The Department of Trade and Industry (DTI) has warned that South Africa’s existing international investment treaties may prevent it from expropriating land from foreigners.
In a parliamentary presentation on Wednesday (27 November), the DTI said that South Africa currently has 49 bilateral international treaties (BITs) which contain legal undertakings on the expropriation and compensation of the property of any investor.
While these BITs do not refer to ‘land’, it does extend protection to investments defined in open-ended terms in an asset-based approach, it said.
It added that these treaties cover ‘every kind of asset’ of an investor in the territory of the host country, with some economic benefit associated with the investment.
The DTI said that if the land of a foreign investor is expropriated and that investor is a citizen of a country with a BIT with South Africa (including where the survival clause is in effect), the affected investor would be in a position to invoke a legal challenge against the South African government if the investor is not satisfied with the compensation offered.
It said that three arbitrators under the terms of International Settlement of Investment Disputes would make a determination on the matter.
While the outcome cannot be predicted, and the arbitrators may take into account national legislation, their primary reference will likely be the terms of the BIT itself.
On the question of compensation, past cases indicate that the standard has tended to be the “market value” of the investment immediately before the expropriation took place.
Value of land
Parliament also heard that the South African government may face a challenge if the new legislation could be construed to impact negatively on the value of land belonging to a foreign investor.
Some of the jurisprudence on investment treaties refers to a standard of “legitimate expectation” in respect to returns from investment.
Specifically, article 10 of the 2015 Investment Act on legal protection of investment reads: “Investors have the right to property in terms of section 25 of the Constitution”.
This means that a change to the Investment Act may be required if Section 25 if the Constitution is adjusted.