IRR to big banks and law firms: Will you cancel debt and provide free legal support under Expropriation Act?

This week, the Institute of Race Relations (IRR) will write to some of South Africa’s largest banks and law firms regarding the urgent implications of the newly signed Expropriation Act.

The IRR is seeking clear answers on how these institutions plan to respond when ordinary South Africans lose property to the state with compensation below market value, which would effectively result in expropriation without compensation of at least some portion of an asset, from savings to land.

Says Makone Maja, IRR Strategic Engagements Manager: “We have observed with deep concern how many of South Africa’s most trusted banks and law firms have understated the extensive risks arising from the Expropriation Act and its undermining of property rights across the board. The Act grants the state vast powers over all property in the country, while offering only the thinnest protections for ordinary people, who may have their homes, land, or other assets expropriated for far less than market value.”

Legal giant Werkmans Attorneys, for example, has downplayed the Act’s risks by claiming that nil compensation will apply only in “extremely rare circumstances”. But, as the IRR has consistently pointed out, the Act contains an open-ended list of circumstances under which the state can expropriate land without payment.

Despite the fact that the Act places the burden on the expropriated property owner to go to court to protect their property rights − meaning someone can lose their source of income at the same time as facing enormous legal costs in court − major law firms, including Fasken Martineau DuMoulin and Cliffe Dekker Hofmeyr, have asserted that because courts are tenuously included in the ultimate settling of compensation disputes, property rights remain protected. Nedbank has expressed similar confidence, citing the Act’s “checks and balances”.

Says Maja: “South Africans are bombarded daily with all manner of marketing material inviting us to trust these corporate entities on the grounds of their promise to act in our interests. Yet, when it comes to the risk of ordinary people possibly losing their savings, pension, business or home to the state, we see little evidence of these entities standing up for the interests of their clients.

“Take, for example, the question of mortgage debt. If someone loses their home or business with debt on the property still unpaid, will banks still insist that the expropriated owner must settle the outstanding amount? Will banks use their well-qualified attorneys to take newly impoverished clients to court to cover their own losses? These are, thanks to the signing of the Expropriation Act, no longer distant or abstract questions. Despite these and many other related questions remaining unanswered, many banks and law firms continue to assure the public that the Act poses no threat to property rights. Standard Bank, for example, concludes that the Act ‘does not weaken property rights in South Africa, nor does it weaken the sanctity of contract’.

“What banks and law firms agree on,” says Maja, “is their faith in the courts to resolve injustices. But they show little concern for the contradictions in the Act on when and how the courts may be accessed by clients affected by the loss of property and assets.”

While assuring the public that the Act contains judicial oversight and safeguards, these same law firms are advising the financial sector to protect themselves from the very risks the Act creates for ordinary people. Earlier this year, Webber Wentzel urged insurance companies to “review their policy wordings” and to ensure that claim exclusions are “clear, current, and legally enforceable”.

“This is beyond troubling,” Maja says. “The insurance industry is already notorious for narrowly defined exclusions. Now, they’re being advised to shield themselves against risk – at the expense of clients whose property may be taken without market-value compensation, leaving them anything but compensated for the loss.”

The IRR is requesting that if law firms and financial institutions truly believe the Act is sound, they should back that belief with meaningful commitments:

• Legal firms must guarantee that every property holder, especially informal and vulnerable owners, will be offered free and comprehensive legal services in the event of expropriation at below-market value.
• Banks must bindingly undertake to cancel outstanding loans on any property that is expropriated, instead of forcing clients to repay loans on assets they no longer own.

Says Maja: “If banks and law firms believe in the Expropriation Act’s ‘checks and balances,’ they must be willing to put their bottom line behind it – or risk exposure as being less than honest with their own clients and the country as a whole.”

Media contact: Makone Maja, IRR Strategic Engagements Manager Tel: 079 418 6676 Email: makone@irr.org.za

Media enquiries: Michael Morris Tel: 066 302 1968 Email: michael@irr.org.za