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Transactions with water rights – Landmark Judgement

In Minister of Water and Sanitation and Others v Lotter N.O and Others [2023] ZACC 9 (15 March 2023) the Constitutional Court decided that the Water Act does not prohibit charging another person a fee for transfer of a water use entitlement or surrendering a water use entitlement to another for a fee.


The history of the case in the High Court and Supreme Court of Appeal is the following.

The Pretoria High Court heard three applications, all involving essentially the same legal question: can a water use entitlement be transferred in terms of the National Water Act 36 of 1998 (“Water Act”) to another person and if so, whether a fee may be charged for the transfer. A further question was whether one can trade in water use entitlements.

For the period from 1998, when the Water Act was enacted, until 2018, the Water Department consistently allowed transactions with water use entitlements. This would usually take the form of private agreements that were entered into under section 25(2) of the Water Act. The agreements involved the surrender of water use entitlements by one party to facilitate the other party’s application for a license, in terms of section 41 of the Water Act, for that water use entitlement. The contract prices for these agreements could be large sums of money. In the three applications, the parties had entered into such private contracts and the Director General of the Department of Water and Sanitation had refused the transfer of the water use entitlements. The reasons for the refusal were that the Water Act does not permit trading with water use entitlements in terms of section 2 of the Water Act and that section 25(2) makes no provision for the transfer of water use entitlements.

The High Court dismissed all three applications. On appeal, the Supreme Court of Appeal split 4:1: One judge agreed with the decision of the High Court, but the majority disagreed, holding that sections 25(1) and 25(2) of the Water Act permit the temporary or permanent transfer of water use entitlements from a holder to another person. The cases then went on appeal to the Constitutional Court.

In a unanimous judgment written by Madlanga J, the Court held that both its constitutional and extended jurisdiction applied – given the import of the questions raised. Leave to appeal was granted. The Court identified the following three main questions in this matter: (a) Does section 25(1) of the Water Act permit the use of water by a person other than the holder of a water use entitlement? (b) Is the licence application envisaged in section 25(2) a licence application by the holder of a water use entitlement? (c) Does the Water Act prohibit the charging of a fee in transactions involving water use entitlements?

Submissions of applicants’ for leave to appeal in the Constitutional Court

Section 25(1) provides as follows:

“A water management institution may, at the request of a person authorised to use water for irrigation under the Act, allow that person on a temporary basis and on such conditions as the water management institution may determine, to use some or all of that water for a different purpose, or to allow the use of some or all of that water on another property in the same vicinity for the same or similar purpose.”

The applicants for leave to appeal contended that if an ordinary meaning is given to the section above, the transfer of water use entitlements to another person is not included.  According to the applicants, the second part of the above section must be interpreted to mean that the temporary use of water is for the same or similar purpose on another property in the vicinity by the holder, not by another person.  A similar argument was made regarding section 25(2) where the applicants submitted that that section also does not expressly mention another person.  The applicants further submit that “wealthy farmers, who are largely white, have created an enclave within which a scarce national resource is traded, thus perpetuating the imbalances of the past”, a situation that infringes the right to equality.  Such a situation would further be at odds with section 2 of the Water Act which provides that the purpose of the Water Act is to redress the results of past racial and gender discrimination.  Lasty, the applicants submit that the Water Act’s predecessor, the 1956 Water Act, made specific provision for the trading in water use.  The applicants argued that because no similar provision is made in the Water Act, trading in water use should not be allowed.

Judgment of the Constitutional Court

Madlanga J starts by rejecting the applicants’ interpretation of section 25(1) for lack of grammatical sense.  Regarding section 25(2), Madlanga J held that just as the section does not expressly mention another person, nor does it expressly exclude another person.  The Court noted that it would not be possible to “trade” in water use entitlements in the conventional sense: in terms of section 25(2), the holder can, at most, surrender their right to facilitate a particular application by another person.  However, trading (i.e., entering into a private, parallel transaction) is not prohibited by any provision in the Water Act.

From a procedural point of view, sections 26(1)(l) and 29(2) refer to “transactions” and “compensation”, implying that the trading of water use entitlements is recognised as lawful, based on the language of section 29(2) which makes provision for the payment of compensation in exchange for water use as a condition of a license.  Therefore, in the absence of a specific prohibition against the trade of water use entitlements, it is clear that money may change hands.

In essence the Court held that there is no provision in the Water Act that prohibits the charging of a fee for water use entitlements under the second part of section 25(1) or for a surrender of a water use entitlement in terms of section 25(2) in order to facilitate a section 41 licence application by another person.  The appeal was dismissed with costs.

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