South African court judgment bolsters expropriation charge over Black Economic Empowerment legislation in the mining sector

By Damon Vis-Dunbar
23 March 2009

A South African judicial ruling has opened the door for two plaintiffs to seek compensation for alleged expropriation of their mineral rights, in a case that echoes the complaints made by European investors in a pending international arbitration against South Africa under bilateral investment treaties.

The judgment* comes in response to claims lodged with the Pretoria High Court, in which  the plaintiffs (Agri S.A. and  AM van Rooyen) argue that their rights to coal and clay were expropriated without compensation in 2004 under the Minerals and Petroleum Resources Development Act (MPRD).

The MPRD Act is intended to boost the black population’s participation in the mining sector, and forms part of a wider effort by the South African government to address the country’s racial inequalities rooted in a legacy of apartheid.

Under the Act, private ownership of mineral rights was replaced with a system of licenses offered by the government.  Companies who held mineral rights under the old regime were given an opportunity to apply for licenses under new regime; however, mining companies complain that so-called new order rights are not equivalent in value to the rights they enjoyed previously.

The Ministry of Minerals and Energy sought to dismiss the lawsuits by Agri S.A. and AM van Rooyen on the ground that they fail to provide sufficient facts to support their claims.

In 6 March 2009 ruling, however, the High Court has rejected the Ministry’s charge that the plaintiffs’ claims are «vague», allowing the claims to proceed to the merits stage.

In coming to a decision, the High Court compared mineral rights held by the plaintiffs prior to 2004 with the rights offered under the new regime.  The Court concludes that mineral rights were “extinguished” under the Act, and that the transitional arrangements did “no more than afford an opportunity to the holders of affected rights to mitigate their damages.”

“In short it is my interpretation of the Act that it admits that holders will be deprived of their rights and that such deprivation coupled with the State’s assumption of custody and administration of those rights constitute expropriation thereof,” writes Judge Willie Hartzenberg.

The judge also dismissed the Ministry’s argument that the plaintiffs failed to exhaust administrative remedies prior launching their complaint with the High Court.

In a written response, a spokesperson for the Ministry of Minerals and Energy said the judgment was a “setback”, but stressed that the case was “at a preliminary stage.”

The ruling is an interim application judgment; a subsequent judgment on the merits is set to follow separately. Should the High Court side with the plaintiffs in its judgment on the merits, the Ministry of Minerals and Energy says it can appeal to South Africa’s Constitutional Court.

Agri S.A., an organization representing agribusiness in South Africa, is seeking R750 000 (approx. US$77 800) in damages from the South African Government.  The second plaintiff, AM van Rooyen, is seeking R600 000 (approx. US$62 350).

The dispute playing itself out in Pretoria’s High Court has parallels with arbitral proceedings pending at the International Centre for Settlement of Investment Disputes (ICSID). As ITN has previously reported*, a group of European investors in South Africa’s mining sector are suing South Africa for alleged breaches of the Italy-South Africa and Benelux-South Africa bilateral investment treaties, on the grounds that their investment in mineral rights was expropriated under the MPRD Act (Piero Foresti, Laura De Carli and others v. the Republic of South Africa).

Matthew Coleman, a Partner at Steptoe & Johnson, who has written about the Piero Foresti claim against South Africa, said the decision “will no doubt, in South African Government circles, give pause for thought as it is a decision of a South African Court that is consistent with the arguments that have been made by investors both domestically and internationally as to the expropriatory effect of the MPRDA.

“Of course, the position of the effect of the MPRDA when it comes to claims under public international law is not straightforward—part of the MPRDA’s object is to redress wrongs that occurred under the apartheid system. Whether or not such matters can be a valid defence under public international law is of great interest and one may assume will be touched upon by the tribunal in the case before the ICSID Additional Facility.»

*A copy of the judgment in Agri South Africa v the Minister of Minerals and Energy And Annis Mohr Van Rooyen v the Minister of Minerals and Energy is available online: http://www.investmenttreatynews.org/documents/p/119/download.aspx

** for a description of Piero Foresti, Laura De Carli and others v. the Republic of South Africa see: “More details emerge of miner’s case against South Africa”, By Luke Eric Peterson, Investment Treaty News, 30 November 2008