Overcoming Challenges to Stabilisation Provisions in Long-Term Mining Agreements

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Mining, by its very nature, is a risky undertaking. Even once a commercially viable deposit is discovered, the development and operation of a mine requires the project’s proponents to make long-term investments, often in countries with challenging political and sovereign risk profiles.[2] If there is a change of government in the host state, or the host government’s attitude (or the mood of the public) towards a particular mining investor changes, the legislative regime applicable to the investor’s business may be unilaterally modified by the state, reducing the investor’s return or even rendering the project economically non-viable. Drawing on the experience of international oil companies during the twentieth century, investor–state agreements for long-term mining projects now commonly include stabilisation provisions as a means of protecting mining investors from the effects of legislative changes that materially impact the viability or profitability of the project. Ultimately, therefore, stabilisation clauses provide a way of striking a balance between the host state’s sovereign right to regulate within its jurisdiction and the need of foreign investors for protection against the commercial consequences of legislative interference.[3] Common examples of such legislative interference include the sudden introduction of in-country beneficiation or ‘value-adding’ requirements, increases in royalties and taxes, and drastic changes to environmental regulations.

Recently, governments of several developing countries adopted legislative measures (or foreshadowed their intention to do so) that purport to unilaterally amend the provisions of existing contracts with foreign investors on the basis that they contain provisions that are ‘unconscionable’ or do not provide sufficient economic return to the state. In some countries, stabilisation provisions themselves have become the target of such measures, leading affected business to question whether it is legally possible for a state to legislate its way out of liability under a stabilisation clause. As this chapter explains, in circumstances where a change in law is said to unilaterally vary or invalidate a stabilisation clause, the affected investor will have a basis for invoking principles of international law to argue that it is entitled to monetary compensation (damages) for breach of contract, even if the stabilisation clause no longer exists under the law of the host state.

In our previous edition of this chapter, we focused on the practice of stabilisation clauses – how to draft them and how to operate them in the real world of international mining projects.[4] In this chapter, we consider how fundamental principles of international law may serve as the basis for overcoming challenges to stabilisation provisions through key provisions in long-term mining agreements, in particular governing law provisions coupled with recourse to international arbitration.

The need for stabilisation clauses in long-term mining agreements

Traditionally, the most acute form of political risk attending a foreign mining project has been nationalisation: the risk of the host government taking ownership of the project and evicting its foreign owner without fair compensation. However, the risk of nationalisation (the most overt form of direct expropriation) has declined in recent decades, in no small part because of the growth of the global system of investor–state dispute settlement and the fact that most governments are now aware they risk being brought before an international tribunal if they seize foreign investments in their territory. Instead, the greatest political risk for a foreign mining project today is that, rather than take it over, the host state will destroy the project or render it economically non-viable by changing the laws and regulations applicable to it. Stabilisation provisions are designed to counter this risk. Before considering some of the recent challenges to stabilisation clauses by host states and how to overcome these challenges, it is useful to first provide an overview of the types of stabilisation clauses, and their constituent elements.

Types of stabilisation clauses

At the outset, it bears noting that there is considerable variation in how stabilisation clauses are drafted and the results they produce. Each clause is likely to have been subject to specific (even intense) negotiation between the parties, and so a stabilisation clause will normally have at least some unique characteristics (or ‘drafting scars’). Nevertheless, it is possible to broadly classify the types of stabilisation clauses that may be adopted in a long-term mining agreement.

First, and at the highest level of classification, a distinction must be drawn between stabilisation clauses of a fiscal nature and stabilisation clauses of a legal (or regulatory) nature. Fiscal stabilisation clauses relate to government revenue: taxes, royalties, duties and other imposts.[5] In contrast, legal stabilisation clauses are broader, covering laws and regulations of a non-fiscal character, such as the statutes that govern operations at the project site on a day-to-day basis (mining laws, labour laws, environmental laws, etc.). Fiscal stabilisation clauses are the more common of the two varieties – fiscal stability terms are widely granted for major industrial projects, including mines, across a wide range of polities (from developed countries to least developed countries).[6] Legal stabilisation clauses are less common, both because the link between regulation and economic viability is less obvious from a policy perspective and because governments are generally reluctant to contract with foreigners on terms that limit (or could be seen to limit) their sovereign prerogatives. The extent by which a mining investor may be able to obtain legal stabilisation is likely to be correlated with the market power of the investor and the scale of the project.

Second, there are two main types of stabilisation clause: freezing clauses[7] and equilibrium clauses. The term ‘freezing clause’ is used to describe any stabilisation clause that directly or indirectly purports to create a rule that the law applicable to the contract cannot be changed by the host state for an agreed period.[8] By way of further classification, the direct form of a freezing clause is where the contract contains a provision that expressly states that the law applicable to the contract will be the law as it is when the contract is executed and will remain the same for the term of the contract. The contract will either itemise the applicable statutes and regulations or contain a general statement of the lex lata (such as ‘the laws in force at the date of this Agreement’).

The indirect form of a freezing clause may be observed where the contract specifies that it may only be varied or amended with the consent of all contracting parties. This type of provision – known as an ‘intangibility clause’ – can have a freezing effect insofar as it may limit the state’s power to effect a unilateral change of contract terms through the exercise of legislative power (though this result should not be assumed, for reasons explained below). The body of practice on intangibility clauses extends back over a century, to the seminal Lena Goldfields case.[9]

Conversely, the term ‘equilibrium clause’ is used to describe a stabilisation clause that does not purport to prevent the host state from changing the law, but rather only to require that if the host state does change the law and the change adversely affects the foreign investor’s position under the contract, the parties will be bound to negotiate a solution that restores the foreign investor to the economic position it was in before the change in law took effect. Sometimes, the clause will specify compensation as the sole remedy, but the more common approach is to bind the parties to negotiate adjustments to the wider contract, or to other legal instruments, to restore the overall economic position of the company. Hence, clauses of this kind are sometimes also referred to as ‘adaptation’ or ‘renegotiation’ clauses,[10] the emphasis being more on their procedural character than the substantive result they produce. There is a question as to whether a clause of this nature is enforceable: clearly, if all it amounts to is an agreement to agree, an equilibrium clause will fail under many legal systems. But, as the tribunal noted in Aminoil v. Kuwait, ‘[a]n obligation to negotiate is not an obligation to agree’.[11] That is why it is essential that the mechanics of an equilibrium clause (described further below) should be clearly stipulated and that the clause is linked to a binding dispute resolution procedure, which does not depend upon party consent for its result (i.e., arbitration).

As with all aspects of international contracting, there are observable trends in the use of these types of stabilisation clause. While there are variations across markets and countries, it is fair to say that the equilibrium clause is prevalent today. Though freezing clauses are arguably the ‘most efficient form of contractual stabilisation’,[12] they are in decline for various reasons, including constitutional frailty and the perception that they are difficult to enforce because they impose too obvious a fetter on the host state’s ‘right to regulate’ (concerns about which are a common theme in the scholarship and public discourse on foreign investment).[13]

Basic elements of a stabilisation regime

The basic elements of a stabilisation regime are:

  • the stability undertaking;
  • the trigger;
  • the notice;
  • the procedure for negotiations;
  • the procedure for enforcement; and
  • the remedies available.

