South Africa: Draft regulations on mediation rules for investor-state disputes

Lexology | 27 February 2017

South Africa: Draft regulations on mediation rules for investor-state disputes

by Annet van Hooft

Since 2012, South Africa, dissatisfied with its bilateral investment treaties (BITs) (1), has either been terminating or non-renewing several of these, including those concluded with United Kingdom and France (2). In substitution, South Africa passed a law on the protection of investments in December 2015 (3). This law establishes an uniform system for the investments in South Africa with a specific dispute resolution mechanism between the State and the investors (Article 13 of the said law). An investor who feels wronged by an action of the South African Government may now request that his dispute be resolved either by mediation or by any competent court, independent tribunal or statutory body in South Africa. As to the use of international arbitration, it should be noted that the investor will not only need to exhaust all domestic remedies but also have the State consent to the arbitration. If that is the case, the arbitration will then be conducted between the investor’s state and the Republic of South Africa.

The major feature lies in the establishment of a mediation system in disputes between the State and the investor. On 30 December 2016, the South African Department of Trade and Industry (DTI) issued Draft Regulations on Mediation Rules which would apply to this type of disputes (4). These Draft Regulations on Mediation Rules contain some special features:

  • Action brought within 6 months: to declare a dispute, the investor would only have 6 months from becoming aware of the dispute to complete a prescribed form available from the DTI.
  • Mediator from the DTI’s list: the investor and the DTI would have to agree on the name of a mediator, this mediator would need to be in the list available from the DTI (5).
  • Compulsory mediation rules: the investor would be unable to choose independent mediation rules such as the ones from the International Bar Association (IBA Rules for Investor State Mediation) and would need to comply with the mediation rules issued by the DTI.
  • Conclusion of mediation: if the mediation happens to be successful, the Draft Regulations do not specify whether the parties should, for example, sign a settlement agreement. Similarly, in the event of an unsuccessful outcome, the remedies available to the investor are not specified.

It seems that the Draft Regulations on Mediation Rules would gain in being more flexible for parties. It should be noted that, save for mediation, this new system is highly unfavorable to the investor. The Draft Regulations were open for public comment until 28 February 2017. It may be that the Draft Regulations on Mediation Rules come into force at the same time as the Protection of Investment Act.

  1. A bilateral investment treaty can be defined as an international agreement between two sovereign States aiming to promote and protect investments of their people in a reciprocal manner within each of the territories of those States.
  2. Are concerned e.g. Germany, Denmark, Spain, Belgium-Luxembourg, Switzerland and the Netherlands. Investments concluded under the BIT regime continue to be governed by the terms set out in the treaties. As for those which were concluded after the non-renewal of the BITs but prior to the entry into force of the Investment Protection Act, they will be governed by South African law.
  3. 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 of South Africa to appoint a mediator.
source: Lexology