Two inconsistencies – and two fundamental flaws
The ANC has correctly pointed out that the current Expropriation Act of 1975 (the Act) is inconsistent with the Constitution for two reasons. First, the Act does not allow expropriation ‘in the public interest’, whereas the Constitution does. Second, the Act leaves out four of the five factors listed in Section 25 of the Constitution (the property clause) as relevant to the amount of compensation payable.
Since the Bill corrects these two inconsistencies, the ANC (and now De Lille as well) have repeatedly claimed that these changes suffice to make the measure constitutionally compliant. However, both the ruling party and the minister turn a blind eye to two far more fundamental flaws.
When the 1975 Act was adopted, the principle of parliamentary sovereignty applied and there was nothing to prevent the National Party government from legislating to give the minister of public works the power to expropriate property by:
- completing certain preliminary steps, and then
- serving a notice of expropriation on the owner, under which both the ownership of the property and the right to possess it automatically vest in the minister on the dates specified in the notice.
However, since the final Constitution took effect in 1997, South Africa has had the benefit of an entrenched Bill of Rights. This lays down binding criteria for a valid expropriation, guarantees that administrative action will be reasonable and procedurally fair, gives everyone a right of access to the courts, requires judicial authorisation before people can be evicted from their homes, reinforces the principle of equality before the law, and guarantees the supremacy of the rule of law.
The Bill nevertheless seeks to bypass these constitutional guarantees by giving all expropriating authorities the very same power to expropriate by:
- completing certain preliminary steps, and then
- serving a notice of expropriation on the owner, under which both ownership and the right to possess the property automatically vest in the expropriating authority on the specified dates.
The Bill’s list of preliminary steps is longer than that in the Act and often reflects the impact of the Bill of Rights. However, these increased safeguards matter little because no equivalent protections apply at the point of expropriation – which is when they matter most.
In addition, the Bill now further contradicts the Constitution by providing for ‘nil’ compensation on expropriation in extensive but uncertain circumstances. The Bill is thus even more unconstitutional than the current Act and cannot lawfully be adopted in its current form.
However, a constitutionally-compliant expropriation bill is still required – which is why the IRR has drafted a much better bill and presented it to Parliament. The current unconstitutional Bill needs to be amended in at least the following ways.
Removing the ‘nil’ compensation provisions
The current Bill includes lists five circumstances in which ‘nil’ compensation on expropriation may be paid. However, this list is an open one that gives hundreds of ‘expropriating authorities’ an untrammelled discretion to offer owners ‘nil’ compensation in many other situations too.
The resulting uncertainty contradicts the ‘supremacy of the rule of law’, as guaranteed by the Constitution’s founding provisions. So too does the vague wording used in much of the list provided.
The clause is also inconsistent with the requirement in Section 25 of the Constitution (the property clause) that compensation on expropriation must ‘strike an equitable balance’ between the interests of affected owners and the public interest in land reform.
Paying ‘nil’ compensation for expropriated land puts so high a burden of redress for past societal injustice on the shoulders of particular owners that it cannot meet the need for that ‘equitable balance’.
It is also hard to see how nil compensation on expropriation helps advance successful land reform. As the High Level Panel of Parliament reported in 2017, the barriers to success lie not in land acquisition costs, but rather in poor skills, inefficiency, corruption, elite capture – and the government’s policy of barring emergent farmers from obtaining individual title to redistributed land for 50 years or more.
The unconstitutional ‘nil’ compensation provisions in the Bill must therefore be removed.
Prior court approval in cases of dispute
Under the Bill as currently written, an expropriating authority that wants to enter on to property (to investigate it with a view to its expropriation) must obtain either the owner’s consent or a prior court order authorising this entry. Similarly, when an expropriating authority wants to extend a temporary expropriation from 12 to 18 months, it must obtain a prior court order authorising this extension.
However, when it comes to the far more damaging matter of the permanent expropriation of a person’s home, farm, factory or other property, the Bill excludes the need for a prior court order. This contradicts both common law protections for property ownership and all the constitutional rights earlier identified.
The Bill must therefore be amended to state that, in the event of a dispute on the validity of the expropriation (whether it is truly in the public interest) or the amount of compensation (whether it is really just and equitable), the expropriating authority must seek and obtain a high court order confirming the constitutional validity of the expropriation before it issues a notice of expropriation. In these proceedings, the onus of proof must lie on the municipality to show that what it proposes to do is fully in line with all constitutional requirements.
