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
Synopsis
Contents of this Synopsis:
How the Expropriation Bill will work in practice, page 1
The economic damage from the Bill, page 4
The unconstitutionality of the Bill, page 5
Proposed amendments to the Bill, page 8
Conclusion, page 9
How the Expropriation Bill will work in practice
To see how the Expropriation Bill of 2015 (the Bill) will work in practice, let us take the example of KwaNdengezi, a settlement near Pinetown in the vicinity of Durban. Here, there is a high demand for land for housing, with houses often selling for between R500 000 and R900 000. However, much of the land in the area is currently held in communal tenure by the local chief (iNkosi) and allocated in plots to community members. Only some community members have ‘permission to occupy’ documents, but the customary land-use rights of all residents are recognised within the community. The area is spacious and many people have used their plots to build formal houses, some with up to five rooms.
However, the land also falls under the jurisdiction of the local municipality, which has allegedly simply started taking some of the land and using it for RDP housing, without permission or payment. This is currently illegal, but is reportedly proving difficult to stop. However, if the Bill is adopted in its current form, the municipality will have the law on its side in acquiring the land – and will be able to get it on the cheap.
If the Bill becomes law, the municipality will be able to negotiate with the chief and community members for the purchase of the land at, say, 70% of its market value. If no agreement is reached, the municipality – after inviting and then rejecting their written objections (which it will be able to do without giving reasons) – will be able to serve notices of expropriation on all community members.
If these notices are served on 1st July, ownership of the land will automatically pass to the municipality on the date of expropriation stated in the notice. This date could be set very soon: say, as 8th July. The unregistered land-use rights of all community members will also automatically be expropriated on 8th July. Community members’ rights to possess their plots and homes will thereafter pass automatically to the municipality on the date of possession specified in the notice of expropriation. This too could be set very soon: say, as 15th July. When the right to possession is transferred, residents will no longer have the right to live in their homes and will be evicted from them.
In return, the municipality could offer them, say, 70% of the market value of their customary land-use rights. If community members object to this amount of compensation, the municipality may attempt to resolve this dispute by mediation. If this fails, or if community members reject the mediation option, the municipality must then refer the matter either to the High Court in Durban or to the local magistrate’s court.
However, under the current wording of the Bill, the onus of proof in these proceedings will probably lie on the community members, who will then be expected to convince the court that the amount of compensation offered is not just and equitable in all the circumstances. If they fail to convince the court of this, they will have to pay not only their own (substantial) legal costs, but also those of the municipality. In practice, few community members will be able to risk such litigation. In addition, if they have already lost both their customary land-use rights and the possession of their plots and homes, most will be too busy trying to find alternative housing and means of livelihood to have the time and energy for litigation.
Yet this expropriation may not in fact be valid, as it may not really be ‘in the public interest’, as the Constitution requires, for these customary plots to be expropriated for RDP or other housing. However, the community members will also find it difficult to contest the validity of the expropriation before the courts. Again, the financial risks in doing so will be great. In addition, the Bill still has clauses that seek to limit litigation to disputes over compensation.
If community members are evicted from their homes without a court order authorising this, this will clearly be contrary to Section 26(3) of the Bill of Rights. Again, however, community members may in practice find it difficult to seek redress for this injustice.
Though the situation outlined here is quite bad enough, community members could suffer further harm from the Bill’s provisions regarding the timing of payment. According to the Bill, the municipality is supposed to pay the full amount of compensation when it takes possession, ie on 15th July. However, the municipality can also propose a later date for payment (say 15th December) in its notice of expropriation. Though this later date must then either be agreed or approved by a court, in practice the municipality is unlikely to pay on 15th July if it is waiting for court approval of the later date (15th December) it has proposed. Moreover, since the right to possess the plots and homes will pass to the municipality on 15th July irrespective of whether it has paid the compensation or not, there will be no incentive for it to avoid late payment.
Even if the municipality agrees to pay when it takes possession on 15th July, it may not in fact fulfil this obligation. Some 60% of South Africa’s municipalities currently face major financial difficulties, while many state entities are notoriously slow in paying their bills, even when the money is available to them. President Jacob Zuma and the National Treasury have thus repeatedly urged all state entities to pay their bills within the 30 day-period required by the Treasury. But despite the pressure on them to fulfil this obligation, many state entities still fail to pay on time and often leave people waiting for payment for long periods.
Bearing in mind this pattern of late payment, how long might community members have to wait to be paid? Yet how will they cope with late payment when they have already lost their land-use rights and the possession of their homes? Where are they to live while they wait for compensation? How are they to replace the spaza shops or other businesses they might have been running from their homes? And is it ‘just and equitable’ that expropriated community members should confront such hardship?
