LLP: Patrick Bourke & Anna Anatolitou 463
EDITORIAL
Welcome to the sixth edition of The International Comparative Legal Guide
to: International Arbitration.
This guide provides the international practitioner and in-house counsel with a
comprehensive worldwide legal analysis of the laws and regulations of
international arbitration.
It is divided into two main sections:
One general chapter. This chapter outlines the recent umbrella clause case
developments in investment treaty arbitrations.
52 country question and answer chapters, which are further divided into five
regional sections, each with an introductory overview. Each country chapter
provides a broad overview of common issues in international arbitration laws
and regulations in its respective jurisdiction.
All chapters are written by leading international arbitration lawyers and we are
extremely grateful for their excellent contributions.
Special thanks are reserved for the contributing editors Steven Finizio and
Wendy Miles of Wilmer Cutler Pickering Hale and Dorr LLP for all their
assistance.
Global Legal Group hopes that you find this guide practical and interesting.
The International Comparative Legal Guide series is also available online at
www.iclg.co.uk.
Alan Falach LL.M
Managing Editor
PREFACE
I am pleased to preface this latest Edition of The International Comparative
Legal Guide to: International Arbitration. This work remains the most
comprehensive, global guide of its kind. Wilmer Cutler Pickering Hale and
Dorr is delighted to serve again as Contributing Editor for this edition.
The contemporary practice of international arbitration is global. Those
practising in the field require ready access to information concerning the
legislative frameworks for international arbitration in individual states, as well
as national and regional practices concerning international arbitration. This
latest edition of the Guide provides invaluable reference material, authored by
experienced practitioners, on these topics in key jurisdictions.
The International Comparative Legal Guide to: International Arbitration is
now in its 6th Edition. The Guide's continued growth over the past seven
years, to encompass additional jurisdictions and to expand on the range of
issues covered, is a testament to its practical value to practitioners of
international commercial arbitration.
Gary Born
Wilmer Cutler Pickering Hale and Dorr LLP
Chapter 1
Contract Claims in Investment
Treaty Arbitrations: Recent
Ethan G. Shenkman
Umbrella Clause Case
Developments
Wilmer Cutler Pickering Hale and Dorr LLP D. Jason File
This is the third edition of this article since its first publication by instrumentalities of foreign States. In the right circumstances,
ICLG in 2007, and developments in investment treaty jurisprudence umbrella clauses in investment agreements can play an important
have continued to supply additional analysis to the issues covered role in securing the value of foreign investments.
here. This article incorporates these new developments on this
important subject in investment arbitration.
The Debate over the Scope of Umbrella
Clauses
Introduction
Umbrella clauses emerged in the late 1950s in West German and
International investment agreements, ranging from bilateral British model investment treaties in reaction to various events,
investment treaties (“BITs”) to multilateral agreements such as the including, among other things, the Anglo-Iranian Oil Company’s
Energy Charter Treaty, the Central American Free Trade Agreement concession dispute with Iran following Iran’s revocation of a
(“CAFTA”), and the 1987 ASEAN investment agreement, provide pipeline concession, the Suez Canal nationalisation, and post-war
foreign investors with an important mechanism for resolving West German concession disputes with East European states. The
disputes with sovereigns. Among other things, investment first example of such a clause appears to have been in the West
agreements require host governments to guarantee foreign investors Germany-Pakistan BIT of 1959, Pakistan’s first BIT, which
and their investments treatment in accordance with international provided:
law standards. These standards are intended to help protect foreign
“Either party shall observe any other obligation it may have entered
investors and their investments against, inter alia, discriminatory
into with regard to investments by nationals or companies of the
measures, uncompensated expropriations of property, and denials of
other party.”
due process or fair and equitable treatment. Investment agreements
typically allow foreign investors to enforce their treaty rights Such clauses thus emerged as an additional layer of international
through international arbitration -- known as “investor-State protection for foreign investment contracts. See Thomas W. Wälde,
arbitration” -- thus providing foreign investors with a neutral forum “The ‘Umbrella’ (or Sanctity of Contract/Pacta sunt Servanda)
for resolving such disputes. The investment agreement will Clause in Investment Arbitration: A Comment on Original
typically specify one or more arbitral institutions, such as the Intentions and Recent Cases”, 1 Transnat’l Dispute Management 31
International Centre for the Settlement of Investment Disputes & n.71, 33 (October 2004).
