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[1996] ZASCA 29
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Town Board of the Township of Port Edward v Kay (366/94) [1996] ZASCA 29 (27 March 1996)
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Case No. 366/94
IN THE SUPREME COURT OF SOUTH AFRICA (APPELLATE DIVISION)
In the matter between:
THE TOWN BOARD OF THE TOWNSHIP APPELLANT
OF PORT EDWARD
and
HOBART ANTHONY KAY RESPONDENT
CORAM: VAN HEERDEN, VIVIER, NIENABER, MARAIS JJA efPLEWMANAJA
HEARD: 16 FEBRUARY 1996
DELIVERED: 27 MARCH 1996
NIENABER JA ef PLEWMAN AJA
2
NIENABER JA ef PLEWMAN AJA: Introduction
The appellant (the defendant in the court below) is the Town Board
of the township of Port Edward, Natal. The respondent (the
plaintiff in the court below) was the owner of a property described
as "remainder of lot 1015", some 105 hectares in extent, situated
within the township of Port Edward. For the sake of convenience
we refer to the subject property as "the property" and to the parties
as in the court below. Prior to 6 March 1984 the property, then still
part of lot 1015, had been zoned "undetermined" in terms of the
defendant's town planning scheme. Together with an adjoining lot,
lot 1016, lot 1015 was the last extensive coastal holding in the area
upon which development had not yet taken place. On 6 March
1984 the defendant resolved as an "interim measure" to amend the
zoning of lots 1015 and 1016 to "conservation reserve". It was this
change in zoning which, in the result, led to the defendant becoming
3
obliged in terms of s 67 repf of the Local Authorities Ordinance 25 of 1974 (Natal) ("the Ordinance") to acquire the property
because the parties had not been able within 5 years to agree on a value as they were required by the Ordinance to attempt to do.
The defendant was reluctant to carry out its obligations in this regard and the plaintiff accordingly applied to the Durban and Coast
Local Division for relief directing it to do so. On 12 November 1991 Van der Reyden J granted an order which compelled the defendant
to expropriate the property. On 10 February 1992 a notice of expropriation was thereupon served on the plaintiff. This expropriation
culminated in the present litigation which is an action for an order determining the value of the property in terms of s 12 of the
Expropriation Act 63 of 1975 ("the Act"). Thirion J sitting in the Durban and Coast Local Division fixed the value at R3
640 000 and granted judgment in favour of the plaintiff in that amount, together with a solatium of R10 000 (in terms of
4
s 12(2)(a) of the Act), interest and costs. The amount of the award satisfied neither party. Both sought and received leave from the
court a quo to appeal to this court. Hence the appeal and the cross-appeal. The Property
The property initially designated as lot 1015, was sub-divided in 1989 into sub 1 (6,18 hectare in extent), sub 2 (22,7 hectare in
extent) and the remaining extent of Lot 1015, which is the subject property (105,8 hectare in extent). Sub 1 was retained by the
original owners of lot 1015 and sub 2 and the subject property were transferred to the plaintiff. To the north of these properties
lies lot 1016 - a triangular piece of land. All these properties are part of the town of Port Edward. The property is separated from
portions 1 and 2 by the main South Coast road (the R61) and lies on the inland side of this road. Portions 1 and 2 are to the seaward
side of the road and therefore are beach front properties.
5
The town of Port Edward has been built up as far as the northern boundary of the adjoining lot 1016. Lot 1016 is only partly developed.
The property itself is vacant land.
There has been some development on portions 1 and 2 and on ground lying further inland on the western boundary of the property. It
must be noted further that the southern boundary of the property and of portion 2 is the Umtamvuna River which is the boundary between
Natal and the Transkei. The river in that part which borders the property runs in a cliff lined gorge.
To the west (that is the inland side of the property) is found what is called the Old Pont area - so named because prior to the construction
of a bridge this is where the road to the Transkei crossed the river. Upstream from the Old Pont area lies the Umtamvuna Nature Reserve.
Certain developments had at the expropriation date taken place on sub 2, in the Old Pont road area and across the river in
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the Transkei. On sub 2 which had been sold off by the plaintiff toa developer, a cluster home development known as Caribbean
Estates had been erected. In the Old Pont road area there is a
mixed area of industrial land and small holdings where two
residential developments known as Eden Wild and Eden Crest have
been built. And on the Transkeian bank there is, on the sea front,
the Wild Coast Sun - a hotel and casino complex which includes
various recreational facilities and a golf course said to have been
built to international standards. Further inland there is, on the
Transkeian side, an area of informal structures sometimes referred
to as a squatter settlement.
