6 Umbrella Clause and Investment Contracts

Subject(s):

Umbrella clause — Jurisdiction — Awards

The “umbrella clause” takes its name from its main objective, namely to oblige the host state to observe any commitments it has entered into with regard to foreign investors. The clause brings such obligations of the state under the protection of an applicable international investment treaty, bilateral investment treaty (BIT), or multilateral treaty. This chapter begins by reviewing the evolution of the umbrella clause and how it has been applied by investment treaty tribunals. It then examines the main variants of umbrella clauses in Chinese BITs and discusses their legal effect in light of this recent jurisprudence. It moves on to analyze the impact, if any, of these clauses on investment contracts in China, including joint venture contracts, joint exploitation of onshore and offshore petroleum resources contracts, and build-operate-transfer contracts. The chapter concludes with an analysis of the implications of umbrella clauses and investment contracts on dispute-resolution planning for foreign investors.