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CIArb News

South Africa – New Mediation Provisions to Regulate Investment Disputes

3 March 2017 Features
By Sabina Adascalitei LLB, LLM, MCIArb, Research and Academic Affairs Coordinator

In light of South Africa’s unilateral termination of its Bilateral Investment Treaties (BITs) with most of the EU Member States, the South African Department of Trade and Industry (DTI) published a draft of the Regulations on Mediation Rules under the Protection of the Investment Act 2015.

Interested parties had the opportunity to comment on the draft until the end of February.

The Investment Act aims to affirm that foreign investors will no longer benefit from better legal protection in comparison to their domestic counterparts, excluding recourse to investor-state arbitration. Instead, the Act puts forward the option of referring investment disputes to mediation under the auspices of the DTI. In this sense, there is a need for legislation to govern such mediation proceedings and the draft Regulations are meant to serve this goal.

Overview of the proposed legal framework
The Act proposes a domestic investor-state mediation scheme, excluding international arbitration.

Even though mediation offers a more amicable environment for settling disputes, it should be noted that it is rather abnormal to substitute arbitration proceedings with mediation. This is supported by the International Bar Association Rules for Investor-State Mediation, where mediation is recognised as a supplement and not as a substitute.

Furthermore, it is not very clear how effective mediation proceedings will be under the proposed set up, as it might be difficult to ensure compliance with the outcome.

In this sense, it is important to note that, whilst still a draft, the Regulations do not provide either for a fixed timeframe within which the mediation should be concluded or for a written and signed settlement agreement to mark the end of such proceedings.  

With regard to the qualifications a mediator should possess, the Regulations only state that a mediator should exercise “independent judgement” without requiring any disclosure or statement of independence on their part.

The absence of independence and impartiality safeguards might compromise the investors’ confidence in such a system and ultimately, deter investment from the jurisdiction.

However, the Regulations allow parties to request a mediator’s recusal on grounds of independence and impartiality. This process is not very straightforward in the instance when the mediator refuses to recuse themselves. In such a case, the interested party should approach the DTI, who in turn will appoint a new mediator to decide the recusal issue.

Considering that new investments from most of the EU Member States will no longer benefit from BIT protection, it is important to ensure that the new legislative framework creates a clear and credible investment disputes system that parties can confidently rely on.

In their current form, both the Act and the Regulations seek to replace a rules-based international arbitration regime with a not-yet harmonised mediation system.