(“ICSID”), or ad hoc arbitration (often pursuant to the UNCITRAL From 1959 onwards, umbrella clauses of various forms and types
Rules, which are widely-used arbitration procedural rules devised began to appear in numerous investment treaties. See, e.g.,
by the United Nations Commission on International Trade Law), “Interpretation of the Umbrella Clause in Investment Agreements”,
that will establish the basic procedures for the arbitration. OECD Working Papers on International Investment, No. 2006/3
In addition to affording foreign investors protection under (October 2006). These clauses, however, did not receive in-depth
international law standards, many investment agreements also analysis until a pair of cases in 2003-2004 came to starkly different
provide a right, through “umbrella clauses”, for foreign investors to conclusions on whether and to what extent such clauses could form
arbitrate contract disputes with sovereigns. Although umbrella the basis for a treaty claim based on breach of contract. These
clauses take many forms, they typically require each State party to cases, SGS v. Pakistan, Decision on Jurisdiction, ICSID Case No.
observe any obligation arising from particular commitments it has ARB/01/13 (6 August 2003) and SGS v. Philippines, Decision on
entered into with regard to investments. Under the broad Jurisdiction, ICSID Case No. ARB/02/6 (29 January 2004),
interpretation of these clauses adopted by some arbitral tribunals, a involved contracts between SGS, a Swiss company, and the
sovereign’s breach of contract with a foreign investor or investment governments of Pakistan and the Philippines, respectively, for
becomes, by virtue of the umbrella clause, a breach of treaty preshipment inspection services of imported goods. In SGS v.
actionable through investor-State arbitration. Pakistan, SGS filed a request for arbitration with ICSID pursuant to
the Switzerland-Pakistan BIT after the government terminated its
The precise scope and meaning of these umbrella clauses, however,
services contract with SGS. SGS’s arbitration request included
can vary, and they have been interpreted differently by different
both treaty-based claims and contract-based claims. SGS’s
arbitral tribunals. This article reviews recent developments in
contract-based claims relied, inter alia, on the BIT’s umbrella
tribunal decisions and highlights the differences in their
clause, Article 11, which stated: “Either Contracting Party shall
approaches. These issues merit close attention from companies
constantly guarantee the observance of the commitments it has
doing international business and their lawyers as they structure
entered into with respect to the investments of the investors of the
foreign investments, particularly when they negotiate with
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other Contracting Party.” In a partial award on jurisdiction, the found in a number of BITs: “Each Party shall observe any
ICSID tribunal ruled that it had jurisdiction over SGS’s treaty obligation it may have entered into with regard to investments.”
claims, but not its contract claims. Specifically, the tribunal held
that “Article 11 of the BIT would have to be considerably more
Can Company A submit a breach of contract claim to BIT
specifically worded before it can reasonably be read in the
arbitration, without proving a violation of international law
extraordinarily expansive manner submitted by [SGS]”, namely,
standards?
that “all breaches of each State’s contracts with investors of the
other State are forthwith converted into and to be treated as
In answering this question a tribunal may consider whether the
breaches of the BIT”. (SGS v. Pakistan, at paras. 171, 173.) The
concession agreement between Company A and State Beta is the
tribunal reserved the possibility that “a violation of certain
kind of contract -- and whether Company A’s dispute is the kind of
provisions of a State contract” could constitute a violation of an
contractual dispute -- that the umbrella clause in question was
umbrella clause “under exceptional circumstances”. (Id. at para.
designed to address.
172.)
In SGS v. Philippines, SGS filed a request for arbitration with ICSID
Is the concession contract covered by the umbrella
pursuant to the Switzerland-Philippines BIT after a payment dispute
clause?
arose between SGS and the government. This request also included
both treaty-based and contract-based claims. SGS’s contract-based
The plain language of the umbrella clause above would suggest the
claims relied, inter alia, on the BIT’s umbrella clause, which stated in
answer is, “yes”. The clause requires the contracting State to
Article X(2) that: “Each Contracting Party shall observe any
observe “any obligation” it has entered into with respect to
obligation it has assumed with regard to specific investments in its
“investments”. The text does not admit any exceptions to its broad
territory by investors of the other Contracting Party.” In contrast to
scope, and State Beta would be hard-pressed to characterise
the tribunal’s decision in the SGS v. Pakistan case, the tribunal in the
Company A’s substantial capital expenditure to construct an energy
Philippines case ruled that it had jurisdiction over both SGS’s treaty
grid as anything other than an “investment”.
claims and its contract claims. Specifically, the tribunal held that
A number of recent decisions have found that all contracts are
“Article X(2) makes it a breach of the BIT for the host State to fail to
covered by umbrella clause language similar to that described
observe binding commitments, including contractual commitments,
above, following Eureko B.V. v. Poland, Partial Award, Ad Hoc
which it has assumed with regard to specific investments”. (SGS v.
