A New Approach to the Law of Foreign Investments: The South African Case
- Investment — Compensation — Restitution
In the second half of 2012, South Africa announced its decision to terminate a number of the international investment agreements (IIAs) it had concluded in the wake of the establishment of its first democratic regime in 1994.1 In addition, on 15 December 2015, the Protection of Investment Act No. 22 of 2015 (PIA 2015) was published in the Government Gazette, a piece of legislation which incorporates at least some of the standards of investment protection enshrined in the IIAs that South Africa has terminated.2
Criticisms against South Africa’s policy decision to terminate several IIAs have been fierce. Countries and academics have expressed concern over the potential implications for the security of foreign investments and investors.3 For several commentators, this uncertainty (p. 296) is exacerbated by the comprehensive socioeconomic policies the country has embarked upon over the last 20 years, which have addressed such issues as affirmative action in favor of previously disadvantaged individuals, measures to combat HIV/AIDS, land reform, and reindustrialization of the economy.4 Without IIAs, critics have argued, the country may fall into a spiral of unfettered policies affecting basic legal premises of foreign investment, such as ownership, management, and repatriation of profits.5
Against this backdrop, this article explains the process through which South Africa has transformed its investment protection regime. It begins by laying out the triggering factor that prompted the government to review the IIAs to which it was a party, before outlining the results of the government’s review of the investment protection disciplines under the IIAs. The article then describes the process South Africa followed in order to terminate several of the existing IIAs and adopt the PIA 2015. Finally, it will analyze the three conceptual pillars upon which the PIA 2015 rests.
A. The Triggering Factor: Piero Foresti and others v. South Africa (2006–2010)
South Africa has only been taken to international investment arbitration on two occasions. However, one such case, Piero Foresti and others v. South Africa, sufficed to awake an aversion to the rules and procedures of foreign investment as established in the IIAs to which South Africa is (or was) a party.6 This dispute was instituted by eleven claimants under South Africa’s IIAs with Italy and Luxembourg: ten natural persons of Italian origin and one juridical person incorporated in Luxembourg.7 At issue in that case was the averred expropriation of the claimants’ shares resulting from the application of the Black Economic Empowerment (BEE)8 mandates as set out in the Mineral and Petroleum Resources Development Act (MPRDA) and (p. 297) the Mining Charter. Notably, the MPRDA required that mining companies achieve 26% ownership of mining assets by historically disadvantaged individuals by 2014, and 40% of participation in management by 2009.
The South African government argued that the challenged measure gave effect to the public interest enshrined in the Constitution of the Republic of South Africa, 1996 (the South African Constitution, or the Constitution). The measure, argued South Africa, sought to address the discriminatory treatment that the 1991 Mineral Rights Act accorded to historically disadvantaged individuals as it relates to ownership of mining assets.9
The case was beset by a number of events that marked the fate of the claimants’ case. Of note is an issue of corruption that smeared at least some of the claimants, who were approached by a member of the respondent’s legal team soliciting a bribe in exchange for influencing the government’s decision on a potential settlement of the case. Although the public recount of events in the tribunal’s award does not state that a bribe was given, the tribunal did fault the claimants for not disclosing this unfortunate situation promptly.10
In addition, the claimants requested the tribunal to discontinue the case given that the government had granted so-called ‘new order mineral rights’ without requiring that the claimants divest 26% of their shares to historically disadvantaged individuals.11 South Africa, in response, requested the tribunal to issue a default award with respect to fees and costs.12 It submitted that relevant costs amounted to € 5.3 million over almost four years of litigation.
The tribunal considered that the claimants should bear responsibility for a part of the costs the South African government incurred during the proceedings. It noted that the claimants could reasonably have informed the government earlier than they did of their preparedness to terminate proceedings on a ‘with prejudice’ basis, should the new order mineral rights be granted.13 Moreover, the tribunal reasoned that the claimants failed to explain why it took a long time to disclose the (unsuccessful) solicitation of a bribe by a member of the respondent’s legal team, especially when that individual continued to participate in the preparation of the respondent’s pleadings. These considerations were sufficient to conclude that the costs the South African government incurred would have been smaller but for the untimely disclosure of the corrupt solicitations and the late proposal by the claimants to settle the case.14 The tribunal thus ordered the claimants to contribute € 400,000 to South Africa’s costs.15
Despite the apparent success by the government in the proceedings,16 this case turned on a number of red lights in South Africa. The claims at issue encroached upon one of the most (p. 298) sensitive aspects of the country’s policy objectives, namely, social transformation and uplifting of historically disadvantaged individuals. In particular, since the inception of a fully democratic regime in 1994, South Africa has embraced broad affirmative action policies aimed at fostering the social and economic development of those ‘designated’ groups left out during the apartheid regime. These policies, whatever their reputation outside the country, are non-negotiable in South Africa. Therefore, the fact that a handful of investors asked a tribunal composed of foreign nationals to pass judgment on South Africa’s central policies was seen as an affront against the struggle to do away with the entrenched social inequalities of the country.17
Furthermore, the high litigation costs (of which less than 10% were recovered) led the South African government to believe that defending the country’s sovereign right to regulate before international tribunals was a costly exercise.18 These circumstances caused outrage within the government as foreign investors could easily bring the country to ad hoc international tribunals at the expense of taxpayers, especially for a country like South Africa with limited experience in international investment litigation.
B. The Bilateral Investment Treaty Policy Framework Review (2008)—The 2010 Cabinet Decision
In October 2008, the South African government launched a ‘comprehensive’ review process of the foreign investment protection regime.19 As part of this initiative, the Department of Trade and Industry of the South African government (DTI) published the Bilateral Investment Treaty Policy Framework Review (BITPFR) in July 2009, with an eye to conducting ‘a comprehensive risk assessment’ of the IIAs to which South Africa was a party.20 The BITPFR recognized that, following the first democratic elections in the country’s history, there was a need to demonstrate that the country was an ‘investment friendly destination’, which led the country to enter into IIAs with different nations. It further noted that the risks posed by IIAs were not ‘fully appreciated’ at the time and, therefore, ‘not critically evaluated’. The BITPFR attributed (p. 299) to the ‘inexperience of negotiators’ the fact that the IIAs were not of interest to South Africa in the long term.21
The BITPFR maintained that international investment law should be ‘approached with extreme caution’, as a great deal of this legal field has been ‘created by developed (capital exporting) countries that sought to protect investments made by their citizens’.22 The document pointed out that the need to attract foreign investments has caused several developing countries to sign IIAs, even though these create ‘external’ standards of investment protection and confer jurisdiction on arbitral tribunals ‘at the unilateral instance of a foreign investor’.23 In the light of these anomalies, the BITPFR alluded to the Calvo doctrine when explaining that the treatment of foreign investors ‘cannot be greater than that’ afforded to its own citizens.24
Moreover, the BITPFR reflected the concern that IIAs ‘were heavily stacked in favour of investors without the necessary safeguards to preserve flexibility in a number of critical areas’.25 The document admitted that ‘to a large extent’ the intended review of the IIAs was aimed at ‘correct(ing) this misalignment’.26 In other words, the South African government considered that the IIAs ‘extend[ed] far into developing countries’ policy space, imposing binding investment rules with far-reaching consequences for sustainable development’.27 The BITPFR also observed that investors often use IIAs ‘to challenge the treatment of foreign investments in various sensitive areas’.28
Hence, the BITPFR evinced the need to make substantial reforms to South Africa’s investment protection regime so as to: (1) afford equal treatment to foreign and domestic investors; (2) strike a balance between the rights of investors and the government’s sovereign right to regulate in the public interest; and (3) replace international investment arbitration with a domestic (and, perhaps, state-to-state) system of dispute resolution.
