Driefontein EWC dispute signals danger for property rights in SA: Corrigan
Key topics:
Driefontein case highlights risks of expropriation without compensation.
City of Ekurhuleni claims “nil” compensation citing financial strain.
EWC debate reflects tension between property rights and social needs.
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By Terence Corrigan*
Driefontein became a widely recognised name for South African news watchers three weeks ago. Here, brought to the media’s attention recently thanks to the efforts of the indefatigable business group Sakeliga, was South Africa’s new signature case of expropriation without compensation (EWC).
Coming shortly after President Ramaphosa’s surreptitious signing into law of the new Expropriation Act, it suggested a dark warning of what awaits the country.
The Institute of Race Relations (IRR) has been at the forefront of opposing the EWC agenda; that stands. As a policy, it is at best dangerously misguided and ideologically driven. Its mere existence would give pause to investors; its application would sink South Africa’s economic prospects. That it was loudly trumpeted by the government and the ANC helps explain why economic growth failed to take off during the New Dawn. “We are going to take land and when we take land, we are going to take it without compensation”, declaimed President Ramaphosa in 2018.
Our attention was drawn to this case by our colleague Gabriel Crouse, who spoke to the IRR about the Driefontein case on threats to property rights in June. He noted that a court judgment against the former Driefontein owners was mischaracterised by EWC advocates in Parliament to boost their own cause, and that this specific case points to one of the most dangerous aspects of EWC that occurs when the state “pleads poverty”, as will be discussed below. This particular case is somewhat more complex than some of the media coverage has indicated. As we turn to it now, in detail, it is worth noting that each application of a law or policy must be understood on its particular merits. So it is with Driefontein.
The case stretches back some years, and for that reason needs to be understood as distinct from the new law. In fact, while the new Expropriation Act has been signed by the President, it is in fact not yet operational. The 1975 legislation applied at that time, and continues to do so – for the moment.
The facts of the case seem to be fairly clear, although not always set out comprehensively.
Social housing
In February 2019, the City of Ekurhuleni issued a Notice of Expropriation for “Portion 406 of the Farm Driefontein 85 IR, Measuring 33.6847 Hectares in Extent.” The intention was to take the property to use for a social housing development. The Notice stated that ownership of the property would go to the municipality on 30 April 2019, and required the owner, Business Venture Inv No 900 (PTY) Ltd, to turn over the title deeds. It also listed under the “duties of owner of property” that if compensation was offered, the owner would need to indicate whether or not he or she accepted it, and in the latter case, what compensation would be demanded; and if no compensation was offered, what compensation the owner would deem appropriate and how this should be calculated.
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The property was transferred – in other words, the expropriation occurred, with no apparent dispute – but no agreement was reached on compensation. BVI claimed compensation of R30 050 000, i.e R30 million in direct compensation for the property, and R50 000 as a solatium (a payment for distress and inconvenience enabled by the 1975 Act). After some to-ing and fro-ing, the following year the City and BVI reached an agreement in which the City would make an offer of its own.
This came in the form of a lengthy submission from the City Manager on 17 April 2020. “For reasons fully stated hereunder,” it read, “the CEMM [City of Ekurhuleni Metropolitan Municipality] offers Nil compensation being the sum in the amount of R0.00 (Zero Rand). Consequently, the CEMM shall provide hereunder substantive and yet non-exhaustive grounds for making an offer of Nil compensation as a just and equitable compensation.”
This, then, was the expropriation without compensation, phrased in the dry legalise of “nil compensation”, and justified as “just and equitable”.
How had it come to this? There are essentially two sets of reasoning applied.
Mine dump
One referenced the facts – as the City presented them – of the case. The first was that BVI owed the city R3.4 million. The land that was zoned for agriculture had been used as a mine dump, with probable contamination. As a result, there were related costs for chemical testing and land rehabilitation that might exceed the value of the property. Furthermore BVI had not bought the land at “market value”, but instead seems to have got it at a discount in a corporate restructuring process. The land was unoccupied, contained no improvements, and was not generating an income through productive activity, or through rental to a third party.
The second issue was rather more jarring. The City was stretched financially, and since there were pressing needs on the part of the City’s inadequately housed poorer residents, expropriation was an imperative.
“The [City] finds itself”, it wrote in its “nil” compensation offer explainer, “in a desperate situation wherein its expenditure on temporary services to informal settlements is in excess of half a billion rand per annum”. It further claims this cost would go down if people could be relocated onto more permanent government housing projects.
“In a nutshell,” it claimed, “it is in the public interest or for a public purpose for the CEMM to have expropriated the property in question, in order to fulfil its obligations in terms [of] Section 9 of the Housing Act and more importantly, to give effect to the constitutional rights in the Bill of Rights, particularly the rights in terms of Section 10 (Dignity), Section 24 (Environment), Section 26 (Housing), Section 27 (Water) and any other interrelated right in respect of the poor, marginalized and vulnerable people who are residing in 123 different informal settlements (123 squatter camps), and condensed in 11 900 settlement units (Household) within the jurisdiction of the CEMM. Further, the CEMM has over 43 112 poor people living in the City-owned hostels and has a backlog of housing in excess of 427 802.”