Stability undertaking

In the mining sector, the stabilisation clause will normally be included in a host government agreement (HGA), mining development agreement or other state agreement entered into between the investor and the host state. The clause must contain a clear undertaking from the host government to provide stability to the company. If the stabilisation clause is of the ‘freezing’ variety, the undertaking will normally be narrow, and confined to tax law (in the case of a fiscal stability clause) or ‘laws applicable to the project’ (in the case of a legal stability clause); a limitation on subject matter may also be incorporated through a narrowed definition of ‘laws’ (such as a definition that refers to a list of existing statutes and regulations). Freezing undertakings also usually have limited timescales: for example, the undertaking to refrain changing the ‘laws applicable to the project’ might be limited to the first five years, to provide the company with legal certainty for the initial pay-back period; alternatively, it might refer to a ‘stabilisation period’ that corresponds to the project’s debt schedule. Sometimes, the freezing clause will cover the entire period of a long-term contract, but this is unusual purely because it is not normally legally or politically feasible for the host government.

If the stabilisation clause is of the equilibrium variety, the undertaking will be focused on consequence rather than change. Undertakings of this kind typically contain some form of materiality threshold to ensure that the company does not have a stabilisation claim for de minimis impacts. In the mining context, materiality thresholds may be specific and linked to changes in laws relating to companies, mining operations, imports and exports, and employment. A stabilisation clause of the equilibrium variety is meant to have dynamic operation: to absorb change, rather than prevent it.

Trigger clause

The trigger is the part of the clause that controls the key issue of whether a qualifying event has occurred. Most stabilisation clauses have triggers based on a definition of ‘change in law’. Express coverage for ‘interpretive change’ is also important because it is often the case that stabilisation disputes arise not out of the promulgation of new laws but rather out of changes in the way the courts and other authorities construe and apply existing legislation.[14] When the trigger is crafted around the existence of a legislative event, the clause will not respond to this kind of administrative or judicial act – even though it may be just as damaging as the enactment of a new statute. In this respect, due regard must be had to the nature of the host state’s legal system and system of government, to ensure that the main forms of legislation are expressly identified.

The host state will often ask the company to accept a materiality threshold, such that a change in law will only trigger the stabilisation regime if it rises to a certain level of materiality or results in a cost or loss above a stated monetary threshold. The principle risk in the monetary threshold approach is that it can expose the company to a situation where multiple changes in law occur, but no single one of them is sufficient to constitute a material change for the purposes of the contract. The only way to manage this risk is to draft in a rule of aggregation, whereby if two or more changes occur during a stated period (say, one year) and collectively result in a cost or loss above a certain threshold, the company will be entitled to make a stabilisation claim under the provision. Materiality provisions sometimes also contain proximity requirements, such as a specification that the impact (loss or additional cost) be a ‘direct result of the change in law’, although care needs to be taken here as the effect of such requirements is to narrow the trigger.

Notice requirement

As a stabilisation clause will ordinarily establish a procedure for consultations or negotiations – the object of which is dispute avoidance, rather than dispute resolution – it must clearly state how this procedure is initiated. The standard approach is to require that the company issue a formal notice, the purpose of which is to provide the host government with sufficient information to enable it to meaningfully engage in the consultation process that follows. While it may be tempting to see the notice provision as a mere formality, it must be understood that the notice provision does in fact have an important substantive dimension, because it will be linked to the trigger.

It must be kept in mind that it is the content of the notice that fixes the parameters of the negotiation and, in turn, the subject matter of any subsequent dispute: if no agreement can be reached and it is necessary to refer the change to arbitration, it should be assumed that the government will challenge the admissibility to arbitration of any claim or issue that was not included in the original notice. In this sense, a more detailed notice provision may pose more risk to the company than a clause requiring only the bare minimum of information.

Procedure for negotiations

The next basic element of the clause is the procedure for negotiations. The purpose is not to bind the parties to reaching an agreement (because agreements to agree are generally unenforceable), rather the objective is to bind the parties to a process for finding ways to address the impact of the change in law that has been notified by the company.

Some clauses specify the subject matter of the negotiations, such as by stipulating the solutions or remedies that the parties shall consider. These more elaborate provisions are normally found in equilibrium clauses, where the solutions available to the parties will include adjusting the project agreement (or other legal instruments) to neutralise the economic impact of the change in law. However, parties must take care not to confine the scope of the negotiable subject matter too narrowly – if, for example, the clause speaks only of negotiating adjustments to the HGA, and the HGA is unable to absorb an impact of the scale that has been caused by the change in law, the negotiation mechanism may fail to achieve its objective. This is especially relevant for mining companies, as the production-sharing arrangements that are commonly found in the petroleum sector (and that are well suited to adjustment for equilibrium purposes) are less often used in mining.

A final element to consider is good faith. The negotiation provisions of stabilisation clauses often expressly require the parties to act in good faith during consultations. Approaches to good faith vary across legal systems and jurisdictions and even where the applicable law imposes a duty of good faith, it is often considered prudent to expressly refer to good faith in the negotiation provision of a stabilisation clause because, for the clause to be effective as a dispute-avoidance mechanism, a greater than usual degree of cooperation is required of the parties. This is especially so where the clause is of the adaptation variety and exhorts the parties to restore the economic equilibrium by agreeing amendments to the economic provisions of their contract.


If the negotiations are unsuccessful, and the government therefore fails to meet its undertaking not to cause the company to suffer the burden of a change in law, the change in law will then crystallise as a breach of contract. This, in turn, provides the company with a contractual cause of action for the purposes of arbitration.

The basic remedy that underpins all stabilisation clauses is damages: monetary compensation is the fall-back solution for the host government in negotiations with the company (if other solutions are not feasible) and it is ultimately only a damages award that a company can enforce against a country. As damages are recognised as a remedy for breach of contract under every system of private law, it is strictly not necessary to specify the availability of damages in a stabilisation clause (provided the clause includes a clear stability undertaking). Nonetheless, it is not unusual for stabilisation clauses to mention damages specifically, if only to ensure that the option of last resort is clear to the parties and the arbitrators. However, where other remedies are to be available, it may be necessary as a matter of law to specify what they are and when they will be available. The main examples are specific performance, declarations and contractual adaptation.

The remedy where the need for explicit agreement is greatest is adaptation: few legal systems empower arbitrators to modify or rewrite contracts without a clear agreement to that effect, yet it is often the power to modify the economic provisions of a contract that underpins the operation of an equilibrium-type stabilisation clause. There is wide variation in the way parties build the remedy of adaptation into stabilisation clauses. However, as Burnett and Bret note:

Adaptation and renegotiation clauses rest on three basic elements: (i) a triggering event; (ii) a method to address the impact of the event (either through automatic adjustment based on third-party information, renegotiation of the contract terms, or international arbitration); and (iii) standard to be achieved by renegotiation.[15]

If adaptation is desired as a solution, the clause should include these core components. Even outside the context of adaptation, best practice is to specify the remedies that will be available to the parties and their arbitrators in the event the stabilisation clause is activated.

Challenges to stabilisation clauses in host state government agreements

As noted in the introduction to this chapter, in recent years, the governments of several resource-rich nations have introduced, or expressed an intention to enact, legislative measures that purport to void or impact on stabilisation provisions contained in host government agreements and other investment contracts for long-term mining projects (such as mining conventions). The legislation passed by Tanzania in 2017 was the first modern example of this, though other states appear to be leaning towards taking similar measures, such as Mali, the Democratic Republic of the Congo (DRC) and Madagascar. This section provides an overview of these measures, before moving to consider how challenges of this nature may be overcome through the invocation of international law principles and referral to arbitration.

