IRR Full Submission on the Expropriation Bill – 6 May 2015

Aug 11, 2015
South African Institute of Race Relations NPC Submission to the Portfolio Committee on Public Works, Parliament of the Republic of South Africa, regarding the Expropriation Bill of 2015.

South African Institute of Race Relations NPC
Submission to the Portfolio Committee on Public Works,
Parliament of the Republic of South Africa,
regarding the
Expropriation Bill of 2015 [B4-2015]
Johannesburg, 6th May 2015

Contents of this submission:
Introduction, page 1
Background to the Bill, page 3
Key features of the Bill, page 4

   A wide definition of ‘property’, page 4
   A large number of ‘expropriating authorities’, page 4
   A wide ambit for expropriation, page 4
   Preliminary requirements, page 4
   Notice of expropriation, page 6
   Compensation, page 6
   Objections to the compensation offered, page 7
   Date of payment of compensation, page 8
   The rights of third parties, page 8
   Expropriation by the minister of public works, page 10
   Trumping effect of the Bill, page 11

Likely economic and political consequences of the Bill, page 11
The unconstitutionality of the Bill, page 13
Overview of the IRR’s proposed alternative bill, page 16

   Scope, page 16
   Governing principles, page 16
   Initial processes, page 16
   High Court hearing on constitutionality, page 16
   Notice of expropriation, page 17
   Third-party rights, page 17
   Incidental matters, page 18
   Regulations, page 18
   Precedence over other expropriation legislation, page 18

More details of the IRR’s proposed alternative bill, page 18
The vital importance of private property rights, page 18
Conclusion, p21

The Portfolio Committee on Public Works of the Parliament of South Africa has invited interested people and stakeholders to submit written comments on the Expropriation Bill [B4-2015] (the Bill) by 12 noon on 6th May 2015.

This submission is made by the South African Institute of Race Relations NPC (IRR), a non-profit organisation formed in 1929 to oppose racial discrimination and promote racial goodwill. Its current objects are to promote democracy, human rights, development, and reconciliation between the peoples of South Africa.

Property rights, including the rights of individuals to own land, houses, and other assets, are vital to democracy, development, upward mobility, and rising prosperity for all. That is why the racially discriminatory laws that earlier barred black South Africans from owning land and many other assets were so profoundly unjust.

Since these restrictions began to crumble in 1975 – and were finally abolished by the National Party government in 1991 – African ownership of houses, land, and other assets has finally started growing, and has done so exponentially. To speed up this process, South Africa needs an annual growth rate of 7% of gross domestic product (GDP) – which would double the size of the economy every ten years – coupled with an upsurge in investment and employment. However, these advances will not be possible if the Bill is enacted in its current form. The Bill could also reverse the gains that have already been made in extending the benefits of private property ownership to millions of black South Africans.

Under the Bill, the 8.6 million black people who own their homes will be just as vulnerable to the expropriation of their houses as the 1.1 million whites with home ownership. Some 16.5m Africans with traditional land use rights in the former homeland areas – especially those living near major cities – could see their rights expropriated by municipalities and their land turned over to RDP housing or other purposes. The many black South Africans who have already bought some 2 million hectares of farming land on the open market since 1991 could likewise see their farms expropriated by any organ of state at any tier of government. In all instances, those affected will be left without adequate compensation and with no effective redress for the loss of their property. 

If the Bill is enacted into law, ever more land and other assets are likely to become vested in the Government. This is likely to create great economic instability and uncertainty. It will also disempower all South Africans by increasing their dependency upon the State and restricting their scope for upward mobility. Far from helping to overcome disadvantage, the Bill will make it much more difficult to counter unemployment and attendant poverty and inequality.

The Bill is also unconstitutional, for all the reasons set out in the accompanying Synopsis of the IRR submission and further described below. In a nutshell, the Bill empowers the State to take property by serving a notice of expropriation on the owner – and leaves it to those stripped of ownership and possession to contest the compensation payable in the courts thereafter. Worse still, the Bill seeks to oust the jurisdiction of the courts by allowing them to adjudicate solely on the compensation offered by the State and not on the overall validity of the expropriation. The Bill also seeks to limit access to the courts by giving the owner a mere 60 days to sue for additional compensation, failing which he will be ‘deemed’ to have accepted the amount offered by the State.

Since the Bill is clearly unconstitutional, the IRR has drawn up an alternative expropriation bill (the IRR bill), which:

• corrects the defects in the current Expropriation Act of 1975,
• is fully in line with the Constitution,
• will help avoid further damage to the country’s already struggling economy, and
• will make it easier to secure investment, growth, and employment for the benefit of all South Africans, and especially the poor.

Background to the Bill
The current Expropriation Act of 1975 (the Act) allows the minister of public works to expropriate property for public purposes, such as the building of a new road. The compensation payable for expropriated property must be based on market value, along with ‘an amount to make good any actual financial loss caused by the expropriation’, which would include moving costs and any loss of likely income from the property in the future. Though ownership and possession pass to the State on the dates specified in the expropriation notice, at least 80% of the compensation due must be paid when the Government takes possession. Interest on the outstanding balance is also payable from then on. These provisions limit the scope for expropriation and ensure an adequate measure of compensation, so helping to prevent any abuse of the power to expropriate.

The African National Congress (ANC) has long argued that the Act is unconstitutional for two reasons. First, the Act does not allow expropriation ‘in the public interest’, whereas the Constitution does. Second, the Act leaves out four factors listed in the property clause (Section 25) of the Constitution as relevant to the compensation payable on expropriation. These four factors are often called the ‘discount’ factors because the monetary value assigned to them may be deducted from the market value of the property.

Under Section 25, compensation on expropriation must be ‘just and equitable’ in the light of all the relevant circumstances. Factors expressly listed as relevant include market value, along with the ‘discount’ factors, which are: [Section 25(3), Constitution of the Republic of South Africa, 1996 (Constitution)]

• the current use of the property;
• the history of its acquisition;
• the extent of any direct state subsidy in its acquisition or capital improvement; and
• the purpose of the expropriation.

