Interplay between expansive application of “umbrella clauses” and

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contract in issue contained an exclusive forum selection clause designating Philippine courts as the exclusive forum and such exclusive forum choice could not be overridden by the Switzerland-Philippines BIT. The tribunal supported the respondent’s allegation that “the general provisions of BITs should not, unless clearly expressed to do so, override specific and exclusive dispute settlement arrangements made in the investment contract itself.” The tribunal felt compulsory to give effect to the exclusive forum selection clause in the contract even though the umbrella clause also conferred jurisdiction on the tribunal. The tribunal summarized that it “should not exercise its jurisdiction over a contractual claim when the parties have already agreed on how such a claim is to be resolved, and have done so exclusively.” This led the tribunal to stay arbitration proceedings pending determination of the amount payable by the Philippines to SGS in accordance with the Philippine court proceedings as required by the contract’s exclusive forum selection clause. ²⁴⁹ For the same reason, while concluding that the umbrella clause gave the tribunal jurisdiction over contract claims, the tribunal in BIVAC v. Paraguay at the same time refused to exercise its jurisdiction since the parties had clearly agreed on an exclusive domestic forum for the settlement of contractual disputes that might fall within the terms of the umbrella clause. ²⁵⁰

So far, the second of the four approaches to the practice of umbrella clauses is the most dominant in both practice and theory. ²⁵¹ Therefore, there is a visible trend in arbitral practice that tribunals tend to establish jurisdiction over contract claims based on expansive application of umbrella clauses. Umbrella clauses are and will be a major tool of tribunals to elevate contract claims to treaty claims unless treaty parties otherwise clearly specify.

3.6.3 Interplay between expansive application of “umbrella clauses” and other

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to the notion of “investment” and the scope of “investment disputes”. The expansive application of umbrella clauses is usually based on the premise of broad interpretation of “investment” and “investment disputes”. Even if there is no umbrella clause in the applicable investment treaty, tribunals may still “borrow” an umbrella clause from a third-party treaty by invoking the MFN clause.

Firstly, to achieve the elevating effect of umbrella clauses, commercial contracts must be, in the first place, treated as covered investment under the applicable investment treaty. According to most tribunals, umbrella clauses can transform a contract claim originally governed by domestic courts into a treaty claim under the jurisdiction of investment tribunals. If the contract itself cannot be regarded as covered investment under the investment treaty, then the alleged elevating effect of umbrella clauses would simply not function. Most tribunals, as we can imagine, indeed treat commercial contracts as covered investment under investment treaties. ²⁵² Tribunals supporting the elevating effect of umbrella clauses did find commercial contracts as covered investment with no hesitation.

Secondly, a broadly drafted investor-state arbitration provision would complement the umbrella clause. The ultimate purpose in giving the elevating effect to umbrella clauses is to confer jurisdiction on investment tribunals over contract claims.

Therefore, even if contractual obligations are elevated into treaty obligations under the investment treaty, the investor still cannot submit contract claims to an investment tribunal if the investment treaty, without incorporating the investor-state arbitration provision, does not permit the submission of any claim of investors to international arbitration. It is because the undertaking of international responsibility and consent to international dispute settlement are two different things. A State’s breach of investment treaty (by way of elevating a breach of contract into a breach of treaty) itself does not oblige the State to consent to the jurisdiction of an international dispute settlement body. Thus, umbrella clauses can confer jurisdiction on investment tribunals only if there exists an investor-state arbitration provision capable of expansive interpretation. How a tribunal construes the scope of covered investment disputes in the investor-state arbitration provision is critical to the functioning of umbrella clauses. In arbitral practice, most tribunals would treat contract claims as covered investment disputes and thus find jurisdiction over such contract claims. The SGS v. Philippines tribunal, for instance, held that the investor-state arbitration

252 See supra chapter 3.1.1.

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provision of the Switzerland-Philippines BIT allowed for submission of all investment disputes (naturally including contractual disputes) by the investor to international arbitration and thus did not preclude the tribunal from exercising jurisdiction over contract claims. ²⁵³

Thirdly, the interplay between umbrella clauses and MFN clauses will open the floodgates to an uncontrollable number of contract claims being submitted to investment tribunals. Not every investment treaty contains an umbrella clause. Under a treaty without an umbrella clause, tribunals normally would not elevate contract claims into treaty claims. The problem is whether the MFN treatment applies to the umbrella clause. If a basic treaty contains no umbrella clause, can an investor

“borrow” or import an umbrella clause from a third-party treaty based on a MFN clause in the basic treaty? If yes, then tribunals can turn contract claims to treaty claims and thus establish jurisdiction over such contract claims by invoking the umbrella clause imported from a third-party treaty.

In EDF v. Argentina, the tribunal for the first time permitted the incorporation of umbrella clauses of third-party treaties by virtue of the MFN clause. The basic treaty in this case was the France-Argentina BIT containing no umbrella clause. Thus, the tribunal would have had to reject the request to hear the claimant’s contract claims for the lack of jurisdiction due to the non-existence of an umbrella clause. However, the tribunal found another way to establish jurisdiction over contract claims by concluding that the MFN Clause in Article 4 of the Argentina-France BIT permitted the claimant to incorporate the umbrella clauses from the Argentina-Luxembourg BIT or the Argentina-Germany BIT. ²⁵⁴ Similarly, the tribunal in Arif v. Moldova did not find an umbrella clause in the basic treaty, namely the France-Moldova BIT.

Nevertheless, the tribunal agreed with the claimant that the MFN clause of the France-Moldova BIT could import an umbrella clause, from either the UK-Moldova BIT or the US-Moldova BIT. The tribunal therefore found jurisdiction over the claimant’s contract claims via the MFN clause of the basic treaty. ²⁵⁵ As can be seen from the above cases, the MFN incorporation of umbrella clauses from third-party treaties, if permitted and generalized by tribunals, would bring the danger of

253 Societe Generale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No. ARB/02/6, Decision on Objections to Jurisdiction, 29 January 2004, paras. 131-132.

254 EDF International SA and others v Argentine Republic, ICSID Case No ARB/03/23, Award, 11 June 2012, paras. 922-937.

255 Mr. Franck Charles Arif v. Republic of Moldova, ICSID Case No. ARB/11/23, Award, 8 April 2013, paras.

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unprecedented expansion of jurisdiction over contract claims going beyond the reach of the treaty language.