The property is described in the judgment of the court a quo
in the following terms:
"The subject property is about 3.5 km from the central business area of Port Edward. It is on the southern boundary of Port Edward
and at the southernmost end of the Natal Lower South Coast. Its southern boundary is the Umtamvuna
7
river which in that area also forms the boundary between Natal and Transkei.
Alongside the subject property the Umtamvuna river runs approximately south east but for the sake of easy reference I shall take it
as running due east and I shall fix all other directions accordingly.
The subject property is bounded on its eastern side by the main south coast road (national road) which is carried over the Umtamvuna
by a bridge at the south-eastern comer of the property. Across the national road from the subject property and between the national
road and the sea lie sub 1 and sub 2 of Lot 1015. On sub 2 has been established Caribbean Estates, a chalet development, a photograph
of which forms part of exh MM.
The subject property's frontage onto the Umtamvuna river is just short of a kilometre in length. Cliffs covered with riverine forest
rise steeply from the river bank (as can be observed on a photograph, part of exh MM) to a height of about 75 feet. From above the
cliffs the terrain rises gently in the direction of the apex in the north western corner of the property. The greater part of the
property is gently undulating.
The western part of the subject property is at an elevated level and the land slopes gradually from there in the direction of the
national road and also southwards towards the river and northwards towards Lot 1016, so that there is a ridge
8
down about the central part of the property. Most parts of the property enjoy good sea views even though some are distant views. The
portion next to the national road does not have a sea view. The more southerly portions have views over the Transkei across the Umtamvuna.
Access to the Umtamvuna lagoon down the cliffs can be had at one point only - just west of the bridge - down a steep path.
The subject property is undeveloped land and appears never to have been farmed - except that it might have been used for grazing.
The vegetation on the property is of a rich and diverse nature. The central high lying area is covered with watsonia/protea/grassland
which appears to be in its pristine state. This area has a high conservation value - so has the riverine forest along the cliffs
above the Umtamvuna river. Immediately to the west of the national road is an area of disturbed red desert which is infested with
casuarina trees. This area which covers roughly one fifth of the property appears white on the aerial photograph in exh Q. The area
has no conservation value. It was referred to in the evidence as the southern red desert.
Near the western boundary of the subject property is an oval shaped disturbed area as can be observed on the aerial photograph, part
of exh Q. This area has been referred to in the evidence as the western (sometimes northern) red desert. It appears to have been
used as a borrowpit and is largely
9
denuded of vegetation. It has no conservation value. Two wetlands have been identified on the property. One is north of the western
red desert. It drains into a tributary of the Zolwani river which runs across Lot 1016 and into the Zolwani lagoon at the northern
boundary of sub 1 of Lot 1015. Conservationists regard it as important to the successful management of the lagoon that the catchment
area of the Zolwani - and thus also the wetland - should not be disturbed. Any development of the subject property would have to
take account of the need to preserve and properly manage the wetland.
The other wetland is on the subject property's boundary with Lot 1016 and is next to the eastern (or southern) red desert. This wetland
is an eroded area which is in need of rehabilitation.
Adjoining the subject property on its western side and close to the river is a cluster housing development, Eden Crest. This development
is on the edge of the escarpment overlooking the Pont area. Beyond the Pont area to the west, the Umtamvuna State Forest commences.
Further north of Eden Crest and on the western boundary of the subject property are a number of smallholdings. On its northern boundary
the subject property adjoins Rem of Lot 1016 which is unimproved land with some old banana fields in evidence. Like the subject property,
Rem of Lot 1016 is reserved for conservation."
10
Port Edward itself is what is described as a resort industry service orientated town. What this seems to mean is that it is a small
seaside town with no significant industrial or business centre beyond that which is required to service the various seaside resorts
in the area. It has a distinct retirement component. There were growing pressures to allow further resort and residential development
although there were still many undeveloped stands in the town. The demand for expansion created its own pressures. So, for instance,
the defendant was at the relevant time involved in litigation relating to the need for a refuse site. There was also a demand that
the town expand its sewerage system. Not all the developments in its area were wholly desirable or appealing or even lucrative. On
sub 2 of lot 1015 there was the development known as Caribbean Estates about the appearance of which the witnesses and Thirion J
(who saw it during an inspection m loco) were less than complimentary. Eden Crest and Eden Wild were likewise
11
enjoying but limited success and across the river the Wild Coast Sun was experiencing a falling demand for accommodation and the golf
course a reduced demand for its use. The Zoning of the property
In evidence the history of the plaintiffs town planning scheme and in particular the zoning of the subject property was investigated
in some detail. It is unnecessary in this judgment to do more than summarize the more significant events.
