II. Types of stabilisation clauses
Although it is challenging to categorise “stabilisation clauses” neatly, some commentators have loosely described them as falling into the following categories:
A. Freezing clauses
“Freezing” clauses aim to freeze the laws applicable to an investment by:
B. "Economic equilibrium" clauses
“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
IV. Legal effect and scope
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
V. Interaction with international investment law
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, 2nd ed., 2014, Chapter 3.
Blackaby, N., Partasides, C., Redfern, A. and Hunter, M., Redfern & Hunter: Law and Practice of International Commercial Arbitration, 6th 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.
Crawford, J., Brownlie’s Principles of Public International Law, 9th ed., 2019, pp. 606-607.
Dolzer, R. and Schreuer, C., Principles of International Investment Law, 2nd ed., 2012, pp. 82-85.
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, 2nd ed., 2017, paras. 3.63-3.80.
Schreuer, C., Malintoppi, L., Reinisch, A. and Sinclair, A., The ICSID Convention: A Commentary, 2nd ed., 2009, pp. 588-591.
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