The signing last week by president Cyril Ramaphosa of the Expropriation Act has called into question its potential conflict with South Africa’s international treaty obligations.
Ramaphosa signed the contentious Bill to replace and repeal the apartheid-era Expropriation Act No. 63 of 1975.
The new Act empowers the state to expropriate land without compensation, ostensibly to achieve the aims of section 25 of the Constitution relating to property rights and expropriation of that property.
According to the Constitution, the amount of compensation must be just and equitable, reflecting a fair balance between the public interest and the interests of those affected.
Also needing to be taken into account is the current use of the property; the history of the acquisition and use of the property; its market value; the extent of direct state investment and subsidy in the acquisition and beneficial capital improvement of the property and the purpose of the expropriation.
Read with section 25(4)(a), “the public interest” includes the nation’s commitment to land reform.
Some have interpreted this to mean that section 25 provides a framework for when nil compensation can be made for expropriated property, particularly as it relates to land.
This interpretation does pose some challenges to South Africa, particularly as it relates to our international treaty obligations.
South Africa, as a member of the Southern African Development Community, is a signatory of the SADC Protocol on Finance and Investment. This is intended to provide a policy framework to encourage member states to foster economic environments that attract investment and encourage entrepreneurship.
Article 5 of the protocol stipulates that the expropriation of land is only lawful in the event that it is undertaken for a public purpose, under due process of law, is non-discriminatory and is accompanied by fair and adequate compensation.
The Expropriation Act could come into conflict with the requirement for “fair and adequate compensation” in relation to section 12(3) of the Act.
Section(12)(3)(a) is of particular concern as it provides that compensation for land may be nil in the event the land is not being used and the owner does not intend to develop the land or generate income from the land, but rather to benefit from appreciation of the market value.
Section 23(3)(c) provides that land can be taken without compensation where the land has been abandoned by failing to exercise control over the land, despite being reasonably able to do so, and section 23(3)(d) provides that no compensation needs to be paid where a direct investment by the state exceeds the value of the land.
South Africa has several bilateral investment treaties with China, the US and countries in the EU, most of which require full market-value compensation in the event of expropriation.
Expropriation without compensation could be in breach of these treaties and trigger international arbitration claims from foreign investors.
The African Continental Free Trade Area Protocol on Investment — to which South Africa is bound as a signatory — also provides protections against expropriation without compensation.
Article 19 of free trade area protocol provides regulations around the expropriation of property. These require that expropriation be for a public purpose, in accordance with due process established by the state in which the investment is held, is performed in a non-discriminatory manner and, as per article (19)(1)(d), requires fair and adequate compensation.
Article 21 of the treaty further outlines what “fair and adequate compensation” means, specifically that compensation must be adjudicated on a case-by-case basis and in relation to the fair market value of the expropriated investment prior to the expropriation date, or the date on which the expropriation became public knowledge, whichever came first, and in accordance with domestic laws and regulations.
Other factors that must be taken into account include the equitable balance between the public interest and those of the affected parties; the current and past use of the investment; the history of the acquisition; the previous profit made by the investor on the investment; the prior behaviour of the investor and the duration of the investment.
Section 12(3) of the Expropriation Act could be interpreted to be in contradiction of South Africa’s treaty obligations.
South Africa is also a signatory of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards NYCREFA.
While this treaty does not specify particulars around what is acceptable compensation for expropriation, it serves to ensure arbitral awards are recognised and enforceable.
The convention does not specify the standards by which compensation for expropriation must be paid; it relies on international treaties and national law.
The nil compensation clause of the Expropriation Act could be in conflict with international standards on the prompt and adequate compensation for expropriation.
This could find that any arbitral awards made under the convention are unlawful and unenforceable under South African law, which would bring South Africa into conflict with its treaty obligations.
However, article 5(2)(b) of the NYCREFA does permit a court to refuse recognition and enforcement of an arbitral award if it finds it to be contrary to public policy in the country in which the award enforcement is being sought.
Similarly, the International Centre for Settlement of Investment Disputes (ICSID) Convention establishes a mechanism for states and foreign nationals to resolve disputes.
As with the NYCREFA, ICSID does not create a framework for compensation, relying instead on the regulations in place in the country in which the investment sits.
Article 54(1) of ICSID requires that states recognise judgments made by ICSID as though they were judgments made in their own courts.
As with the NYCREFA, article 55 provides that these judgments can be rejected by member states in the event the judgment is in conflict with public policy.
The Expropriation Act clause on nil compensation, as a matter of public policy, could be used to refuse to comply with judgements made by ICSID.
Should the constitutional court find the Expropriation Act in line with section 25 of the Constitution, it could have far reaching consequences outside the internal concerns of South Africans.
