Case   CCT378/21
[2023] ZACC 09

Hearing Date: 25 August 2022

Judgement Date: 15 March 2023

Post Judgment Media Summary  

The following explanatory note is provided to assist the media in reporting this case and is not binding on the Constitutional Court or any member of the Court.

On Wednesday, 15 March 2023, the Constitutional Court dismissed an application for leave to appeal against an order of the Supreme Court of Appeal which set aside a decision of the High Court, Pretoria.

The matter arises out of three similar disputes (Lötter N.O., Wiid, and SAAWUA). In these three matters, private agreements 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 (Water 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 Water Act. The contract prices in these agreements were for very large sums of money ranging from approximately R 1. 9 million to R 15 million. In all instances the Director-General of the Department of Water and Sanitation – the responsible authority for purposes of section 41 – refused the applications on the basis that section 25(2) of the Water Act “does not make provision for the transfer of a water use entitlements from one person to another”.

The 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 Water Act and in both Lötter N.O. and Wiid, for an order reviewing and setting aside the Director-General’s decision to refuse their license applications. The High Court dismissed all three applications and held that on a proper reading of section 25, trading in water use entitlements is impermissible as it is at variance with section 2 of the Act.

On appeal, the Supreme Court of Appeal split 4:1. The minority agreed with the High Court’s conclusion. The majority upheld the appeals. It held that section 25(1) and (2) of the Water Act do permit the temporary or permanent transfer of water use entitlements from a holder to a third party for compensation. The applications then came before this Court.

The applicants in this Court contend that the ordinary grammatical meaning of both section 25(1) and (2) of the Water Act does not permit the transfer of water use entitlements to a third party. They also say that the Supreme Court of Appeal’s interpretation of these sections is inconsistent with both the Water Act and the Constitution in that it excludes persons in a discriminatory manner and adversely impacts on the right to equality in section 9 of the Constitution because wealthy farmers, who are mostly white, have created an enclave within which a scarce national resource is traded, perpetuating the imbalances of the past. They also argue that interpretatively it does not make sense that – having paid measly administrative fees applying for their water use entitlements – holders enjoy the ability to trade in these entitlements for huge sums of money.

In a unanimous judgment penned by Madlanga J, the Court held that both its constitutional and extended jurisdiction are engaged, and– given the import of the questions raised – leave to appeal was granted.
The Court identified the following three main questions in this matter:

• (a) Does section 25(1) of the Water Act permit the use of water by a person other than the holder of a water use entitlement?
• (b) Is the licence application envisaged in section 25(2) a licence application by the holder of a water use entitlement?
• (c) Does the Water Act prohibit the charging of a fee in respect of transactions concluded in connection with water use entitlements?

.

 In interpreting section 25(1), Madlanga J determined that the ordinary grammatical meaning contended for by the applicants would be absurd, as it would involve the holder of a water use entitlement allowing “her- or himself to use the water on another property temporarily.” Instead, the section must contemplate a water management institution permitting the holder to allow use of some or all of the water on another property by another person (i.e. a third person). The interpretation offered by the applicants creates a conflict between sections 22 and 25 of the Water Act. Water use resulting from an authorisation by a water management institution in terms of section 25(1) is manifestly water use that does not fall under any of the categories itemised in section 22(1). And so, water use under section 25(1) (involving a third person or not) cannot be confined to the instances enumerated in section 22 as it would hollow-out section 25(1).

As for section 25(2)’s reach, Madlanga J reasoned that the breadth of the language of section 25(2) is magnified by the breadth of the language of section 41 in terms of which an application for a licence may be made by anybody: the sections neither expressly include nor exclude a third party for purposes of facilitating a license application.

The Court noted that it would not be possible to “trade” in water use entitlements in the conventional sense: in terms of section 25(2), the holder can, at most, surrender their right in order to facilitate a particular application by another person. However, trading (i.e. entering into a private, parallel transaction) is not prohibited by any provision in the Act; if anything, it is recognised as lawful by the language of section 29(2) which makes provision for the payment of compensation in exchange for water use as a condition of a license.

Overall, in the absence of a clear proscription of trading in water use entitlements (which there is not), private persons are free to trade. The Court dismissed the application with costs, including the costs of two counsel.

The Full judgment  here