Structure of Umbrella Clause in Institutional Context: SGS Decisions and Beyond

SRIICL Working Paper No. 2013-5

20 Pages Posted: 1 May 2013

See all articles by Peng Wang

Peng Wang

School of Law, Xian Jiaotong University

Date Written: April 30, 2013


Umbrella Clause is the one of the most fascinating pending issue in international investment law which needs further clarity and clearance. It is noteworthy that the most leading cases in this scenario are raised by the very SGS Company. The purpose of this article is to summary the approaches to Umbrella Clause adopted in different SGS tribunals to analyze the benefits and detriments thereof and therefore to delimit the ideal structure of Umbrella Clause under realistic institutional constraints.

Three SGS cases, namely SGS v. Pakistan, SGS v. Philippines, SGS v. Paraguay, represent three approaches: disintegration, supplement and autonomous separation. These three approach have its advantages while none of them is long-term sustainable. Given the advantages and disadvantages of three approaches and the institutional constraints, such as incompleteness of international law norms, fact-finding capacity and litigation cost, a two staged structure of umbrella clause is proposed to combine the advantages of both internal and international legal order in order to create or promote a flexible or feasible environment for contract parties (both inter-states and private-states) to freely ex ante negotiate the disputing terms or facts. An efficient and fair approach is not self-realizing. For now, it is hardly possible to predict how the ideal approach to umbrella clause to be realized. However, it is certain that the evolvement of umbrella clause is under the interactions of stakeholders, including sovereign states, numerous diverse-background arbitrators and foreign investors, and very likely presents a kind of spontaneous order.

Keywords: Umbrella Clause, Institutional Context, SGS v. Pakistan, SGS v. Philippines, SGS v. Paraguay, interaction of internal and international legal order, party autonomy, benefit-cost analysis, disintegration

Suggested Citation

Wang, Peng, Structure of Umbrella Clause in Institutional Context: SGS Decisions and Beyond (April 30, 2013). SRIICL Working Paper No. 2013-5. Available at SSRN: or

Peng Wang (Contact Author)

School of Law, Xian Jiaotong University ( email )

28 Xianning West Road
Xi'an, Shaanxi 710049
029-82664484 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
PlumX Metrics