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 THE EFFECT OF STABILSATION CLAUSES
IN CONCESSION AGREEMENTS

By
Sangwani Patrick Ng'ambi*

I
INTRODUCTION

The reason an investor will transfer his capital to another

jurisdiction is to make a profit from that investment. Without the
prospect of making a profit, it simply would not make business
sense to invest a large amount of money and indeed time in the
exploration of natural resources. Investors depend on loans to
finance their projects and these loans do have to be repaid. In order
to repay these loans, foreign investors have to make money out of
the concessions granted to them by the host State.
Clearly of concern to an investor when entering into a
concession is whether the host government will abide by the terms
of that agreement. An ordinary contract is clearly governed by the
municipal law of the host State. The law can be changed at any time
by the legislature of the host State and these laws can be amended in
a way that disadvantages the concessionaire. Thus at all times whilst
the contract subsists, the investor will remain the weaker party. As
such the investor is put in a somewhat precarious position,
especially in instances where a more nationalistic mood sweeps the
host State. This may lead to instances where the government alters
its legislation or simply makes a decree to nationalise the foreign
company's assets or take any other measures that will impinge on
their ability to make a profit out of their investment.'
*LLB (De Montfort), LLM (Comell) Lecture, School ofLaw, University ofZambia.
'See T.W. Waelde and G. Ndi. 'Stabilising International Investment Commitments: International Law
Versus Contract Interpretation' (1996) 31 TI.J 215, 220 who say, 'Stability of the fiscal regime (again
particularly in naturalresources where the fiscal regime covers not only standaidtaxes but usually specific
 Zambia Law Journal

To address this issue, foreign investors thus insist on the

insertion of stabilisation clauses in the contract. These are
contractual provisions contained within a concession aimed at
precluding host states from taking legislative or administrative
measures that impede on the commercial interests of the investor.
These provisions are created for the protection of the investors on
account of the fact that governments have various mechanisms at
their disposal which could potentially jeopardise the foreign
investors' legitimate expectations of making a profit out of their
investments.
The precise effect of stabilisation clauses is contentious. On the
one hand there are those who would argue that stabilisation clauses
grant absolute protection to the investor because they
internationalise the contract, thus rendering the latter immune from
national law. However, this is disputed because preventing a State
fiom undertaking measures such as legislating is an undue
encroachment upon its sovereignty. An arguably more balanced
view is espoused in the case of Aminoil v Kuwait. The arbitral
tribunal in this case contended that stabilisation clauses only
preclude a State from nationalising if they run for a reasonable
period of time and if nationalisation is expressly prohibited by the
clause. Stabilisation clauses are only there to protect against
confiscatory taking.
The next section of this article highlights the academic debate
surrounding the effect of stabilisation. Chapter three will be
exploring the decisions of arbitral tribunals regarding stabilisation
clauses. Finally, chapter four will be concluding on whether
stabilisation clauses do in fact preclude the governments of host
states from utilising the administrative or legislative process to
override the rights contained within a concession.

payments for depletion of non-renewable natural resources) is probably the key issue for stabilisation
2
conetrn$.
See generally FA. Mann, &tuesin Intermatia/lLaw(OUP, 1972) 222-223 and RV Garcia-Amador,
Fourth Repart on Sa' Rspounbik'y Doe. A/CN.41119, Yearbook of the ILC (1959), VoL 2, 32, pazm
127.
 The Effect of Stabilsation Clauses inConcession Agreements

II
THE DEFINITION AND PURPOSE BEHIND
STABILISATION CLAUSES

At the time of signing a concession, there exists an asymmetrical

relationship between host State and the investor. This is because the
host State has at its disposal certain prerogatives it could employ to
jeopardise the investor's prospects of making a profit once it
actually sends its capital. The State could, for example prematurely
terminate the contract and nationalise assets belonging to the
investor by utilising the legislative process. Similarly, it could raise
taxes, which could either have the effect of significantly reducing
the investors profits, or simply make it more onerous or expensive
to 1un operations in a given jurisdiction.
Premature termination or alteration of the mining agreements
could have a huge impact on the mining operations. This is owing to
the fact that, in the first place, commencing with an exploration
project in a mineral rich country can be a very expensive and
laborious venture. Mining and oil companies alike, almost
invariably explore various areas before they eventually attain
success. Once they do, they will need to make up for the shortfall
created by the failed projects. In addition, mineral prices are
somewhat mercurial in that they tend to fluctuate and depreciate
owing to a plethora of factors that are beyond the scope of this
article.
With this much uncertainty in the venture, it is understandable
therefore that any additional uncertainties in this equation are likely
to render the business venture unprofitable.5 Predictability in the
law, particularly the fiscal regime, is therefore an imperative factor
in determining whether the investor will sign a concession. As the
Sole Arbitrator in LIAMCO v Libya, Dr Mahamassani observed:

'(1982)21 ILM976.
Seegenerally WaeldeandNdi(n 1), 223 -226,
'Tbic 227.
 Zambia Law Journal

Usually, foreign investors before taking the risk of

investing substantial amounts of money and labour for
working their concessions, are anxious to seek
sufficient assurance for the respect of the principle of
sanctity of contracts. In other words, they seek to be
guaranteed against the possibility of arbitrary exercise
by the State of its sovereign power either to alter or to
abrogate unilaterally their contractual rights. Any such
alteration or abrogation of concession agreements
should be made by mutual consent of the parties.'

Thus, to address these concerns investors will invariably insist on

the insertion of stabilisation clauses. These are clauses which,
'specifically seek to secure the agreement against future
government action or changes in law'. 7 The clause attempts to
immunise the contract from the municipal law by internationalising
the contract. Thus, at least in the abstract, any alteration in the law
should have no effect on the concession whatsoever if it contains a
stabilisation clause.
There has been much academic debate as to the precise effect of
these clauses. There are three schools of thought on this matter.8 The
first group believes that stabilisation clauses provide absolute
protection. We can refer to this group as the absolutists. The other
group essentially opposes the absolutists. The third group is one that
can only be described as unsure as about how much protection
stabilisation clauses afford foreign investors.

