Brief Summary

Land Reform — Compensation for expropriation — Calculation of just and equitable compensation for land awarded to labour tenant — Owner's awareness of tenant's claim at time of property purchase — Land Claims Court's valuation based on agricultural zoning rather than developmental potential — Appeal upheld, compensation amount increased from R1,500,000 to R1,800,000.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings were an appeal to the Supreme Court of Appeal of South Africa against the quantum of compensation determined by the Land Claims Court (LCC) in consequence of an award of land to a successful labour tenant claimant under the Land Reform (Labour Tenants) Act 3 of 1996. The appeal did not concern whether the labour-tenant award should have been made; it concerned the amount of compensation payable to the owner for the acquisition of the land by the labour tenant.

The appellants were Johannes Uys N.O and Dirk Cornelius Uys N.O, sued in their capacities as trustees of the Dee Cee Trust (the owner of the affected farm). The first respondent was Mr Msindo Phillemon Msiza, the labour tenant who was awarded the land. The second respondent was the Director-General for the Department of Rural Development and Land Reform, and the third respondent was the Minister for the Department of Rural Development and Land Reform.

Procedurally, a labour-tenant claim had been lodged and processed in the late 1990s, and the land was awarded to Mr Msiza in 2004. After prolonged negotiations over compensation failed, Mr Msiza approached the LCC in 2012 for a determination in terms of s 23(2) of the Act. The LCC determined compensation at R1.5 million. The Trust obtained leave to appeal to the SCA. Agri SA was admitted as amicus curiae to make submissions directed at the proper role of market value in the constitutional enquiry into just and equitable compensation.

The general subject-matter of the dispute was the constitutional and statutory method for calculating just and equitable compensation (in terms of s 25(2)–(3) of the Constitution) for land acquired pursuant to a successful labour-tenant claim, particularly where the land might otherwise have development potential, and where the owner purchased the land knowing of an existing labour-tenant claim.

2. Material Facts

The property in issue formed part of a farm known as Remainder of Portion 4 (a portion of Portion 2) of the farm Rondebosch 403 JS, situated in the district of Middelburg, Mpumalanga. The specific land awarded to Mr Msiza measured 45.8522 hectares (out of a larger property of approximately 352 hectares).

It was common cause that the Msiza family had continuously occupied the land since at least 1936. Mr Msiza’s grandfather was recognised as a tenant with rights to reside, crop, and graze cattle in consideration for labour. That arrangement was recorded in a contract concluded under s 4(1) of The Native Service Contract Act 24 of 1932. The family continued to exercise those rights.

On 5 November 1996, Mr Msiza’s father lodged a claim to be awarded land as a labour tenant under Chapter 3 of the Land Reform (Labour Tenants) Act. The claim was acknowledged by the Director-General on 21 November 1996, and the then owner was notified on 2 December 1996. Notice of the claim was published in the Government Gazette on 3 January 1997.

The Dee Cee Trust became the owner of Rondebosch on 9 May 2000, pursuant to a sale agreement concluded on 17 December 1999, at a purchase price of R400 000. The Trust’s knowledge of the claim and the presence of the Msiza family at the time it acquired the farm was common cause.

After the LCC awarded the land to Mr Msiza on 16 November 2004, the parties attempted to agree on compensation. The Minister offered R408 000 and later R550 000, which the Trust rejected. A proposal that the Msiza family accept alternative land instead of the awarded portion was also rejected. The matter then stalled until Mr Msiza brought the compensation-determination application in August 2012.

The SCA recorded that expert evidence established two potential market valuations depending on the assumed “highest and best use.” If the land was treated as having residential development potential, the agreed market value was R4.36 million. If treated as agricultural land (reflecting its then use and constraints), the agreed market value was R1.8 million.

A significant factual feature for the SCA was that the State’s valuation expert, in arriving at the R1.8 million figure, expressly took account of the land’s historic and current use by the Msiza family, its lawful use, and the labour-tenant judgment, and concluded that agricultural use was the “highest and best use.” In other words, that valuation treated the labour-tenant claim and its effects as relevant to market value.

The LCC accepted R1.8 million as the market value but then deducted R300 000 when arriving at the final compensation figure of R1.5 million, reasoning (among other things) that there was a “disproportionate chasm” between the Trust’s purchase price and the amount claimed, that the Trust had made no significant investment, that the land claim existed when the Trust purchased the farm, that land reform objectives should not saddle the fiscus with “extravagant” claims, and that the Msiza family had long lived and worked on the farm. The LCC also found there had been no direct State investment or subsidy in the acquisition or capital improvement of the land.

3. Legal Issues

The central legal questions before the SCA concerned the proper determination of “just and equitable” compensation under s 23(1) of the Land Reform (Labour Tenants) Act read with s 25(2)–(3) of the Constitution, in circumstances where the land had asserted development potential.

A primary issue was whether the land’s market value should be assessed on the basis of residential development potential (R4.36 million) or on the basis of agricultural use (R1.8 million). This issue raised a more specific legal question: whether the Pointe Gourde principle required the court to ignore the depreciation in value attributable to the labour-tenant claim when determining market value, with the effect that the land should be valued as if unburdened by the claim.

