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How to protect your mining investment? Some views on stabilisation clauses

How to protect your mining investment? Some views on stabilisation clauses. Bertrand Montembault Avocat au barreau de Paris, Herbert Smith LLP PDAC MineAfrica 2010, Toronto, 9 March 2010. Protecting investment through the stabilisation of the legal environment.

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How to protect your mining investment? Some views on stabilisation clauses

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  1. How to protect your mining investment?Some views on stabilisation clauses Bertrand Montembault Avocat au barreau de Paris, Herbert Smith LLP PDAC MineAfrica 2010, Toronto, 9 March 2010

  2. Protecting investment through the stabilisation of the legal environment • Risks faced by the mining industry: geological, financial, environmental and political / legal • It is necessary to mitigate these risks in order to attract investors (mining companies, financiers, etc.) • At the core of political/legal risks: sovereignty of State vs. sanctity of contract • A key element to mitigate political/legal risks: stabilisation of the legal environment

  3. Protecting investment through the stabilisation of the legal environment • Mechanisms available to stabilise the legal environment: • Treaties (BITs) • Statutes (mining laws, investment laws, etc.) • Legal doctrine (e.g. French administrative law: act of state (fait du prince, State's liability arising from enactment of laws) • Contract with the state: stabilisation clauses

  4. Stabilisation clauses: back to basics • Clauses stabilising the non-legal environment: general contract law • Force majeure clause • Hardship clause • Renegotiation clause • Adjustment clause (revision clause) • Purpose of stabilisation clauses: neutralisation of the State's legislative power • Stabilisation clauses vs. "intangibility clause" • Stabilisation clauses vs. non-expropriation clause • Need to neutralise the State's jurisdictional power (arbitration clause) • Need to establish contractual relationship with the State

  5. Protecting investment through the stabilisation of the legal environment • Validity • International arbitration cases (Texaco, Calasiatic, Aminoil, Agip, Saphire, etc.) • Applicable law clauses: internationalisation of contract • Typology • Legal nature: freezing (stabilisation "stricto sensu" or stability) / economic equilibrium / hybrid clauses • Scope: general / limited • Unilateral / bilateral • Implementation: automatic / conditional

  6. Freezing clauses (stabilisation "stricto sensu" / stability): a criticised tool • Perception • Developed countries / emerging countries (36% in Sub-Saharan Africa) • Industry sectors (50% extractive industries) • Would limit State's capacity to legislate in human rights matters (HSE): appointment of John Ruggie as Special Representative to the UN Secretary General • Limited legal efficiency: no specific performance / award of damages • Similar protection may be achieved by other means, less harmful to the State's sovereignty: • BITs • Economic equilibrium clauses

  7. Freezing clauses (stabilisation "stricto sensu" / stability clauses): a useful tool in the context of the resurgence of resource nationalism • Efficiency of freezing clauses established through: • Characterisation of State's breach of contract • Principle of higher indemnification seems to be admitted ("damnum emergens" + "lucrum cessans") but the solutions are not yet clearly established : "legitimate expectations" (Aminoil 1982), "fair market value" (CMS Gas Transmission 2005/SD Meyers) • Uncertainties arising from: • Notion and implementation of economic equilibrium clause (no arbitration case known) • Creeping expropriation • A useful reference to bear in mind: domestic (administrative) law

  8. Alliance offices

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