See also M_Somarajah, The Setdenrt ofFa-etoleshits itutes(tmer, 2000), 49. Somarajah
says that "Themajor concern of the foreign investoris that later legal changes may affectthe tax orixyalty
regimes, which existed at the time of entry Other favourable treatment like access to licenses and import
and export pestits which may have existed at the time of emy to attract foreign investors may later be
withdrawn- His concern would be to ensure that his investment would not be affected by these changes.
The stabilisation clause is intendedto address these concerns.'
C.T. Curtis, 'The Legal Security ofEconomic DevelopmentAgreements' (1988) 29 =. 317, 346-
See E. Paasivuta, 'Intemationalisation and Stabilisatio of Contracts Versus State Sovereignty'. 6 BL
315, 316-323. He classes them into four categories: the absolutists, those who dispute the absolutist
theory, those who'do not reject the applicability ofinternational law to State contracts but not necessarily
adopt the view that it confers absolute protection on the private party' and finally there are those who are
uncertain In my view the fomth group fits squarely into the third because their views, as Passivirta also
aclmowledges, are quitesimilar.
 The Effect of Stabilsation Clauses inConcession Agreements

The absolutists believe that stabilisation clauses grant absolute

protection to the investor. For example, if there is a stabilisation
clause in the contract and the host State proceeds to nationalise
assets belonging to the investor, then according to the absolutists,
the nationalisation would be illegal. They justify this by saying that
stabilisation clauses internationalise the contract thus making it
susceptible only to international law. It therefore follows that the
contract will not be governed by the law of the host State. Suratgar
stuns it up when he observes that the main goal of advocates of the
absolute protection theoly is to circumvent the possibility of an
agreement being prematurely terminated or modified by an Act of
the legislative an of the host State. 9
The absolutists believe that the stabilisation clauses immunise
the contract fiom the municipal law by internationalising the
contract. De Vries points out that it is for this reason that 'the
investor and his counsel should attempt to 'internationalise' the
contract'.1° Thus the contract is taken out of the fray of national law
and is governed by international law. In Mann's view the 'existence
and fate' of an internationalised contract is 'immune from an
encroachment by a system of municipal law in exactly the same
maimer as in the case of a treaty between two international
persons'. 1 Mann thus equates a concession containing a
stabilisation clause to a treaty and as such the concession is only
subject to international law. This view is shared by later writers like
Garcia-Amador who contends that if an agreement is governed by
international law, international principles or 'provides for a mode of
settlement of a genuinely international character' then the rights and
obligations emanating therefrom are international. It therefore
follows, that breach of the agreement would give rise to State
responsibility."

D- Suratgar. 'Considerations Affecting Choice of Law Clauses in Contracts Between Govemments and
Foreign Nationals' (1962) 2 LflL273. 302.
'See H. De Vries, 'The Enforcement ofEconomic Development Agreements with Foreign States' (1984).
UDLRe:, 62, 1, 20-21.
"Maim(n2).
'Garcia-Amador(n 2).
 Zambia Law Journal

Professor Wehberg contends that States are bound by agreements

with private companies on account of the principle of pacta sunt
serwinda. This principle is as valid to agreements with private
corporations as it is to agreements between States. 3 This view is
shared by Professor Weil who contends that ie choice of
international law as the governing law of the agreement makes it
susceptible to principles of international law. One such principle is
pacta suntservanda.Should the State fail to observe its obligations
then such failure would be resolved in the international sphere. 4
The advantage of upholding the arguments espoused above is
that it prevents the government from jeopardising the investor's
legitimate commercial interests by safeguarding against the
arbitrary, premature and unilateral alteration or termination of the
concession. This approach instils confidence in a corporation that
potentially wishes to invest in a resource rich country. Ensuring that
the investor's interests are protected would thus encourage the flow
of foreign direct investment.
On a conceptual level however it is hard to accept the argument
that a contract with a private individual is tantamount to a treaty. By
its very definition, a treaty is an agreement between two States. Thus
an agreement between a State and a corporation falls outside the
definition of the term 'treaty'. Thus as Sornarajah correctly
postulates, equating a contract to a treaty is rather 'far-fetched'
because a treaty involves the mutual surrender of sovereign rights
and these are rights which the investor does not have the capacity to
surrender. 5 For this reason it is conceptually difficult to accept the
contention that an internationalised contract is equal to treaty for the
two cannot be compared unless identical.
Academics have also fiercely criticised the contention that the
contract is internationalised by the stabilisation clauses. One such
critic is Professor Sereni who argues that private relations are not
really governed by international law as such. Thus applying

"H. Wehbag.e aSuntServanda' (1959) 53 AHL77S, 776.

Wei, Probl&nes relatifs ux cantrats passes entre uaEtat et un particulier', Recucil des cozrA 128
R'P.
(1969-11f), pp. 94,113-114.
"Sarajah(n6).
 The Effect of Stabilsation inConcession Agreements
oauses

international law to private relations is misplaced and attempting to

do so is like trying to apply, 'the matrimonial laws of France or
England to relations between cats and dogs'.'6 This is also the
position of Wolff who contends that, '[t]he choice of law of nations
as the proper law of contract includes the choice of all compulsory
rules of that legal system, and therefore also the provision that only
States can be subject to public international law."
It must be noted however that Sereni and Wolff were writing in
the 1950s. There were, perhaps, fewer treaties and cases dealing
with the application of international law to private individuals.
These days the position is considerably altered. There are myriad
sources of international law for private corporations to rely upon in
the event of a dispute. Thus the contention that private individuals
cannot be subject to international law is difficult to advance in the
modernworld.
A more plausible part ofWolff s contention is where he goes on to
say that a State can limit its legislative powers on account of an
international agreement with another State. Thus, generally
speaking, if there is a treaty in place and the State violates it through
legislative means then this will have international consequences. It
does not follow however that a contractual agreement with an
individual or corporation can have the same effect. 8
Clearly it has been seen that there are conceptual problems with
equating a contract to a treaty. For this reason, it is difficult to accept
this as a basis for binding a State to concession agreements which
contain stabilisation clauses. It has also been seen that the
internationalisation argument might also be difficult to accept
because there is no international law of contract as such. However,
are opponents of the absolute protection argument then basically
saying that stabilisation clauses have no effect whatsoever? If the
answer is in the negative, then what purpose do they really serve?

