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By Hugo van Heerden (Senior Associate at Hayes Incorporated)


A decision by an authority can limit the rights of a land owner to use or develop land and might even cause financial loss to the land owner. Will a land owner be able to claim compensation for the financial loss suffered cause by such a decision? This question was recently answered by the Supreme Court of Appeal (“SCA”) in the unreported case of The Minister of Water and Environmental Affairs & Others v Really Useful Investments No 219 (Pty) Ltd & Another.

The case relates to certain provisions of the Environmental Conservation Act 73 of 1989 (“ECA”) and National Environmental Management Act 107 of 1998 (“NEMA”), which will be of great interest to land owners (in particular property developers) as it provides clarity on whether land owners will be able to claim compensation for financial loss in certain circumstances.

Before we delve into the legal aspects lets first look at the facts of the case. Really Useful Investments No. 219 (Pty) Ltd (“RUI”) is the registered owner of thirty-nine immoveable properties situated in Hout Bay, close to the Disa river and the seashore. Some of the properties are situated in low-lying areas adjacent to the Disa river. In order to develop these properties RUI began to lift these properties to four meter above sea level by dumping waste matter and fill in on the properties.

The actions of RUI caused the City of Cape Town (“the City”) to issue a directive to RUI in terms of sections 31A of ECA. The directive required that RUI inter alia determine the 1:100 year flood line and the extent of the wetland; determine the impact of the land fill in; to rehabilitate and remove the land fill in from the flood plain of the Disa River. RUI took all the steps required in the directive.

RUI then instituted a claim against the City, the Minister of Water & Environmental Affairs (“the Minister”) and the Minister of Local Government, Environmental Affairs & Development Planning Western Cape (“the MEC”) in terms of section 34 of ECA. RUI alleged that it suffered loss because the City’s directions prevented RUI from developing the properties below the 1:100 year flood line and those properties within the wetland boundary.
Section 34 of ECA gives a land owner a remedy to claim for compensation for actual loss suffered, if the Minister or competent authority places a limitation in terms of the Act, on the purpose for which the land can be used or the activity that may be undertaken. The section furthermore sets out the procedure that needs to be followed in order to determine the amount of the compensation.

The City contended that in terms of section 49 of NEMA it cannot be held liable for the alleged loss due the exercise of its powers in terms of the relevant legislation.

Section 49 of NEMA places a limitation on the liability of the State for any damages caused by the exercise of any powers in terms of NEMA or any other environmental management Act, unless the power was exercised in a manner that was unlawful, negligent or in bad faith. Section 37 of ECA also contain a similar limitation on liability as in section 49 of NEMA.

RUI did not allege that the City acted unlawful, negligent or in bad faith when it issued the directive.
The SCA considered the provisions of the ECA, which was enacted in 1989, before it was amended by the enactment of NEMA in 1998. NEMA almost completely replaced ECA with only sections 21, 22, 23, 31A, 34 and 37 still in remaining. According to the SCA, sections 21, 22 and 31A of ECA were regulatory in nature to “provide oversight of activities, undertaken on property, that were potentially hazardous and … environmentally harmful.”
Section 23 on the other hand provides for the creation of “limited development areas”. In these “limited development areas” only activities and developments approved by the Minister may be undertaken. The purpose is to protect and preserve areas which are considered to be ecologically important. If section 23 is enforced, it will limit the real rights to the land. It is therefore only section 23 that places a limitation, as contemplated in section 34, on the use of the land or the activities that may be undertaken on the land.

The court held that a claim in terms of sections 34 can only be made if a “limited development area” is declared in terms of section 23 of ECA. Compensation cannot be claimed in terms of section 34 of ECA for any actions taken by the authorities in terms of sections 21, 22 or 31A.

The court reasoned that if a party will be able to claim for compensation if the authorities exercise their powers in terms of sections 21, 22 and 31A, it would lead to an absurd situation where a land owner will “act in an environmentally offensive manner so as to solicit compensation.”

On a consideration of sections 37 of ECA and 49 of NEMA the court held that these sections provided a defense to the authorities for a claim in delict and that the sections have no application to situations that falls within section 34.

In summary the court found that RUI did not have a claim based on section 34 of ECA for the alleged loss suffered because the City issued a directive in terms of section 31A of ECA. As a result, a claim for compensation can only arise if the powers in terms of 21, 22 or 31A are exercised unlawfully, negligently, or in bad faith. Such a claim will have to be based in delict.

Other legislation, such as the National Water Act 36 of 1998 also contains a similar provision to section 34, which provides for the payment of compensation for “any financial loss suffered” where a license for an existing water use is refused or a lesser right is granted.

The interpretation of the SCA of section 34 of ECA will in all probability play a role should the similar provision of the Water Act comes before the courts.

Now that there is clarity on the application of section 34 it might only be possible to claim in delict against an authority that imposes a limitation on the use of the land or the activity that can be undertaken on the land. Such a claim will only be possible if the authority exercises its powers unlawfully, negligently, or in bad faith. If such a claim is instituted against the relevant authority, then sections 37 of ECA and/or 49 of NEMA can be raised as possible defenses.

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