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22Халыцаралыц цуцыц жэне салыстырмалы цуцыцтану
УДК: 341.6
THE REACH OF INTERNATIONAL INVESTMENT AGREEMENTS: KAZAKHSTAN AND THE UMBRELLA CLAUSE
Alberto Pecoraro
LLM, Edinburgh University, Senior Lecturer of International Law,
Kazakh University of Humanities and Law
Keywords: Umbrella Clause; Investment Treaty Arbitration; International Investment Law; ICSID practice.
Abstract: An umbrella clause is a provision through which the parties to an investment treaty undertake to observe any obligation they enter into with investors from the other state parties. Such a clause is included in numerous investment treaties, including the Energy Charter Treaty. Because of its imprecise language, this provision is potentially susceptible of indefinite expansion. In other words, it is difficult to determine to which obligations the clause applies and to which it does not. This brings us to two important questions. The first question is whether an umbrella clause may elevate a simple breach of national law to a breach of treaty under international law. The second questions is whether the umbrella clause's scope is limited to contractual commitments, or whether it also covers unilateral engagements made by states through legislative or regulatory acts. It is submitted here that, based on the clause's plain wording, its context, and the scarce existing case-law, the umbrella clause covers any commitment taken specifically with an investor. It would seem that legislative and regulatory acts might qualify as commitments taken specifically with an investor if a certain nexus is established between those acts and the individual investor.
ХАЛЬЩАРАЛЬЩ ИНВЕСТИЦИЯЛЬЩ КЕЛ1С1МДЕРГЕ КОЛ ЖЕТК1ЗУ: КАЗАХСТАН ЖЭНЕ «КОЛШАТЫР ЕСКЕРТПЕС1»
Альберто Пекораро
Халыцаралыц цуцыц магистрi, Эдинбург Университетi,
КазГЮУ оцытушысы
TyMh свздер: шатыр ескертпе; инвестициялыц шарттар бойынша арбитраж; халыцаралыц инвестициялыц цуцыц; МЦУИС тэжiрuбесi.
Аннотация. Мацаланыц мацсаты жасасатын шартца «шатыр ескертпелер» жагдайларын emi3y нэтижест зерттеу болып табылады. Шатыр ескертпе - бул ол арцылы тараптар басца мYше-мемлекеттердiц инвесторларымен жасасатын инвестициялыц шарттыц кез келген мтдеттемелерт сацтауга мтдеттенетт жагдай. Бундай бап Энергетикалыц хартия шартын цосцанда квптеген инвестициялыц шарттарга кiргiзiлген. Зерттеудщ мэт бул ереженщ цандай мтдеттемелерге жататынын жэне оныц цандайларына жатпайтынын кейде аныцтау циын болатындыцтан шартта осы жагдайды тужырымдау болып табылады. Бул бiздi ею мацызды мэселеге алып келедi. Бiрiншi мэселе «шатыр ескертпе» улттыцзацнаманы жай бузуды халыцаралыц цуцыц бойынша шартты бузу децгешне дейт квтере алама деген. Екiншiмэселе омы жагдайды цамту шарттыц мтдеттемелермен шектеледi ма немесе ол зацнамалыц немесе нормативтж актшер арцылы мемлекеттердщ цабылдаган бiржацты мтдеттемелерт цамтиды ма деген. Баптыц жай тужырымдалуына, оныц мэнмэтшне жэне эрекеттегi внегелж цуцыцца сэйкес «шатыр ескертпе» инвестор взте алган кез келген мтдеттемелерт цамтиды. Зацнамалыц жэне нормативтж актшер, егер осы актшер мен жеке инвестор арасында белгш бiр взара байланыс болса, инвестор взiне алган мтдеттемелер сияцты аныцталуы ыцтимал болып кврiнyi мYмкiн.
Мацалада халыцаралыц цуцыц пен улттыц зацнама арасындага взара байланыс, шарт жагдайларын бузуда «шатыр ескертпет» цамту, тек шарттыц мтдеттемелерде «шатыр ескертпет» цамтуда шектеу мэселелерi мысалга Анатолий Стати К,азацстанга царсы id сияцты мэселелер царастырылады.
ДОСТИЖЕНИЕ МЕЖДУНАРОДНЫХ ИНВЕСТИЦИОННЫХ СОГЛАШЕНИЙ: КАЗАХСТАН И «ЗОНТИЧНАЯ ОГОВОРКА»
Альберто Пекораро
Магистр международного права, Эдинбургский Университет, преподаватель КазГЮУ
Ключевые слова: зонтичная оговорка; арбитраж по инвестиционным договорам; международное инвестиционное право; практика МЦУИС.
Аннотация. Целью статьи является исследование эффектов введения в заключаемый договор условия «зонтичной оговорки». Зонтичная оговорка - это условие, посредством которого стороны инвестиционного договора обязуются соблюдать любые обязательства, которые они заключают с инвесторами других государств-участников. Такой пункт включен в многочисленные инвестиционные договоры, включая Договор к Энергетической хартии. Предметом исследования является формулировка этого условия в договоре, так как иногда трудно определить, к каким обязательствам применяется это положение и к каким оно не относится. Это подводит нас к двум важным вопросам. Первый вопрос заключается в том, может ли «зонтичная оговорка» поднять простое нарушение национального законодательства до уровня нарушения договора по международному праву. Второй вопрос заключается в том, ограничивается ли охват этого условия договорными обязательствами или же оно охватывает также односторонние обязательства, принятые государствами посредством законодательных или нормативных актов. В соответствии с простой формулировкой пункта, его контекстом и существующим прецедентным правом, «зонтичная оговорка» охватывает любые обязательства, взятые на себя инвестором. Может показаться, что законодательные и нормативные акты могут квалифицироваться как обязательства, взятые на себя инвестором, если между этими актами и индивидуальным инвестором установлена определенная взаимосвязь.
В статье рассматриваются такие вопросы как взаимосвязь между международным правом и национальным законодательством, охват «зонтичной оговорки» нарушения условий договора, вопрос ограничения охвата «зонтичной оговорки» только договорных обязательств на примере дела Анатолия Стати против Казахстана.
Contents
1. Introduction
2. The relationship between international law and national law
3. Does the umbrella clause encompass breaches of contract?
4. The case of Anatolie Stati v. Kazakhstan: are umbrella clauses limited to contractual obligations?
5. Conclusion
1. Introduction
The umbrella clause is a provision which guarantees the observance of obligations assumed by the host state vis à vis the investor.1 The umbrella clause, known also as "observance of undertakings" clause, is common in investment treaties and exists in a myriad of formulations. Kazakhstan's treaty practice is rich of umbrella clauses. For instance, Article 10 of the Energy Charter Treaty reads:
"Each Contracting Party shall observe any obligations it has entered into with an Investor or an Investment of an Investor of any other Contracting Party"2
The investment treaty between Italy and Kazakhstan contains a more long-winded umbrella clause:
"Each contracting party shall create and maintain, in its territory a legal framework apt to guarantee to investors the continuity of legal treatment, including the compliance, in good faith, of all undertakings assumed with regard to each specific investor"3
The umbrella clause is an application of the general principle of pacta sunt servanda - the maintenance of the pledged word.4 The wording of this clause is usually of an imperative nature. It is also quite wide: it concerns "any" obligation undertaken by a state. No further precision is
1 R.Dolzer, C.Schreuer, Principles of International Investment Law (First Edition, Oxford University Press 2008), p.153.
2 Energy Charter Treaty (1994), article 10.
3 Accordo tra il Governo della Republica Italiana ed il Governo della Repubblica del Kazakhstan sulla Reciproca Promozione e Protezione degli Investimenti (1994), article 2.
