Synopsis of the IRR's Submission on the Expropriation Bill – 6 May 2015

Synopsis of the IRR's Submission on the Expropriation Bill.

South African Institute of Race Relations NPC
Submission to the Portfolio Committee on Public Works,
Parliament of the Republic of South Africa,
regarding the
Expropriation Bill of 2015 [B4-2015]
Johannesburg, 6th May 2015


Contents of this Synopsis
How the Expropriation Bill will work in practice, page 1
The economic damage from the Bill, page 2
The unconstitutionality of the Bill, page 3
The IRR’s proposed alternative expropriation bill, page 6
Conclusion, page 7

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 (both RDP and other), but much of the land is currently held in communal tenure by the local chief (iNkosi) and allocated in plots to community members. Only some 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 been 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. Under the Bill, however, the municipality will have the law on its side in acquiring the land – and will 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 assumed market value. If they refuse, the municipality – after inviting and then rejecting their written objections (which it will be able to do without giving reasons) – will be able to deliver, or ‘serve’, notices of expropriation on all community members.

If these notices are served on 1st September, ownership of the land could automatically pass to the municipality the very next day, on 2nd September. (The only time constraint in the Bill is that ownership cannot pass on 31st August, the day before the service of the notice.) The unregistered land-use rights of the community members will also automatically be expropriated on 2nd September, while the right to possess their plots and homes could pass to the municipality on 3rd September. The municipality could again offer 70% of assumed market value as compensation and then give community members 60 days in which to sue for more – failing which they will be ‘deemed’ to have accepted its offer.

Even if some can afford litigation, they will have no guarantee that the courts will award them more than the municipality has offered. In addition, the Bill confines the courts to reviewing the compensation payable and bars them from adjudicating on the validity of the expropriation and whether it should be set aside.

If the community members fail to sue within 60 days – and are then deemed to have accepted the compensation offered – the next question is when they will be paid. Under the Bill, the municipality should pay 80% of the compensation when it takes possession, but it can also delay payment merely by proposing later dates for this in its notices of expropriation.

Even this might not be the end of the story. Say the municipality, having set 1st December as the date for payment, fails to meet its obligation to pay then? Many municipalities are notoriously slow in making payments that are due. How long would the community members have to wait to be paid?  Having lost their land-use rights and the right to possess their homes, where would they live in the interim? How could they keep on with the spaza shops or other businesses some might have been running from their homes?

How many community members would be left homeless and destitute as a result of an expropriation which the municipality has never had to prove is in keeping with the Bill of Rights and which might not in fact be constitutionally compliant? In addition, would the promised RDP houses (for which community members might in time qualify) in fact be built on the land, or might the land instead be used by the municipality for other and more lucrative purposes?

Under the Bill, this example could be replicated all across the country. The Bill will govern not only people with customary land-use rights but also home owners, farmers, and entrepreneurs, as well as companies running private hospitals, private schools, mines, factories, and banks.

In all instances, after some preliminary negotiations, organs of state at all levels of government will be able to issue notices of expropriation under which ownership and possession will quickly and automatically pass to them – often in return for less than adequate compensation. Moreover, as the Bill stands, these organs of state will never have to prove that their expropriations are in keeping with the Constitution. They will certainly not have to do so before they take ownership and possession of land and a host of other valuable assets – many of which will have been built up by individuals over lifetimes of endeavour. 

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 – African ownership of houses, land, and other assets has finally started growing, and has done so 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 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 Africans with traditional land use rights in the former homeland areas – 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. In all instances, those affected will be left without adequate compensation and with no effective redress for the loss of their property. 

If the Bill is enacted into law, ever more land and other assets are likely to become vested in the Government. This will inevitably create great economic instability and uncertainty. It will also disempower all South Africans by increasing their dependency upon the State and restricting their scope for upward mobility. Far from helping to overcome disadvantage, the Bill will make it much more difficult to counter unemployment and attendant poverty and inequality.

