EU Human Rights, International Investment Law and Participation by Vivian Kube

Author:Vivian Kube
Language: eng
Format: epub
ISBN: 9783030206079
Publisher: Springer International Publishing

4.3.6 Umbrella Clause and the Stabilization Clause

The so-called ‘umbrella-clauses’ expands the scope of the investment treaty to include individual private and public law agreements between the state and the investor, such as contracts, licences and other commitments. Hence, they elevate domestic contract claims to treaty claims enabling the investor to launch ISDS proceedings for any alleged breach of an individual contract.320 What kind of host state commitments are covered exactly depends on the formulation of the umbrella clause.321 The majority of Member States (Model) BITs includes an umbrella clause that is broadly phrased, that is along the line of the 2008 Germany Model BIT, Article 7(2), which reads: ‘Each Contracting State shall fulfil any other obligations it may have entered into with regard to investments in its territory by investors of the other Contracting State’.322 A study conducted in 2003 suggested that approximately 40% of all IIAs include umbrella clauses.323 To date, however, it seems that many BITs outside Europe dropped the umbrella clause (e.g. 2011 Colombia Model BIT, 2008 Mexico Model BIT, also not included in the 2012 US Model BIT, but in the 2001 BIT between the US and Lithuania.).

In contrast to the FET clause, arbitral practice has previously paid attention to differences in wordings.324 The different aspects as to the scope and the effect of the umbrella clause that have been disputed will not be discussed here.325 For this section’s purpose, it suffices to point out that the main disagreement revolves around first whether only such acts should be covered that the state is performing in its state authority (iure imperii) or also those performed as a commercial actor (iure gestioni).326 Second, tribunals have differed as to whether any breach of contract could be elevated to the international level327 or only when additional criteria are fulfilled such as a commitment that is meant to afford ‘additional investment protection’328 or that is of special ‘magnitude’.329 In sum, with regards to the umbrella clause it seems that uniform independent standards have not yet emerged but that instead much depends on the wording of the underlying clause.

Numerous scenarios that can cause conflicts with human rights are imaginable depending on what kind of commitment is ‘internationalized’ through the umbrella clause. In general one can say, the scope of what amounts to an investor right under international law is indefinitely expanded, while the likelihood increases that other interests which might be protected under domestic law will not be granted the same protection in an ISDS proceeding. One example of a concrete commitment that has been highly criticized after the practice became known to the public is the so called stabilization clause. Only after the oil company BP published their contracts with Turkey, Georgia, and Azerbaijan in 2003,330 further pipeline and mining projects and their underpinning investment contracts were scrutinized mainly by NGOs331 and ultimately led the UN Special Rapporteur for Business and Human Rights John Ruggie to investigate the issue.332

A stabilization clause is a standard condition for large-scale and long-term investments in the extractive industries, the infrastructure, the energy sector and public services.

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