The review of the IIAs to which South Africa was a party came to the attention of the Cabinet of Ministers at its meeting of July 2010. There, ministers endorsed the BITPFR’s assertions that the relationship between IIAs and foreign direct investment ‘is ambiguous at best’; and, that IIAs limit the government’s ability ‘to pursue its Constitutional-based transformation agenda’.29 Critically, the Cabinet Decision of July 2010 (2010 Cabinet Decision) adopted five actions to be undertaken by the government pertaining to South Africa’s investment protection regime, namely:
• Refraining from entering into further IIAs, save for compelling economic and political circumstances;
• Reviewing and renegotiating all ‘first-generation’ IIAs entered into after the democratic transition;
(p. 300) • Implementing domestic legislation for the protection of foreign and domestic investors with IIA-type standards, whilst incorporating ‘legitimate exceptions (…) where warranted for public policy considerations’;
• Developing a Model IIA to serve as the basis for future renegotiations; and
• Elevating all decision-making in respect of IIAs to an Inter-Ministerial Committee responsible for investment, international relations, and economic development.30
Following the 2010 Cabinet Decision, DTI senior officials repeatedly stated their misgivings about the benefits of IIAs as a device to attract investments. For instance, Minister of Trade and Industry Rob Davies considered that ‘the relationship between IIAs and [foreign direct investment] was ambiguous at best’.31 Former Deputy-Director General of the DTI Xavier Carim observed that ‘there was no clear relationship between signing IIAs and seeing increased inflows of foreign direct investment (‘FDI’),32 since in fact, ‘South Africa receives FDI from investors in countries with whom it has no IIA and often little or no FDI from others where an IIA was in place’.33 Moreover, Xavier Carim held that whereas foreign investments may make a ‘positive contribution to development’, for this to happen there must be, on the one hand, regulations to balance their protection and, on the other hand, the need to ensure that foreign investment ‘supports national development (…) augments domestic financial resources, fosters enterprise development, and enhances the technology, skill and knowledge base of the economy’.34
C. Implementing the 2010 Cabinet Decision
South Africa gave effect to the 2010 Cabinet Decision by: (1) terminating or not renewing a number of IIAs a number of countries; and (2) publishing the PIA 2015 in the Government Gazette. These events are described in turn.
1. Termination and Nonrenewal of IIAs
South Africa commenced a string of notifications of termination or nonrenewal of its IIAs in October 2012, when it informed Belgium and Luxembourg of its intention to denounce the IIA (p. 301) with these countries.35 What followed was a number of similar notifications to Austria, Spain, Germany, France, the United Kingdom, Denmark, Switzerland, the Netherlands, Italy, and Greece. At the time of writing, South Africa has informed Finland and Sweden of its intention not to renew the validity of the respective IIAs upon their expiration.
The termination of IIAs prompted strong reactions from foreign countries36 and relevant stakeholders within South Africa.37 Yet, it appears that the process followed by South Africa was adopted in accordance with the denunciation procedures established in the IIAs themselves.38 For those treaties containing automatic renewals (such as those with Spain, Belgium/Luxembourg, or the Netherlands), South Africa filed a notification of denunciation in accordance with such treaties. For those treaties that required a positive action for their renewal (for instance, Italy and Greece), South Africa simply informed the countries that it was not seeking to extend the validity of the IIAs.39
In addition, South Africa has expressed its intention to respect the “survival clauses” in the IIAs.40 The DTI has recognized that the IIAs will continue to protect existing investments for the period stipulated in each of the survival clauses.41 For instance, the IIAs with Spain (p. 302) (Article XII:3), and with Belgium and Luxembourg (Article 12(2)), established a “survival” period of 10 years from the date of expiry of the respective IIA, whereas the IIA with the Netherlands envisaged a period of 15 years (Article 14.3).
Hence, South Africa has made a policy decision to terminate critical IIAs and, at least formally, has followed the legal prerequisites for its so doing. Government officials publicly announced the outcomes of the discussions and the intended way forward. Likewise, the 2010 Cabinet Decision was adopted about 30 months before South Africa terminated the first IIA, in October 2012.
2. The Legislative Process
In furtherance of the 2010 Cabinet Decision, the South African government published on 1 November 2013 the Promotion and Protection and Investment Bill 2013 (PPIB) for a three-month public consultation, within which members of the public made written submissions to the DTI.42 The government explained that the PPIB constituted a “significant milestone in the process to update and modernise” South Africa”s investment regime.43 Whilst committed to remaining open to foreign investment, the DTI made it clear that the PPIB aimed at striking a balance between “the rights and obligations of investors and of Government”, notably as it relates to safeguarding the public interest.44 The PPIB also incorporated certain standards of investment protection embodied in the IIAs that South Africa has terminated.
During the course of 2014, the DTI consulted with a large number of interested parties within the framework of the National Economic Development and Labour Council (NEDLAC) (government-labor-business), the American Chamber of Commerce, the European Union-South Africa Business Links, as well as different departments of the national government and the State Law Advisors.45 This resulted in the final version of the PPIB submitted to parliament for consideration on 22 July 2015.46 The Portfolio Committee on Trade (p. 303) and Industry (Portfolio Committee) was charged with the preliminary parliamentary discussions and invited interested parties to make written submissions.47 Several submissions were received,48 and the DTI presented the Portfolio Committee with a document addressing all of the concerns expressed in the written submissions.49 In addition, the Portfolio Committee held public hearings in September 2015 with those stakeholders that had presented written submissions.50
In the face of these consultations, the Portfolio Committee made several amendments to the PPIB and, on 5 November 2015, recommended the adoption of the legislative piece to the National Assembly, renamed as the “Promotion of Investment Bill”,51 which was passed into law on 27 November 2015.52 The president gave his assent on 13 December 2015, and two days later, the PIA 2015 was published in the Government Gazette.53
D. The Promotion of Investment Act No. 22 of 2015 (PIA 2015)
The PIA 2015 is a short piece of legislation consisting of 16 sections. It applies to ‘all investments in the Republic’ made in accordance with Section 2 (concept of investment).54 An ‘investment’ is defined, pursuant to Section 2(1)(a), as ‘any lawful enterprise established, acquired or expanded by an investor in accordance with the laws of the Republic, committing resources of economic value over a reasonable period of time, in anticipation of profit’. Interestingly, this definition appears to incorporate the uncontested elements of the so-called ‘Salini test’ (p. 304) developed in the jurisprudence of international investment tribunals in the context of Article 25 of the ICSID Convention.55 Specifically, Section 2(1)(a) refers to a contribution of money or assets (committing resources of economic value); a certain duration (over reasonable period of time); and an element of risk (in anticipation of profit).56
Section 2(1)(b) also conceives of an investment as ‘the holding or acquisition of shares, debentures or other ownership instruments of’ an enterprise referred to in Section 2(1)(a). For its part, Section 2(1)(c) considers as an investment the ‘holding, acquisition or merger’ by an enterprise within the meaning of Section 2(1)(a) with another enterprise outside the country insofar as such holding, acquisition, or merger has an effect on an investment contemplated by Section 2(1)(a) and (b). Moreover, Section 2(2) stipulates an illustrative list of assets that an enterprise may possess.57
Turning to the substantive content, the PIA 2015 enshrines the following standards of investment protection:
• Fair administrative treatment;
• National treatment;
• Physical security of property;
• Legal protection of investment; and
• Freedom to repatriate profits subject to taxation and other applicable legislation.
In addition, the PIA 2015 contains a ‘Right to Regulate’ (Section 12), and a dispute settlement (Section 13) provision.
As explained above, the substantive content of the PIA 2015 revolves around the following three main conceptual pillars, namely: (1) affording equal treatment to foreign and domestic investors; (2) striking a balance between the rights of investors and the government’s right to regulate in the public interest; and (3) replacing investor-state international arbitration with a domestic (and, perhaps, state-to-state) system of dispute resolution.
