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. Continue reading →