Stabilisation Clauses and the Right of Reparation Under International Energy Investment Law: A Confused State of Affairs

Abstract

This paper sets out to determine the extent to which the rulings of international tribunals have been influenced by the presence of stabilisation clauses vis-à-vis the right of reparation. To that effect, it first examines the different approaches to stability found in the law of international investments, zeroing in on contract-based stability, so as to analyse the stabilisation language commonly used by lawyers drafting international investment contracts (i.e. freezing, economic equilibrium or hybrid). Additionally, it considers the roots of such clauses dating back to the early 20th century; the rationale behind their use; the discussion on their legal validity when opposed to the sovereignty of States to regulate in the public interest; and the question of their efficacy (or lack thereof) in isolating investors from risk.

Subsequently, the focus shifts to the right of reparation under international law. To this end, it considers the general principle of reparation established in the Chorzów Factory judgment, all the while separating the concepts of ‘compensation’ and ‘damages’ as subcategories of the notion of ‘reparation’, and also the application of damnum emergens and lucrum cessans in regards to the cause of reparation (i.e. expropriation or nationalisation, breach of international law, breach of contract).

Finally, by bringing together the ideas and theories explored in the foregoing sections, this paper demonstrates the confused state of affairs across the board of some of the most significant arbitral awards dealing with stabilisation clauses in the energy sector, as to the proper standard for the quantification of compensation or damages in the face of a stabilisation clause.

Keywords: Investment Arbitration, Energy, Stabilisation, Right of Reparation