As has been stated earlier the property was not originally subject to a particular zoning but became zoned for conservation in terms
of the defendant's town planning scheme. This was because the provincial authorities had long been concerned to plan and control
development on the lower south coast. From time to time general plans were prepared to regulate this development - the first being
the "Draft Regional Plan for the South Coast" of 1974 published by the Town and Regional Planning Commission, Natal,
12
which recommended that development along the coast "should not be continuous but ... interspersed with open spaces".
This policy was in place in 1983 when one Holmes, the acting chairman of the defendant (then known as the Port Edward Health Committee)
approached the plaintiff with the suggestion that he purchase lot 1015 and develop it along the lines of the San Lameer development.
(The San Lameer complex, situated to the south of Marina Beach, had been developed in phases since the 1970s. It consisted of a number
of preconstructed chalets purchased as such by owners, a hotel, restaurants, sporting and recreational facilities and a golf course,
originally 9 holes, later expanded to 18 holes with a separate club house. Apart from the golf course San Lameer's main attractions
were a lagoon and access to the beach.) The plaintiff saw the potential of the property as a holiday resort and discussed his ideas
with the Health Committee which wrote to him, on 29 July 1983,
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"Your letter dated 19 July 1983 was tabled at a Meeting of the Committee on 26 July 1983 and it was unanimously agreed to support
your application for the proposed development of flats, hotels, etc. on Lot 1015 Port Edward."
On 23 July 1983 the plaintiff and two associates thereupon reached agreement with the owner of lot 1015 to purchase it for R2 million.
(The actual deed of sale in terms of which the plaintiff eventually took transfer of sub 2 and the remainder of lot 1015 was only
signed some time thereafter.) Unbeknown to the plaintiff the defendant, at the urging of the Town and Regional Planning Commission,
had already resolved on 13 July 1983 to amend the defendant's town planning scheme to rezone lots 1015 and 1016 as conservation areas.
This was effected on 6 March 1984 when these two properties were zoned as "conservation reserve". One consequence of this
zoning was that the plaintiff was compelled, in order to obtain the requisite consent to develop a private township on lot 1015,
to make application to the provincial authorities for a
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so called need and desirability certificate in terms of s 11 bis of the Natal Town Planning Ordinance, 27 of 1949 (N). Thus commenced
a sorry tale of obstruction and frustration, culminating in the expropriation of the property in February 1992, the plaintiff intent
on developing the property or parts thereof as a holiday resort and the authorities intent on preserving its natural resources and
sensitive ecosystems for posterity. It is not necessary for present purposes to attempt to follow the tortuous course the exchanges
and negotiations took over the next few years. All that needs to be mentioned is, firstly, that the conservation policy of the provincial
planning authority was further articulated in 1985 in a policy document entitled "Provincial 'Green Wedge' Policy" with
specific reference, inter alia, to lot 1015 and that this policy was vigorously pursued. Secondly, that the plaintiff, in the face
of considerable opposition, also from the defendant, nevertheless succeeded in obtaining consent in 1986, amplified in 1988, to develop
that
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portion of lot 1015 which eventually became sub 2. Thereafter in 1986 the plaintiff, as stated earlier, sold off the proposed sub
2 of lot 1015 for R3,6 million. It was on that property that the development known as Caribbean Estates took place.
The dispute about the appropriate zoning of the remainder of lot 1015 continued however. It was the defendant's efforts to impose
a split zoning of "part private conservation and part agricultural" on the property, once again inspired by the Green Wedge
policy, which precipitated the application for a rule nisi which Van der Reyden J eventually confirmed.
The role that the Green Wedge Policy plays in this appeal is that it gives formal recognition to a development policy which would,
so it was argued, have had an important effect in the eyes of the notional willing buyer whose attitude has to be considered in the
valuing process of s 12 of the Act. Much argument was directed to this issue which we will discuss later in this judgment.
