South African Institute of Race Relations NPC (IRR)
Submission to the
Economic Development, Environment, Agriculture,
and Rural Development
Portfolio Committee of the Gauteng Provincial Legislature,
to help inform the deliberations of the
National Council of Provinces,
regarding the
Expropriation Bill of 2015 [B 4B-2015]
Johannesburg, 15th April 2016
Contents of this submission:
Introduction, page 2
Background to the Bill, page 5
Key features of the Bill, page 6
Various flawed definitions in Section 1 of the Bill, page 6
A narrow definition of ‘disputing party’ page 6
A narrow definition of ‘expropriation’ and ‘expropriate’, page 6
An extended definition of ‘expropriating authority’, page 10
Preliminary requirements for expropriation, page 10
Notice of expropriation, page 12
Compensation, page 13
Objections to the compensation offered, page 13
Date of payment of compensation, page 15
The rights of third parties, page 16
Mortgage rights, page 16
Mining and prospecting rights, page 17
Registered rights, page 17
Unregistered rights, page 17
Constitutionality of the Bill’s provisions relating to rights holders, page 19
Expropriation by the minister of public works, page 19
Trumping effect of the Bill, page 20
Likely socio-economic consequences of the Bill, page 20
Foreign direct investment and capital outflows, page 23
Economic growth, page 23
Debt and downgrades, page 23
Rand:dollar exchange rate, page 23
Inflation, page 24
Unemployment, page 24
Strikes, page 24
Hunger and demonstrations, page 24
A vicious cycle, page 24
The unconstitutionality of the Bill, page 25
The vital importance of private property rights, page 29
Conclusion, page 31
Appendix 1: Proposed amendments to specific clauses of the Expropriation Bill
Introduction
The portfolio committee on economic development, environment, agriculture, and rural development of the Gauteng provincial legislature has invited interested people and stakeholders to submit written comments on the Expropriation Bill [B 4B-2015] (the Bill) by 18th April 2016, so as to aid the deliberations on the Bill of the National Council of Provinces.
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 – black ownership of houses, land, and other assets has grown 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, coloured, and Indian 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 black people with customary land use rights – and especially those living near major cities – could see these unregistered rights expropriated by municipalities and their land turned over to RDP housing or other purposes. Some 2.8m black people living on commercial farms could also lose their unregistered residence rights, yet will receive very little compensation for their resulting losses.
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. So too could all the black people with leases or other rights over the 7 million hectares of land thus far transferred under the land restitution and redistribution initiatives. In all instances, those affected will be left without adequate compensation and with little effective redress for the loss of their homes, business premises, customary plots, or other vital assets. Often, these will be their only assets – built up by them over a lifetime of endeavour.
If the Bill is enacted into law, ever more land and other property is 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.
Though some improvements have been made to the Bill since it was published for public comment in 2015, the Bill still remains unconstitutional. The problem, in a nutshell, is that the Bill still empowers an expropriating authority, after completing some simple preliminary steps, to take ownership and possession of property by serving a notice of expropriation on the owner. Though disputes over the compensation payable must now, in the absence of successful mediation, be referred to the courts, the Bill still seeks to limit the right to dispute the validity of an expropriation. In addition, the Bill tries to put onus of proof in any such proceedings on the expropriated owner or holder of a right.
However, if the Constitution is to be meaningful in protecting the property rights of all South Africans, the onus of proof must lie on the expropriating authority to prove that all relevant constitutional requirements for a valid expropriation are met. The expropriating authority must also discharge this onus – and obtain a court order confirming that it has done so – before it issues a notice of expropriation. In addition, where an intended expropriation will result in the eviction of an owner or rights holder from his or her home, the prior court order thus obtained must also authorise this eviction, as required by Section 26(3) of the Constitution.
Also of great concern is the unconstitutional definition of expropriation that has belatedly been included in the Bill. This seeks to allow an expropriating authority to take custodianship (rather than ownership) of property without having to pay any compensation at all. It also seeks to deprive South Africans of all constitutional protections against regulatory or indirect expropriations. This definition makes a mockery of the property clause in the Constitution (Section 25), which (as the Constitutional Court stated in the FNB case in 2002) is aimed at ‘both protecting private property rights, as well as serving the public interest…, and also at striking a proportionate balance between those two functions’. [First National Bank of SA Ltd t/a Wesbank v South African Revenue Service; First National Bank of SA Ltd, ta Wesbank v Minister of Finance, [2002] ZACC 5; 2002 (7) BCLR 702 (CC), at para 50] The definition is also inconsistent with the rights to administrative justice (Section 33) and access to court (Section 34).
The National Council of Provinces will be in breach of its constitutional obligations if it enacts a Bill which contains provisions inconsistent with the Constitution. As the Constitutional Court stressed in the Certification case in 1996: “Under our constitutional democracy, the Constitution is the supreme law. It is binding on all branches of government and no less on Parliament… Parliament ‘must act in accordance with, and within the limits of, the Constitution’”. [Certification of the Constitution of the Republic of South Africa, 1996, 1996 (10) BCLR 1253 (CC), at para 109] Hence, as the Constitutional Court recently reaffirmed in Economic Freedom Fighters v Speaker of the National Assembly and others in March 2016, national legislation must comply with the Constitution. In addition, Parliament must fulfil its constitutional obligations and refrain from acting in a manner inconsistent with the Constitution. [Economic Freedom Fighters v Speaker of the National Assembly and others, CCT/143/15 and CCT 171/15]
Also relevant to the constitutionality of the Bill is the limited opportunity given to the public to comment on its terms. A scant 18 days was initially allowed by the portfolio committee on public works for public comment on the Bill, which is too short a period for meaningful deliberation and consultation on the impact of its provisions. Though the deadline for comment was then extended by some seven weeks, few additional submissions were made in this period, which means the extra period meant little in practice.
In addition, the definition of expropriation was added only in late 2015, when the Bill was already before the portfolio committee. This means that it was never discussed at the National Economic Development and Labour Council (Nedlac), or made available for public comment.
The National Council of Provinces, through the various provincial administrations, has also failed to provide adequate opportunities for public consultation. It has failed to advertise a clear deadline for the making of written submissions and omitted to issue sufficiently timeous invitations to those who would like to make oral submissions. It thus made it difficult for the public to make its views known. Yet adequate public consultation is essential to constitutionality, as the National Council of Provinces is well aware.