Arbitration (19 August 2005), where the tribunal interpreted the
Philippines, at para. 128.) The tribunal also observed that the
Netherlands-Poland BIT’s umbrella clause, which states that “Each
analysis of the tribunal in SGS v. Pakistan was not only
Contracting Party shall observe any obligations it may have entered
“unconvincing”, but that it “failed to give any clear meaning to the
into with regard to investments of investors of the other Contracting
‘umbrella clause’”. (Id. at para. 125.)
Party”. The Eureko tribunal expressly concurred with the SGS v.
These two decisions, which came within months of each other,
Philippines tribunal’s holding that the umbrella clause “means what
reflect materially different approaches to the interpretation of
it says”. (Eureko at para. 256.)
umbrella clauses. In the wake of these decisions, there has been a
Other decisions have reached similar results. For example, in
substantial amount of commentary, but no uniformity of approach,
Siemens A.G. v. Argentina, Award, ICSID Case No. ARB/02/8 (6
and more recent decisions by other tribunals continue to reflect
February 2007), involving the Germany-Argentina BIT, the tribunal
different approaches to interpreting the scope of these clauses.
held that the umbrella clause “has the meaning that its terms
express, namely, that failure to meet obligations undertaken by one
Recent Developments in Tribunal of the Treaty parties in respect to any particular investment is
Jurisprudence converted by this clause into a breach of the Treaty”. (Id. at para.
204.) The tribunal went on to state that it “does not subscribe to the
Tribunals in more recent cases have reached different results as to view … that investment agreements should be distinguished from
how to interpret umbrella clauses. A hypothetical example will help concession agreements of an administrative nature, … [because] the
to illustrate how these more recent decisions have approached this term ‘investment’ … linked as it is to ‘any obligations,’ would cover
issue. any binding commitment entered into by Argentina in respect of
such investment”. (Id. at para. 206.) See also LG&E Energy Corp.
Let’s say Company A from State Alpha wins a concession to build
v. Argentina, Decision on Liability, ICSID Case No. ARB/02/01,
and operate an energy production and distribution system in State
para. 170 (3 October 2006) (noting that an umbrella clause “creates
Beta. The concession agreement is between Company A and State
a requirement for the host State to meet its obligations towards
Beta. Company A begins to establish the infrastructure, pouring
foreign investors, including those that derive from a contract”); cf.
significant resources into the construction and maintenance of the
Continental Casualty Co. v. Argentina, Award, ICSID Case No.
project in State Beta. Subsequently, the Administration of State
ARB/03/9, paras. 298-302 (5 September 2008) (distinguishing
Beta changes and new government regulators launch an arbitrary
between specific contractual claims, which “could … be considered
and politically-motivated investigation into Company A’s
as guaranteed by the umbrella clause”, and general obligations
compliance with regulatory requirements, causing State Beta to
arising from the law of the host state, where the “umbrella clause
withhold concession contract payments owed to Company A.
does not come into play”); Noble Energy, Inc. v. Ecuador, Decision
Company A does not believe that the local courts in State Beta
on Jurisdiction, ICSID Case No. ARB/05/12, paras. 156-157 (5
provide an advantageous forum for settling this dispute -- it believes
March 2008) (citing obligations established in investment
they are slow and susceptible to political influence. There is a BIT
agreement as potentially “falling within the scope of an umbrella
between State Alpha and State Beta, which provides for investor-
clause”); Enron Corp. v. Argentina, Award, ICSID Case No.
State arbitration. Counsel for Company A knows that it could try to
ARB/01/3, paras. 273-74 (22 May 2007) (observing that “[u]nder
bring claims for expropriation or denial of fair and equitable
its ordinary meaning the phrase ‘any obligation’ refers to
treatment using provisions in the BIT, but a breach of these
obligations regardless of their nature,” but noting that
international law standards may be difficult to prove under the facts.
