Tanay Khanna & Milind Rai from National Law University, Odisha, analyse the role of Umbrella Clauses as a modern day tool for investors.

Abstract

With the sudden proliferation of BITs in the last decade the problem of umbrella clauses which has far now been the most controversial area in the domain of international investment arbitration has bloomed with majority of BITs featuring umbrella clauses. We have gone into a brief history of the clause and traced its working from its origin to the modern day system of BITs. Through these clauses, investors have elevated contract breaches into international obligations, and have received the protection for their investments against the host states. The tribunals all around the globe seem to be divided on the issue of interpretation of the clause, and there is yet no predictability over the matter. The paper also talks about the role of sub-state entities in the investment agreements. This paper analyses the role of host state in bestowing authority to its instrumentalities to execute investment contracts with the investors. The municipal law on this issue is regarded of high relevance and is considered to be the last resort in dispute settlement. This paper also deals with the principle of privity of contract in the light of the investment arbitration since arbitration is deemed to be a creature of consent. It also delves into the rights and obligations of the subsidiaries of the investing parties and their stakes into domestic companies of host State. This paper clearly depicts umbrella clauses as a modern day tool for investors against the host State, which is a party to a bilateral investment treaty.