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The cloud-cuckooland jurisprudence of “nil compensation”

The cloud-cuckooland jurisprudence of “nil compensation”

Sections 25(2) and (3) of the Constitution (currently) require that, when government expropriates property, there must be “payment” of an “amount” of compensation. To any reasonable person, this means that when government expropriates property, money must move from the government and into the hands of the expropriated owner. But the mind of a lawyer is wired differently. Lawyers read these provisions and conclude that the Constitution (currently) allows government to “expropriate” property without any money changing hands. This is the jurisprudence of cloud-cuckooland.

Both the proposed Constitution Eighteenth Amendment Bill and Expropriation Bill presently make provision, not for expropriation “without compensation”, but expropriation where the “amount” of compensation will be “nil”. The difference is subtle, but crucial. In the first case, there will be no compensation; in the second, there will be compensation, but it will be R0.00. The first phenomenon is rightly rejected by most lawyers; the second is embraced and condoned. Cloud-cuckooland jurisprudence.

Note that what is being discussed here is not the amount of compensation, which must be “just and equitable” according to the formula set out in section 25(3) of the Constitution, but rather the notion that compensation per se must be paid.

Much has been said and written about the deleterious implications of expropriation without compensation. When owners know that there is a chance that they might be paid nothing for their property when government decides to seize it from them, the levels of time, effort, and money they pour into the development and expansion of their property - usually commercial, agricultural, or industrial - will diminish. If property is in fact taken without compensation, further substantive foreign and domestic investment becomes an elusive dream. In other words, expropriation without compensation is an economic non-starter -- it can never produce advantageous economic conditions.

This is a statement of fact and not of theory.

Materially there is no difference between “without compensation” and “nil compensation”. In fact, in reality, both have the same consequence: A person’s property is confiscated from them and they do not get a cent for it. Playing legal mind-games is stimulating in an academic context, but the Constitution was not written for academics only. The Constitution’s requirement that there must be “payment” of an “amount” of compensation is clear -- it is not an ambiguous provision requiring what is known in law as construction, it simply needs to be interpreted for what it clearly means.

Of course, that any amount be paid is insufficient. Some lawyers have suggested paying a nominal amount in compensation to comply with the constitutional requirement, but this, too, would be inappropriate. It is not only the letter, but also the spirit, of law that matters. The constitutional requirement that compensation be paid upon expropriation has a spirit, and that spirit is to place expropriated owners in substantially the same position they would have been had the expropriation not taken place.

This means, invariably, that market-based compensation ought to be paid. There are factors that might justify some departure from the market value, such as solatium (which places the compensation above market value), or debt associated with the property (which places the compensation below market value); but even if there is reason to compensate below market value, this can never amount to placing the owner in a substantially worse position. The purpose of the institution of expropriation is, after all, not to impoverish or punish owners.

With all of this in mind, the argument that legal academics and commentators have grown fond of -- that the Constitution already allows government to “expropriate” without compensation -- is clearly incorrect. The Constitution Eighteenth Amendment Bill is in all its facets a novel intervention that, if adopted, will strike at the very foundation and basic structure of the Constitution.

In reality it makes no difference for government to confiscate an owner’s property “without compensation”, or to “expropriate” an owner’s property by “paying” an “amount” of “nil compensation”. Using a different combination of words does not change the substance of what in fact happens. To say otherwise would be to confirm the impression that lawyers operate in a different realm, detached from the realities of the lives of ordinary people. Thus far, this impression appears to be correct, and I say this as someone with a master’s degree in law.

Martin van Staden sits on the Executive Committee and Rule of Law Board of Advisors of the Free Market Foundation. He is pursuing a doctorate in law at the University of Pretoria and is author of ‘The Constitution and the Rule of Law: An Introduction’ (2019).