Davis and Another v Mayor and City Councillors of City of Pietermaritzburg (52/89) [1989] ZASCA 52; [1989] 2 All SA 379 (A) (9 May 1989)

IN THE SUPREME COURT OF SOUTH AFRICA

(APPELLATE DIVISION)

In the matter between:

WILLIAM GEORGE DAVIS first appellant

ROBERT EDWARD ALEXANDER second appellant

and

THE MAYOR AND CITY COUNCILLORS

OF THE CITY OF PIETERMARITZBURG respondent

CORAM: CORBETT CJ, HEFER, VIVIER, STEYN JJA, et F H GROSSKOPF, AJA.

DATE OF HEARING: 23 February 1989

DATE OF JUDGMENT: 9 May 1989

JUDGMENT CORBETT CJ:In October 1984 the two appellants purchased a fixed property in Terry Street, Pietermaritzburg and on 2 February 1985 they took transfer thereof. Upon the erf stood a block of 10 flats known as "Fortuna Court". (I shall refer to the land, as improved, as2 "the property".) By a registered letter dated 6 De-cember 1985 appellants were given notice by the City Council of Pietermaritzburg (the respondent) of the expropriation of the property in terms of the Expro- priation Act 63 of 1975 ("the Act"). The parties wereunable to agree as to the amount of compensation paya-ble in respect of the property expropriated and in due course the appellants instituted action against the respondent in the Natal Provincial Division claiming an order determining the amount of compensation to which they were entitled in the sum of R310 000, to-gether with ancillary relief. After pleadings had been closed the parties filed a "Statement of Agreed Facts" (I shall call this "the stated case") for de-cision by the Court. The matter came before Howard J (as he then was), who found generally in favour of the respondent and made the following order:-

"(a) The amount of compensatioN payable to

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the plaintiffs is determined at R218 828; (b) The defendant is ordered to pay interest on the said amount in terms of sec 12(3) of Act No 63 of 1975; (c) Costs are awarded in accordance with the provisions of sec 15(1) and (2) of the said Act."

In coming to this decision the learned Judge rejecteda claim by the appellants to be paid, in addition tothe amount of R218 828, a further sum of R64 877 saidto be compensation for "actual financial loss" causedto appellants by the expropriation, in terms of sec

12(l)(a)(ii) of the Act. (The judgment of Howard Jhas been reported, see Davis and Another v Pieter-maritzburg City Council 1988 (3) SA 537 (N). I shallrefer to this as "the reported judgment".) With the

leave of the Court a quo appellants appeal against thatpart of the judgment which rejected the aforesaid claim

of R64 877.

According to the stated case, the appellants,

4 acting through a firm of land surveyors, made a "preli— minary" application to the respondent (the "local authority") on 7 November 1985, in terms of the Sectional Titles Act 66 of 1971, for a development scheme whereby the property was to be divided into a number of sections, each flat representing a separate section. On 21 November 1985 a meeting of the tenants of the flats was held for the purpose of providing them with particulars concerning the sectional title development scheme. And on 5 December 1985 final sectional title plans were submitted by the land surveyors to the respondent.The stated case further records that the pa-ties were agreed that the correct valuation of the pro-perty for the purposes of sec 12(1)(a)(i) of the Act was the sum of R208 828. The detailed calculations made in order to arrive at this figure are set forth in an annexure ("I") to the stated case, and it is fur-5 ther stated that the "facts assumed and contingenciesapplied in annexure I are agreed by the parties asbeing correct'. The final three paragraphs of thestated case read as follows (appellants being referredto as "plaintiffs") :

"33.

The parties agree that Plaintiffs would probably have obtained permission to sectionalise Fortuna Court and in that event the sectional title register and plan would have been opened, registered and that Plaintiff would have been in a position to commence selling units in February 1986.

34. The parties agree that First and Second Plaintiffs as developers would probably have sold all the sectionalised units by October 1986.