All of this was placing a burden on the finances of the City, and – as it noted – its ratepayers.
Residential development
An interesting wrinkle here was that this was in 2018 – in other words, before the BVI had lodged an application to establish a residential development. The City’s submission put in like this: “At the time of expropriation, the owner’s application was not finalized due to an Appeal by sections of the residents opposing the owner’s land use application. At the time of expropriation, the owner had requested an extension to submit plans for the development in light of the pending Appeal.”
Sakeliga, in its commentary, has – likely correctly – argued that if the permissions had been granted, the land would by now have been developed and housing would have been erected.
Faced with this “offer”, BVI sent a letter in August 2020 to the City, asking it to provide reasons for its submission. The City shot back that as the original submission “contains all relevant particulars”, there is “nothing to add or subtract”.
BVI then turned to the courts to compel a response. The judgment, rendered in October 2021, affirmed that as the City had already provided its reasons, there was no merit in BVI’s demand.
“In other words,” the court held, “the respondent is saying in the above letter that there is no further information beyond that which has already been stated in the letter. It is then for the applicant to assess whether it accepts the offer or not. If it rejects the offer, as it would appear to be the case, then the available avenue to address its dissatisfaction is to” challenge the “nil” compensation amount in court.
In other words, this case was a side-show to the main event, which is a challenge to the quantum of compensation at court. In some quarters, the judgment against BVI has been interpreted as some kind of precedent for EWC. It’s no such thing. The court merely ruled on a narrow procedural matter, that having provided the reasons for its actions, the City was not required to provide them again.
The case has subsequently been referred for court-directed mediation (to take place this month). If no agreement is reached, an 18-day trial is scheduled for next February.
Value
As noted above, the City has relied on two sets of reasons for its determination: factors pertaining to the value of this piece of land, and the ability (or willingness) of the City to pay for it.
There is – on the face of the facts provided – some justification for the argument it makes in the first set. Since the owners have not kept up with their municipal taxes, this is an entirely reasonable consideration in determining compensation. Likewise, one cannot but be sympathetic to the argument that the costs of environmental rehabilitation should be factored into the offer – not least because this arises from the use of the property, not for its zoned purpose of agriculture, but as a dumping site for mining debris.
There is another wrinkle on this, which is that the property does not appear to have been transferred on anything like a market-related basis. Indeed, it seems that its last transfer, in 2004, was for R1 million, which everyone agrees was not a reflection of market value. It appears that the transfer was an exercise among related entities in the restructuring of assets.
None of this has, however, prevented the City from assessing the property at R26 438 000 on the General Valuation Roll. There is less sympathy to be evinced for the second argument: that the City simply doesn’t have the resources to pay for the property. Since it doesn’t have the resources, and since social goals (and dare one add, the imperatives of a political authority) trump the interests of a property owner, the City is entitled to claim this land as its own. Indeed, this is precisely the argument that the protagonists of the EWC agenda have been making for years. And while this case concerns the old Act, it’s important to remember that 2019 was a period during which the ANC and EFF were aggressively campaigning for EWC as a cure for many of the country’s ills. It’s hard not to reach the conclusion that the City was attempting to push the envelope as much as it could in the heady environment of the time. In other words, it probably wanted to set a precedent for more expansive takings down the line. Indeed, even if some compensation should be mandated, it might present a useful tactical lesson in lowballing targeted property owners.
Accept this logic, and there is virtually nothing that cannot be seized by the state in the nominal interests of a greater good. This is among the dynamics that the IRR has long been warning of.
City’s argument
Conceptually, the case hinges on what is “just and equitable”, and what an “equitable balance” looks like. These are the formulations used in the Constitution, and in the new Expropriation Act. The City’s argument is as follows. “In considering an equitable balance between the public interest and those of the landowner, the equitable balance favours the public interest considering…CEMM’s financial burden of over half a billion per annum in the provision of temporary services”.
In other words, the City wants to save money by means of expropriation without compensation.
For years, Crouse has warned (as has the IRR as a whole) against this misinterpretation of the Constitution. IRR Legal, which he heads, has tabled papers in court to correct the kind of error made by the City. The underlying point is that the Constitution, like common sense, clearly stops organs of state from taking away people’s stuff when they go broke. Crouse points out that there is quite a complex scheme laid out in section 139 of the Constitution to deal with municipalities that suffer financial distress, which involves dissolving the City council, appointing provincial administrators, or even national intervention, as well as snap elections. None of this, emphatically, involves taking away private owners’ property in de facto confiscation to save money.
