Govt faces first expropriation suit
15 Feb 2007
[miningmx.com] — A FOREIGN mining company has finally taken the plunge and is suing the South African government over alleged expropriation of its mineral rights in a move that has huge implications for the country’s new mining dispensation.
The action is being brought by Luxembourg-based Finstone which is the holding company controlling South Africa’s main granite producers Marlin, Kelgran and Red Graniti.
The case has been listed on the website of the International Centre for Settlement of Investment Disputes (ICSID) which is part of the World Bank. The case was formally registered on January 8.
Parties bringing the action are listed as Piero Foresti, Laura de Carli and others versus the Republic of South Africa [case ARB(AF)/07/1]. The status of the case is given as pending with a "tribunal not yet constituted."
Sandile Nogxina, director general for the Department of Minerals and Energy (DME), has acknowledged the legal action. He referred queries to the Department of Trade and Industries. This is because the action is taking place in terms of bilateral trade and investment protection agreements entered into by the South African government.
According to the Investment Treaty News (ITN) newsletter, published by the International Institute for Sustainable Development, the investors allege South Africa’s new black economic empowerment regime "violates the terms of investment protection treaties concluded by South Africa with Italy and Luxembourg.
"The individual investors, all Italian nationals, allege breach of the protections contained in the Italy-South African investment treaty; in addition, their Luxembourg-based holding company Finstone Ltd SA, alleges violations of a separate investment treaty concluded by South Africa with Italy and Luxembourg." Finstone CEO Mario Marcenaro could not be reached for comment.
According to the ITN newsletter the claimants say that the Minerals and Petroleum Resources Development Act (MPRDA) "extinguished their ownership of mineral rights in South Africa without providing ’prompt, adequate and effective compensation’ as required under South Africa’s investment treaties."
It added: "The claimants also allege that they are victims of ’discrimination’ - contrary to the fair and equitable treatment guarantee thanks to their being treated less favourably than historically disadvantaged South Africans.
"The claimants in the ICSID case maintain that their investments were made after the end of apartheid in South Africa and that, as a consequence of this, the investors did not benefit from past injustices during the apartheid era."
Such international trade and investment treaties provide for arbitration by ICSID to resolve disputes. The opposing parties have 90 days from the date of formal registration during which each can nominate one of the three arbitrators who will preside over the dispute.
According to the ITN newsletter, the parties must jointly agree on the appointment of the third arbitrator. If they cannot agree then ICSID will appoint the third arbitrator. The newsletter says the South African government plans to defend the dispute.
The legal action will bring to a head the debate that has been threatening to boil over since the MPRDA was implemented in May 2004 as to whether mineral rights had been expropriated by the South African government.
Peter Leon, a partner in legal firm Webber Wentzel Bowens who specialises in mining regulatory issues, says his view, and that of several international legal experts, is that there was an effective expropriation of mineral rights when the new legislation came into force.
Quoted in a recent article in South Africa’s Financial Mail, he predicted that a claim for expropriation was " more likely at the level of international law under a bilateral investment treaty than under domestic law."
Said Leon: "However much you respect the independence of the South African courts, the fact is this will end up in the constitutional court which will have to consider the impact of a finding that there has been a generalised expropriation of mineral rights with compensation probably running into billions of rands. An international arbitration tribunal will not have those implications in mind."
The DME rejects the allegations of expropriation. The department maintains there has been no expropriation because owners of "old order" mining rights will automatically have them converted to "new order" mining rights provided they comply with the legal requirements.
DME sources indicate they feel the MPRDA should take precedence over the various trade treaties because this legislation was enacted subsequent to the signing of the treaties.
"Everybody wanted to sign trade treaties with South African immediately after 1994 but, at that stage, government was still formulating various strategies and policies, some of which are reflected in the MPRDA. Must we now be held hostage to these treaties?" one official queried.