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Stabilisation Clauses in Investment Agreements - a Human Rights and Development Perspective

Ingolfsson, Sandra LU (2012) JURM02 20122
Department of Law
Abstract
When making a long-term investment investors need to be able to ensure a certain degree of legal and financial predictability. Since the investment is subject to the jurisdiction of the host state, investment agreements between the host state and the investor are commonly used. Such investment agreements may include stabilisation clauses, ensuring that arbitrary changes in law do not apply to the investment or that compensation will be rewarded where the changes lead to increased costs for the investor.

However, in recent years, a debate on the negative human rights impacts of stabilisation clauses has surfaced. In cases where a stabilisation clause is written to hinder changes in law also concerning human rights, it may have... (More)
When making a long-term investment investors need to be able to ensure a certain degree of legal and financial predictability. Since the investment is subject to the jurisdiction of the host state, investment agreements between the host state and the investor are commonly used. Such investment agreements may include stabilisation clauses, ensuring that arbitrary changes in law do not apply to the investment or that compensation will be rewarded where the changes lead to increased costs for the investor.

However, in recent years, a debate on the negative human rights impacts of stabilisation clauses has surfaced. In cases where a stabilisation clause is written to hinder changes in law also concerning human rights, it may have detrimental effects on the development of human rights in the host state. When the host state is a developing country, the issue becomes especially prominent.

In March 2011 the United Nations published the Guiding Principles on Business and Human Rights, establishing a corporate responsibility to respect human rights and human rights due diligence to be an incorporated part of businesses. Although voluntary in character, the UN Guiding Principles changes the way business and human rights are looked at. This paper is intended to analyse the impacts of the UN Guiding Principles on the future use of stabilisation clauses and provides a description of stabilisation clauses in relation to human rights in developing countries.

By looking into aspects of foreign direct investment, human rights, the business and human rights debate and the recent changes on corporate responsibilities this paper is meant to raise questions concerning the use of stabilisation clauses as a means to secure foreign investments. The different forces and interests behind the use of stabilisation clauses are considered, and focus lies upon why the use of stabilisation clauses is especially problematic where the host state is a developing country. The often-confidential character of stabilisation clauses, or rather the investment agreements in which they are included, poses a true challenge. The number of cases available for research is comparatively low, and cases of corporate-related human rights abuses are most often referred to arbitration.

Nevertheless, it becomes evident that stabilisation clauses, if drafted to include changes in human rights law, may have detrimental effects on human rights. In this sense, the inclusion of stabilisation clauses in investment contracts directly contradicts the entire concept of a corporate responsibility to respect human rights and the purpose of human rights due diligence as set forth by the UN Guiding Principles. (Less)
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author
Ingolfsson, Sandra LU
supervisor
organization
course
JURM02 20122
year
type
H3 - Professional qualifications (4 Years - )
subject
keywords
Civilrätt, internationell rätt, investeringsrätt, mänskliga rättigheter.
language
English
additional info
E-post: sandra_helgadottir@hotmail.com
Mobil: 0702-433344
Personnummer: 19870210-4301
Datum för examensseminarium: 2013-01-18
id
3359538
date added to LUP
2013-01-28 13:40:27
date last changed
2013-01-28 13:40:27
@misc{3359538,
  abstract     = {When making a long-term investment investors need to be able to ensure a certain degree of legal and financial predictability. Since the investment is subject to the jurisdiction of the host state, investment agreements between the host state and the investor are commonly used. Such investment agreements may include stabilisation clauses, ensuring that arbitrary changes in law do not apply to the investment or that compensation will be rewarded where the changes lead to increased costs for the investor. 

However, in recent years, a debate on the negative human rights impacts of stabilisation clauses has surfaced. In cases where a stabilisation clause is written to hinder changes in law also concerning human rights, it may have detrimental effects on the development of human rights in the host state. When the host state is a developing country, the issue becomes especially prominent. 

In March 2011 the United Nations published the Guiding Principles on Business and Human Rights, establishing a corporate responsibility to respect human rights and human rights due diligence to be an incorporated part of businesses. Although voluntary in character, the UN Guiding Principles changes the way business and human rights are looked at. This paper is intended to analyse the impacts of the UN Guiding Principles on the future use of stabilisation clauses and provides a description of stabilisation clauses in relation to human rights in developing countries. 

By looking into aspects of foreign direct investment, human rights, the business and human rights debate and the recent changes on corporate responsibilities this paper is meant to raise questions concerning the use of stabilisation clauses as a means to secure foreign investments. The different forces and interests behind the use of stabilisation clauses are considered, and focus lies upon why the use of stabilisation clauses is especially problematic where the host state is a developing country. The often-confidential character of stabilisation clauses, or rather the investment agreements in which they are included, poses a true challenge. The number of cases available for research is comparatively low, and cases of corporate-related human rights abuses are most often referred to arbitration. 

Nevertheless, it becomes evident that stabilisation clauses, if drafted to include changes in human rights law, may have detrimental effects on human rights. In this sense, the inclusion of stabilisation clauses in investment contracts directly contradicts the entire concept of a corporate responsibility to respect human rights and the purpose of human rights due diligence as set forth by the UN Guiding Principles.},
  author       = {Ingolfsson, Sandra},
  keyword      = {Civilrätt,internationell rätt,investeringsrätt,mänskliga rättigheter.},
  language     = {eng},
  note         = {Student Paper},
  title        = {Stabilisation Clauses in Investment Agreements - a Human Rights and Development Perspective},
  year         = {2012},
}