Lötter N O and Others v Minister of Water and Sanitation and Others

Three separate cases involving the transfer of water use entitlements under the National Water Act 36 of 1998 (NWA). In the Lötter matter, Doornkraal Business Trust purchased water use entitlements from Britzkraal Properties for R1,950,000. In the Wiid matter, three separate agreements were concluded for the purchase of water use entitlements totaling approximately R24 million. In the SAAWUA matter, the South African Association for Water User Associations sought declaratory relief on behalf of its members. In each case, pursuant to agreements, the holders surrendered their water use entitlements under section 25(2) of the NWA and the purchasers applied for licences under section 41. All applications were refused by the Director-General on the basis that section 25(2) does not permit the transfer of water use entitlements from one person to another and that trading in water rights is not permitted. The full bench of the Gauteng Division dismissed all applications, holding that water trading was unlawful and contrary to section 2 of the NWA.

• Whether section 25(1) of the National Water Act 36 of 1998 permits temporary transfers of water use entitlements from a holder to a third party
• Whether section 25(2) of the National Water Act 36 of 1998 permits permanent transfers of water use entitlements from a holder to a third party
• Whether trading in water use entitlements is prohibited by the National Water Act 36 of 1998
• Whether the Director-General's decisions to refuse licence applications based on an interpretation that section 25 does not permit transfers to third parties were lawful
• Whether applicants should be exempted from exhausting internal remedies before seeking judicial review

The appeal was upheld. The order of the full bench was set aside and replaced with: (1) A declaration that section 25(1) empowers water management institutions to allow holders to use water temporarily for different purposes or to allow third parties to use water on another property. (2) A declaration that section 25(2) permits surrender of entitlements to facilitate licence applications by the holder or a third party, that surrender is conditional on licence approval, and that agreements with compensation are not prohibited. (3) In the Lötter and Wiid cases, exemption from exhausting internal remedies was granted and the Director-General's decisions refusing licences were reviewed and set aside. (4) The Minister of Water and Sanitation and Director-General were ordered to pay costs, including costs of two counsel. Makgoka JA would have dismissed the appeals insofar as they concerned declarations permitting trading in water use entitlements and the setting aside of the Director-General's decisions.

Section 25(1) of the National Water Act 36 of 1998 permits water management institutions to authorize temporary transfers of water use entitlements from holders to third parties for use on another property in the same vicinity. Section 25(2) permits permanent transfers of water use entitlements through the mechanism of conditional surrender by the holder and licence application by a third party, with the surrender becoming effective only if the licence is granted. The word "transfer" in section 25 contemplates transfers from one person to another, not merely from one property to another owned by the same person. Trading in water use entitlements, including agreements providing for compensation, is not prohibited by the National Water Act, provided that all transfers are subject to approval by the responsible authority who must consider all relevant factors under section 27(1) to safeguard the purposes of the Act and the public interest. Section 26(1)(l) and section 29(2) support this interpretation by contemplating transactions between parties and agreements for compensation in arrangements to use water.

The judgment notes that the 1997 White Paper on National Water Policy that preceded the NWA had stated that provision would be made to enable transfer or trade of water rights between users with Ministerial consent. The Court observed that the transfer of rights similar to water use entitlements in other regulatory contexts (mining rights, commercial fishing rights, liquor licences, road transportation permits) where the public interest is involved is commonplace and has been for years, with regulatory authority consent required. There is nothing unusual about an interpretation permitting transfer of water use entitlements with regulatory approval. The majority also observed that allowing transfers promotes the efficient and beneficial use of water - if an entitlement holder cannot or no longer wishes to use water optimally, or has excess water, transfer to someone who will use it beneficially contributes to the purposes of the NWA rather than the water going to waste. The dissenting judgment expressed concern that the lack of express provision for compensation, combined with the transformative purposes of the Act (particularly section 2(c) - redressing past racial discrimination), suggests trading should not be permitted. The dissent noted the vast sums involved (up to R15 million) for entitlements obtained for a fee of approximately R114, and expressed concern that only historically advantaged (predominantly white) farmers could afford such prices, perpetuating colonial and apartheid water allocation patterns.

This case provides authoritative interpretation of section 25 of the National Water Act 36 of 1998, settling a significant dispute about whether water use entitlements may be transferred from holders to third parties and whether trading in such entitlements is lawful. The judgment clarifies that both temporary (section 25(1)) and permanent (section 25(2)) transfers to third parties are contemplated by the Act, subject to regulatory approval. It establishes that commercial arrangements involving compensation for water use entitlements are not prohibited, with the responsible authority's oversight through the licence application process safeguarding the transformative purposes of the Act. The case has significant implications for the water sector, agricultural industry, and economic development, particularly affecting water user associations and irrigation boards. The dissent highlights important concerns about reconciling market-based transfers with the Act's transformative purposes of redressing past racial discrimination in water allocation. The case demonstrates the tension between efficient resource allocation through market mechanisms and equitable redistribution of access to scarce national resources.