COMPENSATION FOR EXPROPRIATION

The research question which will be considered is how the notion of “just and equitable compensation” is defined as envisaged by the Constitutional property clause – and furthemore, how courts should give effect to this concept.

“Just and Equitable Compensation”

Research question

• How is it defined by section 25 of the Constitution (the property clause)?

• How should the courts give effect to this concept?

Brief overview of research methodology

Aim of research: • To consider courts’ jurisprudence surrounding the notion of just and

equitable compensation in the hope of finding a workable solution for the compensation of future instances of expropriation

A two-fold method of analysis will be used:• Statutory provisions concerning the calculation of compensation

for expropriation will be analysed• Case law surrounding the issue will be considered• From here, conclusions will be drawn from the analysis of the

judiciary’s treatment of the subject

Format of analysisConsideration of multiple categories of cases• 1st level: pre-Constitutional and Constitutional-

era decisions

• 2nd level: expropriations which occurred for the purpose of land reform and those which were not conducted with the aim of achieving land reform policy objectives

• Specific attention will be given to the different ways/approaches in which compensation was calculated in each instance

Brief overview of discussion

Legislation

• Expropriation Act 1975

• Constitution of Republic of South Africa, 1996

• Future legislation dealing with expropriation?

Expropriation Bill (shelved)

Case LawPre-Constitutional• Opera House (Grand Parade)

Restaurant (Pty) Ltd v Cape Town Municipality 1989 (2) SA 670 (C).

• Davey v Minister of Agriculture [1979] 1 All SA 109 (N).

Constitutional-era• Du Toit v Minister of Transport 2005

(11) BCLR 1053 (CC)• Kerksay Investments (Pty) Ltd v

Randburg Town Council 1997 (1) SA 511 (T)

• Khumalo and Others v Potgieter and Others [2002] 2 All SA 456 (LCC)

• Abrams v Allie [2004] 2 All SA 99 (SCA)

Legislation: Expropriation Act 1975

Compensation calculation formula based on [s 12]:• Market value of land (compensation may not amount to more than this) – what would a

willing buyer be prepared to pay?• Actual losses• Solatium (solace money)

Act is still valid and relevant in deciding compensation issues – however, there are shortcomings

Problems with calculation method and Act in general:• Results in inflated amounts for compensation which the state could not afford, thus

frustrating the land restitution process• The act does not promote the democratic spirit and transformative intention of the

Constitution• The Act is inconsistent with s 25(3) of the Constitution because it restricts the opportunity

for balancing the equitable interest • Between public purpose and the interests of the affected parties• Basically, this piece of legislation favours the land owner and allows them to claim

excessive compensation which is contrary to the aims of the property clause

Legislation - Constitution of RSA, 1996

25. Property.-

(1) No one may be deprived of property except in terms of law of general application, and no law may permit arbitrary deprivation of property.

(2) Property may be expropriated only in terms of law of general application--

(a) for a public purpose or in the public interest; and

(b) subject to compensation, the amount of which and the time and manner of payment of which have either been agreed to by those affected or decided or approved by a court.

(3) The amount of the compensation and the time and manner of payment must be just and equitable, reflecting an equitable balance between the public interest and the interests of those affected, having regard to all relevant circumstances, including-

(a) the current use of the property;

(b) the history of the acquisition and use of the property;

(c) the market value of the property;

(d) the extent of direct state investment and subsidy in the acquisition and beneficia1 capital improvement of the property; and

(e) the purpose of the expropriation.

(4) For the purposes of this section-

(a) the public interest includes the nation’s commitment to land reform, and to reforms to bring about equitable access to all South Africa’s natural resources; and

(6) property is not limited to land.

Role of market value in calculation of compensation

• Unlike the pre-Constitutional calculation of compensation for compensation determined under the Expropriation Act, market value does not form the point of departure. However, there are cases which would suggest that although market value is considered as one of many factors, it is still given too much weight (in not being considered equally).

• The Constitutional calculation of compensation seems to emphasise the balancing of interests of those of the expropriatee and the public – and this, rather than the market value of the property, seems to be the overarching consideration of the compensation amount.

• Although the market value of an expropriated property is a relevant factor, the property clause requires that it be given equal consideration – it should not be the only or most important factor in determining the just and equitable amount of compensation.

Reasons for failure (non-approval)

• Paragraph 32.2: “There is no doubt that compensation lies at the heart of South Africa’s expropriation regime. The Constitution provides that the amount, time and manner of payment of compensation must either be agreed or decided by a court of law. In this scheme, nothing prohibits the Minister from making a determination subject to approval by Court, by way of judicial review or other legal proceedings.”

• The vesting of the power to determine compensation in the Minister has made land owners anxious.

• Means that the willing-buyer, willing-seller model will be abandoned and that arbitrary land grabs could (in the worst case) be more likely.