The ANC is correct in highlighting these two contradictions between the Act and the Constitution. However, it overlooks the most important contradiction of all. Provisions allowing the State to take ownership of property by notice to the owner could not be legally challenged in 1975 when the Expropriation Act was adopted and the principle of parliamentary sovereignty applied, but they are now in conflict with South Africa’s Constitution. Instead of recognising this fundamental weakness, the Bill repeats these contentious provisions and seeks to give them new life.

Key features of the Bill
A wide definition of ‘property’
According to the Bill, ‘property is not limited to land and includes a right in such property’. This definition is wide enough to include movable property, along with mining rights, servitudes, unregistered customary and other land-use rights, patent rights, and shares in companies. [Section 1, Bill; Institute of Directors of Southern Africa, The Contemporary Gazette, Vol 10, Issue 3, 23 February 2015]

A large number of ‘expropriating authorities’
The Act gives the power to expropriate to the minister of public works alone, but the Bill extends this power to any ‘expropriating authority’. Included among such authorities are all ‘organs of state’, as defined in the Constitution, along with any other person ‘empowered to…expropriate’ either by the Bill itself or by ‘any other legislation’. [Section 1, Bill]

This definition gives at least 500 organs of state all the unconstitutional powers of expropriation that are set out in the Bill. Read together with the trumping clauses described below, this provision aims to override all existing constraints on expropriation contained in the Act or other relevant legislation.

A wide ambit for expropriation
The Bill allows expropriation not only ‘for public purposes’, but also ‘in the public interest’. Though this wording is in keeping with the Constitution, the Bill’s definition of ‘the public interest’ goes beyond what the property clause in the Bill of Rights says.

According to the Constitution, ‘the public interest includes the nation’s commitment to land reform, and to reforms to bring about equitable access to South Africa’s natural resources’.  The Bill starts by echoing this wording, but then adds that the public interest also ‘includes other related reforms in order to redress the results of past racial discriminatory laws or practices’. Hence, whereas the Constitution permits the expropriation of land and other natural resources, the Bill seeks to allow expropriation in much wider circumstances. [Section 25(4)(a), Constitution; Section 1, Bill] This conflicts with what the Constitution permits.

Preliminary requirements
According to the Bill, an expropriating authority must start with various preliminary requirements before issuing a notice of expropriation. First, the expropriating authority must negotiate with the owner and try to buy the property from him on reasonable terms. [Section 2(2), Bill]

If this fails, it must investigate the suitability of the property for the purposes it has in mind, consult with the relevant municipality and government departments, and find out what rights lessees or other third parties might have in the property. (The matter of third-party rights is examined below.)

During its investigation, an expropriating authority must send suitably skilled inspectors to examine the property and, if necessary, ‘survey, dig, or bore into it’. However, these inspectors may not enter the property without the consent of the owner or an order of court. [Sections 5, 6, Bill]

The Bill thus recognises that an order of court is required for the relatively small matter of empowering an inspector to enter the property. However, it denies that an order of court is also needed for the much more serious matter of the State’s taking ownership and possession of the property against the owner’s will.

If the expropriating authority then decides to expropriate the property, it must serve a notice of intention to expropriate on the owner. It must also publish this notice in the Government Gazette and two local newspapers. The notice must invite the owner to lodge his objections within 30 days, and to state what amount he seeks as ‘just and equitable compensation’. [Sections 7, 24 Bill]

The expropriating authority must ‘timeously’ consider the owner’s objections but need not give reasons for rejecting them. This is contrary to the right to just administrative action set out in the Constitution, which requires all administrative action to be ‘procedurally fair’. [Section 33(1), Constitution]

The expropriating authority must, however, inform the owner in writing within 20 days if it accepts his proposed compensation. If it does not – and if no agreement on compensation can be reached within another 20 days – then the expropriating authority may  ‘proceed to expropriate’ in any event. [Section 7 (7), Bill]

At no point in these preliminary processes is the expropriating authority called upon to demonstrate to the owner – let alone the courts – that the proposed expropriation is constitutional. Yet the expropriation cannot pass constitutional muster if it is arbitrary; if it is not clearly for public purposes or in the public interest; if the compensation offered is not truly just and equitable in all the relevant circumstances – and unless all other constitutional requirements have been met. Where the property to be expropriated includes a person’s home, these requirements include the need for a court order (under Section 26 of the Constitution), sanctioning eviction as just and fair in all the circumstances.

Moreover, in keeping with standard principles of constitutional interpretation, the onus lies on the expropriating authority to show that all the Constitution’s requirements for a valid expropriation have been met before it proceeds with an expropriation. Allowing the State to expropriate without having first discharged this onus makes a mockery of the relevant constitutional protections.

Notice of expropriation
Once it has decided to proceed, the expropriating authority must serve a notice of expropriation on the owner. This notice must describe the property, give reasons for the expropriation, and state the amount of compensation offered. It must also specify the ‘date of expropriation’, this being the date on which ‘the ownership of the property described in the notice…vests in the expropriating authority’. [Sections 8, 9, Bill] On this specified date – and regardless of the owner’s objections – ownership passes to the State automatically and by operation of law.

The notice of expropriation must also stipulate ‘the date on which the expropriating authority will take possession of the property’. On this date, possession is ‘deemed to have passed’ to the State, via a process which again happens automatically and by operation of law. The expropriated owner is entitled to the use and fruits of the property until possession passes, but must also take care of it and prevent its value deteriorating. [Sections 8(3)(f), 9, Bill]

According to the Bill, the date of expropriation ‘shall not be earlier’ than the date the notice of expropriation was served on the owner. [Section 1, Bill] However, since no other time period is stipulated, there is nothing in the Bill to prevent ownership passing to the State the day after the service of this notice. [See Section 1, Bill] Nor is there anything to prevent the passing of possession very soon after the transfer of ownership. Hence, if notice of expropriation were to be served on the owner on the first day of a particular month, ownership could pass on the second day of that month and possession on the third.