4 Eureko B.V. v. Republic of Poland, Partial Award of 19 August 2005, para 251.
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offered as to which acts are susceptible to come under this clause. This raises two important questions. The first is whether this clause gives a tribunal jurisdiction over essentially contractual claims against the respondent state.5 In other words, can it transform a foreign investor's contract claim into a treaty claim?
A second less explored question is whether the umbrella clause extends to alleged breaches of legislative and regulatory acts by the host state. This question was raised in Anatolie Stati, Gabriel Stati, Ascom Group SA and Terra Raf Trans Trading Ltd v. Kazakhstan (or Anatolie Stati v. Kazakhstan), an arbitration based on the Energy Charter Treaty, where respondent argued that the scope of the umbrella clause is limited to contractual obligations and does not extend to alleged breaches of its own domestic law.6 Unfortunately, the tribunal did not consider this argument in its Award.
The question raised in Anatolie Stati v. Kazakhstan is quite important for Kazakhstan, a state which has attracted $160 billion in FDI since its independence and aims to attract more.7 The risk is that foreign investors rely on umbrella clauses to sue Kazakhstan before an international tribunal on the basis of breaches of Kazakhstani law. The paper's aim is to address this specific issue. In doing so, it will deal with the following two questions. The first is whether the umbrella clause does cover breaches of acts under national law. The second question is whether such clause's reach is limited to breaches of contracts. This paper posits that the umbrella clause does indeed apply to breaches of acts under national law - including contracts. In this regard, umbrella clauses are not per se limited to contract breaches and may also be invoked in case of breach of certain legislative acts.
This paper will answer its research questions in the following manner. It will first start from the premise that claims under national and claims under international law are
distinct. Then, it will answer to its first research question on the basis of the existing case-law. Afterward, this paper will go on to address its second research question. In particular, it will look critically at the respondent's argument in Anatolie Stati v. Kazakhstan. It will finally present its own conclusions.
2. The relationship between international law and national law
Under customary international law, the characterization of an act of a State as internationally wrongful is governed by international law and such characterization is not affected by the characterization of the same act as lawful by internal law, and vice versa.8 Already in 1932, in the Treatment of Polish Nationals case, the PCIJ denied Poland the right to submit to the League of Nations claims founded on the Free City of Danzig's Constitution on the grounds that "it is not the Constitution and other laws, as such, but the international obligation that gives rise to the responsibility [of a state]".9 Since then, this principle has been reaffirmed many times by the ICJ in its judgments and advisory opinions.10 11 12 Accordingly, a state which has broken a stipulation of international law cannot justify itself by referring to its domestic legal system.13 It follows that the same set of facts can give rise to different claims grounded on the differing municipal and international legal orders.14 Compliance with national law and compliance with the provisions of a treaty will remain different questions: what is a breach of treaty may be lawful in the municipal law and what is unlawful in the municipal law may be completely innocent of violation of a treaty provision.15 Consequently, these claims must be decided separately on the basis of their own applicable law. A violation of domestic law is never per se a violation of international law.
Even so, the rules of law binding upon States emanate from their own free will as expressed, inter alia, in conventions.16 International law
5 SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No. ARB/02/6, Judgment of 29 January 2004, para 92.
6 Anatolie Stati, Gabriel Stati, Ascom Group SA and Terra Raf Trans Traiding Ltd v. Kazakhstan, SCC, Award of 19 December 2013, para 1297.
7 M.Sieff, Strategy 2050: Kazakhstan's Roadmap to Success, Edgekz.com, available at: http://www.edgekz.com/ strategy-2050-kazakhstans-road-map-global-success/
8ILC Draft Articles on State Responsibility, article 3.
9 Treatment ofPolish Nationals and Other Persons of Polish Origin or Speech in the Danzig Territory, Advisory Opinion, 1932, P.C.I.J., SeriesA/B, No. 44, p. 4.
10 Reparation for Injuries Suffered in the Service of the United Nations, Advisory Opinion, I.C.J. Reports 1949,
p180
11 Nottebohm, Preliminary Objection, Judgment, I.C.J. Reports 1953, p. 111, at p. 123.
12 Elettronica Sicula S.p.A. (ELSI), Judgment, I.C.J. Reports 1989, p. 15, at p. 51, para. 73.
13 Vienna Convention on the Law of Treaties, article 46.
14 SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13, Decision of the Tribunal on Objections to Jurisdiction, 6th August 2003, para. 147.
15 Elettronica Sicula S.P.A. (ELSI), Judgment, I.C.J. Reports 1989, p. 15. Para. 73.
16Lotus (France v. Turkey) (1927) P.C.I.J., Ser. A, No. 10, paras 44-46.
lays down certain prohibitive rules, but in all other cases states remains free to adopt the principles they regard most suitable.17 There is no rule in international law prohibiting states party to a treaty to agree that a violation of national law may per se breach such a treaty. Thus, the elevation of internal law claims to the level of treaty claims is perfectly possible in theory. However, this may happen only upon the expression of state consent. Umbrella clauses within an investment treaty may - or may not -be expression of this required consent.
3. Does the umbrella clause encompass breaches of contract?
The jurisprudence on the umbrella clause is quite inconsistent. Within this case law, one can distinguish between two extremes. There is a first line of jurisprudence which adopts a restrictive interpretation of umbrella clauses, excluding from its scope all acts undertaken under national law. Its hallmark is SGS v. Pakistan.18 There is a second, and opposite, case-law whose broad interpretation places national law acts under the umbrella clause. SGS v. Philippines and SGS v. Paraguay exemplify best such an approach.19 Finally, there is a third nuanced case-law that stands between those two extremes by distinguishing between a state's undertakings as a merchant and as a state's commitments as a sovereign. Examples of such approach are in El Paso v. Argentina and Sempra Energy International v. Argentina.20
One of the very first tribunals which dealt with the umbrella clause was the one in SGS v. Pakistan. SGS and Pakistan had entered a contract whereby SGS agreed to provide pre-shipment inspection services for goods to be exported from certain countries to Pakistan; however the government of Pakistan did not pay all the invoices and notified SGS that the contract would be terminated.21 The tribunal had to pronounce itself on the meaning of Article 11 of the BIT between Switzerland and
Pakistan, which read: «Either Contracting Party shall constantly guarantee the observance of commitments it has entered into with respect to the investments of investors of the other Contracting Party.»22
The claimant had argued that the clause turned breaches of a contract concluded under Pakistani law into a valid basis for a claim under international law.23 The tribunal rejected this argument. Firstly, it held that the "commitments" subject matter of Article 11 may, without imposing excessive violence on the text itself, be commitments of the state itself as a legal person, or of any office, entity or subdivision thereto.24 The text of Article 11 was not limited to contractual commitments and, if the claimant's position were to be accepted, the meaning of Article 11, would be susceptible of "almost indefinite expansion».25 According to the tribunal, the articles scope was so imprecise that it could not be said to set the consequences argued by the claimant.26
Another argument advanced by the tribunal was based on the general separation between municipal and international law, and its corollary that a breach of contract cannot automatically be treated as a breach of treaty.27 The tribunal considered that principle to be so well-established that clear and convincing evidence had to be adduced by the claimant to prove that there was an exception therewith.28 Hence, evidence that the parties' intent was for the treaty's umbrella clause to cover disputes based on national law must be unambiguous and clear.29 A further argument made by SGS v. Pakistan was that reading the umbrella clause as encompassing obligations contracted under national law would make redundant the other provisions of the investment treaty: there would be no need to demonstrate a violation of substantive treaty standards such as fair and equitable treatment if a simple breach of contract, or statute, or regulation, would by itself suffice to constitute a treaty breach.30
