New laws spawn uncertainty over property rights

IN THE last parliamentary term, a series of laws with implications for property rights were either debated, passed or signed into law. Section 25 of the constitution, the property clause, protects existing property interests from unconstitutional interferences, while providing a basis for the state to embark on land and other related reforms. Using examples from some of these laws, it is worth showing a little more than passing concern on the general direction in which property rights are headed.

Section 25, provides in the relevant part:

No one may be deprived of property except in terms of law of general application, and no law may permit arbitrary deprivation of property.

Property may be expropriated only in terms of law of general application

for a public purpose or in the public interest; and

– subject to compensation, the amount of which and the time and manner of payment of which, have either been agreed to by those affected or decided or approved by a court…

For the purposes of this section the public interest includes the nation’s commitment to land reform, and to reforms to bring about equitable access to all South Africa’s natural resources; and property is not limited to land.

As such, the following laws are evaluated according to the provisions of the constitution. The Property Valuation Act of 2014 – recently signed into law – establishes the office of the valuer-general, which will, according to principles set out by the minister of rural development and land reform, determine the value of land needed for land reform purposes.

The act is silent on the role of the courts in this valuation process, seemingly in contradiction to section 25(2)(b) mentioned above, which places the court as the final arbiter on compensation.

The Infrastructure Development Act of 2014, which has also been recently signed into law, seeks to fast track the implementation of strategic integrated projects. The Presidential Infrastructure Co-ordination Commission it establishes has the power to expropriate land or other rights in land. It is as yet unclear how this act will interact with the Expropriation Act of 1975, which compensates owners at full market value and for further damages sustained as a result of the compensation.

Presumably, this power to expropriate may also be governed by the Promotion and Protection of Investments Bill, which is problematic for reasons discussed below.

The Promotion and Protection of Investments Bill will allow the state to acquire property as custodian for the disadvantaged. This custodianship is deemed to differ from an expropriation and thus owners whose property is held in custodianship will not be entitled to compensation for the expropriation as is required by the constitution.

The Private Security Amendment Bill, also adopted by Parliament, requires that a minimum of 51 percent of the ownership and control of security companies must be in South African hands – although the minister can still decide on a higher figure. The police ministry has cited security concerns as the key factor driving this bill.

Using examples from some of these laws, it is worth showing a little more than passing concern on the general direction in which property rights are headed.

However, as the Institute for Security Studies (ISS) has pointed out, less than 10 percent of the local private security industry is foreign owned and the rest of the registered security personnel are all South African citizens or have permanent resident status. The ISS concludes that they do not pose a security threat as they are far from being a well-organised, wellarmed force ready to engage in warfare.

As such, the security reasons cited for the limitation in foreign ownership are hardly convincing. The legislation can also be interpreted to mean that the local ownership requirement affects the manufacturers and distributors of security equipment such as Sony and Bosch. This forced sale is an example of excessive regulatory state action, which may be unconstitutional.

The newly passed Restitution of Land Rights Amendment Act of 2014 extends the deadline for lodging land restitution claims from December 1998 to December 2018.

Anthea Jeffrey, writing for the SA Institute of Race Relations, links the Restitution of Land Rights Amendment Act to the above-mentioned Promotion and Protection of Investment Bill. She noted that the state might take land under a restitution claim as “custodian” for land claimants and, since there would have been no expropriation, the owner of the land would not be entitled to compensation.

The Mineral and Petroleum Resources Development Amendment Bill gives the state a 20 percent “free carried” interest in all new offshore oil and gas production. It also “entitles the state to a further participation interest” of an unspecified percentage to be attained either via “acquisition at an agreed price” or through productionsharing agreements obliging the petroleum company in question to “share the extracted resources with the state”.

While the constitution recognises laws that place burdens on property ownership, these laws have to be fairly imposed and should promote legitimate public purposes. It is doubtful whether the mandatory sale of mineral and petroleum resources to the state “at an agreed price” constitute fairness.

The question to be asked is, what else can fall under the “public purpose” or “public interest” definition, and as such can be placed under custodianship?

What sector will be targeted next, ostensibly in efforts to create a more inclusive and equitable society?

Will the state proceed with introducing a free carried interest in the finance sector? Section 25(4)(a) of the constitution defines the public interest or public purpose as including the nation’s commitment to land reform and to reforms to bring about equitable access to all natural resources. This inclusive definition does not delimit the terms “public interest” or “purpose”, which may potentially mean that private property may be expropriated, either directly or as an unintended consequence.

Tellingly, the Promotion and Protection of Investments Bill lists investments to include securities, shares, contractual rights, moveable and immobile property, intellectual property and rights conferred by law. These investments can be expropriated in accordance with section 25 and the state need not pay market value.

Section 25(3) lists the factors to be taken into consideration when calculating compensation for an expropriation, and market value is just but one of these factors. Thus in terms of the Promotion and Protection of Investment Bill, for example, one’s lifetime savings invested in shares within a company may be expropriated, only to be compensated at less than market value.

Clearly, a reading of section 25 in its entirety leads one to conclude that the property clause is premised towards land reform and proving just and equitable access to land and mineral resources.

It is unclear to what extent, if any, the expropriation of securities, shares, contractual rights, moveable and immobile property, intellectual property and rights conferred by law fulfil the “public purpose” or “public interest” requirement.

Section 36(1)(e) of the constitution provides that the rights in the Bill of Rights may be limited “to the extent that the limitation is reasonable and justifiable in an open and democratic society based on human dignity, equality and freedom, taking into account relevant factors including less restrictive means to achieve the purpose”.

Surely, there are less restrictive means of achieving economic growth and increasing state security – means that do not involve a threat to private property ownership?