Jury’s out

What is the likely impact of the Zuma administration’s decision to reverse its predecessor’s s stance on the apartheid reparations claims that have been crawling through the US courts for the past six years? Could it speed a resolution? Or will it rekindle the otherwise fading embers of worry about South Africa’s investor friendliness post-Polokwane? The jury is out.

President Thabo Mbeki was unequivocal.  Speaking at the tabling of the Truth and Reconciliation Commission’s final report in 2003, he said it was “completely unacceptable that matters that are central to the future of our country should be adjudicated in foreign courts which bear no responsibility for the well-being of our country…”

In a letter delivered on September 1 to Judge Shira Scheindlin, before whom the claims are now being heard in the Southern District of New York, Jeff Radebe, Minister of Justice and Constitutional Development, said that the South African government now felt that  Scheindlin’s court – hers specifically —  was “an appropriate forum” for the case as she had framed it.

Seen in terms of Mbeki’s logic, the change of heart does not seem calculated to attract healthier flows of Western direct investment or to lower the cost of foreign capital South Africa needs to help it escape the gravitational pull of its history.  But such a conclusion may be unduly alarmist. It’s possible Radebe’s carefully-phrased letter may get the matter back to where it really belongs, South Africa.

The claims, to recap, are being pursued under the uniquely American Alien Tort Statute.  For the time being anyway, the ATS allows foreigners to seek civil damages for wrongs committed in their own countries from any alleged wrongdoer they can manage to haul into a US federal (as opposed to state) court. Foreign wrongdoers generally ignore US summonses so plaintiffs tend to go after more accessible defendants whom they can claim “aided and abetted” the real malefactors. Multinational corporations with deep pockets are the favoured targets.

The plaintiffs in the apartheid claims initially cast their net very wide, so wide that the US Supreme Court, which in 2006 seemed on the point of ruling against them, could not assemble the required quorum. Too many of the justices had to recuse themselves because they had investments or other interests in defendant companies. That is unlikely to happen again. In April, Judge Scheindlin simplified matters greatly.

Using careful definitions of “aiding and abetting” and of the crimes to which the Alien Tort Statute could be applied,  she whittled the number of defendants, once in the hundreds, down to five — Daimler, General Motors, Ford, IBM and Rheinmetall, the German parent of Swiss arms maker Oerlikon.  Agents of each, she argued, could plausibly have known that their actions “substantially assisted” in the perpetration of torture, cruel, inhuman and degrading treatment, extrajudicial killing or arbitrary denationalization.

The judge was open to adding Fujitsu, the Japanese computer maker, to the list if the plaintiffs were able to amend their complaint to satisfy her criteria. Contrary to recent press reports, she dismissed claims against Barclays and UBS.

If the Seventh Circuit Court of Appeals lets the case proceed — Daimler, Ford and IBM have appealed Scheindlin’s refusal to dismiss the claims entirely – the next step is discovery. This is the part where the defendants have to submit to the plaintiff’s demands for documents, affidavits, witnesses, on site inspections and the like. Some wonder whether discovery is feasible in this case, 30 years or more after the fact. If Scheindlin thinks it is, defendants may be tempted to look for alternatives.  The prospect of having hostile strangers rootling through your affairs, ready to interpret everything they find in the worst possible light, is often so dreadful that it can persuade even the innocent to settle.

In his letter, Radebe said the plaintiffs had indicated a desire for a resolution out of court and in South Africa (surely preferable locations to the present one) and that government was ready to “offer its counsel” to the parties in pursuit of a settlement.

In weighing the companies’ motion to dismiss, Scheindlin assigned little weight to the SA government’s views as expressed by Mbeki. She was much more persuaded by Archbishop Emeritus Desmond Tutu and TRC commissioners who argued that since the defendant companies had not cooperated with the commission, they were not eligible for amnesty and the plaintiffs had every right see seek redress wherever they could find it. Perhaps that suggests a way out: a voluntary accounting in South Africa instead of a court-ordered one in the US?

Militating against such a solution is the defendants’ reluctance to set any precedent that might further encourage use of the ATS as a tool to shake down deep-pocketed corporates. Companies understandably want a stake driven through the thing’s heart. This case was made to help the Supreme Court do just that. Until Pretoria changed its mind.

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