"A-P. Serem, "InternanonalEconomic Institutons and the Municipal Law of States' (1959), 96 Recuzeides
cour-S 129,210.
"M. Wolff,'Some Observations on theAutanomy ofContracting Parties m the Conflict ofLaws' (1950). 35
TGS 143,150-1.
"lbig 151.
 Zambia Law Journal

The questions that arise from the two diverging views perhaps
augment the view that the precise status of stabilisation clauses is
somewhat unclear. This view was certainly espoused by Delaume
who observes that until there is a consensus on the extent to which
international law applies to relations between investors and host
States, the precise effect of stabilisation clauses shall remain
uncertain. In his estimation, '[t]he difficulty is not that these clauses
cannot perform the normal function of stipulation of applicable law,
but rather that the substantive rules to which they refer are still in a
state of flux'. 9
Crawford and Johnson contend that the purpose behind applying
international law to contracts between States and investors is to
protect the latter against unilateral action by the former. However,
how this precisely works is as they put it 'in a state of flux'. They are
unclear as to whether these clauses will continue to protect private
investors in the future. Therefore, they are of the view that whilst
stabilisation clauses provide some form of protection the precise
contents, contexts and contours of that protection remains unclear.
If an approach is to be taken, it should be one that takes
cognisance of the investor's legitimate interests on the one hand and
the State's sovereign rights on the other. A sound approach might be
that of Bartels who contends that whilst international law was not
created with a view to governing contractual relations between a
State and a private entity it could nevertheless be advantageous to
the investor. This is because international law has certain standards
that are not subject to unilateral amendment by a State. This is
especially useful when a nationalisation occurs because matters of
compensation will invariably arise. However, this does not mean
that the parties are granted absolute protection by international law.
The host country still has the power to 'cancel the effect of the
contractual clause by promulgating a general legal nile'.

G_ Delanme, lhsnational Contract App-cable.LawandSettleoentofDiptes.Lawand.Pracdice.

Booklet I(issuedJanuary1988)pp. 15-16.
j-F Crawford and W.R_ Johnson, 'Abiatng with Foreign States and their Instrnsnentalities' (1986), 5
W.LRI1, 12.
"M Bartels, Contractal.AdaptationandConflctResolution(Spfinger. 1985),p. 110
 The Effect of Stabilsation Clauses inConcession Agreements

From this chapter it is clear that stabilisation clauses were

created with the intention of protecting the investor from unilateral
action by the host State that would adversely affect the contractual
interests of the investor. There is intense academic debate on their
applicability. As shown above, academics are very much divided on
whether stabilisation clauses preclude a State from prematurely
unilaterally taking legislative or administrative measures that, in
turn, adversely affect the investors legitimate business interests.
Some argue stabilisation clauses provide absolute protection to the
investor, while others argue that this is theoretically impossible.
The divergence of views articulated in this section shows that the
precise effect of stabilisation clauses is unclear. I am of the view that
surely stabilisation clauses provide some form of protection to the
investor. Arguing otherwise would not make much sense. However,
in determining the precise effect of stabilisation clauses one must
look not to academic discussion on the matter but rather the
decisions of international tribunals. This is the purpose of the next
chapter.
III

CASE LAW ON STABILISATION CLAUSES

The intention behind stabilisation clauses could not be clearer.

However, as mentioned in the previous chapter, what is not so clear
is their precise legal effect. Therefore, the purpose of this section is
to explore the application of stabilisation clauses in the case-law.
There are a plethora of arbitral awards dealing with this issue. In
some awards, the arbitrators contend that the stabilisation clause
does afford absolute protection to the investor. In other awards,
arbitral tribunals have stated that to preclude a host government
from nationalising foreign owned assets by virtue of stabilisation
clauses would amount to an unwarranted encroachment upon State
sovereignty. Although the latter view is grossly under-represented,
we will see that the reasons espoused for it are founded.
 Zambia Law Journal

This chapter is divided into three sections. The first part will
discuss the earlier decisions on the legal effect of stabilisation
clauses. The second part will discuss the three Libyan cases. These
are particularly significant because they, by and large, had a similar
set of facts yet had different outcomes. Finally, we shall look at later
cases. Again the decisions here are equally as divergent as their
predecessors. However, of particular interest is Arninoil v Kuwait
because it establishes a middle ground between protecting investors'
legitimate interests and upholding the sovereignty of the host State.2

A. Earlier Decisions
The concept that stabilisation clauses attract some form of State
responsibility is not a new one. Decisions on the effect of
stabilization clauses stem back to the early part of the twentieth
century. One such decision was Lena Goidields,Ltd v USSR 23 This
case involved Lena Goldfields which was a company incorporated
in 1908. The said company had purchased 70 per cent of the shares in
the Russian Lena Goldfields Company. In 1918 the new Soviet
government took power and proceeded to nationalise the property of
mining companies without paying compensation. This, of course,
included assets belonging to Lena Goldfields.
In 1925, after two years of difficult negotiations between the two
parties, the Soviet government finally granted Lena Goldfields a
concession to mine gold and other metals in the Urals and Siberia.
Part of the concession was to run for a period of fifty years and
another part was to run for thirty-seven years. Operations
commenced later in 1925. However, this was interrupted by a shift in
government policy on foreign capitalists in 1929.' The subsequent
hostility and harassment that followed this rendered it incredibly
difficult for Lena Goldfields to continue its operations. Negotiations
between the Soviet government and Lena Goldfields failed and
therefore the latter initiated arbitral proceedings against the former.

"(n3).
'A. Nussbaum, "TheArbitrationbetween the Lena Goldfields Ltd. and the Soviet Goveanment' (1950-51),
CLQ31,42. The original version ofthis awardhas been lost so this is areproduction.
'See VV vedeer, Mhe Lena Goldfields Arbsnbosr the Historical Roots of the Three Ideas (1998), 47
IGLQ747, 761_
 The Effect of Stabilsatio Clauses inConcession Agreements

Article 76 of the concession was a stabilisation clause. In it the

Soviet government had undertaken not to alter the agreement
without Lena Goldfields' consent. In other words it prohibited any
unilateral action by the State that would adversely affect Lena's
rights. The Court ofArbitration opined that the contract between the
State and a private entity may be internationalised and that the
general principles of law may be applied in protecting the
contractual interests of private entities like Lena Goldfields."
Although the arbitral tribunal did not elaborate further the issue of
stabilisation clauses, Coale correctly observes that, 'the
significance of this award cannot be discounted because it was the
first time an arbitration panel held that other law, besides national
law, could govern the contractual relationship between a foreign
company and a private party'.26
The arbitral tribunal in the subsequent case of Sapphire
InternationalPetroleumLtd v NationalIranian Oil Co. (NIOCJ
had a sinilar position. In this case, the National Iranian Oil
Company (NIOC) had entered into a joint venture with Sapphire
International. The latter was to provide technical and financial
assistance to NIOC with the goal of increasing production and
exportation of Iranian oil. There was a stabilisation clause in this
agreement which read as follows:

No general or statutory enactment, no administrative

measure or decree of any kind, made either by the
government or by any governmental authority in Iran
(central or local), including NIOC, can cancel the
agreement or affect or change its provisions, or prevent
or hinder its performance. No cancellation,
amendment or modification can take place except with
the agreement of the two parties.2

3sJbi430,paragmph22.
NMTB. Coal 'StabiisationClauses inIntemationalPetroleumTransacons' (2001). 301DJI1217,227,
"(1967)35 LLR 136
"lln
i 140.
 Zambia Law Journal