These provisions are contrary to Section 25 of the Constitution (the property clause), which puts the onus on the expropriating authority to show that all the requirements for a valid expropriation have been met before ownership passes to the State. These clauses also contradict Section 34, which gives everyone the right to have a legal dispute (such as the validity of an expropriation) decided by the courts before an expropriation takes effect. They further contravene Section 33, which gives everyone the right to just administrative action and requires any such action to be ‘reasonable’ and ‘procedurally fair’. Where the expropriated property is, or includes, a person’s home, these provisions also contravene Section 26, which says that ‘no one may be evicted from their home without an order of court made after considering all the relevant circumstances’. (The resulting unconstitutionality of the Bill has already been described in the Synopsis of the IRR submission, and is further explained below.)

Under the Bill, the compensation payable must be ‘just and equitable, reflecting an equitable balance between the public interest and the interests of the owner, having regard to all relevant circumstances’. The factors listed in the Bill include market value and the four ‘discount’ factors found in the property clause of the Constitution, as earlier described. [Section 12, Bill]

The Bill’s wording reflects the constitutional formula on compensation. However, most of the discount factors are difficult to quantify in money, which is likely to give an expropriating authority a great deal of discretion as to how they should be valued. The expropriated owner may thus be offered significantly less than market value: perhaps only 60% of this sum, as some commentators have suggested.

Objections to the compensation offered
If the owner objects to the amount of compensation offered in the expropriation notice, he must explain in writing to the expropriating authority what amount he claims instead – and must do so within 20 days. The expropriating authority then has 20 days to respond by offering a different (or the same) amount of compensation. [Sections 14, 15, Bill]

The expropriating authority may then also serve a written notice on the owner stating that he has 60 days in which to ‘institute legal proceedings for the determination of the compensation’ payable. If he fails to do so, he will be deemed ‘to have accepted the compensation offer made to him by the expropriating authority’. [Section 15(3), Bill]

If the matter does proceed to litigation, and a court (either the magistrate’s court or a high court) ultimately awards the owner an amount of compensation that is ‘equal to or less than’ the amount earlier offered by the expropriating authority, then ‘costs must be awarded’ against the owner. Moreover, these costs become a ‘first charge’ against the compensation owing to him and must first be deducted from this sum, leaving only the balance, if any, to be paid to him. [Section 21, Bill]

Under these provisions, very few expropriated owners – many of whom will already have lost both ownership and possession of their property to the State – will be able to afford litigation, or risk the further penalties that this may bring. They will also be given a mere 60 days in which to weigh the prospects of success, find legal representation, and issue summons. In these circumstances, most people will have little choice but to accept whatever amount of compensation the expropriating authority has offered.

In addition, the period of 60 days laid down in the Bill is contrary to the decision of the Constitutional Court in 2009 in Brümmer v Minister for Social Development and others. Here, Stefaans Brümmer, a journalist, requested information about a tender from the Department of Social Development and was refused it, first by the director general and then by the minister. A few months later, Brümmer approached the Western Cape High Court for relief, but by then the 30-day period laid down in the Promotion of Access to Information Act of 2000 for the bringing of court action had long expired.

The High Court struck down the section imposing the 30-day limit, and the matter went to the Constitutional Court for confirmation. In a judgment confirming the High Court order, Judge Sandile Ngcobo emphasised that the media and the public had a right to information held by the State. He also ordered Parliament to adopt legislation introducing a more realistic time limit for bringing suit. In the interim, he ruled, anyone wanting to challenge the State’s refusal of access to information should be allowed 180 days in which to do so. [Business Day 14 August 2009; Brümmer v Minister for Social Development and others, CCT 25/09,13 August 2009] This case indicates that the 60-day period stipulated in the Bill is too short to be constitutional.

More seriously still, Section 21 of the Bill confines the courts to the task of ‘determining any dispute...on the compensation to be paid’ for the expropriated property. [Section 21(1), Bill] This wording seeks to prevent the courts from adjudicating on other relevant matters – in particular, on the validity of the expropriation and whether it objectively complies with all the requirements laid down in Section 25. These provisions thus infringe the property clause. They are also in breach of Section 34, which gives everyone the right to have legal disputes (including disputes as to the validity of an expropriation) decided by the courts after a fair and public hearing.

Date of payment of compensation
According to one clause of the Bill, the expropriating authority must pay the owner ‘not less than 80%’ of the compensation offered at the time that it takes possession. [Section 17(1), (2), Bill] However, another clause allows the expropriating authority to avoid this obligation through the simple expedient of ‘proposing a later date or dates’ for payment. In these circumstances, the owner must either agree to these date(s), or the matter must be referred to the courts for decision. [Section 17 (4), Bill]

Giving the costs and time involved in litigation, most owners will again have little choice but to agree to payment being deferred. Moreover, few owners are likely to receive interest on the outstanding amounts owed to them, as the poorly phrased provisions of the Bill seem to exclude any such possibility. [Sections 17, 13, Bill] These provisions are so skewed against the owner that they cannot be ‘just and equitable’ within the meaning of Section 25 of the Constitution.

The rights of third parties
The Bill recognises that third parties may also have rights in property that has targeted for expropriation. The Bill thus allows an expropriating authority to expropriate all relevant third-party rights under the same notice of expropriation. However, this notice must be served on all the relevant rights holders and must offer each of them ‘just and equitable’ compensation. [Section 8(5), Bill]

According to the Bill, the impact of expropriation varies according to whether these third-party rights are mortgage rights, mining rights, other registered rights (such as servitudes), or unregistered rights, including leases or customary land-use rights.

