AGRI SA INPUTS TO THE EXPROPRIATION BILL

1. AGRI SA INPUTS TO THE EXPROPRIATION BILL PORTFOLIO COMMITTEE ON PUBLIC WORKS Annelize Crosby

2. Introduction and background • Agri SA is a federation of agricultural organisations comprising of 9 provincial agricultural unions and 24 commodity organisations. • We represent a diverse group of farmers irrespective of gender, colour or creed. • Agri SA supports orderly land reform - equitable land distribution is a prerequisite for rural stability and inclusive rural development.

3. Introduction and background • Agri SA general views on expropriation : • Only used as measure of last resort where negotiation fails; • Fair procedure – principles of administrative justice incorporated; • Clear purpose for expropriation; • Always afforded recourse to the courts – to contest both the merits of expropriation and the amount of compensation • Compensation should never be dependent on the state’s ability to pay; • Transparent, professional valuation process; • Ne deferred payment of compensation • Opposed 2008 Bill on the basis that it restricted access to courts, not in line with sections 25, 33 and 165 of the Constitution.

4. Introduction and background • 2015 Bill better aligned to the Constitution • Applaud DPW for the extensive and inclusive consultation process on 2015 Bill. • Significant improvement from 2008 Bill – remaining areas of concern limited.

5. General Comments • Agri SA supports the FAO best practice principles: • Protection of due process and fair procedure • appropriate advance consultation; • participatory planning and accessible mechanisms for appeals; • limited discretion of officials. • Good governance • Accountability and Transparency • Equivalence in compensation • Claimants should as far as possible be placed in the same position as was the case before the expropriation • No one wants to be subjected to expropriation – farmers lose their home, livelihood and links to the value chain. • Daunting prospect of litigating against state.

6. Specific Comments Definitions • “expropriating authority” • Very wide definition, • Should be aligned with section 239 of the Constitution • “public interest” • Broad definition leaves room for interpretation and uncertainty • Possible conflict with section 25(1) of the constitution; no law may permit arbitrary deprivation of property. • Propose: move discretionary determination from the executive authorities to the legislative authorities.

7. Clause 5: Investigation and gathering of information for the purposes of expropriation • Gathering of data relevant to the factors used to calculate compensation crucial to “just and equitable” outcome. • Bill should provide for investigations to be undertaken by persons with the relevant skills and expertise: • valuers; • agricultural economists; • actuaries; • etc.

8. Clause 5(4) (a): Valuer’s authority to request documentation in the owner’s possession • Due regard must be shown to the owner’s right to privacy. • These should be restricted to official documents such as title deeds, water use authorisations etc. • Should not be obliged to disclose any information that could place the owner is a compromised position when negotiating a price for the farm. • Potential conflict with section 68 (1) (6) (i) of the Promotion of Access to Information Act • All information supplied to valuer must be kept confidential to protect the owner’s trade secrets and personal information.

9. Clause 5(5): Owner required upon request to provide the names and addresses of all persons holding unregistered rights in the property. • Owner not always aware that certain practices such as collecting wood equates to a right, therefore not always aware of all rights exercised in relation to property. • Dire consequence for non-compliance = criminal offence • In light of punishment for non-compliance; request a “tick list” of possible unregistered rights sent out to owner with notice of intention to expropriate to assist land landowner. • Also applicable to s 7 (2) (f) (i) & s 8 (4) (e)

10. Clause 6: Consultation with municipality • This clause is welcomed as it is the municipality that will need to provide services to new developments such as resettled communities or agri-villages. Clause 8: Notice of expropriation • Agri SA welcomes the detail in which the processes are set out in this section. • Agri SA particularly welcomes the requirement that offers of compensation must be accompanied by documentation as to how the compensation was calculated; • This is welcomed as Agri SA’s members have struggled to get copies of valuation reports in restitution cases in the past

11. Clause 8: Notice of expropriation • Number of commentators concerned about expropriation before determination of disputes by courts; • Agri SA sought advice on this from senior counsel – Haffajee judgement of relevance. • Can be interpreted in two ways – both equally plausible: • - i) that compensation must be fixed before expropriation takes place and; • ii). that compensation may be fixed as soon as possible after the expropriation takes place.