In order to catty out these operations the two parties set up the
Iranian Canadian Oil Company (ICRAN). The contract was
effectively divided into two periods: the prospecting period, and the
extraction and sale period. During the prospecting period all
expenses were to be reimbursed to Sapphire through ICRAN. Once
the extraction and sale period commenced, both parties were to
jointly cover all expenses concerned with the said period.
The contract stated that drilling was to commence within two
years of the contract being fmalised. In addition, NIOC reserved the
right to cancel the contract if Sapphire failed to fulfil its obligations
within the two year period stipulated in the contract. In such an
event, Sapphire would have to pay a sum of $350,000 to NIOC.A
bank guarantee in NIOC's favour was provided to this effect.
Sapphire commenced with its operations and firnished their
expenses upon NIOC amounting to $302,545.25. NIOC refused to
reimburse these expenses on the basis that they had not been
consulted prior to the commencement of the works, which was a
term of the contract. In July 1959, Sapphire thus wrote to the Shah of
Iran asking the govennment to reimburse their expenses. The Iranian
Prime Minister responded on 5 September 1959, stating that NIOC
were entitled to refuse the refund because Sapphire had ostensibly
not fulfilled its obligations. They were thus referred back to NIOC to
settle the dispute.
Given this background and the ensuing dispute between
Sapphire and NIOC, they decided it would be too risky to sign a
drilling contract. On 24 July 1960, NIOC wrote to Sapphire
informing them that they had not yet commenced with their chilling
obligations. Six months later in January 1961, NIOC cancelled the
contract and thus proceeded to cash the $350,000 indemnity
provided by Sapphire. Sapphire thus initiated arbitral proceedings.
Because NIOC failed to appoint an arbitrator; a sole arbitrator was
appointed by the Swiss Federal Court as per Article 41 of the
contract.
The sole arbitrator in this case found that the premature
termination of the concession agreement imposed a duty on the State
 The Effect of Stabilsation Clauses in Concession Agreements

to compensate Sapphire International. He relied upon the principle

of pacta sunt servanda to arrive at his decision. This principle
dictates that contractual undertakings must be respected and he,
accordingly, decided in favour of Sapphire International. The
tribunal found that it was actually NIOC that had deliberately failed
to fulfil their obligations and this amounted to a breach of contract. 29
From the two earlier cases, we have thus seen that arbitral
tribunals are more inclined to award in favour of the complainant
investor if the defendant host State does not abide by its contractual
obligations. This position has however been challenged in later
cases. One of the arguments advanced is that interpreting a
stabilisation clause so as to preclude the host State from passing
certain legislation in the public interest would be an encroachment
on State sovereignty. Arbitral tribunals have not looked upon this
argument with a kind eye and this was certainly the case in Saudi
Arabia v ArabianAmericanOil Co. (Aramco).7'
In Aramco, the government of Saudi Arabia had entered into a
contract with a company called SaudiArabia Maritime Tankers Ltd,
which belonged to the shipping tycoon Aristotle Onassis. His
company was granted the exclusive right to transport Saudi oil and
this agreement was to subsist for a period of thirty years. The
agreement however contravened an earlier one concluded with the
Arabian Oil Company ('Aramco') who had been granted, through a
concession, the exclusive right to transport its own oil that it
extracted from Saudi Arabia. A stabilisation clause was contained
within the concession agreement.
Aramco thus referred the matter to arbitration. An argument was
raised that the stabilisation clause had no effect and to interpret it
otherwise would militate against the sovereignty of Saudi Arabia.
The Arbitral tribunal disagreed with this contention and opined that:

[b]y reason of its very sovereignty within its territorial

domain, the State possess the legal powers to grant

1!b4 181.
"(1963)27LLR 117_
 Zambia Law Journal

rights [by] which it forbids itself to withdraw before

the end of the concession, with the reservation of the
Clauses of the Concession Agreement relating to its
revocation. Nothing can prevent a State, in the exercise
of its sovereignty, from binding itself irrevocably by
the provisions of a concession and from granting to the
concessionaire irretractable rights. Such rights have
the character of acquired rights.3'

These sentiments are shared by Weil who contends that a State

cannot go back on its decision once it has renounced the right to
exercise some of its powers. Once the State has accepted a
stabilisation clause, it gives the investor a 'legitimate expectation'
12
which the government cannot then go back on.
We can see from the earlier cases therefore that arbitral tribunals
subscribed more to the view that stabilisation clauses give absolute
protection to foreign investors. Even then, concerns were raised
about the impact of stabilisation clauses on State sovereignty. As we
can see this argument was dismissed in Aramco. This is because
entering into agreements is a facet of sovereignty which they
contend is in part surrendered once the States bind themselves to an
agreement with a corporation. The next sections will be exploring
the position of the arbitral tribunals in the Libyan nationalisation
cases.

B. The Libyan Nationalisation Cases

In this section, we will be looking at the cases that arose out of the
Libyan government's nationalisation of foreign owned oil
companies. The three cases we will be discussing in this section are
BP v Libya33 , Texaco Overseas Oil Petroleum Co./Califoriua
Asiatc Oil Co. v Libya34 and LIAMCO v Libya." These three key
"1bid. 168-
'P. Weil, Les clases de stabilisation ou dtangibilit insees damsles accords de development
&onotmque'milS guesoffetU aarlestoie au(La Commaute International 1974), 326.
"(1979)53ILR297.
'(1978) 171LM 1
S(1977)62ILR141.
 The Effect of Stabilsation Clauses inConcession Agreements

cases are interesting because they had a similar if not identical set of
facts, yet rather divergent opinions on whether stabilisation clauses
are in fact binding on the State. In order to have a firm grasp of the
Libyan nationalisation cases it would be useful to start by giving a
general background, highlighting the circumstances under which
the three cases arose.
Libya had attained her independence in 1951 as an impoverished
nation, with very few known natural resources. As a consequence,
its population was sparse and uneducated. Ninety per cent of the
country consisted of desert and only possessed a small amount of
arable land. Thus it was a nation with very bleak economic
prospects. This position changed between 1951 and 1979 with the
discovery and exploitation of Libya's vast oil reserves. Her income
was estimated to have exceeded $16 billion dollars from oil export
by 1979, placing Libya among the world's top fifteen richest
nations. In addition, at $6,680 per capita income, Libya was the
highest earner in Africa."
From what we have seen, the economic fortutes that Libya
enjoyed were almost entirely based on her oil riches.3 8 In order to
exploit their oil reserves the government of Libya would rely quite
heavily on the investment of foreign oil companies. To foster this, a
legal framework had to be put in place." Thus the Libyan Petroleum
Law of 1955 was introduced. In it was the framework through which
oil concessions were granted. Of particular note was the standard
deed of concession which, according to Article 9, were to be used
when granting all concessions.
There were three key provisions within the concession
agreements: the arbitration clause, the choice of law clause and the
stabilisation clause. In clause 28, which was the arbitration clause,
the two parties undertook to settle all disputes by arbitration rather
than through the national forums. The other important clause was
"For a more elaborate socio-economic background, see RB. Von Mehren and P.N. Kourides,
'Intematiaoal Arbitration Between States and Foreign Private Parties: The LibyanNationalisation Cases'
(1981) ATf476, 477- 479
"The World Bank, World DevelopmentReport of 1979.
"(n 36) (1981)75 ATfL476. 477 where they note that in 1969, 99.8 per cent of Libya's total exports was
petroleuaL
bid
 Zambia Law Journal

