A legal analysis of EWC’s controversial ‘nil compensation’ clause

Key topics.Nil compensation for expropriation may be unconstitutional.The Act may violate the rule of law by exceeding constitutional powers.The Act's provisions may not pass the section 36 limitation test..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here..The seventh BizNews Conference, BNC#7, is to be held in Hermanus from March 11 to 13, 2025. The 2025 BizNews Conference is designed to provide an excellent opportunity for members of the BizNews community to interact directly with the keynote speakers, old (and new) friends from previous BNC events – and to interact with members of the BizNews team. Register for BNC#7 here..If you prefer WhatsApp for updates, sign up to the BizNews channel here..By Daniela Ellerbeck on behalf of the FW de Klerk Foundation.Introduction.This article is the second in a series that will deal with the constitutionality of the Expropriation Act, 2024. (For the history of the notion of "nil compensation" for land expropriation, see this article.) This article covers the two main legal concerns regarding the Act, namely:.That the State's expropriation of land for nil compensation is unconstitutional.That the Act is unconstitutional, because it does not conform to the Constitution's founding value of the rule of law..However, before we delve into the Act's constitutionality, let's make sure we are talking the same language:.Property is not limited to land. In fact, the Constitution explicitly states this in section 25(4)(b). The Act simply states that the Constitution's definition of property applies. (See section 1 of the Act.)Expropriation is the compulsory acquisition of property for a public purpose or in the public interest by the State. (See section 1 of the Act.)Public purpose includes any purposes connected to the administration of any law by an organ of state, in terms of which the property concerned will be used by or for the benefit of the public. (See section 1 of the Act.)Public interest is defined by the Constitution as including the nation's commitment to land reform and to reforms to bring about equitable access to all South Africa's natural resources (section 25(4)(a)). The Act expands this definition of public interest to include reforms to redress the results of past racial discriminatory laws or practices. (See section 1 of the Act.).Legal concern no 1 – Constitutionality of "nil compensation":.On the one hand, the Constitution requires that just and equitable compensation must be paid when the State expropriates someone's property (section 25(2) read with section 25(3)). On the other hand, the section 12(3) of the Expropriation Act states that "[i]t may be just and equitable for nil compensation to be paid where land is expropriated in the public interest, having regard to all relevant circumstances". (Own emphasis). These "relevant circumstances" are listed as "including but not limited to:.where the land is not being used and the owner's main purpose is not to develop the land or use it to generate income, but to benefit from appreciation of its market value;where an organ of state holds land that it is not using for its core functions and is not reasonably likely to require the land for its future activities in that regard, and the organ of state acquired the land for no consideration;… where an owner has abandoned the land by failing to exercise control over it despite being reasonably capable of doing so;where the market value of the land is equivalent to, or less than, the present value of direct state investment or subsidy in the acquisition and beneficial capital improvement of the land." (Own emphasis.).Importantly, the above is not a closed list of the type of land the Act can expropriate for nil compensation. It raises the possibility that further circumstances in which nil compensation may be paid can exist..South Africa is founded on the value of constitutional supremacy (section 1(c) of the Constitution). This means that the Constitution is our country's highest law and any other law that is inconsistent with it, is invalid (section 2 of the Constitution). A law that infringes upon a constitutionally protected right will be inconsistent with the Constitution (and invalid), unless it passes the limitation test laid down in section 36 of the Constitution. The Constitution specifically reiterates this when it comes to property rights, explicitly stating that: "[n]o provision of this section [property] may impede the state from taking legislative and other measures to achieve land, water and related reform, in order to redress the results of past racial discrimination, provided that any departure from the provisions of this section is in accordance with the provisions of section 36(1)." (See section 25(8) of the Constitution.).Read more: Expropriation Act fallout: SA institutions sound alarm over threats to property rights and economy.The central question, therefore, is whether nil compensation and just and equitable compensation are