To begin with Tanzania, there has already been a considerable volume of commentary regarding the mining reforms introduced by the government of the late President John Magufuli in 2017 through the Natural Wealth and Resources (Permanent Sovereignty) Act 2017 (the Permanent Sovereignty Act) and the Natural Wealth and Resources Contracts (Review and Re-Negotiation of Unconscionable Terms) Act 2017 (the Review Act).[16] In brief, the Permanent Sovereignty Act and the Review Act provided for, inter alia, a mandate for the National Assembly to initiate a unilateral review and renegotiation of any resources contract (including contracts signed before the new laws came into force) that is ‘prejudicial to the interests of the People and the United Republic’ or that contains an ‘unconscionable’ term. Significantly, the laws also purport to void any resources contract term that subjects the state of Tanzania to the jurisdiction of a foreign court or tribunal.[17] The mandating provision is Section 4(1) of the Review Act, under which the National Assembly ‘may review any arrangements or agreement made by the Government relating to natural wealth and resources’. If the agreement is found to contain an ‘unconscionable’ term, the Tanzanian government may issue a notice of intention to renegotiate the unconscionable term or terms.[18] The notice must ‘state the nature of the unconscionable terms and the [government’s] intention to expunge the terms from the arrangement or agreement if the re-negotiation is not concluded within a specified period’.[19] The period for renegotiation is limited to 90 days (from the date of the notice), but can be extended by the mutual agreement of the parties.[20] If the non-government party fails to agree to renegotiate the unconscionable terms or no agreement is reached with regard to the unconscionable terms, Section 7(1) of the Review Act declares that such terms shall ‘cease to have effect’ and shall be ‘treated as having been expunged’ to the extent they are ‘unconscionable’ within the meaning of the Review Act. Certain terms of a natural wealth and resources agreement are ‘deemed to be unconscionable’ under Section 6(2) of the Review Act, and the list of deemed provisions includes clauses that ‘secure preferential treatment designed to create a separate legal regime . . . for the benefit of a particular investor’[21] and clauses that ‘restrict the right of the State to regulate activities [and] take measures to ensure that such activities comply with the laws of the land’.[22] It has been observed that stabilisation clauses may be said to fall within these descriptions, such that they are deemed ‘unconscionable’ and subject to expungement.

Turning to the next country example, in March 2018, the DRC enacted a mining code providing for increases in taxes and royalties and imposing more stringent requirements regarding the repatriation of export income. Most significantly for present purposes, the 2018 Mining Code purports to disregard the stabilisation mechanism previously provided in the DRC’s 2002 Mining Code, which would have guaranteed investors the stability of certain provisions of the previous legal regime for a further 10 years from the promulgation of a new law, such as the 2018 Mining Code. In considering the effect of these changes, it is important to note that, under Article 319 of the 2018 Mining Code, mining title holders may refer disputes regarding the interpretation or application of the Code to arbitration at the International Centre for Settlement of Investment Disputes (ICSID) – one result of which is that rules of international law would be (de jure) part of the governing law applied by an ICSID tribunal in the determination of any stabilisation dispute referred to ICSID arbitration under the 2018 Mining Code.

Moving east, in late 2019, the government of Madagascar announced that it would also reform its mining legislation, with the aim to increase taxation on mining benefits. The reform project was near completion in early 2020, the Council of Ministers having voted on a preliminary version of the text in November 2019 and started public consultations in January 2020. However, it is understood that the process has effectively been at a standstill since the beginning of the coronavirus pandemic, though there are indications that the reform project is now back on the agenda of the government, with a goal to refurbish the state’s finances after the health crisis. Given that several mines in Madagascar are operated under mining conventions that contain stabilisation clauses, it may be that the implementation of the regulatory and fiscal changes proposed in the reform process cause the government to take legislative measures of the kind contemplated in this chapter.

Finally, similar action was foreshadowed in Mali following a coup d’état by Malian armed forces on 28 August 2020, which overthrew the government of Ibrahim Boubacar Keïta. Former Defence Minister Bah N’daw was sworn in as President to lead a transitional government until elections in 2022. President N’daw announced that, on advice from the Auditor General, his transitional government will undertake a review of mining conventions signed by the former Keïta government with foreign mining companies. According to press reports, the Auditor General advised that ‘[t]he conventions establishing mining companies include clauses which do not always guarantee the protection of the interests of the state’.[23] Mali has 13 commercial-scale gold mines, all of which are operated under mining convention and are held by foreign companies. The primary concern from investors is that key clauses of existing mining conventions – such as those that fix royalty rates and stabilise income taxes – may be unilaterally amended by the transitional government, with the short-term goal of boosting state revenues but without due regard to the economic impact of the changes on the companies concerned (or indeed on the state itself in the long run).[24] These concerns are naturally heightened by the perception that, because the mining conventions concerned are generally governed by the law of Mali (rather than foreign law), they may be varied by operation of Malian law – such as an act of parliament or, more commonly in countries heir to the French legal tradition such as Mali, an executive decree that declares royalty clauses or tax stabilisation provisions void. While the government of Mali is yet to adopt any legislative or executive reform measures, recent tax disputes in the gold sector have heightened investors’ fears it will do so in future.

The events in these countries provide the context in which the enforceability of stabilisation clauses must be assessed – not in isolation but in the context of the wider contractual architecture on which the effectiveness of a stabilisation clause depends.

How to overcome challenges to stabilisation clauses in host government agreements

Where a government takes legislative or executive action that purports to unilaterally invalidate or void the stabilisation clause of an investor–state agreement, the extent to which the effect of that measure can be resisted at the contractual level depends largely on the threshold issue of the governing law, coupled with the right to refer disputes on this issue to international arbitration. Properly drafted, these two provisions will act to ensure the mining investor can rely on principles of international law to hold the state to its stability bargain and provide a forum for the investor to do so. The following section explains how these sister provisions – the governing law and the arbitration clause – operate to protect mining investors from unilateral challenges to stabilisation clauses in their host state agreement.

Types of governing law clauses in investor–state agreements

The types of governing law clause that may be found in long-term mining agreements between foreign investors and host governments can be categorised as follows:

  • mining agreements with governing law clauses that refer only to the law of the host state;
  • mining agreements with mixed governing law clauses that refer to both local law and rules or principles of international law; and
  • mining agreements with governing law clauses that refer to foreign law (i.e., the law of a jurisdiction other than that of the host state).

Ideally, during the negotiation stage of an investment agreement, mining investors should seek to include a ‘mixed’ governing law clause, which can simply be achieved by adding the words ‘and relevant principles of international law’ after the reference to host state law in the governing law clause of the agreement. If the governing law clause is drafted this way, the mining investor will have an express contractual basis for invoking principles of international law if the host state takes legislative action that purports to unilaterally modify the terms of its agreement with the investor (including the stabilisation clause).

However, investment agreements often contain governing law clauses that refer only to the law of the host state. This reflects the natural inclination of any host government to have its own law govern a contract by which it confers long-term rights on a foreigner to occupy and exploit resources within a portion of the host government’s territory. Agreements in this category are most exposed to the effects of unilateral legislative measures by the state, for the simple reason that the legislation in question is a creature of the same law that governs the contract. Yet, even where a host state agreement only refers expressly to local law in its governing law clause, there is still a sound legal basis for arguing that the contract is also subject to general principles of international law. As most mining investment agreements contain governing law clauses that refer only to host state law, it is appropriate to focus first on how it may be argued that principles of international law are applicable in this context.

