The ‘nil compensation’ clause does not replace just and equitable compensation but merely states that a court can determine that it is just and equitable to award nil compensation
17 October 2020 – 08:52 Theo Boshoff, Wandile Sihlobo and Johann Kirsten
At the beginning of October, the department of public works and infrastructure published the Expropriation Bill in the Government Gazette along with an explanatory memorandum. This procedure is required by the rules of the National Assembly before a bill is tabled in parliament by the executive.
The bill is required to set down a uniform process for all expropriations to take place, as well as a uniform means to calculate just and equitable compensation. These functions are currently performed by the Expropriation Act of 1975, but because the act pre-dates the constitution the prescribed process would likely no longer be considered administratively fair.
Likewise, the 1975 act provides for compensation to be market-based, whereas section 25 of the constitution makes provision for “just and equitable” compensation that balances the rights and interests of the individual with that of the public good. In this sense, the bill is what is known as “framework legislation”, since it regulates how multiple state entities must exercise existing powers of expropriation. The power to expropriate for a specific purpose must still exist in other, dedicated legislation.
There is a common misconception that the bill will provide the state with the powers needed to expropriate land for land reform purposes. This is not so. The minister has had the power to expropriate for land reform since the mid-1990s but has seldom used it. This is partly because the framework legislation was not in place to guide the correct procedure and method to calculate compensation.
Media reports have understandably linked the bill to land reform, since the “nil compensation” provisions are directed at land reform only. However, it is important to remember that it originates with the department of public works & infrastructure (not land reform), which is also required to regulate the procedure and compensation where property of any kind is expropriated for other purposes, such as building infrastructure.
The latest version of the bill still contains the controversial section 12 (3), which states that a court “may” find it just and equitable to award nil compensation for land expropriated under certain circumstances. However, it should be emphasised that the following checks and balances are in place:
- The bill does not state that nil compensation will be awarded in the listed instances, it simply states that it “may” be just and equitable to do so after considering all relevant factors. In other words, issues such as abandoned land or labour tenant claims should be a consideration to determine if it will be just and equitable to award nil compensation.
- Importantly, the state does not make this decision — the courts do. If the state and the owner/rights holder cannot agree on compensation, mediation must be arranged, following which the courts have to decide what is just and equitable. The state must take the matter to court if requested by the owner.
- Expropriation is always the last resort.
- There is a procedural guarantee contained in the bill that prevents expropriation as the first option. The state can only legally initiate an expropriation after negotiations to buy the property on reasonable terms have failed.
- Expropriation is not a short cut for the state. The procedural requirements contained in the bill make expropriation so cumbersome for the state that it will always be quicker, easier and arguably cheaper for the state to buy property. Expropriation will likely only take place if the owner refuses to sell on reasonable terms.
- Expropriation is only one of many options to obtain land for reform. Both the presidential advisory panel on land reform and agriculture and the minister have emphasised that expropriation is merely one option in the broader toolkit for land reform. The bulk of land reform acquisitions are likely to be based on purchase and sale.
Recent developments to finalise the blended finance scheme for land redistribution indicates that the government prefers to go the route of voluntary sales and is looking to incentivise partnership approaches to land reform. Moreover, the land donations policy, which is still in the drafting process, shows that the government is exploring numerous instruments to drive land reform in SA, and is not solely focusing on expropriation. The extent to which expropriation is required will come down to the success or failure of these voluntary schemes.
The biggest risk is that a landowner/bond holder may have to rely on litigation to get compensation. It has already been stated that the courts will be the final arbiter of compensation and they have traditionally been reluctant to deviate substantially from market value. Though the bill makes it possible for a court to award nil compensation (indeed that possibility already exists), they are likely to only do so under extreme circumstances if the current trend is to be used as an indication.
To date the courts have only sanctioned nil compensation where there is no impact on the owner (where an owner was not compensated for the space used by a farmworker to bury his relatives on the farm where he resides, for instance) or where the proceeds of crime are forfeited to the state.
It is also possible that state officials implementing the new law may offer nil compensation if an owner’s circumstances fall under section 12 (3) and leave it to the owner or bondholder to approach the courts for a determination. This could be costly and cumbersome, and may dampen business confidence at a time when investments are needed to rebuild SA’s economy from the shock caused by the Covid-19 pandemic.
The provisions of the bill are intended to apply to the constitution as currently drafted, and are unlikely to be substantially affected if the constitution is amended. The bill makes provision for just and equitable compensation to be paid as per section 25 (3) of the constitution. The “nil compensation” clause does not replace just and equitable compensation but merely states that a court can determine that it is just and equitable to award nil compensation.
The Agricultural Business Chamber of SA (Agbiz) has always emphasised that the concept of expropriation without compensation is not the desired path for agricultural development and as an organisation we are not in support of it. However, this bill goes beyond the “nil compensation” provisions. It is simply framework legislation to regulate how multiple state entities must exercise the existing powers of expropriation, be it for agricultural, human settlement or industrial development purposes.
To reiterate the point made above, the bill does not state that nil compensation will be awarded in the listed instances, it simply states that it may be just and equitable to do so after considering all relevant factors. Against this backdrop, we do not think much emphasis for driving land reform should be placed on this bill, rather on various options that the advisory panel highlighted in its report, as well as various models from agribusinesses and other agricultural stakeholders.
While the provisions of the bill do not pose a great deal of danger from a legal point of view, the political left may unduly raise expectations that the bill will usher in widespread expropriation at nil compensation. While we do not believe this will easily materialise, it may pose challenges if the expectations of the landless and political left are not aligned to the actual provisions or the frequency it is likely to be used.
Investor confidence will likely also be affected by sentiment, so there is likewise a duty on commentators to temper their communication relating to the bill. If the legitimate danger posed by the nil compensation provisions are sensationalised, it could affect sentiment and the dangers it poses to investor confidence and investment may become a self-fulfilling prophecy.
The Expropriation Bill is a necessary addition to the statute book as the current act is outdated and potentially unconstitutional. If the bill is delayed any further it could hinder infrastructure projects if the state does not have a constitutionally sound mechanism to acquire property for a public purpose/interest when the owner refuses to sell. From a legal point of view, the bill seems to provide for a sound process and contains several checks and balances in favour of landowners and bondholders.
The controversy surrounding the bill, and hence its potential negative effect on investor confidence, stems from the nil compensation provision for land reform. The actual impact of this provision will largely depend on the extent to which the state invokes it, and the willingness of the courts to award compensation that deviates markedly from market value. Expropriation will always remain the last option so the extent to which it is used will depend on the success or failure of other land reform programmes.