Mortgage rights
If the expropriated property is mortgaged to a bank, the mortgage is automatically terminated on the date of expropriation set out in the notice of expropriation. On that date, ownership passes to the expropriating authority, ‘released from mortgage bonds, if applicable’. [Section 9(1), Bill] However, no compensation may be paid out until the expropriated owner and the bank have agreed on how this amount should be apportioned between them or, in the absence of agreement, have obtained a court order on the issue. [Section 18, Bill]

Some of these provisions echo the current Expropriation Act, which also provides for the automatic termination of any mortgage bond when ownership passes to the State. However, the Act instructs the State to start by paying the outstanding debt to the bank, and thereafter to pay the balance to the owner. Under the Act, there is also little danger that the amount of compensation due (market value, plus damages for all resulting financial loss) will be less than the amount owing to the bank.

The situation under the Bill is very different. Since compensation will generally be less than market value, the amount payable to the bank could well be less than the outstanding loan. In addition, the bank will not be entitled to any payment at all until it has either reached agreement with the owner on the amount due, or has had the issue decided by a court. In combination, these provisions could put significant pressure on the banking system. At minimum, they will make it more difficult for prospective home owners – very many of whom are likely to be black South Africans – to secure mortgage finance in the future.

Mining and prospecting rights
A mining or prospecting right (or any similar permit) will not automatically be expropriated at the same time as the land itself, provided the right in issue was granted under the Mineral and Petroleum Resources Development Act (MPRDA) of 2002. However, there is nothing to prevent the State from expropriating any such right in the same notice of expropriation. Just and equitable compensation will have to be paid to the rights holder, who will be subject to the same provisions in the Bill as the owner of the land. [Section 9(1)(b), Bill]

Registered rights
A servitude, such as a right of way to an adjoining property, will continue to exist if it has been registered against the title deeds of the expropriated land. [Section 9(1)(d), Bill] Again, however, there is nothing to an expropriating authority from expropriating the servitude as well under the same notice of expropriation. Again, this notice must also be served on the holder of the servitude and accompanied by just and equitable compensation.

Unregistered rights
Unregistered rights include the rights of tenants to occupy properties under lease agreements, the rights of labour tenants and farm workers to live on commercial farms, and the customary land-use rights held by some 16.5 million people living on land in traditional communal tenure in the former homeland areas.

Under the Bill, all unregistered rights are ‘simultaneously expropriated’ on the date that ownership passes to the expropriating authority. Again, the notice of expropriation must be served on the tenant (or other rights holder), who is entitled to ‘just and equitable’ compensation. [Sections 9(1)(b), 8(5)(b), 11, Bill]

The expropriating authority may also allow an unregistered right, such as a lease, to continue in force, but the tenant has no right to this. (If its continuation is permitted, the tenant must pay rent to the owner until the date that possession passes. Thereafter, he must pay rent to the expropriating authority.) [Section 11(1), (4), Bill]

Constitutionality of these provisions
The Bill overlooks the fact that any expropriation of third-party rights must also comply with all relevant constitutional provisions. Hence, under Section 25 of the Constitution, the expropriation of a mining right, a servitude, or a customary land-use right may not be ‘arbitrary’ and must (objectively) be ‘for public purposes’ or ‘in the public interest’. The compensation paid to these rights holders must also be truly ‘just and equitable’ in all the circumstances.

In addition, the holders of mining rights, servitude, and land-use rights are entitled to access to the courts (under Section 34), as well as to just administrative action (under Section 33). Some rights holders – particularly residential tenants, farm workers, and people with customary land-use rights – also have the right not to be evicted from their homes without a court order and, in many instances, the provision of suitable alternative accommodation.

Expropriation by the minister of public works
Chapter Two of the Bill deals with expropriation by the minister of public works (the minister). In this chapter, property is defined somewhat differently, as ‘meaning land and movable property related to such land, including a right therein’. [Section 3(1)(c), Bill]

The Bill gives the minister wide powers to expropriate property of this kind ‘upon request’ by an organ of state. The minister is obliged to ‘pay compensation which is just and equitable’, but can reclaim the amount from the organ of state in question, to which ownership passes on the date of expropriation. [Section 3(3), Bill]

This ministerial power to expropriate ‘upon request’ is unreasonably wide-ranging. In addition, any ministerial expropriation must, of course, comply with all relevant constitutional guarantees, which cannot simply be brushed aside because an organ of state has ‘requested’ the expropriation.

The Bill also gives the minister an alternative power to expropriate ‘for a purpose connected…with his mandate’. His mandate is then defined as ‘including the provision and management of the accommodation, land and infrastructure needs of an organ of state’. This power is also very broad. [Section 3, Bill] Any expropriation effected on this basis must again comply – and be shown by the minister to comply – with all relevant provisions of the Constitution before an expropriation can lawfully proceed.

Trumping effect of the Bill
According to a memorandum on the objects of the Bill, part of the Bill’s purpose is to ‘ensure uniformity in the way that organs of state undertake expropriation’. This is important, the memorandum says, because there is such ‘an array of authorities’, within all spheres of government, that ‘have the power to expropriate under various pieces of legislation’. [Department of Public Works, Memorandum on the Objects of the Expropriation Bill, 2015, p1] What this also means, however, is that the Bill aims to override all the limitations on expropriation now contained in other statutes.

The Bill has several trumping provisions. It recognises that an expropriating authority may expropriate property under ‘any other law of general application’, but stresses that this must be done in compliance with its core provisions. It also requires that any existing law dealing with expropriation be ‘interpreted in a manner consistent with its terms’, particularly as regards the compensation payable. To make assurance doubly sure, the Bill further states that its provisions must ‘prevail in the event of a conflict’ between it and any other existing law dealing with expropriation. [Sections 2(3), 29, Bill]

The Bill thus seeks to ensure that its own (unconstitutional) provisions will apply to any future expropriation by any organ of state, irrespective of what legislative safeguards might currently pertain.