Principles of international law as part of local law

The first line of argument is based on the proposition that the law of every nation necessarily and naturally includes customary international law (CIL). A principle will form part of CIL where it is reflected in the general and consistent practice of states and is accepted as law by all states (opinio juris). Once a principle forms part of CIL, it is binding on every state (unless a state is a ‘persistent objector’ to the rule, which is extremely rare). In the North Sea Continental Shelf case, the International Court of Justice (ICJ) held that general rules of customary international law ‘by their very nature, must have equal force for all members of the international community, and cannot therefore be the subject of any right of unilateral exclusion exercisable at will by any one of them in its own favour’.[25]

Depending on their political and legal tradition, states vary in the way their domestic legal systems interact with the international legal system (including CIL). Recalling the examples given above, Tanzania is largely based on a common law system, whereas the legal systems of DRC and Mali follow the French civil law legal tradition. In respect of common law countries, it is generally considered that:

the common law approach to customary international law is that of ‘incorporation’, under which customary rules are to be considered ‘part of the law of the land’ provided they are not inconsistent with Acts of Parliament.[26]

In Trendtex Trading v. Bank of Nigeria, eminent English judge Lord Denning held that ‘the rules of international law, as existing from time to time, do form part of English law’.[27] However, this was later clarified to mean that CIL is one of the sources of law that the courts may draw upon, and not that CIL expressly forms part of the common law. In later cases, the status of CIL within English law was further refined. In the Al-Saadoon case, it was held that for a customary rule to be used as a cause of action in an English court, ‘it would have to be shown that the rule did not conflict with any provision of English domestic law [and] the rule would also have to possess the status of jus cogens [a peremptory or fundamental norm from which derogation is not permitted]’.[28] Similarly, in Chung Chi Cheung, it was held that a customary norm may only be transposed into the common law to the extent that it does not conflict with an act of parliament.[29]

In the civil law world, there is some variation with respect to the treatment of CIL, although most states of the civil law tradition agree that public international law in general is an integral part of their domestic legal order. This receptive approach to international law may be found, for example, in the constitutions of Germany, Portugal, Angola and East Timor, which expressly provide that the general rules and principles of international law are an integral part of municipal law.[30] Similar monistic provisions also exist in the constitutions of France and most francophone countries in Africa, where international law is regarded as a component of the domestic legal order.[31] Nevertheless, the specific status and availably of CIL under the domestic laws of these states must be ascertained on an individual basis.

Thus, the relationship between municipal law and CIL is complex and, in many jurisdictions, an area in which the views of the courts have varied over time and opinions continue to diverge. Therefore, it is important to consider the second line of argument for accessing principles of international law in an investment agreement that contains a governing law clause that refers to host state law alone.

Principles of international law apply automatically

The second line of argument is that general principles of international law apply automatically, at least to some extent, to every contract between a government and a foreigner. At its heart, this argument is based on the notion that principles of international law should play a complementary and corrective role in an agreement between a state and a foreign investor, due to the imbalance in power between the parties that would arise if host state law governed the contract exclusively. This power imbalance arises in the particular context of long-term state agreements since ‘the State, as a sovereign entity, has other rights and obligations with regard to its internal legal order than a private individual’.[32] The key premise is, therefore, the different legal personalities and prerogatives of the contracting parties: a foreign investor, usually of corporate form, that does not have legislative power and a sovereign state that does have legislative power. Expressed counter-factually, if host state law exclusively governs the contract, the state would, by virtue of its unique possession of legislative power, have the capacity to unilaterally vary the terms of the contract it has signed by changing the law that governs it. The governing law clause of a contract between a foreign investor and a host government cannot reasonably be construed in this way because, if it could be, it would mean that the contract is obligatory for one party (the investor) and effectively optional for the other (the state). Accordingly, to ensure that the contract is binding on both parties, general principles of international law must apply.

There is a considerable body of historical authority for this ‘internationalised’ approach to the governing law of investor–state contracts. The first in this line of authority is the famous Lena Goldfields case of 1929.[33] This case concerned a 1925 mining concession agreement between the Soviet government and a UK company (Lena Goldfields Ltd). The Soviet government took measures that prevented the UK concessionaire from exercising its rights under the concession agreement. The UK concessionaire commenced arbitration against the Soviet government, seeking damages for breach of contract and unjust enrichment. The concession agreement did not contain an express choice of governing law. In its award, the arbitral tribunal reasoned that, since the Soviet government had entered into a contract with a foreign investor, it tacitly accepted the international character of the legal relationship. On this basis, in determining whether the Soviet government was liable under the concession agreement, the arbitral tribunal applied general principles of law as referred to in Article 38(1) of the Statute of the Permanent Court of International Justice (the predecessor to the ICJ).[34] The general principle that the arbitrators applied was unjust enrichment.

Subsequently, a similar approach was taken in various other cases. For example, in the case concerning Sopron-Köszeg Local Company (1930), which related to a long-term railway concession agreement, it was held that the sanctity of the contract (as initially agreed) must be preserved,[35] consistent with general principles of law. This generalised approach to governing law can be seen in certain other cases from the inter-war period, where mixed claims commissions and other judicial bodies established in the settlements of the First World War were required to determine the property rights of foreigners in often complex territorial settings where the strict application of municipal law was not appropriate.

After the Second World War, the internationalised approach to investor–state contracts assumed a new relevance in the context of the then-expanding international oil industry. In the Abu Dhabi case of 1951, the contract at issue was an oil concession between a foreign company (Petroleum Development Ltd) and the Sheik of Abu Dhabi. The concession contained no express choice of law. The arbitral tribunal decided to apply ‘principles rooted in the good sense and common practice of the generality of civilised nations’,[36] rather than the law of Abu Dhabi. The arbitrators reasoned that, because the legal system of Abu Dhabi was under the exclusive control of the Sheik (who administered justice in a discretionary manner, based on the Quran), the application of Abu Dhabi law as the governing law of the concession would not be appropriate. Similarly, in the Sapphire case (1963),[37] the agreement in question (an oil concession) did not contain a clear choice of law provision, and instead simply called for the parties to respect good faith and principles of goodwill. In ascertaining the applicable substantive law, the arbitral tribunal reasoned that if the law of the host state (Iran) governed the agreement exclusively, the foreign concessionaire would not be protected against changes in host state law. The tribunal therefore interpreted the concession as implicitly excluding the choice of host state law and, in its determination of the concessionaire’s claims, the tribunal applied principles of common law to all civilised nations (as recognised in Article 38(1)(c) of the Statute of ICJ). The Sapphire award therefore supports the proposition that a ‘contract, concluded between a State company and a foreign investor, depend[s] on public law in certain of its aspects and [has] a “quasi-international character” which remove[s] it from the sphere of influence of the particular State concerned’.[38]

In the 1977 case between Texaco Overseas Petroleum (TOPCO) and Libya, the sole arbitrator found that the foreign investor’s oil concession was ‘within the domain of international law’[39] and that international law was therefore part of the legal order that governed the concession. The TOPCO case is discussed in more detail below.

Based on these and other respected international law authorities, a compelling argument may therefore be mounted that an investor–state agreement governed by the law of the host state should also be interpreted as being subject to relevant principles of international law, such as pacta sunt servanda. Clearly, when compared to the potential complexities that may arise in adopting the first line of argument discussed above (i.e., CIL as part of host state law), arguments based on the ‘internationalised’ approach to governing law are attractive for their relative simplicity. That is not to say, however, that the internationalised theory of investor–state contracts is universally accepted. Investors preparing to go to arbitration on this basis should be aware of the opposing authorities (judicial and scholarly) and take care when they choose who to appoint as arbitrator.

Investor–state agreements expressly governed by local law and principles of international law

The second category of governing law clauses identified above comprises clauses that expressly refer to both host state law and rules or principles of international law. This approach of referring to ‘rules’ or ‘principles’ of international law alongside host state law has origins in the second half of the twentieth century, when contract practice in the petroleum industry changed following the Abu Dhabi case[40] (discussed above). Though it is somewhat less common today, agreements for large-scale foreign investment projects do still sometimes expressly select international law, normally as a supplement to the law of the host state. A modern example of this approach can be found in the Association of International Petroleum Negotiators Model Form International Joint Operating Agreement (2002), Article 18.1 of which reads as follows:

The laws of [the host state], to the extent consistent with international law, shall govern this Agreement for all purposes, including the resolution of all Disputes between or among Parties. To the extent the laws of [the host state] are not consistent with international law, then international law shall prevail.

