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Last Updated: 4 September 2004
IN THE SUPREME COURT OF APPEAL OF SOUTH
AFRICA
CASE NUMBER: 615/02
In the matter between
THE MINISTER OF TRANSPORT APPELLANT
and
P J DU
TOIT RESPONDENT
Coram: HOWIE P, HARMS, FARLAM, CAMERON and HEHER JJA
Heard: 13 MAY 2004
Delivered: 28 MAY
2004
Summary: National Roads Act s 8(1)(c) and Expropriation Act
s 12(1)(b) – Land – expropriation of temporary right to use
property
for purposes of upgrading national road – actual financial loss –
proof of – Constitutional entitlement
(s 25(3)).
JUDGMENT
HEHER JA
HEHER JA:
[1] Moordenaarskop
is a hill on the farm Hooi Kraal in the Swellendam district. No doubt its
history was bloody. It certainly has
a heart of stone that has been the cause of
the litigation in this matter. To its north runs the N2/5 highway and to its
south the
Witsand road (MR271). Both need to be maintained and upgraded from
time to time. This appeal involves a claim by Mr du Toit, the
owner of the farm,
to be compensated for 80198 cubic metres of gravel excavated and removed on
behalf of the South African Roads
Board pursuant to a notice issued in terms of
s 8(1)(c) of the National Roads Act 54 of 1971 read with s 12(1)(b) of the
Expropriation
Act 63 of 1975 (‘the Act’). In the Cape Provincial
Division Jamie AJ upheld the claim and awarded the respondent compensation
of
R240594,00 plus a solatium of R17029,70 (s 12(2) of the Act), interest at the
prescribed rate and costs. His judgment is reported
as Du Toit v Minister of
Transport 2003(1) SA 586 (C). The present appeal is with leave of the Court
a quo.
[2] The farm is some 614 hectares in extent. The notice of
expropriation concerned two small areas of which only a portion of 3,03
hectares
on which Moordenaarskop stands is relevant to the dispute. The expropriation
took effect on 17 November 1997 from which
date possession of the land was taken
by the contractors of the Board for a purpose described in the notice and its
accompanying
letter as the exercise of a temporary right to use the land for a
period of 18 months as a borrowpit and access road.
[3] When the parties
could not reach agreement on the amount of compensation Du Toit sued for payment
of R801980,00. He alleged that
the expropriation was properly one in terms of s
8(1)(b) of the National Roads Act and that the correct measure of compensation
was
to be found in s 12(1)(a) of the Act, viz the market price of the
gravel taken by the Board. He relied in the alternative on the right to just and
equitable compensation enshrined
in s 25(3) of the Constitution. The Minister of
Transport resisted the claim. He tendered compensation in an amount of R6060,00
for
the actual financial loss suffered by Du Toit in consequence of the
expropriation (s 12(1)(b)), which, he pleaded, was an amount
not higher than the
full market value of the portion of land taken, viz R2000 per hectare,
plus the solatium in an amount of R606,00. The Minister pleaded in the
alternative that should s 12(1)(a) of the
Act be applicable, the open market
value of the in situ gravel on the date of expropriation did not exceed
its value as agricultural land and that no willing buyer and seller would
negotiate
any premium for the presence of gravel in the land. The matter
proceeded to trial. Both parties produced expert evidence relating
to the nature
and extent of gravel deposits on and in the vicinity of the farm and the market
for gravel. Du Toit testified about
his sales of gravel from the farm and
eventual application for a licence for a quarry which he opened subsequent to
the expropriation.
[4] Jamie AJ found that the Board had taken a temporary
right which comprised the use of the land and the permanent removal of gravel
during that use. Counsel for Du Toit submitted that the learned Judge had erred:
the principal source of the expropriation power
was to be found in s 8(1)(b) of
the National Roads Act and not in s 8(1)(c) alone. Consequently there had been a
permanent expropriation
of the gravel which required compensation by the measure
of its market value under s 12(1)(a) of the Act and not the mere taking
of a
temporary use right to which s 12(1)(b) would apply. I am unable to agree.
Section 8(1)(c) authorizes the Board to take the
right to use land temporarily
‘for any purpose for which the Board may expropriate that land’.