Likely economic and political consequences of the Bill
The Bill empowers all organs of state, at every level of government, to expropriate land and other property whenever they consider this useful in ‘redressing the results of past racial discriminatory laws’. Since these organs of state will not have to start by showing that their proposed expropriations meet the Constitution’s requirements – and since the Bill bars the courts from striking down their expropriations as unconstitutional – many inefficient and corrupt municipalities, government departments, and parastatals will be able to use the Bill to further their own narrow economic and/or political interests.

Often, several organs of state may find themselves vying to expropriate the same mine, factory, farm, house, or tract of land held in customary tenure. In addition, since many organs of state are already caught up in factional battles within the ANC, the Congress of South African Trade Unions (Cosatu), the South African Communist Party (SACP), and the wider tripartite alliance, the scope for property takings, and reverse takings, could be significant.

Expropriated owners are likely to lose ownership and possession of their land and other assets very soon after notices of expropriation have been served on them. Owners will be barred from contesting the validity of these expropriations in the courts, which will be confined to reviewing the amount of compensation payable.

Owners will often also be barred from contesting the compensation offered to them, even though this may be significantly less than market value and far from ‘just and equitable’. Damages for resulting financial losses will no longer be payable, even though expropriation is a drastic measure that places an inordinately heavy burden on the shoulders of particular individuals and enterprises. If justice is truly to be done to those affected, the full extent of their resulting financial losses needs to be taken into account, not disregarded. Instead, the Bill makes it possible for all organs of state to acquire all manner of assets at bargain basement prices – and without ever having to prove that relevant constitutional requirements for a valid expropriation have been met.

In addition, though ownership and possession may pass very swiftly to expropriating authorities, payment of the compensation due could often be much delayed. Banks holding mortgages over expropriated properties will also come under significant financial pressure, as the compensation payable will often not be enough to pay off outstanding loans.

The Government claims that the Bill is needed to speed up land reform, but this is a tired and unconvincing justification that brushes over many inconvenient truths. In fact, only 8% of South Africans want land to farm; at least 73% of land reform projects have failed; and the Government has already spent billions of rands on taking hundreds of farms out of production with little benefit to anyone. Such pointless waste must stop, not be given further impetus.

The minister of public works, Thulas Nxesi, has recently said that the Bill is also needed to speed up the infrastructure programme. But the building of new power stations, for one, has not been held back by delays in land acquisition. Rather, it has stalled for a host of other reasons, including the political interventions that have left Eskom with little of the experience and institutional memory needed to implement large projects.

However, in putting forward this flawed rationale, Mr Nxesi has implicitly acknowledged that the Bill will by no means be confined to commercial farmland. Many people outside the agricultural sector have long tended to believe that the Bill will not affect them, but this is an illusion. Others may think that the risk of expropriation applies solely to white South Africans, but this too is a fallacy.

The recent gazetting of a land claim over much of Pretoria illustrates the point. Chief Victor Lekhuleni has claimed some 25 000 hectares of land from which, he says, his community was forcibly removed between 1958 and 1962. The area in question runs from Lynnwood and Silver Lakes in the south to Eersterust in the north. It includes not only farms but also businesses, shopping centres, industrial areas, schools, hospitals, and the whole of Mamelodi. In this instance, Mr Lekhuleni is willing to negotiate leases with farm owners and others once his claim has been confirmed. However, other claimants might want the land itself – which the relevant organ of state would be able to acquire on the cheap using its new powers under the Bill.

Under the reopened land claims process, which runs until June 2019, the Government expects some 379 000 new land claims to be lodged. Many seem likely to be put forward by chiefs and could incorporate large swathes of land. If the Bill is adopted in its current form, the result will be a debilitating uncertainty in all affected areas. No one will want to buy property in areas that are under claim – as experience in Pretoria with Mr Lekhuleni’s claim already shows. Even if buyers are willing to proceed, few banks will want to provide mortgage finance when loans might ultimately remain at least partially unpaid. This in itself will be enough to curb prospective sales and undermine property values.

Overall, the Bill is a draconian measure which gives all organs of state the power to take from farmers, miners, firms, and ordinary people their most important assets: often their sole assets, built up over a lifetime of endeavour. In return, less than adequate compensation will be paid. Moreover, irrespective of what assurances Mr Nxesi and other ministers might now provide, once the Bill is on the Statute Book there will be little to prevent hundreds of organs of state from resorting to it ever more often – and without having to wait for the trigger of a land claim.

The overall economic ramifications of the Bill are impossible to foresee because the measure applies to virtually all property rights, trumps all existing laws touching on expropriation, and is likely in time to trigger a free for all among the many hundreds of organs of state that might want to use it to boost their resources and their revenue. Inevitably, the Bill will have many consequences that cannot be anticipated.  However, the threat to property rights implicit in the Bill will clearly:

• undermine home ownership;
• deter investment, growth, and job creation;
• contradict the National Development Plan (NDP), still supposedly the Government’s ‘overriding’ policy blueprint;
• encourage yet more businesses to disinvest from South Africa; and
• make it harder still to counter unemployment, poverty, and inequality.

The unconstitutionality of the Bill
The likely economic costs of the Bill are bad enough in themselves. Worse still is the unconstitutionality of the measure and the ANC’s persistent refusal to acknowledge this.
As also explained in the accompanying Synopsis of this submission, the Bill is unconstitutional on various grounds.

Crucially, the Bill allows any ‘expropriating authority’ to take property by serving a notice of expropriation on the owner. Ownership of the property in question will then pass automatically to the State on the ‘date of expropriation’ identified in the notice, which could be the day after the notice of expropriation has been delivered.