35. The parties agree that the sale of the sectionalised units would have resulted in a Developers'Profit for First and Se-cond Plaintiffs in the sum of R64 877,00 which sum has been deducted in terms of the valuation fórmula adopted in Annex-ure I."

6

In explanation of the latter portion of para

35, I would point out that annexure "I", which is head-

ed - "Feasibility calculations for Sectional Title Con- version as at 6th December 1985" - consists of certaincalculations in terms of which the following figuresare arrived at on the basis that the sectional unitscomprising the development scheme would have been soldat certain prices and at a certain rate over the agreedperiod of disposal, viz February 1986 to October 1986

(see paras 33 and 34 above):

Present value (as at 6 December 1985) of total sales income R320 093 Present value of cost of sales 49 773 Net present value R270 320 Deduct - developer's profit for risk return @ 24% 64 877 NOTE: Sectional Title Act/Rent Act problems R205 443 Add back - rentals for 6 months from 5 flats 3 385 Open market value at 6/12/85.. R208 828

(Here I would just add that in arriving at the amount of his award the trial Judge added to this figure of

In explanation of the latter portion of parar xxxxx

35, I would point out that annexure "I", which is head-ed - "Feasibility calculations for Sectional Title Con-version as at 6th December 1985" - consists of certaincalculations in terms of which the following figuresare arrived at on the basis that the sectional unitscomprising the development scheme would have been soldat certain prices and at a certain rate over the agreedperiod of disposal, viz February 1986 to October 1986

Present value (as at 6 December

1985) of total sales income R320 093

Present value of cost of sales 49 773 Net present value R270 320 Deduct - developer's profit for risk return @ 24% 64 877 NOTE: Sectional Title Act/Rent Act problems R205 443 Add back - rentals for 6 months from 5 flats 3 385

Open market value at 6/12/85., R208 828 (Here I would just add that in arriving at the amount of his award the trial Judge added to this figure of

7R208 828 the statutory amount of RI0 000 provided for the xxxxby sec 12(2) of the Act, about which the parties wereagreed.)

Section 12 of the Act prescribes how the com-

pensation payable in respect of property expropriatedis to be determined. The relevant portion of the sec-tion reads:

"(1) The amount of compensation to be paid in terms of this Act to an owner in respect of property expropriated in terms of this Act, or in respect of the taking, in terms of this Act, of a right to use property, shall not, subject to the provisions of subsection (2), exceed

(a) in the case of any property

other than a right, the ag- gregate of -

(i) the amount which the property would have realised if sold on the date of notice in the open market by a willing seller to a willing buyer; and

(ii) an amount to make good

any actual financial loss caused by the expropria-tion; "

This portion of subsec (1) is identical to the corres-8ponding portion of sec 8(1) of the previous Expropria-tion Act 55 of 1965 ("the 1965 Act"), save in certainminor respects which are not relevant for present pur-poses. It is clear from authority that where the property expropriated consists of land then, in the assessment'of "the amount which the property would have realized if sold on the date of notice in the open market by a willing seller to a willing buyer", account must be taken not only of the use to which the property is being put at the time of expropriation, but also to the property's potential for future development andother possible uses (Thanam N O v Minister of Lands

1970 (4) SA 85|(D), at p 88 D - E, Bestuursraad van

Sebokeng v M & K Trust & Finansiële Maatskappy (Edms)

Bpk 1973 (3) SA 376 (A), at p 395 H, Bonnet vDepartment of Agricultural Credit and Land Tenure 1974

(3) SA 737 (T) - all cases decided in relation to

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sec 8(1) of the 1965 Act; Southern Transvaal Buildings

(Pty) Ltd v Johannesburg City Council 1979 (1) SA 949

(W), at pp 952-4 - decided in relation to sec 12(1) ofthe Act; and see generally 10 LAWSA par 74). But

it is the property as it is on the date of notice, with

its potentialities, that must be valued; the propertymust not be valued as though the potentiality had beenrealized and the development taken place (see SouthernTransvaal Buildings case, supra; cf Lochner vAfdelingsraad, Stellenbosch 1976 (4) SA 737 (C), atp 744 B - F). In the Southern Transvaal Buildingscase, supra, which also related to the expropriationof a block of flats which had the potential for rede-velopment as a sectional title property, King AJ con-

cluded that (at p 955D - E) -

".... one must approach this matter on the basis of a sale to a single willing buyer of the property with the potential

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for sectional title. If a sectional title register had been opened at the date of expropriation this would have involved the sale of each unit and con-sideration would then have to be given to the fictitious willing purchaser of each unit. It is, therefore, in my view, erroneous to attempt to value the property on the basis of a sale of indi-vidual units to separate purchasers."

