Stabilisation clauses are designed to shield foreign investors from political risk and, in particular, subsequent adverse legislative or regulatory change in a host State.¹

They are typically found in investment contracts, and are a common device in respect of significant energy projects.² Albeit more rarely, they may also be contained in, or find their basis in, a host State’s foreign investment laws.³

The phrase “stabilisation clause” is commonly used to describe a wide range of clauses, of differing types, functions and scope. Accordingly, all such clauses must be interpreted on their own terms.⁴

Although it is challenging to categorise “stabilisation clauses” neatly, some commentators have loosely described them as falling into the following categories:

1. “freezing” clauses (see A below);
2. “economic equilibrium” clauses (see B below); and
3. “hybrid” clauses, which combine features of “freezing” and “economic equilibrium” clauses.⁵

“Freezing” clauses aim to freeze the laws applicable to an investment by:

1. freezing the law of a host State applicable to an investment contract as of a specified date (typically, the date of the contract);⁶ or
2. prohibiting the State from terminating or making any unilateral changes to the terms of the investment contract without the mutual consent of both parties (“intangibility” clauses).⁷

The scope of such clauses varies. They may be comprehensive or targeted more narrowly to specific areas, such as taxation.⁸

“Freezing” clauses have proven to be controversial, in light of considerations of State sovereignty.⁹

“Economic equilibrium” or “economic balancing” clauses aim to enable the economic equilibrium between the parties at the time of contracting to be maintained, and therefore to offset the economic impact of adverse legislative or regulatory change.¹⁰ This encompasses a range of clauses, including provisions providing for automatic adjustment or renegotiation of terms, sometimes with recourse to a third party when negotiations fail.¹¹

There has been some debate as to whether States may bind themselves with stabilisation clauses. However, tribunals have generally acknowledged and/or upheld the validity of such clauses as a matter of international law, both in older and more recent cases.¹² The governing law of a contract is a relevant consideration when analysing the enforceability of a stabilisation clause, although some tribunals have been prepared to apply international law even where it is not an express element of the governing law.¹³

The precise legal effect of such clauses is, however, somewhat uncertain. In that regard, tribunals have expressed differing views on whether freezing clauses can render expropriation/nationalisation unlawful;¹⁴ and on the remedies that may flow from breach (in particular, whether breach entitles the aggrieved party to restitutio in integrum¹⁵ or compensation¹⁶). 

Various commentators have expressed the view that stabilisation clauses cannot provide any guarantee against a State’s exercise of sovereign authority (see expropriation) but, when violated, can entitle an investor to a higher amount of compensation.¹⁷ The extent to which violation of a stabilisation clause will influence the amount of compensation or damages payable in international investment disputes is “still a rather unsettled question”.¹⁸             

The scope of a stabilisation clause is a matter of interpretation.¹⁹ Some tribunals have interpreted freezing clauses restrictively.²⁰ There is, however, authority for the proposition that stabilisation clauses can protect investors from change to the interpretation of laws, not just change of laws.²¹

Although “freezing clauses” are still common in various jurisdictions,²² there has been a shift towards “economic equilibrium” clauses.²³ Modern “economic equilibrium” provisions remain relatively untested in publicly reported awards. 

Tribunals have considered stabilisation clauses to be relevant to the application of substantive investment protection standards, namely the fair and equitable treatment standard (and, in particular, legitimate expectations)²⁴ and expropriation.²⁵ Stabilisation clauses may also be at issue in the context of the interpretation and application of umbrella clauses.²⁶

Bishop, D.R., Crawford, J.R. and Reisman, W.M., Foreign Investment Disputes: Cases, Materials and Commentary, 2^nd ed., 2014, Chapter 3.

Blackaby, N., Partasides, C., Redfern, A. and Hunter, M., Redfern & Hunter: Law and Practice of International Commercial Arbitration, 6^th ed., 2015, paras. 3.120-3.127. 

Cameron, P.D., Stabilisation in Investment Contracts and Changes of Rules in Host Countries: Tools for Oil & Gas Investors, Final Report for the Association of International Petroleum Negotiators, 2006.

Cameron, P.D., International Energy Investment Law: The Pursuit of Stability, 2010.

Cameron, P.D., Stabilization and the impact of changing patterns of energy investment, Journal of World Energy Law and Business, Vol. 10, Issue 5, 2017, 10, pp. 389-403.

Chioma, E.E., Examining the Crucial Impact of a Well-drafted Stabilisation and Renegotiation Clause on Production-sharing Agreements, International Energy Law Review, 2015, Issue 5, pp. 212-218.

Cotula, L., Regulatory Takings, Stabilization Clauses and Sustainable Development, OECD Global Forum on International Investment, 27-28 March 2008.

Crawford, J., Brownlie’s Principles of Public International Law, 9^th ed., 2019, pp. 606-607.

Dolzer, R. and Schreuer, C., Principles of International Investment Law, 2^nd ed., 2012, pp. 82-85.

Gehne, K. and Brillo, R., Stabilization Clauses in International Investment Law: Beyond Balancing and Fair and Equitable Treatment, NCCR Trade Regulation Working Paper No 2013/46, 2014.

International Energy Charter, Handbook on General Provisions Applicable to Investment Agreements in the Energy Sector, 2017.

Maniruzzaman, A.F.M., Damages for Breach of Stabilisation Clauses in International Investment Law: Where Do We Stand Today?, International Energy Law and Taxation Review, 2007, Nos. 11-12, pp. 246-251.

Maniruzzaman, A.F.M., The Pursuit of Stability in International Energy Contracts: A Critical Appraisal of the Emerging Trends, Journal of World Energy Law & Business, 2008, Vol. 1, No. 2, pp. 119-155. 

Marboe, I., Calculation of Compensation and Damages in International Investment Law, 2^nd ed., 2017, paras. 3.63-3.80.

Nna Emeka, J., Anchoring Stabilization Clauses in International Petroleum Contracts, 42(4), The International Lawyer, pp. 1317-1338.

Ortino, F., The Obligation of Regulatory Stability in the Fair and Equitable Treatment Standard: How Far Have We Come?, 21(4) Journal of International Economic Law, 2018, pp. 845-865. 

Ruggie, J., Stabilization Clauses and Human Rights: A research project conducted for IFC and the United Nations Special Representative of the Secretary-General on Business and Human Rights, 2009.

Schreuer, C., Malintoppi, L., Reinisch, A. and Sinclair, A., The ICSID Convention: A Commentary, 2^nd ed., 2009, pp. 588-591. 

Waelde, T.W. and Ndi, G., Stabilizing international investment commitments: International law versus contract interpretation, 31(2) Texas International Law Journal, 1996, pp. 215-268.