(p. 305) 1. The Principle of Equal Treatment: Treatment to Foreign Investors and Investments No More Favorable Than That Accorded to Domestic Investors and Investments
South Africa has expressed concern over the fact that, under the IIAs, foreign investments would enjoy treatment more favorable than that afforded to domestic investments under domestic law.58 The DTI has explained that the PIA 2015 aims at ensuring the principle of ‘equal treatment’ to foreign and domestic investors.59 In this respect, Section 1 defines ‘investor’ as an ‘enterprise making an investment in the Republic regardless of nationality’, which suggests that the PIA 2015 applies equally to foreign and domestic investors and investments unless a specific provision refers only to foreign investors. Of the five standards of investment protection stipulated in the PIA 2015, two refer to investors in general (fair and administrative treatment and legal protection of investment); two allude to the treatment of foreign vis-à-vis domestic investors (national treatment and physical protection of investment); and another standard makes reference to foreign investors only (transfer of funds).60
With respect to the fair administrative action provision, Section 6 of the PIA 2015 establishes certain procedural and substantive due process rights that all investors enjoy. Notably, the government must ensure that administrative, legislative, and judicial processes do not operate in an arbitrary manner and that investors not be denied administrative and procedural justice with respect to their investments (Section 6(1)). Investors also have the right to be given written reasons and administrative review in respect of administrative decision-making processes (Section 6(2)); and the right to have access to government-held information in a timely fashion (Section 6(3)). Finally, Section 6(4) enshrines the right to have any legal dispute decided in a fair hearing before a domestic court or, where appropriate, another independent and impartial tribunal or forum. It goes without saying that these procedural and substantive due process rights are already consecrated in the Constitution.61
The due process guarantees enshrined in Section 6 are to a large extent the functional equivalent of the fair and equitable treatment (FET) standard nominally absent in the PIA 2015. They are also a manifestation of the minimum standard of treatment, defined as a protection against actions ‘with a gross or flagrant disregard for the basic principles of fairness, consistency, even-handedness, due process, or natural justice expected by and of all States under customary international law’.62 It is noteworthy that, pursuant to Section 3(b)(ii), the (p. 306) provisions of the PIA 2015 are to be interpreted in accordance with customary international law. Thus, since the minimum standard of treatment emanates from customary international law, it may be argued that the PIA 2015 does not exclude the application of this standard.
With respect to the legal protection of investment provision, Section 10 of the PIA 2015 establishes a general statement that ‘[i]nvestors have the right to property in terms of section 25 of the Constitution’. This constitutional provision, titled ‘Property’, is amongst those contained in the Bill of Rights, and is not concerned with what constitutes ‘property’ but rather, with the type of property that is constitutionally protected.63
Section 25 establishes that property may be lawfully interfered with by means of deprivation or expropriation. An owner may be deprived of property provided that it is under the terms of a law of general application and in a nonarbitrary manner (Section 25(1)). Moreover, property may be expropriated only for a public purpose or in the public interest and subject to compensation, the quantum of which is to be agreed to or decided by a court (Section 25(2)).
Accordingly, Section 25 of the Constitution draws a distinction between ‘deprivation’ of property and ‘expropriation’. In Agri South Africa v. Minister for Minerals and Energy, the Constitutional Court has explained that deprivation requires ‘sacrifices that holders of private property rights may have to make without compensation’.64 Expropriation, in turn, entails ‘state acquisition of that property in the public interest and must always be accompanied by compensation’.65 Thus, for a measure to be expropriatory and thereby compensable, the state must have acquired ownership of the property taken away from the expropriated person.
The IIAs and the South African constitutional system appear to present significant divergences regarding the deprivation/expropriation provisions. For example, under most of the recently terminated IIAs, South Africa is bound (by operation of the survival clauses) to compensate foreign investors for indirect expropriations and/or measures tantamount to expropriation. In contrast, the same type of measures could, under Section 25(2) of the Constitution, qualify as deprivation, and not as expropriation, because the state does not acquire ownership of the property (for instance, where the state takes property from one and gives it to another). Assuming that a measure considered as deprivation under Section 25(1) of the Constitution is set out in a law of general application and is not arbitrary, the economic losses resulting from that measure would not be subject to compensation. Consequently, whereas a measure may be compensable under the recently terminated IIAs, the same does not necessarily hold true if one assesses the averred measure through the lens of Section 25 of the South African Constitution.
Likewise, the criteria for determining the compensable amount may vary. Under most if not all IIAs, the relevant benchmark is the market (or ‘genuine’)66 value of the property (p. 307) immediately before the expropriation takes place or becomes public knowledge, whichever is the earlier. On the other hand, Section 25(3) of the Constitution lists certain criteria that must be considered in determining the compensable amounts in expropriation cases. Among these is the market value of the property. However, other considerations are the current use of the property; the history of the acquisition and use of the property; the extent of direct state investment and subsidy in the acquisition and beneficial capital improvement of the property; and the purpose of the expropriation. Thus, the compensable amount with respect to a given expropriatory act may yield different results depending on whether one adopts the market value approach in the IIAs or the more complex list of criteria laid down in Section 25(3) of the Constitution.
Hence, the rationale for Section 10 of the PIA 2015 is more than simply reaffirming the validity of Section 25 of the Constitution. Rather, Section 10 of the PIA 2015 clarifies that the right to property of foreign and domestic investors is subject to the same constitutional guarantees.
With respect to the national treatment provision, foreign investors and their investments must not be treated less favorably than South African investors in like circumstances (Section 8(1)). This formulation, which resembles the provisions set out in the IIAs that South Africa has recently terminated, is further nuanced by explaining that the term ‘like circumstances’ is to be examined on the basis of ‘the merits of the case by taking into account all the terms of a foreign investment’ including: the effect of the foreign investment; the sector in which the foreign investment has been made; the aim of any measure relating to the foreign investment; factors relating to the foreign investor or investment in relation to the measure concerned; the effect on third persons and the local community; the effect on employment; and the direct and indirect effect on the environment (Section 8(2)).
Moreover, Section 8(4) contains a carve-out provision noting that despite the national treatment provision in Section 8(1), the Republic is not required to extend to foreign investors and investments any benefits, preferences, or treatment resulting from: taxation provisions in international agreements or domestic laws; government procurement processes; subsidies and grants by the government or any organ of the state; measures aimed at promoting equality, or designing or protecting persons historically disadvantaged by unfair discrimination; measures aimed at promoting and preserving cultural heritage and practices, indigenous knowledge and biological resources; or any advantages by state development agencies to the benefit of small and medium-size businesses or new industries (Section 8(4)).67
With respect to the physical security of investment provision, Section 9 stipulates that the Republic ‘must accord foreign investors and their investments a level of physical security as may be generally provided to domestic investors in accordance with minimum standards of customary international law and subject to available resources and capacity’. Consistent with standards of protection in IIAs, Section 9 of the PIA 2015 seeks to guarantee physical protection to foreign investors and their investments. The breadth of this protection is, however, limited as it is equivalent to the level of security ‘generally provided to domestic investors’. Thus Section 9 is tantamount to a national treatment provision (a level of protection equivalent (p. 308) to that afforded to domestic investors), and not an independent ‘security of investments’ provision.
Moreover, the protection afforded in Section 9 is ‘subject to available resources and capacity’. This is relevant because this standard of investment protection is not absolute. Rather, the state is not responsible for any physical damages perpetrated against an investor or his or her investment if it establishes that it acted to the best of its ability and using all the available resources and capacity.
An actual example illustrates the conceptual differences as between the full protection and security standard in IIAs and the proviso in Section 9 of the PIA 2015. In Swiss Investor v. South Africa, it has been reported that the tribunal faulted South Africa for not providing full protection and security to a conference center and a game farm owned and developed by a Swiss investor.68 The inability of the police to prevent the incursions to, and acts of vandalism in, the property of the investor was found to constitute a breach of the full protection and security standard set forth in the relevant IIA. The tribunal appears to have dismissed South Africa’s defense that the available resources were limited, and concluded that South Africa had failed to honor its obligation in the IIA with Switzerland to provide full protection and security.69
In a similar fact pattern, Section 9 of the PIA 2015 could potentially exonerate the government from responsibility when it has acted diligently and yet cannot prevent physical damage from occurring. This principle has generally been recognized by the Constitutional Court, in the context of other rights, to the effect that the state is bound to afford the rights enshrined in the Bill of Rights (chapter 2 of the Constitution) to the extent that it has sufficient resources to do so.70
Accordingly, the substantive standards of investment protection set out in the PIA 2015 are guided by the principle of equal treatment.71 As explained above, this has been one of the key objectives of the reform of South Africa’s investment protection regime.
2. The Right to Regulate in the Public Interest
The curtailment of policy space in international investment law has been identified as undesirable by South Africa (and many other countries) over the last decade.72 The government has expressed discontent over the limitations IIAs pose on the ‘regulatory flexibility’ within which the country can pursue its ‘economic development policies’.73 In its view, the broadly worded standards of investment protection in IIAs lend themselves to too liberal an interpretation, thereby limiting the space the government needs to perform its regulatory functions.