In that case the Court had before it the evidence ofvarious valuers. The Court relied on evidence which

indicated (a) the total price which a developer couldexpect to receive for the flats sold as separate units,

(b) the costs of development and (c) an amount, repre-senting the profit/risk factor, which a developer wouldrequire to be taken into account were he the willingpurchaser of the property; and arrived at its deter-mination by deducting from (a) the sum of (b) and (c)and rounding off the resultant figure.

It seems to me, with respect, that the gene-

ral approach adopted by the Court in the Southern

n

Transvaal Buildings case, supra, is a correct applica-

tion of sec 12(1)(a)(i) of the Act to the facts of such

a case; and that the method of calculation used in

that case, though not necessarily the only appropriate

one, is a reasonable and practical one. (See also the

remarks of Howard J in the reported judgment at p 540A - B.) And it seems likely that the parties in thepresent case had this general approach and method ofcalculation in mind in compiling the stated case and

in arriving at the figure of R208 828 as being the a-mount to which the appellants were entitled in termsof sec 12(1)(a)(i) in respect of the property expro-

priated.

Appellants, however, contend that in terms of sec 12(l)(a)(ii) they are entitled to be awarded in addition the amount of R64 877 representing developer's profit. Their argument is that had the expropriation not taken place they would, according to12 the stated case, probably have obtained permission to "sectionalize" the property, after which a sectional plan would have been registered and a sectional title register opened in respect of the property, with the result that in February 1986 they would have been in a position to commence selling sectional title units; that as developers they would probably have sold all the units by October 1986; that this would have resulted in the accrual to them of a developer's profit of R64 877; and that, therefore, having been deprived by the expropriation of the opportunity to earn this profit of R64 877, they had suffered an actual finan-cial loss in this sum "caused by the expropriation". It is to be observed that if this argument is correct it would mean in effect that in such a case the owner of the property expropriated would be compen-sated not for the market value of the property on the date of the notice of expropriation with its then-

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existing potentiality for development, but for the xxxxxxpresent value of what would have accrued to him had thepotential been realized and the development carriedout. This seems to me to be contrary to principle and

likely to lead to anomalies which could not have been

intended by the Legislature. Take, for example, theexpropriation of land which has potential for develop-ment as a residential township, but where the esta-blishment and development of the township and thedisposal of the plots therein would in all likelihoodbe spread over a period of, say, twenty years. Onappellant's argument the township owner would beentitled, as compensation, not only to an amountrepresenting the market value of the land (with itstownship potentiality) at the time of expropriationfrom which compensation he could immediately startearning investment income - but also an amountrepresenting the present value of the developer's14 profit derived from implementing the township scheme, and thus exploiting the property, over the following twenty years. It was, no doubt, considerations such as; these that led Howard J to suggest that the appel-lants wanted to "have their cake and eat it" (see reported judgment at p 540 F).But appellant's case founders also, in my opinion, on the reef of causation. It has been held by this Court, in relation to sec 8(l)(a)(ii), read with sec 8(4)(e), of the 1965 Act, that it is not suf-ficient that the expropriation is a causa sine qua non of the alleged financial loss: it must be clear that there is a direct causal connection between the expro-priation and the alleged financial loss (see Pienaar v Minister van Landbou 1972 (1) SA 14