16
Problematical aspects
The plaintiff appreciated that there were special problems attendant upon the determination of the value of the property at the expropriation
date. The nature, size and location of the site, its ecologically sensitive areas, its history and its treatment by the provincial
authorities, made it, in particular, difficult to trace truly comparable transactions. All concerned were moreover agreed that it
was not suitable for farming purposes and that farming it, say, as a banana plantation would negate if not destroy its best features,
namely its setting and surrounds.
As was stated in Pietermaritzburg Cofporation v South
African Breweries Ltd 1911 AD 501 at 516:
"It may not be always possible to fix the market value by reference to concrete examples. There may be cases where, owing to
the nature of the property, or to the absence of transactions suitable for comparison, the valuator's difficulties are much increased.
His duty then would be to take into consideration every circumstance likely to influence the mind
17
of a purchaser, the present cost of erecting the property, the uses to which it is capable of being put, its business facilities as
affording an opportunity for profit, its situation and surroundings, and so on. There being no concrete illustration ready to hand
of the operation of all these considerations upon the mind of an actual buyer, he would have to employ his skill and experience in
deciding what a purchaser, if one were to appear, would be likely to give. And in that way he would to the best of his ability be
fixing the exchange value of the property."
The plaintiff* presented his case as he was entitled to do in the form of a draft scheme of development, more particularly a golf
course estate, in order to demonstrate the development and profit potential of the site. It was contended on behalf of the plaintiff
that the "willing buyer" and the "willing seller" postulated by s 12 of the Act would have approached the notional
sale of the property on no other footing. This necessitated, firstly, a comparison with other golf course estates in Natal such as
San Lameer near Marina Beach, Selborne Park Estate near Pennington, Mount Edgecombe Country
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Club Estate near Durban and Prince's Grant near Stanger, to illustrate the demand for and the economic viability of such a project;
secondly, an analysis of more or less concurrent sales of large scale properties in the area with resort potential to indicate the
approximate order of prices paid for such properties in the area; and thirdly an elaborate exercise to arrive at what is known as
the residual land value of the property. For present purposes this can be described as a calculation and capitalization of the profits
expected to be generated by the scheme and the deduction therefrom of the total cost (cf Minister of Water of Water Affairs v Mostert
and Others 1966 (4) SA 690 (A) at 723F-G; Hirschman v Minister of Agriculture 1972 (2) SA 887 (A) at 895E). It is a method which was readily conceded by the plaintiff not to be a valuation method as such. It was employed by
the plaintiff simply in support of the value his valuer placed on the property, based on other transactions to which major adjustments
had to be made in order to render them
19
more or less comparable.Two approaches to the problem
Notwithstanding certain common ground between the parties their different starting points translated into a significant difference
in the value each placed on the property.
The plaintiffs case, in brief, was that the subject property had the potential of being developed as a golf course estate along the
lines of the golf course estates in Natal mentioned earlier and elsewhere in South Africa. To establish that potential the plaintiff
employed a team of experts who produced what was described in the trial as Leggo plan No. 7. This consisted of a sophisticated and
elaborate conceptual layout of an 18 hole golf course with a club house, sporting facilities and 427 sites destined for chalets and
cluster housing. It was designed to preserve and protect the ecologically sensitive areas in an attempt to allay the concerns of
the planning authorities in that regard. According to this plan 70
20
out of the 105 hectares would become available for marketing to members of the public, assumed to be largely from the Transvaal, with
a sufficient income to enable each of them to afford a holiday home at the coast. On the basis of certain transactions said to be
comparable which the plaintiffs expert valuer Labuschagne identified and analysed a hectare value of R120 000 for the 70 marketable
hectares was derived, totalling R8 400 000. (The remaining 35 hectares, consisting of the ecologically sensitive cliffs, riverine
forests and wetlands were not accorded a separate value but were regarded as attractions contributing to the overall value of the
70 marketable hectares.) Labuschagne made an allowance for the period he estimated it would take to obtain the consent of the various
authorities, by way of a need and desirability certificate, to proceed with the development of the property. He estimated this period
to be from nine months to one year, during which the project would remain on hold. He calculated that this would lead to a
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reduction in the value of R120 000 to R100 000 per hectare.Labuschagne's ultimate valuation figure was therefore R7 million at
which, he believed, a sale of the property would have been
concluded on 10 February 1992, the date of the notice of
expropriation. This estimate, the plaintiff contended, was supported
by what is called an Internal Rate of Return calculation prepared by
the witness, Hyatt, showing that on an investment of R7 million for
the purchase of the property a rate of return of 45% could be
expected. Finally, and for purposes of his cross-appeal, the plaintiff
was prepared to allow a further discount of 15% for the risk of not
being able to obtain full development rights. It is formulated thus
in the heads of argument:
"The value of the 70 hectares usable land is, therefore, depending on precisely what period is taken for the realisation of the
rights to develop the property, between, say, R6 million and R7 million. If the amount so arrived at has to be further reduced for
the discount factor referred to in the previous sub-paragraph, by, say, 15%, a value of between
22
R5 million and R6 million is indicated. The plaintiff therefore fixes the amount claimed for purposes of his cross-appeal at R5 million."
