Chapter 3 Stabilisation Clauses in Long-Term Investment Contracts

Their Evolution and Their Application by Investment Tribunals

In: A Multifaceted Approach to Trade Liberalisation and Investment Protection in the Energy Sector
Athina Fouchard Papaefstratiou
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This chapter addresses the practice of negotiating stabilization clauses in investment contracts, and the application/interpretation of stabilization clauses by international tribunals. Because the energy sector generally requires long-term investment contracts, where upfront investment in a project is heavy and returns are only to be expected after a significant lapse of time, foreign investors need to be shielded from changes in the legal or regulatory framework that might affect the equilibrium of their contract. As a result, although reliance on stabilization clauses has decreased in the recent years, they are still common in contracts related to the extractive and energy industries. This chapter provides a critical analysis of the classification and evolution of these clauses over the years, as well as of their interpretation and application by arbitral tribunals. In particular, it investigates the impact of the new ‘era of corporate social responsibility’ on the content and scope of stabilization clauses, focusing on two questions of extreme practical importance: to what extent will these clauses become more and more limited over time and how will international tribunals apply this new generation of stabilization clauses.

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