“‘[o]bligations’ covered by the ‘umbrella clause’ are nevertheless
The BIT also contains a broadly-worded umbrella clause like those
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limited by their object: ‘with regard to investments’”); Noble BIT any breach by the host State of any contractual obligation as
Ventures, Inc. v. Romania, Award, ICSID Case No. ARB/01/11, determined by its municipal law”).
para. 61 (12 October 2005) (holding that the text of the U.S.-
Nevertheless, some tribunals have suggested that only certain kinds
Romania BIT’s umbrella clause indicates that “the Parties had as
of breaches come within the scope of the umbrella clause. For
their aim to equate contractual obligations governed by municipal
example, in Joy Mining Machinery Ltd. v. Egypt, Award, ICSID
law to international treaty obligations as established in the BIT”,
Case No. ARB/03/11 (6 August 2004), the tribunal construed a
but reserving question whether “the expression ‘any obligation’,
typical umbrella clause in Article 2(2) of the UK-Egypt BIT. The
despite its apparent breadth, must be understood to be subject to
Claimant and a government mining organisation had entered into a
some limitation in the light of the nature and object of the BIT”).
contract for a British company to provide mining services and
Other recent decisions, however, have taken a different tack, supporting equipment for a mining project. Disputes over
indicating that only certain kinds of public contracts are covered by performance, including over certain bank guarantees, ensued. The
umbrella clauses. Some tribunals have drawn a distinction between tribunal determined that because a bank guarantee is clearly a
contracts with the “State as a merchant” and the “State as a commercial element of the contract, this was a contractual dispute
sovereign”. El Paso Energy Int’l Co. v. Argentina, Decision on that should be resolved exclusively pursuant to the contract’s
Jurisdiction, ICSID Case No. ARB/03/15, para. 79 (27 April 2006); dispute resolution clause: “it could not be held that an umbrella
Pan American Energy LLC v. Argentina (El Paso, Decision on clause inserted in the Treaty, and not very prominently, could have
Preliminary Objections, ICSID Case No. ARB/03/13, para. 108 (27 the effect of transforming all contract disputes into investment
July 2006). The El Paso and Pan American tribunals (consisting of disputes under the Treaty, unless of course there would be a clear
the same presiding arbitrator and the same state-appointed co- violation of the Treaty rights and obligations or a violation of
arbitrator) interpreted the umbrella clause in the U.S.-Argentina contract rights of such a magnitude as to trigger the Treaty
BIT as not extending “[t]reaty protection to breaches of an ordinary protection . . . .” (Id. at para. 81.) The tribunal then observed,
commercial contract entered into by the State or a State-owned however, that the Claimant had not “credibly alleged that there was
entity”, but only to special “investment protections contractually Egyptian State interference with the Company’s contract rights”,
agreed by the State as a sovereign -- such as a stabilisation clause - suggesting that an umbrella clause claim might have been available
- inserted in an investment agreement.” (El Paso at para. 81; see if such interference had taken place. (Id. at para. 82.)
also Pan American at para. 109.) Ultimately, the tribunals held that
Similarly, in CMS Gas Transmission Co. v. Argentina, Award,
“an umbrella clause cannot transform any contract claim into a
ICSID Case No. ARB/01/8 (25 April 2005), the tribunal stated that
treaty claim, as this would necessarily imply that any commitments
“not all contract breaches result in breaches of the Treaty. The
of the State in respect to investments, even the most minor ones,
standard of protection of the Treaty will be engaged only when
would be transformed into treaty claims”. (El Paso at para. 82; see
there is a specific breach of treaty rights and obligations or a
also Pan American at para. 110.)
violation of contract rights protected under the treaty. Purely
In our hypothetical case, the energy concession agreement between commercial aspects of a contract might not be protected by the
Company A and State Beta could well be covered even under the treaty in some situations, but the protection is likely to be available
more limited interpretations suggested by El Paso and Pan when there is significant interference by governments or public
American, based on the notion that a public concession is not an agencies with the rights of the investor”. (Id. at para. 299.) (It
ordinary commercial contract, but involves a granting of rights by should be noted that the portion of the CMS Award dealing with the
the government acting in a sovereign, rather than a purely umbrella clause was subsequently annulled on the basis that the
proprietary, capacity. Nevertheless, the ongoing differences in Award failed to state reasons why CMS could invoke contractual
approach among arbitral tribunals create some measure of and other obligations owed by Argentina not to CMS but rather to
uncertainty as to how these clauses will be interpreted. TGN, of which CMS was a minority shareholder. See CMS Gas
Transmission Co. v. Argentina, Decision of the Ad Hoc Committee
on the Application for Annulment of the Argentine Republic, ICSID
Is this kind of contract dispute covered by the umbrella
Case No. ARB/01/8 (Annulment Proceeding), paras. 89-99 (25
clause?