(p. 309) In response to this concern, one of the chief objectives of the PIA 2015 is to protect investments ‘in a manner which balances the public interest and the rights and obligations of investors’ (Section 4(a)); and to ‘affirm the Republic’s sovereign right to regulate investments in the public interest’ (Section 4(b)). The PIA 2015 further makes provision for the ‘Right to Regulate’ in Section 12 by listing a number of public policy exceptions to the application of the standards of protection set forth in the PIA 2015. These exceptions relate to measures aimed at the following objectives:
• Redressing historical, social, and economic inequalities;
• Upholding the democratic values and principles governing public administration (Section 195 of the Constitution);
• Upholding the rights guaranteed in the Bill of Rights (Sections 7–39 of the Constitution);
• Promoting and preserving cultural heritage and practices, indigenous knowledge, and biological resources related thereto or national heritage;
• Fostering economic development, industrialization, and beneficiation;
• Achieving the progressive realization of socioeconomic rights;
• Protecting the environment and the conservation and sustainable use of natural resources; and
• Taking measures necessary for the maintenance, compliance, or restoration of international peace and security, or the protection of the essential security interests, including with respect to financial stability, of the Republic.
It is worth dwelling upon the public policy provision in Section 12 of the PIA 2015. The Constitutional Court has described South Africa as a country with ‘a “deeply divided society characterised by strife, conflict, untold suffering and injustice”, which “generated gross violations of human rights, the transgression of humanitarian principles in violent conflicts and a legacy of hatred, fear, guilt and revenge” ’.74 The Constitution thus performs a ‘transformative mission’ through the taking of ‘restitutionary or affirmative measures (…) to achieve substantive equality, particularly for those who were disadvantaged by past unfair discrimination’.75
This is not to say that restitutionary measures are unbounded. The Constitutional Court has explained that a ‘restitutionary’ measure would be contrary to the right to equal protection and benefit of the law in Section 9 of the Constitution if it ‘unfairly discriminates’ against a certain class of people, that is, when a measure ‘unduly invade[s] the human dignity of those affected by them’.76 Thus, the legal standard to determine whether affirmative action measures conform to the constitutional right to equal protection and benefit of the law requires a showing that the measure: targets persons or categories of persons who have been disadvantaged by past discrimination; is designed to protect or advance such persons or categories of persons; and promotes the achievement of equality.77
(p. 310) The public policy exceptions in the PIA 2015 seek to fill what is perceived as a gap that the recently terminated IIAs had failed to address. For South Africa, these exceptions are fundamental in order to advance a wide range of restitutionary measures, many of which address the legacy of apartheid. It is in this context that the stated objective to restore the balance of social and economic opportunities to the South African citizenry is one that requires measures that ‘will inevitably affect some members of the society adversely, particularly those coming from the previously advantaged communities’.78
In addition, it is worth noting that, under international investment law, the right to regulate in the public interest finds similar expression in prominent investment fora, in spite of being absent in most IIAs. For instance, arbitral tribunals have read the ‘right to regulate’ into the general structure of the IIAs in issue, as reflected in the statement of the tribunal in LG&E v. Argentina that ‘it can generally be said that the State has the right to adopt measures having a social or general welfare purpose’.79
The right to regulate in the public interest has also been recognized in interpreting specific standards of investment protection. In the context of indirect expropriation or measures tantamount to expropriation, the tribunal in Feldman v. Mexico held, for example, that ‘reasonable government regulation (…) cannot be achieved if any business that is adversely affected may seek compensation, and it is safe to say that customary international law recognizes this’.80 The tribunal in Total v. Argentina further explained that a ‘bona fide regulatory measure of general application, which was reasonable (…) and appropriate to [its] aim’, would not be expropriatory in nature.81
With regard to the FET standard, arbitral tribunals have catered for the preservation of public policy space as well as the rights of investors to seek protection under IIAs. In Saluka v. Czech Republic, the tribunal acknowledged that, in determining whether there is a breach of the FET, ‘the host state’s legitimate right (…) to regulate domestic matters in the public interest must be taken into consideration as well’.82 This right, however, is not unfettered and, in the opinion of the tribunal in ADC Affiliate Ltd and others v. Hungary, it ‘must have its boundaries’, which are found in ‘the rule of law’.83
Like South Africa, several other countries and regional blocs have realized that IIAs should not thwart the policy space necessary to advance the public good. The European Union has clarified that future investment negotiations must ensure that the agreed rules leave no room for ambiguity, notably ‘where it concerns the state’s right to regulate for public policy objectives’.84 Following the public consultation report on investor-state dispute settlement of 13 (p. 311) January 2015,85 the European Commission recognized the importance of preserving the right to regulate in the public interest in investment agreements, as indeed the European Union has recently negotiated in the trade and investment agreements with Canada and Singapore.86
Similarly, Canada has reformulated its approach to negotiating bilateral investment treaties. In its negotiations with the European Union in the context of the Comprehensive Economic and Trade Agreement (CETA), the Canadian government described its resolve to include a clause recognizing a ‘party’s right to regulate in the public interest, including measures to protect the environment’.87 Australia, for its part, is opposed to ‘signing agreements which include provisions that would restrict [the government’s] capacity to govern and or regulate in the public interest in areas such as health and the environment’.88
Accordingly, the real or perceived limitations on the right to regulate in the public interest are a general concern in international investment law. In the South African context, it remains to be seen how domestic courts will apply the public policy exceptions laid down in Section 12 of the PIA 2012. Whatever the breadth and application of the public policy exceptions, there must be a delicate weighing and balancing between the rights of investors and the legitimate public policies the South African government seeks to advance; otherwise, legal uncertainty may undermine the country’s ability to attract foreign investments.
3. A New Dispute Settlement Mechanism: Doing Away with Investor-State International Arbitration
Since the beginning of the reform of its investment protection regime in 2008, South Africa has expressed reluctance to have its investment disputes litigated before investor-state arbitral tribunals. In the government’s opinion, foreign investors may avail themselves of international arbitration (thereby ‘leapfrogging domestic legal systems’) to challenge the ‘treatment of foreign investments in various sensitive areas, including water and sewage provision, oil and gas exploitation and mining concessions’.89 This is in its view problematic because foreign investors have ‘become aware of the attractive status quo under the global (…) investment regime—literally hundreds of long-ignored investment treaties [which] offer investors access to an investor-state dispute settlement mechanism’, without the necessary ‘procedural safeguards to protect the rights of both parties’.90
Notionally, the raison d’être of international investment arbitration is rooted in risk avoidance: investors fear not being able to obtain redress from domestic judicial organs for alleged (p. 312) wrongs attributable to the host state. Their concern stems from the fact that national courts and tribunals may be biased or possibly under pressure from internal constituencies (such as the executive branch of the state). When the stakes are so high, investors may worry that judges find it difficult to dissociate themselves from the public debate, thereby tainting their neutral judgment.
For critics of the IIAs, international arbitrators are not best placed to understand the public policy considerations that lie behind a measure.91 When there is a traditional IIA on which to base a claim, investors may seek to opt for the international arbitration route, reasoning that the applicable IIA would normally not foresee (or would only foresee laxer) considerations of public policy, and the members of the arbitral tribunal may not be acquainted with the pressing needs of the country. The bottom line is that an investor may seek from an arbitral tribunal an award that confines itself to applying the standards of investment protection set out in the applicable IIA without due regard to issues of public interest that a domestic court would otherwise factor into its decision. In the South African context, arbitrators unfamiliar with the social and economic intricacies of the country may apply the standards of investment protection without weighing up the constitutional imperatives of economic transformation, redistribution of resources, and mitigation of historical inequalities.