In addition, the Bill has major ramifications for all land held in traditional or customary tenure. Both traditional leaders and individuals who hold unregistered customary land use rights could have their rights taken by municipalities or other organs of state for inadequate (or no) compensation. Traditional leaders thus requested last year that all land held in customary tenure be exempted from the operation of the Bill, but this request was refused. [City Press 9 August 2015]
The State Law Advisers have nevertheless advised that ‘it is not necessary to refer the Bill to the National House of Traditional Leaders’ because it ‘does not contain provisions pertaining to customary law or the customs of traditional communities’. [Para 15.6, Memorandum on the Objects of the Expropriation Bill of 2015] This opinion overlooks the fact that the Bill is likely to result in the loss of ever more customary land rights as more and more organs of state expropriate, or take custodianship, of land in such tenure. Any such development will have enormous ramifications for both customary law and the customs of traditional communities. The Bill must therefore be referred to the National House of Traditional Leaders for its comments before the measure is enacted into law, as required by the Traditional Leadership and Governance Framework Act of 2003. [Section 18(1), Traditional Leadership and Governance Framework Act of 2003]
Since some provisions of the Bill are clearly unconstitutional – and the Bill as currently written is also economically damaging and unwise – the IRR has drawn up a list of proposed amendments to various clauses in the Bill. This list is attached as Appendix 1. The purpose of these amendments is primarily to:
a) bring the definition of expropriation into line with the Constitution;
b) put the onus on an expropriating authority to prove that an intended expropriation complies with all relevant constitutional provisions;
c) require an expropriating authority to obtain a court order confirming the constitutionality of a proposed expropriation before it issues a notice of expropriation;
d) allow those who suffer the expropriation of their homes or other assets to obtain compensation for all direct losses resulting from the expropriation, such as moving costs and any loss of income;
e) ensure that those expropriated receive the compensation due to them before ownership passes to the expropriating authority; and
f) remove the unnecessary, contradictory, and unconstitutional powers of expropriation specifically conferred on the minister of public works.
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’. These would include moving costs and any loss of income from the expropriation of business premises, which will have to be replaced before business activities can resume. 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 current Expropriation Act was adopted and the principle of parliamentary sovereignty applied. However, they are now clearly 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
Various flawed definitions in Section 1 of the Bill
A narrow definition of ‘disputing party’
The Bill defines a ‘disputing party’ as ‘an owner, holder of a right, expropriated owner, or expropriated holder who does not accept the amount of compensation offered in terms of section 14(1) and 15(1)’.
This definition is too narrow, for it seeks to prevent those who object to the validity of an expropriation, or to unauthorised evictions from their homes, from being included in the meaning of ‘disputing party’. [Section 1, Bill] This definition must therefore be amended, as set out in Appendix 1.
A narrow definition of ‘expropriation’ and ‘expropriate’
According to the Bill, ‘“expropriation” means the compulsory acquisition of property by an expropriating authority or an organ of state upon request to an expropriating authority’ and ‘“expropriate” has a corresponding meaning’.
This definition of expropriation was inserted into the Bill by the portfolio committee of public works in the final stages of the parliamentary process before the National Assembly. Hence, it was never discussed at the National Economic Development and Labour Council (Nedlac) or opened up to public consultation.
To most people, the new definition looks harmless enough, for it describes expropriation, in essence, as the compulsory ‘acquisition’ of property by the State. The significance of this wording can be understood only in the light of the main Constitutional Court judgment in the Agri SA case in 2013.
This case began when a company, Sebenza (Pty) Ltd, found it lacked the funds needed to convert an unused old-order mining right it had bought in 2001 for R1m into a new-order mining right under the Mineral and Petroleum Resources Development Act (MPRDA) of 2002. This Act, which took effect in 2004, vested all mineral resources in the ‘custodianship’ of the State. It also required unused old-order rights to be converted within a year, failing which they would ‘cease to exist’. Since Sebenza could not afford the application fee for this conversion, the mining right for which it had paid R1m duly came to an end, prompting it to sue for compensation. Agri SA, a lobby group for commercial farmers, many of whom had earlier owned unused old-order rights to the minerals beneath their land, took over the claim and brought it before the Pretoria High Court. [Agri South Africa v Minister of Minerals and Energy and Another (55896/07) [2011] ZAGPPHC 62; [2011] 3 All SA 296 (GNP); 2012 (1) SA 171 (GNP); 2012 (1) BCLR 16 (GNP) (28 April 2011)]
The High Court found that Sebenza had lost all the competencies of ownership it had previously enjoyed, while the MPRDA had given the mining minister substantially similar rights. The State had thus acquired ‘the substance of the property rights’ that Sebenza had previously owned, and it made no difference that the State’s competencies were termed ‘custodianship’ rather than ‘ownership’. Expropriation had indeed occurred and compensation of R750 000 was payable. [Business Day 4 May 2011; Pretoria High Court judgment, supra, para 96]
The Constitutional Court then overturned this ruling. The main judgment was penned by Chief Justice Mogoeng Mogoeng, who agreed that Sebenza had suffered a ‘compulsory deprivation’ of its mining right and that the ‘custodianship’ of this resource was now vested in the state. However, said Chief Justice Mogoeng, ‘the assumption of custodianship’ did not amount to expropriation because it did not make the state the owner of the right in issue. Added the chief justice: ‘Whatever “custodian” might mean, it does not mean that the State has acquired and thus become the owner of the rights concerned.’ [Agri South Africa v Minister of Minerals and Energy, CCT/51/12, 18 April 2013, para 71]. This in turn meant that no expropriation had occurred and that no compensation was payable. [Ibid, para 72] What the Pretoria High Court had seen as a meaningless distinction between the state’s powers as ‘owner’ or ‘custodian’ thus became, in the main judgment at least, an issue of major legal and monetary importance.
However, Chief Justice Mogoeng also stressed that his ruling was based on the particular facts before him, including the fact that Sebenza had been unable to convert its old-order right, not because the MPRDA did not make provision for this, but rather because of its ‘precarious financial position’. [Ibid, para 72] He also said: ‘A one-size-fits-all determination of what acquisition entails is not only elusive but also inappropriate… A case-by-case determination of whether acquisition has in fact taken place presents itself as the more appropriate way of dealing with these matters,…[as] acquisition is likely to assume many variations.’ [Ibid, para 64]
The chief justice further went on to say: ‘It would…be inappropriate to decide definitively that expropriation is, in terms of the MPRDA, incapable of ever being established…. I accept that a case could be properly pleaded and argued to demonstrate that expropriation did take place. That avenue…must be left open, particularly when regard is had to the express provision made for expropriation in item 12 of Schedule II to the MPRDA’. [Ibid, para 75]
Two of the Constitutional Court judges in the case handed down a separate (concurring) judgment in which they cautioned against the approach taken in the main judgment. In this judgment, handed down by Judge Johan Froneman, the two noted that there was no prior Constitutional Court case ‘dealing with the nature of change brought about by vesting the natural resources of the country in the state as custodian of those resources’. In addition, they said, ‘the main judgment [by Chief Justice Mogoeng) did not address the issue squarely’. [Ibid, para 101]
Judge Froneman also stressed that previous relevant Constitutional Court cases had ‘laid down no requirement of state acquisition as an inflexible requirement for expropriation’. He warned against any such development, saying: ‘It would be inadvisable to extrapolate an inflexible general rule of state acquisition as a necessary requirement’. [Para 102]
Added Judge Froneman: ‘If private ownership of minerals can be abolished without just and equitable compensation – by the construction that when the state allocates the substance of old rights to others it does not do so as the holder of those rights – what prevents the abolition of private property of any, or all, property in the same way? This construction in effect immunises, by definition, any legislative transfer from existing private property holders to others, if done by the state as custodian of the country’s resources, from being recognised as expropriation. This is done without a thorough examination of what the entirely new legal concept of state custodianship holds for our law, or whether the transfer will be just and equitable. In that way, one of the crucial aspects of our historical compromise, the equitable balancing between the protection of existing property rights and the public interest under Section 25, is bypassed. I find that unfortunate.’ [Ibid, para 105]
Another Constitutional Court judge in the Agri SA case, Judge Edwin Cameron, added that he ‘shared the caution’ expressed by Judge Froneman. Said Judge Cameron: ‘Acquisition by the state is, in my view, a general hallmark of expropriation. But not necessarily and inevitably so. Whether an expropriation contemplated by Section 25 has occurred is – as the main judgment finds – a context-based inquiry demanding a case-by-case approach. I therefore agree with [Judge] Froneman that it is inadvisable to extrapolate an inflexible general rule of state acquisition as a requirement for all cases.’ [Ibid, para 78]
As these passages highlight, Chief Justice Mogoeng’s judgment was based solely on the particular facts before him, while both he and the other judges on the court were reluctant to lay down a sweeping new rule on the meaning of expropriation. The Agri SA judgment is thus not enough to validate a definition of expropriation which so narrows the normal meaning of the term and could deprive millions of black and white South Africans of any compensation for the loss of their homes, business premises, customary plots, farms, or other assets.
