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Florence was substituted as Plaintiff in the action by his wife, Mrs Isobel Joyce

Florence, in terms of a Notice of Substitution dated 24 June 2009. 1

3. The claim was launched by Mr Florence acting in his own right and in arepresentative capacity on behalf of his brothers, Normal Samuel Florence and

Ronald Philip Florence.2

4. Although the Florence family lived at Sunny Croft from December 1952, theirclaim to ownership of the property is based on a written agreement of sale

entered into on 9 January 1957 between the three Florence brothers and a Dr

Yeller, the owner of the land at the time. The parties have been unable to find a

copy of the agreement of sale, and many of its terms are uncertain, but it is

common cause that it provided for the purchase price to be paid off in R90,00

instalments and that the members of the Florence family paid these instalments

regularly, every month, until September 1970.

5. The claim for restitution is opposed by the Second Defendant (the State).Initially, the Plaintiff sought restoration of ownership of the subject land.

3The

First Defendant, the current owner of the property, opposed the granting of this

relief. The Third Defendant did not oppose the claim.

1When we use the terms the Plaintiff or the claimant below, we refer to Mr Florence, unless the context

indicates otherwise.2

Amended Statement of Claim: A1: 88: 2.3 See: The Statement of Claim of 10 October 2008: A1: 8 9.

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6. The Plaintiff has abandoned her claim to restoration of ownership of the subjectland, save to the extent that she seeks to have a memorial plaque erected on the

property.4The reason for the abandonment of the restoration claim is because it is

no longer feasible - part of the property had been excised for purposes of

widening the Black River Parkway and the remainder of the property has been

substantially developed (notably by the building of a parking garage on it).

7. Following the abandonment of the restoration claim, the First Defendant enteredinto a settlement agreement with the Plaintiff in terms of which a memorial

plaque recording the dispossession will be erected on the subject land and it

withdrew its opposition to the claim. 5

8. The Plaintiff and the representatives of the State on 11 February 2010 signed aStatement of Agreed Facts6 which eliminated many of the disputes of fact which

had previously existed on the pleadings which recorded that the sole issues

which remain to be determined by this Court are:

6.1 The amount of compensation to be awarded to the Plaintiff as a

result of the dispossession of the rights in the subject land; and

4 Statement of Agreed Facts: A1: 83.5

Statement of Agreed Facts: A1: 83.6 A1: 83 86.

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6.2 Whether the Second Defendant is liable for the cost of the

erection of a memorial plaque on the subject land.7

9. In order to determine the above issues, this Court will be required to resolve anumber of legal and factual disputes relating to restitution in the form of

financial compensation.

10. The requirements which have to be satisfied by a person seeking restitution of aright in land in terms of the Restitution of Land Rights Act 22 of 1994 (the

Restitution Act or the Act) are listed in sections 2(1) and 2(2) of the Act.

Section 1 defines restitution of a right in land as:

(a) the restoration of a right in land; or

(b) equitable redress.

11. The former concept is defined to mean in effect the return of the dispossessedright, while the latter concept means:

any equitable redress, other than the restoration of a right in land,

arising from the dispossession of a right in land after19

June1913

as a

result of past racially discriminatory laws or practices, including

7 A1: 85.

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(a) the granting of an appropriate right in alternative state owned

land;

(b) the payment of compensation;

12. The four primary issues to be determined by this Court (each of which will beconsidered in turn below) are the following:

12.1 The extent of the financial loss suffered by the Florence family on theirdispossession in 1970;

12.2 The method that should be used to translate that loss into currentmonetary terms;

12.3 The amount of financial compensation the Florence family shouldreceive as a solatium in respect of the hardship and suffering they

experienced as a result of the dispossession; and

12.4 Whether the State should be liable for the costs of erecting the memorialplaque on the subject land.

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THE EXTENT OF THE 1970 LOSS

13. Many of the facts relating to the extent of the loss suffered by the Florencefamily in 1970 are not in dispute. We shall accordingly set out the facts which

are common cause before considering the Plaintiffs and the Defendants

evidence relating to the outstanding factual disputes.

FACTS NOT IN DISPUTE

14. As a result of the signing of a Statement of Agreed Facts on 11 February2010,8the following facts, amongst others, are not in dispute:

14.1 The Florence family occupied the subject land in December 1952 interms of a lease agreement;9

14.2 The Florence brothers:

14.2.1purchased the subject land from Dr Yeller on 9 January 1957 interms of a written sale agreement of sale;

10

14.2.2paid instalments of R90,00 per month for a period of 13 years and10 months from 1957 in terms of this agreement;

11

8 A1: 83 86.9

Plaintiffs Amended Statement of Claim: para 11, A1: 89.10 Plaintiffs Amended Statement of Claim: para 12, A1: 90.