17 Ibid.
18 P. Grane, Umbrella Clause Decisions: The Class of 2012 and a Remapping of the Jurisprudence (2013),
available at:http://kluwerarbitrationblog.com/blog/2013/01/17/umbrella-clause-decisions-the-class-of-2012-and-a-remapping-of-the-jurisprudence/
20 Ibid.
21 N. Bernasconi-Osterwalder, L. Johnson, International Investment Law and Sustainable Development Key cases from 2000-2010, International Institute for Sustainable Development, available at: http://www.iisd.org/ pdf/2011/int_investment_law_and_sd_key_cases_2010.pdf
22 Accord entre la Confédération Suisse et la République islamique du Pakistan concernant la promotion et la protection réciproque des investissements, article 11.
23 SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13, Decision on Objections to Jurisdiction, 6 August 2003, para 98.
24 Id., para. 166.
25 Id., para. 164.
26 Ibid.
27Id., para. 167.
28 Ibid.
29
30
Ibid.
Id., para. 168.
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The decision in SGS v. Pakistan has been widely criticized31 - and rightly so. That is because, in its reasoning, the tribunal has not given sufficient weight to the clause's plain wording. In this manner, it has deviated from the customary principles of treaty interpretation. These customary rules are laid down in Article 31 of the Vienna Convention on the Law of Treaties, according to which a treaty must be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.32 The customary nature of Article 31 VCLT has been has explicitly recognized by the ICJ in the Kasikili Sedudu Island (Botswana v. Namibia) case.33 First of all, the SGS v. Pakistan tribunal admits that the plain wording suggests that the umbrella clause would cover commitments of the state under domestic law. Yet, it goes on to disregard such a clear wording on the basis that it is too imprecise - that is to say, "susceptible to almost indefinite expansion". No further explanation is provided. Hence, the tribunal admits that the clause's plain wording militate in favour of a certain interpretation, but disregards such wording based on a policy consideration. Arguably, the mere fact that a provision has far-reaching consequences is not a sufficient justification for a "restrictive" interpretation rendering such provision null and void.34
Similar problems plague the argument that the general rule of separation between domestic and international legal orders militates against a broad interpretation of the umbrella clause. The tribunal was correct in affirming this rule, and rightly stated that clear evidence of state consent is required to establish an exception to such a rule. However, the arbitrators' reasoning does not consider the clause's plain wording to amount to such clear evidence of state consent. That is because, according to the tribunal, exceptions to a general rule must be interpreted strictly.35 Nowhere do the rules on treaty
interpretation claim that an exception should be interpreted more restrictively than any other provision: the general rule that "a treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose"36 applies to exceptions as much as it does to general rules.
Thefinalargument,thatabroadinterpretation of the umbrella clause would render irrelevant the treaty's other standards, is also problematic. Indeed, such contention has been disavowed by successive tribunals. In Eureko v. Poland, an ad hoc tribunal dealt with a claim brought by a Dutch corporation under the Netherlands-Poland investment treaty. Eureko and Poland had concluded an agreement whereby the former purchased a 30% share of PZU, a formerly state owned insurance company. Moreover, in two addenda to agreement, the Polish government had engaged itself to sell an additional 21% of PZU's shares, which would have made Eureko PZU's controlling shareholder.37 Yet, fearing the political backlash resulting from a wholesale privatization of the insurance sector, the Polish government reneged on this engagement.38 Before the arbitral tribunal, the claimant argued that the actions undertaken by the Polish government constituted a violation of the investment treaty's umbrella clause.39 The tribunal in Eureko v. Poland disagreed with Poland's argument that a wider reading of the umbrella clause would render irrelevant the treaty's other standards. In doing so, it stated that the BIT's substantive provisions deal with issues, such as fair and equitable treatment or protection from expropriation, that are not normally covered in contracts.40 Finally, one further criticism may be moved against SGS v. Pakistan. That criticism is that the arbitrators were so keen to preserve the effet utile of other treaty standards, that they deprived the umbrella clause of its meaning. Indeed, nowhere do they specify to which commitments it may apply.
31 In a letter to ICSID of October 1, 2003, the Swiss Government stated that it was «alarmed about the very narrow interpretation given to the meaning of [the umbrella clause] by the Tribunal, which not only runs counter to the intention of Switzerland when concluding the Treaty but is quite evidently neither supported by the meaning of similar articles in BITs concluded by other countries nor by academic comments on such provisions» (Eureko v. Poland, Partial Award of 19 August 2005, para. 254.
32 Vienna Convention on the Law of Treaties, article 31(1).
33 Kasikilil Sedudu Island (Botswana v. Namibia), Judgment, I.C.J. Report, 1999, p. 1045, para. 18.
34 A. Weissenfels, Umbrella Clauses, Seminar on International Investment Protection, Prof. August Reinisch (2007), p21, available at: https://intlaw.univie.ac.at/fileadmin/user_upload/int_beziehungen/Internetpubl/weissenfels.
pdf is
35 SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No. ARB/02/6, Judgment of 29 January 2004, para. 122.
36 Vienna Convention on the Law of Treaties, article 31(1).
37 Eureko B.V. v. Republic of Poland, Partial Award of 19 August 2005, para. 57.
38Id., para. 71.
39 Agreement between the Kingdom of Netherlands and the Republic of Poland on encouragement and reciprocal protection of investment, article 3(5).
40Id., para. 258.
This point was duly noted, at a later date, by the tribunal in SGS v. Philippines.41 Overall, from the SGS v. Pakistan award, it is not clear what the arbitrators consider the umbrella clause to be.
