Settlement of investment disputes under the South African protection of investment Act Act 22 of 2015

Abstract

Investment law is one of the controversial disciplines in law. Since arbitration became more popular the number of arbitral cases, in terms of Bilateral Investment Treaties (BITs), also increased. It was found that the inconsistencies in the language used in the treaties caused most conflict as each person interpreted the treaty differently.1 Precisely in 2013, the South African government introduced a new Bill, The Promotion and Protection of Investment Bill (the Bill). The Bill was initiated in response to the arbitral case of Piero Foresti, Laura de Carli and Others vs The Republic of South Africa ICSDI, ARB(AF)/07/. The South African government became concerned because foreign investors challenged Black Economic Empowerment (known as BEE) on an international level in an arbitral matter. The government was concerned that certain policies would not be protected internationally, specifically arbitration as a dispute settlement mechanism.2 Some of the BITs were terminated between South Africa and various countries, after the draft Bill was introduced on the 1st of November 2013. BITs were normally used to regulate the investment regimes. After the Bill was passed and the existing BITs were cancelled, a revised Bill was introduced on 22 July 2015.3 The Act is now known as The Protection of Investment Act, Act 22 of 2015 (the Act) and will come into effect on a date to be determined by the President of South Africa and as published in the Government Gazette. After a careful study and analysis of the Act4 the Department of Trade and Investment has acknowledged that the Act is not in line with the Southern African Development Community (SADC) Protocol and their defence is that the Protocol has been through a review process and that the changes made to the Protocol would be in line with the act. It is however uncertain whether the Protocol and the Act would be in line with each other. There are numerous questions regarding the fact that South Africa is bound by the SADC Protocol and if it would be possible to pass the Act with regards to South Africa’s international obligations. Many of the BITs between South Africa and foreign investors have not yet been terminated and they are still protected under the BITs.5 Numerous people are of the opinion the Act should include the ISDS system or at least be more specific regarding the measures that should be taken before the parties can refer the dispute to arbitration. State-to-state arbitration is also a difficult route to follow because foreign investors would have to approach their government to get involved in the dispute. ISDS arbitration should be included in the South African Act, as it would restore the foreign investors trust in the system and might encourage more Foreign Direct Investments (FDIs). In a country where FDIs are important for economic growth, it is important to find a balance between (1) the government’s sovereign right to implement domestic policies, (2) its duty to protect foreign investors and (3) its objective of promoting sustainable economic growth.6 The fact that South Africa drafted its own investment legislation is a step in the right direction. The law is evolving alongside the new trends of international law regarding FDI. It is however important that the Act should be reconstructed in terms of SADC’s Protocols so that South Africa may meet its international obligations. Furthermore, the Act should contain the Investor- State Dispute Settlement (ISDS) system and be more specific regarding the procedures that should be taken before the parties are allowed to refer the matter to arbitration. To include the ISDS system and make the necessary changes with regards to SADC, would encourage FDIs and have a positive effect on the development and growth of South Africa.