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14.3 The subject land was never transferred into the name of the Florence brothers as a result of racially discriminatory legislation which

prohibited transfer of land to disqualified persons;12

14.4 On 16 October 1970 the Florence brothers entered into a memorandumof agreement of cancellation of sale with Dr Yeller in terms of which

they cancelled the 9 January 1957 sale. The cancellation agreement is

annexure LF8 to the Statement of Claim. Its terms included a refund

from the seller to the purchasers of an amount of R1 350,00;13

14.5 A total of R14 896,00 was paid towards the purchase price of the subjectland, including R46,00 paid in terms of the deed of cancellation; 14

14.6 The Florence brothers had no alternative but to enter into thecancellation of agreement because the Groups Areas Act 77 of 1957

(the Group Areas Act) prevented them from acquiring ownership of

the subject land;15

14.7 The Florence family moved from the subject land in or aboutNovember 1970 as a result of threats from Group Areas inspectors;16

11 Plaintiffs Amended Statement of Claim: para 13, A1: 90.12 Plaintiffs Amended Statement of Claim: para 14, A1: 90.13

Plaintiffs Amended Statement of Claim: para 19, A1: 91.14 Plaintiffs Amended Statement of Claim: para 20, A1: 91.15

Plaintiffs Amended Statement of Claim: para 21, A1: 91.16 Plaintiffs Amended Statement of Claim: para 22, A1: 91.

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14.8 The Florence family incurred removal costs estimated at R85,00 as aresult of the dispossession.17

15. The parties also agreed that the value of the subject land in 1970 wasR31 778,00.18

16. In addition, Mr du Toits estimate of the 1957 market value of the subject land ofR8 131,0019 has been accepted by the Claimant.

17. No copy has been found of the 1957sale agreement and there is uncertaintyconcerning many of its terms. In letters, which will be discussed below, Mr

Florence has referred to amounts of R 9000 and R 15 000 in relation to the

purchase price of the property. Much of much the evidence concerning the

extent of the loss suffered by the Claimant in 1970 arose as a result of the lack of

clarity concerning the terms of the sale agreement.

THE CLAIMANTS CASE

18. The Plaintiffs case is that the amount of R9000 referred to by Mr Florence in hisundated letter to the Land Claims Commission

20was the amount that would have

been paid if the purchase price sale had been paid in full in 1957. This is

consistent with the 1957 market value of the property of R8131.00. The amount

17 Plaintiffs Amended Statement of Claim: para 33.1, A1: 95.18 Statement of Agreed Facts: para 4, A1: 85. This was the valuation given to the property by the States expert

valuer, Mr du Toit.19 A2: 102.20

The letter is attached as annexure JJ to Mr du Toits report of 19 February 2010. The reference to a selling

price of R 9000 is at page 2 of the letter (A2: 203).

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of R 15 000 referred to by Mr Florence in three letters (discussed below in

dealing with the evidence of Mr Margolius) was the total amount of the

instalments to be paid-off over a number of years.As it is common cause that the

Florence brothers had paid instalments totalling R14 896.00 by the time the sale

was cancelled, we contend that they had effectively paid-off the purchase price

by October 1970.

19. In any event, given: (i) the market value of the property in 1957; and (ii) theinstalments paid by the Florences both of which are common cause - the

Florence brothers would have paid-off the value of the property plus any

reasonable interest charges by 1970. It is only by assuming that the parties

agreed on an unreasonable and highly punitive interest rate in 1957 that one can

avoid the conclusion that the property was paid-off by 1970.

20. Accordingly, we submit that the Florence family should be regarded as the defacto owners of the property in 1970 and their claim should be treated as one for

compensation for loss of ownership rights (subject to an adjustment for the

compensation received of R1 350,00).

21. The Plaintiffs case with regard to the extent of the loss suffered by the Florencefamily in 1970 rests on the evidence ofMr Margolius and Professors Mesthrie

and Wittenberg.

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Professor Mesthrie

22. Professor Mesthrie is a Professor of History at the University of the WesternCape. She has written extensively on the Group Areas Act and its consequences,

including several articles on the forced removal of the Black River community

(of which the Florence family formed part). She conducted 36 interviews with

former residents of Black River, including two with Mr Florence before his

death.

