A Succession of Parties; When Does a State Succession Terminate a Contract?

Reg Fowler, Senior Legal Counsel, Shell International BV

Changes in governments and the overthrow of States are increasingly commonplace. Drafters of long term contracts with Sovereign States, be they loan agreements or natural resources or infrastructure investment agreements, ought to understand the legal principles that define when, following a succession, a successor State is bound by previous contracts and when it is not. No widely applicable principle emerged from the State successions at the end of the colonial period. Professor Cheng has studied the successions following the end of the Soviet Union and concludes that in practice, the outcome of successions can be predicted by understanding the forces at work in a succession. He challenges lawyers to give realistic advice on how State successions may play out and how a long term contract may best be drafted and managed to survive a succession. This paper ambitiously takes up that challenge and offers some initial suggestions.