The definition now included in the Bill also seeks to exclude any ‘indirect’ or ‘regulatory’ taking from counting as an expropriation. An indirect or regulatory taking arises where the state does not itself acquire ownership, but its regulations nevertheless deprive the owner of many of the usual benefits and powers of ownership.
A regulatory taking will arise, for example, if the state enacts legislation requiring all foreign companies in the private security industry to transfer 51% of their assets or equity to South Africans. It will also arise if new legislation requires all mining companies to sell the minerals they produce at ‘developmental’ prices, set by the mining minister, rather than at market prices. In both instances, the state will not acquire ownership of the companies or the minerals, but their existing owners will be deprived of many of the usual powers and benefits of ownership.
The new definition in the Bill seeks also to prevent such regulatory takings from counting as expropriations. However, this too is contrary to the normal meaning of expropriation, as Judge Froneman pointed out in the Agri SA case when he said that ‘foreign jurisprudence recognises that expropriation may take place even if the [relevant] rights or property have not been acquired by the state’. [Ibid, para 103] In addition, Chief Justice Mogoeng’s judgment in that case should not be seen as justifying such a narrowing of the normal meaning of expropriation, for his ruling was based on a very different factual situation.
Overall, the Bill’s attempt to narrow the definition of expropriation so as to exclude both the assumption of custodianship and regulatory takings from counting as expropriations, is contrary to the usual meaning of expropriation. It is not in fact in line with the Agri SA judgment and cannot be seen as being justified by this ruling. It also makes a mockery of Section 25, which as the Constitutional Court ruled in 2002 in the FNB case, is aimed at ‘both protecting private property rights, as well as serving the public interest…, and also at striking a proportionate balance between those two functions’. [First National Bank of SA Ltd t/a Wesbank v South African Revenue Service; First National Bank of SA Ltd, ta Wesbank v Minister of Finance, [2002] ZACC 5; 2002 (7) BCLR 702 (CC), at para 50] The definition is also inconsistent with other guaranteed rights, including the right to administrative justice, and is clearly unconstitutional.
The deputy minister of public works, Jeremy Cronin, has himself expressed reservations about the definition, saying that he is ‘open to either a reformulation’ by the National Council of Provinces or to the deletion of the definition. In Mr Cronin’s view, ‘seeking to define expropriation in the Bill is both redundant and open to unintended consequences’. [Jeremy Cronin, letter to Business Day, 15 March 2016]
At the very least, the current definition should be omitted. If a definition is to be included – which may now be important to provide legal certainty and predictability – it should be worded in a comprehensive way, as set out in Appendix 1.
An extended definition of ‘expropriating authority’
The Expropriation Act of 1975 confers the power to expropriate on the minister of public works alone, but the Bill extends this power to any ‘expropriating authority’. It defines such an authority as an ‘organ of state or person…empowered…to acquire property through expropriation’ under either the Bill itself or under ‘any other legislation’. ‘Organ of state’ is defined in the Bill in the same way as it is in Section 239 of the Constitution. It thus means ‘any department of state or administration in the national, provincial or local sphere of government’ or ‘any other functionary or institution’ which is either ‘exercising a power or performing a function’ under the Constitution, or ‘exercising a public power or performing a public function in terms of any legislation’. [Section 1, Bill; Section 239, Constitution]
This definition is very wide. The Bill thus gives at least 500 organs of state, at all tiers of government, all the unconstitutional powers of expropriation set out in its provisions. Read together with the trumping clauses described below, the effect is to override all existing constraints on expropriation contained in the 1975 Act and other relevant legislation. All provisions in the Bill which are inconsistent with the Constitution must thus be amended or removed so as to ensure that all organs of state, in using their powers to expropriate under the Bill or other legislation, act in accordance with what the Constitution requires.
Preliminary requirements for expropriation
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 or her on reasonable terms. [Section 2(2), Bill]
If negotiations fail to produce agreement, the expropriating authority 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 tenants and other third parties might have in the property. [Section 5, Bill] (The matter of third-party rights is examined below.)
During its investigation, an expropriating authority may 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 either the consent of the owner or an order of court. [Sections 5 (2) (3), 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. (It also requires an order of court before a temporary expropriation may be extended, for a total period that may not exceed 18 months.) [Section 22(7), Bill] However, it denies that an order of court is needed before a permanent expropriation is carried out. Instead, it allows an expropriating authority to serve a notice of expropriation on the owner and thereby take ownership and possession on the specified dates and against the owner’s will. This anomaly in the Bill’s provisions is irrational and unreasonable, and should be cured by requiring that a prior order of court must also be obtained before a notice of expropriation may be served (see the amendments proposed in Appendix 1).
Once it has finished its investigation, the expropriating authority may decide if it still wants to expropriate the property. If it does, it must serve a notice of intention to expropriate on the owner (and on any known holder of a right in the property). 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 state what amount he seeks as ‘just and equitable compensation’. [Section 7(1), (2) (4) Bill]
The expropriating authority must consider the owner’s objections, but is not obliged by the Bill to respond to them or give reasons for rejecting them. [Section 7(5), Bill] 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 with the expropriation’ in any event and must do so ‘within a reasonable time’. [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 not in fact 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 relevant constitutional requirements have been met. Where the property to be expropriated includes a person’s home, a court order is also needed (under Section 26(3) of the Constitution) to sanction the eviction of the owner or rights holder from his or her home. [Sections 25, 33, 34, 26 (3), Constitution of the Republic of South Africa, 1996]
To remove the anomaly earlier identified and ensure respect for all these constitutional guarantees, the expropriating authority must seek and obtain a court order confirming that a proposed expropriation meets all relevant constitutional requirements before it issues a notice of expropriation. Allowing the state to expropriate before it has obtained such a court order, as the Bill seeks to do, makes a mockery of the relevant constitutional protections.
Various amendments to the Bill are thus needed to bring its provisions into line with the Constitution, as set out in Appendix 1.
