On the internationalization of contractual breach in investment arbitration: toward a theory of structural state interference

Abstract

International investment arbitration faces a persistent problem: determining when a breach of contract by the host state can be classified as a violation of international law. Traditional doctrine has addressed this issue by distinguishing between contract claims and treaty claims, along with examining umbrella clauses. However, these categories have resulted in inconsistent arbitral jurisprudence and have proven insufficient to articulate a consistent solution. This paper analyzes the internationalization of breach of contract in investment arbitration, identifying its main theoretical and practical tensions. From a dogmatic perspective, based on an analysis of specialized doctrine and a corpus of twenty-two ICSID arbitral awards issued in recent years, this paper proposes a new thesis: that the international responsibility of the State arises only when there is structural interference, derived from the exercise of public power, that is illegitimate due to its abusive, disproportionate, or irrational nature, and that causes harm, significantly altering the legal and economic framework of the investment. The umbrella clause serves a specific and non-redundant function by broadening the scope of international protection without replacing the proposed liability test. This approach reduces arbitral discretion, offers a clearer operational framework than the binary solutions attempted thus far, and extends the analysis to extra-contractual instances of state interference.