"Unconstitutional" Expropriation bill will spook investors

Posted 28 July 2015 Written by IOL and Dr Anthea Jeffrey
Category Constitution

The draft Expropriation Bill gives government the right to expropriate land in what it deems is the public interest, paying "just and equitable" compensation. The Bill has been attacked by the banking association and the SA Institute of Race Relations.

A draft law that would allow South Africa’s government to expropriate property without having to pay compensation at market prices would undermine the rights of owners and mortgage holders and deter investment, the nation’s banking industry said.

The Expropriation Bill now before Parliament would give the state the right to seize property in the public interest and pay the owner “just and equitable” compensation, according to Independent Online

President Jacob Zuma’s administration says the measure is necessary to address racial disparities in property ownership dating from white minority rule, which ended in 1994.

The law would force banks to raise mortgage costs or reduce or withhold loans, the Banking Association of South Africa said in a written submission to Parliament’s Public Works Committee, which held hearings on the draft bill on Tuesday. While expropriation is sometimes necessary, the procedures must adhere to international norms and the constitution, it said.

“We are concerned that promulgation of the bill could lead to the further dilution of property rights,” it said. “This has the potential to introduce unintended economic consequences and introduce systemic risk into the sector.”

The association’s 32 members include Standard Bank Group, Nedbank Group, FirstRand’s First National Bank unit and Barclays’ South African unit.

They collectively hold mortgages worth R2.3 trillion ($183 billion), including R70 billion in the agricultural industry.

“We submit that such a bill must not result in discouraging local and international investment,” the association said. “The bill should restrict the definition of property to matters of land reform and equitable access to the country’s natural resources.”

Still unconstitutional

Dr Anthea Jeffery of the SA Institute of Race Relations, says the latest interation of the Bill is as unconstitutional as the previous version issued in 2013. 

"The Bill still seeks to allow 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 might be very soon after the notice of expropriation has been served.

"In similar vein, the right to possess the property will automatically pass to the State on the relevant date in the notice, which could again be very soon after the transfer of ownership.

"Like its predecessor, the 2015 Bill stipulates that the amount of compensation the State plans to pay must be included in the notice of expropriation. However, the current Bill breaks new ground by stating that an owner who objects to a second (not necessarily revised) offer of compensation from the State will be deemed to have accepted that offer if he fails to start court proceedings contesting the amount within 60 days.

Jeffery says another new provision adds that, if a magistrate’s court (or the High Court) ultimately decides on a smaller amount of compensation than the Government has offered, the owner will have to pay the State’s legal costs. These costs will be deducted from the compensation owing to him, leaving only the balance, if any, to be paid to him.

In these circumstances, the expropriated owner – who may already have lost both ownership and possession of his property to the State – will need deep pockets to risk such litigation. He will also be given a mere 60 days in which to weigh the prospects of success, find legal representation, and issue summons. Most individuals will have no practical choice but to accept whatever the State offers.

"Like its predecessor, the Bill seeks to empower the State to take property upfront – simply by notice of expropriation – while leaving it up to affected individuals to seek redress in the courts thereafter, if they can afford this.

"However, ‘self-help’ of this kind is barred by both the common law and the Constitution. Under the common law, the State cannot simply seize property – even a gun likely to have been used in committing a murder – without first obtaining a court order in the form of a search-and-seizure warrant. In addition, a landlord, whether a state entity or a private individual, cannot simply evict a tenant in arrears with rent, but must first obtain a court order.

"As these rules show, the common law protects individuals against unauthorised takings of their property. This protection is all the more important when it is the State that seeks to act in this way, for the State is a bearer of power wholly disproportionate to the puny strength of the subject," according to Jeffery.

Since 1996, the Constitution has thus strengthened common-law protections in three ways. First, the property clause (Section 25) lays down a number of conditions which must be met before any expropriation can be valid. Second, another clause (Section 34) adds that legal disputes must be ‘resolved by the application of law…in a fair public hearing before a court’. In addition, a third clause (Section 26) bars the State from evicting a person from his home without a court order expressly allowing this.

The Government claims the 2015 Bill will bring the current Expropriation Act of 1975 into line with the Constitution, but this is simply not true, according to Jeffery.

"To pass constitutional muster, the 2015 Bill must be comprehensively recast. Among other necessary changes, it must prohibit the State from issuing a notice of expropriation until it has obtained a court order confirming:

  • that the proposed expropriation is authorised by a law of general application and is not arbitrary;
  • that it is objectively in the public interest or for public purposes;
  • that the compensation proposed is indeed just and equitable, reflecting a proper interpretation and application of all relevant factors; and
  • that no person will be evicted from his home without express judicial authorisation.

The Government claims that the Bill is needed to speed up land reform, but this is a tired and unconvincing excuse that brushes over many inconvenient truths. In fact, only 8% of South Africans want land to farm; at least 73% of land reform projects have failed; and the Government has already spent billions of rands on taking hundreds of farms out of production with little benefit to anyone. Such pointless waste must stop, not be given further impetus.

Government says the Expropriation Bill is needed to speed up the infrastructure programme. But this has stalled because of other policy mistakes, including a quota-driven affirmative action policy that has left many state entities without the experience to manage large projects, says Jeffery.

"However, in putting forward this flawed rationale, Mr Nxesi implicitly acknowledges that the Expropriation Bill will by no means be confined to farmland. Many people outside the agricultural sector have long tended to believe that the Bill would not affect them, but this is an illusion.

"In its current form, the Bill is a draconian measure giving all state entities the power to take from farmers, miners, firms, and ordinary people their most important assets – often their sole assets, built up over a lifetime of endeavour. In return, less than adequate compensation will be paid. Moreover, once the Bill has been put on to the Statute Book, there will be little to prevent hundreds of state entities from resorting to it ever more often."


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