Originally from World Arbitration And Mediation Review (WAMR)

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CONTAINING THE SCOPE OF THE

UMBRELLA CLAUSE
By Laura Halonen*

I. INTRODUCTION
One of the main areas of uncertainty in the interpretation of investment
treaties is the scope of the so-called “umbrella clause.” This is a provision
commonly incorporated in investment treaties by which the contracting
states undertake to “observe” or “guarantee” any “undertakings” or
“obligations” they have “entered into with regard to” the “investments” of
nationals of the other contracting state.1 The jurisprudence of arbitral
tribunals has revealed a tension between, on the one hand, a very broad
interpretation of the “umbrella clause”,2 and, on the other, an overly narrow
one that leaves the clause virtually without meaning.3 Presumably with time
a middle ground limiting the scope of the clause to reasonable, predictable
and coherent dimensions will emerge.
This paper presents a suggestion for such dimensions. The first
section below will set out the reasons for limiting the scope of the
umbrella clause arising from the intention of the contracting parties, as
revealed by the historic origins of the clause, as well as from practical