A further issue concerned the correctness of the LCC’s application of the constitutional compensation enquiry after determining market value, particularly whether the LCC was entitled to deduct R300 000 from the accepted market value to reach what it considered a just and equitable figure, and whether that deduction had a rational foundation in the relevant facts and statutory/constitutional factors.

In character, the dispute was primarily about the application of law to fact and evaluative judgment within a constitutional framework. The existence of two valuations and the Trust’s knowledge of the claim were not treated as materially disputed; the dispute centred on the legal consequences of those facts for market value and for the ultimate “just and equitable” determination.

4. Court’s Reasoning

The SCA located the compensation enquiry in s 23(1) of the Land Reform (Labour Tenants) Act, which entitles an owner whose rights are affected to just and equitable compensation as prescribed by the Constitution. It further referred to s 22(5) of the Act, which instructs the court, when determining the nature of its order, to consider factors including the desirability of assisting labour tenants to establish themselves, the goals of the Act, and the requirements of equity and justice.

The court emphasised that the governing constitutional standard is found in s 25(2)–(3) of the Constitution, which requires compensation that reflects an equitable balance between the public interest and the interests of those affected, having regard to all relevant circumstances including current use, history of acquisition and use, market value, State investment/subsidy, and the purpose of the expropriation. In applying these provisions, the SCA relied on Du Toit v Minister of Transport 2006 (1) SA 297 (CC) for the proposition that the Constitution, rather than pre-constitutional statutory formulae, sets the standards for compensation, and that compensation must comply with the Constitution’s “spirit, purport and objects” and with s 25 in particular.

In addressing methodology, the SCA accepted the “two-stage approach” described in Du Toit, namely that market value often serves as a convenient starting point because it is relatively quantifiable, after which the other s 25(3) factors may justify adjustment. At the same time, it reiterated that market value is only one factor and that the approach must be applied carefully so that the s 25(3) factors are not improperly subordinated.

On the market-value dispute, the SCA held that the Pointe Gourde principle did not assist the Trust. The Trust’s argument was that the development-impairing effect of the labour-tenant claim should be ignored, yielding the higher valuation based on residential potential. The SCA explained the Pointe Gourde principle in its standard expropriation form (also reflected in s 12(5)(f) of the Expropriation Act 63 of 1975) as excluding from compensation increases or decreases in value attributable to the expropriation scheme itself.

However, the SCA reasoned that the present case was materially different because the labour-tenant claim and the legislative steps to enforce it were already in place and known when the Trust purchased the farm. This meant that, at the time of acquisition, the claim was a pre-existing impediment to development which would have influenced what a willing buyer in the Trust’s position would pay. The court considered Port Edward Town Board v Kay 1996 (3) SA 664 (A), which held that where a purchaser buys property with knowledge of an existing impediment that depresses value, that knowledge is reflected in the purchase price, and the purchaser has already had the “benefit” of that depreciation; to disregard it later when selling under expropriation would improperly advantage the owner. Applying this reasoning, the SCA concluded that the Pointe Gourde principle was not applicable where the owner bought with knowledge of the impediment and is later expropriated.

Accordingly, the court held that the correct market value was R1.8 million, not R4.36 million. It accepted that the State expert’s agricultural valuation was premised on an assessment that already took into account the historic/current use and the labour-tenant claim’s effect on lawful use and highest-and-best-use.

Turning to the LCC’s R300 000 deduction, the SCA held that there was no rational basis for it. It rejected the LCC’s view that there was a “disproportionate chasm” between the Trust’s purchase price and the later market valuation, reasoning that land values increased over time and that escalation did not itself demonstrate disproportionality. The SCA further reasoned that multiple considerations relied upon by the LCC—such as the Trust’s lack of significant investment, unchanged use, knowledge of the claim, and the Msiza family’s long occupation and labour-tenant status—were already accounted for in the market valuation accepted by the LCC. In that context, the SCA held that the LCC’s characterisation of the Trust’s claim as “extravagant” was unjustified on the record before it.

The SCA also held that there was no evidentiary foundation for the suggestion that the fiscus could not pay compensation at the R1.8 million level; indeed, it recorded that the State had accepted that valuation as appropriate. On this basis, it concluded that the LCC had arbitrarily deducted R300 000 without a rational foundation in the established facts and relevant factors, and that the deduction could not stand. The SCA therefore fixed just and equitable compensation at R1.8 million.

On costs, the SCA addressed the LCC’s usual practice of making no costs order absent exceptional circumstances (a practice recognised by the SCA, with reference to authority). It found exceptional circumstances in the conduct of the Minister and the procedural history: Mr Msiza had been compelled to litigate because negotiations had stalled, and the Minister had accepted shortly before trial that R1.8 million was appropriate but did not tender it. The SCA treated this as extreme dilatory conduct and a failure to make an appropriate tender, justifying costs orders in favour of both the Trust and Mr Msiza in the LCC. For the appeal, it differentiated between the Trust’s failure on its main attack (development-value/Pointe Gourde) and its success on the deduction issue, and adopted an agreed apportionment whereby the Minister would pay 70% of the Trust’s appeal costs and all of Mr Msiza’s appeal costs.