(A), at p 25 A-B; also Estate Marks v Pretoria City Council 1969 (3) SA 227 (A), at p 245 A - G). This finding is equally applicable to sec 12(l)(a)(ii), read with sec 12(5)(e)15of the Act. In Pienaar's case, supra, the appellant had, prior to expropriation, owned, inter alia, two portions of agricultural land, referred to as "Gedeelte 291" and "Gedeelte 292". He had used water from a borehole situated on Gedeelte 292 to irrigate land on Gedeelte 291. Gedeelte 292 was not fully developed and there was not sufficient water from the borehole to irrigate the agricultural land on both portions. The State expropriated Gedeelte 291 only. At the time of the expropriation the appellant had intended con-structing a dam which would have irrigated both portions. He had proposed to finance the dam by selling gravel excavated from the basin of the dam. Apart from the construction of the dam itself, this scheme would have entailed the subdivision of another piece of land and the consolidation of the appellant's share thereof with Gedeelte 292. Por purposes of

16assessing compensation Gedeelte 291 was valued on the compensationbasis that it constituted dry land ("droë grond").Appellant disputed this basis of valuation and, in thealternative, claimed that he had suffered actualfinancial loss in terms of sec 8(l)(a)(ii) of the 1965Act, represented by the difference between the valueof Gedeelte 291 as irrigated land and its value as dryland. This claim was based upon the contention thatbut for the expropriation he would have carried out hisdam-building scheme, which would have provided irriga-tion water for both Gedeelte 291 and Gedeelte 292. Thecontention was rejected by this Court. The Court ac-cepted the practical feasibility of the scheme and that

it would have been carried out in the foreseeable fu-

ture. The Court held however as follows (per BothaJA at p 25 E - G):

"Die feit dat die nodige onderver-deling en konsolidasie waarskynlik son-der enige moeilikheid in die nabye toe-

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koms goedgekeur en deurgevoer sal word, is relevant by oorweging van die vraag of appellant se skema prakties uitvoer-baar is. Dit is egter geen bewys van oorsaaklikheid tussen die onteiening van Gedeelte 291 en die beweerde geldelike verlies nie. Dit toon inteendeel duide-lik dat, voordat die appellant se be-weerde geldelike verlies kan intree, daar 'n onafhanklike wilsuitoefening en optrede deur homself en ander persone moet wees. Sonder daardie wilsuitoefen-ing en optrede kan appellant se beweerde geldelike verlies nie intree nie. Net so ook hang die voltooiing van die dam, ofskoon dit 'n prakties uitvoerbare skema is en waarskynlik binne afsienbare tyd voltooi sal wees, hoofsaaklik van die inisiatief en volharding van die appel-lant en die aanvraag na gruis af. Dit ook is 'n nodige skakel in die veroor-saking van appellant se beweerde uit-eindelike geldelike verlies wat van die onteiening van Gedeelte 291 geheel en al onafhanklik is."

The Court consequently held that though the expropria-tion could be regarded as a causa sine qua non of thealleged financial loss, it could not be said that therewas between them a direct causal connection.

It seems to me that, as held by Howard J (see

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reported judgment at p 540 G - I) the application of judgement atthe principles enunciated in Pienaar's case, supra, to

the facts of the present case leads to a similar con-clusion. Before a developer's profit could have beenrealized by the appellants their application forapproval of the development scheme would have had tohave been granted by the local authority in terms ofAct 66 of 1971; they would have had to apply to theRegistrar of Deeds for the opening of a sectional titleregister, such application to include the sectionalplan relating to the scheme; the Registrar would havehad to register the sectional plan and open a sectionaltitle register; the renovations and repairs to theflats, apparently contemplated according to Annexure

"I", would have had to have been carried out; and theunits would have had to be marketed and sold, thisentailing considerable time and effort on the part ofthe appellants and/or their estate agents. This all,19 as Howard J rightly remarked (at p 540 I), would have entailed "independent volition and action" on the part of appellants and others and thus the alleged loss could not be said to have been caused by the expropriation itself.

The appeal is dismissed with costs.

M M CORBETT

HEFER JA)VIVIER JA)STEYN JA) CONCURF H GROSSKOPF AJA)