Property Developers that degrade the environment can incur huge financial costs as a result of  directives that can be issued by the authorities to remediate the land at their own expense.

Although the value of the land may depreciate in light of these directives, this does not mean that developers will automatically be entitled to compensation for the decrease in the value of the property.  Developers should therefore ensure that all property development projects are in strict compliance with environmental laws.  The need for this compliance was highlighted in the recent case of Minister of Water and Environmental Affairs v Really Useful Investments (436/2015) [2016]
ZASCA 156 (3 October 2016).

Background to the case

Really Useful Investments No 219 (Pty) Ltd (“RUI”) owned several properties in Hout Bay, Cape Town, located immediately to the west of the Disa River.  RUI wanted to develop these properties and submitted development plans to the City of Cape Town (“City”), which were subsequently approved.  Accordingly, they proceeded to raise the height of the lower-lying properties to 4 metres above sea level by dumping waste matter and some fill-in adjacent to the Disa River.

This resulted in the City issuing directives to RUI in terms of Section 31A of the Environmental Conservation Act 73 of 1989 (“ECA”), which required inter alia for RUI, at its own expense, to:

• Engage the services of an independent freshwater ecologist to determine the extent of the wetland that has been filled;
• 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
• Make detailed recommendations for rehabilitation.

RUI complied with the directive but alleged that the directive had prevented it from undertaking any further development on the properties that were below the 1:100-year flood line, as well as the properties that were within the wetland boundary as surveyed by the ecologist.

High Court challenge

RUI consequently instituted action in the Western Cape High Court against the City, the Minister of Water and Environmental Affairs (“Minister”) and the MEC for Local Government, Environmental Affairs and Development Planning, Western Cape (“MEC”), claiming payment of compensation in terms of Section 34 of the ECA in an amount of R16 750 846 or, alternatively, R2 818 422 on the basis that the directive issued by the City, aimed at environmental preservation and protection and duly complied with, resulted in a substantial decrease in the value of the land.

The High Court granted RUI’s claim on the basis that Section 34(1) of the ECA provided a right to claim for compensation in certain circumstances, particularly, where the actual loss suffered by a claimant arose from the limitations placed on the purposes for which land may be used or activities that may be undertaken on the land.  The High Court was of the view that in this case, the directives issued by the City had placed subsequent limitations on the use of the land, and as such, warranted compensation.

Supreme Court verdict

On appeal by the Minister and MEC, to the Supreme Court of Appeal (“SCA”), the SCA held that in order for RUI to succeed with its claim, it had to prove that the actions of the City, the Minister and the MEC were unlawful, negligent or done in bad faith.

The SCA held that when the City issued the directives against RUI, it was complying with its constitutional and statutory obligations to prevent harm to the environment and, therefore, section 34 of the ECA could not, conceivably, have been directed at providing compensation for actions taken under Section 31A as those provisions were aimed at regulating harmful activities against the environment.  The SCA stated that it would be difficult to conceive of a right to compensation for restrictions that were correctly instituted in order to prohibit dangerous processes.

The SCA went on to say:

“…To allow for such compensation would be to discourage environmental authorities from fulfilling their constitutional obligation to protect the environment and to put people first in applying the environmental management principles set out in NEMA. It would, perversely, encourage land owners to act in an environmentally offensive manner so as to solicit compensation.”

RUI failed to convince the Court that the actions of the City, the Minister and the MEC were unlawful, negligent or done in bad faith. 

Consequently, the appeal was upheld.