The need to attract foreign investment to South Africa is very topical at present and appropriate Investor State Dispute Settlement (ISDS) is one of the keys to attracting that investment.
In 2010 South Africa decided to terminate all 20 of its Bilateral Investment Treaties (BITs). The BITs provided for investor/State arbitration of disputes and, one of the main reasons for the Government terminating the BITs, was to avoid such arbitration. In 2015 the Government enacted the Protection of Foreign Investment Act  which contemplates that, as a substitute for automatic investor/State arbitration, foreign investors should use the local courts or voluntary arbitration to resolve investor/State disputes. The Act also provides that, if foreign investors want mediation, they can request the Government to agree to it and, if it agrees, the Government may appoint a mediator of its choice. At present the identity and qualifications of such mediators are unknown. Not surprisingly few, if any, foreign investors have to date chosen this route.
This approach to ISDS is consistent with the Government’s submission to the United Nations Commission on International Trade Law , where it is critical of an approach which considers that “the best way of achieving development is through economic growth, and in order to achieve this, the guarantee of a free market and fair competition is needed. Moreover, to achieve development it is necessary to provide as much protection as possible of private property and contractual rights as well as ensure the free movement of global capital through international trade, commerce and foreign direct investment (FDI). The role of the State is seen as that of creating and preserving an institutional framework appropriate for such practices. In this view, the State is responsible for securing property rights to optimize market development. The State’s distribution of resources including healthcare, housing, education, water, sanitation, etcetera, is thought best left in the hands of the market – the State should not intervene in this distribution as its interests could affect neutrality and fair competition in the market”.
In the submission, the Government criticises BITs because, “domestic courts are largely bypassed, arbitration tribunals have powers to interpret and apply issues of domestic law from a commercial rather than public policy perspective, often resulting in a balance tipped in favour of private rather than public interests. Investment arbitrators are generally specialists in international investment law and are not necessarily familiar with the intricacies of a domestic legal system. In order to be respectful of domestic political communities, there should be a requirement to defer to domestic authorities on matters of domestic law”. The South African Government’s view is rather that foreign investors should exhaust domestic remedies before raising their grievances at an international level.
The Government also states that, “multinationals must contribute to sustainable development and decent work by respecting the rule of law and workers’ rights through their operations and investments, and by aligning their corporate initiatives with public policies and country decent work priorities” and that, “This requires that decisions taken by any dispute settlement mechanism must have regard for competing non-investment concerns, and that they do not create obstacles for governments to fall short of fulfilling human rights obligations”.
This approach to foreign investment and ISDS has caused concern among foreign investors. See for example, the 2015 submissions of the European Union Chamber of Commerce and Industry in Southern Africa on the The Promotion and Protection of Investment Bill 2013  and more recent comments in the media.  
In order to attract more foreign investment, South Africa is going to have to decide whether it wants to continue to pursue its approach to foreign investment or to be more pragmatic. The problem is that there is at present much competition for foreign investment and investors have alternatives that provide environments that are more attractive than the one that South Africa envisages. In order to attract desperately needed foreign investment, South Africa may be forced to be more accommodating of the fears, interests, needs and concerns of foreign investors.
If it chooses a more pragmatic route, then perhaps the primary concern which needs to be addressed is one about the competence and independence of our courts. Rightly or wrongly, foreign investors do not have faith in local courts. Even if South Africa were to establish a specialised, expert and competent commercial court to hear investor/State disputes, investors would still have reservations about its independence. Therefore, although the kind of international arbitration offered by The World Bank Group’s International Centre for Settlement of International Disputes (ICSID) is not perfect, and itself needs reform, using its services is probably the only pragmatic way to address these foreign investor concerns at this time.
Whether or not South Africa accepts investor/State arbitration as the most realistic way of attracting foreign investors, it will nevertheless need to get its mediation house in order. If it wants to compete with best practice among its competitors, it must do several things. One of its highest priorities should be to sign and then adopt the recent United Nations Convention on International Settlement Agreements Resulting from Mediation – also known as the Singapore Convention. Although mediation agreements are enforceable in South Africa, foreign investors need the comfort of knowing that their investment destinations are parties to the Convention.
In order to be able to adopt the Convention, South Africa needs to enact domestic and international mediation legislation which is aligned with the United Nations Commission on International Trade Law (UNCITRAL) Model Law on mediation and the Singapore Convention. This involves, among other things, establishing proper standards of mediator ethics, training and ongoing development, accreditation and discipline. Similarly, standards must be set for mediation service providers. Much work has been done in these areas, and the South African Law Reform Commission, ADR Advisory Committee is actively endeavoring to convert the work into appropriate legislation. How long this will take, is going to depend very much on the political will of the Government.
Fortunately, South Africa has a large number of commercial mediators who have been trained and accredited to international standards and many who have gone on to be accredited by international service providers. These include several top ex-Judges and many top advocates, attorneys, accountants and CEO’s among other professionals. Accordingly, with some specialised additional training, the Country will not have difficulty in providing mediators to perform international mediation.
An important area that will need attention is the education of South African Judges, lawyers and businesspeople about what mediation really is and what its benefits are. Practitioners will also need to learn how to prepare for and represent their clients in mediation, particularly international mediation. These skills are significantly different from those required for arbitration or litigation.
Hopefully the Government will be realistic and embrace the reforms that are necessary to attract foreign investment. Without them, there is little prospect of us staging the economic recovery that is so essential to uplift all our people.
By John Brand - lawyer, mediator, trainer and director of Conflict Dynamics Pty Ltd