The basic purpose of this language is to ensure that the host state cannot use its own laws to unilaterally modify its contractual obligations or excuse its own breach. The operation of this language was demonstrated in the TOPCO case of 1977. In that case, which arose out of the nationalisation of the Libyan oil industry by Muammar Kaddafi in the early 1970s, the sole arbitrator (Professor Rene-Jean Dupuy) ruled that the concession agreement on which TOPCO relied on in its claim was ‘within the domain of international law’,[41] and that international law was part of the legal order that governed the concession. TOPCO had three clauses in its concession contract that Professor Dupuy considered supported this conclusion:

  • first, the governing law clauses of the concessions called for the application of both Libyan law and ‘principles of international law’;
  • second, the contracts contained stabilisation clauses (in which Libya effectively undertook not to nationalise for a certain period); and
  • third, the contracts contained international arbitration clauses.[42]

Professor Dupuy deduced from these clauses that the concession contracts were linked to the international legal order – in this matrix, Libyan law applied unless it was inconsistent with international law. In substance, applying this body of rules, the arbitrator found that the nationalisation of TOPCO’s assets was an expropriation that violated one key principle of international law: pacta sunt servanda (the sanctity of contract).[43] Professor Dupuy held that although a host state has the right to nationalise foreign-owned property in the exercise of its sovereign prerogatives, this right must be exercised in a manner that conforms to any contractual obligations that the host state may owe to the relevant foreign owners at the time (the relevant obligation being, in this case, Libya’s undertaking not to nationalise, expressed in the stabilisation clauses of the concession contracts), as the contract was held to be subject to international law.[44] Professor Dupuy ordered Libya to specifically perform its contractual obligations under the concession agreements.[45] Eight months after Professor Dupuy’s decision, the Libyan government and TOPCO reached a settlement, under which Libya agreed to provide the company with compensation in the form of oil valued at US$152 million.[46]

Applying the reasoning in TOPCO, if a state is party to a host state agreement that contains a governing law clause that refers to local law and ‘rules of international law’, there is a convincing argument that the state is obliged to apply the contractual regime and if it does not do so, the state is exposed to liability for breach of the international principle of pacta sunt servanda. Even where the relevant investor–state agreement does not expressly incorporate rules of international law, if it contains a stabilisation clause and an international arbitration clause, it may still be argued to possess the international character of the concession in TOPCO and therefore be subject to principles of international law, such as pacta sunt servanda.

Investor–state agreements with governing law clauses that refer to foreign law

Turning to the last of the three categories of governing law clause identified above, some investor–state agreements in the mining sector contain governing law clauses that select foreign law. Contracts in this category are prima facie least exposed to the effects of local law, for the reason that the validity of their terms (including terms that regulate modification) is subject to the control of a municipal legal order over which the local government has no legislative power. However, even where an investor–state contract is expressly governed by the law of a place outside the host state, the laws of the host state may still apply to the extent they are considered mandatory. A rule or law will be mandatory where it applies to a contract regardless of the fact the parties to that contract have purported to exclude it or have selected another body of law to govern their agreement. A simple example of a (substantive) mandatory law is criminal law, from which it is not possible to derogate by contract. Other areas of public law raise more complex questions of classification and are often the subject of intense debate in investor–state disputes. In an international arbitration, it is generally accepted that a tribunal should refuse to apply a mandatory law that conflicts with international public policy[47] (i.e., the fundamental values, ethical standards and enduring moral consensus of the international community).[48]

If, in a dispute under an investor–state agreement, a state sought to argue that legislation purporting to void stabilisation mechanisms was a law of mandatory application, the mining investor would have two counter-arguments available: first, the mining investor could oppose the classification of the amending act as mandatory, on the basis that it conflicts with international public policy (of which respect for contracts forms a part); second, in the alternative, the mining investor could argue that, to the extent the application of the amending act results in an effective unilateral modification of the contract, the state has breached the contract (including any term that requires modifications to be agreed by both parties) and must therefore pay damages, in accordance with the governing (foreign) law. Because the law that controls these arguments – the lex contractus – is the chosen foreign law (rather than the host state’s law), the investor should at least have a claim in damages, even if the relevant law is mandatory and applicable.

Access to international arbitration

Fundamentally, it is only where the contract provides the foreign company with a clear route to a neutral forum having the power to issue an enforceable award of money damages, that the stabilisation regime in the contract will be effective. If the investor–state contract contains a stabilisation clause but provides the mining company with recourse only to the courts of the host state, the stabilisation clause is effectively trapped within the municipal legal order of the host state, substantively and procedurally. Even if it is possible to invoke principles of international law in this setting, the local courts may be unwilling or unable to rule against the government. International arbitration, in contrast, places the question of whether the stabilisation clause is valid (and the mining company’s entitlements under it) on the international plane, in the hands of a forum the host state does not control.

Arbitration has many advantages but ultimately it is enforceability that gives it the edge over all other forms of dispute resolution in international contexts. Under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention) – the leading multilateral enforcement treaty for international arbitration – a foreign arbitral award may be enforced in over 150 countries, including against government property (subject to the sovereign immunity rules of the place where enforcement is sought). Regardless of the form of stabilisation mechanism included in the mining company’s contract with the host government, it is the international arbitration clause that gives a cross-border contract ‘teeth’ in a way no other clause can.[49]

The same is true where the arbitration clause provides for disputes to be referred to ICSID (as is typically the case in Malian mining conventions, for example). Although the ICSID system operates under a different multilateral treaty to the New York Convention, the ICSID process results in an arbitral award that is equally (if not more) effective as an award subject to the New York Convention enforcement framework.

Relevant rules and principles of international law

Having identified the different combinations of governing law and the grounds for arguing the application of principles of international law to investor–state agreements, regardless of whether they specifically refer to such principles, it is now time to consider what those general principles are and how they would operate in a situation where a state seeks to unilaterally invalidate or amend a stabilisation provision in an existing contract with a mining investor.

In the discussion that follows, the focus is on two of these general principles: pacta sunt servanda and acquired rights – these being the principles that are most immediately relevant to the subject matter of this chapter. It must be understood, however, that these are just two of the many other rules and principles of international law that may be applicable to an investor–state contract, including the principles of expropriation and reparations laid down in the Factory at Chorzów case.[50]

Sanctity of contracts (pacta sunt servanda)

The rule of pacta sunt servanda reflects a principle that is fundamental to the legal systems of all civilised nations: contracts must be respected and complied with. The rule is central to all systems of private law. As held by the arbitral tribunal in the Sapphire case, the rule of pacta sunt servanda is:

a fundamental principle of law, which is constantly being proclaimed by international courts, that contractual undertakings must be respected. The rule pacta sunt servanda is the basis of every contractual relationship.[51]

The TOPCO[52] case illustrates how the pacta sunt servanda principle operates in the context of an investor–state contract: the rule plays a complementary or corrective role, allowing the host state to exercise rights under its own law, provided it does so in accordance with its contract with the investor or pays damages for breach. If a host state changes its law in a way that voids its contract with the investor, or purports to excuse a breach of that contract, a conflict with international law arises and the pacta sunt servanda principle overrides the inconsistent host state law, with the result that the host state is liable to pay damages for breach of contract.