Notice of expropriation
Under the current wording of the Bill, once an expropriating authority has completed these preliminary steps, it may serve a notice of expropriation on the owner (and on all the holders of unregistered rights that are known to it). 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(3) (e), 9 (1), 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 right to possession of the property will pass to the expropriating authority’. [Section 8(3)(f), Bill] On this date, the ‘right to possession’ will also pass to the expropriating authority, again automatically and by operation of law. [Section 9(2), Bill] 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. [Section 9 (3) to (5), Bill]
According to the Bill, the date of expropriation ‘must 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 in the Bill to prevent the passing of possession very soon after the transfer of ownership. Hence, if the notice of expropriation is 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, 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. Since the right to property is an essential element in liberty (see The constitutionality of the bill, below), a remedy which is made available only after a notice of expropriation has already been served cannot suffice. In addition, the harm done by an unwarranted expropriation cannot easily be undone, which makes these provisions of the Bill all the more irrational and unreasonable.
These provisions in the Bill also contradict Section 34 of the Constitution, which gives everyone the right to have a legal dispute (such as whether an expropriation is indeed valid) decided by the courts before that 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(3) of the Constitution, which says that ‘no one may be evicted from their home without an order of court made after considering all the relevant circumstances’.
To cure any such unconstitutionality, the Bill must be amended to state that an expropriating authority, in the event of an unresolved dispute, must obtain a court order authorising the expropriation (and any eviction of people from their homes) before it serves a notice of expropriation on the owner or others. The necessary wording is set out in Appendix 1.
Compensation
Under the Bill, the compensation payable must be ‘just and equitable, reflecting ‘an equitable balance between the public interest and the interests of the expropriated 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, since most of the discount factors are difficult to quantify in money, an expropriating authority is likely to have 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 60% or 70% of this sum – and possibly even less than this – as some commentators have suggested.
This makes it all the more important that expropriated owners and rights holders should be able to obtain ‘an amount to make good any actual financial loss caused by the expropriation’. Since this factor is currently included in the 1975 Act, if it is now excluded from the Bill, this will bar the courts from taking it into account. (This is because of the expressio unius est exclusio alterius rule of statutory interpretation, under which the express inclusion of the one thing means the exclusion of the other thing, which has not been mentioned.)
However, if the Bill instead includes this factor, this will be fully in line with Section 25, which says that compensation must be ‘just and equitable…having regard to all the relevant circumstances’ (emphasis supplied by the writer). In addition, in listing market value and the four discount factors, Section 25 makes it clear (through the use of the word ‘including’) that the list it provides is not a closed list. Hence, other factors which are important in deciding what is ‘just and equitable’ overall may clearly be included in the Bill as well. In addition, unless this factor is included, the holders of unregistered rights (leases and rights of residence on commercial farms, for example) are likely to receive very little compensation despite the many losses expropriation may cause them (see Unregistered rights, below). Section 12 of the Bill must thus be amended to include the relevant wording from the 1975 Act, as set out in Appendix 1.
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. [Section 14(1), Bill] The expropriating authority then has 20 days to respond by offering a different (or the same) amount of compensation. [Section 15(1), Bill]
The provisions of Section 21 were amended by the portfolio committee on public works during the parliamentary process. Hence, they now begin with the following sub-section: ‘If the expropriating authority and the expropriated owner…do not agree on the amount of compensation, they may attempt to settle the dispute by mediation.’ [Section 21(1), Bill] This is an important addition, but is not enough in itself to ensure consistency with the Constitution.
Section 21 then goes on to say: ‘If the expropriating authority and the disputing party are unable to settle the dispute [in this way], or if the disputing party did not agree to mediation, the expropriating authority must refer to the matter to a competent court to decide or approve just and equitable compensation, provided that nothing in this section alters the ordinary civil onus’. [Section 21(2), Bill] A further sub-section adds that: ‘Sub-section 2 does not preclude a person from approaching a court on any matter relating to the application’ of the Bill. [Section 21(3), Bill]
These provisions still seek to confine expropriated owners and rights holders to contesting the amount of the compensation offered. This raises doubts as to whether the Bill itself allows court challenges to the validity of an expropriation, or to an eviction which has not been authorised by a court order. The problem now lies in Section 21(2), read together with the definition of ‘disputing party’ in Section 1. This definition limits the meaning of ‘a disputing party’ to an owner or rights holder who ‘does not accept the amount of compensation offered’. The narrow ambit of this definition is not affected by the wording of Section 21(3), which makes no reference to it. In combination, these provisions still reflect an unlawful attempt to prevent the courts from adjudicating on the validity of expropriations or the unauthorised eviction of people from their homes.
The definition of disputing party is thus inconsistent with Section 25. It is also inconsistent with Section 34, which gives everyone the right to have legal disputes (including disputes as to the validity of expropriations and evictions) decided by the courts after a fair and public hearing. It further infringes Section 33 of the Constitution (the right to just administrative action), because it effectively allows an expropriating authority to act as judge and jury in its own cause in deciding for itself on the validity of an expropriation and in carrying out an unauthorised eviction.
Sections 21(2) and (3) also seek to delay any process of adjudication until after a notice of expropriation has been served, and ownership and possession may already have passed to the expropriating authority. These clauses also seek to shift the onus of proof from the expropriating authority on to the expropriated owner or rights holder, who is seemingly expected to prove that the amount of compensation offered is not just and equitable, or that relevant constitutional requirements for a valid expropriation have not been met.
If the expropriated owner (or rights holder) fails to discharge the onus thus placed on him, he will, of course, lose the case. He will then have to pay not only his own (no doubt substantial) legal costs, but also those of the expropriating authority. This is a major risk. Even if the expropriated owner wins the first court battle, the expropriating authority – which is likely to have deeper pockets than most individuals or companies – will thereafter be able to take the matter on appeal. Fighting the appeal will increase the owner’s own legal costs. If he loses the appeal, again he will have to pay not only his own (much increased) legal costs but also those incurred by the expropriating authority.
The overall financial implications of such litigation are so severe that most people will not be able to risk going to court. Instead, they will find themselves under enormous pressure to accept the validity of the expropriation, along with whatever compensation the expropriating authority has offered. This is enough to make a mockery of various constitutional guarantees, including the right to have the compensation payable on expropriation ‘decided or approved by a court’.
Sections 21(2) and (3) are thus in breach of Sections 34, 25, and 33 of the Constitution. Moreover, if the expropriated property includes a person’s home, from which he is evicted when the expropriating authority takes possession of the property, then these provisions are also inconsistent with Section 26(3) of the Constitution.
Section 21 thus needs to be amended to comply with all relevant constitutional provisions. The wording required is set out in Appendix 1.
Date of payment of compensation
According to the Bill, ‘the expropriated owner (or holder) is entitled to payment of compensation by no later than the date on which the right to possession passes to the expropriating authority’. [Section 17(1), Bill] However, another clause in the Bill still allows the expropriating authority to avoid this obligation via 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] However, if the expropriating authority has stipulated a later date for payment and is waiting for a court to authorise this date – a process which, given clogged court rolls, could take months or years – it is unlikely in practice to pay on the date it takes possession.