September 2007).) See also Sempra Energy International v.
Argentina, Award, ICSID Case No. ARB/02/16, paras. 310-11 (28
A second area of concern for some tribunals has been whether the
September 2007) (distinguishing between “mere ordinary
umbrella clause in question extends to all or only some forms of
contractual breaches of a commercial nature” and “the kind of
contract disputes.
conduct that only a sovereign State function or power could
The umbrella clause in our hypothetical case provides that each
effect”).
State “shall observe any obligation” it has entered into with respect
Similar to El Paso and Pan American, the tribunals in Joy Mining
to investments, implying that any breach of such an obligation
and CMS suggest that a line should be drawn between ordinary
would create an actionable claim under the BIT. Most tribunals that
commercial contractual disputes, where one party happens to be a
have confronted this issue have resolved it in favour of this broad
government entity, and other kinds of governmental interference
reading. See, e.g., Eureko at para. 246 (observing that the “plain
with contract rights. Where exactly they would draw that line is
meaning” of the phrase “shall observe” in the umbrella clause is
unclear. Turning back to our hypothetical case, a tribunal inclined
“imperative and categorical”); SGS v. Philippines at para. 115
to follow the approach of Eureko and SGS v. Philippines -- giving
(emphasising the umbrella clause’s use of the “mandatory term
full effect to the language of a broadly-worded umbrella clause --
‘shall’” in finding that even a simple failure to pay what is allegedly
would likely allow Company A to submit its breach of contract
owed under a contract would be incorporated into the treaty’s
claim to investor-State arbitration. If, on the other hand, the
umbrella clause); cf. Noble Ventures at paras. 56, 60, 61 (holding
tribunal were to follow the more limited interpretations suggested
that the U.S.-Romania BIT’s umbrella clause “clearly falls into the
by Joy Mining and CMS, Company A might have a more difficult
category of the most general and direct formulations tending to an
time. It could argue that State Beta’s politically-motivated actions
assimilation of contractual obligations to treaty ones” based in part
constitute the kind of state interference with contract rights that
on its use of the term “shall observe”, but reserving question
ought to be cognisable under an umbrella clause; but if Company A
whether the umbrella clause “perfectly assimilates to breach of the
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is effectively required to make a showing equivalent to holding that while the claim was successful, the financial award
expropriation or denial of fair and equitable treatment, the umbrella would go only to the local subsidiary because the government’s
clause would provide Company A little added protection. contractual obligation was owed only to that local company, and the
government “had not undertaken any obligation, be it of a
contractual or another nature, to the benefit of the” foreign owner.
Standing and Jurisdiction: What if the concession
Duke Energy Electroquil Partners v. Ecuador, Award, ICSID Case
agreement were between State Beta and a locally
No. ARB/04/19, paras. 323, 487-88 (12 August 2008).
incorporated subsidiary established by Company A to
operate the concession in State Beta? Could Company A On the other side of the coin, if the agreement were not a concession
still bring a contract claim under the umbrella clause? agreement, but rather a commercial agreement between Company A
What if the arbitration involved an agreement between
and a State-owned company, Company B, the question would also
Company A and a State-owned company?
arise as to whether Company A could still bring an umbrella clause
claim against State Beta for an alleged breach of contract by
Another important issue is whether the investor must itself be a
Company B. This is also an important question because many
party to the contract in question in order to have standing to invoke
companies doing business with foreign governments end up
the umbrella clause. This is particularly important because many
contracting with foreign government-owned entities, particularly in
foreign investors do business through locally incorporated
the energy industry. It would appear that, especially in the case of
subsidiaries or affiliates. In our hypothetical case, the umbrella
broadly-worded umbrella clauses, a government’s obligations with
clause states that: “Each Party shall observe any obligation it may
respect to investments could include obligations of the
have entered into with regard to investments.” It does not specify
government’s wholly-owned and controlled commercial entities.