Shortly thereafter, in SGS v. Philippines, another tribunal addressed the same issue. The dispute arose out of alleged breaches by the Philippines of a pre-shipment inspection agreement whereby SGS would provide comprehensive import supervision services in exchange of a fee paid by the government.42 However, subsequently, the government refused to pay the invoices sent by SGS.43 Article X(2) of the Philippines-Switzerland BIT read: "Each Contracting Party shall observe any obligation it has assumed with regard to specific investments in its territory by investors of the other Contracting Party."44 Even if it faced a situation identical to SGS v. Pakistan, the tribunal reached very different conclusions. The Tribunal started with interpreting the relevant clause under the terms of the Vienna Convention on the Law of Treaties. It first looked into the clause's wording, considering that it uses the mandatory term "shall" and refers to "any obligation... with regard to specific investments in its territory".45 The tribunal regarded such a wide wording as being susceptible to encompass contracts under national law since these are obligations undertaken with regard to specific investments in a country's territory. Then, the tribunal considered the clause at the light of the treaty's object and purpose, holding that it supports an effective interpretation of Article X(2).46 That is to say that, since the BIT is a treaty for the promotion and reciprocal protection of investments, it is legitimate to resolve uncertainties in its interpretation so as to favour the protection of covered investments.47 And it is entirely consistent with the treaty's object and purpose to hold that binding commitments made by a state under its own law toward foreign investment are covered by the BIT's umbrella clause.48
Having concluded that the clause "means
what is says"49, the tribunal noted that its conclusions contradicted the precedent set by SGS v. Pakistan. It went on to refute the previous tribunal's reasoning. It remarked that in SGS v. Pakistan the Tribunal applied general principles of international law to generate a presumption against the broad interpretation of Article 11. The principle relied on was that "a violation of a contract entered into by a State with an investor of another State, is not, by itself, a violation of international law". The arbitrators in SGS v. Philippines admitted that this principle was well established. However, they also held that to merely rely on it is to go beside the point because such principle does not impact directly on the meaning of an umbrella clause. The question here is essentially one of interpretation, and not one to be determined by any presumption.51
However, the tribunal warned that the umbrella clause does not automatically convert questions of contract law into questions of treaty law. In particular it does not change the proper law of a contract from national law to international law. In fact, the umbrella clause addresses not the scope of the commitments entered into with regard to specific investments but the performance of these obligations, once they are ascertained. The tribunal held, in conclusion, that:
"To summarize, for present purposes [the umbrella clause] includes commitments or obligations arising under contracts entered into by the host State... But this obligation does not mean that the determination of how much money the Philippines is obliged to pay becomes a treaty matter. The extent of the obligation is still governed by the contract, and it can only be determined by reference to the terms of the contract." 52
There is a third line of jurisprudence distinct from the dichotomy between SGS v. Pakistan and SGS v. Philippines. This case law is epitomized by El Paso v. Argentina. El Paso was a company that had acquired ownership interests in various privatized Argentinian companies in the business of producing electrical power. Upon the terrible economic crisis that shook Argentina in the early 2000s,
41 SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No. ARB/02/6, Judgment of 29 January 2004, para. 125.
42 IISD, Key cases from 2000-2010 (Edited by Nathalie Bernasconi-Osterwalder and Lise Johnson), p 120, available at: http://www. iisd.org/pdf/2011/int_investment_law_and_sd_key_cases_2010.pdf
43 Ibid.
44 Accord entre la Confédération suisse et la République des Philippines concernant la promotion et la protection réciproque des investissements (1997), articleX(2).
45 SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No. ARB/02/6, Judgment of 29 January 2004, para. 115.
46 Id. , para. 116.
47 Ibid.
48 Ibid.
49 Ibid.
50Id., para. 122.
51 Ibid.
52 Id., para. 127.
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the government took measures that changed the regulatory framework for investment in energy. In so doing, it breached commitments made in the license granted to El Paso.53 Before an ICSID arbitral tribunal, El Paso argued that Argentina had violated the umbrella clause in the Argentina-US BIT. The relevant provision, Article II(2)(c) of the Argentina-US BIT read: «Each Party shall observe any obligation it may have entered into with regard to investments».54 The judgment to El Paso v. Argentina was founded upon the distinction between the state as a sovereign and the state as a merchant. This distinction is derived from the concept of sovereign immunity, a doctrine of international law under which domestic courts may not exercise jurisdiction over a foreign state.55 State immunity is a rule of customary international law - that is, it originates in the practice and opinio juris of states.56 During the second half of the XXth century the doctrine of absolute state immunity was replaced by a doctrine of restrictive state immunity.57 58 59 Under the restrictive law of immunity, immunity is recognized for acts carried out by a state in the exercise of its sovereign authority (or acta jure imperii), but is denied for acts of a commercial or private nature (or acta jure gestionis).60 In determining whether an act is commercial or sovereign, the dominant approach has been to focus upon the nature of the transaction rather than its purpose.61 In other words, the test of what constitutes an act jure imperii is whether that act is of its own character a government act, as opposed to an act which any private citizen can perform.62 For instance, acts such as the breach of a sales contract and the issuing of government bonds have been found to be jure
gestionis.63 64
The judgment of El Paso v. Argentina relies on previous case-law to justify the application of the dichotomy between commercial and sovereign acts to the umbrella clause's interpretation. It indeed starts by quoting the award in Joy Machinery v. Egypt, to the effect that:
«... it could not be held that an umbrella clause inserted in the Treaty, and not very prominently, could have the effect of transforming all contract disputes into investment disputes under the Treaty, unless of course there would be a clear violation of the Treaty rights and obligations or a violation of contract rights of such a magnitude as to trigger the Treaty protection "65
This implies that the umbrella clause will elevate a contract claim to the level of treaties only if the state's conduct is such as to trigger the treaty's protection. At the same time, it is essentially from the state as a sovereign that the foreign investors have to be protected through the availability of international arbitration.66 Accordingly, a difference must be made between actions of the state as a merchant, which will remain beyond the scope of the umbrella clause (and under national law), and between the state's actions as a sovereign, which are meant to be under the umbrella's clause scope. To support its argument, the tribunal referred again to the precedent of Joy Machinery v. Egypt, which had held that a basic general distinction can be made between commercial aspects of a dispute and other aspects involving the existence of some forms of state interference with the operation of the contract involved.67
Then, an umbrella clause will transform a contractual claim into a treaty claim only if the host state's conduct is of a sovereign nature. This spells that ordinary commercial breaches
53 El Paso Energy International Company v. The Argentine Republic, ICSID Case No. ARB/03/15, Judgment on Jurisdiction 27April 2006, para. 11.
54 Treaty between United States of America and the Argentina Republic concerning the reciprocal encouragement and protection of investment (1991), article 2(2)(c).
55 C. Tomuschat, The International Law of State Immunity and its Development by National Institutions, Vanderbilt Journal of Transnational Law, Vol 44, (2011), pp. 1105-1140.
56 D. Akande, S. Shah, Immunities of State Officials, International Crimes and Foreign Domestic Courts, European Journal of International Law, Vol 21, Issue 4 (2011).
57See for example: Foreign SovereignImmunitiesActof1976, Section 1605 (a) (2) (USA); and State
Immunity Act, 1978, c.33 (UK).
58 C. Tomuschat, The International Law of State Immunity and its Development by National Institutions, Vanderbilt Journal of Transnational Law, Vol 44, (2011), pp1105-1140.
59 United Nations Convention on Judicial Immunities of States and their Properties (2004), articles 10 - 17.
60 J. Foakes, E. Wilmhurst, State Immunity: the United Nations convention and its Effects (2005) Chatham House Series on International Law, available at: https://www.chathamhouse.org/sites/files/chathamhouse/public/ Research/International%20Law/bpstateimmunity.pdf
61 Empire of Iran case, ILR 45, pp57-80, Trendtex Trading Corporation v. Central Bank of Nigeria [1977] 64 ILR, pp122, Saudi Arabia v. Nelson, 123 L. Ed. 2d 47 (1993).