Hence, for the South African government, it is an affront to allow a single foreign investor to request three foreign nationals sitting on an ad hoc arbitral tribunal to pass judgment on, criticize, or express skepticism over measures aimed at redressing the wrongs of the past.92 In contrast, the South African Constitution requires factoring socioeconomic issues into every policy-making consideration, and domestic judges are expected to reflect such constitutional demands in their opinions, notably where constitutional challenges bear upon social and economic rights.93
Against this background, the PIA 2015 does away with investor-state international arbitration and, instead, foresees three types of dispute resolution, namely: (1) a mediation mechanism; (2) access to ordinary courts; and (3) state-to-state international arbitration. In this connection, Section 13(1) establishes that an investor allegedly aggrieved by a governmental action may, within six months of becoming acquainted with the dispute, request the DTI to facilitate the resolution of the dispute by appointing a mediator.94 For this purpose, the DTI must maintain a list of qualified mediators ‘of high moral character and recognised competence in the fields of law, commerce, industry or finance’, who may exercise independent judgment and who are able to act as mediators. The mediator must be appointed by agreement between the ‘government and the foreign investor’, and the mediation process must be governed by ‘the prescribed rules’ which are yet to be made by the Minister of Trade and Industry.95
(p. 313) Moreover, Section 13(4) establishes that an investor ‘is not precluded’ from approaching any competent court, independent tribunal or statutory body within South Africa. This provision appears to be a confirmation of the mandate set forth in Section 34 of the Constitution, which provides that everyone has the right to have any dispute that can be resolved by the application of law decided in a fair public hearing before a court or, where appropriate, another independent and impartial tribunal or forum. Section 13 of the PIA 2015 does not contain a species of a ‘fork-in-the-road’ provision that would require the aggrieved investor to choose either mediation or access to a domestic court.
In addition, Section 13(5) of the PIA 2015 contains an enabling provision by virtue of which the South African ‘government may consent to international arbitration in respect of investments’ covered under Section 2 (definition of investment). The possibility to resort to international arbitration is subject to the exhaustion of local remedies and, importantly, is limited to state-to-state dispute resolution.
It is worthy of mention by way of context that, in August 2014, the members of the Southern African Development Community (SADC)96 concluded the Protocol on the SADC Tribunal (2014 SADC Protocol), which provides a renewed basis for the SADC tribunal following its demise in 2011.97 The 2014 SADC Protocol eliminates the right of physical/juridical persons to initiate a dispute against a SADC country (previously contemplated in the 2000 Protocol on the SADC tribunal) and, instead, limits its scope of application to state-to-state disputes.98
(p. 314) Moreover, in July 2012, the SADC published a Model Bilateral Investment Treaty Template (SADC Template) intended to create a framework for future investment treaties among SADC members and between each of them and other countries.99 The SADC Template placed strong emphasis on a state-to-state dispute settlement mechanism, whilst formally providing for, but strongly advising against, investor-state dispute settlement.100
Interestingly, the second sentence of Section 13(5) of the PIA 2015 reads: ‘[t]he consideration of a request for international arbitration will be subject to the administrative processes set out in section 6’.101 Notably, Section 6(2) of the PIA 2015 prescribes that administrative decision-making processes ‘must include the right to be given written reasons and administrative review of the decision consistent with section 33 of the Constitution and applicable legislation’. This clause, inserted by parliament following the written submissions by certain interested parties, suggests that if South Africa has concluded an investment treaty with a third country where state-to-state dispute resolution is provided for, a South African investor that has made investments in the third country concerned may request the South African government to institute arbitral proceedings. Although it is well recognized under South African law that a request for diplomatic protection does not generate an obligation to accept such request,102 Section 13(5) obliges the government to give written reasons and be subject to administrative review of its decision if it declines the investor’s petition to initiate international arbitration.103
(p. 315) In summary, the PIA 2015 foresees a number of alternatives for aggrieved investors to seek redress for potential violations of the standards of investment protection contained in Sections 6 through 11. With respect to international arbitration, South Africa has made a policy decision to do away with investor-state dispute resolution. Whether interstate disputes are an effective means to protect the interests of foreign investors in South Africa, and South African investors abroad, will hinge upon the degree of engagement of all the countries concerned to resort to, and abide by, international investment tribunals.
The purpose of this article is not to pass judgment on the correctness, from a policy perspective, of South Africa’s shift concerning its investment protection regime. Some may argue that it is a wise approach that advances a careful balance between the legal protection investors should enjoy and the policy space necessary to further the constitutional mandates of social and economic transformation. Others may believe that a lower level of legal protection may scare foreign investors away to the detriment of economic development.104 Whilst this is a policy decision on which competing opinions may be equally valid, it is safe to assert that the reform of the law of foreign investments (notably, as it relates to the right to regulate in the public interest) is becoming a vexed debate not only in South Africa but also in several countries around the globe.
From the foregoing analysis, however, there are at least three concluding remarks to be made. First, the reshuffle of South Africa’s investment protection regime appears to have been transparent and open to public consultation. At least as early as 2008, when the government published the BITPFR, the country had already expressed a number of concerns about the existing IIAs, most of which continue to be voiced today.
(p. 316) Second, South Africa has declared its resolve to comply with those IIAs during the period set out in the so-called ‘survival’ clauses. Additionally, it is replacing the IIAs with a piece of legislation which incorporates at least some of the standards of investment protection laid down in the IIAs.
Third, the rationale behind the shift in the investment protection regime has clearly demarcated purposes, which have been made clear by the government from the beginning of the review process, namely, the application of the principle of ‘equal treatment’ to both foreign and domestic investments and investors; the incorporation of a strong provision upholding the right to regulate in the public interest; and the decision to do away with investor-state international arbitration. Hence, the challenge of the new investment protection regime will be to strike a balance between giving effect to the chief objectives of South Africa’s investment protection reform, whilst maintaining a stable and predictable investment environment.
* Research fellow, Mandela Institute, University of the Witwatersrand, Johannesburg. The author served as a member of the tripartite working group (government, business, and labor), on the Promotion and Protection of Investment Bill 2013, within the framework of the National Economic Development and Labour Council (NEDLAC). The views expressed herein are the personal views of the author, and do not represent a position of any organization or government. The author thanks Marijke Smit, Kholofelo Kugler, Engela Schlemmer, Azwimpheleli Langalanga, and Fola Adeleke for their helpful comments on earlier drafts.
1. In October 2012, South Africa denounced the first IIA, with Belgium and Luxembourg.
2. The text of the PIA 2015 may be found at <http://www.gov.za/sites/www.gov.za/files/39514_Act22of2015ProtectionOfInvestmentAct.pdf>.
3. See for instance, a video of Anthea Jeffery, Head of Special Research at South African Institute of Race Relations available at <https://www.youtube.com/watch?v=ebbmP1q2-Mw>.
4. See for instance, Peter Draper and Azwimpheleli Langalanga, ‘Does the draft investment bill threaten foreign investors’ rights?’ (2 April 2014), <http://www.thetradebeat.com/opinion-analysis/draft-investment-bill-requires-revision>.
5. For instance, Professor Steven Gelb, from the World Trade Institute, warned that the termination of IIAs had affected confidence in foreign direct investments, and ‘[i]t is important and urgent for the South African government to improve the handling of this process’. Leandi Kolver, ‘SA proceeds with termination of bilateral investment treaties’ Engineering News (Johannesburg, 21 October 2013), <http://www.engineeringnews.co.za/article/sa-proceeds-with-termination-of-bilateral-investment-treaties-2013-10-21>.
6. Prior to the Piero Foresti and others v South Africa case, South Africa had been taken to an arbitral tribunal by a Swiss investor who had acquired land in the Limpopo province to set up a conference center and a game farm. Given the continuous strife in the region which resulted in vandalism, the investor claimed that South Africa had failed to provide, inter alia, full protection and security. Although the award in this case was not published, it is known that the tribunal found that the police failings were contrary to South Africa’s obligation to ensure full protection and security to the Swiss investor under the Switzerland-South Africa IIA. The tribunal awarded damages in the region of ZAR 6.6 million plus interest. See Luke Eric Peterson, ‘Swiss investor prevailed in 2003 in confidential BIT arbitration over South Africa land dispute; award remains unpublished, but IA Reporter investigation unearths significant details about arbitration outcome’ (2008) 1 IA Reporter No 13.
7. The case was filed in November 2006 under the Additional Facility Arbitration Rules of the International Centre for Settlement of Investment Disputes (ICSID).
8. For an explanation of the BEE policy and its evolution over time, see Republic of South Africa Department of Trade and Industry, Broad-Based Black Economic Empowerment, <https://www.thedti.gov.za/economic_empowerment/bee.jsp>.
9. See Piero Foresti and others v South Africa (Award, 2010) ICSID Case No ARB/07/1, . Other objectives South Africa attributed to the challenged measure were: simplifying the legal system; reducing concentration of mineral rights and promoting the optimal exploitation of mineral resources; and protecting the environment and the communities living in the vicinity of mining operations.