Doctrine of acquired rights

Under international law, the doctrine of acquired rights holds that the property rights of aliens are created under the national law of their host state but, where the host state injures those rights through the exercise of its sovereign prerogatives (such as by passing legislation), the host state may have a duty under international law to pay reparations to the injured alien. As Professor Pierre Lalive observed in 1965, at the height of the debate around state sovereignty over natural resources:

[u]nder the doctrine of acquired rights, [the right of property] is not immune from the jurisdiction of the territorial state. Contrary to what some supporters of absolute sovereignty have contended, the doctrine does not mean that private property is or should be sacred, in-tangible or superior to the sovereignty of the state. It means that arbitrary measures, i.e., contrary to the laws of the territorial state itself, are forbidden. It also means the prohibition of abuse of right, of abuse of state competence. It means that a certain standard of justice must be respected with regard to the private rights of aliens.[53]

The doctrine of acquired rights does not prevent the host state from legislating. Rather, what it does is make the exercise of that sovereign right subject to compensation. In the words of Charles De Visscher, ‘[n]on-intervention but indemnification; this is the present equation balancing the freedom of the State to organise as it will and the security of international relations’.[54]

There are several examples of cases where the doctrine of acquired rights has been applied to concessions and other forms of investor–state agreements. In the well-known case of the arbitration between Saudi Arabia and the Arabian American Oil Company (Aramco) in 1958, the arbitral tribunal found that the rights of the concessionaire ‘[a]re in the nature of acquired rights and cannot be modified by the granting State [Saudi Arabia] without the Company’s consent’.[55] Significantly, the Aramco tribunal found that the ‘concession has the nature of a constitution which has the effect of conferring acquired rights on the contracting Parties’.[56] In the Oliva case, the umpire of the Italian–Venezuelan Mixed Claims Commission held that ‘[a] nation, like an individual, is bound by its contract, and although it may possess the power to break it, is obliged to pay the damages resultant upon its action’.[57]

Returning to the current context, if a mining investor faces a challenge to the stabilisation provision of its agreement, the investor may claim that the state has deprived the mining company of its acquired rights to stabilisation under the host state agreement. As with pacta sunt servanda, the remedies available to the mining investor for a breach of acquired rights include specific performance and declaration (at least in principle) and damages.

Simultaneous challenges to international arbitration clauses

As noted above, some states have taken (or foreshadowed an intention to take) measures that purport to remove the right of mining investors to refer certain matters to international arbitration or declare international arbitration clauses as being subject to unilateral invalidation by legislative or executive action. Tanzania is an example. While an arbitration clause is a contractual term like any other, most legal systems acknowledge that arbitration clauses have certain special characteristics. The most important of these characteristics is separability. The principle (or doctrine) of separability holds that an arbitration clause is autonomous and can be invoked and considered entirely separately from the contract in which it is contained.[58] Put another way, an allegation that the underlying contract is unenforceable will not necessarily render the arbitration clause within it unenforceable. Rather, where the existence or validity of an arbitration clause is challenged, it will normally be for the arbitral tribunal to decide that challenge for itself (this ‘jurisdiction to decide jurisdiction’ is known as kompetenz-kompetenz). The doctrine of separability is well recognised and has been acknowledged and applied by courts in both common law and civil jurisdictions.

Separability is relevant to the present topic because, as noted above, the enforcement of a stabilisation clause – especially where the host state has purported to invalidate it – is, in reality, dependent upon access to international arbitration and it is increasingly the case that governments are attacking arbitration clauses and stabilisation provisions concurrently. It is the principle of separability that gives an arbitration clause an independent existence from the contract in which it is contained, and it is, therefore, separability that preserves access to arbitration in circumstances where a host government seeks to unilaterally invalidate or vary a contract with a foreign investor.

Although separability guarantees the survival of the arbitration clause for the purposes of kompetenz-kompetenz – meaning the tribunal will still have jurisdiction to rule on its own jurisdiction – separability does not guarantee that the arbitration clause will be upheld as substantively valid, in the fact of a host state law that declares it void. The validity of the arbitration clause depends upon the law that governs it, which may be the law of the wider contract in which it is contained (lex contractus) or the law of the seat (lex arbitri).

The extent to which the law of the seat will govern the clause (and thereby determine its validity) in the absence of an express choice of law for the arbitration clause varies from jurisdiction to jurisdiction. In Singapore, for example, the position is clear: the law of the seat governs the arbitration, absent an express choice to the contrary.[59] In England, the common law position is less clear (as a result of Enka v. Chubb),[60] though there remains good authority for the proposition that the law of the seat governs the validity of the arbitration where the application of the lex contractus would render the arbitration clause void or inoperable. The uncertainty in this area is the reason why it is now considered best practice to include a provision that expressly selects the law of the seat as the law of the arbitration clause.

If the clause provides for ICSID arbitration, and clearly expresses the host state’s consent to the ICSID process, the survival of the right to arbitration is certain. This is because the ICSID Convention (at Article 25(1)) expressly provides that once a state has consented to ICSID arbitration, it may not withdraw that consent unilaterally.

Interpretation and analysis of stabilisation clauses by arbitrators

A final consideration in overcoming potential challenges to stabilisation provisions relates to the practice of arbitral tribunals in interpreting and analysing stabilisation clauses. Given the political sensitivities surrounding stabilisation clauses (an issue that has been discussed in detail by other commentators),[61] arbitrators tend to approach them with a greater than usual level of interpretive rigour. Nevertheless, there is a presumption of validity that applies to stabilisation clauses.[62] The international law doctrine of permanent sovereignty over national resources does not operate to excuse states from their stabilisation commitments,[63] since it provides that ‘foreign investment agreements entered into by or between foreign states shall be observed in good faith’. In fact, by entering into a stabilisation provision, a state arguably exercises its sovereign prerogatives.[64] Therefore, in stabilisation cases, most arbitral tribunals start from a presumption that the clause is valid, meaning it is the respondent government’s burden to prove otherwise.

The sensitivities surrounding the enforcement of a stabilisation provision also mean that most proceedings are conducted confidentially, so there are few publicly available awards discussing an arbitral tribunal’s interpretation and application of stabilisation provisions in a commercial context, and even less in the mining space.[65] However, the available jurisprudence shows that one of the common hurdles claimants encounter is whether the scope of a change in law is interpreted widely by the arbitrator to include a change in the interpretation of a law, or the issuance of new or changed interpretive guidance by a government authority with respect to a law. This situation often arises in the context of taxation disputes, where the application of an existing tax law is clarified or changed by way of a subsequent tax ruling or guidance note. An arbitrator who adopts a narrow approach may exclude such events from the scope of the stabilisation clause. Therefore, from the mining company’s perspective, it is crucial that the stabilisation provision is crafted in the manner outlined in the first section of this chapter.

Another recurring interpretive theme is the weight that arbitral tribunals give to the state’s ‘right to regulate’. Normally, weight is given to this sovereign prerogative and this often translates into a tendency to construe the stabilisation clause narrowly. However, consistent with the general principle of pacta sunt servanda, most arbitrators will be reticent to allow a state to avoid an express commitment provided to an investor. This inclination is apparent in numerous arbitral awards. Although not related to a mining agreement, a well-known example is Parkerings v. Lithuania, where the tribunal held that:

A state has the right to enact, modify or cancel a law at its own discretion. Save for the existence of an agreement, in the form of a stabilisation clause or otherwise, there is nothing objectionable about the amendment brought to the regulatory framework existing at the time an investor made its investment.[66]

More recently, in Duke v. Peru, an ICSID tribunal was prepared to give a broad interpretation of tax stabilisation commitments to cover changes in interpretive practice of tax laws, extending to include circumstances where a comparative exercise was not possible. The tribunal found that a breach of a tax stabilisation agreement may occur ‘in absence of proof . . . of a stable interpretation or application’[67] where the stabilised laws are interpreted or applied in a manner that is ‘patently unreasonable’ or ‘arbitrary’.[68] Although this case concerned a fiscal stability mechanism, it indicates that modern tribunals place significant importance on stabilisation commitments offered to investors and will seek to uphold such commitments.


