A judicial duel in the name of “just and equitable compensation”
The phrase “just and equitable compensation” is one of the most pertinent constitutional phrases of our time. Some people may say the potency of this phrase may have been augmented by the recent presidential assent to the Expropriation Bill (now Expropriation Act 13 of 2024). Others may attribute the potent focus on the phrase to a more protracted period of time. In April 1997, South Africa’s Department of Land Affairs published the White Paper on South African Land Policy.
The white paper laid the ground for the state formation of the land reform programme comprising “three principal components”: land restitution, land redistribution, and land tenure reform. What also emerged from an intensely consultative process and its final product – the white paper on land policy- was a government approach to land reform that was market-centric.
Fast forward to 2011, a Green Paper on Land reform was published. This is the document whose intellectual conceptions included the establishment of an office of the Land Valuer-General which eventually resulted in the Property Valuation Act 17 of 2014 (PVA), which provides for the establishment of the Office of the Valuer-General (OVG), to conduct valuations of properties identified for land reform, amongst others. At the time, the atmosphere was of general discontentment with the pace of spatial transformation and financial costs of acquiring private land.
These historical events intersected with judicial jostling between the state and private property owners. There have been many cases on land reform. Chief among the most recent cases is the Moloto case. In Moloto Community v Minister of Rural Development and Land Reform (the Minister) and Others, the Land Claims Court (Now the Land Court) was invited to adjudicate on an amount worthy of being classified as “just and equitable compensation”.
Background of the Moloto Community claim
An invitation was made to the previously dispossessed South Africans, to file claims for the purpose of restitution before 31 December 1998. The Moloto community is one of those who lodged a land claim. The Moloto Community claim was published in the Government Gazette on 27 August 2004. Post investigation and approval of the claim, the Mpumalanga Regional Land Claims Commissioner (RLCC), acting on behalf of the Minister, engaged the affected properties owners with the intention to acquire their properties.
Given the land had been subdivided into multiple properties over the years, the claim affected more than one property owner. Approached with offers for acquisition, some of the property owners agreed to sell while others refused to participate in the process. In October 2009, a dispute between the state and affected landowners ensued when the RLCC, representing the Minister, informed the affected landowners that the state no longer desired to execute a restoration process on behalf of the land claimants. Affected landowners approached the Land Court for intervention. The legal proceedings recommenced in 2020 after numerous postponements and delays.
The Land Court was seized with these considerations:
whether section 23(a) of the Constitution allows a numerical value to represent the current use of the property;
whether the constitution allows the concept of “current use” to be quantitatively assessed (using the OVG’s framework (formula) which includes he computation of current use);
Should the court conclude that “current use” can be numerically assessed, does the court have capacity to determine it in this case;
should the court be unable to quantify “current use value”, how should just and equitable compensation be determined in this case; and costs of the case.
This court case and the already determined market values of the subject properties predate the PVA and its Regulations of 2018, from which the PVA formula was conceptualised. For this case, the court decided that the validity and interpretation of the 2018 PVA regulations were not of its concern.
Court proceedings
The trial recommenced in November 2020. Both the state and the landowners brought expert witnesses to assist the court to come to a determination. The witnesses could not agree on the interpretation of sec 25(3) of the Constitution as it was supposed to apply to the Moloto case.
In assessing whether numerical value can be attached to “current use” of the property as contemplated in Section 25(3)(a) of the constitution, the court opined that the arguments provided by the opposing expert witnesses hold merit. The state’s expert witnesses had indicated that the PVA formula, which the OVG uses, quantifies “current use” and expresses it as a numerical value. This value represents benefits derived from the use of the property. This principle is widely accepted in both valuation theory and practice. The expert witness for the landowners had contended against this perspective and invoked the interpretations of the courts (including the Supreme Court of Appeal, and Constitutional Court). The courts” interpretation has been “contextual”, therefore, qualitative in nature. The courts have applied the “two-step approach. The two-step approach provides for determining market value as a first step of the compensation determination process. Once market value has been determined, the second stage is based on making upwards or downwards adjustments to the market based on the factors inherent in sec 25(3) of the Constitution. “The court opined that both approaches can be appropriately employed based on the type of valuation project engaged.
