Between Elevation and Sovereignty: The Umbrella Clause in Bilateral Investment Treaties and ICSID Arbitral Case Law

Abstract

This article examines the umbrella clause in bilateral investment treaties (BITs), a provision requiring contracting States to honour commitments undertaken vis-à-vis foreign investors. It analyses its historical origins —from Elihu Lauterpacht’s advisory work in the 1950s to its incorporation in the earliest BITs—, its evolution in State treaty practice, drafting and placement divergences within treaties, and the main doctrinal positions on its scope. A detailed review of the International Centre for Settlement of Investment Disputes (ICSID) case law is conducted, with particular focus on the seminal SGS v. Pakistan and SGS v. Philippines cases, as well as subsequent decisions that have oscillated between the elevation theory and the sovereign action approach. It concludes that, despite the lack of consensus, the prevailing trend among arbitral tribunals favours a broad interpretation of the umbrella clause when drafted in inclusive terms.