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Overhaul of Investment law in South Africa

On 1 November 2013, the South African government published a draft Promotion and Protection of Investment Bill, which is intended to replace the existing bilateral investment treaties (BITs) that currently govern investment disputes in South Africa and provide a uniform legal framework to govern all investments in the country.

The draft bill follows the South African government’s review of its BITs in 2010, the majority of which were entered into with EU states in the post apartheid-era, and subsequent announcement of its plans to phase out these treaties. South Africa has already issued cancellation notices in respect of its BITs with the Netherlands, Luxembourg, Belgium, Germany, Spain and Switzerland.

The draft bill contains a number of potential areas of concern for foreign investors.

  • No explicit ability to take disputes to international arbitration. The draft bill provides that investors can take their disputes to the South African courts, submit to domestic arbitration governed by South Africa’s 1965 Arbitration Act or mediate their disputes through the South African Department of Trade and Industry. Whilst recourse to international arbitration is not expressly excluded, it will only be permissible if both sides agree, which is likely to be extremely difficult to achieve once a dispute has arisen. In effect, investors are likely to lose the ability bring a claim before an international forum.
  • Narrower definition of expropriation than in South Africa’s BITs. Excluded from the definition of expropriation are any measures “aimed at protecting or enhancing legitimate public welfare objectives, such as public health or safety, environmental protection or state security”. The draft bill also provides that the government may take measures that redress historical, social and economic inequalities, or which promote and preserve cultural heritage and practices, indigenous knowledge and related biological resources or national heritage.
  • In the event of expropriation, investors are no longer guaranteed the market value of their investments. Instead, the draft bill provides that compensation must be “just and equitable” and balance the public interest and the interests of those affected by the expropriation.
  • No obligation to provide “fair and equitable treatment”. The omission of this core international standard, which requires a State to respect the legitimate expectations that an investor might have when making its investments and is commonly included in BITs, may significantly reduce the ability of investors to bring claims.

It is likely that investors covered by existing BITs or those that have recently been cancelled will continue to have recourse to international arbitration during their respective transition periods, which extend 10 to 20 years beyond the termination date of each BIT. However, new investors will be subject to the provisions of the Bill once it becomes law.

The Promotion and Protection of Investment Bill is out for public comment for three months, ending 31 January 2014. A copy of the draft Bill is available here.