to whom the contractual obligation must be owed. That is, the plain
However, one recent decision in the Stockholm Chamber of
language of the clause does not appear to be limited to contractual
Commerce reached the opposite result under the particular
obligations owed by the Party to the foreign investor (i.e., to
circumstances of that case. In AMTO LLC v. Ukraine, Final Award,
Company A); rather, the plain language suggests that it also covers
SCC Case No. 080/2005 (26 March 2008), the tribunal addressed a
contractual obligations owed to investments of the investor (i.e., in
case where a Latvian investment company (AMTO), which owned
this case, to Company A’s wholly-owned subsidiary). On this
the majority of a Ukrainian building services company (EYUM-
interpretation, Company A could bring an umbrella clause claim
10), sued the Government of Ukraine, which owned a domestic
against State Beta for breach of the concession agreement between
nuclear energy company (Energoatom) that had hired EYUM-10 to
the State and the locally-incorporated subsidiary. See, e.g.,
perform services and then failed to pay. Although EYUM-10
Continental Casualty Co. v. Argentina, Award, ICSID Case No.
prevailed in court proceedings in Ukraine against Energoatom, it
ARB/03/9, para. 297 (5 September 2008); AMTO LLC v. Ukraine,
was prevented from enforcing those judgments due to bankruptcy
Final Award, SCC Case No. 080/2005, para. 110 (26 March 2008);
proceedings in Ukraine. AMTO brought an arbitration against
Enron Corp. v. Argentina, Decision on Jurisdiction (Ancillary
Ukraine under the Energy Charter Treaty (ECT), which has an
Claim), ICSID Case No. ARB/01/3, paras. 32, 46, 52 (2 August
umbrella clause at Article 10(1) that imposes a duty on the
2004). Cf. Noble Energy, Inc. v. Ecuador, Decision on Jurisdiction,
Contracting Parties to “observe any obligations it has entered into
ICSID Case No. ARB/05/12, paras. 77-83, 155 (5 March 2008)
with an Investor or an Investment of an Investor of the other
(avoiding direct holding on umbrella clause but holding generally
Contracting Party”. The tribunal held that AMTO could bring the
that claimant could invoke BIT despite status as indirect
claim in place of EYUM-10 because “[t]he so-called ‘umbrella
shareholder of contracting party).
clause’ of the ECT is of a wide character”, which means that “the
Nonetheless, at least one tribunal construing a similar umbrella
ECT imposes a duty not only in respect of the investor which is
clause has held that the foreign investor must be the contracting
otherwise customary in an investment treaty context, but also vis-a-
party in order to bring a contract claim pursuant to an umbrella
vis a subsidiary company, established in the host state”. (Id. at para.
clause. In Siemens, the tribunal held that “to the extent that the
110.) However, the tribunal went on to hold that even though “an
obligations assumed by the State party are of a contractual nature,
undertaking by Ukraine of a contractual nature vis-a-vis EYUM-10
such obligations must originate in a contract between the State party
could very well bring into effect the umbrella clause”, in this case
to the Treaty and the foreign investor as, for instance, in the SGS
“the contractual obligations have been undertaken by a separate
cases”. (Siemens at para. 205.) Moreover, in a recent ICSID
legal entity [i.e. Energoatom], and so the umbrella clause has no
annulment proceeding, the Ad Hoc Committee annulled the
direct application”. (Id.)
umbrella clause portion of the Tribunal’s Award for failure to state
reasons why the claimant could invoke contractual and other
obligations owed by Argentina to the party of which the claimant Exhaustion of remedies: What if the concession
agreement contains its own arbitration clause? Must
was a minority shareholder. In that decision, where the applicable
contract remedies be exhausted as a prerequisite for
umbrella clause also stated “each Party shall observe any obligation
bringing an umbrella clause claim?
