CYIL 2014

VOJTĚCH TRAPL CYIL 5 ȍ2014Ȏ products. 58 In 1996 the US investors signed the 1996 Investors’ Agreement. This agreement contained inter alia the mutual rights and obligations of its signatories with respect to the management and operations of a Polish company, named LFO. 59 In 2002 the Ministry of Health sent a notice to LFO terminating the 1997 Fractionation Agreement. The termination of this agreement was subsequently confirmed to LFO by the Ministry’s letter. 60 On the question as to whether the Respondent violated the ‘umbrella clause’ provision in the U.S.-Poland BIT due to the alleged failure to supply blood plasma to LFO under the 1997 Fractionation Agreement, the Arbitral Tribunal concluded that the last sentence of paragraph 6 of Article II of the BIT in wording that “ Each [State] Party shall observe any obligation it may have entered into with regard to investments” was an example of a so-called “umbrella clause” and that the Claimants did neithert show that there was any legal obligation to supply the plasma on demand, nor that the failure to deliver it in 1998 or 1999 was wrongful. 61 It followed that there could be no violation of the umbrella clause even if the umbrella clause were in principle applicable in this context. 62 Subject matter of the umbrella clause Known amongst others as a clause pacta sunt servanda , the umbrella clause is a treaty provision found in many BITs that requires each Contracting State to observe all investment obligations it has assumed with respect to investors from the other Contracting State. 63 Its purpose is to create an inter-state obligation to observe investment agreements that investors may enforce when the BIT confers a direct right of recourse to arbitration. More specifically, the history of the umbrella clause makes clear that it was designed to allow for any breach of a relevant investment contract to be resolved under the treaty in an international forum. 64 The effect of the umbrella clause is not to transform the provisions of a State contract into international obligations. However, it makes the respecting of such contracts an obligation under the treaty. 65 As to the method about how to formulate the umbrella clause in a BIT , the international tribunal could also consider the location of the umbrella clause in the BIT framework and the resulting potential impact on its subsequent interpretation . A number of countries , mostly of the Common Law system, such as Great Britain , the United States, New Zealand , Australia, as well as, for instance Japan, consider an umbrella clause “Substantive protections”, while the states of the continental legal

58 Ibid. at 34. 59 Ibid . at 51. 60 Ibid . at 108. 61 Ibid . at 248. 62 Ibid. at 203.

63 Judith Gill, et al. , Contractual Claims and Bilateral Investment Treaties: A Comparative Review of the SGS Cases, 21 J. Int’l Arb. 397, 403 n. 31 (2004) (finding that approximately 40% of a sample of BITs taken from INVESTMENT TREATIES (ICSID ed., 2003) contained umbrella clauses). 64 J. Wong, Umbrella Clauses In Bilateral Investment Treaties, supra note 4, p. 143. 65 UNCTAD Study, Bilateral Investment Treaties (Graham & Trotman, NY, 1988), pp.) 55-6.

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