NAD Property Income Fund (Pty) Ltd v The South African National Roads Agency SOC Limited and Another

Nad Property Income Fund (Pty) Ltd (Nad) was the registered owner of Erf 215, Extension 6, Hoedspruit. The first respondent, the South African National Roads Agency (Sanral), requested the Minister to expropriate a portion of the property, which occurred on 25 July 2016 under s 41 of the South African National Roads Agency Limited and National Roads Act 7 of 1998. Nad claimed compensation in terms of s 41(5) of that Act, read with s 12 of the Expropriation Act 63 of 1975. The parties could not agree on the amount of compensation. Nad brought an action seeking compensation of no less than R16 980 000 based on the highest and best use of the property being for a community shopping centre. Sanral pleaded liability for R190 777.40. The high court awarded R933 509.52. Nad purchased the property in January 2015 for R7 750 000, knowing of the risk of expropriation. The remaining property (after expropriation) was sold by Nad in January 2022 for R14 500 000. Expert valuers disagreed on the highest and best use of the property and the appropriate methodology for calculating compensation.

• What is the correct legal framework for determining compensation for expropriation under s 12(1) of the Expropriation Act 63 of 1975 and s 25(3) of the Constitution?
• Does the determination of just and equitable compensation under s 25(3) of the Constitution constitute a 'true discretion' or an objective determination?
• What is the relevance of market value in determining just and equitable compensation?
• How should potential use of expropriated property be assessed in determining market value?
• What is the significance of actual market transactions (purchase and sale prices) in determining compensation?
• How should risk of expropriation affect the assessment of potential use value?
• Whether the high court correctly applied the two-stage approach required by Du Toit v Minister of Transport 2006 (1) SA 297 (CC)?
• Whether the costs orders made by the high court were appropriate?

1. The appeal is upheld, with costs, including the costs of two counsel, where so employed; 2. Paragraphs 1 and 2 of the high court's order are set aside; 3. The portion of paragraph 4 of the high court order requiring the first respondent to pay the costs of suit is set aside, while the balance of paragraph 4 (ordering payment of costs of the trial dates 28 November 2022 – 2 December 2022 on attorney and client scale) stands, as does paragraph 3 of the high court order; 4. The case is remitted to the high court for the hearing of further evidence and argument, as the high court further directs; 5. The cross-appeal is dismissed with costs, including the costs of two counsel, where so employed.

The binding legal principles established are: (1) The determination of just and equitable compensation under s 25(3) of the Constitution is an objective determination, not a true discretion, and is subject to appellate review on the standard of correctness. (2) Courts must apply the two-stage approach from Du Toit v Minister of Transport: first, determine the amount of compensation payable under s 12(1) of the Expropriation Act 63 of 1975 (market value); second, determine whether that amount is just and equitable under s 25(3) of the Constitution. (3) In assessing potential use value under the market standard in s 12(1), risk (including known risk of expropriation) does not constitute a legal bar to potential use but is a factor to be reflected in the price in a hypothetical negotiation between willing buyer and willing seller. (4) Potential use value is the present value attributable to the property's potential for future development, distinct from the value the property would have if developed or the costs of development. (5) Financial viability of immediate development is not the correct test for potential use; the question is whether a hypothetical buyer would attribute value to future development potential. (6) Actual market transactions (purchase and sale prices) are significant data points that must be properly considered and cannot be disregarded without proper explanation. (7) Section 25(3) of the Constitution requires courts to make findings of fact on relevant circumstances and determine compensation that meets the constitutional standard—this is not an exercise of discretionary latitude but a constitutional duty.

The Court made several non-binding observations: (1) Market value is not rendered 'no longer a core consideration' under the constitutional framework—it sets the presumptive standard against which just and equitable compensation is determined. (2) The difficulty of applying a legal norm does not justify characterizing the application as an exercise of true discretion. (3) The concept of 'just and equitable' engages complexity of history, distributive justice, and constitutionally sanctioned recompense, but courts should not retreat into the 'protective embrace of discretion' in the face of this complexity. (4) Expert witnesses owe a duty to the court to exercise independence and assist the court in reaching robust conclusions. (5) The Court expressed regret that it could not complete the analysis itself due to insufficient expert evidence, indicating that more thorough expert engagement is needed in expropriation cases. (6) The Court noted that cross-examination must be used to test adverse witnesses, not as a process to discover what case a litigant might wish to make. (7) Regarding costs under s 15(2) of the Expropriation Act, the Court suggested that the intersection of the statutory costs regime and the constitutional compensatory framework requires careful consideration, though this was left for determination on remittal.

This case is significant for clarifying the legal framework for determining compensation for expropriation in South African law post-Constitution. It establishes that: (1) The determination of just and equitable compensation under s 25(3) of the Constitution is not a 'true discretion' but an objective determination subject to full appellate review on correctness; (2) Courts must follow the two-stage approach in Du Toit: first determining market value under the Expropriation Act, then assessing whether this is just and equitable under the Constitution; (3) Risk (including risk of expropriation) does not eliminate potential use value but should be factored into the hypothetical negotiation price; (4) Potential use value concerns the present value of future development potential, not the cost of development or immediate financial viability; (5) Actual market transactions are important data points that cannot be disregarded in valuation; (6) The judgment provides guidance on the proper role of expert evidence in expropriation cases and emphasizes experts' duty to assist the court independently. The case reinforces that property rights under s 25 require rigorous, not discretionary, protection while recognizing the State's expropriation powers.