The Draft Promotion and Protection of Investment Bill, 2013 (Bill) will have foreign investors thinking twice before looking at South Africa as a favourable investment destination as it deprives them of the opportunity to independently refer a dispute to an international arbitration forum without the consent of the South African government.
Foreign investors favour international forums as they remove disputes from the host nation’s political and legal systems and believe they offer the prospect of a neutral, and perhaps more favourable hearing, amongst other concerns.
As the Bill presently stands, foreign investors would only be able to directly refer disputes to mediation which would be facilitated by the Department of Trade and Industry (DTI) or arbitrations in accordance with the Arbitration Act, No 42 of 1965 (Arbitration Act) .
The current state of the law governing arbitrations in South Africa provides even less comfort to foreign investors. There is no distinction between domestic and international arbitration, and it is not based on the United Nations Commission on International Trade Law (UNCITRAL model law).
The Law Commission has in the past made extensive recommendations for its reform, but to date government has made no progress in revising the arbitration legislation.
Recently the DTI submitted that a draft Bill governing domestic and international arbitration is to be presented to Cabinet (New Arbitration Bill).
The DTI's director for International Trade and Investment, Mustaqeem de Gama, told BDlive that:
"The bill will replace the current Arbitration Act which dates back to 1960. It will aim to expedite arbitration proceedings and ensure local and foreign investors have modern and efficient alternative dispute-resolution mechanisms."
Accordingly, the Arbitration Act will be updated and harmonised with international laws to provide investors with a firm dispute-resolution mechanism that is recognised internationally.
This would to a large degree ease the concerns of foreign investors who prefer international arbitrations as opposed to domestic dispute resolution forums to resolve disputes.
Although the Bill does not expressly prohibit investors from refering disputes to international arbitration, some commentators believe that this will sound the death knell for any prospect of direct foreign investment in South Africa. However, we can all be hopeful that if the Arbitration Bill is eventually assented to, and the internationally recognised UNICITRAL model law is incorporated, it will increase confidence in foreign investors and settle any doubts.