Direct transfers of property to third parties under Expropriation Bill - Farmer's Weekly

Anthea Jeffery

The Expropriation Bill of 2020 (the Bill) was adopted by the legislature on 27th March 2024 and needs only President Cyril Ramaphosa’s assent to become law. Yet Parliament failed to ‘facilitate public involvement’ in the lengthy legislative process on the Bill. It also omitted to bring the content of the Bill into line with the Constitution. This means – as the IRR has pointed out in a letter and accompanying Petition to the President – that Mr Ramaphosa has a constitutional obligation not to sign the Bill. Instead, he must refer it back to the National Assembly for reconsideration.

A new concept of ‘expropriation’ introduced into the Bill

Many clauses in the Bill remain unconstitutional and need to be redrafted along the lines the IRR has long proposed. Some, however, are new. One key change – added without public consultation – is particularly important because it allows expropriations of land, water rights, and other assets directly to third parties. In doing so, it effectively introduces a new concept of expropriation. This conflicts with the definition earlier included. In addition, the change is likely to have major ramifications for commercial farmers.

The first definition was inserted into Clause 1 (the ‘Definitions’ section) when the Bill was first released for public comment. It defines ‘expropriation’ as ‘the compulsory acquisition of property for a public purpose or in the public interest by an expropriating authority’. (Such an authority is generally an organ of state with the power to expropriate under the Bill or other legislation.)

This definition comes from the Constitutional Court’s judgment in the Agri SA case in 2013. Here, Chief Justice Mogoeng Mogoeng ruled that expropriation occurs where ‘the state has acquired and thus has become the owner of the [property] concerned’. Though this ruling is flawed, it indicates that expropriation means the acquisition of ownership by the state. It is this concept which is captured in the Clause 1 definition, with its reference to ‘compulsory acquisition…by an expropriating authority’.

However, what amounts to a second and different definition of expropriation was inserted into the Bill in the final stages of the legislative process and after public comment had closed. This was done at the recommendation of Advocates Geoff Budlender SC and Uday Naidoo, who said the Bill needed to make provision for direct transfers of property to third-party beneficiaries.

Third-party beneficiaries of land and water reform

Advocate Naidoo said that an expanded definition of expropriation would allow ‘direct transfers to be made to…third-party beneficiaries, without the state having to become the owner itself and then transfer the land to the third-party beneficiary’.  Such a definition was also needed to protect owners whose property was taken via ‘third-party transfers in the public interest’, who would not qualify for compensation under the existing definition.

Advocate Budlender SC later elaborated on this reasoning. In the land reform context, he said, the minister might think it sensible that, where ‘a property was going to be expropriated for the benefit of a third party,…it should pass directly from the existing owner to the third party’. Similar situations might arise with water rights so that, ‘when expropriation took place, it [the water right] went directly from the existing owner to the new owner: for example, the land reform beneficiary’.  

This option, he went on, was not captured in the Constitutional Court’s ruling in the Agri SA case, which defined expropriation as meaning ‘the compulsory acquisition of property by the state’ (emphasis added). This meant that ‘the Constitutional Court’s definition of expropriation did not include cases where the property went directly to the third party’.  

Added Advocate Budlender SC: ‘This is clearly a problem… because transfers of that kind, where transfers go from an owner to a third party, are no less expropriatory than where the acquisition of property is by the state itself… People who have been deprived of property by state action should receive the constitutional guarantee of just and equitable compensation, whether the property goes to the state or whether the property goes to a third party.’ 

The advocates’ initial solution was that ‘the definition of expropriation should be amended to provide that expropriation means “the compulsory acquisition of property by an expropriating authority or a third-party beneficiary, for a public purpose or in the public interest”’. However, the Office of the Chief State Law Adviser and the Parliamentary Legal Adviser were concerned that ‘it would be very confusing’ if the Bill ‘gave another interpretation’ to the Constitutional Court’s definition of expropriation.