Given the costs and time involved in litigation, most owners (or rights holders) will again have little choice but to agree to payment being deferred. In addition, the Bill expressly states that ‘any delay in making payment…will not prevent the passing of the right to possession to the expropriating authority…unless a court orders otherwise’. [Section [17(3), Bill] This means that the expropriating authority will generally suffer no penalty for failing to pay on time and will have no incentive to avoid late payment. In addition, few owners or rights holders are likely to receive any interest on any outstanding amounts owed to them, as the poorly phrased provisions of the Bill will generally exclude this possibility. [Section 13, read together with Section 17, Bill] These provisions are so skewed against the owner or rights holder that they cannot be accepted as ‘just and equitable’, within the meaning of Section 25 of the Constitution.
To bring this aspect of the Bill into line with the Constitution, the expropriating authority must be obliged to pay the compensation due before it takes ownership of the property on the date of expropriation stated in the notice of expropriation. Payment at this earlier point in time is also needed to strike an equitable balance between the public interest and the interests of those affected. Moreover, to ensure that payment is indeed made timeously, an effective sanction against late payment is needed. The notice of expropriation should thus become invalid if payment is not made on ten days before the date of expropriation. The amendments needed to bring about these changes are set out in Appendix 1.
The rights of third parties
The Bill recognises that third parties may have rights in property that is targeted for expropriation. Accordingly, an expropriating authority may expropriate not only the owner but also the holders of all other third-party rights. It may also do so in the same notice of expropriation, which must be served on all relevant rights holders and must offer each of them ‘just and equitable’ compensation. [Section 8(5)(a) and (b), Bill] (The Memorandum on the Object of the Bill errs in saying that separate notices are required.) [Para 6.1, Memorandum]
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 and 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 stated in the notice of expropriation. On that date, ownership passes to the expropriating authority [Section 9(1), Bill] and any registered mortgage simultaneously comes to an end. The compensation payable must then be paid out in accordance with an agreement reached between the expropriated owner and the bank on how the amount is to be apportioned between them. If no such agreement has been reached, the expropriating authority may deposit the compensation money with the Master, who will in time pay out the money in keeping with any relevant court order. [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 of the property passes to the state. However, under the Act there is little danger that the amount of compensation (market value, plus an amount to make good all financial loss resulting from the expropriation) will be less than the amount owing to the bank. The situation under the Bill is different. Since compensation will generally be less than market value, the amount payable could well be less than the outstanding loan.
If the Bill is enacted in its current form, banks will become more reluctant to extend mortgage finance, for they will know that houses and other properties that might in time be expropriated may not be sufficient collateral for loans. This will make it more difficult for prospective home owners – very many of whom are likely to be black South Africans – to secure mortgage bonds in the future.
The situation is also unfair to the expropriated owner, who will still have to pay the bank any outstanding balance on his mortgage bond. In practice, this need to repay the bank could make it impossible for him to replace the home, business premises, or other property that he has lost through no fault of his own. Provisions which put expropriated owners in such a difficult situation do not strike ‘an equitable balance between the public interest and the interests of those affected’ (as required by Section 25) and are inconsistent with the Constitution.
Mining and prospecting rights
A mining or prospecting right (or any similar permit) will not automatically be expropriated at the same time as the mining land itself, provided the right in issue was granted under the Mineral and Petroleum Resources Development Act (MPRDA) of 2002. However, there is little in the Bill to prevent an expropriating authority from expressly expropriating any such mining or prospecting right in the same notice of expropriation. [Section 9(1)(b) (d), Bill]
Though just and equitable compensation will have to be paid to the rights holder, the prospect that mining companies could have both their mining land and their mining rights expropriated for little (or no) compensation and without a prior court order will add to the insecurity of mining titles in South Africa. This could strike the already ailing mining industry a fatal blow.
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 prevent an expropriating authority from expropriating the servitude as well and doing so under the same notice of expropriation. Again, this notice must be served on the holder of the servitude, who is entitled to just and equitable compensation.
Unregistered rights
Unregistered rights include the rights of tenants to occupy residential and business premises under lease agreements, the rights of farm workers and other farm residents to live on commercial farms, and the customary land-use rights of the 16.5 million or so people currently living on land held in customary tenure.
Under the Bill, all unregistered rights are ‘simultaneously expropriated’ on the date that ownership passes to the expropriating authority. [Sections 9(1)(b), 8(5), 11, 12, Bill] The expropriating authority may 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]
Under the Bill, an unregistered rights holder, such as a tenant, is entitled to ‘just and equitable’ compensation. This must be based on market value, less the four discount factors, as stated in Section 12 of the Bill. [Section 12(1), Bill] But what is the market value of an expropriated lease to a residential flat or to business premises (such as a take-away food outlet on a main road)? The market value of such a lease is both limited and difficult to quantify, and may be further reduced via the discount factors. Yet the tenant will, of course, suffer significant financial losses as a direct result of the expropriation. Among other things, he will have to find alternative premises, perhaps at a higher rental.
He will also have to pay the costs of moving there. Moreover, if he has been leasing business premises, such as a takeaway food outlet, he will not be able to earn his normal income until he can find new premises and start up afresh. In addition, if his new premises are not as convenient to his customers, he may lose much of his existing clientele.
However, no compensation will be available to tenants for major losses of this kind because they do not fit the formula in Section 12. This is neither just nor equitable, and is clearly in breach of Section 25.
The same will apply to farm workers or other farm residents, all of whose unregistered rights of residence on a commercial farm will automatically be expropriated when ownership of that farm passes to the expropriating authority. Farm residents will also lose their rights to possess their farm homes when possession of the farm passes to the expropriating authority. Though farm residents will supposedly have rights to compensation under Section 12, in practice the formula in that section will again offer them little.
The market value of an unregistered right of residence is also limited and difficult to quantify, and may again be further reduced via the discount factors. Yet farm workers who are evicted in this way will face many financial losses. They will have to find new homes and new means of livelihood. They will have to pay moving costs. They could suffer other losses, such as the value of livestock they can no longer keep. Farm residents should be entitled to an amount to make good such losses, all of which are a direct result of the farm’s expropriation. But Section 12 does not make provision for this.
Section 12 must thus be amended to allow expropriated tenants and farm residents to claim amounts to make good all the direct losses they suffer as a result of an expropriation. This is allowed by the current Expropriation Act of 1975, but excluded by the Bill. Unless the Bill is amended to include this factor in Section 12, both tenants and farm workers will receive very little compensation on the expropriation of the premises they lease, or the farms on which they live.
However, if tenants and farm residents are to be allowed to claim for resulting losses, there is no reason why expropriated owners should not be able to claim for such losses too. Expropriated owners will also have to find alternative residential or business premises, which may be more costly than the ones they previously had. They must also pay their moving costs. In the case of business premises, they will also lose their normal income until they can obtain new premises and start their businesses up again. In addition, if their new premises are less convenient to customers, they too are likely to lose much of their existing clientele. If compensation is truly to be ‘just and equitable’ in all the circumstances, then an expropriated owner must also be able to claim an amount to make good all direct losses resulting from expropriation.
The Bill must thus be amended to allow expropriated rights holders and owners to claim for resulting losses. The relevant wording is set out in Appendix 1.
Constitutionality of the Bill’s provisions relating to rights holders
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, a lease, a farm residence right, or a customary land-use right 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.
