By Ben Winks on 19 April 2013

Background

The Mineral and Petroleum Resources Development Act of 2002 (the MPRDA) entered into force on 1 May 2004 and fundamentally reformed the mineral rights regime in South Africa.  Previously, under the Minerals Act of 1991 and its predecessors, minerals were owned by private parties, and could be exploited or not exploited by them as they saw fit, subject to state regulation.  The MPRDA, however, provides that all minerals are the common heritage of the people of South Africa, and that the state, as the custodian of these resources for the benefit of all South Africans, may grant, refuse and administer mineral rights and charge royalties for their exercise (Section 3).

To ensure security of tenure and minimise disruption in the mining industry, the MPRDA introduced detailed transitional arrangements as a bridge between the old order and the new (Schedule 2).  Thus, from 1 May 2004: the holders of old order mining rights had five years to apply for new order mining rights; the holders of old order prospecting rights had two years to apply for new order prospecting rights; and the holders of unused old order rights (rights to minerals in respect of which no prospecting or mining had yet commenced) had one year to apply for new order prospecting or mining rights.

Before the MPRDA entered into force, Sebenza Mining held coal rights on and under certain farms, but it was wound up before conducting any prospecting or mining.  These coal rights were thus “unused old order rights” under the transitional provisions of the MPRDA and, as Sebenza was not in a position to pay the fees to convert them into new order rights, they expired one year after the commencement of the MPRDA.  Sebenza’s liquidators claimed compensation from the Department of Mineral Resources, contending that the coal rights had been expropriated.  The Department rejected the claim, which was then ceded to Agri SA, who instituted action in the Pretoria High Court as a test case on the alleged expropriatory effects of the MPRDA.

The High Court held that expropriation requires deprivation of property and acquisition of substantially the same property by the state.  The High Court found that the MPRDA not only destroyed pre-existing mineral rights but vested the substance of those rights in the state, and thus effected not only deprivation but expropriation of unused old order rights, for which just and equitable compensation was payable under section 25 of the Constitution.

The Minister of Mineral Resources (the Minister) appealed to the Supreme Court of Appeal (the SCA), which agreed broadly with the High Court’s definition of expropriation, but disagreed that the MPRDA had that effect.  After a thorough exposition of the history of mining legislation in South Africa, the SCA held unanimously that the essential “right to mine”, from which all mineral rights are derived, had always been vested in the state, and allocated by it to private parties in differing degrees over the years.  Thus, the SCA held that no blanket expropriation of mineral rights had been brought about by the MPRDA, but that it remained possible that a specific holder of old order mineral rights might be able to prove that the MPRDA had the effect of expropriating their particular mineral rights.

Agri SA applied to the Constitutional Court for leave to appeal, while the Minister sought leave for a conditional cross-appeal, which was ultimately immaterial.

The Constitutional Court decided unanimously that Agri SA should be granted leave to appeal, as it had raised important constitutional issues and had reasonable prospects of success, but that the appeal itself should be dismissed.  The Court was divided, however, as to why the appeal should fail.

Judgment of Mogoeng CJ (Moseneke DCJ, Cameron J (partly), Jafta J, Nkabinde J, Skweyiya J, Yacoob J and Zondo J concurring)

Mogoeng CJ agreed with both the High Court and the SCA on the definition of expropriation, namely deprivation of property and acquisition of substantially the same property by the state.  However, he disagreed with both the High Court and the SCA on the application of that definition to the MPRDA.

Mogoeng CJ interpreted the SCA’s judgment as effectively finding that Sebenza’s mineral rights did not constitute property, a finding with which he disagreed.  He held that, before the MPRDA, the right to exploit minerals was inextricably linked to ownership of the mineral rights concerned, and that the SCA’s distinction between mineral rights and the “right to mine” unclear and misleading.  Originally, mineral rights included ownership of minerals and the right to exploit them (the “right to mine”).  Even when the state assumed regulatory authority over mineral extraction, it could only permit mineral owners to extract them.  Where the state sought to compel mineral exploitation by third parties, it recognised the mineral owner’s proprietary interest by requiring the payment of royalties to the mineral owner or by expropriating the mineral rights against payment of compensation.  Moreover, the SCA had ignored the right not to mine, as one of the essential components of mineral ownership.  Accordingly, Mogoeng CJ held that mineral rights were undoubtedly property with economic value.

Mogoeng CJ found, and it was not disputed between the parties, that the MPRDA had the effect of depriving pre-existing mineral right holders of elements of that right, yet that such deprivation was not arbitrary, in light of the objects of the MPRDA and the transitional arrangements.  The key question remaining was whether such deprivation amounted to expropriation.

Mogoeng CJ held that, in order to prove expropriation, it must be established that the state has acquired the “substance or core content” of the property of which a person was deprived.  His approach to the definition of “acquisition” was a holistic and historical interpretation of section 25 of the Constitution.  He stated the section “sits at the heart of an inevitable tension between the interests of the wealthy and the previously disadvantaged” and must thus be interpreted “with due regard to the gross inequality in relation to wealth and land distribution in this country”.  In this light, private property rights should not be over-emphasised at the expense of the state’s social responsibilities.

Mogoeng CJ held that “an overly liberal interpretation of acquisition” could blur the line between deprivation and expropriation, and could undermine the constitutional imperative to transform the economy.  Acquisition must be determined contextually on a case-by-case basis, considering the source, nature and content of the affected rights, as well as measures taken to interfere with them or preserve their essence.  Thus, although the MPRDA effected the compulsory deprivation of mineral rights, and vested the state with custodianship over them, along with the power to grant to others what previously could only be granted by mineral right holders, the state did not thereby acquire ownership of those rights.  Any assertion that it did so would be an overly liberal one, as the state has not become the owner of mineral rights for its own benefit, but their custodian for the benefit of the people of South Africa.

Mogoeng CJ held, however, like the SCA, that it would be inappropriate to decide that an expropriation in terms of the MPRDA was incapable of ever being established, and that it remained possible to prove that expropriation did take place in an individual case.

Judgment of Froneman J (Cameron J (partly) and Van der Westhuizen J concurring)

Froneman J agreed that the appeal should be dismissed, but for very different reasons.  He disagreed with Mogoeng CJ’s approach to expropriation, finding that the state had very clearly acquired the powers previously held by mineral owners, but holding that state acquisition was not en essential requirement for expropriation.  Froneman J contended that the conventional formalistic approach to expropriation was inappropriate large-scale transformational legislation such as the MPRDA, which seeks to effect an institutional change to the legal regime.

Applying an admittedly unprecedented approach, Froneman J held that the MPRDA must be interpreted in a manner that best accords with the spirit, purport and objects of section 25 of the Constitution.  By preserving old order rights for a limited time and affording their holders the exclusive competence to convert them into new order rights, the MPRDA provided those holders with “compensation in kind” for the loss of their mineral rights, which “should be read as giving alternative legislative content to the just and equitable compensation provision for expropriation in section 25(3) of the Constitution”.

According to Froneman J, this approach would allow courts to “cut to the chase” to determine whether “compensation in kind” is just and equitable, “without having to wrestle their way through the formalistic requirements for expropriation”, and allows for the possibility of proving, in individual cases, that the “legislative balancing” might not have been just and equitable and that further compensation might be payable.

Cameron J

Cameron J agreed with the judgment of Mogoeng CJ, except to the extent that he agreed with Froneman J that state acquisition, though a “general hallmark” of expropriation, is not an essential requirement for expropriation in all cases.

Download the judgment here.