Such purposes, according
to s 8(1)(a), include ‘works or purposes in
connection with a national road, including any access road, the acquisition,
mining
or treatment of gravel, stone, sand, clay, water or any other material or
substance . . .’ The mining and acquisition of the
materials referred to
in that subsection will inevitably result in a permanent deprivation of the
ownership in those materials. The
Board did exactly as the power provided.
Section 8(1)(b), by contrast, empowers the Board to ‘take gravel, stone,
sand, clay,
water or any other material or substance on or in the land for the
construction of a road or for works or for purposes referred to
in paragraph
(a)’. Without attempting any in-depth comparison of this power with that
in s 8(1)(c) it is sufficient to point
out that the last-mentioned section
couples the taking of materials with a temporary right of use of land whereas s
8(1)(b) does
not. That, of itself, rendered s 8(1)(b) inapposite to the powers
which the Board wished to exercise. I conclude, therefore, that
Jamie AJ was
correct in regarding s 8(1)(c) as the source of the Board’s powers in this
case and also in his analysis of the
dual nature of such powers.
[5] The
learned Judge proceeded to apply the terms of s 12(1)(b) to the case before him.
Because he was faced with the taking of a
right of use that section set out the
proper measure of compensation: Estate Marks v Pretoria City Council
1969(3) SA 227 (A) at 241E-242E and cf Huddlestone Motors (Pty) Ltd v
South African Railways and Harbours 1980(4) SA 764 (D) at
766E-767F.
[6] The learned Judge attempted to determine whether Du Toit had
suffered actual financial loss by asking whether there existed a
market for the
right of temporary use taken by the Board. He concluded that no such market
existed and that he was, therefore, entitled
to rely on proviso (bb) to s
12(1) in order to fix the amount of compensation. He was wrong in so reasoning.
To explain why it, would be as well to quote
s 12(1) in full:
‘(1) The
amount of compensation to be paid in terms of this Act to an owner in respect of
property expropriated in terms of
this Act, or in respect of the taking, in
terms of this Act, of a right to use property, shall not, subject to the
provisions of
subsection (2), exceed-
(a) in the case of any property other than a right, excepting a registered right to minerals, the aggregate of-
(i) the amount which the property would have realized if sold on the date of notice in the open market by a willing seller to a willing buyer; and
(ii) an amount to make good any actual financial loss caused by the expropriation; and
(b) in the case of a right, excepting a registered right to minerals, an amount to make good any actual financial loss caused by the expropriation or the taking of the right:
Provided that where the property expropriated is of such nature that there is no open market therefore, compensation therefore may be determined-
(aa) on the basis of the amount it would cost to replace the improvements on the property expropriated, having regard to the depreciation thereof for any reason, as determined on the date of notice; or
(bb) in any other suitable manner.’
The
legislature has in the opening words of this section drawn a clear distinction
between the expropriation of property and the taking
of a right to use property.
The distinction is carried through paragraphs (a) and (b). The first-mentioned
relates only to property
other than rights (excepting registered rights to
minerals) which is expropriated; paragraph (b) relates both to rights (excepting
registered rights to minerals) which are expropriated and to rights to use
property which are merely taken for a temporary period
(as was the right with
which the learned Judge was concerned). The proviso, however, is limited in its
application to property which
is expropriated and has, therefore, no
bearing on the determination of actual financial loss caused by the taking of a
right of use and the learned
Judge was wrong in resorting to it.
[7] The
task of the trial court should have been confined to s 12(1)(b). That section
also provides the field for our reassessment
of the matter in the
appeal.
[8] Before proceeding further three points require emphasis. First,
an owner of land is not entitled to compensation merely because
a right to use
his property is taken, even if the exercise of the right involves, as it does
here, a permanent deprivation of some
elements of his land. Compensation is only
payable if the taking has caused ‘actual financial loss’ ie loss
that flows
directly from the taking and is not hypothetical or too remote. It
was not argued, nor could it have been, that these provisions
of the Act are in
conflict with the Constitution, whose injunction against any law permitting
‘arbitrary deprivation of property’
is designed ‘not merely to
protect private property but also to advance the public interest in relation to
property’
(First National Bank of SA Ltd t/a Wesbank v Commissioner,
South African Revenue Service and another; First National Bank of SA Ltd
t/a
Wesbank v Minister of Finance 2002 (4) SA 768 (CC) at para 64). Second, the
measure is the loss suffered by the owner (whether he is worse off because of
the taking) and not the
gain of the taker (whether he is better off in
consequence), which is an entirely irrelevant consideration. Third, although the
immediate
cause of the loss is the taking of the right vested in the owner to
use his own property and exploit his own gravel during the temporary
period, a
secondary but equally direct result of the taking is the permanent deprivation
of the owner’s right to exploit gravel
in the quantities removed. The
value of that deprivation (if any) will also be part of the loss caused by the
taking.
