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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, as
2 "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 were
unable 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 rejected
a claim by the appellants to be paid, in addition to
the amount of R218 828, a further sum of R64 877 said
to be compensation for "actual financial loss" caused
to appellants by the expropriation, in terms of sec

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

leave of the Court a quo appellants appeal against that
part 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 contingencies
applied in annexure I are agreed by the parties as
being correct'. The final three paragraphs of the
stated case read as follows (appellants being referred
to 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 certain
calculations in terms of which the following figures
are arrived at on the basis that the sectional units
comprising the development scheme would have been sold
at certain prices and at a certain rate over the agreed
period 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

6

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 certain
calculations in terms of which the following figures
are arrived at on the basis that the sectional units
comprising the development scheme would have been sold
at certain prices and at a certain rate over the agreed
period 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

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R208 828 the statutory amount of RI0 000 provided for the xxxx
by sec 12(2) of the Act, about which the parties were
agreed.)

Section 12 of the Act prescribes how the com-

pensation payable in respect of property expropriated
is 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-
8
ponding portion of sec 8(1) of the previous Expropria-
tion Act 55 of 1965 ("the 1965 Act"), save in certain
minor 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 and
other 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 v
Department 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) of
the 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 property
must not be valued as though the potentiality had been
realized and the development taken place (see Southern
Transvaal Buildings case, supra; cf Lochner v
Afdelingsraad, Stellenbosch 1976 (4) SA 737 (C), at
p 744 B - F). In the Southern Transvaal Buildings
case, supra, which also related to the expropriation
of a block of flats which had the potential for rede-
velopment as a sectional title property, King AJ con-

cluded that (at p 955
D - 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 of
various valuers. The Court relied on evidence which

indicated (a) the total price which a developer could
expect 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 would
require to be taken into account were he the willing
purchaser 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 540
A - B.) And it seems likely that the parties in the
present case had this general approach and method of
calculation 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 terms
of 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 to
12 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 xxxxxx
present value of what would have accrued to him had the
potential been realized and the development carried
out. 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, the
expropriation of land which has potential for develop-
ment as a residential township, but where the esta-
blishment and development of the township and the
disposal of the plots therein would in all likelihood
be spread over a period of, say, twenty years. On
appellant's argument the township owner would be
entitled, as compensation, not only to an amount
representing the market value of the land (with its
township potentiality) at the time of expropriation
from which compensation he could immediately start
earning investment income - but also an amount
representing the present value of the developer's
14 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)
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of 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

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assessing compensation Gedeelte 291 was valued on the compensation
basis that it constituted dry land ("droë grond").
Appellant disputed this basis of valuation and, in the
alternative, claimed that he had suffered actual
financial loss in terms of sec 8(l)(a)(ii) of the 1965
Act, represented by the difference between the value
of Gedeelte 291 as irrigated land and its value as dry
land. This claim was based upon the contention that
but for the expropriation he would have carried out his
dam-building scheme, which would have provided irriga-
tion water for both Gedeelte 291 and Gedeelte 292. The
contention 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 Botha
JA 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 the
alleged financial loss, it could not be said that there
was 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 at
the 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 been
realized by the appellants their application for
approval of the development scheme would have had to
have been granted by the local authority in terms of
Act 66 of 1971; they would have had to apply to the
Registrar of Deeds for the opening of a sectional title
register, such application to include the sectional
plan relating to the scheme; the Registrar would have
had to register the sectional plan and open a sectional
title register; the renovations and repairs to the
flats, apparently contemplated according to Annexure

"I", would have had to have been carried out; and the
units would have had to be marketed and sold, this
entailing considerable time and effort on the part of
the 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) CONCUR
F H GROSSKOPF AJA)

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