62 Primero Congreso del Partido, House of Lords, [I9811 2 All ER 1064, 1075; 64 ILR, p. 320].
63 Ibid.
64 Republic of Argentina v. Weltover Inc, 119 L.Ed 2b 394 (1992); 100 ILR, p509.
65 Joy Mining Machinery Limited v. Arab Republic of Egypt, ICSID Case No. ARB/03/11, Award on Jurisdiction, 6 August 2004, para. 81.
66 El Paso Energy International Company v. The Argentine Republic, ICSID Case No. ARB/03/15, Judgment on Jurisdiction 27April 2006, para. 80.
67Id., para. 79.
of a contract are not the same as treaty breaches. According to the arbitrators in Sempra v. Argentina, such a distinction is necessary in order to avoid an indefinite and unjustified extension of the umbrella clause.68 A further question is which state conduct is determining. Is it the conduct through which a contract was formed? Or is it the conduct that is alleged to have breached the contract? The tribunal in El Paso v. Argentina based its decision on the conduct forming the contract, whereas the tribunal in Sempra v. Argentina looked at the nature of the state conduct which breached such
contract.69
It can be argued that in general the conduct forming a contract is determinative of whether the acts at issue are jure imperii. However, the boundaries of state immunity are not permanently fixed,70 and the nature of a legal relation entered into by the state as a merchant may be subsequently modified if the state successively acts as a sovereign. Yet, it will require a high standard of proof of a sovereign act for the nature of conduct to change: in order to withdraw its action from the sphere of acts done jure gestionis, a state must be able to point to some act clearly done jure imperii.71
It must be noted that this approach was recently rejected by the tribunal in SGS v. Paraguay, which dealt with a dispute essentially identical to the ones in SGS v. Pakistan and SGS v. Philippines. Indeed, this dispute too arose out of alleged breaches, by Paraguay, of a pre-shipment inspection agreement whereby SGS would provide comprehensive import supervision services. Despite its contractual undertakings and the word pledged by its officials, Paraguay did not pay SGS's services.72
The clause at issue in SGS v. Paraguay had the following wording: "either Contracting Party shall constantly guarantee the observance of the commitments it has entered into with
respect to the investments of the other investors of the Contracting Party."73 The respondent had argued that a mere breach of contract cannot rise to the level of a breach of the treaty's umbrella clause unless it is coupled with additional "sovereign" action.74 However, the tribunal did not accept this argument on the basis that it was not supported by the clause's plain meaning. Indeed, nothing in the terms of article 11 of the Paraguay-Switzerland pointed to a difference between a state's acta jure imperii and acta jure gestionis. Given article 11's unqualified text, the tribunal saw no basis to import into that provision such non-textual limitations.75
Overall, international arbitral tribunals seem to have disregarded the precedent established by SGS v. Pakistan. More recent decisions such as SGS v. Paraguay, BIVAC v. Paraguay and EDF v. Argentina all have confirmed the considerations of SGS v. Philippines.76 In this sense, it can be safely assumed that umbrella clauses do confer on international arbitral tribunals jurisdiction over disputes based on breaches of commitments made under national law. Thus, a state may be sued under a treaty for breaches of commitments under national law. The controversy rather lies on whether a claim based on the umbrella clause is admissible before an international tribunal when the underlying contract contains an exclusive choice-of-forum clause.77 Besides this, it remains to establish whether umbrella clauses extend only to contracts or whether they reach somewhat further.
4. The case of Anatolie Stati v. Kazakhstan: are umbrella clauses limited to contractual obligations?
The question of whether the umbrella clause is limited to contractual obligations was recently touched upon in Anatolie Stati v. Kazakhstan. This dispute involved the Moldovan owner of Ascom S.A, a company which exploited the
68 Sempra Energy International v. The Argentine Republic, ICSID Case No. ARB/02/16, Award of 28 September 2007, para. 310.
69 P. Grané, Umbrella Clause Decisions: The Class of 2012 and a Remapping of the Jurisprudence (2013), available at:http://kluwerarbitrationblog.com/blog/2013/01/17/umbrella-clause-decisions-the-class-of-2012-and-a-remapping-of-the-jurisprudence/
7 Holland v. Lampen-Wolfe, Opinion of the Lords of Appeal for Judgment (20 July 2000), available at: http:// www.publications.parliament.uk/pa/ld199900/ldjudgmt/jd000720/hollan-1.htm
71 Primero Congreso del Partido, House of Lords, [I9811 2 All ER 1064, 1075; 64ILR, p. 320].
72 SGS Société Générale de Surveillance S.A. v. The Republic of Paraguay, ICSID Case No. ARB/07/29, Award of 10 February 2012, para. 69.
73 Accord entre la Confédération suisse et la République du Paraguay concernant la promotion et la protection réciproque des investissements (1992), article 11.
74 SGS Société Générale de Surveillance S.A. v. The Republic of Paraguay, ICSID Case No. ARB/07/29, Award of 10 February 2012, para. 72.
75 Id., para. 168.
76 P. Grane, Umbrella Clause Decisions: The Class of 2012 and a Remapping of the Jurisprudence (2013), available at:http://kluwerarbitrationblog.com/blog/2013/01/17/umbrella-clause-decisions-the-class-of-2012-and-a-remapping-of-the-jurisprudence/
77 SGS Société Générale de Surveillance S.A. v. Republic ofthe Philippines, ICSID Case No. ARB/02/6, Dissenting Opinion of Professor Antonio Crivellaro.
Халыцаралыц цуцыц жэне салыстырмалы щцыцтану
Borankol and Tolkyn oil fields, and Kazakhstan. The claimant submitted that since 2008 it had been subjected to a systematic campaign of harassment by the Kazakhstani authorities, which culminated with the abrupt cancellation of the Subsoil Use Contracts held by Ascom's local operating companies, KPM and TNG, and the seizure of its assets in July 2010.78 Moreover, the company's manager in Kazakhstan had been arrested and detained on the charge of being an entrepreneur operating a 'main' pipeline without a license.79 Nevertheless, under Kazakhstani law the manager could not be considered an entrepreneur: he was a salaried employee who was neither registered as an entrepreneur nor was the owner of the company.80 These facts were disregarded by the Aktau City Court and he was sentenced to a four year jail term.81 At the same time, the Court issued a penalty against criminal non-party - KPM.82
Anatolie Stati brought a claim against Kazakhstan under the Energy Charter Treaty. Article 10(1) ofthe ECT read: "Each Contracting Party shall observe any obligations it has entered into with an Investor or an Investment of an Investor of any other Contracting Party."83 One of the arguments made by the party was that Kazakhstan breached the umbrella clause by violating its own domestic law. The Claimant submitted inter alia that the government of Kazakhstan had violated Article 77(3) of the Constitution.84 The claimant argued that the umbrella clause does not differentiate between contractual obligations and legislative undertakings and appealed to the precedents of Eureko v. Poland and Enron v. Argentina to support its case.85
The respondent countered with the argument that the umbrella clause is limited to contractual obligations and does not extend to alleged breaches of Kazakhstan's domestic law.86 The respondent based his argument on
the principles of treaty interpretation contained in Article 31 of VCLT. First of all, according to the respondent, the plain meaning of the words "entered into" illustrated the consensual nature of the obligations in question.87 According to the respondent, this wording, as well as the use of the term "with", proved that the umbrella clause covers only statutes and regulations concluded with one individual party in one specific case.88 Further, the respondent argued that its case is supported by the provision's context:
"when taking into consideration the ordinary meaning of 'to enter into', the reference to 'any obligation a party enters into' means 'any obligation a party has undertaken to bind itself to perform by an agreement' and thus 'any contractual obligation." 89
Finally, the respondent submitted that the ECT's object and purpose - to promote long-term cooperation between investors and host states - supported the interpretation of Article 10(1) ECT as only encompassing contractual obligations. Indeed:
"if the umbrella clause were to encompass regulatory or statutory obligations, every breach of a host state's domestic law would form a breach of the ECT. Had the contracting parties to the ECT really wished to commit themselves to such a large extent, they would have amended the wording of the umbrella clause accordingly." 90
Holding the contrary, according to the respondent, would have the effect of alienating state parties and undermining the ECT's legal regime. Finally, in order to further bolster his reading of the ECT's umbrella clause, the respondent drew from the jurisprudence of previous arbitral tribunals. It cited CMS v. Argentina, Enron v. Argentina, SGS v. Philippines as supporting the proposition that the umbrella clause could concern only consensual obligations under the law of the host state.91
Regrettably, the tribunal did not rule on these claims.92 This said, it is submitted here that the respondent's argument is inaccurate.