Every sovereign has the exclusive right to make and modify laws within its territory. But, mining companies, like all foreign investors, need to know what the legal and fiscal regime for their long-term investment will be before they commit capital abroad, especially to countries with high sovereign risk. Companies do not expect that the law will not change at all, they only expect that the law will not change in a way that seriously undermines the economics of their project. Stabilisation clauses are now an accepted means of striking the right balance between sovereign prerogative and commercial imperative. However, recent events in the developing world show that some governments are willing to take unilateral action to avoid stabilisation commitments.

The core purpose of this chapter has been to consider how principles of international law – namely sanctity of contract (pacta sunt servanda) and the doctrine of acquired rights – may be invoked by mining companies that have host state agreements to resist the effects of subsequent legislation aimed at unilaterally voiding or amending a stabilisation provision. There are several different ways in which the international principle of pacta sunt servanda may be invoked by a party to a long-term mining agreement in these circumstances. The application of this most fundamental principle demands that the state in question must adhere to the terms of its pre-existing contract. If the state does not do so, and instead purports to amend or interfere with the stabilisation provision, the state commits a breach of contract for which it is liable in damages. The state’s liability for breach is clearest where the host state agreement is governed wholly by foreign law, or by an express combination of domestic law and relevant rules of international law. However, as general principles of international law arguably apply to long-term investor–state contracts regardless of whether they are expressly selected in its governing law clause, there is a sound basis for contending that the same result should follow even where the governing law clause of an investor–state agreement refers to domestic law alone, especially where the agreement contains other provisions that signal an intent to connect it to the international legal order (such as an international arbitration clause). Provided the investor–state contract contains this architecture, the mining investor will be entitled to remedies based on the international principles and authorities discussed above, regardless of the status of its rights under the law of the host state.


1 Sam Luttrell is a partner and Amanda Murphy is a counsel at Clifford Chance. The authors thank Rodolphe Ruffié, senior associate at Clifford Chance, for his contributions and support to this chapter.

2 It is well recognised that since ‘mining projects are tied to the location of the natural resource and much of the infrastructure for extraction is immovable . . . investors who successfully explore for minerals or oil are vulnerable to unilateral changes in local rules once they have taken the initial risk of investing’, John Ruggie, ‘Principles for Responsible Contracts: Guidance for negotiators’ (2015) UNHCR 16.

3 The International Council on Mining and Metals (ICMM) reported that companies ‘are most likely to require stability clauses in cases where the legislative framework for mining investment is not well established’, Evelyn Dietsche, ‘Minerals Taxation Regimes: A review of issues and challenges in their design and application’ (ICMM, 2009), p. 56.

4 Sam Luttrell and Amanda Murphy, ‘Stabilisation Provisions in Long-Term Mining Agreements’, in The Guide to Mining Arbitrations (2019), pp. 13–39.

5 If the government or a government-owned entity is a participant in the project and has an entitlement to a share of production, this may also fall within the scope of fiscal stability. While production-sharing arrangements are more common in the petroleum industry, they are starting to take hold in the mining sector. See Dietsche (footnote 3), p. 11, who notes that ‘companies highlight stability and predictability as the most important aspects of taxation regimes’.

6 Another reason fiscal stability terms are more common is that they are often granted unilaterally by operation of host state law. For example, many countries have investment promotion laws that include a certification-based system of tax incentives, through which a degree of fiscal stability may be provided to the owners of a sponsored project. Legal stability is rarely granted this way and is, instead, almost always a matter of contract. The exception is least developed countries emerging from periods of political or economic transition, where legal stability undertakings may be made to investors in certain sectors. The Democratic Republic of the Congo (DRC) is an example: under the 2018 Mining Code, foreign companies that hold mining titles enjoy specified periods of stability in the laws and regulations applicable to their projects (see Law No. 18/001 of 9 March 2018 amending and supplementing Law No. 007/2002 of 11 July 2002 establishing the Mining Code, Articles 276 al 2, 340, 342 bis and 31). In general, these kinds of unilateral stability undertakings are less effective than contractual stability clauses because they can be unilaterally withdrawn by the host government (and the investor will only have a remedy in this situation if it has standing to dispute the revocation in an international forum, as is the case under the DRC Mining Code).

7 Freezing clauses have been criticised as an undue restriction on sovereign regulatory power; see Ruggie (footnote 2), Principle 4, which states that ‘contractual stabilisation clauses, if used, should be carefully drafted so that any protections for investors against future changes in law do not interfere with the State’s bona fide efforts to implement laws, regulations or policies, in a non-discriminatory manner, in order to meet its human rights obligations’.

8 We say ‘purports’ because, as discussed below, it is often a complex question of local (constitutional) law whether the host government can fetter its legislative power in this way: some countries have laws that allow the government to do so, subject to compliance with certain constitutional procedures (such as approval of the contract by an act of parliament); other countries do not.

9 In this famous mining case, the concession agreement between Lena Goldfields and the Soviet government required that the concessionaire was to submit to all existing and future Soviet legislation ‘in so far as special conditions are not provided in this agreement’ (Article 75), and the Soviet government undertook not to make any alteration to the concession agreement by order, decree or other unilateral act or at all except with Lena’s consent (Article 76). Arthur Nussbaum, ‘The Arbitration Between the Lena Goldfields, Ltd. and the Soviet Government’, (1950) 36 Cornell Law Review 31, p. 45.

10 Henry G Burnett and Louis-Alexis Bret, Arbitration of International Mining Disputes (Oxford University Press, 2017), p. 263.

11 The American Independent Oil Company v. The Government of the State of Kuwait, Final Award, 24 March 1982, p. 23 [24].

12 Burnett and Bret (footnote 10), p. 262.

13 For example, according to the United Nations Human Rights Commission (UNHCR), negotiators of a stabilisation clause should ensure that it ‘does not create obstacles to the State’s bona fide efforts to introduce and implement laws, regulations or policies in a non-discriminatory manner to meet its human rights obligations’, Ruggie (footnote 2), p. 16. These issues can be more prominent when negotiating with a developing country, as the UNHCR found according to its research that ‘compared to contracts agreed with Governments in developed countries, those negotiated with Governments in developing countries were: (a) typically much broader in their coverage; and (b) much more likely to include exemptions for or award compensation to business investors for compliance with future laws – even in areas that are directly related to human rights, such as health, environmental protection, labour and safety’, Ruggie (footnote 2), p. 16.

14 Duke Energy International Peru Investments No. 1 Ltd v. Republic of Peru, Final Award, 18 August 2008, ICSID Case No. ARB/03/28.

15 Burnett and Bret (footnote 10), p. 263.

16 See Resources Contracts (Review and Re-Negotiation of Unconscionable Terms) Act 2017; for an analysis of the Tanzanian legislation of 2017, see Sam Luttrell, ‘An international perspective on the Tanzanian Natural Wealth and Resources Acts’, (2018) 36(3) Australian Resources & Energy Law Journal 71.

17 Luttrell (footnote 16), p. 71.

18 Review Act, Section 6(1); see also ibid., p. 82.

19 Review Act, Section 6(3); Luttrell (footnote 16), p. 82.

20 Review Act, Section 6(4); Luttrell (footnote 16), p. 82.

21 Review Act, Section 6(2)(e).

22 ibid., Section 6(2)(f).

23 ‘Mali’s auditor general recommends review of mining contracts’, Reuters, 31 October 2020 (‘Les conventions établissant les sociétés minières comportent des clauses qui ne garantissent pas toujours la protection des intérêts de l’État’).

