Stabilising state contracts: From stabilisation to renegotiation clauses

Considering the long-term and investment-intensive nature of State contracts, stabilisation clauses have existed as prominent tools to stabilise the contractual relationship. 

Investors insist on the inclusion of a stabilisation clause, especially since creditors demand some tools to stabilise the contract by ‘enclaving it’. The effect of enclaving would be that the contract is unaffected by any future changes or amendments to the law and continue to be regulated by the legal regime existing at the time of entering into the contract. Thus, freezing the regulatory regime in favour of the foreign investor. 

Stabilization clauses have received severe criticism for their constraining effect on the freedom of the States to regulate in public interest, especially for the protection of human rights, addressing climate change and environment protection, labour standards etc. In response to these concerns there is an emerging trend in contractual practice towards renegotiation clauses which require the parties to renegotiate and restore the economic balance of the contract without interfering with the freedom of States to regulate. 

This lecture traces the evolution of the contractual practice and the emerging trend from stabilisation to renegotiation clauses.

About the speaker

Aniruddha Rajput is Distinguished Professor of Law at National Law University Delhi and practises as a barrister with Withers in London. He is a member of the Working Group of UNIDROIT on International Investment Contracts and a former member of the UN International Law Commission and chairperson of its Drafting Committee at the 69th Session in 2017.