• Pietermaritzburg Corporation v South African Breweries Ltd 1911 AD 501 at 515:“Moreover market value is the most uniform test, and the one easiest of practical application.”

• Illovo Sugar Estates Limited v South African Railways and Harbours 1947 (1) SA 52 (D) at 64: “The truth is that it is not possible to state with logical completeness, the principles underlying the assessment of compensation. It is sufficient to say that an owner manifestly ought not to receive more than his total loss, and that the value of his land may be assessed on such a basis and at such a figure as to negative all possibility of his having suffered any loss over and above that sum.”

• Minister of Agriculture v Federal Theological Seminary 1979 (4) SA 162 (EC) at 167C :“At common law an expropriate was entitled to the equivalent in value of the property taken from him, but not more.”

Traditional Common Law perspective *before the Expropriation Act was in place

Calculation of compensation in the case Law

Pre-Constitutional cases

Market value used as determinant of compensation.

• Opera House (Grand Parade) Restaurant (Pty) Ltd v Cape Town Municipality 1989 (2) SA 670 (C).

• Davey v Minister of Agriculture [1979] 1 All SA 109 (N).

Constitutional-era cases

• Du Toit v Minister of Transport 2005 (11) BCLR 1053 (CC) at para 45.Court accepted that s 12 of the Expropriation Act must comply with s 25(3) of the Constitution.Found that purpose of the expropriation had a role in determining what the quantum of the compensation

would be.Mokgoro J: “since it was the right to remove gravel which was expropriated, in determining a just and

equitable amount as compensation, the effort and cost involved in extracting and removing a large quantity of gravel and of rehabilitating the site must be taken into account.”

• Kerksay Investments (Pty) Ltd v Randburg Town Council 1997 (1) SA 511 (T) at 522F-H.Indicated that the traditional view that market value forms the basis of the compensation norm in terms of the Expropriation Act should be rejected

• Khumalo and Others v Potgieter and Others [2002] 2 All SA 456 (LCC) para [93]-[100].Supports method of determining just and equitable compensation by first determining the market value of the property and after that subtracting from/adding to the amount of the market value as other relevant circumstances may require.

• Abrams v Allie [2004] 2 All SA 99 (SCA): • endorsed approach that equitable balance be achieved by first determining the market value that would be

added to or subtracted from other listed factors after considering them.

Calculation of compensation in the case law

Khumalo and Others v Potgieter and Others• Land Claims court had to apply constitutional compensation standard

as incorporated in s 23(1) of the Labour Tenants Act

• Held: just and equitable compensation to be assessed in two stages

1. Court must determine market value of the property

2. Court must consider extent to which the market value is affected (and must accordingly be adjusted) according to the other factors listed in paragraphs (a),(b),(d) and (e) of s 25(3)

Two-Stage approach

Problems with the two-stage approach

• Cheadle et al see the approach as “providing a sound and reliable method of assessing the amount of compensation under s 25(3)”

HOWEVER:• The factors which must be considered (apart from (d) and (c)) are difficult

to quantify in monetary terms – this is illustrated in the Khumalo judgment.

• Cheadle et al. submit that effectively, “the court is left in the position of making notional upward or downward adjustments before arriving at an amount of compensation that is really based on a broad sense of the equities of the particular case”.

• Another objection to this approach is made by Modipane whose concern is that the approach may result in the entrenchment of the traditional approach of having market value as key factor – which “flies in the face of s 25(3) of the Constitution”.

Focus of research – where to from here:

• Gildenhuys J’s two-step approach and the problem with this:• If this is indeed problematic as Modipane argues,

what is a possible alternative approach?

DisclaimerThis presentation was compiled during preliminary stages of research.The focus of the study might therefore develop as research progresses.

Case lawAbrams v Allie [2004] 2 All SA 99 (SCA)Davey v Minister of Agriculture [1979] 1 All SA 109 (N).Du Toit v Minister of Transport 2005 (11) BCLR 1053 (CC)Kerksay Investments (Pty) Ltd v Randburg Town Council 1997 (1) SA 511 (T)Khumalo and Others v Potgieter and Others [2002] 2 All SA 456 (LCC) Opera House (Grand Parade) Restaurant (Pty) Ltd v Cape Town Municipality 1989 (2) SA 670 (C).  LegislationConstitution of Republic of South Africa, 1996.Expropriation Act 63 of 1975.Expropriation Bill, 2008. Journal articlesOnagoruwa & Straughan LexisNexis Property Law Digest (2008.09) 9.Van der Walt 2006 SALJ 24.Zimmerman 2005 SALJ 378. DissertationsModipane Just and equitable compensation for expropriation. TextbooksGildenhuys Onteieningsreg.Mostert and Badenhorst LexusNexus Butterworths - Property and the Bill of Rights.Roux “Property” in Davis et al Fundamental Rights in the Constitution.Silberberg & Schoeman The Law of Property.Van der Walt Constitutional Property Law.

Bibliography