23. Professor Mesthrie made an excellent impression in the witness box. The thrustof her evidence was not contested by the State and at the conclusion of her

evidence she was complimented by the Court on having produced an excellent

report.21

24.

Professor Mesthrie testified that:

24.1 The entire transaction between the Florence brothers and Dr Yellershould be viewed against the context of the Group Areas Act and how it

forced people to enter into all kinds of arrangements to secure their

homes;22

24.2 There can be no doubt that the Florences considered themselves to bethe owners of the property and that the actions of Mr Florences mother

21Record: 125: 20.

22 Record: 112: 2 5.

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throughout the 1950s and 1960s, including her response to the

proclamation of the area under the Group Areas Act and the

representations she made in 1964, demonstrated that she conducted

herself as an owner;23 and

24.3 Mr Florence had always believed that his family had owned their home,and only found out in or about 1998 that no deed of transfer had been

registered in their name.24

Professor Wittenberg

25. Professor Wittenberg is an Associate Professor of Economics at the Universityof Cape Town. He was a most impressive witness. Although he was subject to

lengthy cross-examination, no criticism of any substance can be levelled against

his testimony. Professor Nattrass described him as the most well renowned

mathematician/econometrician in South Africa25

and remarked that he had

demonstrated his formidable expertise in the witness box.26

26. Much of Professor Wittenbergs evidence dealt with the translation of a 1970loss into current terms. However, he also commented on Mr du Toits

compensation calculations. In Exhibit E, he made the assumption that the

Florences had been loaned a sum of R8 131,00 (the agreed value of the house at

23 Record: 111 112.The States expert witness, Mr Du Toit, accepted that the Florences would have regarded

themselves as the owners, or the unregistered owners, of the property (Record: Vol 2: 231: 16 19).24 Record: 104 105.25

Record: 370: 12 16.26 Record: 368 370.

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the time) and that it had been paid off in monthly instalments of R90,00 by

September 1970. He then calculated what interest rate would have been applied

to the loan to achieve this and established that it was 9.9%.27

27. If the amount of the initial loan is changed to R9 000,00, then the implicitinterest rate which would have resultedin the loan being paid off by September

1970 is 8%.28

28. Professor Wittenberg concluded that:

With any reasonable interest rate, the property would have been paid

off according to that set of repayments 29

Mr Margolius

29. Mr Jerry Margolius is an experienced professional valuer and a fellow (and pastnational president) of the South African Institute of Valuers.30 Most of his

evidence dealt with what the current market value of the property would be if it

remained in the condition in which it was at the time of dispossession. He was

also referred to three of Mr Florences letters which dealt with the purchase price

of the property. The first of these, Exhibit O, stated:

27Record: 179: 4 9 read together with Exhibit E.

28 Record: 182: 9 13.29

Record: 180: 21 23.30 His Curriculum Vitae is to be found at A2: 37 42.

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He paid 13 years 10 months of R90,00 per month totalling to

R14950,00 including R46,00 which we had to pay by the 31 st October

1970 which is on page 2 of the cancellation of sale. I am assuming that

these two amounts amalgamated totals to R15 000,00 for the price of the

property.

30. Mr Margolius stated that in light of a purchase price of R9 000,00, the differencebetween that sum and R 15000,00, would be the interest paid, accumulating to

the total amount of about R15 000,00, referred to in the letter. 31

31. In Exhibit P, the second letter, Mr Florence stated that:

We had almost completed paying the R15000,00 he agreed to with a

payment which he demanded of R46,00 which we paid on 31 October

1979

...

32. Mr Margolius stated that what Mr Florence was saying was that they would havepaid a total R15 000,00 in instalments of R90,00 per month over the estimated

14 year period. The sum of R15 000,00 would have been the capital plus

interest.32

33. In Exhibit Q Mr Florence wrote as follows:

31Record: Vol. 2: 51: 19 22.

32 Record: Vol. 2: 52 53.

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B y the 16/10/1970 when the cancellation of sale was signed we had

paid R90,00 per month for a period of 13 years 10 months, totalling

R14950,00 plus we had to pay a further R46,00 before the 31/10/1970

as full and final settlement. Meaning that a price of R15 000,00 was the

agreed for Sunny Croft.33

34. Mr Margolius reiterated, having considered Exhibit Q,that the letters reflectthat R9 000,090 was the capital amount and R6 000,00 was the interest paid.

