On Wednesday, 15 March 2023, the Constitutional Court dismissed an application for leave to appeal against a judgment of the Supreme Court of Appeal. The appeal was made by the Minister of Water and Sanitation and Others, and an order was granted in favour of three separate groups of respondents (Lötter N.O., Wiid, and the South African Association for Water User Associations). The matter arose out of three similar disputes that were heard in the High Court of South Africa, Gauteng Division, Pretoria (“High Court”).
In the three matters, private agreements (ranging from approximately R1.9 million to R15 million) were concluded in terms of which one party surrendered water use entitlements in terms of section 25(2) of the National Water Act 36 of 1998 (“the Act”) in order for the other party/parties to apply for a licence in respect of that water use entitlement in terms of section 41 of the Act. In all instances, the Director‑General of the Department of Water and Sanitation (“Director General”), being the responsible authority for purposes of section 41 of the Act, refused the licence applications on the basis that section 25(2) of the Act does not make provision for the transfer of water use entitlements from one person to another. The Director General’s refusal of the applications led the parties to approach the High Court for declaratory orders on the meaning of section 25(1) and (2) of the Act. The High Court dismissed all three applications and held that on a proper reading of section 25 of the Act, trading in water use entitlements is impermissible as it is at variance with section 2 of the Act.
On appeal to the Supreme Court of Appeal, the minority agreed with the High Court’s conclusion, but the majority upheld the appeals. The majority held that section 25(1) and (2) of the Act permit the temporary or permanent transfer of water use entitlements from a holder to a third party for compensation. The applications then came before the Constitutional Court.
The Constitutional Court identified the following three main questions in this matter:
- Does section 25(1) of the Act permit the use of water by a person other than the holder of a water use entitlement?
- Is the licence application envisaged in section 25(2) of the Act a licence application by the holder of a water use entitlement?
- Does the Act prohibit the charging of a fee in respect of transactions concluded in connection with water use entitlements?
Sections 25(1) and (2) of the Act read as follows:
25(1): “A water management institution may, at the request of a person authorised to use water for irrigation under the Act, allow that person on a temporary basis and on such conditions as the water management institution may determine, to use some or all of that water for a different purpose, or to allow the use of some or all of that water on another property in the same vicinity for the same or similar purpose.”
25(2): “A person holding an entitlement to use water from a water resource in respect of any land may surrender that entitlement or part of that entitlement—
(a) in order to facilitate a particular licence application under section 41 for the use of water from the same resource in respect of other land; and
(b) on condition that the surrender only becomes effective if and when such application is granted.”
In response to the first question, the applicants argued that, on a proper interpretation of section 25(1) of the Act, only the holders of a water use entitlement are allowed the use of water on another property, and the section states nothing about such use being possible “by another person or third party”. The Constitutional Court did not agree and held that section 25(1) of the Act does permit the introduction of a third party to enjoy temporary water use on its property in respect of a water use entitlement held by another person in respect of a different property. Therefore, the Act does allow a water use entitlement holder to agree with a third party to a temporary transfer of all or a portion of such licence holder’s water use entitlement to the third party’s farm on a temporary basis.
The second question concerns itself with whether a third party may bring an application for a water licence for the transfer of a water use entitlement currently held in the name of another party to the applicant’s property or whether the application for such a water license where an existing water use entitlement is transferred to a different property is restricted to the current holder of the water licence in respect of such water use entitlement. The Constitutional Court stated that although section 25(2) does not expressly mention that third parties may bring such an application for a water licence where an existing water use licence is transferred to another property, the Act must not be interpreted to conclude that third parties may not apply for such licences i.e. permanent transfers. Therefore, third parties may also bring water licence applications for the transfer of an existing water use entitlement from another holder’s property to the applicant’s property following an agreement reached between the current holder and the said third party applicant.
Regarding the trading of water use rights for value, the Constitutional Court confirmed that the Act has no provision which expressly prohibits trading in water use entitlements for value between private individuals, and the holder of a water use entitlement may request another person to pay compensation to him/her in order for the person to obtain water use rights. There is no impediment to a fee being charged to facilitate an application for a water use licence by a third party under the Act, and parties may negotiate any amount for such water use rights to be transferred.
The challenges in the High Court emanated from a circular issued in January 2018 in which the Department of Water and Sanitation determined that the transfer of water rights will no longer be permitted. Due to the vast impact that water has on the agricultural sector of South Africa, it was only a matter of time before the circular would see its day in court. As a result of this decision, farmers may continue to transfer (and trade with) water rights, and the transfers are not restricted to transfers to and from the farms of one farmer. Farmer A may transfer his/her water rights to Farmer B. Refusing water rights to change hands may only lead to the inefficient use of water, a resource that is essential to advancing and maintaining the agricultural sectors of South Africa, and therefore this judgment is a victory for farmers who want to transfer and trade water rights again.