10. See ibid .
11. See ibid .
12. See ibid .
13. See ibid .
15. See ibid . Arbitrator Joseph Matthews noted that, whilst agreeing with the tribunal’s decision to order the payment of costs, he considered that any such sum should be ‘modest’ in light of the fact that the claimants already employed significant numbers of historically disadvantaged individuals in the ‘beneficiation’ process. See Concurrent Statement of Arbitrator Matthews in Piero Foresti and others v South Africa (n 9).
16. The claimants’ senior counsel Peter Leon pointed out that the claimants did not lose the case, and that the agreement reached with the government was an outcome ‘[n]o other mining company has achieved (…) since the MPRDA came into force in 2004’. In addition, he observed that the fact that the tribunal granted 7.5% of its costs (€ 400,000 out of € 5.33 million) is ‘surely as good an indication as any of its views of either party’s success or failure in the matter’. Adam Green, ‘South Africa: BITs in pieces’ Financial Times (London, 19 October 2012), <http://blogs.ft.com/beyond-brics/2012/10/19/south-africa-bits-in-pieces/?Authorised=false>.
17. See Republic of South Africa Department of Trade and Industry, ‘Bilateral Investment Treaty Policy Framework Review’ (Government Position Paper June 2009) 45, <http://www.pmg.org.za/files/docs/090626trade-bi-lateralpolicy.pdf>.
18. In this respect, the Director of the Legal Office for Trade and Investment of the DTI, Mustaqeem de Gama, has explained that ‘[a]rbitration costs have escalated alarmingly in recent years and have become prohibitive’ with an ‘average cost exceeding $8m per case’. Mustaqeem de Gama, ‘Draft bill no threat to foreign investors in South Africa’ Business Day (Johannesburg, 1 April 2014), <http://www.bdlive.co.za/opinion/2014/04/01/draft-bill-no-threat-to-foreign-investors-in-south-africa>.
19. Republic of South Africa Department of Trade and Industry (n 17). This review had already begun in 2005 ‘when it became apparent that [South Africa] was facing serious challenges from developed nations seeking to rely on the provisions of the [IIAs] in order to claim compensation from [South Africa] for alleged failure to comply with its obligations … under [IIAs] with respective countries’ (ibid 12).
20. ibid 5.
21. See ibid 14.
22. ibid 8.
23. ibid 9.
24. The BITPFR called into question the existence of the ‘international minimum standard’ as a standard applicable to the treatment of foreigners, including foreign investors (see ibid).
25. ibid 5.
27. ibid 11.
28. ibid 10. According to the BITPFR, ‘[m]ajor law firms are using BITs as the tool of choice for challenging host state regulation of public services’ (see ibid).
29. The BITPFR was endorsed by the South African Cabinet of Ministers at its meeting of 20 July 2010. See Department of Government and Communication Information System, ‘Statement on Cabinet Meeting of 20 July 2010’ (Pretoria, 2010), <http://www.gcis.gov.za/content/newsroom/media-releases/cabinet-statements/statement-cabinet-meeting-held-20-july-2010>.
31. Rob Davies, “Speech delivered by the Minister of Trade and Industry Dr Rob Davies at the South African launch of the United Nations Conference on Trade and Development (UNCTAD) Investment Policy Framework for sustainable development at the University of the Witwatersrand” (Johannesburg, 26 July 2012), <http://unctad.org/meetings/en/Miscellaneous%20Documents/South-Africa-Investment-statement_Rob_Davies.pdf>.
32. “BITs “not decisive in attracting investment”, says South Africa”, Third World Network (27 September 2012), <http://www.twnside.org.sg/title2/wto.info/2012/twninfo121001.htm>.
34. Xavier Carim, “Update on the review of bilateral investment treaties in South Africa, Prepared for the Parliamentary Portfolio Committee on Trade and Industry” (15 February 2013), <http://osf.org.za/wp/wp-content/uploads/2015/08/Department-of-Trade-and-Industry-dti-updates-on-South-Africas-trade-diplomacy-dti_review_of_bits_ppc_20130215.pdf>.
35. See Green (n 16).
36. See Karel de Gucht, “Opening remarks at the EU-South Africa business forum” (Pretoria, 17 July 2013), <http://europa.eu/rapid/press-release_SPEECH-13-646_en.htm>; and German Missions in South Africa, Lesotho and Swaziland, “South Africa renounces the Bilateral Investment Promotion and Protection Treaty with the Federal Republic of Germany” (25 October 2013), <http://www.southafrica.diplo.de/Vertretung/suedafrika/en/__pr/2__Embassy/2013/4thQ/10-InvestmentTreaty.html>. See also Nicholas Peacock and Hannah Ambrose, ‘South Africa terminates its bilateral investment treaty with Spain: Second BIT terminated, as part of South Africa’s planned review of its investment treaties’ Lexology (21 August 2013), <http://www.lexology.com/library/detail.aspx?g=daf93855-71f9-425e-92d3-5368d104f8ff>; Chantelle Benjamin, “Swiss govt reacts to termination of investment treaty with SA” Mail & Guardian (Johannesburg, 1 November 2013), <http://mg.co.za/article/2013-11-01-swiss-govt-reacts-to-termination-of-bilateral-investment-treaty-with-sa>; Letter from Senator Orrin Hatch to Ambassador Ebrahim Rasool (23 June 2014), <http://www.siaonline.org/SiteAssets/GovernmentRelations/Letters%20To%20Con/2014-06-23%20Hatch%20South%20Africa%20Letter.pdf>.
37. See for instance, Peter Leon, “Amended bill still takes SA out of step with rest of world” Business Day (6 August 2015), <http://www.bdlive.co.za/opinion/2015/08/06/amended-bill-still-takes-sa-out-of-step-with-rest-of-world>; Troye Lund “Investment Bill: Europeans cry foul” Financial Mail (17 September 2015), <http://www.financialmail.co.za/features/2015/09/17/investment-bill-europeans-cry-foul>; Fiona Forde “Investment Bill: Think as a BRICS?” Financial Mail (21 November 2015), <http://www.financialmail.co.za/fmfox/2015/11/12/investment-bill-thick-as-a-brics>; and Stuart Theobald “Foreign investors see the writing on the wall, and the word is calamity” Business Day (16 November 2015), <http://www.bdlive.co.za/opinion/columnists/2015/11/16/on-the-money-foreign-investors-see-the-writing-on-the-wall-and-the-word-is-calamity>.
38. The Director of the Legal Office for Trade and Investment of the DTI, Mustaqeem de Gama, has also explained in a collective article that the denunciation process was made in accordance with Article 54 of the Vienna Convention on the Law of the Treaties. See Mustaqeem de Gama and Rafia de Gama, “South Africa”s approach to the implementation of its Investment Policy Framework” Africa International Legal Awareness (5 December 2013) 8, <http://blogaila.com/2013/12/05/south-africas-approach-to-the-implementation-of-its-investment-policy-framework-by-mustaqeem-de-gama-rafia-de-gama/>.
39. Mohammad Mossallam, “Process Matters: South Africa”s experience exiting its BITs” The Global Economic Governance Programme (January 2015) 4, <http://www.globaleconomicgovernance.org/sites/geg/files/GEG%20WP_97%20Process%20matters%20-%20South%20Africas%20experience%20exiting%20its%20BITs%20Mohammad%20Mossallam.pdf>.
40. In this respect, Section 15(1) of the PIA 2015 states that “[e]xisting investments that were made under bilateral investment treaties will continue to be protected for the period and terms stipulated in the treaties”.
41. The DTI explained in its statement following the publication of the PPIB 2013 for public consultation that “all terminated BITs contain “savings clauses” that maintain the BIT protection on existing investments for between 10 and 20 years”. Republic of South Africa Department of Trade and Industry, “Statement on the Promotion and Protection of Investment Bill 2013” (4 November 2013), <http://www.polity.org.za/print-version/sa-statement-by-the-department-of-trade-nad-industry-on-the-promotion-of-protection-and-investment-bill-2013-04112013-2013-11-04>.
42. The PPIB 2013 may be found at <http://www.tralac.org/files/2013/11/Promotion-and-protection-of-investment-bill-2013-Invitation-for-public-comment.pdf>. See also Christian Vidal-León, “Careful with those changes” Financial Mail (20 December 2013–8 January 2014) 31; and Christian Vidal-León, “South Africa moves boldly to upgrade investment bill” African Banker 27 (1st Quarter 2014) 56–58.
