/ 26 July 2012

Nationalisation: There is no common law right to exploit minerals

The state has sovereign authority over all mineral resources in South Africa and who gets to mine what is solely its decision.
The state has sovereign authority over all mineral resources in South Africa and who gets to mine what is solely its decision.

Any debate about the mines must now take careful account of a most significant decision of the Supreme Court of Appeal in Minister of Minerals and Energy vs AgriSA, which appears to have been forgotten in the recent discussion.

The case, in brief, dealt with the implications of the 2002 Minerals and Petroleum Resources Act. The Act provides that the state is the custodian of the nation's mineral and petroleum resources, the relevant minister may grant prospecting or mining rights, and without such a right in terms of the Act nobody can mine in South Africa.

AgriSA argued that this legislation expropriated all previous common law rights held by landowners where minerals were located and the state was thus obliged to compensate for the loss of property under the "new system" introduced by the Act. The court had to determine the rights that had been enjoyed by those who owned mines prior to the Act.

Judge Malcolm Wallis, in a comprehensive examination of the history of mining rights from the discovery of diamonds in 1867, found that the state has, from that time, consistently asserted that the right to mine is vested in the state, which then allocates or exercises that right.

As Wallis expressed it: "The key issue is not whether, as a result of the exercise of the power to allocate the right to mine, that right was placed in the hands of persons in the private sector, which is inevitable unless the mines are nationalised. It is rather whether the right [was] vested in the state … or whether it [was] vested in individuals arising from their ownership of land or some other ­private source. In my view it was the former."

It followed from this that there was no ground for a claim on expropriation by private parties represented by AgriSA: no right to mine was vested in the holders of mining rights, because these were allocated by the state in terms of the applicable legislation. From the time of the discovery of minerals, the state has exercised sovereignty over them.

Wallis qualified these findings by stating that the Act may have effected an expropriation of rights to mine that existed under previous legislation, but such a conclusion depended upon the particular facts of a case, not because there could be a general expropriation of mining rights. On the strength of this finding the appeal court set aside the order of the Gauteng High Court, which had awarded AgriSA compensation of R750 000.

There are some clear lessons to be drawn from the judgment. First, there is no common-law right to exploit minerals: all mineral rights are vested and have always been vested in the state. The Act did not change this position and there was no basis to claim that the existing legislation amounted to expropriation of common-law rights. That the Act allows for a transfer of mining rights by way of a grant by the state under earlier legislation does not disturb this conclusion.

The state is empowered to accord mining rights to whomever it chooses in terms of the Act. Existing rights holders are protected in that an extinction of their rights may give rise to a claim for compensation, but it is important to note that these rights only extend for the period granted by the state.

Two clear implications flow from this case. First, the judgment ­represents a careful exposition of a ­transformative approach to law – hardly the kind of narrow assertion and protection of ill-gotten private property rights of which the courts have been consistently accused.

Second, the outcome of this case makes nonsense of the crude nationalisation argument. The state exercises sovereign authority over all mineral resources in the country. That mining houses enjoy existing rights is the direct product of a state decision.

To the extent that there is a debate, it has to focus on the continued ­protection of these grants – or their alteration and the consequent legal implications of such a change. As for fresh grants to mine, only the state can be held responsible for their allocation. Is it too much to hope that this important judgment will now form the legal foundation for future debates about the role of mining in this country?