The defendant had a different point of departure. Based on the evidence of its expert valuer, Fitchett, it was submitted that the
notional informed buyer may have recognised some potential for low impact, low density development and exploitation of the property
in the long term, by virtue of its unique setting and particular recreational and natural attributes, but that that potential was
so vague and so far removed in the future that no potential buyer would have been prepared to invest more in the property than "rock
bottom prices" to which, at best, something had to be added for its potential for future development. Although Fitchett readily
conceded that the property was not suitable for agricultural purposes - indeed that farming activities on it would destroy the very
potential it may have for future development - he valued it on the
23
basis of agricultural land, applying values he extracted from comparable transactions of farm land in the vicinity during the relevant
period. He allowed an arbitrary 20% for the potential of future development. On the assumption that the necessary consents for future
development would be obtained somewhere in the distant future his maximum figure was Rl 260 000. This was the figure which the defendant
agreed, on the occasion when leave to appeal was granted, had in the meantime to be paid to the plaintiff. The proof of potential
The plaintiff claimed and the defendant conceded that the property had a potential for future exploitation which had to be taken into
account in valuing it. The dispute is as to what that potential is, when it would have been realisable, to what extent the negotiating
parties would have had regard to it and how it is to be translated into a figure.
A party who asserts that a property has a particular potential24
must prove it (Louber en Andere v Suid-Afrikaanse Spoorwe en
Hawens 1976 (4) SA 589 (T) at 608G-615F). By potential is meant a use, additional to its current use, for which the property is suited and reasonably capable
of being put in the future (cf Sri Raja Vyricherla Narayana Gajapatiraju Bahadur Garu v Revenue Divisional Officer Vizagatam[1939]
2 All ER 317 (PC) at 321H-322B; South African Railways v New Silverton Estate Ltd 1946 AD 830 at 838; Thanam NO v Minister of Lands 1970 (4) SA 85 (D) at 88D-E). Such proof has three components: (a) that the potential exists; (b) that a willing buyer and seller would have taken
it into account in Fixing the price (Thanam NO v Minister of Lana,supra, at 88F; Bonnet v Department of Agricultrual Credit and Land
Tenure 1974 (3) SA 737 (T) at 744G-745G) and (c) the quantum. Component (a) must be shown as a reasonable possibility (Minister of Water Affairs v Mostert
& Others, supra, af 723C; Jacobs v Minister of Agriculture 1972 (4) SA 608 (W) at 627G-629C;
25
Bestuursraad van Sebokeng v M & K Trust & Finansi
le Maatskappy (Edms) Bpk 1973 (3) SA 376 (A) at 384H). Component (b) must be proved on a balance of probabilities (Jacobs v Minister of Agriculture,supra at 627G-629C; Thanam
NO v Minister of Lands,supra; Bonnet v Department of Agricultural Credit and Land Tenure, supra; Van Zyl v Stadsraad v Ermelo 1979 (3) SA 549 (A) at 573D-H). Once (a) and (b) have been conceded or established there is no onus in the narrow sense in respect of component (c)
(Loubser en Andere v Suid- Afrikaanse Spoorwe
en Hawens, supra, at 610F-611B; 612G-613B). Where there are several possibilities, all reasonable, for which the property is suited,
the party relying on the potential is entitled to select from amongst them the one which is most advantageous to him as being the
"highest and best use" to which the property can be put, provided of course that such use would have occurred to both the
notional parties and would have been accommodated by them in their
26
negotiations about the price. But such potentiality must not be inflated: it remains a mere potentiality, not a reality (cf David
and Another v Pietermaritzburg City Council 1989(3) SA 765 (A) at 769H-770B), and as such it is at best a bargaining chip in the
notional negotiations.
