Sometimes, developers try to circumvent environmental laws and in the process they cause environmental damage. And if we are lucky, the environmental authorities step in and attempt to enforce the law by directing the developer to rectify the damage and carry out further studies which may restrict or curtail the originally intended development.
Common among environmental directives, is the ability to compel the wrongdoer to cease, modify or control the wrongful act, and to remedy the effects of, or rehabilitate, the damage caused. Failure to comply with a directive is a criminal offence.
Now the question is, whether a developer who duly complies with a directive can sue the State for compensation for not being able to realise the full development potential of its property, due to the restrictions on the development as a result of the directive. This was the question the Supreme Court of Appeal had to decide in the case of Minister of Water and Environmental Affairs v Really Useful Investments  ZASCA 156. (The Really Useful Case)
In terms of our environmental laws, you can sue the State or any other person for damages, if they, when exercising a power or fulfilling a duty in terms of environmental legislation, act in a manner that is unlawful, negligent or in bad faith. This is in terms of s37 of the Environment Conservation Act (ECA) and s49 of the National Environmental Management Act (NEMA).
During May 2014, a developer, Really Useful Investments (RUI) instituted action against the City of Cape Town, the Minister and the provincial MEC for Environmental Affairs, claiming payment of compensation in terms of s34 of the Environmental Conservation Act 73 of 1989 (ECA), to the tune of some R16m. This was on the basis that a directive issued by the City, resulted in a substantial diminution in the value of the land.
S34 of the ECA allows the owner of land and the holder of a real right in such land to recover compensation from the Minister or competent authority concerned where the provisions of the Act place limitations on the use of the land or on activities which may be undertaken on the land. Compensation shall be in respect of actual loss suffered;
The developer, in an attempt to raise the height of lower-lying properties, began dumping waste matter to infill wetland areas. The City of Cape Town acted by issuing a s31A directive, directing the developer to, inter alia:
- peg and survey the areas within the 1:100 flood line;
- engage the services of an independent freshwater ecologist to determine the extent of the wetland that has been filled, to assess and evaluate the impacts of the filling on the receiving environment and potential future flooding and water quality as a result of the filling and to make detailed recommendations for rehabilitation; and
- remove the soil, general rubble and fill that was placed within the floodplain.
The Developer duly complied and undertook the steps as indicated in the directive. It thereafter argued that the Directive prevented it from undertaking any development on those properties affected by the Directive (e.g. properties within the surveyed wetland boundaries).
Both the MEC and the Minister denied that the Directive constituted a limitation on the purposes for which the properties could be used, within the meaning of s 34 of the ECA. They further denied that the Directive prevented the Plaintiff from undertaking development on the properties.
The Supreme Court of Appeal (SCA) had to decide whether the developer RUI could claim compensation in terms of s 34 of ECA for expenses incurred and losses allegedly sustained as a result of the directive issued by the City under s 31A.
The court interpreted s34 of the ECA as providing for compensation in situations where the public interest necessitated the creation of what were effectively, ecological reserves, which resulted in the limitation of the use of land. This was further borne out by this section’s reference to expropriation and the Expropriation Act.
So, for example, if an owner’s property had been identified as ecologically important and necessitating incorporation into a nature reserve, that owner could recover compensation from the State.
It was and could never have been the intention of the legislature to allow for compensation as a result of the application of regulatory provisions such as the EIA process or directives and other enforcement notices.
As the court held at :
It is hard to believe that a refusal of authorisation for activities which may have a substantial detrimental effect on the environment, related, for example, to waste removal or chemical processes would automatically entitle a holder of a right in land to compensation.
To interpret and apply s 34 of ECA to allow for such compensation would be to discourage environmental authorities from fulfilling their constitutional obligation to protect the environment…
Accordingly, the SCA upheld the appeal and held that RUI’s particulars of claim did not disclose a cause of action.
A party may therefore not claim compensation for a regulatory action such as directive, if such directive was exercised lawfully and in good faith.
Adv K Samie
Trust Account Advocate specialising in environmental law.