The unconstitutionality of the Bill
The Bill is clearly unconstitutional. Crucially, the Bill allows any ‘expropriating authority’ to take property by serving a notice of expropriation on the owner. Ownership of the property in question will then pass automatically to the State on the ‘date of expropriation’ identified in the notice, which could be the day after the notice of expropriation has been delivered.

The Bill empowers the State to take property by notice to the owner, and leaves it to those thus stripped of ownership and possession to contest the compensation owing to them in the courts thereafter. Worse still, the Bill seeks to oust the jurisdiction of the courts by allowing them to adjudicate solely on the compensation offered and not on the overall validity of the expropriation. The Bill also seeks to limit access to the courts by giving expropriated owners a mere 60 days in which to sue for additional compensation, failing which they will be ‘deemed’ to have accepted the amounts offered by the State.

However, ‘self-help’ of this kind is contrary to the common law and barred by the Constitution. Under the common law, the State cannot even temporarily seize property – not even that likely to have been used in committing crimes – without first obtaining court orders in the form of search-and-seizure warrants.

This common-law protection for property rights has been significantly buttressed by the Constitution, which 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 of the Constitution prevents people from being evicted from their homes without express judicial authority and, in many instances, the provision of suitable alternative accommodation.

Under Section 25 of the Constitution, an expropriation may not be arbitrary, it must be carried out for public purposes or ‘in the public interest’ (as defined in the Constitution), and it must 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’. The circumstances listed include market value and four other factors, which are often called the ‘discount’ factors because the monetary value assigned to them may be deducted from market value. These four factors are the current use of the property, the history of its acquisition and use, the extent of direct state investment in its purchase and capital improvement, and the purpose of the expropriation.

Under established principles of constitutional interpretation, it is the State that bears the onus of proving that all these requirements for a valid expropriation have been met. The State must also discharge this onus before it proceeds with an expropriation, as its obligation to prove the constitutional validity of the taking is otherwise circumvented, while the Constitution’s protections for property rights are severely weakened – if not set at naught.

Yet the Bill allows the State to issue a notice of expropriation, and to take ownership and possession of the expropriated property under that notice, before the State has shown that the expropriation is not in fact arbitrary and that all the other requirements for a valid expropriation have (objectively) been met. The Bill’s provisions allowing this are thus in breach of Section 25.

The Bill also allows the expropriating authority to delay any payment until well after it has taken ownership and possession of the property. This is prima facie contrary to Section 25 of the Constitution in that it fails to strike ‘an equitable balance’ between the public interest and the interests of the affected owner.

In addition, Section 34 of the Constitution 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. However, under the Bill, this process of deliberation and adjudication is cut short: the State can simply issue a notice of expropriation and take ownership under it, long before a court has had the opportunity to consider or decide whether this is the appropriate outcome. In addition, under the Bill, no legal dispute regarding the constitutional validity of the expropriation can be brought before the courts, which are confined to dealing with the sufficiency of the compensation.

In many instances, expropriated owners will also be prevented from bringing legal disputes about the sufficiency of the compensation before the courts. This conflicts with both Section 34 and Section 25 of the Constitution.

Under the Bill, the State may give expropriated owners 60 days in which to sue for more compensation, failing they will be deemed to have accepted whatever the State has offered. People who cannot find the means to sue within this time will be barred from having their legal disputes over compensation decided by the courts, which infringes their rights under Section 34. This situation also infringes their rights under Section 25 of the Constitution, which expressly requires that the amount of compensation must, in the absence of agreement, be ‘decided or approved’ by the courts.

In addition, the 60-day period allowed by the Bill is unconstitutionally brief, given the Constitutional Court’s decision in 2009, in the case of Brümmer v Minister for Social Development and others. Here, a 30-day period to bring suit, which had been laid down under the Promotion of Access to Information Act of 2000, was struck down as unconstitutional, while Judge Sandile Ngcobo indicated that a period of 180 days to sue would be more appropriate.

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 State – 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.

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. Moreover, the Constitution’s founding provisions clearly state that the Constitution is ‘the supreme law of the Republic’, and that it must be respected and upheld at all times by all branches of the Government. This means that neither this portfolio committee nor South Africa’s Parliament may adopt legislation which conflicts with the Constitution.

