A judicial duel in the name of ‘just and equitable compensation’

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In the Moloto case, the Land Court had to consider factors like market value and the current use of the property on which a land claim had been lodged.

A judicial duel in the name of  ‘just and equitable compensation’
The Land Court acknowledged that the formula used by the OVG is logical as a methodological interpretation of the PVA and Section 25(3) of the Constitution.
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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 has been augmented by the recent presidential assent to the Expropriation Bill (now Expropriation Act No. 13 of 2024). Others may attribute the focus on the phrase to a more protracted period of time.

In April 1997, South Africa’s then Department of Land Affairs published the White Paper on South African Land Policy. This report laid the groundwork for the state’s formation of the land reform programme, comprising three principal components: land restitution, land redistribution, and land tenure reform.

What also emerged from an intense consultative process was the government’s market-centric approach to land reform.

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Fast forward to 2011, when a Green Paper on land reform was published. This document’s intellectual conceptions included the establishment of the Office of the Valuer-General (OVG), which eventually resulted in the Property Valuation Act (No. 17 of 2014), or PVA, allowing the OVG to conduct valuations of properties identified for land reform, among other uses.

At the time, the atmosphere was of general discontentment with the pace of spatial transformation and the cost of acquiring private land. These historical events intersected with judicial jostling between the state and private property owners.

There have been many court cases on land reform. Chief among the most recent cases is the Moloto case. In Moloto Community vs Minister of Rural Development and Land Reform 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 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. Their claim was published in the Government Gazette on 27 August 2004. After investigation and approval of the claim, the Mpumalanga Regional Land Claims Commissioner, acting on behalf of the minister, engaged the affected property owners with the intention to acquire their properties.

Given that 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 the affected landowners ensued when the Mpumalanga Regional Land Claims Commissioner informed the affected landowners that the state no longer wished to execute a restoration process on behalf of the land claimants.

Affected landowners approached the Land Court to intervene. 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 the 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 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 in reaching a determination. The witnesses could not agree on the interpretation of Section 25(3) of the Constitution as it was supposed to apply to the Moloto case.

In assessing whether numerical value could 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 held 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, representing 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 the Constitutional Court. These courts’ interpretation was ‘contextual’ and therefore qualitative in nature.

The courts applied the ‘two-step’ approach, which 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 value based on factors inherent in Section 25(3) of the Constitution.

The court opined that both approaches could be appropriately employed based on the type of valuation project.

What the court found in the moloto case

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 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 formula to the two-stage approach, the court found that the formula was not at variance with the provisions of the Constitution. The formula, as a quantitative expression of ‘current use’, is meritorious. The value of property determined by applying the 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 stated that the PVA formula was 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.

In the Moloto case, the court found market value to be the right basis to determine just and equitable compensation.

Key takeaways

  • 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 vs 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 Section 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 the sum of the market value and current use value divided by two. The 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 current use, which has historically been viewed as a qualitative phenomenon, could be quantified.

In the court’s opinion, a contextual interpretation of Section 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 paragraph 60 of the Moloto judgment, the court highlighted that previous judgments have interpreted ‘current use’ as a phenomenon requiring a contextual analysis, but further opined that this did not preclude a court from attaching a numerical value.

Context allows the court to account for facts that are not numerical, but which serve as value-influencing attributes of a property.

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 Section 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 could 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 which the state committed to achieve land reform.

For more information phone 012 036 0000/02 | email [email protected] | visit ovg.org.za.