JB Cronjé, tralac Researcher, discusses the amendments to South Africa’s Private Security Industry Regulation Act in light of the country’s obligations under the SADC Protocol on Finance and Investment

The Private Security Industry Amendment Bill 27D of 2012 was recently passed by both houses of parliament; the National Assembly on 25 February 2014 and the National Council of Provinces on 4 March 2014. The Bill must now be submitted to the President for assent and signature. The Bill contains a controversial provision limiting foreign ownership and control in the private security industry to a maximum of 49 per cent. In addition, the Minister of Safety and Security has discretionary power to prescribe different percentages of ownership and control for different categories of security businesses. A number of multinational firms operate in South Africa’s private security industry. Some commentators have argued in the media that the Bill violates South Africa’s international obligations under Bilateral Investment Treaties (BITs) and the General Agreement on Trade in Services (GATS) of the World Trade Organization (WTO), amongst other things.

Of particular interest to this article are South Africa’s obligations under the Protocol on Finance and Investment (FIP) of the Southern African Development Community (SADC). As a member of SADC, South Africa ratified the FIP on 4 February 2008. The FIP entered into force on 16 April 2010. Article 3 of the FIP provides that State Parties must “co-ordinate their investment regimes and cooperate to create a favourable investment climate in the Region as set out in Annex 1”. The Annex applies to any investment in the territory of a host state regardless of the nationality of the investor. An investor is defined in Article 1 as a legal or natural person “that has been admitted to make or has made an investment”. South Africa does not have legislation regulating the admission of investments.  Unlike, for example the BIT between South Africa and the United Kingdom, the Annex lacks a provision on national treatment but it does include other provisions on the treatment of investors containing fair and equitable treatment clauses. The Annex also contains provisions on investment protection, providing for prompt, adequate and effective compensation in the case ofnationalisation or expropriation and a prohibition on State Parties to “arbitrarily, and without good reason, amend or otherwise modify to the detriment of investors, the terms, conditions and any benefits specified in the letter of authorisation” of an investment. However, Article 14 contains a general exception provision which preserves the right to regulate in the “public interest” to ensure “investment activity is undertaken in a manner sensitive health, safety and environmental concerns”.

The FIP provides for a system of recourse in the event of failure of implementation. The FIP is governed by a Committee of Ministers for Finance and Investment and operates entirely by consensus. The committee is obliged to oversee the implementation of the Protocol, supervise the activities of its committees, sub-committees or institutions and must seek to resolve disputes on the interpretation, application or implementation of the Protocol. If Member States are unable to resolve a dispute relating to any article in the Protocol, and any Annex relating to such article contains provisions on dispute resolution, then the provisions of that Annex must be applied in respect of the dispute. In this case, Article 28 of Annex 1 provides disputes between an investor and a State Party which have not been amicably settled, after exhausting local remedies, shall be submitted to international arbitration. The parties may agree to refer the dispute to

• The SADC Tribunal;

• The International Centre for the Settlement of Investment Disputes (having regard to the provisions, where applicable, of the ICSID Convention and the Additional Facility for the Administration of Conciliation, Arbitration and Fact-Finding Proceedings); or

• An international arbitrator or ad hoc arbitral tribunal to be appointed by a special agreement or established under the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL).

If agreement cannot be reached on the any of the abovementioned alternative procedures, Article 28 (3) provides “the parties shall be bound to submit the dispute to arbitration under the Arbitration Rules of the United Nations Commission on International Trade Law as then in force.” The SADC Tribunal was suspended in 2010 and South Africa is not a signatory to the ICSID Convention; leaving international arbitration under the UNCITRAL Arbitration Rules as the only option for aggrieved investors in South Africa.  South Africa has ratified the United Nations’ Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) and in terms of the Arbitration Act 42 of 1965 making it possible for any party concerned to, upon application, make an arbitration award an order of court and enforceable in the country. Given these and other concerns regarding the challenged provision, the President may find it necessary to refer the Bill back to the National Assembly for reconsideration.

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