78 Prnewswire.com, Ascom Takes Government of Kazakhstan to Stockholm Court of Arbitration Under the International Energy Charter Treaty, 8th September 2008, available at: http://www.prnewswire.com/news-releases/ ascom-takes-government-of-kazakhstan-to-stockholm-court-of-arbitration-under-the-international-energy-charter-treaty-102416259.html
79 Ibid.
80 Anatolie Stati, Gabriel Stati, Ascom Group SA and Terra Raf Trans Trading Ltd v. Kazakhstan, SCC, Award of 19th December 2013, para. 1290.
81 Ibid.
82 Ibid.
83 Energy Charter Treaty, article 10(1).
84 Anatolie Stati, Gabriel Stati, Ascom Group SA and Terra Raf Trans Traiding Ltd v. Kazakhstan, SCC, Award of 19th December 2013, para. 1290.
85 Anatolie Stati, Gabriel Stati, Ascom Group SA and Terra Raf Trans Traiding Ltd v. Kazakhstan, SCC, Award of 19th December 2013, para. 1285.
86Id., para. 1297.
87 Ibid.
88 Ibid.
89Id., para. 1298.
90Id., para. 1301.
91 Id., para. 1302.
92 Id., para. 1313.
In fact, a breach of national legislation may in certain cases constitute a breach of the umbrella clause. That is because the clause's wording suggests no reason to limit its scope only to obligations undertaken under contract. Indeed, the correspondence between the clauses' plain wording and Kazakhstan's interpretation is tenuous at best. Prima facie no distinction between contract and legislative obligation is present in ECT Article 10(1). One might say, quoting SGS v. Pakistan, that the commitments subject matter of an umbrella clause may, without imposing excessive violence to the text itself, be all commitments of the state as a legal person or of any entity thereof whose acts are attributable to it.93 Truly, it remains perfectly possible for a state to "enter" (that is to take) an obligation "with" someone even if the relevant instrument has not been negotiated specifically with that person or entity. It is also through the laws it promulgates that a state enters into commitments with physical or legal persons within its territory. Thus, the umbrella clause's plain wording gives no conclusive indication that such clause is limited uniquely to contractual obligations.
Another weakness of Kazakhstan's argument lies in its use of previous case-law. To put it simply, the case-law employed does not conclusively support the respondent's position: SGS v. Philippines, and Eureko v. Poland did not pronounce themselves on the question of obligations undertaken through legislation. Neither CMS v. Argentina nor LG&E v. Argentina ruled on the question: they merely found a breach on the basis of stabilization clauses within a contract which incorporated national legislation.94 At the same time, Enron v. Argentina did make a distinction between obligations of a general nature and those owed to the investor, but it also ruled that the respondent had assumed obligations toward the investor through the Gas Law and its implementing legislation.95 96
Then, assuming that Kazakhstan's
argument is not entirely accurate, what is the scope of umbrella clauses? Might they be used by an investor to invoke an international tribunal's jurisdiction based on violations of the host state's domestic law? This issue revolves around the interpretation of the relevant treaty clauses. The interpretation of such provisions is regulated by the principle that "a treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose".97 This spells that interpretation must be based above all upon the text of the treaty,98 and that a clause's most immediate plain wording might be disregarded only where the applicable context, or object and purpose, provide a valid ground for interpreting the provision otherwise than in accordance with the words' most immediate sense.99 The ordinary meaning of a provision prescribing that a State «shall observe any obligations it may have entered into» with regard to certain foreign investments is clear enough.100 The phrase, «shall observe» is imperative and categorical and «any» obligations is capacious: it encompasses all obligations entered into with regard to investments of foreign investors.101 Thus, any obligation may be susceptible to be covered by an umbrella clause, as long as it is entered into "with" an investor. This is further confirmed by the tribunal in SGS v. Paraguay, which affirmed that the umbrella clause has no limitations on its face and apparently applies to all commitments entered into with respects to investments or an investor, whether established by contract or by law, unilaterally or bilaterally
etc102
The clause's wording clearly suggests that the umbrella clause is not per se limited to contractual obligation and that it could very well encompass legislative commitments - as long as they are entered into with the foreign investor. Arguably, neither the clause's context nor the treaty's object and purpose warrant a different interpretation. It is submitted here that
93 SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13, Decision of the Tribunal on Objections to Jurisdiction 6th August 2003, para 166.
94 CMS Gas Transmission Company v. The Republic of Argentina, ICSID Case No. ARB/01/8, Award of 12 May 2005, para. 302.
95 Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3, Award of 22 May 2007, para. 275.
96 LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc .v. Argentine Republic, ICSID Case No. ARB/02/1, Decision on Liability, 3 October 2006, para. 174.
97 Vienna Convention on the Law of Treaties, aticle 31.
98 Territorial Dispute (Libyan Arab Jamahiriya/Chad), Judgment, I.C.J. Reports 1994, p. 6.
99 Interpretation of the Convention of 1919 concerning Employment of Women during the Night, Advisory Opinion, PCIJ Series A/B no 50, ICGJ 300 (PCIJ1932), PCIJ Serie A/B no 50 (Official Case No), ICGJ 300 (PCIJ 1932).
100 Eureko B.V v. Republic of Poland, Partial Award of 19th August 2005, para 246.
101 Ibid.
102 SGS Société Générale de Surveillance S.A. v. The Republic of Paraguay, ICSID Case No. ARB/07/29, Decision on Jurisdiction, 12 February 2010, para 167.
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such an interpretation does not deprive other standards of their effet utile.103 For instance, the application of standards such as fair and equitable treatment or full protection and security will not be coterminous with the umbrella clause. The umbrella clause will apply only to commitments taken with the investor, whereas full protection and security and fair and equitable treatment will also encompass violations of general commitments. Furthermore, the object and purpose of investment treaties, to establish a legal framework promoting investment based on mutual benefits,104 does not seem to contradict this conclusion.