the same thing. If they are not, then the Act departs from the provisions of the Constitution and infringes upon property rights. This means that it is inconsistent with the Constitution and invalid unless it passes the section 36 test..Are nil compensation and just and equitable compensation the same thing?.Short answer:.No..Long answer:.Here the starting place is whether the Constitution means nil compensation when it says just and equitable compensation? The fact that there was a failed attempt to change section 25 of the Constitution to explicitly state that the amount of compensation may be nil where land is expropriated for land reform purposes (see this article), is apparent proof that nil compensation and just and equitable compensation are not the same thing. The Act, therefore, departs from the provisions of the Constitution and infringes upon property rights. This means that it is inconsistent and invalid unless it passes the section 36 test..Does Act pass the section 36 test?.Short answer:.No..Long answer:.It is submitted that it does not pass the section 36 test. This can be seen when looking at the relevant factors listed in section 36(1), but specifically the factor about the relation between the limitation and its purpose:.Here the 2017 High Level Panel on the Assessment of Key Legislation and the Acceleration of Fundamental Change's findings that the lack of funding is not the cause for the slow and failed pace of land reform, but rather the causes of the bottleneck are a lack of political will, corruption and a reverting back by the State to an Apartheid-style State-stewardship and elite capture (see pages 34, 37 and 51 of the Panel's report)..This means that the Expropriation Act's provisions for "nil compensation" fail to pass the section 36 test, because it fails to meet the necessity of a relationship between the limitation and its purpose. These provisions are inconsistent with the Constitution and thus invalid..Legal concern no 2 – The Expropriation Act is contrary the rule of law:.The rule of law is one of the Republic's founding values (section 1(c) of the Constitution). This means that the rule of law is one of the values that must be upheld and promoted when interpreting the Bill of Rights (section 39(1)(a) of the Constitution)..One of the aspects of the rule of law is that it requires the Government to operate within the powers conferred on it by the Constitution (see, for example, Fedsure Life Assurance Ltd v Greater Johannesburg Transitional Metropolitan Council 1998 (1) SA 374 (CC) at paragraph 58). The Expropriation Act empowers the Minister of Public Works and Infrastructure to expropriate property for a public purpose or in the public interest (section 3(1)). However, if the State does not derive any power from the Constitution to expropriate land for nil compensation, its conferring of such powers on the Minister is contrary to the rule of law. To the extent that the Minister then expropriates land for nil compensation, the Minister will be acting ultra vires (i.e. outside of the powers the Constitution gives)..A second aspect of the rule of law is that all of the State's actions must be rationally connected to achieving a legitimate purpose (see Pharmaceutical Manufacturers Association of SA, In re: Ex parte Application of President of the Republic of South Africa 2000 (2) SA 674 (CC) at paragraph 85; New National Party of South Africa v Government of the Republic of South Africa 1999 (3) SA 191 (CC) at paragraphs 19 and 24). The Expropriation Act's provisions for "nil compensation" are irrational, because, as set out above, they fail to meet the necessity of a relationship between the limitation and its purpose. These provisions are, therefore, contrary to the rule of law..Conclusion:.The Expropriation Act's provisions for nil compensation depart from the provisions of the Constitution that requires just and equitable compensation, infringing upon property rights. This infringement fails to meet the necessity of a relationship between the remedy and its purpose in order to pass the section 36 test. These provisions are, thus, unconstitutional and invalid. Additionally, these provisions are also contrary to the constitutional value of the rule of law, making them doubly unconstitutional..For this reason, the Foundation urges Members of Parliament's National Assembly to find each other. If at least a third are concerned about the Expropriation Act's constitutionality, they have a month to bring a direct application to the Constitutional Court asking the Court to find the law unconstitutional (section 80 of the Constitution)..Read also:.EWC's gestation – the facts behind the 'nil compensation' panicTrump threatens to cut US aid over SA expropriation lawHidden land expropriation risks that farmers can't ignore: Ian Cox.This article is first published by the FW de Klerk Foundation and is republished with permission.

A legal analysis of EWC’s controversial ‘nil compensation’ clause

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