Public/Private Conflict in Investment Treaty Arbitration - A Study on Umbrella Clauses

In investment treaty arbitration a neutral international tribunal adjudicates an investment related dispute between a private foreign investor and the host state of the investment. Access to tribunal is usually granted in investment treaties. Treaties are generally in a bilateral form (Bilateral Investment Treaty, BIT). Investment treaty arbitration is in many ways an abnormal way of settling in- ternational disputes. It is not totally public, in that it does not concern a dispute between signatory states. It is also inevitably linked to the municipal law of the host states of the investments. However, investment treaty arbitration is not private either because by assessing alleged violations of treaty provisions by signatory states it, transcends the boundaries of international commercial arbitration. Many investment treaties include umbrella clauses which create an obligation for the host-states of the investment to observe their obligations towards private investors. The nature of these obligations, however, can be subject to dispute. Whether a treaty protects e.g. the obligations stemming from investor-state contracts can become a puzzling question when a contract itself includes another forum for the settlement of disputes. These situations have resulted in jurisdictional conflicts which the tribunals have solved in an inconsistent manner. This paper argues that this well-known inconsistency is rooted in the praxis of judging state conduct along sovereign/merchant lines. It is argued that this categorization of state conduct according to the arbitrary rubrics of “sovereign” or “commercial” is but a mirror image of public/private distinction of law constituted in classical legal thought. Accordingly, the jurisdictional conflict generated is here called a public/private conflict in investment treaty arbitration.