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

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