The Bill must therefore be rejected. At the same time, the current defective Act needs to be replaced by a constitutional alternative. The IRR has thus drafted an alternative bill (the IRR bill) that recognises the State’s power to expropriate where this is unavoidable but also ensures that this power is exercised in a manner that is fully compliant with the Constitution.

The IRR’s proposed alternative expropriation bill
An overview of the IRR’s proposed alternative bill is set out in our accompanying full submission. This, in turn, is accompanied by a framework document providing more details as to how this alternative bill should be worded. Hence, only the most important aspects of the IRR’s alternative bill are summarised here.

Governing principles
An expropriating authority is obliged to fulfil all relevant constitutional requirements for a valid expropriation, including those governing ‘just and equitable’ compensation. It must also obtain a High Court order confirming that it has met all these requirements before it may issue a notice of expropriation.

‘Just and equitable’ compensation must start with the market value of the property, less the four ‘discount’ factors listed in Section 25 of the Constitution. However, since expropriation places an ordinate burden on the shoulders of particular individuals or enterprises, compensation must also include damages for financial losses caused by the expropriation, including moving expenses and any loss of future income from the property. If the property to be expropriated includes the owner’s home, his or her eviction must expressly be authorised by the High Court and suitable alternative accommodation may also have to be provided.

Initial processes:
An expropriating authority must start by negotiating with the owner with a view to agreeing on a voluntary purchase. If these talks fail, it must issue a notice of possible expropriation, invite objections, and give reasons in writing for rejecting any objections submitted to it. It may also investigate the value of the property.

If the expropriating authority then wishes to proceed, it must give the owner 180 days’ notice of its intention to seek a High Court order confirming the constitutional validity of the proposed expropriation.

High Court hearing on constitutionality:
The expropriating authority bears the onus of proving, on a balance of probabilities, that its proposed expropriation is not arbitrary; that it is objectively in the public interest; that the compensation it proposes is indeed just and equitable; and that all other constitutional requirements for a valid expropriation have been met. During the court hearing, the owner’s evidence and representations must be heard in full.  The expropriating authority must pay the owner’s reasonable legal costs in participating in these proceedings (on an attorney-and-client basis).

If the High Court confirms the constitutionality of the expropriation, it must issue an order dealing with all relevant issues, as listed in this Bill. Among other things, the court’s order must instruct the expropriating authority to pay all compensation due to the owner at least 15 working days before the transfer of ownership to it is due to take place.

Notice of expropriation:
If the High Court confirms the constitutionality of the proposed expropriation, the expropriating authority may thereafter issue a notice of expropriation. This notice must be in keeping with the High Court order and accompanied by a copy of it. The notice must give the owner 90 days from the date of service of the notice before the transfer of ownership to the expropriating authority may take place, and another 90 days before possession may pass. However, the owner may agree in writing to shorter periods if he so chooses.

The expropriating authority must pay all the compensation due to the owner at least 15 working days before ownership is to pass to it. If the expropriating authority cannot provide written evidence of having done so, the expropriation notice is automatically set aside and has no further force or effect.

Precedence over other expropriation legislation
To ensure that the procedures and requirements outlined apply to all expropriations, this Bill has the capacity to override all other laws dealing with expropriation.

The portfolio committee of public works and the Parliament of South Africa are bound by the Constitution. Hence, they cannot lawfully adopt the Bill put forward by the Department of Public Works, which contradicts the property clause and other key provisions in the Bill of Rights.

At the same time, Parliament 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 living standards and adding to their 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.

In this particular instance, the portfolio committee on public works has an obligation to reject the Government’s unconstitutional Bill. To cure the defects in the current Expropriation Act of 1975 and to help promote growth and jobs, it should instead embrace the constitutionally-compliant alternative bill put forward by the IRR. This alternative bill has also been endorsed by the American Chamber of Commerce in South Africa (AmCham) and many others, who have urged that it be enacted into law.

South African Institute of Race Relations NPC    6th May 2015