contained in 28(7) which was the choice of law clause. Finally, we

had clause 16 which was the stabilisation clause. After about three
subsequent amendments, the final version of clause 16 read as
follows:

(1) The Government of Libya, the Commission and

the appropriate provincial authorities will take all
steps necessary to ensure that the Company
enjoys all the rights conferred by this Concession.
The contractual rights expressly created by this
Concession shall not be altered except by mutual
consent of the parties.
(2) This Concession shall throughout the period of its
validity be construed in accordance with the
Petroleum Law and the Regulations in force on
the date of execution of the Agreement of
Amendment by which this paragraph (2) was
incorporated into this Concession Agreement.
Any amendment to or repeal of such Regulations
shall not affect the contractual rights of the
Company without its consent."

Clause 16, like most stabilisation clauses, was inserted as a

guarantee from the host government that they would not alter the
contractual rights of the concession holders except by mutual
consent. In other words, the concession holders could not be
deprived of their enjoyment of the contractual rights bestowed upon
them unless they agreed to it.
As mentioned earlier, Clause 28 of the concession contained an
arbitration clause. Of most significance is paragraph 7 which is the
choice-of-law provision which read as follows: 'This Concession
shall be governed by and interpreted in accordance with the Laws of
Libya and such principles and rules of international law as may be
relevant, and the umpire or sole arbitrator shall base his award upon
4*(n33)322.
 The Effect of Stabilsation Clauses inConcession Agreements

those laws, principles and rules.' This was first altered in 1961 by
Royal decree, which effectively stated that where there was a
conflict between Libyan law and international law, then the former
would take precedence. This was agreed to in 1963, as per clause 16.
Another change by Royal decree took place in 1965, and was
agreed to in 1966. This time rather than Libyan law superseding
international law, the parties chose to have a situation whereby only
the principles of Libyan law that were common with those of
international law should be applied in the governance and
interpretation of the concession. In the absence of such principles in
Libyan law what should apply are the general principles of law
including those applied by international tribunals. This change was
affected because the concession holders were dissatisfied with the
alteration in 1963. Altering the agreement ensured that if there were
no principles under Libyan law that were congruous with
international law, then the concession would be governed by the
general principles of law instead. This would ensure more fair
treatment is afforded to the foreign oil companies.4
In 1969, Colonel Muammar Gaddafi overthrew the government
in a bloodless coup and became Chairman of the Revolutionary
Command Council ofLibya. In November 1971, the Government of
Iran occupied Abu Musa and the Greater and Lesser Tumb which
were located in the Persion Gulf. Although these islands were still
nominally under British protection through a treaty. this treaty was
due to expire the following day. Britain did virtually nothing to
prevent Iran fiom occupying these islands, and as such received
much condemnation from the Arab world. In December 1971, the
Libyan government retaliated by nationalising all assets belonging
to British Petroleum in the Hunt/BP deed of concession through
Decree No. 115.42
In early 1973, the govennent of Libya had attempted to gain
direct equity participation in the oil concessions granted to foreign
companies. Because negotiations did not go in Libya's favour, they
'Amendments to the PetroleumLaw, .IbynRev(Jan. 1966), at 26,27.
'Seegenerally (1972) 11 ILM 380 andMiddle East Economic Survey, Supp. toNo.7,IODecember 1971,
at3.
 Zambia Law Journal

decided to nationalise all of Bunker Hunt's interest in the Hunt/BP

deed of concession. They cited Americas support for Israel as a
reason for the nationalisation.
In September 1973, the government of Libya nationalised 51 per
cent of the assets belonging to TOPCO, CALASIATIC and
LIAMCO through Decree No. 66 of 1973. 4' This occurred
subsequently to failed negotiations between the said companies and
the government of Libya vis-i-visthe latter obtaining a direct equity
interest in their concessions. Once again Colonel Gaddafi cited
American support for Israel in the Arab-Israeli conflict as a reason
for the nationalisations. Finally in February 1974, the government of
Libya nationalised the remaining 59 per cent of LIAMCO's assets
through Decree No. 10 of 1974.' They also nationalised the
remaining 49 per cent of assets belonging to TOPCO and
CALASITIC through Decree No. 11 of 1974.45
The claimants BP, TOPCO/CALASIATIC and LIAMCO
initiated arbitral proceedings against the government of Libya. In all
three cases, they had written to the government of Libya indicating
that they had appointed their arbitrator. The government of Libya
refused initially to participate in the arbitral proceedings. Thus, sole
arbitrators were appointed by the Vice-President of the International
Court ofJustice in allthree casespursuant to clause 28, paragraph 3.46
In BP v Libya, the arbitral tribunal said very little about the
stabilisation clause contained in the concession agreement, and
instead focused on the fact that the nationalisation was confiscatory.
On whether the Libyan government was liable for breach of contract
the Sole Arbitrator Judge Lagergren opined as follows:

4
See(1974) 13 ILM 60 othercmatmonldersthat were affected by this decree were: Esso Standard of
Libya Inc., Grace Petroleums Corp. Eno Sitte Co, Inc., Shell Exploratie En Productie Maatschappij,
Mobil Oil of Libya Inc., and Gelsenberg kG. (Libya). There were some corporations that were not
affected by &t and these were Aqu"itaie Lby and Elf-Libye which were French and Hispanics de
PetroloeubichwasaSpanishcorpoatio.
iddliadtEmos. SwxyNo. 19.1 Marti. 1974. at iv-vit.
*slK at i4v.
'Clause28.pagph3 stated: 'The party eceiving the request shall within 90 days of such receipt appoint
itsAztitrator and notify tis qppwntmeutto the other of sud parties failing which such other patty may
request the President, or in the case tefeted to in paragraph I above, the Vice-President, of the
t-matimal Cot of Jutice to appoint a Sole Arbitrator, and the decision of the Sole Arbitrator so
ai ted abeb ,m&nguptbothuthpurte.'
 The Effect of Stabilsation Clauses in Concession Agreements

No elaborate reasons are required to resolve the third

issue. The BP Nationalisation Law, and the actions
taken thereunder by the Respondent do constitute a
fundamental breach of the BP Concessions as they
amount to a total repudiation of the agreement and
obligations of the Respondent thereunder, and, on the
basis of rules of applicable systems of law too
elementary and voluminous to require or permit
citation, the Tribunal so holds.