On the role of “current use value”, which represents the beneficial use of property, plays in arriving at a determining of just and equitable compensation, the court considered these factors. Courts have historically relied on the two step-approach, which is based on determining market value, followed by adjustments based on section 25(3)(a) to (e) of the Constitution. Given the past acknowledgement of the two-step approach, the PVA formula used by the OVG had to be contrasted with the two-step approach to assess its merits.
The OVG formula is quantification of section 25(3) of the Constitution. The formula is based on determining current use (section 25(3)(a)) and market value (section 25(3)(c)), and adjusting for other factors consistent with the provisions of section 25(3)(b), (d) and (e). In contrasting the PVA formula to the two-stage approach, the court found that the PVA formula is not at variance with the provisions of the Constitution. The PVA formula, as a quantitative expression of “current use” is a meritorious formula. The value of property determined by applying the PVA formula may be just and equitable in some cases, and offers of compensation may be based on the PVA value.
In the Moloto judgment, the court further stated that the PVA formula is not the only mechanism to determine just and equitable value (and later just and equitable compensation). In some cases, market value may qualify as just and equitable value (and later just and equitable compensation). In the Moloto case, the court found market value to be the right basis to determine just and equitable compensation.
KEY TAKEAWAYS FROM THE JUDGMENT
Two-stage approach:
The courts” preoccupation with a compensation framework that promotes “just and equitable compensation” yielded the two-stage approach. Cases like Du Toit v Minister of Transport (CCT22/04) have cemented the judicial acceptance of the two-stage approach. In accordance with the two-stage approach, a valuer is required to determine the market value of a property and then proceed to make adjustments in line with the provisions of Sec 25(3) of the constitution.
PVA formula v Two-stage approach
The OVG’s PVA formula is based on determining the market value of the subject property and adding its quantified current use value. The PVA value is sum of the market value and current use value divided by two. The PVA formula has been a subject of professional and scholastic intrigue.
Given the judicial acceptance of the two-stage approach, one of the issues that required clarity in the Moloto case was whether the current use, which has historically been viewed as a qualitative phenomenon, could be quantified. In the court’s opinion, a contextual interpretation of sec 25(3) of the Constitution extends beyond the bounds of quantifying every value contributing element. Some elements cannot be singularly accorded a value but their significance contributes to either erosion or enhancement of value.
The OVG, working with the Minister, to craft the 2018 PVA Regulations, interpreted “current use” as a phenomenon that can be quantified to represent economics benefits derivable from the use of property. In para 60 of the Moloto judgement, the court highlighted that previous judgments have interpreted “current use” as a phenomenon requiring a contextual analysis but further opined that does not preclude a court from attaching a numerical value.
Context occupies a greater role and allows the court to account for facts that are not numerical but serve as value-influencing attributes of a property. The court listed examples of these attributes, and expanded on the fact that while a singular value cannot be apportioned to these respective elements of value, when factoring them as part of a collective, value can be apportioned to them as sum of total which the department may advance as compensation. Therefore, “current use” contains qualitative and quantitative elements, indicating that it can be expressed either contextually or numerically based on prevailing circumstances.
Constitutionality of the PVA formula
Contention arose because the PVA formula contains a quantification of “current use”. It is imperative to remember that Sec 25(3)(a) of the Constitution provides for “current use” as opposed to “current use value”. In the Moloto case, the Land Court acknowledged the formula is logical as a methodological interpretation of the PVA, and section 25(3) of the Constitution, further stating that the formula can be applied to many valuation projects. Therefore, the judgment cemented the view that the PVA formula is not at variance with the two-stage approach and does not offend provisions of the Constitution.
Constitutionality of market value
Prior to the OVG, the valuation approach to land reform was market-centric. Compensation was based on the “willing buyer, willing seller” principle. The practice was condemned in academia as one that strained economic resources the state committed to achieve land reform. The PVA formula represents an acknowledgement of all the provisions of sec 25(3), in contrast to relying on market value (Sec 25(3)(e)). In the Moloto judgement, the court ruled that market value is an acceptable basis for valuation in land reform cases, and can be used in some cases to offer “just and equitable” compensation.
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