Letter from ABSA: Expropriation Bill

Posted 22 August 2009

Portfolio Committee
Committee Secretary
Ms Akhona Busakwe
Fax: 086 664 3859
Email: abusakwe@parliment.gov.za

9 May 2008

Your Ref  Ms Akhona Busakwe
Our Ref   Raksha Singh Semnarayan

Dear Ms Busakwe

Absa Bank Ltd (“Absa”) Comments on the Expropriation Bill
Absa Bank Ltd would like to thank the Portfolio Committee on Public Works for affording it with the opportunity to comment on this important piece of draft legislation.

1. Section 1
An expropriating authority as defined in the draft Bill may expropriate property if it is in the “public interest” or for a “public purpose”“Public interest” is defined as including “the nation’s commitment to land reform and to reforms to bring about equitable access to the Republics natural resources”. “Public purpose” is defined as “any purpose connected with the administration of the provision of any law by an organ of state”.  The Bill is couched in very wide terms by broadening the basis for expropriation by empowering the expropriating authority to expropriate property if it is in either the public interest or for public purpose.

It is strongly suggested that the power of expropriation by the expropriating authority or the Minister responsible for Public Works (“the Minister”), if applicable, should only be exercised if it is both in the “public interest” and “for public purpose”.

It has been noted that the definition of “this Act” in section 1 is stated to include ‘any regulation’ and not necessarily regulations promulgated in terms of the Expropriation Act.  It is submitted that the definition be amended to read as follows: “includes any regulation made in terms of the Expropriation Act”.

2. Section 3
In terms of Section 3 of the Draft Bill, the Minister has the power to expropriate any property subject to the payment of compensation being just and equitable. Although the Bill does provide for court process (as will be discussed further), it is submitted that the powers given to the Minister are too wide bearing in mind the dual alternative definitions as explained above.

3. Section 4
In terms of Section 4(1) of the Bill, the Minister may expropriate property on behalf of a juristic person if the juristic person satisfies the Minister that it requires such property for public purpose or public interest and that it has not come to an agreement with the owner thereof. If the land is expropriated, the juristic person takes ownership of the property. The definition of juristic person is very wide. The Bill further does not provide for any limitation on the rights of the juristic person in terms of what it may or may not do with the property after expropriation and there are no control mechanisms for this purpose. We suggest that the Bill address this issue to avoid the ambit of the Bill being defeated.

4. Section 6
In terms of section 6 of the Bill, the Minister may establish a National Expropriation Advisory Board and Regional Expropriation Advisory Boards. The Board must advise all expropriating authorities on all aspects of expropriation. The Bill does regulate the appointment of Board members by stipulating when persons will be unfit to be elected, but is silent with regards to the minimum requirements of members in respect of, for instance, qualifications and experience. It is suggested that the Bill set out minimum qualification requirements for Board Members.

5. Section 10
In terms of Section 10(1)b) of the Bill, when investigating property for possible expropriation, the expropriating authority is required to consider the existence of unregistered rights in respect of the said property and the need for land, water and related reform in order to redress the results of past racial discrimination. This section does not cater for an investigation into holders of registered rights such as Mortgage Bond and Notarial Leases etc.  We suggest that the fact that there could be Mortgage Bond or Notarial Lease over the property also be taken into consideration in the investigation contemplated in Section 10.

In terms of Section 10(2)b) of the Bill, an expropriating authority may require the relevant Board to investigate certain issues in relation to the property such as the current use for the property, the market value of the property etc. It does not however expressly cover the need to investigate any mortgage bonds registered over the property in favour of any financial institution and consequently any monies owing to such financial institution under the loan agreement. Consequently any compensation determined by the expropriating authority may not be sufficient to cover monies owed to the Bank.  This is a crucial consideration that should be taken into account.

Section 11
Section 11 of the Bill deals with the taking of the decision by the expropriating authority to expropriate land. It specifically provides for publication or service of notices and the time period of at least 21 days within which objections or submissions may be lodged. We suggest that any objection should be lodged prior to the date of expropriation, even though such objection would lead to a delay in the process. Subsection 6 also provides for the expropriating authority to depart from these provisions where it is reasonable and justifiable. This could be to the detriment of the landowner or any holder of rights. Principles of fairness require that the Land Owner be given adequate notice to object to an action that may impact on his/her rights. It is therefore suggested that the Bill makes it clear that the period of 21 days for objection must lapse before any expropriation can take place.