Holders of mining rights, servitudes, leases, farm residence, and customary land-use rights also have guaranteed rights of access to the courts (under Section 34) and to just administrative action (under Section 33). Where residential rights are in issue – as they are for tenants leasing houses or flats, for farm residents living on commercial farms, and for people living on customary land-use plots – all these rights holders also have the right not to be evicted without court orders authorising this.
The holders of registered and unregistered rights must thus also have the protection of an amended Section 21, as set out in Appendix 1.
Expropriation by the minister of public works
Chapter 2 of the Bill deals with expropriation by the minister of public works (the minister). The Bill gives the minister the power to expropriate either for a public purpose or in the public interest. [Section 3(1), Bill] It also gives him the power to expropriate ‘upon the written request’ of an organ of state ‘other than an expropriating authority’, provided that this organ of state satisfies him that it needs ‘particular property for a public purpose or in the public interest’. [Section 3(2), Bill]
The powers thus given to the minister are unnecessary, for the Bill already empowers all organs of state to expropriate property. Hence, all organs of state – including the minister himself – qualify as ‘expropriating authorities’ in any event. These provisions of the Bill, in laying down different rules for ‘ministerial’ expropriations (as opposed to others), are sure to generate confusion and legal uncertainty.
According to Chapter 2, the minister may expropriate only ‘property which is connected to the provision and management of the accommodation, land and infrastructure needs of an organ of state’. [Section 3(3), Bill] The minister’s power to expropriate is expressly made ‘subject to the provisions of Chapter 5’ of the Bill, [Section 3(1), Bill] which deals with the amount of compensation and the time when it must be paid. This wording raises doubts as to whether ministerial expropriations are subject to the other chapters in the Bill, particularly Chapter 3 (‘Investigation and valuation of property’), Chapter 4 (‘Intention to expropriate and expropriation of property’), Chapter 6 (‘Mediation and determination by court’), and Chapter 7 (‘Urgent expropriation’).
As presently written, the Bill could allow the minister to brush aside all the requirements set out in all chapters other than Chapter 5. Among other things, this could bar an owner or rights holder who suffers a ministerial expropriation from having a dispute over the validity of such an expropriation, or of the compensation payable, referred to the courts. This is objectionable and clearly unconstitutional, for any ministerial expropriation must of course comply with all relevant constitutional guarantees.
Since there is no need for the minister to have his own and seemingly different expropriation powers, Chapter Two should simply be deleted, as shown in Appendix 1.
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 through 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 will override all the limitations on expropriation now contained in other statutes.
The Bill has several trumping provisions. It recognises, in Section 2(3), 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 must be ‘interpreted in a manner consistent with its terms’, particularly as regards the compensation payable. To reinforce this point, 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 (1), 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 other legislative safeguards may currently be available. Given the Bill’s trumping powers, it is vital to ensure that all of its provisions are brought fully into line with the Constitution, so as to prevent a host of unconstitutional takings under various other laws.
Likely socio-economic 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 to be ‘for public purposes’ or ‘in the public interest’. Since organs of state will rarely find their expropriations challenged in the courts, many inefficient and corrupt municipalities, government departments, and parastatals may be tempted to use the Bill to further their own narrow economic and/or political interests.
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; some 73% of land restitution 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.
In addition, the government has little intention of transferring individual ownership of the farm land it acquires to emergent black farmers. Instead, it is determined to confine them to leasehold tenure (under the State Land Lease and Disposal Policy of 2013), despite their repeated objections to this. Moreover, though President Jacob Zuma and other ministers have recently put huge emphasis on rural land hunger as the primary reason for poverty, the budget for land reform and restitution in 2016/17 is a scant R4.4bn. This is a mere 0.3% of overall budgeted expenditure for the financial year. [National Treasury, Budget Review 2016, p71; IRR, Fast Facts, March 2016, p3] If the government is serious about land reform, it should instead begin by greatly increasing the budget for this, transferring individual ownership of land to emergent farmers, and taking effective measures to help them succeed as commercial producers.
Though the government has successfully punted the Bill as a land reform measure, its ambit, of course, extends far beyond farming land. The minister of public works, Thulas Nxesi, implicitly acknowledged this last year when he said the Bill is also needed to speed up the infrastructure programme. But the building of new power stations, for instance, 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 made it clear 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.
This point is illustrated by the gazetting in 2015 of a land claim over much of Pretoria. This claim was lodged by Chief Victor Lekhuleni, who said that he and his community had been forcibly removed from some 25 000 hectares of land. The area in question included not only farms but also shopping centres, industrial areas, schools, hospitals, and the whole of Mamelodi. Though this particular claim was later found to be invalid, many of the 390 000 land claims the government expects to receive in the current five-year window period could well succeed. Where claims succeed, the Bill will of course provide a useful way for the government to acquire the property in question for little (or no) compensation.
Overall, the Bill is a draconian measure which gives all organs of state the power to take from people their homes, business premises, customary plots, farms, mines and other properties. Often these will be their sole assets – built up by them over a lifetime of endeavour. In return, less than adequate (or no) 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.
Even more damaging is the definition of expropriation that has belatedly been included in the Bill. This raises the risk that the state will be able to avoid paying any compensation at all through the simple expedient of taking property as custodian, rather than as owner. If the main judgment in the Agri SA case is followed, such a taking will not count as an expropriation and no compensation will be payable. In addition, all the Bill’s provisions regarding prior negotiation, notice of intended expropriation, and court adjudication will fall away.
The risk of uncompensated takings of custodianship is real. Already, the state has acquired custodianship of all mineral resources under the Mineral and Petroleum Resources Development Act (MPRDA) of 2002. Two thirds of these mineral resources used to be privately owned, but now they are all vested in the custodianship of the State. None of the private individuals or firms that used to own these mineral resources has thus far been compensated for these losses.
In addition, the Government has already drawn up a bill (the Preservation and Development of Agricultural Land Framework Bill of 2014) that aims to vest all agricultural land in the custodianship of the Department of Agriculture, Forestry and Fisheries (DAFF). If this bill is enacted into law, DAFF’s ‘assumption of custodianship’ may not count as an expropriation. On this basis, no compensation will be payable at all. Once the State has custodianship, farmers will also find that their ‘right to farm’ becomes subject to ministerial regulation. Such regulation could require them to obtain leases from the Government and so turn them, like their emergent counterparts, into perpetual tenants of the State.
This will also bring South Africa very close to what the Economic Freedom Fighters demand – that the state should take custodianship of all agricultural land, without paying compensation, and should then lease it out on the terms that it decides.
Under the definition of expropriation, indirect or regulatory takings will also not count as expropriations. This may encourage the government to introduce 51% indigenisation requirements for all foreign businesses, along with 51% BEE ownership requirements for all local firms. Again, there is a risk that the government could do this without having to pay any compensation either for the loss of the ownership and control of these firms, or for the depressed prices likely to result from such forced sales.
The overall economic ramifications of the Bill are impossible to foresee because the measure trumps all existing laws touching on expropriation and seeks to prevent a host of state and regulatory takings from counting as expropriations at all. Inevitably, the Bill will have many consequences that cannot be anticipated. However, the threat to property rights implicit in the Bill will clearly:
• 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.