[9] Having dealt with these preliminary matters one is free to turn
to the evidence which has a bearing on the question of whether
the respondent
suffered an actual financial loss in consequence of the taking of the right.
Because Du Toit did not rest his case
on s 12(1)(b) no real attempt was made to
prove the existence of an actual financial loss. Reliance was placed on an
entitlement
to the market value of the gravel removed by the Board. I shall in
due course discuss whether that approach furthers the owner’s
cause.
[10] Prior to the date of expropriation mining of gravel on Hooi Kraal
had taken place ad hoc on an informal basis. Some time before the
Board’s intervention Du Toit applied for permission to operate a quarry in
terms
of s 9(1) of the Minerals Act 50 of 1991. The permit was issued on 26
November 1997, within two weeks after the expropriation and
related to land not
subject to the notice. No gravel pit was in existence on the portion of land
taken by the Board at the date of
expropriation.
[11] The undisputed evidence
of Mr Marten, the Minister’s expert valuer, was that over the preceding
four years and four months
Du Toit had sold an annual average of 1766 cubic
metres of gravel. Counsel for the Minister submitted that these sales were
illegal
and must be left out of account because of the provisions of s 12(5)(c)
of the Act which reads:
‘if the value of the property has been enhanced
in consequence of the use thereof in a manner which is unlawful, such
enhancement
shall not be taken into account;’.
I cannot agree that the
evidence proves that the value of the land, the right of use that was taken or
the gravel contained in it,
was increased in consequence of such use. For that
reason I shall bear in mind the proven fact that sales during the aforesaid
period
produced an average of R10 per cubic metre for gravel removed by the
buyer at his own cost.
[12] Du Toit’s geological expert, Mr Galliers,
testified that abundant quantities of rock and gravel suitable for road building
and repair were located in the area of the project which gave rise to the
expropriation, although little commercial exploitation
had occurred. The
Minister’s expert, Mr Melis, agreed. On the farm Hooi Kraal, after the
expropriator had done its worst, there
apparently remained exploitable reserves
of between 100 000 and 200 000 cubic metres of such material.
[13] I agree
with the submission of the Minister’s counsel that in calculating the
actual financial loss suffered by the owner
one is bound to think away the
market for gravel created by the project, to the extent that it reflected an
enhancement in value,
since the increase owed its existence to the specific
purpose for which the expropriation took place (s 12(5)(f); Port Edward Town
Board v Kay 1996 (3) SA 664 (A) at 679C). Counsel for Du Toit argued that
that market was in truth the ripening fruit of the construction of the
national
road in 1948, which, he said, had created the potential. But that is not borne
out by the evidence. Almost half a century
after the road was built sales of
gravel in the open market had reached less than 1800 cubic metres annually. The
sudden spike in
demand was solely due to the project. Nor was there any evidence
that the price of land had benefited from the assumed potential
for sales of
gravel thus created. Counsel also submitted that similar projects were likely to
recur at ever-shortening intervals
(the previous upgrade having taken place
about 1983) because of increased traffic carried by the roads. That factor must,
he said,
influence an assessment of the rate of consumption of the existing
reserves of gravel. The evidence however does not provide support
for these
submissions either.