5. Outcome and Relief

The SCA upheld the appeal with costs and amended the LCC’s order by substituting the compensation amount of R1 500 000 with R1 800 000 where it appeared in the operative paragraphs of the LCC order.

The SCA ordered that the third respondent (the Minister) pay the first respondent’s costs and 70% of the appellants’ costs of appeal, including the costs of two counsel.

It further amended the LCC’s costs order by substituting paragraph 5 with an order that the second respondent (the Director-General) pay the costs of the applicant (Mr Msiza) and the Dee Cee Trust, including the costs of two counsel.

Cases Cited

Du Toit v Minister of Transport 2006 (1) SA 297 (CC).

Ex parte Former Highland Residents: In re Ash and Others v Department of Land Affairs (as referenced in Du Toit v Minister of Transport 2006 (1) SA 297 (CC)).

Pointe Gourde Quarrying and Transport Co Ltd v Sub-Intendent of Crown Lands [1947] AC 565 (P.C).

City of Cape Town v Helderberg Park Development (Pty) Ltd (429/05) [2006] ZASCA 91; [2007] 1 All SA 517 (SCA); 2007 (1) SA 1 (SCA).

Queensland v Murphy [1990] HCA 42; (1990) 95 ALR 493 (HC).

Port Edward Town Board v Kay 1996 (3) SA 664 (A).

Kerksay Investments (Pty) Ltd v Randburg Town Council 1997 (1) SA 511 (T).

Abrams v Allie N O & others 2004 (9) BCLR 914 (SCA).

Msiza v Director General, Department of Rural Development and Land Reform and Others 2016 (5) SA 513 (LCC).

Legislation Cited

Constitution of the Republic of South Africa, 1996, section 25(2) and section 25(3).

Land Reform (Labour Tenants) Act 3 of 1996, section 22(5), section 23(1), and section 23(2), and section 19(1)(a) (as referenced in section 22(5)(e)).

Expropriation Act 63 of 1975, section 12(5)(f).

The Native Service Contract Act 24 of 1932, section 4(1).

Restitution of Land Rights Act 22 of 1994 (section 2 referenced in the discussion of Ex parte Former Highland Residents: In re Ash and Others v Department of Land Affairs).

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that the correct starting point market value for the land, in the circumstances of this case, was R1.8 million based on agricultural use, because the owner acquired the property with knowledge of the labour-tenant claim and the claimant’s presence, which constituted a known impediment to development potential affecting what a willing buyer would pay.

The court held that the Pointe Gourde principle did not apply to require ignoring the depreciation attributable to the labour-tenant claim, because the claim was a pre-existing impediment known to the purchaser at acquisition, and disregarding it would improperly advantage the owner who had already benefited from the depreciated purchase price.

The court held that the LCC’s additional deduction of R300 000 from the accepted market value was arbitrary and unsupported by facts warranting a downward adjustment, particularly where the factors relied upon were already taken into account in the market valuation and where there was no evidentiary basis for treating the claim as extravagant or unaffordable to the fiscus.

The court held that exceptional circumstances justified costs orders against the State in the LCC and apportioned costs on appeal to reflect the Trust’s partial success.

LEGAL PRINCIPLES

Just and equitable compensation for expropriation (or acquisition pursuant to labour-tenant legislation) is governed by section 25(2)–(3) of the Constitution, requiring a balance between the public interest and the interests of those affected, assessed with reference to all relevant circumstances including (but not limited to) market value.

Market value is often a convenient starting point in applying section 25(3) because it is relatively quantifiable, but it is not decisive and must not be treated as having automatic primacy over the other constitutional factors; the assessment requires careful consideration to ensure that the constitutional enquiry does not collapse into market value alone.

The Pointe Gourde principle (and its statutory analogue in section 12(5)(f) of the Expropriation Act 63 of 1975) excludes from compensation value changes attributable to the expropriation scheme. However, where an owner purchased property with knowledge of a pre-existing impediment affecting development potential and price, the Pointe Gourde principle does not require the impediment to be ignored in favour of a hypothetical unimpeded valuation; the impediment forms part of the real-world market circumstances affecting what a willing buyer would pay.

A court may not adjust compensation away from an accepted market valuation by an amount lacking a rational foundation in the facts and relevant constitutional/statutory factors. A deduction (or addition) to market value must be supported by the established circumstances relied upon to render the final figure just and equitable.

In costs, while the LCC may often make no order as to costs absent exceptional circumstances, dilatory conduct by the State and a failure to make an appropriate tender despite accepting a valuation may constitute exceptional circumstances justifying adverse costs orders, and appellate costs may be apportioned to reflect partial success on distinct issues.

Uys N.O and Another v Msiza and Others (1222/2016) [2017] ZASCA 130; 2018 (3) SA 440 (SCA) (29 September 2017)