The range of obligations covered by the umbrella clause is only qualified by expressions such as "with an investor" or "with regard to investments".105 Tribunals such as Enron v. Argentina and SGS v. Philippines have held that obligations entered into "with an investor" are specific commitments, as opposed to general commitments.106 Then, the relevant issue is whether a legislative act may be a "specific" commitment, and thus fall under the umbrella clause's scope. The plain wording of investment treaties such as the ECT provides very little guidance on this question. In such case, one might argue that the category of specific commitments may include legislative acts on the basis of investment treaties' object and purpose: after all the majority in SGS v. Philippines did hold that, since the BIT's object and purpose was "to create and maintain favourable conditions for investments by investors of one Contracting Party in the territory of the other", it was legitimate to resolve uncertainties in its interpretation so as to favour the protection of covered investments.107 Yet, on its own, this argument is somewhat lacking: various investment tribunals have rejected such one-sided interpretation in favour of
foreign investors and have instead emphasised that investor protection is a means to the end of promoting economic development.108 In that regard, the Plama v. Bulgaria tribunal warned of the "risk that the placing of undue emphasis on the 'object and purpose' of a treaty will encourage teleological methods of interpretation [which], in some of its more extreme forms, will even deny the relevance of the intentions of the parties."109
Jurisprudence on this specific issue is also quite scarce. The decisions mentioned above are generally silent on whether the umbrella clause is limited to contractual obligations. In general, they affirm that the umbrella clause includes contractual clauses, without however explicitly excluding legislative acts as such. For instance, the tribunal in SGS v. Philippines held that "[the umbrella clause] makes it a breach of the BIT for the host State to fail to observe binding commitments, including contractual commitments, which it has assumed with regard to specific investments."110 Similar considerations were made in Eureko v. Poland.111 Other tribunals such as CMS v. Argentina and LG&E v. Argentina were equally vague about this question.112 113
One may submit on the other hand that there are arbitral tribunals which have taken position against the extension of umbrella clauses to legislative acts "of general application". For instance, the Ad Hoc Committee in CMS v. Argentina held that an umbrella clause "is concerned with consensual obligations arising independently of the BIT itself (i.e. under the law of the host State or possibly under international law). Further they must be specific obligations concerning the investment. They do not cover general requirements imposed by the law of the host State.. ,".114 This tribunal would then exclude a claim based on the violation of
103 C.Schreuer, Traveling the BIT Route: of Waiting Periods, Umbrella Clauses, and Forks in the Road (2004) Journal of World Investment & Trade, vol 5, no 2.
104 Energy Charter Treaty, article 2.
105 Enron Corporation, Ponderosa Assets L.P v. Argentina, ICSID case No ARB/01/3, Award of 22 May 2007, para 274.
106 A. Weissenfels, Umbrella Clauses, Seminar on International Investment Protection, Prof Dr. August Reinisch Winter Semester (2006/2007), available at: https://intlaw.univie.ac.at/fileadmin/user_upload/int_beziehungen/ Internetpubl/weissenfels.pdf
107 SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No. ARB/02/6, Judgment of 29 January 2004, para. 116.
108 Saluka Investment BV. v. the Czech Republic, Partial Award of 17 March 2006, para. 300.
109 Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction of 8 February 2005, p. 193.
110 SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No. ARB/02/6, Judgment of 29 January 2004, 128.
111 Eureko B.V. v. Republic of Poland, Partial Award of 19th August 2005, para. 256.
112 CMS Gas Transmission Company v. The Republic of Argentina, ICSID Case No. ARB/01/8, Award of 12 May 2005.
113 LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc .v. Argentine Republic, ICSID Case No. ARB/02/1, Award of 25 July 2007.
114 CMS Gas Transmission Company v. Argentine Republic, ICSID Case No. ARB/01/8, Decision of the Annulment Committee, 25 September 2007, para. 95.
all non-consensual obligations, such as a state's constitution. This said, one might criticize the Ad Hoc Committee for having had little regard to the clause's wording, including the use of the term "any obligation". Moreover, the Ad Hoc Committee provided very little reasoning to support such holding. Finally, its conclusion is contradicted by another ICSID arbitral tribunal.
The judgment which deals most specifically with this issue is Enron v. Argentina. The dispute, whose underlying facts are the same of El Paso v. Argentina and CMS v. Argentina, concerned the non-respect by Argentina of commitments it had undertaken both in the licenses it issued to the investor and in its Gas Law (and the corresponding implementing legislation). Argentina had initiated a vast program of privatization of State-owned gas transportation and distribution companies. With a view to restructure the Argentine economy, currency convertibility was introduced in 1991 through Law 23/928 and the Argentine peso was fixed at par with the United States dollar by Decree 2128/91.115 In 1992, new rules governing gas transportation and distribution were introduced by the Gas Law and its implementing regulations. A new "Model Licence" was approved by Decree 2255/92, establishing basic terms and conditions for contracts between state and investors.116 The new legislation included the calculation of tariffs in US dollars and their adjustment according to changes in the US Producer Price Index ("PPI").117 Besides, licenses contained additional guarantees, such as that gas tariffs would be set at a level that would ensure operators with sufficient revenues to cover all reasonable costs, taxes, depreciation etc...118 This legal framework was abruptly changed following the country's terrible economic crisis: in 1999 the government had to suspend PPI adjustments and in 2001 the Emergency Law eliminated the right to calculate tariffs in U. S. dollars, converted tariffs to pesos at the fixed rate of exchange of one dollar to one peso, and abolished completely PPI adjustments.119
Before an ICSID arbitral tribunal, Enron argued that the government's actions had
breached the umbrella clause contained inArticle II (c) of the Argentina-US BIT, which read: "Each Party shall observe any obligation it may have entered into with regard to investments."120 The claimant argued that the umbrella clause applied to obligations arising from broader undertakings contained in Argentina's own law; and that the government's measures breached every commitment made in the Gas Law and related legislation.121 The tribunal started with recalling that, under its ordinary meaning, the phrase 'any obligation' refers to obligations regardless of their nature - and that tribunals interpreting that expression had found it to cover both contractual obligations such as payment as well as obligations assumed through law or regulation.122 The tribunal recognized that the expression "with regard to investments" had a limiting effect on the clause's scope. However, it went on to hold that:
"Through the Gas Law and its implementing legislation, the Respondent assumed 'obligations with regard to investments': tariffs calculated in US dollars converted to pesos for billing purposes, linked to the US PPI and sufficient to provide a reasonable rate of return were intended to establish a tariff regime that assured the influx of capital into the newly privatized companies such as TGS and ensured the value of such investment." 123
According to the arbitrators, the dismantling of these legislative guarantees sufficed to establish a violation of the treaty's umbrella clause.124
The decision in Enron v. Argentina evidences that the non-respect of a non consensual legislative act, such as Argentina's Gas Law, may breach a treaty's umbrella clause. The sense of this decision seems to be that a commitment contained in a state's normative act will fall under the clause's protection as long as it has a "nexus" with the specific investment. Indeed, the tribunal's decision was determined by the fact that Argentinian legislation instituted a tariff regime that ensured the value of investment into newly privatized companies. One may then submit that the determining factor to distinguish between an obligation taken "with" an investment and an obligation not taken with such investment is the rationale behind the legislative act - that is to say a measure's structure, application, and objective
115 Enron Corporation, Ponderosa Assets L.P v. Argentina, ICSID case No ARB/01/3, Award of 22 May 2007, para 54.
116Id., para. 44.