As far as Judge Lagergren was concerned, the act of

nationalisation on the part of the Libyan government was politically
motivated. Furthennore, the taking was confiscatory as two years
had elapsed since the nationalisations had taken place and BP still
had not received compensation." Considering his background as a
Judge, it is rather astonishing at the fact that the Sole Arbitrator
chose not to cite any legal authorities in rendering his decision on
whether the Libyan government had in fact breached their
contractual obligations to BP. His assumption may have been based
on the fact that earlier case law and scholarly writings were
generally clear on State liability for breach of contract. If this was
his thinking then it is difficult to fault him as such. However, it is not
good practice to render a decision without substantiating it with
legal authority. The Sole Arbitrator in the next case was far more
elaborate in how he arrived at his decision.
Texaco Overseas Oil PetroleumCo./CaliforinaAsiatic Oil Co. v
Libya focused on the principle ofpacta suntservandaand that it was
in fact possible for a sovereign state to bind itself to a contract with
an investor.?" In accordance with clause 28, the Sole Arbitrator
Dupuy explored the principles of Islamic or Sharia Law which was a
source of Libyan law. The principle that all parties should abide by a
-(n33) 329.

'See also the SS limbledon Case PCUI (1923), Series A, No-1, 25 where the Permanent Court of
International Justice held that 'the eight of entering into bternational agreements is an attribute of State
sovereignty' and therefore a state essentially loses the right to clauinthat the limits placed upon it by those
agreements is an mpermissible infringement ofits sovereignty.
 Zambia Law Joumal

contract, is under Sharia law more rigidly applied to the sovereign or

government than it is to private parties. This is owing to the great
discretionary powers available to the sovereign. Thus. to set an
example to his or her subjects, a sovereign is held to a greater
standard than that applied to ordinary persons. Sole Arbitrator
Dupuy observed:

Thus, under the Sharia, nobody, neither the sovereign

nor any official, is exempted as a matter of privilege. If,
in conformity with the siyasa doctrine, the sovereign
has large discretionary powers as regards the
promotion of public interest, he must nonetheless
abide by the commands of the supreme law, and Ibn
Qudama states that 'a breach of a commitment on the
part of the Imam is more serious and more heinous than
a breach committed by anybody else, because of its
baneful consequences'. Now, it is accepted that this
rule covers also agreements entered into with non-
Muslims5 0

The Sole Arbitrator held that the clause did not 'in principle
impair, the sovereignty of the Libyan State'. This was essentially
because all its sovereign powers still remained intact and could still
be exercised on persons other than those to whom it owed
contractual obligations. The Sole Arbitrator opined that:

There is no doubt that in the exercise of its sovereignty

a State has the power to make international
commitments .... There is no need to dwell at any length
on the existence and value of the principle under which
a State may, within the framework of its sovereignty,
undertake international commitments with respect to a
private party. This rule results from the discretionary
competence of the State in this area.... .The result is that

'(n34) para 65.

 The Effect of Stabilsation Clauses inConcession Agreements

a State cannot invoke its sovereignty to disregard

commitments freely undertaken through the exercise
of this same sovereignty, and cannot through measures
belonging to its internal order make null and void the
rights of the contracting party which has performed its
various obligations under the contract."

Coale contends that the arbitrator interpreted the stabilisation

clause as a basis to internationalise the contract. This effectively
meant that the contract was not subject to national law. The palties
therefore 'act as equals and the 52
host state is bound by the guarantees
it has offered to the investor'.
Thus far we have seen case law that leans more in favour of the
rights of the investor to the detriment of State sovereignty. The
decision in Texaco can be contrasted with LIMCO v Libyat. Inthis
case, the arbitral tribunal held that stabilisation clauses do not affect
the State's sovereign right to expropriate a contract. To hold
otherwise, in their view would amount to an intolerable interference
with a State's sovereignty. This case represents a recognition that
arbitral tribunals can take into account the sovereignty argument.
However, the effect of this case was to uphold the sovereign rights
of the State to the detriment of the investor.
From the above, it is safe to observe that the Libyan decisions
were contrasting. There are BP v Libya and Texaco v Libya on the
one hand which espouse the belief that stabilisation clauses do grant
foreign investors absolute protection. Particularly from Texaco, we
can see that the contention that this affects the sovereignty of a
nation is not entertained at all. On the other hand we have LLAMCO
v Libya which does entertain the sovereignty argument.

"16b4a paragraphs 65-68.

Coale, 'Stabilisation Clauses in lntemhonal Petroleum Transactions (2002) 30 D"L P,pp. 217-
%NIT.B.
237.
"(n35) 141.
 Zambia Law Journal

C. Subsequent Decisions

To use the words of Dolzer and Schreuer 'subsequent cases have

also failed to provide a homogenous jurisprudence')41t is clear that
later arbitral awards are equally as conflicting as the earlier ones.
The case of AGIP v PopularRepublc ofCongoP seems to subscribe
to the 'absolute protection' rule. Once again, they were not willing to
entertain the sovereignty argument. This case involved the
government of Congo which had nationalised the oil distribution
sector in 1974. The only company that remained unaffected by these
nationalisations was AGIP, who had entered into an agreement for
the sale of 50 per cent ofAGIP's capital to the government of Congo.
The agreement between the government and AGIP contained within
it several stabilisation clauses. AGIP was nationalised in 1975 by the
government ofCongo.
The arbitral tribunal held that the stabilisation clauses contained
within the concession concerned were fieely accepted by the
government. The government still possessed its legislative and
regulatory powers. However, those powers could not be invoked
against the investor with whom the host government had an
agreement.5'
This position can be contrasted with the one in Aminoil v
Kuwait I conceive that this took a more balanced approach to its
7

predecessors and this will become apparent as the case progresses.