More worrying still is the definition of expropriation that was inserted into the Bill late last year and has never been made available for proper public comment. Under this definition, community members may not be entitled to any compensation at all if the municipality takes their plots and homes, not as owner, but rather as ‘custodian’ for the disadvantaged in the area. In these circumstances, the municipality’s ‘assumption of custodianship’ may not count as an expropriation at all, if the main judgment of the Constitutional Court in the Agri SA case is followed. No compensation will then be payable. In addition, all the Bill’s procedural requirements for a valid expropriation (negotiation, investigation, notice of intention to expropriate, and the obligation to refer disputes over compensation to the courts) will fall away.
In this situation, community members will lose their customary land-use rights and will be evicted from their homes, yet will receive no compensation at all. The municipality will pay nothing for their plots and houses, but will be able to sell them off to housing developers and others at a particularly handsome profit. Since 60% of municipalities face major financial difficulties, many could be tempted to boost their resources in this way. So too could many other organs of state at all levels of government – especially as tax revenues diminish and the salaries of civil service personnel continue to rise.
The hardship the Bill could bring to community members in the KwaNdengezi area is likely to be replicated across the country – for organs of state at all tiers of government will find it remarkably easy to embark on expropriation. All they will have to do is to take some simple preliminary steps and then serve notices of expropriation on owners and other rights holders. Ownership and possession will then pass quickly and automatically to them, often in return for less than adequate compensation. Expropriated owners and rights holders will generally battle to bring disputes over compensation or the validity of expropriations before the courts. Hence, most expropriations will proceed unchallenged, even when they are not in fact in keeping with what the Constitution requires. Moreover, if organs of state choose to take custodianship, rather than ownership, they could well escape any obligation to pay compensation – while all the Bill’s procedural requirements for a valid expropriation will fall away.
All across the country, people like the community members in the KwaNdegezi area will find there is little protection in the Bill on which they can rely. Instead, they will have to hope that there are no corrupt councillors or officials in their local municipalities who might want to obtain their homes and other assets on the cheap – and then sell them off at prices high enough to allow substantial payments into their own pockets for ‘facilitating’ such deals. Yet the more the economy contracts and private sector jobs are lost (which is likely to happen under this economically damaging Bill), the more councillors and officials will be tempted to use their powers under the Bill in precisely this way.
The economic damage from the Bill
Private 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 need 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 blacks with customary land-use rights – especially those living near major cities – could see their rights expropriated by municipalities and their land turned over to RDP housing or other purposes. The many black South Africans who have already bought some 2 million hectares of farming land on the open market since 1991 could likewise see their farms expropriated by organs of state at any tier of government. So too could the many emergent farmers with leases or other rights to the 7 million hectares of land transferred thus far under the land reform programme. Also vulnerable will be the 2.8 million farm residents living on some 35 000 commercial farms, along with these farmers themselves. Vulnerable too will be large numbers of tenants who currently lease residential or business premises in central business districts, suburbs, and former townships. In all instances, those affected will be left without adequate compensation and with little effective redress for the loss of their ownership or other rights.
Equally vulnerable to the Bill and its wider economic effects will be all listed companies (of which black people already own at least 23% of the roughly 60% of shares that are owned domestically and not by foreigners). Equally at risk will be all the private businesses that currently employ some 70% of all formal sector employees, and all the micro enterprises that need a growing economy and a strong consumer market to maintain and expand their operations.
If the Bill is enacted into law in its current form, ever more land and other assets are also likely to become vested in the government. This process of creeping nationalisation will do little to empower individual black South Africans, but will greatly undermine business confidence and economic stability. It will also reduce the economic growth rate – which is already unlikely to exceed 0.5% of gross domestic product (GDP) in 2016 – and could tip the country into recession. It could also trigger ratings downgrades, bring about a further slump in the value of the rand, and increase the already high inflation rate. At the same time, the Bill will increase the dependency of ordinary people on the state and restrict their scope for upward mobility. Far from helping to overcome disadvantage, as the government claims, the Bill will make it much more difficult to counter unemployment, poverty, and inequality.
The unconstitutionality of the Bill
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 serving a notice on the owner – and leaves it to those thus 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 clearly state that the Constitution is ‘the supreme law of the Republic’, and 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.
Proposed amendments to the Bill
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 the Constitution. To assist the portfolio committee and the Council in this task, the IRR has drawn up a list of proposed 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 passes 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.
Conclusion
The National Council of Provinces is bound by the Constitution. Hence, it cannot lawfully adopt the Bill in its current form, as many of its clauses contradict Section 25 and other rights guaranteed by the Constitution.
At the same time, the National Council of Provinces has a 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 gross domestic product (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 thus well known. It requires an emphasis on growth rather than redistribution, and the adoption of legislation that attracts direct investment, raises the growth rate, and encourages the creation of millions more jobs.
For this reason too, the National Council of Provinces should avoid endorsing the Bill in its current form. At the very least, it needs 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
