Umbrella clauses in investment treaty arbitration


Produced in partnership with Ben Sanderson
Practice notes

Umbrella clauses in investment treaty arbitration


Produced in partnership with Ben Sanderson

Practice notes
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What is an umbrella clause?

An umbrella clause (known also as an umbrella agreement or an observance of undertakings clause) is a provision in a bilateral investment treaty (BIT) by which a state agrees to comply with all of its obligations owed to foreign investors. An umbrella clause can be highly advantageous to investors as it may allow the investor to argue that issues ordinarily governed by local law and jurisdiction (ie a breach by the state of its contractual obligations owed to the investor) can also be characterised as a breach of an investment treaty obligation by virtue of the umbrella clause. Therefore, the investor may be able to elevate all of its disputes with the state to the international forum under the protective umbrella of the BIT.

However, whether in fact a clause elevates domestic law obligations in this way (and if so, which obligations are elevated), is a matter of interpretation of the clause. Interpretation of umbrella clauses has proved controversial and this Practice Note will examine some of the key decisions on this issue.

Example

Ben Sanderson
Ben Sanderson

Ben Sanderson has worked as a partner in the international arbitration group in the London office of Kirkland & Ellis and now works at DLA Piper. He has represented clients across a range of industries, including the energy, mining and technology sectors. His practice focuses, in particular, on high-value international commercial arbitrations - both institutional and ad hoc - and bilateral investment treaty claims.

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Jurisdiction(s):
United Kingdom
Key definition:
Investment definition
What does Investment mean?

An investment will typically mean any type of property or interest held within the territory of the host state. This will often extend far beyond 'obvious' property, such as real estate or shares in a local company, to (depending upon the circumstances) other interests such as rights under a contract, intellectual property rights and private loans. As with the concept of 'investor,' in the modern commercial world what does and does not qualify as investment can be a complex question. The definition of 'investment' will vary between BITs.

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