SGS v. Pakistan was the first case in which an ICSID tribunal ruled on the effect of an umbrella clause or “undertaking of obligations clause” that is now the subject of several conflicting decisions by tribunals.
The term “umbrella clause” is commonly used to describe clauses in investment treaties in which states undertake to uphold all or any obligations owed to investors.
The legal implications of the broad language used in such provisions was first considered in this decision when the Tribunal assessed whether such a clause would encompass all the obligations of a state toward an investor—whether under contract, domestic or international law— therefore making any contractual or domestic law breach a breach of a bilateral investment treaty, subject to the treaty’s dispute resolution mechanism.
In addition to the important issues it addresses on this point, the ruling of the SGS v. Pakistan Tribunal also raises important issues for developing states, particularly with respect to the definition of “investment,” broad offers to arbitrate in treaties and the impact of treaty claims on jurisdiction clauses in investor–state contracts.