To accommodate these concerns, Advocate Budlender SC recommended ‘the insertion of a new sub-clause, not in the Definitions clause in Clause 1 of the Bill, but rather ‘in the Application clause, clause 2’. This new clause should read: ‘The provisions of this Act apply to the compulsory acquisition of property directly or indirectly by third party beneficiaries in the public interest through an expropriating authority, including as contemplated in sections 25(4) to (8) of the Constitution.’

The change thus made and its ramifications

A new clause worded in this way was duly inserted into the final version of the Bill as sub-clause 2(3). Its effect, as recommended by the advocates, is to authorise two types of expropriation: that which transfers ownership to the state and that which transfers ownership directly to third parties.

What amounts to a second definition of expropriation has thus been included in the Bill. However, that the Bill now contains two different definitions of expropriation has been obscured by inserting the new provision into the ‘Application’ clause, rather than the ‘Definitions’ one.

The ramifications of the change are extensive, but difficult to evaluate. The effects, like the proverbial curate’s egg, are likely to be a mix of good and bad.

On the positive side, direct transfers to third parties will be recognised as expropriations meriting just and equitable compensation. However, compensation for land taken for land reform purposes, if not set at ‘nil’ under the Bill, is likely to be well below market value. Compensation for the expropriation of water-use licences or ‘existing lawful’ water use rights under the National Water Act of 1998 (the 1998 Act) is also likely to be limited.

The Bill’s formula for compensating expropriated rights holders focuses on five listed factors. These include market value, the ‘current use’ of the property, the history of its acquisition, and ‘the purpose of the expropriation’. However, a somewhat tenuous right to use water under the 1998 Act may have little market value – while the other four factors could be used to reduce that small amount still further.

By contrast, under the current Expropriation Act of 1975, expropriated rights holders are entitled to compensation for all actual direct losses resulting from expropriation. Though this factor would generate meaningful amounts of compensation for the loss of vital water-use rights, it has been omitted from the Bill and is unlikely to apply.

On the negative side, moreover, direct transfers of large swathes of commercial farmland and accompanying water rights to (supposed) land reform beneficiaries will be facilitated and incentivised. However, since most land transferred for land reform purposes has soon fallen out of production, this major redistribution could undermine food security and valuable agricultural exports.

In addition, given ‘elite capture’ of the land reform process (as reported by the High Level Panel of Parliament in 2017), many of the chosen third-party beneficiaries might be favoured ANC cadres. Such individuals (like those who took over the Bekendvlei Farm in Limpopo in 2011) might have little interest in farming – and little compunction about stripping their newly acquired farms of machinery, irrigation systems, livestock, and other assets.

No public consultation on the new provision

In the land reform context, it is relatively easy to foresee what kind of assets are likely to be taken and for whose benefit. However, the Bill defines property as ‘not limited to land’. Direct third-party transfers may thus also apply to mining rights, liquor permits, patent rights to vaccines, and many other assets. Companies owned by cadres and/or their relatives could also feature among the ‘third-party beneficiaries’ to which ownership is transferred.

Third-party expropriations under the new sub-clause 2(3) could have major ramifications. A SEIA report setting out the full socio-economic impact of the change should thus have been drawn up and put before the public before the amendment was made. In addition, the public should have been given a proper opportunity to have their say on this important issue. Instead, sub-clause 2(3) was added by the National Council of Provinces only after the public consultation process had ended. 

This is a major procedural defect which cannot be brushed aside – as the Constitutional Court’s 2023 judgment in South African Iron and Steel Institute and others v Speaker of the National Assembly and others has confirmed. Here, the apex court struck down new definitions of ‘waste’ and other concepts introduced into an amendment bill at a late stage and without public consultation on the wide-ranging ramifications of these changes.

It was unconstitutional for Parliament to insert this major amendment into the Bill without public consultation. It is also unconstitutional to have two conflicting definitions of expropriation, if only because this breaches the doctrine against vagueness of laws and undermines the ‘supremacy of the rule of law’ – a founding value of the Constitution. The obvious procedural and substantive unconstitutionality of the new clause 2(3) is sufficient in itself to bar the President from signing the Bill into law.

Dr Anthea Jeffery is Head of Policy Research at the Institute of Race Relations