In the instant case both parties accepted that the notional parties to the notional sale would have recognised and therefore would
have made some allowance for the development potentialities of the property, having regard to its location, size and special attributes.
The dispute, as stated earlier, was therefore not so much about the existence of any potentiality but as to its nature and the extent
it would have influenced the parties in their negotiations. According to the plaintiff they would have regarded it as a potential
golf course estate along the lines of the Leggo scheme; according to the defendant nothing so specific would have occurred to them
and if it did it would have been discounted because the concept was
27
physically, economically and legally flawed.
When the plaintiff purchased lot 1015 he clearly had not contemplated a marketing exercise on the scale of the Leggo plan. His prime
concern was to develop what eventually became sub 2 of lot 1015; and in order to obtain the rights to do so he was at one stage prepared
to trade off to the provincial authorities or the Natal Parks Board the entire area to the west of the main road (which is essentially
the subject property). It was only after the forced acquisition of the subject property by the defendant that it became necessary
for the plaintiff in order to claim compensation to investigate its potentiality. And it was for that purpose that he engaged Leggo
and his team of experts to advise him.
According to Leggo the only potential purchaser, given the size of the site, would have been an institutional buyer. That opinion
was not seriously challenged on behalf of the defendant.
One must therefore postulate two fully informed parties, one
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of them an institutional buyer with the know-how and means to embark on a large scale development, negotiating in good faith, both
of them familiar with the history of the property and briefed with all the various ecological and feasibility studies that were placed
before the court a quo. In those circumstances it is inconceivable that the possibility of developing the resort potential of the
property would not have occurred to them. A San Lameer type of development was, after all, mooted even before the plaintiff bought
the property. And if it occurred to them it would have been discussed and that discussion, in our view, would inevitably have led
to a debate about the merits and demerits of a golf course estate. Once it is accepted that the debate about the price would have
been conducted between the owner and an institutional buyer at the level of a possible golf course estate, in other words, that the
property, to the knowledge of the seller, was purchased as being capable of a large scale marketing operation by an investor with
the
29
means at its disposal to undertake it, it refutes Fitchett's (and hencethe defendant's) approach that the seller would have been prepared
to accept "rock bottom prices" with a token premium for the distant
prospect of a development or project of some unidentified kind.
Counsel for the defendant laid great stress on a passage in the
evidence of the plaintiff's valuer, Labuschagne, where he stated:
"Mr Southwood: Now, if you had a cash sale without rights, what allowance would the potential purchaser have made for the fact
that the number of rights and the time in which they would be granted would be uncertain? — That's speculation, M'Lord. It was the same - the same answer to the question on Friday with regard to the purchase of sub 2 of 1016.
I just don't know and I think it defies - it would defy any valuer. It would - it would - it's just not capable of quantification.
You just don't know. Primarily because these things don't happen in the market place. That is - that is a hypothetical situation.
Buyers don't buy blind unless they're buying at absolute rock bottom prices and that's not the way I've approached this valuation.
I don't think one has to approach it that way.
Now, when you say they don't buy blind unless they buy at absolute rock bottom prices, what you're saying is that
30
because of that substantial risk, there's a very substantial discount in the price over and above what you might get with rights?
- There would be, M'Lord, undoubtedly. Nobody in his right mind would go and buy something like this, spending this - anticipating
spending this kind of money, both buying the land and investing in it and pay a price which doesn't reflect the risk if the property
had no rights. He would buy it at the next best level of potential which, in this case, may well have been agriculture. But he would
do that to safeguard himself. He wouldn't do it because he believed that was the price. It's the fall back situation."
We do not think that the passage bears out the meaning which the defendant's counsel sought to attribute to it, that is to say, as
a concession that in the circumstances of this case the notional seller would have been compelled to settle for rock bottom prices.
Labuschagne was dealing with a hypothetical situation, namely that there were no rights and indeed no prospects of any rights being
granted to the property for future development. A concession in the terms framed by counsel would have been contrary to the entire
tenor of Labuschagne's evidence, indeed, it would be contrary to
31Fitchett's own concession that the parties would have made some
allowance for future potential.