it may have entered into with regard to investments”, the
Committee noted that there are “major difficulties” with such a
The existence of alternative procedures for pursuing contract claims
“broad interpretation” of the umbrella clause. CMS Gas
may also create hurdles to submitting a contract dispute to treaty
Transmission Co. v. Argentina, Decision of the Ad Hoc Committee
arbitration. Tribunals have considered cases where States have
on the Application for Annulment of the Argentine Republic, ICSID
resisted treaty arbitration of contract claims on the ground that the
Case No. ARB/01/8 (Annulment Proceeding), paras. 89-99 (25
contract in dispute contains its own dispute resolution clause
September 2007). See also Azurix Corp. v. Argentina, Award,
requiring, for example, arbitration under particular rules or
ICSID Case No. ARB/01/12, para. 384 (14 July 2006). Similar
procedures. The majority of these tribunals have held that the
issues can also arise where the aggrieved party is part of a joint
existence of a contract remedy does not affect the jurisdiction of a
venture. See, e.g., Impregilo S.p.A. v. Pakistan, Decision on
BIT tribunal, making BIT arbitration available even where the
Jurisdiction, ICSID Case No. ARB/03/3 (22 April 2005). One other
contract contains its own dispute resolution requirements. In
tribunal recently appeared to find a middle ground where both the
addition, they have held there is no need to exhaust alternative
foreign majority-owner and local subsidiary were claimants,
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Wilmer Cutler Pickering Hale and Dorr LLP Investment Treaty Arbitrations
contract remedies before bringing a BIT arbitration. (See, e.g., When States negotiating BITs wish to eliminate or limit the scope
Noble Ventures at para. 53.) of umbrella clauses, they know how to do so. For example, many
U.S. BITs from the 1980s and 1990s contained broad and
There is a minority view, however, exemplified by SGS v.
unrestricted umbrella clause language, such as that discussed in our
Philippines, which held that a contract claim cannot be pursued
hypothetical example. See, e.g., Article II(2)(c), U.S.-Argentina
under an umbrella clause unless the investor, for good reason, was
BIT (“Each Party shall observe any obligation it may have entered
unable to avail itself of the exclusive domestic remedies provided
into with regard to investments.”). By contrast, the 2004 U.S.
for in the contract: “Thus the question is not whether the Tribunal
Model BIT replaced the standard umbrella clause with a detailed
has jurisdiction . . . . The question is whether a party should be
definition of the types of contracts for which breach of contract
allowed to rely on a contract as the basis of its claim when the
claims may be submitted to arbitration. See 2004 U.S. Model BIT,
contract itself refers that claim exclusively to another forum. In the
Article 1 (covered contracts include those involving natural
Tribunal’s view the answer is that it should not be allowed to do so,
resources, the supply of utilities services such as water or
unless there are good reasons, such as force majeure, preventing the
electricity, or the undertaking of civic infrastructure projects). A
claimant from complying with its contract.” (SGS v. Philippines, at
text-based approach, which recognises that government negotiators
para. 154.)
pay careful attention to the precise wording used in international
investment agreements, would serve to increase certainty and
Towards a Text-Based Approach? predictability for investors and governments alike.
As the cases discussed above illustrate, some tribunals have been
willing to go beyond the plain text of the umbrella clauses in Conclusion
question to achieve certain policy results. Thus, for example, the
As recent tribunal awards illustrate, there is continuing
SGS v. Pakistan tribunal acknowledged that “[a]s a matter of
disagreement among some tribunals as to the precise scope and
textuality . . . the scope [of the umbrella clause] . . . appears
meaning of umbrella clauses. Although some of this uncertainty
susceptible of almost indefinite expansion”, yet went on to surmise
may be due to differences among arbitrators, it also is the result of
that the plain meaning could not have been what the parties
nuances in the text of each treaty, which underscores the importance
intended. (SGS v. Pakistan, at paras. 166, 171.)
of reading the text very closely when evaluating the strength of a
The differing approaches taken in recent cases mean some
potential contract-based treaty arbitration. The umbrella clause can
continued uncertainty regarding whether, and to what extent,
potentially be a powerful tool for foreign investors in the event of a
contracts will receive protection under a BIT. This uncertainty can
contractual dispute with a host state. It is essential, however, for
be costly and can act as a disincentive for investments. Tribunals
investors and corporate counsel to stay abreast of continuing
could reduce this uncertainty by adopting a text-based approach to
developments in the jurisprudence and to seek expert guidance
interpretation, in which, as one tribunal put it, the umbrella clause
where appropriate.
“means what it says”. (Eureko at para. 256.) This approach would
better recognise that “there are differences between the wording of
[one] clause and the clauses in the other cases”, and thus that terms
should be given their “ordinary meaning”. (Noble Ventures at para.
50; see also Duke Energy at para. 318 (citing Article 31(1) of the
Vienna Convention, which requires interpretation to be “in good
faith in accordance with the ordinary meaning to be given to the
terms of the treaty”).)
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