When the Law Stands Still: Understanding Stabilisation Clauses

Introduction

A nation’s legislative framework evolves as it deploys its sovereign right to address changing social needs, economic realities, and defects in existing legislation. However, investors enter a country seeking certainty and predictability in the legal environment governing their market operations. The divide between a nation’s right to change its laws and an investor’s need for stability gives rise to stabilisation clauses. Usually found in major investment contracts, particularly in the energy and mining sectors, these clauses aim to strike a balance between the interests of host states and investors. This article defines stabilisation clauses, outlines their types, and explains why they matter.

What are Stabilisation Clauses?

Stabilisation clauses are contractual provisions which are usually included in contracts between investors and the state.[1] These clauses are standard in contracts such as joint operating agreements, or concession agreements, involving Sub-Saharan African and other developing states.[2] These clauses determine the applicability of specific national laws and regulations to the investment when the contract is signed for a specific period, often referred to as the stability period.

It protects investments from further amendments and changes to those specific acts and regulations, such as issues related to tax regimes or structures, environmental protection, and human rights.[3] In several investment contracts, the stabilisation clauses span multiple domestic laws and can last for multiple decades.[4]

Types of Stabilisation Clauses?

The most common types of stabilisation clauses are freezing clauses, economic equilibrium clauses and hybrid clauses.

Freezing clauses, as the name suggests, freeze domestic laws and regulations that affect the duration of business operations.[5] New laws or amendments enacted after the contract is executed do not apply to the foreign investor or its operations unless the foreign investor agrees to them.

Then, we have clauses on economic equilibrium. Under these clauses, any changes in law enacted after the execution of the agreement apply to the investment and its foreign investors, while preserving the project’s economic balance.[6] Accordingly, the host government is required to indemnify the investors for the costs incurred in complying with the new laws.

Finally, we have hybrid clauses, which combine features of both freezing and economic equilibrium clauses. These clauses may entirely exempt foreign investors from the application of new legislation.[7] In some cases, they require compensation only for specific legal changes that affect the project and its investors, rather than for all legislative amendments.

Why do they matter?

Stabilisation clauses are important because they help to balance an investor’s need for legal certainty with a host nation’s sovereign right to regulate in the public interest.

For investors, these clauses reduce political and regulatory risks by ensuring that unexpected legal changes, such as new taxes or environmental standards, do not jeopardise the profitability or stability of their projects. However, for host nations, stabilisation clauses serve as a signal of dependability, encouraging foreign investment by demonstrating a commitment to a stable regulatory environment.

Conclusion

Stabilisation clauses are essential for balancing the investor’s demand for predictability with a host nation’s sovereign right to govern in the public interest. When properly drafted, stabilisation clauses protect investments without undermining a state’s ability to make legitimate reforms. The aim is not to freeze the law but to ensure fairness and stability as both parties navigate changing economic and regulatory landscapes.

This article is only intended to provide general information on the subject matter and does not by itself create a client/attorney relationship between readers and Hamu Legal or serve as legal advice. 

We are available to provide specialist legal advice on the readers’ specific circumstances when they arise. For further enquiries, please reach out to our Corporate Commercial team at david@hamulegal.com or team@hamulegal.com.

[1] ‘Summary Report 15–26 July 2019’ (IISD Earth Negotiations Bulletin, 2019) <https://enb.iisd.org/events/2nd-part-25th-annual-session-international-seabed-authority-isa/summary-report-15-26-july> accessed 10 April 2023.

[2] S N Obulor, ‘Stabilisation Clauses as an Impediment to Energy Transition in Petroleum-Producing Sub-Saharan African Countries in Post-Covid-19’ (2021, forthcoming) Oil, Gas and Energy Law Journal (OGEL) <www.ogel.org> accessed 2 November 2025.

[3] ‘Stabilization Clause’ (Practical Law) <https://uk.practicallaw.thomsonreuters.com/1-501-6477?transitionType=Default&contextData=(sc.Default)&firstPage=true> accessed 2 November 2025.