Section 11(1) of the Bill provides that if an expropriating authority contemplates expropriating a property, it must publish a notice to that effect and serve a copy thereof on all persons of whom it is aware whose rights may be materially and adversely affected by the contemplated expropriation.

It is submitted that a mortgagee in respect of a property may be so affected if the property is expropriated.  However, for sake of certainty, the Bill should expressly make provision for the delivery of such a notice to mortgagees.
Provision should be made for the title deeds of property considered and/or identified for expropriation to be endorsed with the notice contemplated in section 11(1) of the Bill and the expropriation notice (section 12).  Then, in the event that a new mortgage is to be registered in favour of a mortgagee, the mortgagee will prior to registration be aware that the property will be expropriated or that expropriation thereof is being considered.

Section 11(6) (b) further requires that an expropriating authority must take into account all relevant factors when determining whether a departure from the required procedures is reasonable and justifiable, which factors include the advice of the board.  The section is however not clear as to whether the advice of the board is to be requested in each instance when an expropriating authority wishes to deviate from the required procedure.

Furthermore, the provision is not clear as to whether the expropriation authority is compelled to follow the advice provided by the board. The Bill should provide clarity in this regard.

6. Section 12
Section 12 of the Bill deals with Notice of Expropriation. Section 12(3)( c) provides that in the event of expropriation of land, a copy of the notice of expropriation must also be delivered to every holder of a registered mortgage bond. There is no similar requirement for registered holders to be notified in the event of other property being expropriated, such as movable property.

These provisions should extend to all holders of registered rights as well.
In terms of Section 12(1) of the Bill any Notice of Expropriation must also be served on every holder of a registered mortgage bond. However this is only after a Notice of Intention to Expropriate has been served and Section 11(1) (Notice of Intention to Expropriate) does not expressly include bond holders.

At this stage the compensation has already been determined without any consideration for bond holders’ interests. If an owner does not notify the bond holder that a Notice of Intention to expropriate has been served it will have no knowledge that this has taken place as the Deeds office is also only notified of an Expropriation Notice and not a Notice of the  Intention to Expropriate.

Section 12(4)(f) of the Bill provides for the withdrawal of any offer of expropriation if the expropriating authority had no knowledge of an unregistered right when the offer was made. Any offer of compensation will thus take into account any holders of unregistered rights having the effect that landowners and holders of registered rights could receive less compensation.

Section 12(4) provides that a notice of expropriation must, amongst other things, include an offer of compensation.  Section 18(1), however, provides that an expropriation authority may offer an amount of compensation to an expropriated owner in the notice of expropriation, but must do so if the expropriated property is land which is not urgently expropriated.  These two sections seem to be in conflict with each other and should be reconciled.

7. Section 14
Section 14(1) of the Bill provides that compensation will be paid to any person holding an unregistered right in the expropriated property, yet the Bill does not clearly define “unregistered right” The Bill merely defines a “holder of an unregistered right”. It is suggested that the term “unregistered right” be defined in the Bill.  It is further suggested that the basis on which unregistered rights will be validated be spelt out in the Bill.

8. Section 15
Section 15(3) (a) and (b) of the Bill sets out the basis on which compensation must be determined and outlines some of the factors which must be taken into consideration. Once again this section does not expressly cover monies owed to financial institutions arising from Mortgage Bonds registered over such property. In fact section 15(3) (b) states that the expropriating authority may determine compensation that is below the market value of the property. In all instances the Bank considers the market value of the property in determining the value of the loan to be advanced to a Borrower. There is therefore a great likelihood that the compensation will not cover the outstanding loan amount. We submit that this is an important  factor for  consideration in the Bill.

It is submitted that the market value of a property is the most reliable and objective means of determining the compensation amount and should definitely bear more weight than any of the other factors.  We submit that the amount of compensation to be paid to an expropriated owner or an expropriated holder should be just and equitable, but do not see the reason for the determination of the amount of compensation to reflect a balance between the public interest and the interest of the affected parties. Consequently, the “purpose of the expropriation” as contained in section 15(3) (a) (v) should not be deemed a relevant factor in determining the amount of compensation but should be used as a relevant factor in determining whether the decision to expropriate is correct.

