[DEBATE] : More details emerge of miner’s case against South Africa

[Riaz K Tayob]

Investment Treaty News (ITN), November 30, 2007

Published by the International Institute for Sustainable Development
http://www.investmenttreatynews.com

More details emerge of miner’s case against South Africa,
By Luke Eric Peterson

A recent speech by counsel for a group of European mining companies 
embroiled in an international arbitration with South Africa offers 
further details of the claimants’ case.

As earlier reported in ITN, the firms accuse South Africa of violating 
protections contained in investment protection treaties between SA and 
Belgium-Luxembourg and Italy.

The claimants, who hold investments in two major players in South 
Africa’s stone industry, Marlin and Red Graniti, filed their Request for 
Arbitration with ICSID on November 1 2006.

The investors posit two main claims: that South Africa’s new system of 
mining rights effectively expropriates the claimants’ pre-existing 
mineral rights, leases and authorizations; and that a series of 
obligations imposed upon mining companies, including hiring 
“historically disadvantaged South Africans”, violates treaty 
undertakings by South Africa to provide fair and equitable treatment to 
foreign investors.

More specifically, the claimants maintain that South Africa’s Mineral 
and Petroleum Resources Development Act, which entered into force on May 
1, 2004, “extinguished” their long-standing ownership and lease of 
various mineral rights. While there remains a possibility for holders of 
“old order rights” to convert these into “new order rights”, the 
claimants argue that the latter are of “lower value” and subject to a 
variety of conditions and restrictions.

In addition, the claimants note that they are obliged to comply with a 
Broad-based Socio-Economic Mining Charter for the South African Mining 
Industry – a document which had been endorsed by a majority of investors 
in the South African mining sector, but not by the claimants.

Notwithstanding the fact that they may convert their existing mineral 
rights to new-order rights, the claimants view these as less valuable – 
and subject to various restrictions. As such, they say they have 
suffered an expropriation of their existing mining rights, leases and 
authorizations, in violation of South Africa’s investment treaties with 
Italy and Luxembourg.

The claimants also take issue with the fact that their “old order” 
rights will be converted to new order rights only if they comply with 
South Africa’s Mining Charter, which obliges that 15% of equity be sold 
to “historically disadvantaged South Africans (HDSAs)” within 5 years 
after the entry into force of the Minerals and Petroleum Resources 
Development Act, and that 26% equity be divested by 10 years from that date.

According to the claimants, these equity divestitures are unfair and 
inequitable and serve to discriminate against European nationals 
contrary to South Africa’s treaty obligations.

The implications of the pending ICSID arbitration were elaborated upon 
by the claimants’ lead lawyer in a recent speech to Harvard University 
law students.

In an October 1, 2007 presentation, Peter Leon, Partner at the South 
African law firm Webber Wentzel Bowens, argued that South Africa’s new 
minerals regime, “however well intended, has created an unpredictable, 
discretionary regulatory environment which hampers, rather than promotes 
mining investment”.

According to Mr. Leon, the key tenets of the new mining regime, 
including the Black Economic Empowerment requirements, “potentially 
conflict with South Africa’s international law obligations”.

Mr. Leon opined that bilateral investment treaties should afford foreign 
investors higher levels of financial compensation than would be 
available under South Africa’s Constitution. He added that by signing 
and ratifying a series of bilateral investment treaties, South Africa 
“has, in effect, outsourced the adjudication of key elements of its 
public policy to foreign arbitral tribunals”.

Thus far, the South African Government has made little in the way of 
public comment on the pending arbitration at ICSID. In response to a 
query from ITN, a senior government official, speaking through counsel, 
offered this statement:

"It is difficult to do justice, in a few lines of text, to the 
regulatory and policy considerations that are apposite to this case. The 
RSA Government trusts there will be future opportunities to offer 
comprehensive commentary, in a way that is not coloured by litigation needs"

 The Government has not, as yet, had to file counter-arguments in the 
ICSID proceeding. A procedural hearing in December will likely set a 
timetable for an exchange of written legal arguments; it remains unknown 
at this stage whether the parties will elect to release to the public 
some or all of those written briefs.