[14] The following conclusions are justified by the
evidence. (1) The subtraction of 80000 cubic metres of gravel from
Moordenaarskop
reduced the volume available for commercial exploitation by Du
Toit. But the absence of the gravel taken by the Board had no adverse
effect on
his ability to excavate and dispose of gravel because of the enormous reserves
available to him. (2) A sale by Du Toit
of 80000 cubic metres of gravel from
Moordenaarskop in the open market at the date of expropriation would have
required the opening
of a new quarry, duly licensed, on the expropriated
property. He had already applied for and shortly obtained such licence for land
not subject to the expropriation. He would undoubtedly have used that quarry to
meet the hypothetical purchaser’s requirements,
given that the contract
for supply was to be executed over a period of 18 months. (3) There is no reason
to find that Du Toit will
feel the effect of the expropriation, if at all, until
his reserves diminish to levels insufficient to supply the demand. On the
evidence that should not happen for at least 60 years, all other things
remaining equal. But things seldom remain unchanged over
so long a period: the
demand may in the meantime increase or decrease, the number of alternative
sources of supply may increase,
perhaps greatly, by the opening up of new
quarries or the discovery of new deposits, methods of extraction may improve
opening previously
inaccessible bodies of gravel to the market, costs of
extraction and rehabilitation may change and influence supply, cheaper methods
of road building may be developed. At so great a distance the imponderables and
contingencies multiply to such an extent that the
issue of whether Du Toit will
ever suffer a financial loss becomes highly speculative. Certainly, no evidence
of any kind was led
to help answer the question. Similar uncertainties attach to
the question of whether, should a loss finally eventuate, a direct causal
connection between such loss and the expropriation will exist: Pienaar v
Minister van Landbou 1972 (1) SA 14 (A) at 25B.
[15] Counsel for Du Toit
sought to meet this difficulty. If, he submitted, the Board, as a willing buyer,
had appeared in the market
at the date of expropriation seeking to acquire about
80000 cubic metres of gravel, the owner, as a willing seller, would have
negotiated
with it an agreed price for the gravel at the ruling market price for
smaller quantities (R10 per cubic metre) discounted to take
account of the fact
that he would be paid immediately for a quantity of gravel that he would in the
ordinary course only have been
able to dispose of in 45 years. That immediate
cash loss, counsel submitted, was a proper measure of his client’s actual
loss.
I cannot accept this argument. It does not address Du Toit’s actual
financial loss at all. While it is correct, as pointed
out in Kangra Holdings
(Pty) Ltd v Minister of Water Affairs 1998 (4) SA 330 (SCA) at 336I-337A
that the measure of such loss will include the equivalent of the market
value of what is taken by the expropriator, that does not mean that the market
value can always be used to prove the fact that such a loss was suffered.
The circumstances of this case emphasise the difficulty. Du Toit was bound to
take reasonable steps
to mitigate his loss: Minister of Water Affairs v
Mostert and others 1966 (4) SA 690 (A) at 735H-736B and the evidence
establishes that he could readily have done so. Any open market sale of the
nature
postulated by counsel would probably have been satisfied from other
sources and Du Toit would have suffered no shortfall in income
as a result. The
evidence of market value produced on his behalf was (in addition to the problem
of the appropriate bulk discount)
extremely misleading since the price of R10
per cubic metre was obtained for small quantities of gravel by purchasers
willing and
able to undertake the excavation at their own cost. If Du Toit had
sold 80000 cubic metres to the Board which (contrary to the probabilities)
was
to be sourced from the expropriated portion he would, as I have pointed out,
have been obliged to open a new quarry. Whether
the cost of doing so, and of
extracting the quantity required at his own expense, knowing that only 1800
cubic metres would be sold
annually thereafter and that the quarry land would
eventually have to be rehabilitated at his cost, would have justified the
venture
– all material considerations in my view – was not explored
in evidence. The failure to do so means that the so-called
market price was an
unreliable guide to whatever financial loss he might, in the long run,
suffer.
[16] In the result Du Toit failed to prove that he suffered any
actual financial loss as a result of the taking of the right to use
his land.
One cannot realistically be satisfied that the market value of agricultural land
with an underlying gravel content carried
any premium above the price of land
without gravel. In the circumstances a purchaser, unable to negotiate a price
for gravel alone
would simply have acquired the land at its market value. The
Minister offered the market value of the portion which it took. Although
that is
more than the owner’s proved entitlement it represents fair and equitable
compensation for what was taken (s 25(3)
of the Bill of Rights).
[17] The
following order is made:
1. The appeal succeeds with costs.
2. The order
of the trial court is set aside and replaced with the following:
‘(a) The defendant is ordered to pay compensation to the plaintiff in the amount of R6060,00 plus a solatium in terms of s 12(2) of the Act in an amount of R606,00, both sums to carry interest in terms of s 12(3)(a) of the Act from 17 November 1997 to date of payment.
(b) The plaintiff is to pay the costs of the action.’
J A HEHER
JUDGE OF
APPEAL
HOWIE P )Concur
HARMS
JA )
FARLAM JA )
CAMERON JA )
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