117 Ibid.
118 Id., para. 45.
119 Id., para. 72.
120 Treaty between United States of America and the Argentine Republic concerning the Reciprocal Encouragement and Protection of Investment, article II(2)(c).
121 Enron Corporation, Ponderosa Assets L.P v. Argentina, ICSID case No ARB/01/3, Award of 22 May 2007, para 270.
122 Id., para. 274.
123 Id., para. 275.
124 Ibid.
XmbiqapmbiK, qy^biK, MSHe cmbicmbipMmbi qy^biqmaHy
underlying criteria.125 If a commitment's rationale is to establish a legal regime that gives specific advantages to investors, then it will be covered by the umbrella clause's terms.
One may apply these tentative criteria to the Law of the Republic of Kazakhstan on Investments,126 a normative act that has not been concluded with any specific investor. Yet, if one applies the reasoning set out above, claims based on certain of its provisions are susceptible to be elevated to the level of treaty claims through the operation of the umbrella clause. For example, Article 17 of that law reads:
"1. Legal person of the Republic of Kazakhstan implementing investment project in the investment contract network is exempted from customs taxation when importing manufacturing equipment, components and spare parts for them, raw stock and (or) materials in accordance with the legislation of the Republic of Kazakhstan.
2. When transporting manufacturing equipment and components for it the exemption from customs taxation is granted for the term of investment contract but not later than 5 years after the investment contract
„127 y J
registration...
Like the tariff system in Argentina's Gas Law, the Kazakhstani exemption of customs taxation when importing manufacturing equipment is a measure addressed to the investor and whose purpose is to make viable the establishment and operation of investment. The same would arguably apply to article 184, on tax preferences, and 18-5, on investment subsidies.128
This said, the explanation offered by Enron v. Argentina has important weaknesses. Firstly, the tribunal itself did not explain why through the Gas Law and its implementing legislation, Argentina assumed obligations with regard to investments. It did not engage in any interpretation of the term's meaning, nor did it quote any judicial precedent. A second issue is that the tribunal has offered no solution on how to draw a boundary between specific commitments made toward foreign investment and general requirements under national law. For instance, Article 4 of Kazakhstan's Law on Investment reads that "investors shall be accorded full
and unconditional protection of the rights and interests, which is provided by the Constitution of the Republic of Kazakhstan, this Law and other normative legal acts of the Republic, as well as international treaties ratified by the Republic of Kazakhstan."129 One might argue that this commitment falls under the umbrella clause because it is part of a legal framework whose ratio is to give determinate advantages to an investor's investment. And, since this article incorporates by reference the protections contained in the Kazakhstani constitution that would spell that the violation of constitutional guarantees fall under the umbrella clause even if they are per se of general application. This is a problem over which international investment tribunals have yet to rule.
5. Conclusion
It is today uncontroversial to say that the umbrella clause may elevate claims under the host state's domestic law to the level of treaty claims. SGS v. Philippines, El Paso v. Argentina, BIVAC v. Paraguay and SGS v. Paraguay, to name but a few, are judgments which have upheld this proposition. Nowadays, the consensus seems to be that umbrella clauses create for host states an obligation to constantly guarantee observance of commitments entered into with respect to foreign investments under national law. The most recent case law has also rejected the proposition that the umbrella clause applies only to acta jure imperii.131 This is on the ground that such limitation is not expressed in the clauses' plain wording.132 At the same time, the question remains whether umbrella clauses are limited to commitments under contracts between investor and host state, or also cover engagements made through legislative or regulatory acts. Little assistance is provided by the clauses' wording, by their context, or by the treaties' object and purpose.
Nevertheless, existing case-law states that the obligation at issue has no limitations on its face: it apparently applies to all commitments, whether established by contract or by law, unilaterally or bilaterally.133 This is as long as such commitments are taken with the foreign
125 Japan - Alcoholic Beverages II (1996), WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R Report of the Appellate Body Report, 4 October 1996, para 120.
126 The Law of Republic of Kazakhstan N 373-ii on Investments (2003), with amendments and additions as of November 07, 2014.
127Id., article 17.
128 Id., article 18.
129 Id., article 4.
130 SGS Société Générale de Surveillance S.A. v. The Republic of Paraguay, ICSID Case No. ARB/07/29, Judgment on Jurisdiction, 12 February 2010, para. 167.
131 See: EDF International S.A., SAUR International S.A. and León Participaciones Argentinas S.A. v. Argentine Republic, ICSID Case No. ARB/03/23, Decision on Jurisdiction 5 August 2008 or SGS Société Générale de Surveillance S.A. v. The Republic of Paraguay, ICSID Case No. ARB/07/29, Judgment on Jurisdiction, 12 February 2010.
132 SGS Société Générale de Surveillance S.A. v. The Republic of Paraguay, ICSID Case No. ARB/07/29, Judgment on Jurisdiction, 12 February 2010, para. 168.
133 Id., para. 167.
investor. Unluckily, there is little case law dealing with this issue of specificity. The most relevant award, Enron v. Argentina, stands for the proposition that legislative and regulatory acts may be commitments taken specifically with investment if a certain nexus is established between those acts and the specific investor. The tribunal's implicit reasoning is that such a nexus is to be established by analysing the legislation's rationale.
Thus, the respondent's argument in Anatolie Stati v. Kazakhstan that "the scope of the umbrella clause is limited to contractual obligations and does not extend to alleged breaches of the Republic's domestic law" is not accurate. One may actually doubt of the wisdom of such an argument: Kazakhstan recognizes therein that umbrella clauses do apply to contracts concluded between it and foreign investors. And, in a future dispute involving an investment contract, an investor may rely on this affirmation. Nonetheless, even once it is determined that this clause is not limited to contracts, an issue remains unsolved. This problem is how to determine when there is a commitment with the investor, or which is the nexus required between legislation and the investor.
The unclear wording of umbrella clauses and the lack of a jurisprudence constante on this question mean that what was held in Enron v. Argentina is in no way definitive. In other words, the law on this issue has yet to
crystallize. It is undeniable that arbitral awards such as Enron v. Argentina have contributed greatly to the clarification of international investment law. However, in many occasions, investment tribunals have contradicted previous awards on the basis that there is no principle of stare decisis in international law.134 Thus, no reliable prediction can be made about the future direction of international law on this question. Indeed, the plain wording of umbrella clauses is imprecise enough for future investment tribunals to disregard the precedent set by Enron v. Argentina, and decide to interpret expressions such as "with regard to investments" in a manner that does altogether away with any distinction based on specificity. If this was to happen, the scope of umbrella clauses would be expanded so that violations of national legislation by the host state vis a vis foreign investment would be a valid basis for a treaty claim.
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134 KT Asia Investment Group B.V. v. Republic of Kazakhstan, ICSID Case No. ARB/09/86, Award of 13th October 2013, para. 83.
