South African businesses are more and more investing and doing business in Africa and other parts of the world. One of the factors that investors should consider before entering a foreign market is how to protect their investments should there be a major change in the policies applied by the country where the investment is located (the "host state").
In addition to any remedies that may be offered by the domestic law of the host state, or rights arising from agreements entered into between the host state and an investor, the South African Government could provide protection to its citizens/nationals who/which invest in foreign jurisdictions in one of two ways. The first is to enter into Bilateral Investment Treaties ("BITs"), which will give the South African investor remedies in international law in certain circumstances should the Government of the host state adopt measures which negatively impacts on the value of the South African investor's investment in the host state. The second, in the absence of a BIT, is to give the South African investor diplomatic protection, whereby the South African Government takes up the investor's claim on a state-to-state level and to seek compensation for the investor from the host state.
The question whether the South African Government is obliged to give diplomatic protection to South African investors investing in foreign jurisdictions was recently considered by the Supreme Court of Appeal in The Government of the Republic of South Africa v Von Abo (283/10)  SASCA 65 (4 April 2011).
Mr. Von Abo, a South African citizen, was a very successful commercial farmer in Zimbabwe by 1995. In 1997, the Zimbabwean Government introduced a land reform program which resulted in Mr. Von Abo losing ownership of all his farming interests in Zimbabwe with no compensation, thereby suffering a financial loss. Mr. Von Abo exhausted all the remedies available to him in Zimbabwe, but with no success. He then turned to the South African Government, requesting diplomatic protection first through correspondence with the Government, and thereafter by turning to the South African courts in an attempt to, inter alia, compel the South African Government to give him diplomatic protection.
Diplomatic protection is in essence an international law remedy, which applies on a state-to-state level. The state takes up a claim of one of its nationals and then deals with it directly with the state that has allegedly caused the injury through diplomatic channels. As far as international law is concerned, the decision whether or not to provide the citizen/national with diplomatic protection is within the sole discretion of the state. Should the state decide not to extend diplomatic protection, the citizen/national will have no right thereto.
These principles also apply in a South African context. Unless South African law provides a basis to oblige the state to give diplomatic protection to any South African citizen/national that requests it, there is no international law basis for such an obligation.
In the Von Abo case, as in a number of cases before it, the Supreme Court of Appeal considered whether, in terms of section 7(2) of the Constitution, South African citizens have a "right" to diplomatic protection. The question was answered in the negative. In terms of section 7(2) of the Constitution, a South African citizen has a right to request Government to provide it with diplomatic protection, and Government has an obligation to consider the request. The South African Government does not have an obligation to provide a South African citizen/national with diplomatic protection.
However, in considering a citizen's request for diplomatic protection, the South African Government must act rationally and in good faith. This requires the Government to apply an "honest and open disclosure on policy, approach and action" 1 with regard to the citizen's/national's request. If it can be proven that the Government did not comply with these requirements, a court may require the Government to deal with the matter appropriately, i.e. to reconsider the request in the appropriate manner. Our courts cannot, however, substitute their own opinion for that of the Government.
South Africans who have foreign investments or who are considering investing in foreign states, should –
- keep in mind that they are not by right entitled to diplomatic protection by the South African Government;
- investigate whether there is a Bilateral Investment Treaty in force between South Africa and the foreign state which will protect their rights should their investment suffer losses due to an international wrongful act or omission by the foreign state; and
- if no Bilateral Investment Treaty is in force, attempt to negotiate an investment protection agreement with the host state.