The court a quo said of Fitchett's approach:
"The approach adopted by Fitchett was to value the property as agricultural land which may be subdivided into 2 ha small holdings
and then to adjust the value upward by 20% to cater for its long term potential for development as a golf course estate. I find no
virtue in this approach. It is unrealistic to value the subject property as agricultural land. It has never been used for farming.
The Administrator would not have granted permission for its subdivision into small holdings. To have done that would assuredly have
led to the destruction of the indigenous vegetation."
We agree. In our view both parties in negotiating a price would therefore as a matter of probability have been alive to the possibility
that the subject property had a resort potential and was in principle capable of development as a golf course estate and both parties
would have had regard to the necessity of protecting the ecologically sensitive areas, not only because this would have been
32
insisted on by the authorities but also because it would be in the developer's own interest to maintain, nurture and promote the natural
attractiveness of the property as a potential selling point for its own project.
The next question is how the notional negotiating parties would probably have treated the Leggo plan. According to counsel for the
defendant the plan would have been ignored because (a) of its physical constraints (b) it was not economically viable and (c) of
certain legal restrictions which would have hampered or curtailed its implementation.
It is necessary to examine each of these objections. (a) Physical constraints
The Leggo plan No. 7 is, as stated earlier, an elaborate and detailed design of a golf course estate, said to be a low key development
with a minimal adverse impact on the ecologically sensitive environment. It was produced as a result of a joint effort
33
by a town planner, a property consultant, a valuer, a consulting engineer, a consulting geologist and soils engineer, a specialist
golf course designer and a firm of quantity surveyors. A draft was submitted to an environmental development consultant, Nicolson,
who made certain suggestions to accommodate the ecologically sensitive areas such as the riverine forest and the wetlands. Nicolson
in turn submitted the concept to Dr Cooper of the Wild Life Society who expressed his support for it. There was some cross-examination
directed to show that the concept could not have been a practical one because of a lack of an adequate water supply for the golf
course and because of anticipated difficulties with the disposal of effluent but these criticisms were, in our view, countered by
the plaintiff in a manner that would have satisfied a potential purchaser that from a purely physical point of view the vision was
viable.
34(b) Economic viability
The next question is whether the parties would have regarded the scheme as economically viable. Hyatt did the exercise on behalf of
the plaintiff on the basis of the Leggo layout, his own projection of achievable sale prices, the quantity surveyor's estimates of
costs and Labuschagne's valuation of the land at R7 million. He assumed a six year development period and a four year selling period,
with a 50% sales rate in the third year, a 30% sales rate in the fourth year and the remaining 20% over the last two years of development.
He also assumed that the need and desirability application would be successfully processed during the course of the first year of
development. A further assumption was a sales commission for marketing agents at 3% of selling prices. On the basis of these and
other assumptions, estimates and projections he concluded that the scheme would generate a minimum yield of 45%. Hyatt's calculations
were not seriously challenged but his assumptions were.
35
Some of these will be discussed later in the judgment. For the present it suffices to say that the notional purchaser, primed by the
seller with a study such as that of Hyatt, would have insisted, and the seller would have been compelled to concede, that it remains
in essence a paper exercise and that considerable allowances would have to be made for uncertainties and contingencies. (c) Legal
Restraints
Counsel on both sides were agreed that anyone wishing to embark on a scheme as ambitious as that envisaged in the Leggo plan, involving
the establishment of a private township, would have been required to apply for a "need and desirability" approval. Such
an application might, as happened in this case in the past, have involved a public hearing. Both the necessity for development purposes
and the desirability in the public interest (see s 11 bis of the Natal Town Planning Ordinance, 1947) of permitting the establishment
of a township on the property in accordance with the
36
proposed scheme would have been in issue. The application would have been considered by the Townships Board which would have made
a recommendation to the Administrator-in-Executive Committee, with whom the final decision lay. One of the matters receiving attention
would have been the zoning of the property. Clearly it would have required a change of zoning from "conservation reserve"
to one accommodating the establishment of a township in accordance with the conditions laid down by the provincial authorities.
It was argued on behalf of the defendant that the notional negotiating parties would not have given serious consideration to the Leggo
scheme since both of them would have been aware that the Natal Provincial Administration would either not have agreed to its implementation
or, if it did so agree, would have imposed conditions which would have rendered it no longer economically viable.
