South African court confirms interaction between local and international law in investment treaty disputes

Its decision in an appeal in a long-running, complex mining dispute confirmed the SCA’s position that municipal law governs the existence of property rights, while international law applies if an expropriation under a treaty has occurred.

The SCA also confirmed that international tribunals are not bound by decisions of municipal courts and will be entitled to differ from the municipal courts, where there are proper grounds to do so.

This decision aligns the South African viewpoint with those of the wider investment treaty community.

The case has been running for more than 30 years, and is not yet concluded, but it presents an interesting perspective into the challenge that African states face in balancing permanent jurisdiction over land and resources.

The dispute stemmed initially from the government of Lesotho’s 1988 grant of five mining leases to Swissborough Diamond Mines, a company owned by Josias van Zyl. Swissborough later transferred all its rights and interests to the Burmilla Trust, which was the first appellant in this case.

The appeal most recently before the SCA concerned one of these five leases, known as the Rampai lease. After the leases had been granted it emerged that the Rampai lease would be submerged by the Lesotho Highlands Water Project, a joint venture governed by a treaty between South Africa and Lesotho.

To avoid paying compensation for the expropriation of the Rampai lease, the Lesotho government attempted to revoke the lease, but its efforts were thrown out by the Lesotho courts. However, in 1995, the Lesotho Highlands Development Authority (LHDA) successfully applied for an order declaring the Rampai lease void, based upon the argument that under Lesotho law the grant of any rights to land was subject to the consent of the relevant chiefs and that this consent had not been obtained.

In 2009 the Burmilla Trust and van Zyl launched an application before the Southern African Development Community (SADC) tribunal, established by the 1993 SADC treaty, claiming they were entitled to relief as Lesotho had breached international law by expropriating the leases.

Proceedings were also brought before the Permanent Court of Arbitration (PCA), which ordered a new tribunal should be set up in Mauritius. Lesotho appealed this decision in Singapore, which set aside the PCA order.

The appeal before the SCA, brought by Burmilla and van Zyl, claimed compensation and costs for the lease and the claims before the SADC, PCA and Mauritius tribunals and the Singapore courts.

In a majority judgment, the SCA upheld Burmilla’s appeal but dismissed van Zyl’s appeal.

Investment treaty discussion

In its ruling, the court discussed the way local and international law interact when it comes to expropriations under a treaty. Its conclusion that municipal law governs property rights, and international law comes into play if an expropriation has occurred, was underlined by the minority judgment of two judges. They agreed that Lesotho law would determine property rights in title, therefore dismissing the appellants’ view suggesting that domestic law has no bearing on international law.

Relying on authoritative investment treaty jurisprudence, the court confirmed in this particular case that the SADC tribunal would not have been bound by the Lesotho court decisions. The possibility of new evidence being provided would have constituted a proper ground for the SADC tribunal to reach a different conclusion to the Lesotho courts.

The SCA also grappled with the interaction between indirect expropriation – specifically in the context of judicial expropriation – and a claim for denial of justice. Following prior arbitration decisions, the SCA said there did not always need to be a denial of justice for a judicial expropriation to take place, although it added that a judicial expropriation could result from a denial of justice.

The minority pointed out that a mere misapplication of the law cannot be equated to a denial of justice, adding: “To get a foot in an international investment tribunal, more is required than an allegation of the misapplication of the law by a domestic court.”

The SCA also stressed that international tribunals are not to be seen as a court of appeal or last resort.

While this case does not have a direct impact within South Africa, it has articulated the position of the South African courts in the event that a treaty claim or treaty standards were to be brought or enforced in the country.

Co-written by Muhammed Somrey and Kyle Melville of Pinsent Masons