Expropriation #6: Expropriation Bill V2.0 – October 2020

By Chantelle Gladwin-Wood (Partner), Anja van Wijk (Senior Associate), and Marc Gevers (Candidate Attorney)

October 2020

Introduction

This article is one in a series on expropriation, which looks at some of the fundamental legal issues surrounding expropriation in the context of the revised Expropriation Bill published for comment 9 October 2020 (“Expropriation Bill”). [1]

This instalment examines the newly gazetted and revised Expropriation Bill, which is intended to replace the existing Expropriation Act 63 of 1975 (“Expropriation Act”). Once brought into force of law (in whatever form it may eventually take) it will govern expropriation of all property in South Africa, together with section 25 of the Constitution of the Republic of South Africa (“the Constitution”). The comments made herein are intended to give the reader an update on the current proposals “on the table” insofar as expropriation is concerned, and to illustrate how far the debate has evolved since it first started in 2018. Much criticism was levelled at the first version of the bill, published in December 2018.

Critical Mindshift from “EWC” to “Nil Compensation”

There has been a radical (and welcome) shift in thinking from empowering expropriation without compensation (“EWC”) to empowering expropriation at compensation that is just and equitable, even where that amount is Nil or is nominal. This shift is fundamental because we, as politicians, lawyers or laypeople, should never open the door to allowing a repeat of what happened under Apartheid – where the government at the time deprived people of their property without just and equitable compensation. It may be that, in some cases, it is just and equitable to pay nil, or even only R1.00 of compensation – and the government should not shy away from expropriation at nil or R1.00 when appropriate cases arise. However, we should never operate from the starting point that expropriation without compensation is an ideal that we should aspire to.

Do we still need to amend Section 25 of the Constitution?

The authors remain of the view, in the good company of some of the most distinguished minds in the country on this score, that there is no need to amend Section 25 of the Constitution to permit and indeed even to promote expropriation without compensation, provided that one accepts that all government action must be just and equitable in line with Section 36 of the Constitution. It appears, from our reading of the Bill, that this has been accepted by the authors thereof (although we are most certainly speculating in this regard). If the government genuinely intended to amend Section 25 of the Constitution as proposed, it would be odd that it would propose a new Bill that expressly refers to the existing (and unamended) version of Section 25, and which mirrors the provisions of Section 25 in several respects. It would seem like an enormous waste of time and energy for the government to spend just shy of 2 years fixing a bill, only to bring it into force of law based on a section in the Constitution that will be amended, which would then give rise to the need to potentially scrap or substantially amend the legislation that had only just recently commenced. If indeed our assumptions are correct, and it has been accepted that there is no need to amend Section 25, this is an enormous step in the right direction for government and the people of South Africa, and is to be applauded.

Timing of the Gazette

The Bill was released giving adequate time to the public to properly consider it and make submissions, over a period of ordinary business activity. This is notably better than on prior occasions when critical draft pieces of legislation pertaining to expropriation were released (some argue, strategically) over the festive season to avoid as many public comments as possible. Critics of the timing of the release of the prior version of the Expropriation Bill and the draft amendments to Section 25 of the Constitution, however, will no doubt argue that this supports the argument that those prior versions were released strategically to bolster political support just before elections. Readers must draw their own conclusions in this regard.

Highlights

This Bill is substantially more comprehensive, carefully drafted and provides much more clarity than the prior version in many respects. For example: –