37
The plaintiff, in turn, sought to counter this argument byinvoking s 12(5)(f) of the Act. It reads:
"Any enhancement or depreciation, before or after the date of notice, in the value of the property in question, which may be
due to the purpose for which or in connection with which the property is being expropriated or is to be used, or which is a consequence
of any work or act which the State may carry out or perform or already has carried out or performed or intends to carry out or perform
in connection with such purpose, shall not be taken into account."
The rationale for the section is plain: any appreciation or depreciation in the value of the property which, broadly speaking, is
a by-product or spin-off of the expropriation, is to be ignored (cf generally, Gildenhuys Onteieningsreg 155-160; Jacobs The Law
of Expropriation in South Africa 161-168; 10 Lawsa par. 73). According to the plaintiff any depreciation in the value of the property
(and hence in the notional price) which was due to either the current zoning as "conservation reserve" or the Green Wedge
38
policy, was to be ignored. The argument seems to be this: because both the Green Wedge policy and the current zoning aimed at nature
conservation, and this was also the reason for the expropriation of the property, any depreciation in the value of the property as
a result of the Green Wedge policy or the zoning was "due to the purpose ... in connection with which the property is being
expropriated" and as such must be ignored. To the extent that either the policy or the zoning would (i) create a risk that the
need and desirability certificate might not be granted or (ii) lead to restrictions in the conditions imposed when the need and desirability
certificate was granted or (iii) cause an additional delay in obtaining such a certificate, and having a negative impact on the negotiated
price, such depreciation or dimunition, so it was argued, had therefore to be disregarded.
There is a difference, in our view, between the effect of the Green Wedge policy, on the one hand, and the zoning, on the other.
39
The Green Wedge policy was formally adopted in 1985 which was after the respondent's acquisition of the property. But it was no more
than a concrete formulation of what had been the consistent policy considerations of the provincial authorities since at latest 1974.
With or without the Green Wedge Policy, as adopted in a formal document, the notional buyer and seller would at the expropriation
date have had to bear in mind the authorities' long standing opposition to both continuous ribbon-like development and its opposition
to permitting development on a "leapfrogging" basis, where this would lead to or further ribbon-like development. Another
significant feature of the Green Wedge Policy is that it was a policy of general application and even though the property is identified
in the formal document, not a policy, unlike the zoning, related to the development of the specific property.
Counsel for the plaintiff strongly relied on Myers v Milton Keyenes Development Corporation [1974] 2 All ER 1096 (CA). In
40
that case the authorities, acting pursuant to the New Towns Act 1965, in 1966 published a master plan containing certain proposals
for the establishment of a new town on a 22 000 acre rural site. The site included the whole of the plaintiffs Walton Manor estate.
Amongst the published proposals was the compulsory acquisition of that estate. In terms of the master plan it would remain untouched
for the first ten years whereafter it would become a residential area. In 1970, four years after the publication of the master plan,
the property was, to use our terminology, in effect expropriated. The ten year period thereupon commenced. The Court of Appeal was
primarily concerned with the methodology of the valuation in that case. Planning permission to realise the potential of the land,
it was held, should be assumed because of a statutory presumption (s 15 of the applicable statute). In addition the so-called Poinfe
Gourde principle had to be applied.
The Pofnfe Gourde principle derives from the case in which
41
it was formulated, Pointe Gourde Quarrying and Transport Co Ltdv Sub-Intendent of Crown Lands [1947] AC 565 (PC). It was
founded upon Section 11(2) of the then applicable Land Acquisition
Act which provided that "the special suitability ... of the land taken
be not taken into account (in awarding compensation) if that
purpose is a purpose to which it could be applied only in pursuance
of statutory powers". What was then in question was an
enhancement of value as a result of the very scheme for which the
acquisition had taken place. (A case of a depreciation in value
obviously would follow the same principle.) It was held that the
increase was entirely due to the scheme. (See the opinion of Lord
MacDermott at 572.)
In the Milton Keynes case, supra , at 1100g Lord Denning MR
referred to the principle as follows:
" '[That] principle', said Lord Cross of Chelsea, '... does not affect the interest to be valued, but only its value when
42
ascertained.' (See Rugby Joint Water Board v Foottit [1972] 1 All ER 1057 at 1095). It applies so as to ensure that any increase in value due to the scheme is to be left out of account".
It is that principle which underlies s (12)(5)(f) of our Act. At1102f-g the application of the principle is discussed in these terms: