The most contentious of these issues is the extent to which the idea of public interest can justify theexpropriation of private property to transfer it to other private parties, also known as third-party transfers. The classic example of third-party transfers is in the area of land reform where the state expropriates private property and transfers it to other private parties in terms of a land reform programme.
These third-party transfers are authorised by the Constitution and takes place in terms of legislation. In that sense the courts’ deference is warranted. Section 25(2) of the Constitution states that property may only be expropriated (taken without the consent of the owner concerned) in the public interest and compensation must be paid.
It is also accepted that third parties, responsible for such things as generating electricity or constructing railway lines, are permitted to have private property turned over to them in order to fulfil these duties. In that regard the purpose of the expropriation (generating electricity) is a valid public purpose and the fact that a third party performs such functions does not detract from its legitimacy. Normally, the state (through legislation) authorises the third party to perform functions on its behalf and allows the expropriation of property so that the third party can fulfil such functions.
However, it is questionable whether the transfer of private property to a third party for the purpose of economic development is in the public interest. The problem with this type of situation is that it allows the third party to acquire private property that it was not able to obtain in the open market and to make a profit on such property.
Foreign case law, such as Kelo v City of New London (US Supreme Court) in 2005 and Regina v Wolverhampton City Council (UK Supreme Court) in 2010, suggests that third-party transfers for economic development will be allowed if it takes place in terms of a detailed authorising legislative scheme, since in that case the deference of the courts will be required.
However, the expropriation of private property to allow another private party to make a profit by developing the property has led to a lot of criticism from legal academics and other public interest groups. Some critics fear that all private property is susceptible to be taken if the person that acquires the property after expropriation promises to make more economical use of the property.
In South African law this issue came before the Free State High Court in Bartsch Consult (Pty) Ltd v Mayoral Committee of the Maluti-A-Phofung Municipality in 2010, albeit in a slightly disguised form. The court upheld the expropriation of private property for the primary purpose of constructing a road and the secondary purpose of doing all things necessary in connection with building that road.
Despite evidence that a part of the expropriated property was to be transferred to a third party to build a shopping mall, the expropriation was upheld, because according to the court the expropriation of the property for building a shopping complex fell within the ambit of doing all things necessary in connection with building the road.
It is unclear how the building of a shopping mall, as opposed to the expropriation of gravel alongside the road, is in connection with building a road. Even if property was expropriated in order to erect a petrol station next to the road with amenities for travellers to rest, an argument can be made that it is in connection with building a road. However, the construction of a shopping mall is too far removed from doing all things necessary in connection with building to road to justify the expropriation of property for that purpose.
The court, in justifying its decision to uphold the expropriation, noted the various economic advantages that the shopping complex will bring to the local community. These benefits can include an increase in employment opportunities and additional revenue for the relevant municipality to implement further social and economic revival programmes.
Although the increase in revenue and employment opportunities can be regarded as constituting a public purpose, or be in the public interest, a few problems might arise when there is no development plan or authorising legislation — as was the case in the foreign decisions mentioned above.
There was no real evidence before the court that the employment opportunities or an increase in revenue would in fact materialise. The court merely accepted that the development will automatically bring about these benefits. At least in the Kelo v City of New London decision there was an integrated development plan outlining the development and its projected income and employment opportunities.
Furthermore, there is no evidence that the third party can be held accountable if the various benefits do not materialise or if they do not in fact benefit the public in some way. Even though the US Supreme Court in Kelo upheld the taking, the development has to date not been implemented.
Third-party transfers for economic development may also negatively impact people in the lower income groups, especially if peoples’ homes are expropriated.
Since it is not the practice in South African law to have detailed expropriation legislation, but rather giving decision makers broad discretionary powers to expropriate property for a variety of purposes as long as it is in the public interest, courts should determine whether an expropriation strictly complies with the public interest requirement.
Therefore, in situations where legislation does not specifically authorise expropriation for economic development purposes, the judicial determination as to whether it in fact complies with the constitutional requirements should be stricter than in cases where legislation authorises it.
In that regard the legitimacy of both the purpose of the expropriation (economic development) and the transfer of the property to a third party should be stricter in cases where legislation does not specially authorise such third-party transfers.
If this is not done consistently, property rights could be rendered insecure, which would have negative implications for society as a whole.
Business.Africa
