Promotion and protection of investment bill, 2013: is protection afforded?
The object of the Promotion and Protection of Investment Bill (the Bill) is to provide a legislative framework for the protection of investors, the promotion of investment and to achieve a balancing of the rights and obligations that apply to all investors. It is designed to treat all investors equally, irrespective of whether the source of the investment is foreign or domestic.
The Bill was published for public comment in the wake of the government’s somewhat controversial decision to terminate existing Bilateral Investment Treaties (BIT). Government had been signalling its intention to do so for some time now.
Bilateral treaties
A BIT is a bilateral treaty between two States by which each agrees to afford protection and benefits to investments made by citizens and companies of the other State, and is intended to afford protection beyond that which the investor could expect under the contractual relationship. BITS may, for example, protect investors against expropriation or nationalisation. The treaties usually contain an appropriate dispute resolution mechanism entitling the investor to commence international arbitration proceedings against a State that is in breach of the BIT. This avoids an investor having to attempt to exercise recourse against the State in the State’s own domestic courts.
Treaties phased out
Many of the BITS which are currently being terminated contain a phasing out period. In these circumstances, there will still be protection under the BITS for some years to come for investments made before the BITS were terminated.
There are many countries where there are no reciprocal BITS with South Africa. In regard to investments flowing from those countries and from countries where the phasing out period mentioned has expired, protection of investments will fall to be dealt with in terms of the Bill, assuming that it is eventually passed in its current form, and our Constitution.
Equal protection for all
One of the essential features of the Bill is that it will not only apply to investments introduced from outside South Africa, but will also afford equal protection to local investors. However, any recourse against the State in terms of the law will no longer be possible by reference to international arbitral proceedings - unlike in terms of the BIT - unless the State were specifically to agree otherwise, which is an unlikely scenario.
In a dispute with the State regarding an investment, a disgruntled investor will need to seek recourse through the local domestic courts or similar competent bodies which may include a referral to arbitration in accordance with the South African Arbitration Act.
Expropriation remedies
The Bill sets out the principles relating to expropriation of investments. This may only be done in accordance with the Constitution, in terms of a law of general application for a public purpose or in the public interest, under due process of law against just and equitable compensation effected in a timely manner.
The Bill sets out a number of events which may be prejudicial to an investor, and yet will not amount to expropriation. What will in terms of the Bill amount to expropriation is far more limited than what amounts to expropriation in terms of a BIT. In this respect at least, a foreign investor would be afforded less protection than under a typical BIT.
Calculation of loss
The value of the loss which an investor faced with an expropriation – which he/she would be entitled to receive - is likely to be more limited compared to that which would be received under a BIT.
Any compensation in terms of the Bill is required to reflect an equitable balance between the public interest and the interests of those affected, taking into account particular circumstances which are set out in the Bill and includes the current use of the investment, the history of acquisition and use of the investment, the market value of the investment and the purpose of the expropriation.