24 Ordinance 2019-022/P-RM of 27 September 2019 (establishing the Mali Mining Code). Once implemented, the Mining Code 2019 will (among other changes) remove certain tax exemptions granted to mining companies during production and reduce the fiscal stabilisation period to 20 years.

25 North Sea Continental Shelf, Judgment, ICJ Reports 1969, pp. 38–39 (para. 63).

26 J Crawford, Brownlie’s Principles of Public International Law (8th ed.), pp. 67–68; see Lord Denning MR in Trendtex Trading v. Bank of Nigeria [1977] QB 529.

27 Trendtex Trading v. Bank of Nigeria [1977] QB 529, 554.

28 R (Al-Saadoon) v. Secretary of State of Defence [2009] EWCA Civ 7, para. 59; also, A v. Secretary of State for the Home Department (No. 2) [2006] 2 AC 221, 262 (per Lord Bingham) and R (Mohamed) v. Secretary of State for Foreign and Commonwealth Affairs [2008] EWHC 2048, para. 171.

29 Chung Chi Cheung v. R [1938] 4 All ER 786, para. 790.

30 Basic Law for the Federal Republic of Germany, Article 25; Constitution of the Portuguese Republic, Article 8.1; Constitution of the Republic of Angola, Article 13.1; Constitution of the Democratic Republic of Timor-Leste, Article 9.1.

31 French Constitution of 4 October 1958, Article 55. See also, e.g., Constitution of the Democratic Republic of the Congo, Article 215; Constitution of the Republic of the Congo, Article 184; Constitution of Cameroon, Article 45; Constitution of Burkina Faso, Article 151; Constitution of the Republic of Madagascar, Article 137.

32 Irmgard Marboe and August Reinisch, ‘Contracts between States and Foreign Private Law Persons’, in Max Planck Encyclopedia of International Law (2011), para. 3.

33 Lena Goldfields Ltd v. Soviet Government (1929) 5 Annual Digest of Public International Law Cases 88.

34 id., para. 22.

35 Sopron-Köszeg Local Company (1930) 24 AJIL 164.

36 Petroleum Development (Trucial Coast) Ltd v. Sheik of Abu Dhabi (1951) 18 ILR 144.

37 Sapphire International Petroleum Ltd v. National Iranian Oil Company, Award, 15 March 1963.

38 Marboe and Reinisch (footnote 32), para. 6.

39 Texaco Overseas Petroleum Company v. Libya (1977) 53 ILR 389.

40 Petroleum Development (Trucial Coast) Ltd v. Sheik of Abu Dhabi (1951) 18 ILR 144.

41 Texaco Overseas Petroleum Company v. Libya (1977) 53 ILR 389.

42 Robert von Mehren and P Nicholas Kourides, ‘The Libyan Nationalizations: TOPCO/CALASIATIC v. Libya Arbitration’ (1979) 12(2) Natural Resources Lawyer 419, p. 426.

43 ibid.

44 Jonathan Wallace, ‘Litigating an International Oil Dispute’, (1980) 2 New York Law School Journal of International Comparative Law 253, p. 258.

45 Mehren and Kourides (footnote 42), p. 433.

46 ibid.

47 Okezie Chukwumerije, Choice of Law in International Commercial Arbitration (Quorum, 1994), p. 193.

48 Pierre Lalive, ‘Transnational (or Truly International) Public Policy and International Arbitration’, in Pieter Sanders (ed), Comparative Arbitration Practice and Public Policy in Arbitration (Kluwer, 1987), pp. 285–86.

49 It is critical that there be a waiver of sovereign immunity provision contained within the arbitration clause or elsewhere in the host state agreement. This is because, unless the host state expressly waives its sovereign immunity, it may not be possible for the foreign party to collect if it receives an arbitral award in its favour under the contract. The waiver must be explicit, and it must cover enforcement and execution (many legal systems distinguish between the two steps and if both are not covered by the waiver, it may not be possible to collect on the judgment).

50 Factory at Chorzów (Germany v. Poland) PCIJ Ser A No. 17 (1928).

51 Sapphire International Petroleum Ltd v. National Iranian Oil Company, Award, 15 March 1963 (as reported in (1967) International Law Review, p. 181).

52 Texaco Overseas Petroleum Company v. Libya (1977) 53 ILR 389.

53 Pierre Lalive, ‘The Doctrine of Acquired Rights’, in Matthew Bender (ed.), Rights and Duties of Private Investors Abroad (International and Comparative Law Center, 1965), p. 196.

54 Charles De Visscher, Theory and Reality in Public International Law (Princeton University Press, 1957), p. 193.

55 Saudi Arabia v. Arabian American Oil Company, Award of 23 August 1958, 27 ILR 117, p. 227.

56 ibid., p. 168.

57 ‘Oliva Case (of a general nature)’, Reports of International Arbitration Awards 1903, Vol. X, p. 609.

58 Harbour Assurance v. Kansa General International Insurance [1993] 1 Lloyd’s Rep 455.

59 BNA v. BNB and another [2019] SGCA 84.

60 Enka Insaat Ve Sanayi AS v. OOO ‘Insurance Company Chubb’ & Ors [2020] UKSC 38.

61 Margarita Coale, ‘Stabilisation Clauses in International Petroleum Transactions’, (2002) 30(2) Denver Journal of International Law and Policy 217, cited in A F M Maniruzzaman, ‘Some reflections on stabilisation techniques in international petroleum, gas and mineral agreements’, (2005) 4 International Energy Law and Taxation Review 96; Paul Comeaux and N Stephan Kinsella, ‘Reducing political risk in developing countries: Bilateral investment treaties, stabilisation clauses and MIGA and OPIC investment insurance’, (1994) 15 New York Law School Journal of International and Comparative Law 1.

62 Burnett and Bret (footnote 10), p. 264.

63 UN General Assembly Resolution on ‘Permanent Sovereignty over Natural Resources’ (1962) UNGA Res 1803.

64 AGIP v. Government of the Popular Republic of Congo (ICSID Case No. ARB/77/1), Award, 30 November 1979, para. 86; see also Nour Eddine Terki, ‘The Freezing of Law Applicable to Long-Term International Contracts’, (1991) 6 Journal of International Banking Law 43, who explains that: ‘it would in any case be wrong to imply that the granting of such a guarantee to the foreign firm would impair the sovereignty of the State. For by acting in this manner, the public authority is doing nothing more than implementing one of the prerogatives attached to this concept. It is precisely by placing itself in the context of manifesting its sovereignty that a State can legitimately grant a stabilisation clause, either by enacting a law a priori, or by approving a contracting containing such clause a posteriori.’

65 There are several well-known petroleum arbitrations that have upheld stabilisation commitments in petroleum production agreements with host states. These include Lena Goldfields Limited v. USSR, Award (1929–1930) 5 ADIL 3 (Case No. 1); Libyan American Oil Co (LIAMCO) v. Libya, Award on Jurisdiction, Merits and Damages, 20 ILM (1981) 1; Saudi Arabia v. Saudi Arabian Oil Co (Aramco) (1958) 27 ILP 117; Sapphire International Petroleum Co v. National Iranian Oil Co, 35 ILR 136 (1967); Kuwait v. American Independent Oil Co (AMINOIL), Award, 21 ILM 976 (1982), 24 March 1982.

66 Parkerings-Compagniet AS v. Republic of Lithuania, Award, 11 September 2007, ICSID Case No. ARB/05/8, para. 332.

67 Duke Energy International Peru Investments No. 1 Ltd v. Republic of Peru, Award, 18 August 2008, ICSID Case No. ARB/03/28, para. 222.

68 ibid., paras. 223–27.

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