Draft regulations on mediation rules for investor-state disputes

Section 13 of the Investment Act, as the empowering provision for the Draft Regulations, regulates the dispute resolution mechanism available to investors, including mediation. Section 13(2)(d) specifically provides that “recourse to mediation must be governed by prescribed rules”. Section 13(1) of the Investment Act appears to only contemplate investor-state mediation with a “foreign investor” and not also domestic investors. However, the Draft Regulations place no limitation on the type of investor (both domestic and foreign) who may refer a dispute to mediation. A dispute must be referred to mediation “within six months of becoming aware of the dispute”. The time bar for the initiation of a mediation process by an investor does not appear sensible, as parties should always have the option and be encouraged to resolve disputes with the state on an amicable basis, even after other formal dispute resolution processes have been initiated.

The Draft Regulations propose rules governing, amongst others, the following:

• the application of the mediation rules to investor-state disputes in South Africa;
• the time limits for filing an investment dispute with the Department of Trade and Industry (DTI) for settlement by mediation;
• the appointment of mediators;
• procedural matters relating to the declaration of an investor-state dispute with the DTI and/or any
  other third party organ of state in South Africa; and
• the manner in which the mediation will be conducted.

The Draft Regulations are open for public comment until 30 January 2017.

The Draft Regulations are to some extent unorthodox where the DTI being a government department will essentially facilitate an investor-state dispute between investors and other organs of state through mediation in accordance with “rules set by government”. Investors would possibly prefer a mediation process where government’s perceived influence in the mediation process is limited through the selection of independent mediation rules such as the ‘IBA Rules for Investor-State Mediation’, including mediators which are not on a list kept by DTI to be appointed. More flexibility to allow the state and the investor to decide what rules would be suited to govern the investor-state mediation process would be apposite. Most foreign investors would prefer ‘international mediation rules’ adapted for investor-state disputes, as opposed to a process in accordance with rule of the state with which it has a dispute with.

Thus, the rules contemplated by the Draft Regulations should be made more flexible for the parties to decide on which rules should be applicable to govern the mediation. In addition to providing a more flexible approach certain mandatory provisions relating to the initiation of a mediation process against organs of state and such administrative matters relating to the facilitation of the dispute between the DTI and such organ of state may remain. In doing so, the Draft Regulations may encourage the use of mediation to resolve investor-state disputes with the South African government. The Investment Act has not yet come into effect and it appears that the intention is for the Draft Regulations to be effective on the same date the Investment Act comes into effect.