The Bill empowers the State to take property by notice to the owner, and leaves it to those thus stripped of ownership and possession to contest the compensation due to them in the courts thereafter. Worse still, the Bill seeks to oust the jurisdiction of the courts by allowing them to adjudicate solely on the compensation offered by the State and not on the overall validity of the expropriation. The Bill also seeks to limit access to the courts by giving expropriated owners a mere 60 days in which to sue for additional compensation, failing which they will be ‘deemed’ to have accepted the amounts offered by the State.

However, ‘self-help’ of this kind is contrary to the common law and barred by the Constitution. Under the common law, the State cannot even temporarily seize property – not even that likely to have been used in committing crimes – without first obtaining court orders in the form of search-and-seizure warrants.

This common-law protection for property rights has since been significantly buttressed by the Constitution, which lays down a number of important requirements for a valid expropriation in Section 25 (the property clause). The Constitution also guarantees access to the courts (under Section 34), and gives all South Africans the right to just administrative action (under Section 33). In addition, Section 26 of the Constitution prevents people from being evicted from their homes without express judicial authority and, in many instances, the provision of suitable alternative accommodation.

Under Section 25 of the Constitution, an expropriation may not be arbitrary, it must be carried out for public purposes or ‘in the public interest’ (as defined in the Constitution), and it must be accompanied by ‘just and equitable’ compensation, which must ‘reflect an equitable balance between the public interest and the interests of those affected, having regard to all relevant circumstances’. The circumstances listed include market value and four ‘discount’ factors, which range from the current use of the property to the extent of state subsidy in its acquisition and capital improvement.

Under standard principles of constitutional interpretation, the State bears the onus of proving that these requirements for a valid expropriation have all been met. The State must discharge this onus before it proceeds with an expropriation, as its obligation to prove the constitutional validity of the taking is otherwise circumvented and the Constitution’s protections for property rights severely weakened, if not set at naught. Yet the Bill allows the State to issue a notice of expropriation, and to take ownership and possession of the relevant property under that notice, before the State has shown that the expropriation is not in fact arbitrary and that all the other requirements for a valid expropriation have (objectively) been met. The Bill’s provisions allowing this are thus in breach of Section 25.

The Bill also allows the expropriating authority to delay any payment until well after it has taken ownership and possession of the property. This is prima facie contrary to Section 25 of the Constitution in that it fails to strike ‘an equitable balance’ between the public interest and the interests of the affected owner.

In addition, Section 34 of the Constitution gives everyone the right to have any legal dispute ‘decided in a fair public hearing’ before a court. This provision is obviously aimed at allowing such disputes to be resolved by the courts, through the application of the relevant legal principles to the facts of the particular case. However, under the Bill, this process of deliberation and adjudication is cut short. For the State can simply issue a notice of expropriation and take ownership under it, long before a court has had the opportunity to consider or decide whether this is the appropriate outcome. In addition, under the Bill, no legal dispute regarding the constitutional validity of the expropriation can be brought before the courts, which are confined to dealing with the sufficiency of the compensation.

In many instances, expropriated owners will also be prevented from bringing legal disputes about the sufficiency of the compensation before the courts. This conflicts with both Section 34 and Section 25 of the Constitution.

Under the Bill, the State may give expropriated owners 60 days in which to sue for more compensation, failing which they will be deemed to have accepted whatever the State has offered. People who cannot find the means to sue within this time will be barred from having their legal dispute over compensation decided by the courts, which infringes their rights under Section 34. This situation also infringes their rights under Section 25 of the Constitution, which expressly requires that the amount and timing of compensation must, in the absence of agreement, be ‘decided or approved’ by the courts.

In addition, the 60-day period allowed by the Bill is unconstitutionally brief, given the Constitutional Court’s decision in 2009, in the case of Brümmer v Minister for Social Development and others. Here, a 30-day period to bring suit, which had been laid down under the Promotion of Access to Information Act of 2000, was struck down as unconstitutional, while Judge Sandile Ngcobo indicated that a period of 180 days to sue would be more appropriate.

Also relevant is Section 33 of the Constitution, which gives everyone the right to just administrative action, which must (among other things) be ‘reasonable’ and ‘procedurally fair’. These requirements are not met when the State – which bears the responsibility for upholding them and for showing that they have been upheld – can simply take ownership and possession via its notice of expropriation and then pay an amount of compensation (which may in fact be far from just and equitable) only after many months have passed.

The Department of Public Works claims that the Bill will bring the current Expropriation Act of 1975 into line with the Constitution, but this is simply not so. On the contrary, the Bill is just as unconstitutional as the current Act.

In addition, the founding provisions of the Constitution clearly state that the Constitution is ‘the supreme law of the Republic’. [Section 2, Constitution]  The Constitution is thus binding on all branches of government and must be respected and upheld by every organ of state. Hence, neither this portfolio committee nor South Africa’s Parliament may adopt any legislation which conflicts with the Constitution.

The Bill must therefore be rejected. At the same time, the current defective Act needs to be replaced by a constitutional alternative. The IRR has thus drafted an alternative bill (the IRR bill) that recognises the State’s power to expropriate where this is unavoidable but also ensures that this power is exercised in a manner fully compliant with the Constitution.

Overview of the IRR’s proposed alternative bill
The IRR’s alternative Expropriation Amendment Bill deals with direct and indirect expropriation by all expropriating authorities – whether the minister of works or any other organ of state. It covers both movable and immovable property as well as mining and water rights; mortgages, servitudes, and other registered rights; shares in companies; intellectual property rights, including patent rights; and unregistered rights such as leases and customaryl land-use rights.

Governing principles:
An expropriating authority is obliged to fulfil all relevant constitutional requirements for a valid expropriation, including those governing ‘just and equitable’ compensation. It must also obtain a High Court order confirming that it has met all these requirements before it may issue a notice of expropriation.

