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Dispute Settlement in Investment-Related Matters: South Africa and the BRICS

  • Engela C. Schlemmer (a1)
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Many states use investment treaties to spur economic development by granting legal protections to foreign investors and providing for direct enforcement before international arbitral tribunals. Yet South Africa has taken a different course. As explained below, South Africa originally signed onto a number of investment treaties despite barely considering how the resulting obligations would affect its constitutional commitments and the authority of its domestic courts. After the shock of losing its first two treaty-based investment disputes, the country shifted from avidly entering into bilateral investment treaties (BITs) to opposing BITs absent compelling economic and political reasons to conclude them. Today South Africa seeks to replace investment treaties and investor-state arbitration with protections under domestic legislation, along with mediation and dispute resolution before domestic courts. In this essay, I describe this shift and explore three difficult and yet-to-be-resolved questions that it presents: (1) Will foreign investors still be able to rely on protections under international law when bringing domestic cases? (2) If so, will the South African Constitution, as a matter of domestic law, displace any relevant commitments under international law? And (3) is the new South African approach consistent with international law?

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This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted re-use, distribution, and reproduction in any medium, provided the original work is properly cited.
References
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1 Engela C. Schlemmer, An Overview of South Africa's Bilateral Investment Treaties and Investment Policy, 31 ICSID Rev. 167, 190 (2016).

2 The sole exception appears to be a post hoc discussion on the BIT with Zimbabwe, which was the very last BIT that South Africa signed. See National Assembly Hansard 3 May 2010 (S. Afr.).

3 Foresti v. S. Afr., ICSID Case No. ARB(AF)/07/1 (Aug. 4, 2010); see also Schlemmer, supra note 1; Peter Leon, Creeping Expropriation of Mining Investments: An African Perspective, 27 J. Energy & Nat. Resources L. 597 (2009).

4 The remaining BITs are with China, Cuba, Finland, Korea, Mauritius, Nigeria, Russia, Sudan, Sweden, and Zimbabwe. Despite earlier reports to the contrary, it appears that a BIT with Senegal never entered into force.

6 Protection of Investment Act 22 of 2015 (S. Afr.).

7 Id., § 13(5).

8 No such provision applies to other forms of international commercial arbitration. See International Arbitration Act 15 of 2017 § 5 (S. Afr.).

10 South Africa is a member of the Southern African Development Community (SADC) and bound by the Agreement Amending Annex 1 of the SADC Protocol on Finance and Investment. This agreement removes the possibility of international arbitration as a mechanism of ISDS, but it is unclear whether it has entered into force.

11 Prior to July 13, 2018, when the Protection of Investment Act came into operation, no statute provided for the protection of foreign investors. Moreover, the Act is not retroactive. As a result, all investments made prior to July 13, 2018 and outside of a BIT framework lack domestic legal protection other than that accorded by general South African law. The Constitution of the Republic of South Africa does, however, provide some protection in the form of a right against the arbitrary deprivation of property.

14 Progress Office Mach. CC v. S. Afr. Revenue Serv., 2008 (2) SA 13 (SCA) (establishing that parties can rely on the provisions of a treaty in a domestic court only if the treaty has been incorporated into South African law).

15 Protection of Investment Act, supra note 6, § 3.

16 See Erika de Wet, The Reception Of International Law In The South African Legal Order: An Introduction, in The Implementation of International Law in Germany and South Africa 23, 37 (Erika de Wet et al. eds., 2015).

17 S. Afr. Const., 1996 §§ 232, 233.

18 Id., § 25(3).

19 See Protection of Investment Act, supra note 6, § 13(5) (“The government may consent to international arbitration in respect of investments covered by this Act, subject to the exhaustion of domestic remedies. The consideration of a request for international arbitration will be subject to the administrative processes set out in section 6. Such arbitration will be conducted between the Republic and the home state of the applicable investor.”) (emphasis added). As a result, there is no obligation on the South African government to agree to international arbitration with an investor's home state.

20 Yukos Universal Ltd. (Isle of Man) v. Russ., PCA Case No. AA 227 (UNCITRAL July 18, 2014).

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