• The prior version referred to ‘speculation’ and it was not certain what this term referred to. This version clarifies this and, in doing so, narrows the ambit of the threat of expropriation at nil compensation to only those properties to exclude land held for development purposes. Although it remains questionable as to whether there is sufficient justification to subject land held for speculation (purely to watch the land grow in value) to nil compensation, this is ultimately dependent on whether, in the unique circumstances, it is just and equitable, and subject to adjudication by a court as the ultimate stop gap.
• This version seems to recognise (by virtue of the definitions at least) that the property that might be expropriated might be land, corporeal property or even incorporeal property. The prior version was so focused on land being expropriated that it lost sight of the fact that this Bill will serve to deal with all expropriations – not only those relating to land – and that it must make allowances for other types of property to be expropriated as well.
• Sections 2 and 3 reinforce the idea that expropriation should only happen if ‘arm’s length’ negotiations for the purchase of the property fail. This is a prudent approach by government. Expropriation is an extreme power and should only be used where absolutely necessary. Unfortunately, many have painted the idea of negotiations before expropriation is implemented as being a bar to land reform – and this reinforces that myth. At the end of the day, anyone with knowledge of the process will be aware that negotiations are no bar to land reform because, if they fail, the expropriation infrastructure is fully available to assist the government in achieving its land reform goals.
• The Bill now requires the expropriating authority to do much more, thorough investigations pertaining to the impact that the intended use of the property after expropriation will have on the municipality and its infrastructure. However, the Bill does not go far enough. It should also require the municipality and even the provincial government to provide it with information as to whether the land is earmarked for development of any future roads.
• Section 23 allows for expropriation to be ‘reversed’ with the expropriating authority to pay any damages caused by it going through with the expropriation and, thereafter, reversing it. How this would work in practice, however, is unclear. There are exceptions to when an expropriation can be reversed or “withdrawn”, one of which is after registration of the expropriated property has already been registered in the expropriator’s name. This does not make any sense, however, as registration itself does not transfer ownership. Ownership passes on the date stipulated in the expropriation notice. The updating of the deed is merely to keep the Deeds office records up to date and reflect the expropriator as being the owner. It is not an act that actually confers ownership or has any other significance. It is strange as to why this would be a bar to reversing or withdrawing expropriation.

Features that Require More Thought

• The definition of ‘possession’ is so vague as to not be helpful at all. As a result, the sections dealing with the taking of possession are, in some respects, equally unclear. This needs to be amended.
• The definition of ‘public purpose’ is so wide that it might include any act taken by any government official to achieve any stated aim of the government – regardless of whether that aim is legitimate or rational. For example, a famous lawyer once notoriously suggested that, if the government wanted to kill a fly by dropping a bomb, this would be rational, because the means will result in the end. However, if you ask whether this is reasonable, meaning a proportionate response to the threat, the answer is obviously no. We need to amend the definition of ‘public purpose’ to refer to only legitimate and reasonable exercises of public power to avoid government action that is not the most effective action or is an abuse or illegitimate from being used to expropriate.
• Following on from the above, section 3(3) seems entirely superfluous, as it is subsumed by the wide purpose of ‘public purpose’.
• There is no definition of what a ‘state-owned entity’ or ‘state-owned corporation’ is. This should be clarified. For example, is Telkom a state-owned entity? It is partly privately owned. Can the government expropriate in favour of Telkom? This is important because section 3 read with section 1 indicates that expropriation may only happen at the instance of an organ of state (which Telkom might not qualify as).
• Section 5(4) requires the property owner or right holder to furnish the state with certain information within a certain time – but the expropriating authority might require information pertaining to the land from other organs of state, and this should be clearly spelt out, such that a failure by other organs of state to provide that information is punishable with some or other sort of consequence. Otherwise, the process of land reform might be unduly delayed by government departments failing to provide each other with critical information.
• Section 9(1)(b)(ii) refers to mineral rights as unregistered, yet these would, in some cases, have been registered at the Deeds office and in all cases any mineral right granted by the Department of Minerals should be registered at that department. This appears to be an error. It might be that the reference here is to persons who have applied for, but not yet been granted, some kind of mineral right. If this is the case, it needs to be expressly spelt out.
• Section 11(4) refers to expropriated lessees and expropriated owners, as if it is only possible to expropriate a lessee where the landowner is also being expropriated. However, it is entirely possible that only a lease and not ownership of the land can be expropriated. The reference to the “expropriated” landowner should be amended simply to refer to the landowner.
• Section 12(4) refers to labour tenants but not to land claimants in terms of the land claims process. This might require amendment.
• Section 16(2) provides that, if a party required to provide certain information fails to do so, they can be compelled by a court. However, this section does not provide that the (quite short) time periods provided for the delivery of notices and the rest of the process stops whilst this court process is underway, which it should do. It would make no sense to allow the process to continue whilst the court is compelling the mischievous party to provide the info it should have given, to the detriment of the party who did not receive that information.
• Section 22 conflates temporary expropriation (for up to a maximum of 18 months) and emergency expropriation. The two ought to be separate concepts. It is possible for expropriation to need to take place temporarily, but not urgently.

