Can water rights be transferred? What do our courts say?

Water rights are an essential commodity in the agricultural sector and a commodity with limited availability. Accordingly, the transfer of existing water rights is a critical aspect for many farmers as it affects their ability to expand and further develop their farms. Many farmers also carry the perception that in practise the transfer of water rights is only possible to persons that meet the minimum requirements for black economic empowerment, particularly as regards ownership and management.

In the recent appeal court case of Makhanya v Goede Wellington Boerdery (Pty) Ltd, the court confirmed that the transfer of water rights is indeed possible, that an equal consideration of various factors must take place in the consideration of any application for the transfer of water rights, and that no single factor may be afforded preference or carry a heavier weight than any other factor in such consideration. The judgement therewith confirms that, although empowerment is an important factor in the consideration of licenses, it is not the sole factor to be considered and that a balance must be struck between all relevant factors as prescribed by the National Water Act in the consideration of any application.

In the Makhanya case the farm Goede Hoop belongs to Goede Wellington Boerdery (Pty) Ltd (“Goede Wellington”) in the Wellington area, Western Cape, and Goede Wellington has a right to use water from the Berg River on the farm Goede Hoop. A further entity, ECPA Boerdery (Pty) Ltd (“ECPA”) owns the adjacent farm Middelpos in respect of which ECPA also has water rights from the Berg River for use on the farm Middelpos. The sole shareholder of Goede Wellington (which owns the farm Goede Hoop) is also a trustee and beneficiary of the Middelpos trust, being the sole shareholder of ECPA (which owns the farm Middelpos).

A portion of the water rights of the farm Middelpos became available for transfer as a result of the installation of sophisticated water savings technology. Goede Hoop on the other hand required the use of the additional water to develop a high quality citrus orchard. As a result of the relation between the two farms they concluded a use agreement to facilitate the transfer of the surplus water rights and Goede Wellington accordingly proceeded to submit the necessary license application to the Department of Water Affairs and Forestry (“the Department”).

The Department was obliged to consider the application and consider a number of factors as set out in section 27(1) of the National Water Act for the approval of a license.

The application of Goede Wellington was however declined by the Department and the Water Tribunal on the basis that the application did not meet one of the requirements as stated in section 27(1)(b), namely “the need to redress the results of past racial and gender discrimination”.

Goede Wellington approached the courts for a review of the decisions of the Department and the Water Tribunal. The High Court, and later also the Appeal Court, found that the Department and the Water Tribunal misinterpreted the provisions of section 27(1) of the National Water Act by regarding section 27(1)(b) as a prerequisite for the approval of a license application. The court accordingly confirmed that “all relevant factors” must be taken into account for the approval of a license (and thus the transfer of water rights), and although the Department has a discretion, it is still required to maintain a balance in its decision-making and should not award undue preference to any single factor (such as section 27(1)(b)) in the making of its decision.

This judgement shall undoubtedly serve as the reference point for applications for the transfer of water rights in the future and provides welcome clarity regarding the relevance of empowerment as one of a number of factors to be considered in license applications. It also opens the door for the review of decisions which are not taken on this basis.

February 20, 2013
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