12. Clause 8: Notice of expropriation (continued) • In paragraph 35 of the judgement, Judge Froneman states: “The text of section 25 does not exclude an interpretation that compensation must precede expropriation. The language of the clause is compatible with compensation being a condition precedent to a valid expropriation, but the opposite is equally plausible.”

13. Clause 8: Notice of expropriation (continued) • Propose a new clause 8(1): "8 (1) If, in the circumstances described in 7(7) (a) , an expropriating authority decides to expropriate a property, the expropriating authority must, prior to the delivery and publication of the notice of expropriation in terms of subsections (2) and (3) below, apply to court for the determination of the compensation payable in consequence of such expropriation, determined in accordance with the provision of section 21 below. Save that this section shall not apply where: (a) the person whose property or rights are expropriated agrees that expropriation may be effected prior to the determination of the compensation payable in consequence thereof; or (b) it is in the public interest that the property be expropriated prior to the determination of compensation."

14. Clause 10: Verification of unregistered rights in expropriated property • Clause 10(5): If the expropriating authority determines that a claim in respect of an unregistered right is invalid, claimant must be able to refer the matter to a court for determination.

15. Clause 11: Consequences of expropriation of unregistered rights and duties of expropriating authority • Provision makes owner liable for compensation to the holder of an unregistered right if the owner knew of its existence and did not disclose it. • Landowner may be aware of people gathering firewood or accessing graves, but do not know that these are compensable rights. • Suggestion: List of possible unregistered rights to be provided in notice of expropriation. • Undue burden on owners to know exactly who is exercising what rights on their farms (keeping in mind that some farms are very isolated and remote).

16. Clause 12: Compensation for expropriation • Issue of compensation paramount Agri SA position: • No land owner should unduly benefit from land reform; • However, no individual landowner should be unduly penalised for something which is in the collective national interest. • Landowners should therefore not be under-compensated for their property

17. Agri SA acknowledges that market value is not the only consideration, however it still has a central role to play in the approach adopted by our courts. • Khumalo v Potgieter & Du Toit v Minister of Transport: • Start at market value (only factor that can be determined independently); • Apply other factors listed in section 25 (3) of the Constitution • Arrive at just and equitable compensation • Agri SA accepts section 25 “just and equitable” as basis for compensation; • However we also subscribe to the principle of “equivalence” as recommended by the FAO

18. “Equivalence” As recommended by the FAO report on compulsory acquisition and compensation • “affected owners and occupants should be neither enriched nor impoverished as a result of the compulsory acquisition. • Financial compensation on the basis of equivalence of only the loss of land rarely achieves the aim of putting those affected in the same position. • Money paid cannot fully replace what is lost. • There are strong arguments for compensation to improve the position of those affected wherever possible.”

19. We believe that adherence to “equivalence” will result in the most just and equitable outcome for all parties involved. • Agri SA’s views land reform as a national priority, and as such should be funded with general taxpayer money. • Individuals belonging to one industry cannot be expected to bear the costs of a national priority. • Landowners, whose land is earmarked for land reform purposes, must be placed in a position to continue farming elsewhere should they wish to do so.

20. Clause 12.2 “Solatium” • As per this clause, the fact that the property was taken without the owner’s consent cannot be factored in when calculating the compensation. • Agri SA proposes that this clause be deleted. • Expropriation without consent is a traumatic experience often causing financial loss, emotional trauma and suffering. • The concept of a “solatium” as it appears in the Expropriation Act (1975) should therefore be retained and actual financial loss resulting from the expropriation should also be compensated for. • Constitutional implications – Section 25 (3) states that compensation “must be just and equitable…having regard to all of the relevant circumstances…”

21. Clause 13: Interest on compensation • Interest paid should be the greater of the amount; • Prescribed in terms of the PFMA (Public Finance Management Act); or • Interest rate payable by the expropriated owner in satisfying a debt secured by the land. Clause 15: Offers of compensation • Deeming provision: acceptance of offer within 60 days: 60 days not sufficient time to consider and institute legal proceedings. • Deeming provision should be subject to right of courts to override this in appropriate circumstances. Clause 17: Payment of amount offered as compensation • Agri SA proposes that the full 100% of compensation offered should be paid to the owner on the date on which the state takes possession of the property.

