How to protect your mining investment?Some views on stabilisation clausesBertrand MontembaultAvocat au barreau de Paris, Herbert Smith LLPPDAC 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