Legal Definitions - Calvo clause

A Calvo clause is a specific provision found in a contract, typically between a foreign individual or company (often referred to as an alien in legal terms) and a national government. By agreeing to a Calvo clause, the foreign party waives, or gives up, their right to seek diplomatic protection or intervention from their home country's government if a dispute arises concerning that contract. Essentially, they agree to resolve any disagreements exclusively under the laws and within the courts of the host country, treating themselves as if they were a national of that country for the purpose of the dispute.

This clause aims to prevent foreign governments from using their diplomatic influence to protect their citizens or companies from the legal jurisdiction of the host country, ensuring that all parties are subject to the same local laws and judicial processes.

• Example 1: Infrastructure Development Project

  Imagine a large construction company from Germany signs a contract with the government of a South American country to build a new national railway system. The contract includes a Calvo clause. Several years into the project, a disagreement arises over unexpected cost overruns and delays. Instead of appealing to the German government to intervene diplomatically on its behalf or to initiate international arbitration, the German company is bound by the Calvo clause to resolve the dispute solely through the legal system of the South American country, just as a local company would.

• Example 2: Foreign Investment in Mining

  A Canadian mining corporation invests heavily in developing a new copper mine in an African nation. Their agreement with the host government contains a Calvo clause. Later, the African government implements new environmental regulations that significantly increase the operational costs for the mine, impacting the corporation's profitability. Because of the Calvo clause, the Canadian corporation cannot ask the Canadian government to exert diplomatic pressure or to file a claim on its behalf in an international court. It must pursue any legal challenges or negotiations within the African nation's domestic legal framework.

• Example 3: Tourism Resort Concession

  An American hotel group enters into a long-term concession agreement with a Caribbean island nation to build and operate a luxury resort on government-owned land. The agreement incorporates a Calvo clause. Years later, a new government comes into power and decides to revoke the concession, offering compensation that the American hotel group considers inadequate. The Calvo clause prevents the American hotel group from seeking diplomatic assistance from the U.S. government to challenge the revocation or compensation terms. They must accept the jurisdiction of the Caribbean island's courts to resolve the dispute.