22. Clause 18: Property subject to mortgage bond or deed of sale • Agriculture by nature heavily reliant on credit. • Agri SA recognises the legitimate right of bondholders to be compensated; • However, the interests of the bondholders should not outweigh the legitimate interests of the land owner; and • Under no circumstances should an expropriation lead to insolvencyon the part of the land owner because the compensation is not sufficient to settle the loan secured by the mortgage bond. – Not a “just and equitable” outcome. • Apportionment of compensation between the land owner and the financial institution therefore critical.

23. Clause 18: Property subject to mortgage bond or deed of sale Complication: • South African banks are legally obliged to use market value as the basis on which real security for loans are measured. • Where compensation paid upon expropriation is less than the market value, there may be a shortfall between the total compensation provided and the amount lent to the land owner. • In South African law, the owner as well as the mortgagor have real rights in the land (relationship between a legal person and an object). • Expropriation dissolves all real rights in the land but does not automatically dissolve the contractual right between the lender and the borrower (relationship between a legal person and a legal person). • lender will still be liable to pay the financial institution the full extent of the loan, albeit an unsecured loan following the expropriation.

24. Financial Institution Owner Land Contractual right Unaffected by Expropriation Real Right Real RightDissolved by expropriation (Ownership) (Mortgage)

25. Clause 18: Property subject to mortgage bond or deed of sale • Land is often the farmer’s single greatest capital asset as well as his or her only source of income. • If the compensation received is significantly less than the outstanding loan = can result in the land owner with more debt than assets and no form of income to repay the balance of the loan. • The credit extended by the financial institution would not be regarded as reckless, nor was the farmer over-indebted before the expropriation. • In this scenario, we strongly believe that compensation below market value would not be “just and equitable, reflecting an equitable balance between the public interest and the interests of those affected...”

26. Clause 18: Property subject to mortgage bond or deed of sale Foreign jurisdictions: • Risk identified and specific anti-insolvency provisions written in. • Debts are ‘deemed’ to be extinguished by the expropriation (which is not currently the case in this Bill). • Also; in all of these countries compensation is based on market value + actual financial loss; • The compensation awarded in these foreign jurisdictions will always be enough to satisfy the loan, because the loan is based on the market value of the security and compensation is also based on market value. NB! - In South Africa: • “just and equitable” compensation, not market value; and • expropriation Bill does not expressly extinguish all debts related to the property (contractual right remains) • Can therefore result in owner’s insolvency!

27. Agri SA position: • Supports the wording of clauses 18(1) and (2) as it obliges owner and bondholder to agree on apportionment, failing which a determination is made by a court. • Whilst Agri SA recognizes the critical importance of investment in the sector, we cannot support a scenario where the landowner alone carries all the risk should the compensation not be able to meet the debt secured by the bond. • This is one of the reasons why market-related compensation is so important to our members and our sector. Risk: If financial institutions were to consider farms too great a risk, there are very real implications for investment in the sector and future production. Equitable balance must be achieved!

28. Clause 21: Determination by court • There should be unrestricted access to the courts to contest not only the amount of compensation, but also the merits, and scope of the expropriation itself. • Without in anyway derogating from the right to access a court of law; we believe provisions should also be made for voluntary alternative dispute resolution mechanisms such as mediation. • Costs of launching a court application a obstacle; • ADR can alleviate burden. Clause 26: Expropriation Register • Agri SA proposes that the expropriation register should be open for public inspection and same should be expressly stated in the Bill. • This will help alleviate fears and manage expectations of landowners.

29. Conclusion • International experience shows that expropriation does not always speed up land reform efforts. • However it may have a role as a last resort. • Also a necessary tool for other government functions as articulated in the Constitution. • Fair and Transparent process as well as market-related compensation most important aspects to ensure equitable outcome. • Subject to the proposed amendments detailed above, we believe that the Bill is as substantial improvement on the 2008 Bill.

30. Thank you!