In this case, the Ruler of Kuwait had granted the American
Independent Oil Company (AMINOIL), a Delaware incorporated
company, a concession for sixty years to explore and exploit oil and
gas resources in Kuwaits hold of the neutral zone between Kuwait
and Saudi Arabia. The agreement was signed in 1948 while Kuwait
was still a British Protectorate. This agreement contained a
stabilisation clause which read as follows:

K DolzerandC_ Schreuer, PrmcsplesaofnnteraboaJ Ilr tLa(OUJP, 2008) 76.

s(1982) 21 ILM 726
"JTh726, Sec- 86.
"(1982)21 ILM976-
 The Effect of Stabilsation Clauses inConcession Agreements

The Shaikh shall not by general or special legislation

or by administrative measures or by any other act
whatever annul this Agreement except as provided in
Article 11. No alteration shall be made in terms of this
Agreement by either the Shaikh or the Company
except in the event of the Shaikh and the Company
jointly agreeing that it is desirable in the interests of
both parties to make certain alterations, deletions or
additions to this Agreement.

Kuwait obtained her independence from Britain on19 June

1961. The government then proceeded to amend the 1948
concession. This was done essentially to conform with the fifty-fifty
profit sharing pattern that had become more commonplace in the
Middle East since the time the original concession was finalised.
When OPEC became more powerful throughout the Middle East,
pressure mounted on Aminoil to agree on greater participation by
the government as well as the imposition of higher taxes by the
Kuwaiti government.Aminoil gradually agreed to these changes.
Oil prices quadrupled after the October War of 1973, which
meant that AMINOIL's profits increased despite the increase in tax
and royalty rates. Negotiations continued and AMINOIL proposed
a revised agreement. This proposed agreement was that AMINOILs
profits would amount to seventy cents per barrel or $18-20 million
peryear.
The government of Kuwait on the other hand, who by this point
had taken over, by mutual agreement, a vast bulk of AMINOIL's
other oil concessions in the country, offered a plan that would mean
that AMINOIL would gain profits of about 25 cents per barrel (or
about $7.5 million per year).
Both parties continued negotiating however, in 1977, the
government finally issued Decree Law No. 124 effectively
terminating the concession and providing that all property should
revert to the State. Article 3 decree established a Compensation
Committee whose task it was'to assess the fair compensation due to
 Zambia Law Journal

the Company as well as the Company's outstanding obligations to

the State or other parties'. Article 3 went on to say that the State
would, "pay what the Committee decides within one month of being
notified of the Committee's decision". Aminoil refused to appear
before the committee and demanded arbitration in London pursuant
to the 1948 agreement.
One of the fundamental questions raised once the parties did go
to arbitration is whether the stabilisation clause rendered the
nationalisation decree unlawful. Although the Tribunal conceded
that'a straightforward and direct reading of [the stabilisation clause]
can lead to the conclusion that they prohibit any nationalisation' 5S
they did ultimately hold that the stabilisation clause did not preclude
the government of Kuwait from nationalising assets belonging to
Aminoil.
The tribunal rejected the contention by the government of
Kuwait that the stabilisation clauses added 'nothing to what would
in any event be the legal position'. In other words, the stabilisation
clauses were merely affimning what the contract already said. The
tribunal took the view that when interpreting contracts, one must
adopt an approach that gives each clause a 'worth-while meaning or
object'. Because one party to the contract was a State, and as such
had various powers and prerogatives at their disposal, the purpose of
this clause was to provide some sort ofprotection for the investor. 9
The Government of Kuwait also contended that these clauses
were invalid because they were signed in 1948 prior to their having
gained independence. The tribunal rejected this argument because
the stabilisation clauses were expressly acquiesced to when the
government of Kuwait revised their agreements in 1961 and again in
1973.
The arbitral tribunal opined that although there was a
stabilisation clause in the agreements between the Kuwaiti
government and Aminoil, these stabilisation clauses in themselves
did not amount to an express agreement not to nationalise. The

'lbikparagraph88.
'Tbidpangph89.
 The Effect of Stabilsation Clauses inConcession Agreements

tribunal did not dispute the fact that it is possible for the State to limit
its right to nationalise assets belonging to foreign corporations.
However, the contract would have to expressly stipulate this. In
other words the stabilisation clause should have expressly stated
that they would not take any administrative or legislative measures
that would inter alia lead to the nationalisation ofAminoil's assets. It
could not be implied from the wording as it stood that the State had
fettered its ability to nationalise. Furthermore, such a clause would
have to cover only a 'relatively limited period'. In this particular
case the stabilisation was very general and did not expressly
prohibit nationalisation. Furthennore, the clause ran for a period of
sixty years which in the arbitral tribunal's opinion was 'especially
long'.' In a nutshell the majority opinion was that a stabilisation
clause is only binding in instances where the clause: (1) expressly
mentions the specific action that the investor is protected against
and; (2) runs for a reasonable time frame. In the case of Aminoil
sixty years was rendered excessive.
The tribunal further added that the purpose behind the
stabilisation clause was to protect against confiscatory taking. In
this particular case there was no evidence of this since the
government of Kuwait actually intended on compensating Aminoil.
Arbitrator Fitzmaurice fiercely criticised this approach. Although
he highlights that his was not a dissenting opinion he did state that,
'It is an illusion to suppose that monatery compensation alone, even
on a generous scale, necessarily removes the confiscatory element
from a take-over, whether called nationalisation or something else.'
He gives an analogy of paying compensation to a person who has
lost his leg. Paying compensation to one such person does not bring
the leg back. When corporations like Aminoil insert stabilisation
clauses within their contracts, the aim is not to obtain money; the
aim is to ensure that the concession as a whole is not breached by the
host State. He goes on to say:

'b14 p2ragraph95.
 Zambia Law Journal

Nationalisation, or any other form of take-over, is

necessarily confiscatory in the sense that, irrespective
of the wishes of the legal owner, it dispossesses him of
his property and transfers it elsewhere.
Nationalisations may be lawful or unlawful, but the
test can never be whether they are confiscatory or not;
because by virtue of their inherent character, they
always are."

It is worth noting however that Fitzmaurice was the arbitrator

appointed by Aminoil by virtue of Article II of the arbitration
agreement.6 Whilst his opinion is well reasoned, I find it difficult to
read without questioning his neutrality. Although Fitzmaurice
denies that his was a dissenting opinion, one would be hard pressed
to interpret it in any other way because it did mark a significant
departure from the majority opinion. It is easier to accept the
majority opinion delivered by the president of the tribunal because
he was appointed by the President of the International Court of
Justice. It is less likely therefore that he would have a vested interest
in the outcome of the arbitral proceedings.
On the fundamental principle ofpacta simtservandathe tribunal
noted the 'great changes' which the Concession had undergone
since 1948. Although Aminoil grudgingly accepted these changes,
they did accept them nonetheless. The tribunal also recognised that
the changes that the contract had undergone were greatly influenced
by the transformation in the way oil concessions were being dealt
with across the Middle-East and the world over. These were changes
that had taken place progressively and ultimately gave a new
character to the Concession as a whole."
Amoco International Finance Corp. v Government of the
Islamic Republic of fran" Article 2, paragraph 2 read as follows:

"The Separate Opinion of Sir G. Fitzmiaurice, Paragraph26.