Many of the economic problems already confronting South Africa are also likely to worsen and become yet more difficult to solve. This is likely to be particularly evident in the following spheres:
Foreign direct investment and capital outflows
Foreign direct investment (FDI) has already declined from R63.6bn in 2009 to R22.6bn in 2015. If the Bill is adopted in its current form, FDI is likely to drop even more sharply in the next four to five years. Capital outflows – which have already gone up sharply, from R10bn in 2009 to R68bn in 2015 – are also likely to increase.
Economic growth
In the aftermath of the global financial crisis, South Africa’s growth rate recovered to 3% of Gross Domestic Product (GDP) in 2010. However, by 2014, the growth rate was down to 1.5% of GDP. In 2015 it was 1.3% of GDP. In 2016 it could drop to zero or turn negative, taking the country into recession. The more property rights come under threat from the Bill, the more the economy is likely to contract.
Debt and downgrades
In 2009, total government or public debt stood at R805bn. By 2015, it was close on R2 trillion. By 2017 it is projected to reach some R2.3 trillion. This is an enormous increase over a relatively short period.
As FDI diminishes and economic growth turns static or negative, tax revenues will diminish but government spending will prove difficult to cut. Public debt could then rise even faster. Downgrades of the country’s sovereign debt rating to sub-investment (or ‘junk’) status are likely to follow. This will raise borrowing costs and accelerate capital outflows. It will also make it very difficult for the government to find the revenue required to pay ‘just and reasonable’ compensation for properties that are expropriated, irrespective of the promises that it may make.
Rand:dollar exchange rate
In 2009 the rand:dollar exchange rate stood at R8.44 to the dollar. In December 2015, in the aftermath of Nhlanhla Nene’s dismissal as finance minister, it stood at R16.38. Though it has since recovered a little, in the negative economic scenario outlined the rand’s value could easily slip to R20 or even R25 to the dollar over the next few years.
Inflation
As the exchange rate deteriorates, inflation is likely to soar. If farming is disrupted by major farm expropriations, or by the taking of ‘custodianship’ of all agricultural land, food inflation is likely to be particularly severe. Food inflation could then more than double, rising from some 8.7% a year at present to 20% a year within the near future.
Unemployment
On a broad definition which takes account of those too discouraged to keep looking for jobs, the number of unemployed South Africans has gone up from 6.7 million in 2009 to 8.4 million in 2015. The unemployment rate (on this same broad definition) has gone up from 32% in 2009 to 35% now. The youth unemployment rate, among people aged 15 to 24, has long been far worse and stood at 63% in 2015.
Though unemployment is already at crisis levels, the increase in joblessness has at least been relatively slow in recent years. However, in the circumstances outlined above, unemployment is likely to expand very fast and could rise to more than 40% in general on the broad definition and perhaps as high as 70% among young people.
Strikes
In 2009 some 2.9 million mandays were lost to strikes. In 2014 that number rose to 11.8 million, mostly because of a five-month strike in the platinum sector. Far fewer strikes were recorded in 2015, but this is likely to change as jobs are lost and wages fail to keep up with inflation. Militant unions, particularly those in the public sector, are then likely to mount prolonged and often violent strikes which could cripple the delivery of essential services and further erode the profitability of businesses.
Hunger and demonstrations
Already some 23% of households have inadequate access to food. With joblessness rising and the value of social grants unlikely to keep up with food inflation, hunger is likely to increase sharply.
The number of demonstrations has already gone up in recent years, rising from some 11 700 in 2010 to close on 14 500 in 2014. The use of violence during demonstrations has doubled in this period and is likely to intensify as hunger and economic hardship accelerate. Protests will add to social ferment and instability, further choking off investment and encouraging still further disinvestment.
A vicious cycle
Some of the consequences sketched here may seem alarmist from today’s perspective. However, if a vicious cycle of the kind mooted is indeed set in motion, it will be hard to stop. Major reforms will be needed to restore the economy to growth, but will become increasingly difficult to implement. Business confidence, in particular, will have to be restored before investment will pick up – and this could prove difficult to achieve.
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. Many of these issues have already been flagged in our analysis (above) of the provisions in the Bill. However, the key reasons why it is inconsistent with the Constitution are summarised here (and also, for the convenience of the portfolio committee and the National Council of Provinces, in the accompanying Synopsis of this submission).
The Bill is clearly unconstitutional. Crucially, the Bill allows any expropriating authority, once it has completed some simple preliminary steps, to take ownership (and other rights) by the simple expedient of serving a notice of expropriation on the owner (or rights holder). Ownership of the property in question will then pass automatically to the expropriating authority on the ‘date of expropriation’ identified in the notice, which could be very soon. All unregistered rights, such as customary land use rights, leases, and the rights of farm residents to live on commercial farms, will automatically be expropriated at the same time, while various registered rights could be expropriated too.
The Bill thus empowers an expropriating authority to take property by notice to the owner – and leaves it to those stripped of ownership and possession to contest this in the courts thereafter, if they can afford to do so. The Bill also seeks to put the onus of proof on the expropriated owner (or rights holder), who will have to pay the expropriating authority’s legal costs (as well as his own) if he fails to discharge this onus.
Effectively, this allows an expropriating authority to resort to ‘self-help’ when it embarks on an expropriation. Yet this is contrary to fundamental common law principles of liberty, and is also now barred by the Constitution.
For hundreds of years, the common law has had special rules to protect both the liberty and the property of the puny individual from the enormous power of the state. At common law, thus, an individual cannot generally be arrested by the police or other officials – even if he is suspected of having committed a crime – without a prior order of court in the form of a warrant for his arrest. At common law, too, an individual’s property cannot generally be entered upon or seized by the police or other officials – even though that property may well have been used in committing a crime – without a prior court order in the form of a search-and-seizure warrant.
It is because of this strong common-law protection for property that most legislation giving investigative powers to the police and others clearly states that they may enter onto private property only if they have the consent of the owner or have obtained a prior court order in the form of a search warrant. They also make it clear that property cannot be seized and taken away without a prior court order that justifies this seizure too. Provisions of this kind are standard in all such legislation. They are always included to protect the individual, whose home and other assets are essential to his well being and who would otherwise be vulnerable to having the property he has worked so hard to acquire taken from him by an all-powerful state.
Two provisions in the Bill reflect and incorporate this common law protection for property. The first of these clauses says that an inspector sent to investigate a property with a view to its expropriation may not enter that property unless he has the owner’s consent or has obtained a prior court order authorising his entry. [Section 5(3), Bill] The second clause states that a temporary expropriation may not be extended (for a total period of up to 18 months) unless the expropriating authority first obtains a court order authorising this. [Section 22(7), Bill] However, when it comes to the far more serious matter of a permanent expropriation, the Bill denies that a prior court order is required. This denial is, of course, contrary to the common law principles of liberty which the Bill recognises as binding in situations that are far less damaging to the owner.
Since 1996, moreover, the common law’s protection for property rights has been significantly buttressed by the Constitution, which now 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(3) of the Constitution prevents people from being evicted from their homes without a court order authorising this.
