MPRDA AND A POSSIBLE BREACH OF SA’S BILATERAL TREATY OBLIGATIONS

Research Q: Whether MPRDA, both in terms of its transitional provisions, and its possible granting of ‘new order rights’ amounts to expropriation of mineral rights in terms of South Africa’s Bilateral Investment Treaty obligations

StructureTransitional ProvisionsNature of common law/old order/new order rightsBIT’sExpropriation in international lawAnalysis Scope: Int’l investors/mining operations in place before operation ActRipe for judicial inquiryCommercial relevance

MPRDA

In force on 1 May 2004 Act repealed Minerals Act of 1991 and

concomitantly private law (common-law)mineral, mining and prospecting rightswhich existed under previous dispensation(S110 read with Sch 1)

Transitional provisions under MPRDA Schedule II of the ActPurpose: to provide security of tenure for holders of ‘rights’ under 1991 Act and the new system of ‘rights’ introduced by the Act

Holders of common-law mineral and prospecting rights ‘with or without authorisations’ (became known as ‘old order rights’) had specified period to convert these ‘old order rights’ into ‘new order rights’ under the Act

Common-law mineral rights + mining authorisation under 1991 Minerals Act + active mining operation = ‘old order mining right’

‘Continuation’ of ‘old order mining right’ for pd of 5 years (May 2009)

Preferential right to ‘convert’ ‘old order right’ into ‘new order’ mining right subject to requirements of the Act (BEE/Environmental/Socio-economic requirements)

Lost old order rightsLost order right: common-law real right + mining authorisation

Common-law mineral right, either as incident of ownership or separated from full dominum as LRR

Mining authorisation (1991 Act) necessary to exercise common law rights (type of ‘statutory license’) however, not affect underlying mineral right

Content of common-law right, included perpetual duration, freely transferable.However, mining auth not freely transferable + subject to Ministerial oversight

Old order rightContent of right2 approachesCommon-law right remains in existence, based on wording in Act, ‘continuation of old order rights’Alternative approach (Dale) new statutory right created consisting of elements of old order rights, specifically only authorisation to mine and other terms/conditions attaching to the right

‘New order right’/Right to mine minerals

Statutory ‘LRR in land’ with right to mine, granted by Minister. Theoretical construct: Van der Walt: ‘extinguishing of private law rights,

replaced with state controlled system of use rights’ Right enables holder to enter land, mine and remove minerals Mining rights last for 30 years Transferability/alienation of right subject to Ministerial approval Minister may suspend/cancel right Payment of royalties to State BEE/Social Plans

Bilateral Investment Treaties

Treaties between states that provide nationals of each contracting state when investing in the other state, certain protections and remedies

Common feature: ‘no expropriation without compensation clauses’ and international arbitration in case of disputes

SA’s BIT’s provide varying levels of protections to foreign companies

SA-Italian BIT(1999): ‘Investments not subject to any measure which might limit right of ownership, possession, control or enjoyment of investments, permanently or temporarily.’ (Piero Foresti)

SA-UK BIT : ‘Investments shall not be nationalised, expropriated, or subject to any measures having an effect equivalent to expropriation’ same as Canadian BIT

SA-Israel BIT: ‘denial of benefits clause,’ provision for precluding liability if for purposes of equality. (interpretation) same as with Czech and Iran BIT’s

Expropriation in international law

Iran/US Claims Tribunal: intent less important than effect, form of measures less important than impact

Direct expropriation: overt taking of title, or rights of o/ship

Indirect expropriation: Continuum

Tippets: ‘owner deprived of fundamental rights of ownership’

Rexnord: ‘deprivation of functional control of the property’

Metalclad: not only taking of title, ‘but interference with property…that deprives owner in significant part of the use or reasonable economic benefits of the property.’

Philips Petroleum: creeping expropriation-series of measures which ‘significantly reduce investor’s property rights.’

Meyers: regulation lesser interference, can have economic consequences.

NB MRPDA ‘exchange of rights’

Expropriation?

Inception of the Act: ‘lost rights’ to ‘old order rights’

Content based approach: Dale, argues ‘old order rights’ are new statutory rights, which basically encompass only authorisation to mine,without any substantive common-law content.

Therefore expropriation has occurred, as common-law rights as ‘incidences of ownership’ have been extinguished by the act, and replaced by ‘transitional rights’ without underlying content of common-law mineral right. (similar argument made by Piero Foresti)

Counter Argument/ Content based approachThat old order rights are same rights that existed before the Act came into force.

Function/based approach As old order rights ‘were created with reference to total underlying substratum’ of ‘lost rights’ (eg, c-l rights + authorisation) that what was exchanged is the ‘functional equivalent,’ of pre-existing rights

Therefore with ‘old order rights’ nothing has changed (transitional period: can still mine, no additional requirements)

Expropriation?

Critical Date: May 1, 2009, extinguishing of ‘old order rights’ and either replaced with ‘new order rights’ or where failure to ‘convert’ total termination of ‘old order rights’

In case of latter, will be expropriation, even on narrow definition. Will be a ‘taking’ of rights of ownership without any ‘substitution of rights’ ‘exchange argument’ doe not cover this contingency.

More critical question, will there be expropriation on conversion to ‘new order rights?’

Content based approach: • Mineral right under

common-law mining right under the act.

• Has been deprivation of common-law ‘rights of ownership,’ (right in rem) or deprivation of ‘use of the property,’ at least in terms of content, and replaced by a statutory mining right without similar content (eg, duration, transmissibility, state control)

1. Italian/SA BIT: ‘substantial deprivation’ not required, only limitation on ownership/ or possession?

Expropriation?

Function based argument (GOSA)1. Common-law right cannot be seen in isolation, but must looked at in terms of state authorisations under Mineral Act of 1991

2. Thus while under old regime, ability to mine involved holding common-law mineral right + authorisation, new system combines two, in that new mining right accomplishes same result (eg, grants authorisation coupled with right to mine and retain minerals) Therefore from a functional perspective, both rights operate substantially the same.

Counter-argument to functional approach:

loss of economic value of right (equity shares, less valuable)

Or could be lawful regulatory action?