Water rights can be privately transferred and traded, top court rules

The Constitutional Court has ruled there is no legal prohibition against the transfer or private trading between individuals of water use entitlements.  

The judgment is of particular concern to those in the agricultural industry. Agri SA, which funded large parts of the legal costs, said the ability to transfer entitlements privately “is crucial with respect to efficiency in the use of water, the value of farmland, and to property entitlements in general”.

The case is an amalgamation of three cases, all of which dealt with a central question: can water use entitlements be transferred and traded? 

One of the parties in the case was the Doornkraal Business Trust in the Eastern Cape. In 2014, the trust sought to buy many hectares of water use entitlement from a company, Britzkraal, for almost R2m. Britzkraal surrendered its water use entitlements in terms of the Water Act. The trust then applied for a licence.

In 2018, the director-general of the department of water & sanitation refused the applications. He said the Water Act makes no provision for the transfer of entitlements or permits trading. The trust launched review proceedings to set aside the refusal. The other two matters had similar facts.

After a full bench of the high court in Pretoria dismissed all three applications to have the director-general’s refusals set aside, the parties appealed to the Supreme Court of Appeal, where they won. The department appealed to the Constitutional Court.

Until 2018, the department allowed trading in water use entitlement. But it changed its mind because, as the department argued, “very wealthy farmers have created an enclave within which a scarce natural resource is traded thus perpetuating the imbalances of the past”.

Writing for a unanimous court, justice Mbuyiseli Madlanga held that the department is mistaken. He held that the act “does permit the introduction of a third party to enjoy water use in respect of an entitlement held by another”.

He also held that a proper reading of the act means “the application for a licence ... may be made by a third party”. He also held that the act “has no provision which expressly prohibits ‘trading”.

Though he found against the department in this matter, Madlanga was sympathetic to its overarching goal. “The conclusion that I have reached is not dismissive of the state’s concerns that water, a scarce national resource, is largely in the hands of advantaged white farmers. On the contrary, I understand why the state may now be seeking to redress the injustice brought about by this disproportionate enjoyment of water use entitlements.

“Indeed, one of the factors to be considered to ensure the achievement of the purpose of the Water Act is ‘redressing the results of past racial and gender discrimination’. This attests to the reality of the racially skewed enjoyment of water use entitlements. Unfortunately, the existing legislative instrument does not admit of the redress; at least not in the manner contended for by the applicants in this matter.”