Features Pertaining Uniquely to Compensation

• The Bill still does not give the expropriated person adequate protection against the government failing to pay over the agreed or stipulated amount of compensation. The expropriated person simply has to hope for the best in this regard, and, if they do not get paid after making written demand, sue for the money. The Bill actually goes as far as saying that a demand made if you sue must be done in terms of the Legal Proceedings Against Certain Organs of State Act. This gives the authors an indication that the government anticipates that many will sue for the government not having made payment. The Bill provides (as all of its predecessors did) that expropriation happens on the date of the expropriation notice even if payment has not been made. At the very least, this should be amended to provide that expropriation (in ordinary, non-urgent scenarios) cannot take place and possession is not to be given to the government until the expropriated person is paid. The Bill needs to include better protections.
• Section 8 provides for notice to be given to all sorts of people, but not to people who hold rights in relation to the property that would not be expropriated. In fact, the Bill provides no protection at all to parties that retain their rights in the property after expropriation (which includes all registered right holders, other than mortgage bond holders). Whilst this may make sense at first glance (why notify them if you are not affecting them), it is a myth that they will not be affected. The intended use of the property may entirely destroy the utility of their registered right. Although the registered right holder would have recourse through the courts to compel the new owner (i.e. the government) to respect the registered right (e.g. servitude), this may require litigation and be a hassle and cost that the right holder no longer wants to bear. It is no secret that the government does not have the best reputation for maintaining property or being neighbourly. We propose that, at the very least, registered right holders should all be given notice of the intended expropriation, such that, if they are of the view that they will be affected in some way, they are at least given an opportunity to make their representations to the expropriating authority.[2]
• Section 22 of the Expropriation Act does not oblige the state to compensate holders of unregistered rights (other than lessees, builder’s liens and purchasers in a sale) at all (e.g. judgement creditors, who have attached property to sell it in execution, would not be entitled to compensation in the event of expropriation under this Act). However, innovative provision is made for holders of unregistered rights to receive compensation in the Expropriation Bill. Section 7(2)(h) provides that the owner must notify the expropriating authority of the existence of any unregistered rights. Further, according to section 27(1), failure to do so can result in the owner being held liable to a fine in civil court, and if the owner has misled the state in any document submitted the owner may be found guilty of a criminal offence and sentenced to a fine or imprisonment in terms of section 27(5).
• Section 9(1)(b) of the Bill provides that any unregistered rights are expropriated simultaneously with the property, on the date stipulated in the notice of expropriation, unless specifically excluded. If the holder of the unregistered right was aware of the expropriation beforehand, and made representations, provision is made for just and equitable compensation. Provision is even made for holders of such unregistered rights that only became aware after expropriation occurred to receive compensation (subject to section (25)). The authors are of the view that these added protections, afforded to holders of unregistered rights, are a significant improvement from the Expropriation Act, and an innovative approach for South African property law.
• Section 12(2)(c) provides that no compensation is to be paid in respect of unlawful buildings or improvements on the land. This is curious, because, firstly, many landowners (or other right holders, such as Eskom for example, who have leases or servitudes) might not always be aware that their buildings or structures are not legally compliant in some or other ways, and, secondly, because the environmental, building and town planning laws are becoming more onerous and numerous all the time. It is easy for the layperson to fall foul of something unintentionally. It  appears to the authors that it may become problematic to deny a person compensation for improvements that are unlawful based on an innocent mistake (perhaps, for example, the property owner was not aware that, when he installed his geyser, he needed a geyser certificate and never obtained one, or a home owner who was unaware that he needed to have a swimming pool fence around his pool in terms of the municipal regulations applicable to his area). Section 12(2) does provide, however, that, in special circumstances, the value of these improvements can be taken into account, so it is not an absolute bar. But we foresee this provision as being one that will potentially problems in the future.

