State contracts with aliens: the question of unilateral change by the state in contemporary international law

The question of absolute application of the principle of pacta sunt servanda to the contractual relationship between a State and a foreign private investor has given rise to a serious controversy among jurists and legal practitioners. Those who support the concept of absolute sanctity of contract buttress their view by referring to a handful of awards by international tribunals where the concept was upheld. They also try to characterize it as a general principle of law by having recourse to different major legal systems of the world. Some scholars have made efforts to assimilate the contract between a State and a foreign private party to an inter-State treaty in order to extend the application of pacta sunt servanda, a fundamental rule of treaty law, to the former. The purpose of this article is to examine, in the light of the major legal systems of the world, international law and State practices, whether there still exists that nineteenth century heritage, the notion of absolute sanctity of contract which was a characteristic feature of laissez-faire individualism. It will be shown that no principle of absolute sanctity of contract exists as such. The principle is qualified by many exceptions in both municipal and international law.