On Friday, 1 November 2013, the acting Minster of Trade and Industry published the Promotion and Protection of Investment Bill, 2013 (the “Bill”) for public comment. We set out hereunder certain key provisions proposed by the Bill.
Currently, investments are protected and promoted by a number of Bilateral Investment Treaties (“BITs”) entered into between South Africa and a number of other countries with which it trades. These BITs provide protection to foreign nationals against, inter alia, expropriation and afford those nationals an opportunity to enforce these protections directly against the South African government. (Obviously the same protection is afforded to South African national investing in the countries with which South Africa has concluded the BIT) Disputes under the BIT’s between nationals and the relevant trade partner can usually be settled through international arbitration at the discretion of the national. In circumstances where there is no BIT, an aggrieved investor will have to pursue remedies available under South African law.
The Bill proposes to provide a legislative framework for the promotion and protection of investment in a manner consistent with the “public interest” and “to ensure the equal treatment between foreign investors and citizens of the Republic, subject to applicable legislation.” Accordingly, the Bill moves away from the concept of BITs and seeks to offer uniform statutory relief to be found in enabling South African legislation, the South African Constitution and South African legislative bodies.
The two key points of contention arising from the Bill relate to its dispute resolution framework and expropriation provisions.
In the event of a dispute, the Bill confers jurisdiction to any court, competent independent tribunal or statutory body for settlement. Given that the South African Government would be a party to the dispute and the cause of action is likely to have arisen in South Africa, it is probable that all disputes would be settled within the South African legislative and judicial framework. The Bill also allows investors to request Government to facilitate the resolution of a dispute through appointing a mediator or other competent body but any such decision is in the hands of Government, although arbitration is also envisaged it is unlikely that the government would agree to international arbitration for among others sovereignty reasons, expense, etc. On the contentious issue of expropriation, the Bill prohibits expropriation other than in accordance with the South African Constitution. It limits the circumstances under which property will be regarded as having been expropriated while increasing the scope for its implementation. For instance, measures taken by the government to enhance legitimate public welfare objectives will not constitute expropriation.
In circumstances where expropriation would have been established, the Bill proposes a just and equitable compensation regime. The Bill contemplates compensation that takes into account the public interest, use of the property and market value among others. This is a move away from the concept of compensation at full market value contained in most BITs. The Bill however makes it possible for investors to challenge the valuation of their properties for expropriation purposes in South African courts.
The Bill does not also adequately address how it will interact with existing BITs. Some of the BITs have sunset clauses. For instance, the BIT between South Africa and the United Kingdom provides for an additional 20 year protection after its date of termination. The Bill does not provide clarity as to how its provisions are to be applied in the event of a conflict between it and such BITs in the long run.
The Bill has been cited by various commentators as diminishing investment protection. In defense of the Bill, the Government has said that it has sought to create a transparent and predictable investment environment in South Africa. It has also assured investors that the Bill will protect any rights in the Constitution and protect investors from arbitrary decision-making by authorities. Yet whether investors will be comforted by Government’s assurances remains to be seen given that their choice to arbitrate in an international forum pursuant to the BITs would be removed if the Bill is to be enacted, and the basis of compensation now to apply is not as protective as it was under the BITs.