Mortgage Bonds

The position pertaining to mortgage bond holders has been strengthened somewhat. Both this version and its predecessors provide that, upon expropriation, the property passes to the government free of the mortgage bond. All versions provide that the owner of the property and the mortgage bond holder must agree how much of the compensation, going to the owner, must rather be paid to the mortgage bond holder. If the bond holder is not satisfied, they can approach a court to adjudicate on the matter.

We have argued in prior articles that not compensating mortgage bond holders upon expropriation is a violation of the right to property where there will be insufficient compensation to settle the bond. This remains our view. However, this version of the Bill does give better protections to bond holders, inasmuch as it provides that, if the owner and bondholder do not reach agreement, the compensation due to the owner is paid to the Master and held there whilst the dispute continues – which would hopefully bring the owner to the table and operate in the bond holder’s favour.

We remain concerned at this status, however, and we urge bond holders to challenge this as a violation of constitutional property rights. It is recognised by both our Constitutional Court, and by the Bill, that the bond is a form of property worthy of protection, yet the protections given to it are far inferior to that of any other class of property. Banks play an essential role in economic growth through the granting of loans and extension of credit, and they would be unlikely to continue doing so, if they are insecure in the security that they would hold for such a loan. There is no reason that banks   should be treated like second class citizens. The notices referred to in section 21 should similarly include bondholders – why do they not have a right to know what is going on?

Conclusion The legislature has, thankfully, meaningfully engaged with the submissions made in relation to the prior version and has largely resolved the majority of the more concerning objections raised thereto. This version 2.0 is substantially more thoughtful, comprehensive, practical, clearer in its intent and, in the authors’ views, an excellent move away from a knee-jerk reaction to a populist political objective towards a just and equitable legislative framework for expropriation in South Africa.

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[1] *A list of the earlier articles in this series which give a chronological analyses of events as they have unfolded over the last few years in relation to the issue of expropriation, can be found at the end of this article.

[2] We are not arguing here that they should be compensated – that is an argument for another day.

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Articles in this series (in chronological order):

The Debate over Expropriation without Compensation (April 2017) available at https://www.schindlers.co.za/news/the-debate-over-expropriation-without-compensation/

Public Purpose and Public Interest in the Context of Expropriation (May 2017) available at https://www.schindlers.co.za/news/public-purpose-and-public-interest-in-the-context-of-expropriation-of-property/

Expropriation without Compensation? (June 2017) available at https://www.schindlers.co.za/2017/expropriationwithoutcompensation/

Expropriation #1: Amendments to Section 25? (Sept 2018) available at https://www.schindlers.co.za/news/expropriation-1-amendments-to-section-25/

Expropriation #2: Tenants and Occupiers (Oct 2018) available at https://www.schindlers.co.za/news/expropriation-2-tenants-and-occupiers/

Expropriation #3: The Land Hunger (Dec 2018) available at https://www.schindlers.co.za/news/expropriation-3-the-land-hunger/

Expropriation #4: The Expropriation Bill of 21 December 2018 (Jan 2019) available at https://www.schindlers.co.za/2019/expropriation-4-the-expropriation-bill-of-21-december-2018/ Expropriation #5: Proposed Amendments to Section 25 of the Constitution, February 2020, available at https://www.schindlers.co.za/2020/expropriation-5-proposed-amendements-to-section-25-of-the-constitution-february-2020/