43. ‘SA: Statement by the Department of Trade and Industry, on the Promotion and Protection of Investment Bill 2013 (04/11/2013)’, <http://www.polity.org.za/print-version/sa-statement-by-the-department-of-trade-nad-industry-on-the-promotion-of-protection-and-investment-bill-2013-04112013-2013-11-04>.
See also Linda Ensor, “Davies moves to defend new investment protection regime” Business Day (4 November 2013), <http://www.bdlive.co.za/business/2013/11/04/davies-moves-to-defend-new-investment-protection-regime>.
45. See Xolelwa Mlumbi-Peter (Acting Deputy Director-General of the DTI), ‘Promotion and Protection of Investment Bill. Presentation to the Portfolio Committee on Trade and Industry’ (1 September 2015) 28, <https://www.thedti.gov.za/parliament/2015/Investment_Bill1092015.pdf>.
46. The draft of the PPIB submitted to parliament was published in the Government Gazette on 22 July 2015 and is available at <https://www.thedti.gov.za/gazzettes/Promotion_Protection_Investment_Bill.pdf>.
48. ‘Public hearings on Promotion and Protection of Investment Bill kick off’ (10 September 2015) <http://www.parliament.gov.za/live/content.php?Item_ID=8175>. The entities that presented a written submission to the Portfolio Committee are: Agri South Africa; Anglo American South Africa Limited; The Banking Association South Africa; Business Unity South Africa; Centre for Applied Legal Studies; Centre for Constitutional Rights; European Union Chamber of Commerce and Industry in Southern Africa; Financial Services Board; Hennie Botha; Mandela Institute; National Union of Metalworkers of South Africa (NUMSA); Offshore Petroleum Association of South Africa; René de Villiers; South African Human Rights Commission; South African Institute of Race Relations; South African Property Owners Association; Vodacom; and Western Cape Government. A few examples of the submissions presented to the Portfolio Committee are those by the South African Institute of Race Relations, available at <http://irr.org.za/reports-and-publications/submissions-on-proposed-legislation/full-submission-promotion-and-protection-of-investment-bill-of-2015-2013-25-august-2015-1>; and by the Centre for Constitutional Rights, available at <http://www.cfcr.org.za/index.php/latest/462-submission-concise-submission-on-the-promotion-and-protection-of-investment-bill-b18-2015>.
53. See (n 2).
54. Section 5 of the PIA 2015.
56. In contrast, the definition of ‘investment’ in Section 2(1)(a) is silent on whether an investment must contribute to the economic development of South Africa as the host state. It is worth recalling that recent international investment tribunals have questioned whether this requirement is a constituent, stand-alone element of the definition of investment for purposes of Article 25 of the ICSID Convention, or whether it is inherent in other elements of the definition. See Phoenix Action Ltd v Czech Republic (Award, 2009) ICSID Case No ARB/06/5, ; KT Asia Investment Group BV v Republic of Kazakhstan (Award, 2013) ICSID Case No ARB/09/08, –; Quiborax v Bolivia (Decision on Jurisdiction, 2012) ICSID Case No ARB/06/2, ; Saba Fakes v Republic of Turkey (Award, 2010) ICSID Case No. ARB/07/20, ; Victor Pey Casado and President Allende Foundation v Republic of Chile (Award, 2008) ICSID Case No ARB/98/2, ; and LESI SpA et Astaldi SpA v People’s Democratic Republic of Algeria (Decision on Jurisdiction, 2006) ICSID Case No ARB/05/3,  (Available in French).
57. That list includes: shares, stocks, debentures, securities, or other equity instruments of the enterprise or another enterprise; a debt security of another enterprise; loans to an enterprise; movable or immovable property or other property rights; claims to money or to any performance under contract having a financial value; intellectual property rights recognized under South African law; returns such as profits, dividends, royalties, or income yielded by an investment; and rights and concessions conferred by law or under contract, including licenses to cultivate, extract, or exploit natural resources (Section 2(2) of the PIA 2015).
58. The BITPFR invoked the Calvo doctrine, which stands for the proposition that ‘[t]he responsibility of Governments toward foreigners cannot be greater than that which these Governments have towards their own citizens’. See (n 24). For an analysis of the Calvo doctrine, see Wenhua Shan, ‘Calvo doctrine, state sovereignty, and the changing landscape of international investment law’ in Wenhua Shan, Penelope Simons, and Dalvinder Singh (eds), Redefining Sovereignty in International Economic Law (Hart Publishing 2008) 249.
59. The Memorandum on the Objects of the Promotion and Protection of Investment Bill (the ‘Memorandum’) is appended to the Promotion and Protection of Investment Bill submitted to Parliament on 22 July 2015. See (n 46).
60. With respect to the transfer of funds provision, Section 11 of the PIA 2015 establishes that a ‘foreign investor may, in respect of an investment, repatriate funds subject to taxation and other application legislation’. This provision is, due to its nature, addressed to foreign investors, as these are the only investors (as opposed to their domestic counterparts) who would repatriate profits to their home countries.
61. See Section 32 (access to information); Section 33 (just administrative action); and Section 34 (access to courts) of the Constitution of the Republic of South Africa.
63. In this respect, the Constitutional Court has held that it is not sufficient to ascertain that property exists in accordance with ‘private law notions of property’. Rather, for property to be protected under the Constitution, it must ‘embrace constitutional entitlements beyond the original ambit of private common law property [to]ensure that the property clause does not become an obstacle to the transformation of our society, but central to its achievement’. Shoprite Checkers (PTY) Limited and others v Affairs and Tourism Eastern Cape and others, Constitutional Court of the Republic of South Africa, Judgment of 30 June 2015 .
64. Agri South Africa v Minister for Minerals and Energy, Constitutional Court of the Republic of South Africa, Judgment of 18 April 2013,  (Agri South Africa).
65. ibid. The Constitutional Court has further explained that, pursuant to Section 25(2) of the Constitution, expropriation takes place when ‘the state has acquired the substance or core content of what it was deprived of’, even if what was taken from the previous owner is not exactly the same as the rights the state has acquired (ibid ).
66. See Article 5(1) of the Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of South Africa for the Promotion and Protection of Investments (entered into force 27 May 1998, terminated 31 August 2014).
67. In the Memorandum submitted to Parliament on 22 July 2015, the DTI explained the proviso in Section 8 as being ‘more closely aligned to the Constitution, which permits measures to overcome past discrimination’. The Memorandum further noted that ‘[n]ational treatment provisions in BITs created a degree of uncertainty and risk to national legislation for Black Economic Empowerment, public health, and environmental and economic development, including beneficiation’. See Memorandum on the Objects of the Promotion and Protection of Investment Bill (n 59) 2.5.
68. See Peterson (n 6).
70. See Thiagraj Soobramoney v Minister of Health (Kwayulu-Natal), Constitutional Court of the Republic of South Africa, Judgment of 27 November 1997, . See also Christopher Mbazira, Litigating Socio-Economic Rights in South Africa (Pretoria University Press 2009) 57; and Debbie Labuschagne and Pieter A Carstens, ‘The constitutional influence on organ transplants with specific reference to organ procurement’ (2014) 17(1) PER/PELJ 207, <http://www.saflii.org/za/journals/PER/2014/10.pdf>.
71. Memorandum on the Objects of the Promotion and Protection of Investment Bill (n 59) 1.3.
72. See for instance, Kathryn Gordon and Joachim Pohl, ‘Investment Treaties over Time—Treaty Practice and Interpretation in a Changing World’ (2015) OECD Working Papers on International Investment 2015/02, 6–7, <http://www.oecd.org/investment/investment-policy/WP-2015-02.pdf>.
73. Republic of South Africa Department of Trade and Industry (n 17) 47.
74. Ex parte Chairperson of the Constitutional Assembly: In re Certification of the Constitution of the Republic of South Africa (First Certification Judgment), Constitutional Court of the Republic of South Africa, Judgment of 11 November 1999, .
76. ibid .
78. Separate Opinion of Justice Ngcobo in Bato Star Fishing (PTY) LTD, Constitutional Court of the Republic of South Africa, Judgment of 12 March 2004, .