9. Section 17
In terms of Section 17(1) of the Bill  an owner may deliver a statement to the expropriating authority setting out what compensation it deems as acceptable. Once again this section does not oblige the owner to provide details of any mortgage bond and monies outstanding under loan facility advanced against such bond. This requirement by the owner to provide such details should be inserted in the Bill.

10. Section 21
Although section 21 gives protection in respect of properties subject to mortgage bonds or deeds of sale, the protection would be limited to registered holders whose mortgage bonds have been registered immediately prior to the date of expropriation. The risk for the Bank is that if the bond is not registered at the time of expropriation, the Bank could end up being unsecured. It further allows for an agreement to be reached between the claimant and the mortgagee or buyer, failing which a person may apply to a court whereby the expropriating authority is directed to pay out the compensation money as the court may determine.

Section 21 (1) provides that no amount of the compensation may be paid out to the owner if there is a mortgage bond registered over the property. In essence this section provides that such amount of the compensation required to settle the interests of the mortgagee must be paid to the mortgagee. It does not however address the consequence if such portion of the compensation or total amount thereof is insufficient to settle an outstanding loan. Section 21(2) only gives a mortgagee recourse to court to determine the terms of payment of such compensation, not recourse to re-determine the value of such compensation. It is submitted that the Bill address this issue.

11. Section 22
Section 22(2) provides for the expropriating authority to utilise as much of the compensation money as is necessary for payment of municipal rates and other charges, which would reduce the compensation amount payable to the landowner or registered holder of a right. It is suggested that the wording be amended to provide for, at least, the registered bondholder to receive payment prior to the municipality.

12. Section 24
Section 24(3) provides that any party to an expropriation may request a court to approve any final determination made in terms of section 18(4). This means that the Bank will only have the right to approach the court for recourse after the expropriating authority has made a final determination. This will involve lengthy time delays and the expropriating authority might have reached a different determination with respect to compensation if it was obliged to consider bond holders interests as well at inception of the expropriation proceedings.

Section 24(3) provides for the approval by the court of any final determination of compensation, the determination of the time of payment of compensation, as well as the determination of the manner of payment of compensation.  If the court does not approve any of the aforementioned actions, the matter must be referred back to the expropriating authority for reconsideration.  After such reconsideration, if the parties are still in disagreement, then any party can once again approach the court for approval.

The Bill does not address the situation where the court continues to refuse to approve a particular action in respect of an expropriation. This could lead to a never-ending back and forth referral between the court and the expropriating authority, and could be very costly for both the expropriating authority and the owner of expropriated property.  The process could also unreasonably hold up the payment of compensation to the owner of expropriated property.  The purpose, procedure and effect of this court approval procedure should be clarified and the Bill should be amended accordingly.

13. Conclusion
Section 25 of the Constitution of the Republic of South Africa, 1996, (“the Constitution”) provides that compensation for expropriation must either have been agreed to by those affected or it must have been decided or approved by a court.

The judicial review and court approval procedures set out in the draft Bill may be in conflict with section 25(2) of the Constitution, as it may not conform with the meaning of “decided or approved” as intended by section 25.  Judicial review is limited in its scope and relates more to the procedure followed in determining the compensation than the merits of the issue. The court approval process may focus on the merits but the power of the court in this regard is limited to the process of referral back to the expropriating authority. It can be argued that the intention with the drafting of section 25(2) was for the court to play a significant role in the determining of compensation for expropriation, and accordingly section 24  could be subject to constitutional challenge. The tenor of the Bill could also be subject to constitutional challenge.

The draft Bill should provide a remedy for mortgagees in the event that the owner of expropriated property does not take all possible (or at least reasonable) steps to dispute compensation that is below the market value of the property in question or below the amount owing by the owner to the mortgagee.

In conclusion, it is evident that the Bill will raise controversy in respect of various issues and the implications thereof should be considered in a serious light.

Should you have any queries, please contact Raksha Singh Semnarayan on the contact details below:

Office Tel:  (011) 350-7655
Cell:  082 920 4475
Email:  raksha.semnarayan@absa.co.za

Yours sincerely
Johannes Gouws
Group General Counsel