'Article II: '(1) The arbitral tribunal (hereinafter refene to as 'the Tibunal') shall be composed of three
members, one appointed by each party as recited m pmagraph 2 of this Article, and a third member who
shall act as president, to be appointed by the President of the International Court of Justice. (2) The
member of the Tribunal appointed by the Government shall be Professor Doctor Hamed Sultan. The
member appointed by the Company shall be Sir Gerald G_Fitmassoce, GCMG., Q.C.'
OParagraph 97.
"(1987) 15 Iran-OS CTRep 189.
 The Effect of Stabilsation Clauses in Concession Agreements

Measures of any nature to annul, amend or modify the provisions of

this Agreement shall only be made possible by the mutual consent of
NPC andAMOCO.
The Arbitral Tribunal took the view that intemationalising a
contract is elevating the status of a contract to that of a treaty. Doing
so elevates the status of a private corporation to that of a State. The
arbitral tribunal contended that a private corporation should not be
elevated to the status of a State. They further held that: As a
findamental attribute of state sovereignty, this right, commonly
used as an important tool of economic policy, by many countries,
both developed and developing, cannot easily be considered as
surrendered.
In AMCO Asia Corporationv Indonesia,"5 the ICSID Tribunal
opined that the State is entitled to withdraw from a contract 'for
reasons which would not be invoked by a private contracting entity,
and/or to decide and implement the withdrawal by utilising
procedures which are different from those which can and have to be
utilised by a private entity'. They go on further to say that the State is
there to protect the public interest and welfare. Thus unless the State
is acting like a private person and not in its capacity as a sovereign, it
must not be bound by a previous act but rather be in a position to
change it if it is in the public interest. This is the case 'even if this act
is the source of the State's commitment and obligations'."
The tribunal further stated that it is a feature of sovereignty to
'nationalise, or expropriate property including contractual rights
previously granted by itself'. However, this must be done in the
public interest. Although this case did not deal with stabilisation
clauses, if interpreted in the extreme it could be construed as
applying to all contractual provisions. This could potentially render
the stabilisation clause virtually redundant.
It would be appropriate at this stage to make a few comments
about the three groups of cases I have examined in this subsection.
From all the decisions it would appear that there is no definite
position on the application of stabilisation clauses. As seen from the
-(1985) 24I1M 1022
O/bi4 1029
 Zambia Law Journal

earlier cases, arbitral tribunals have tended to lean in favour of the

contention that stabilisation clauses grant the investor absolute
protection from unilateral actions perpetrated by the host
government. Although arguments were raised that this impedes on
the sovereignty of the host State, this argument has generally been
rejected. Earlier arbitral decisions on the applicability of
stabilisation clauses were homogenous.
The arbitral decisions arising out of the Libyan nationalisations
however were not so congruent, despite.the fact that they arose out of
similar circumstances. Later cases were equally as divergent. As a
result of the later cases, it would appear that the position of
stabilisation clauses remains unclear. The fact that arbitral tribunals
cannot bind one another does little to ameliorate this situation. Until
we have clarity on the applicable position, the law remains
uncertain. This uncertainty could stifle the flow of foreign direct
investment.
To resolve this situation I would propose an approach that
balances the rights of the investor but also takes cognisance of
sovereign rights of the State. In my view, the sound approach taken
by the arbitral tribunal in Aminoil achieves this balance. This is on
account of the fact that, while it does not endorse the absolute
protection theory, it does recognise the fact that stabilisation clauses
do attract some form of State responsibility. However, in order to
obtain a remedy, the clause must be specific and it must be binding
only for a reasonable period of time. What amounts to a reasonable
period of time one might argue should be determined on a case by
case basis. This is because what is reasonable varies depending on
the country and the industry in question. Thus it is better to leave this
definition open.
The Aminoil position is advantageous to the investor because it
ensures that if the government unilaterally alters or cancels a
contract during this reasonable period, then the investor will be able
to obtain some sol of a remedy. It also advantages the host State
because it ensures that its sovereign right to legislate is only stifled
for a limited period of time, as opposed to sixty years or indefinitely.
 The Effect of Stabilsation Clauses in Concession Agreements

IV
CONCLUSION

Stabilisation clauses are clearly designed to protect the investor

from any unilateral and arbitral acts perpetrated by the host State.
They are presumed to do so by preventing the State from taking any
action that would place the foreign corporations' investments in
jeopardy, whether it is through the legislative process or trough
administrative action. We can see through the preponderance of
arbitral awards that they do have some binding effect. The argument
that this impinges on State sovereignty is one that some arbitral
tribunals were unprepared to countenance, and rightly so. After all,
what then was the purpose of the host State entering into these
agreements and freely making these undertakings?
However, the idea that stabilisation clauses grants the investor
absolute protection, is not without it's difficulties. Certainly, the
absolutist theory fails to take into account that economic
circumstances do change, and the prices of natural resources on the
world market are no exception to that proposition. The case of
Aminoil is good example of that because the price of oil continued
to escalate over the decades which meant that the oil company
concerned was directly benefiting; all the Kuwaiti government
wanted was a share in these windfalls in the oil prices and this is
why they proceeded to nationaliseAminoil.
It is worth recalling that the arbitral tribunal in Aminoilheld that
the stabilisation clause did not preclude the government of Kuwait
from nationalising assets belonging to Aminoil. This is inter alia
because nationalisation was not specifically mentioned in the
stabilisation clause, nor did the clause itself run for a reasonable
period of time. The contract in question ran for sixty years and the
tribunal, for reasons known only to themselves, did not decide to
define what a reasonable time frame was. It is clear however that
sixty years was unreasonable. Perhaps they neglected to give a
definition because what is a reasonable time frame will differ from
86 Zambia Law Journal

country to country and from commodity to commodity. Thus,

perhaps it is difficult to give a rigid timeframe, and what is
reasonable should therefore be decided on a case by case basis.
It could thus be concluded that ordinary stabilisation clauses
do not, as a general rule preclude the host State from taking
administrative or legislative action that would have an adverse impact
on the rights contained within a concession agreement. However, if
they do run for a reasonable time frame and expressly indicate what
sort of action the State is prohibited from perpetrating then, as per
the Aminoilaward, they are binding.