The timing of the transfer of ownership
According to the Bill, the ownership of the property in issue will automatically pass to the expropriating authority on the ‘date of expropriation’ set out in the notice of expropriation served on the owner. But that date could be very soon, as the only relevant time limit in the Bill is that the date of expropriation ‘must not be earlier than the date of service’ of the notice.
However, Section 25 of the Constitution makes it clear that the ‘amount of compensation’, along with ‘the time and manner’ of its payment, ‘must have been’ agreed between the parties or ‘decided by a court’ before an expropriation takes effect. Agreement or court ruling on the compensation payable must thus precede the transfer of ownership.
This was confirmed by the Constitutional Court ruled in the Haffejee case in 2011. Here, a unanimous court ruled that it is only in exceptional and emergency situations that this order of doing things may (briefly) be reversed.
Changing the Bill to require a prior court order that both authorises the expropriation and decides the compensation payable would solve this problem. Stipulating a reasonable period (say, 180 days) from the service of the notice to the date of expropriation would also be in keeping with the right to administrative justice and give owners a more adequate time to prepare for the loss of their key assets.
Damages for direct losses from expropriation
The ‘just and equitable’ compensation payable should include damages for all direct losses resulting from the expropriation, such as moving costs and any loss of income. The current Act allows damages for direct losses of this kind – and there is no sound reason for excluding a similar provision from the Bill.
The Bill must, of course, follow what the Constitution says about the compensation to be paid. But the Constitution states that all relevant circumstances must be taken into account in deciding compensation, including the five it lists. Hence, non-listed factors may also be considered in striking the ‘equitable balance’ that Section 25 requires.
Even where some compensation is to be provided, expropriation remains a drastic measure that places an inordinately heavy burden on particular individuals. If justice is to be done to those affected, the full extent of their consequential losses must be taken into account, not disregarded.
Damages for direct losses should include mortgage shortfalls
Under the Bill (as under the existing Act), any mortgage over expropriated land will automatically end on the date of expropriation, when ownership passes to the state. The underlying debt will not be extinguished, however, which means that expropriated owners – despite the loss of their property – will still have to pay off what they owe to their banks.
Under the existing Act, the burden of repayment can easily be met, as the compensation paid on expropriation must be based on market value, plus damages for all resulting losses, including any loss of income. This ensures that the compensation received generally exceeds the outstanding debt.
Under the Bill, by contrast, the compensation paid will generally be less than market value and could often be minimal or even ‘nil’. Hence, it may often fall far short of the debt to be repaid.
This situation is profoundly unfair to expropriated owners. In practice, the obligation to pay off outstanding mortgage loans on expropriated property could push them into bankruptcy and make it impossible for them to replace assets lost through no fault of their own.
In this situation, moreover, many mortgage debts will inevitably remain unpaid. This will jeopardise the credibility and sustainability of the banking system and could unleash a massive banking crisis.
The Bill must therefore be amended to make it clear that the direct losses resulting from expropriation may include any shortfall between the compensation offered and the outstanding mortgage debt. Damages for this direct loss should then form part of the ‘just and equitable’ compensation paid. This would also reduce the risk of a banking crisis and the enormous economic damage this would cause.
Invective no answer to obvious unconstitutionality and massive economic harm
Unless these (and various other) changes are made to the Bill, all South Africans will find themselves increasingly vulnerable to the self-serving expropriations implemented by hundreds of cash-strapped organs of state.
This risk of citizen abuse will not be confined to whites, but will extend to the 8.7 million black people with home ownership, the 18m Africans with customary land-use rights, and the thousands of blacks who have bought more than 6 million hectares of rural and urban land since the repeal of the notorious Land Acts in 1991.
Even before any expropriations are carried out, moreover, the mere adoption of the Bill in its present form will deter the direct investment so urgently required to reverse the great damage to growth, jobs, and living standards from the Covid-19 lockdown. At this critical juncture, in particular, South Africa simply cannot afford a Bill sure to stymie any prospect of significant economic recovery.
The minister has derided critics of the Bill as ‘tone-deaf whiners’ and ‘enemies of land reform’. This is hardly an adequate response to well-founded concerns about both the obvious unconstitutionality of the Bill and the massive economic harm it is sure to unleash.
This article was 1st published on The Daily Friend.