79. LG&E Energy Corp, LG&E Capital Corp, LG&E International Inc v Argentine Republic (Decision on Liability, 2006) ICSID Case No ARB/02/1, . The tribunal observed that such a measure ‘must be accepted without any imposition of liability, except in cases where the State’s action is obviously disproportionate to the need being addressed’.
85. See European Commission, ‘Commission staff working document report on online public consultation on investment and investor-to-state dispute settlement (ISDS) in the Transatlantic Trade and Investment Partnership Agreement (TTIP)’ (2015) SWD(2015) 3 final, <http://trade.ec.europa.eu/doclib/docs/2015/january/tradoc_153044.pdf>.
87. Technical Summary of Final Negotiated Outcomes; Canada-European Union Comprehensive Economic and Trade Agreement, available at <http://international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/ceta-aecg/understanding-comprendre/technical-technique.aspx?lang=eng>.
89. Republic of South Africa Department of Trade and Industry (n 17) 45.
90. ibid 44.
91. ibid 45.
92. See for instance, ‘Intervention by Mr. Xavier Carim at the public forum of the World Trade Organization’ (26 September 2012), <https://search.wto.org/search?q=cache:fK804DsLpkkJ:www.wto.org/english/forums_e/public_forum12_e/session28_summ_e.doc+xavier+carim&site=English_website&client=english_frontend&proxystylesheet=english_frontend&output=xml_no_dtd&ie=ISO-8859-1&access=p&oe=UTF-8>.
93. For instance, the Constitutional Court has explained that Section 25 of the Constitution, relating to the right to property and expropriation, must be interpreted ‘with due regard to the gross inequality in relation to wealth and land distribution [as] [t]his section (…) sits at the heart of an inevitable tension between the interest of the wealth and the previously disadvantaged’. Agri South Africa (n 64) –.
94. If the DTI is a party to the dispute, the parties may jointly request the Judge President of one of the divisions of the High Court to appoint a mediator (Section 13(d)).
95. Section 14 of the PIA 2015.
96. The Members of the SADC region are Angola; Botswana; Democratic Republic of Congo; Lesotho; Madagascar; Malawi; Mauritius; Mozambique; Namibia; Seychelles; South Africa; Swaziland; United Republic of Tanzania; Zambia; and Zimbabwe.
97. The new approach reflected in the 2014 SADC Protocol is a consequence of the result of the first case submitted to the SADC Tribunal, Mike Campbell (Pvt) Ltd et al v Zimbabwe. In that dispute, a large number of claimants challenged Zimbabwe’s land reform program for resettlement by black subsistence farmers as inconsistent with the nondiscrimination obligations set out in Articles 4(c) and 6.2 of the SADC Treaty. See Mike Campbell (PVT) Ltd et al v The Republic of Zimbabwe (Award, 2008) SADC (T) Case N 2/2007, <http://www.saflii.org/sa/cases/SADCT/2008/2.pdf>; and Gino J Jaldi, ‘Mike Campbell (Pvt) Ltd et al v The Republic of Zimbabwe: Zimbabwe’s land reform programme held in breach of the SADC Treaty’ (2009) 53 Journal of African Law 2, 305. In its award, the SADC tribunal found that the land expropriations denied the affected owners of access to courts and the concomitant right to be heard (at 26–41); de facto discriminated against ‘Zimbabweans white farmers’ due to ‘an unjustifiable and disproportionate impact’ on them (at 41–55); and that the Zimbabwean government had failed to compensate the owners for the expropriations (at 55–57). Subsequent to the rendering of the award in that case, Zimbabwe declined to give effect to the ruling, leading a few years later to a decision by SADC heads of state and government to review the ‘role and terms of reference’ of the SADC tribunal and, ultimately, to bring the workings of this institution to a halt in May 2011. See Communique of the 30th Jubilee summit of SADC heads of state and government of the Southern African Development Community (SADC) (Windhoek Namibia, 16–17 August 2010), http://www.trademarksa.org/news/communique-30th-jubilee-summit-sadc-heads-state-and-government; and Ariranga G Pillay, former President of SADC Tribunal, speech, Johannesburg (undated), <http://www.osisa.org/sites/default/files/article/files/Speech%20by%20former%20President%20of%20SADC%20Tribunal.pdf>. See also Erika de Wet, ‘The rise and fall of the tribunal of the Southern African Development Community: Implications for dispute settlement in Southern Africa’ (2013) 28 ICSID Review 1.
98. Article 49 of the 2014 SADC Protocol, captioned ‘Settlement of Disputes’, reads as follows:
1. State parties strive to resolve any dispute regarding application, interpretation or implementation of the provisions of this Protocol amicably.
2. Any dispute arising from the application, interpretation or implementation of this Protocol, which cannot be settled amicably, shall be referred to the SADC Tribunal.
100. Article 29 of the SADC Model Bilateral Investment Treaty Template, captioned, Investor-State Dispute Settlement’, contains a special note as follows:
The Drafting Committee was of the view that the preferred option is not to include investor-State dispute settlement. Several States are opting out or looking at opting out of investor-State mechanisms, including Australia, South Africa and others. However, if a State does decide to negotiate and include this, the text below provides comprehensive guidance for this purpose.
Importantly, Article 20 establishes the ‘right of states to regulate’, and Article 21 provides for the ‘right to pursue development goals’.
101. The drafting of this clause is modeled on the formulation offered by the Constitutional Court of South Africa where it noted that ‘[i]f (…) citizens have a right to request government to provide them with diplomatic protection, then government must have a corresponding obligation to consider the request and deal with it consistently with the Constitution’ (Samuel Kaunda and Others v The President of the Republic of South Africa, Constitutional Court of the Republic of South Africa, Judgment of 19 and 20 July 2004, ).
102. The Constitutional Court has noted that, under international law, South Africa is not obliged to grant diplomatic protection to its nationals when they are abroad. In assessing whether such an obligation emanated from the Constitution, it noted that ‘[a] right to diplomatic protection is a most unusual right, which one would expect to be spelt out expressly [in the Bill of Rights of the Constitution] rather than being left to implication’. See ibid ; and Government of the Republic of South Africa and Others v Von Abo, Judgment of the Supreme Court of Appeal, 4 April 2011, . See also Phumudzo S Munyai, ‘How not to protect South African owned investment abroad: Van Abo v Government of the RSA and Others’ (2011) 44(3) The Comparative and International Law Journal of Southern Africa 392.
103. The written submission of the Mandela Institute of the University of the Witwatersrand proposed the clause ultimately included in Section 13(5) of the PIA 2015 whereby a South African investor would be allowed to request the government to initiate state-to-state arbitral proceedings on his or her behalf, and that government should be required to give due consideration to this request. The Mandela Institute foresaw the following grounds on which the government could decline such request: the lack of merit in the alleged claim; the relative importance of the investment; and the particular legal, political and economic relations between South Africa and the country concerned. For the Mandela Institute,
the administrative mechanism (…) would not bind Government to institute proceedings but would require it to provide a reasoned explanation as to why it is not pursuing the protection of a South African investor/investment abroad. This will provide investors with some certainty regarding the available options for dispute resolution where domestic remedies have been exhausted without satisfaction for disputing investors.
The submission of the Mandela Institute may be requested at email@example.com.
104. For an example of those in favor of preserving bilateral investment treaties and the system of international arbitration, see Stephen M Schwebel, ‘In defense of bilateral investment treaties’ (2014) 135 Columbia FDI Perspectives 2, <http://ccsi.columbia.edu/files/2013/10/No-135-Schwebel-FINAL.pdf>. Notably, the author held that ‘[t]he substitution of national adjudication for international investment arbitration would be a regressive development that is to be resisted rather than furthered’. In contrast, for an example of those in favor of suppressing bilateral investment treaties and the system of international arbitration: see Joseph Stiglitz, ‘Developing countries are right to resist restrictive trade agreements’ The Guardian (London, 8 November 2013), <http://www.theguardian.com/business/2013/nov/08/trade-agreements-developing-countries-joseph-stiglitz>. In this opinion article, the author maintained that ‘investment agreements (…) demand that developing countries waive th[e] presumption [of sovereign immunity] and permit the adjudication of suits according to procedures that fall far short of those expected in 21st century democracies’. For Stiglitz, arbitration procedures ‘have proved to be arbitrary and capricious, with no systemic way to reconcile incompatible rulings issued by different panels’ thus increasing uncertainty (ibid).