Under Section 25 of the Constitution, an expropriation must, among other things, be carried out for public purposes or ‘in the public interest’. It must also 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’. If these guarantees are to have any practical significance, the expropriating authority must be able to prove that an intended expropriation complies with all these requirements. It must also provide this proof before it proceeds with an expropriation. Otherwise, the relevant requirements will be severely weakened, if not set at naught.
Leaving it to the expropriated owner or rights holder to try to disprove the validity of the expropriation after it has already taken place is simply not good enough. This is especially the case when many expropriated owners and holders will battle to afford the necessary court challenge. In addition, those who find themselves evicted from their homes, businesses, and other assets through an expropriation which is in fact invalid will suffer an emotional trauma and economic loss that even a subsequent court order in their favour (assuming they can afford the litigation required to obtain this), cannot easily put right.
Hence, if an expropriating authority issues a notice of intention to expropriate particular property, if the owner or rights holder rejects either the compensation offered or the overall validity of the proposed expropriation, the expropriating authority must then go to court on the matter. It must seek and obtain a court order which confirms the validity of the expropriation, decides what compensation is just and equitable in all the circumstances, and rules on when that compensation must be paid. The onus of proof in such proceedings must lie on the expropriating authority, which must satisfy the court that the proposed expropriation meets all relevant constitutional requirements. Moreover, if the proposed expropriation will result in the eviction of anybody from their home, then the expropriation authority must also satisfy the court that this eviction should be authorised in all the circumstances.
Once the expropriating authority has obtained a court order confirming the validity of the expropriation, deciding the compensation payable, and authorising any eviction likely to result from it, then only may the expropriating authority serve a notice of expropriation on the owner and other rights holders.
Since this is clearly what Sections 25 and 26 of the Constitution require, all provisions in the Bill which purport to absolve the expropriating authority from requiring a prior court order in cases of dispute are inconsistent with the Constitution and invalid.
Also important is Section 34 of the Constitution, which 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. Under the Bill, however, this necessary process of deliberation and adjudication will rarely be available. Instead, an expropriating authority can simply serve a notice of expropriation under which ownership and possession will automatically pass to it long before a court has had the opportunity to decide whether such outcomes are constitutionally justified. In most instances, the dispute will never go to court at all, because expropriated owners will lack the money required for litigation and will be too caught up in trying to find new homes, business premises, or other assets to be able to contemplate court action.
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 expropriating authority – 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 many months later.
Even more inconsistent with the Constitution is the definition of expropriation that was inserted into the Bill late in 2015, without adequate public consultation. This definition is clearly intended to absolve the expropriating authority in many cases from having to pay compensation or follow the Bill’s (limited) procedural steps for expropriations. In particular, the state will be able to slough off all constitutional and other requirements for a valid expropriation whenever it:
• takes custodianship, rather than ownership, of property; and/or
• introduces regulations giving rise to indirect expropriations.
This definition, in seeking to allow such uncompensated takings, is clearly contrary to Section 25 of the Constitution, and the careful balance this clause was intended to strike between upholding existing property rights and allowing redress for past injustice. The definition has its origins in Chief Justice Mogoeng’s ruling in the Agri SA case in 2013. However, that judgment, with its various cautionary notes against laying down any general rule, is not enough to give constitutional validity to a definition which contradicts the established meaning of expropriation and has such destructive ramifications for the property rights of all South Africans.
This definition makes a mockery of the property clause in the Constitution (Section 25). It is also inconsistent with the rights to administrative justice (Section 33) and access to court (Section 34). It must therefore be deleted or substantially amended by the National Council of Provinces, as the deputy minister of public works, Jeremy Cronin, has publicly urged.
Also relevant to the constitutionality of the Bill is the limited opportunity for public consultation that has been provided. The period allowed for public consultation by the portfolio committee on public works was unreasonably short, while the new definition has never been debated in the National Economic Development and Labour Council (Nedlac), or made available to proper public scrutiny. In addition, the Bill has not yet been referred to the National House of Traditional Leaders for comment, as required by the Traditional Leadership and Governance Framework Act of 2003, even though the Bill has major implications for both customary law and the customs of traditional communities.
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.
The Constitution’s founding provisions also clearly state that the Constitution is ‘the supreme law of the Republic’, and that it must be respected and upheld at all times by all branches of the government. The National Council of Provinces is thus barred from adopting the Bill in its present form because so many of its provisions are inconsistent with the Constitution.
At the same time, the 1975 Act needs to be replaced by a constitutional alternative. To meet this need, the National Council of Provinces must bring the Bill into line with what the Constitution requires. To assist the portfolio committee and the Council in this task, the IRR has drawn up a list of necessary amendments to specific clauses in the Bill. This list is attached as Appendix 1. The purpose of these amendments is primarily to:
a) bring the definition of expropriation into line with the Constitution;
b) put the onus on an expropriating authority to prove that an intended expropriation complies with all relevant constitutional provisions;
c) require an expropriating authority, whenever a dispute arises, to obtain a prior court order confirming the constitutionality of a proposed expropriation before it issues a notice of expropriation;
d) allow expropriated owners and rights holders to obtain compensation for direct losses resulting from expropriation (such as moving costs and loss of income), as such compensation is necessary to bring about ‘an equitable balance between the public interest and the interests of those affected’;
e) ensure that those expropriated receive the compensation due to them before ownership (or other rights) pass to the expropriating authority; and
f) remove the unnecessary, contradictory, and unconstitutional powers of expropriation specifically conferred on the minister of public works in Chapter 2 of the Bill.
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 blacks 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, if foreign share ownership is left out of account (on the basis that foreign shareholdings are not available for BEE transfers), 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 R4bn among black, coloured, and Indian South Africans and R4.4bn among whites. [2013 South Africa Survey, p295] 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. Black 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 black people living on roughly 17 million hectares of land in customary tenure 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 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); and
• 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.
The government 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 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 the Congress of South African Trade Unions (Cosatu) and the South African Communist Party (SACP) openly describe the NDR as providing ‘the most direct path’ to a socialist and then communist future. Though the ANC is more circumspect about overtly embracing this goal, it has nevertheless recommitted itself to the NDR at every one of its five-yearly national conferences, even though it well knows what the end goals of its allies are. 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 an average growth of 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 those in the poorest countries. 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. The black middle class has been decimated, while most Zimbabweans are impoverished, jobless, and hungry. Many have little choice but to leave their country, where life expectancy has dropped dramatically to around 50 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. South Korea 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.
Conclusion
The National Council of Provinces is bound by the country’s Constitution. It cannot lawfully adopt the Bill in its current form, as it contradicts the property clause and other key provisions in the Bill of Rights.
The National Council of Provinces also 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 incomes, living standards, and 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, increases the growth rate, and encourages the creation of millions more jobs.
For this reason too, the portfolio committee and the National Council of Provinces should avoid endorsing the Bill in its current form. At the very least, both the portfolio committee and the Council need to bring the Bill into line with the Constitution, and can achieve this by adopting the amendments set out in Appendix 1. All these changes are needed to cure the inconsistencies between the Bill and the Constitution. They will also help promote the investment, growth and jobs that offer the best means of overcoming unemployment, poverty, and inequality and giving South Africans the realistic prospect of a better life for all.
South African Institute of Race Relations NPC – 15th April 2016