This is important, because with roughly two thirds of municipalities in financial distress, there is a dramatic contest between Crouse’s interpretation of the Constitution and the City’s. If he is right, the Constitution is supposed to protect property owners from municipalities that cannot manage their own costs. The latter, in turn, face the electorate in next year’s elections. But if the City was right, then most municipalities in South Africa could confiscate property to make ends meet.
An additional target of both the City’s case and the expropriation regime is land held for “speculation”. Land, in this view, must be used, and not “hoarded”. This is, however, a very broad idea. As with any asset, land may be acquired and held for some period before it can be brought into use. The idea that something is forfeited if not used (to the satisfaction of the authorities) is a deeply threatening and destabilising one. Furthermore, Crouse has pointed out that the Constitutional Court has specifically said that “speculation” is a protected form of ownership with strength equal to the rest. So, the City appears to be on a losing wicket.
“Sections of the residents”
In this case, there is the complication that however long the land may have been unoccupied, plans had been laid for development the year before the City ordered its expropriation. This had been held up by an objection from “sections of the residents”. Ironically, if the matter had been left on its own, the land might by now have been developed. For the City, the approach is not what might be done in future, but what is being done at present.
Here again, a number of warnings are apposite. As was shown in a recently decided case involving Mpumalanga conservationist Fred Daniel, malign actors can suborn policy and supposed “community” grievances for their own benefit. In that case, it snaked its way up to the office of the provincial premier. Cynics might also note the contrast: that illegal occupiers are accorded considerable latitude after they have managed to establish themselves.
Thus, the City makes the bold assertion: “The ratepayers and the CEMM’s finances must not be frustrated by unjustifiable compensation claims in respect of unused land held for speculative purposes.”
This may speak, unwittingly, to the kernel of the issue. Will this be to the benefit of the City and its ratepayers?
This brings the conversation back to the falsehood on which the entire EWC drive was premised: that expanded state latitude was necessary. Greater state authority, so the proponents of EWC argue (and not just those in the state) will allow the “unjustifiable” focus on profit and privilege to be placed in its proper order behind social needs.
This is not South Africa’s problem, and certainly not at municipal level. Indeed, the scale of governance failings at local level make this a decidedly risky proposition.
Visible disrepair
Ekurhuleni has by no means been immune to this. The City – or rather the various centres that make up the metro – is in a state of visible disrepair. Earlier this year Mayor Nkosindiphile Xhakaza conceded as much in his State of the City address. “The City’s economic triangle of Kempton Park, Boksburg and Germiston, including Alberton and Edenvale, as well as some CBDs of erstwhile towns such as Brakpan, Springs, Benoni, Nigel,” he said, “are characterised by bad, hijacked, dilapidated and dysfunctional buildings that pose high risks to inhabitants, especially when it comes to crime.”
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He went on to discuss failing water supply systems (including a nine-day stint without water in upmarket Bedfordview), potholed roads and unreliable electricity provision.
A little later in the year, the City returned some R9.5 million in grant money – much of it concerning housing and human settlements, the matters behind this expropriation attempt – to the national fiscus, after having failed to spend it.
And around half of the R13 billion the City owes suppliers has been outstanding for more than thirty days, according to information gleaned by Clr Fanyana Nkosi of the Democratic Alliance. This is a concerning state of affairs.
There is an even more sinister aspect to this, which was illustrated by the murder (possible assassination) of Mpho Mafole, group divisional head for corporate and forensic audits, in July. There is speculation that this is related to a multi-billion-rand scandal involving electricity billing.
So while the City’s concern for the interests of its ratepayers is commendable, it is worth making the point that this is a concern unevenly applied. One might even say that this concern is applied unjustly and inequitably. In common with many other municipal governments across the country, it has failed to provide ratepayers with the good governance, liveability and, perhaps above all, the attractive economic environment which would progressively enhance the City and expand the pool of ratepayers.
Failed governance
EWC represents in part an attempt to avoid a reckoning for failed governance and long-term economic retardation. It is a counterproductive ploy, but one that finds an attractive audience among ideologues and the criminal syndicates that have attached themselves to South Africa’s politics. And however attractive “just and equitable” may be in conception, its potential for abuse is obvious, and given the state of governance, abuse is well-nigh inevitable.
For the moment, South Africa should watch this case carefully, for neither in Ekurhuleni nor in South Africa has the final word been spoken. But the stakes are worth more than the cost of “Portion 406 of the Farm Driefontein 85 IR, Measuring 33 6847 Hectares in Extent.”
*Terence Corrigan is the Project Manager at the Institute, where he specialises in work on property rights, as well as land and mining policy. A native of KwaZulu-Natal, he is a graduate of the University of KwaZulu-Natal (Pietermaritzburg). He has held various positions at the IRR, South African Institute of International Affairs, SBP (formerly the Small Business Project) and the Gauteng Legislature – as well as having taught English in Taiwan. He is a regular commentator in the South African media and his interests include African governance, land and agrarian issues, political culture and political thought, corporate governance, enterprise and business policy.
This article was first published by Daily Friend and is republished with permission