‘Just and equitable’ compensation must start with the market value of the property, less the four ‘discount’ factors listed in the property clause of the Constitution. However, since expropriation places an ordinate burden on the shoulders of particular individuals and firms, compensation must also include damages for all financial losses resulting from the expropriation, including moving expenses and any loss of future income from the property. If the property to be expropriated includes the owner’s home, his or her eviction must expressly be authorised by the High Court, while suitable alternative accommodation may also have to be provided.

Initial processes:
An expropriating authority must start by negotiating with the owner with a view to agreeing on a voluntary purchase. If these talks fail, it must issue a notice of possible expropriation, invite objections, and give reasons in writing for rejecting any objections submitted to it. It may also investigate the value of the property.

If the expropriating authority then wishes to proceed, it must give the owner 180 days’ notice of its intention to seek a High Court order confirming the constitutional validity of the proposed expropriation.

High Court hearing on constitutionality:
The expropriating authority bears the onus of proving, on a balance of probabilities, that its proposed expropriation is not arbitrary, that it is objectively in the public interest, that the compensation it proposes is indeed just and equitable, and that all other constitutional requirements for a valid expropriation have been met.
During this court hearing, the owner’s evidence and representations must be heard in full.  The expropriating authority must also pay the owner’s reasonable legal costs in participating in these proceedings (on an attorney-and-client basis).

If the High Court confirms the constitutionality of the expropriation, it must issue an order dealing with all relevant issues, as listed in this Bill. Among other things, the court’s order must also instruct the expropriating authority to pay all compensation due to the owner at least 15 working days before the transfer of ownership to it is due to take place.

Notice of expropriation:
If the High Court confirms the constitutionality of the proposed expropriation, the expropriating authority may thereafter issue a notice of expropriation. This notice must be in keeping with the High Court order and accompanied by a copy of it. The notice must give the owner 90 days from the date of service of the notice before the transfer of ownership to the expropriating authority may take place, and another 90 days before possession may pass. However, the owner may agree in writing to shorter periods if he so chooses.

The expropriating authority must pay all the compensation due to the owner at least 15 working days before ownership is to pass to it. If the expropriating authority cannot provide written evidence of having done so, the expropriation notice is automatically set aside and has no further force or effect.

If suitable alternative accommodation is required for an owner being evicted from his home, this accommodation must also be provided 15 working days before ownership is due to pass. The same consequences follow for any failure to do so.

The owner has the right to the use of, and income from, the property until possession passes to the expropriating authority, but must look after the property, pay municipal rates and charges (if applicable), and maintain the property’s value.

Third-party rights:
The expropriating authority must pay any mortgage holder so much of the total compensation due as is needed to settle the debt; and must do so at least 15 working days before ownership is due to pass to it. On the same day, it must also pay the remaining balance to the owner. Provided that the mortgage holder has been paid timeously and in full, the mortgage ends on the date of expropriation, when ownership is transferred to the expropriating authority.

If the expropriating authority wishes to expropriate mining rights or other third-party rights in the expropriated property, it must follow the process set out in this alternative Bill in relation to each rights holder. However, if the matter is particularly urgent, the expropriating authority may seek and obtain High Court authorisation to issue the same notice of expropriation to all rights holders, each of whom will be entitled to just and equitable compensation and all the other protections set out in this alternative Bill.

Incidental matters:
Further rules will apply where the owner cannot be traced, for example, and will also govern the withdrawal of a notice to expropriate. The existing Expropriation Act of 1975 (and earlier amendments to it) will be repealed when this Bill is enacted and comes into effect.

Any regulations must be consistent with this Bill and tabled in Parliament for approval three months in advance.

Precedence over other expropriation legislation
To ensure that the procedures and requirements outlined apply to all expropriations, this Bill will trump all other laws dealing with expropriation (other than the Constitution or a statute adopted with the express and specific aim of amending the terms of this Bill).

More details of the IRR’s proposed alternative bill
To assist MPs in drafting a constitutional alternative, the IRR has drawn up a more detailed framework for an alternative bill, which is attached as Appendix 1 to this submission. This framework document has been endorsed by the American Chamber of Commerce in South Africa (AmCham), which joins with the IRR in urging its adoption by the portfolio committee on public works and the Parliament of South Africa.

The vital importance of private property rights
Private property rights are vital for direct investment, economic growth, and the generation of new jobs. They are a key foundation for upward mobility and individual prosperity. They also provide an essential basis for economic independence from the State – and hence for political freedom and other fundamental civil liberties.
This explains why the racially discriminatory laws that earlier barred black South Africans from owning land, houses, and other property were so fundamentally unjust. It also explains why a key purpose of the struggle against National Party rule was not simply to end racial discrimination but also to extend to black people the private property rights that whites had long enjoyed.

Significant progress towards that goal is now evident. Helped by major redistribution from via the budget, black property ownership has been growing steadily since 1975, when a 30-year leasehold option for township houses was introduced. This was soon replaced by 99-year leasehold, and then in 1986 by freehold rights. Today, more than 7.6m Africans own their own homes, as do close on 1m ‘coloured’ and Indian people – and roughly 1.1m whites. Since 1991, when the National Party government repealed the notorious Land Acts, black people have also bought an estimated 2 million hectares of commercial farmland on the open market, without the intervention of the State. 

In addition, the most recent research by the Johannesburg Stock Exchange into black ownership of the top 100 listed companies puts this at 23% at minimum (the racial ownership of 16% of relevant shareholdings still needs to be assessed). Moreover, on the methodology endorsed by the Department of Trade and Industry (DTI) itself, black ownership stands at 39%.  Overall, the net value (after taking outstanding debt into account) of the private assets owned by South Africans in 2011 was R2.9bn among Africans and R4.4bn among whites. Since then, black private property ownership has doubtless grown further.

Though private property ownership is still racially skewed, black ownership of land, houses, and other assets has been growing steadily for many years. To accelerate this process, the country needs an annual average growth rate of 7% of gross domestic product (GDP), accompanied by an upsurge in investment and employment. African home ownership also needs to be formalised in many instances through the issuing of proper title deeds, which would help unlock the full economic value of these houses. In addition, some 16.5 million Africans living on roughly 17 million hectares of communally-owned land in the former homelands need individual title to the plots they occupy, which again would help to bring dead capital to life.

Instead, economic growth is being steadily undermined and the property rights of all South Africans are being put at risk. The Bill is but the latest salvo in a sustained barrage against property rights, which includes:

• the vesting of all water and mineral resources in the State (which means that none of these rights can ever be privately owned by individual black South Africans);
• the re-opening of the damaging land claims process (under which more and more land will become vested in the State, further limiting the prospects for individual black ownership of land);
• the introduction of a state official (the valuer general) to decide the value of all property targeted for land reform;
• the mooted Regulation of Land Holdings Bill, which will bar foreign ownership of farmland and prevent any commercial farmer, black or white, from owning land in excess of the State’s ceiling (now set at 12 000 hectares of land but no doubt in time to be revised downwards);
• the ‘50:50’ proposal, which will see the effective expropriation of 50% of all commercial farms, despite the objections of black and white farmers and the risks this poses to food security in the urban areas, where 63% of the population lives; and
• the misleadingly named Promotion and Protection of Investment Bill of 2013, under which virtually all property used for commercial purposes is vulnerable to expropriation and could (under the Bill’s initial wording) be taken into the ‘custodianship’ of the State without any compensation being payable at all.

The ruling ANC is not really seeking to cure the unconstitutionality of the current Expropriation Act, for every expropriation bill it has put forward since 2008 has been just as unconstitutional as the 1975 statute. Nor is the ruling party’s true objective to speed up land reform or the provision of new infrastructure. Rather, the ANC’s real aim – in combination with its unelected SACP and Cosatu partners in the tripartite alliance – is to use expropriation to advance the national democratic revolution (NDR) in this its second and more ‘radical’ phase.

Both Cosatu and the SACP openly describe the NDR as providing ‘the most direct path’ to a socialist and then communist future. The ANC is more circumspect about overtly embracing this goal, but has nevertheless recommitted itself to the NDR at every one of its five-yearly national conferences. In pursuing the NDR, one of the ANC’s key objectives, also regularly reaffirmed, is to bring about the ‘elimination of apartheid property relations’. However, the word ‘apartheid’ is essentially a red herring. Replace it with the word ‘existing’ and the real meaning of this goal becomes apparent.

Socialist and communist countries are notorious for abusing the fundamental civil liberties of their citizens. Pervasive state ownership and economic controls within these countries have generally also crippled economic efficiency, leading to major shortages of food and other essentials, and impoverishing everyone except a small political elite.  Socialist and communist countries – along with states that have nationalised or expropriated land, mines, banks, oil, and other assets without adequate compensation – are also among the poorest in the world. By contrast, those countries that limit state intervention and safeguard the rights of citizens to own their own homes and other property are among the richest in the world.

The practical importance of individual property rights and limited state ownership and control has been tracked for many years by the Fraser Institute in Canada, a think tank. The Fraser Institute’s research shows that the countries which do the best in upholding private property rights and limiting state power are the ‘most free’, in the economic sense. They are also by far the most prosperous. Moreover, the poorest 10% of people in the most free countries have a much higher standard of living than their counterparts in the ‘least free’ countries, where state ownership of land and assets is pervasive and private property rights are tenuous at best.

Between 1990 and 2010, the annual average growth rate in GDP per head in the least free countries was a mere 1.6%. By contrast, the most free countries clocked up 3.6%, or more than double. As a result, the least free countries had GDP per head of $5 200 in 2010, while the most free recorded almost $38 000 – almost seven times as much. The least free showed life expectancy at 62 years in 2010, the most free at 80. So people in the richest countries – the ones where private property rights are upheld and respected – live almost 20 years longer than in the poorest. Moreover, average income per head for the poorest 10% of the population in the least free countries in 2010 was $1 200, whereas in the most free it was nearly $12 000 – almost ten times as much.

Differences between Zimbabwe and South Korea further illustrate the point. Following land ‘reform’ in Zimbabwe, the Government now owns almost all the land and the country has become one of the ‘least free’ in the world. Most Zimbabweans are also jobless, impoverished, and hungry. Many have little choice but to leave their country, where life expectancy has dropped dramatically to 51 years.

In South Korea, by contrast, private ownership is respected, state intervention is limited, and the country is one of the ‘most free’ in the world. It has average GDP per capita of some $30 000 and offers a high standing of living to all its citizens, including the poorest. Life expectancy there has risen to 80 years.

The portfolio committee of public works and the Parliament of South Africa are bound by the country’s Constitution. Hence, they cannot lawfully adopt the Bill put forward by the Department of Public Works, which contradicts the property clause and other key provisions in the Bill of Rights.

At the same time, Parliament has an over-arching responsibility to all the people of South Africa to help overcome unemployment, poverty, and inequality in the most realistic and sustainable way. Experience all around the world shows that countries which respect private property rights and limit the interventionist powers of governments have the fastest rates of annual economic growth and the highest average levels of GDP per head.  Moreover, these benefits extend to the poorest 10% of their populations, greatly helping to raise their living standards and lengthening their life expectancy.

The formula for economic success and individual prosperity is well known. It requires an emphasis on growth rather than redistribution, and the adoption of legislation that attracts direct investment, raises the growth rate, and encourages the creation of millions more jobs.

In this particular instance, the portfolio committee on public works has an obligation to reject the Government’s unconstitutional Bill. To cure the defects in the current Expropriation Act of 1975 and to help promote growth and jobs, it should instead embrace the constitutionally-compliant alternative bill put forward by the IRR. This alternative bill has also been endorsed by the American Chamber of Commerce in South Africa (AmCham) and many others, who have urged that it should be enacted into law.

South African Institute of Race Relations NPC    6th May 2015

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