34

The total sum of the payments received by Dr Yeller was R 15 000.35

THE STATES CASE

35. The State disputes that the Florence family should be regarded as owners of the property. Its case in this regard rests on the evidence of Mr Saul du Toit, an

expert valuer.He presented four reports which set out three different methods for

calculating the loss suffered by the Claimant. These reports will be considered

in turn.

THE FIRST REPORT

36. Mr du Toits first two reports were, apart from the CPI conversioncalculation,substantially the same. The compensation proposal made in the first

two reports will be discussed below when dealing with his second report. The

33Sunny Croft was the name given to the family home.

34Record: Vol. 2: 55.

35 Record: Vol. 2: 65: 6 9.

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CPI conversion calculation in the first report is incompetent. The report is

relevant insofar as it reflects adversely on Mr du Toits standing as an expert.

37. The first reported is dated 29 July 2009. 36It uses a CPI conversion factor of25.7692 to translate the 1970 loss into current terms.37Professor Wittenberg had

used a CPI conversion factor of over 40. When asked to comment on the

discrepancy between his and Mr du Toits CPI calculations, Professor

Wittenberg stated that Mr du Toits was an incompetent CPI calculation, which

spliced together two CPI series, one which was based on 2000 values and one

which was based on 2008 values. The effect of the error was to wipe out all

the inflation between 2000 and 2008, which is the sort of mistake which I

wouldnt accept from my undergraduate students.38

38. Mr du Toit claimed that the July 2009 report was a draft which should not be inthe Court bundles. He did not rely on it

39

and admitted that he could not defend

the CPI calculation.40

39. Under cross-examination Mr du Toit accepted that he signed the July 2009report, that he had confirmed it with an appraisers certificate, that it had been

made available by the State Attorney to the Claimants attorney for purposes of

36 It is to be found at A2: 71.37

A2: 104.38 Record: 199 201.39

Record: Vol. 2: 95: 5 15.40 Record: Vol. 2: 192: 1.

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the litigation between the parties and that there is nothing in the report itself to

indicate that it is a draft.41

40. Mr du Toit also did not dispute that he had corrected the error only afterProfessor Wittenbergs calculations, in which he had used a CPI factor of over

40, had been furnished to him and he had realised that there was a problem.42

41. Although Mr du Toit claimed that the CPI calculation was performed by acolleague, he conceded that he should have checked it and that, as he had signed

the report, he had been negligent.

THE SECOND REPORT

42. Mr du Toits second report is dated 29 September 2009. 43The compensationproposal in this report was based on the assumption that the R90,00 instalments

would have included a rental portion as the Plaintiff was occupying the

property whilst paying off the purchase price . Assuming a monthly market-

related rental, he attempted to establish the capital amounts outstanding in 1970

on the 1957 loan made to the Florence family by Dr Yeller and calculated the

Claimants loss as the difference between the 1970 market value of the property

and this outstanding loan amount. The calculations were performed assuming

41 Record: Vol. 2: 186 190.42

Record: Vol. 2: 194 195.43 A2: 259.

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initial purchase prices of both R9 000,00 and R15 000,00 (for present purposes

the latter calculations is not relevant).44

43. Assuming an initial purchase price of R9 000,00, Mr Du Toit calculated that theoutstanding loan amount at the time of cancellation was R22 357,00. Based on a

market value for the property in 1970 of R31 778,00 and the compensation

received of R1 350,00, Mr Du Toit calculated the claimants net loss in 1970 as

R8 071,00.45

44. Professor Wittenberg commented that it is ridiculous to assume that the Florencefamily paid both interest and rent. He pointed out that if the purchase price had

been borrowed, then the Florencebrothers would have been the owners of the

property and they would have paid the loan back with interest and not paid

rent.46 This is because for them to be paying interest on an amount of

R9 000,00, the full R9 000,00 must have been borrowed. It follows that the

money must have been handed over to them, in which case the property would

have been paid for in full. If the original owner lent the Florence family

R9 000,00 to buy his property, he would not be entitled to charge them rent

because he would no longer be the owner. It would be a fraudulent transaction.47

45. Professor Wittenbergs evidence in this regard was not disputed. To thecontrary, in cross-examination, counsel for the State even went so far as to

44 See A2: 287 289 and 338 340. The calculation based on a purchase price of R 15 000 suggested that the

Florence family did not suffer any loss.45 A2: 288.46

Record: 193: 2 18.47 Record: 347 348.

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identify with the statements that conceptually the assumptions made by Mr du

Toit didnt make sense and that they were ridiculous.48

46. Professor Wittenberg also noted that the scenario in terms of which the loanwasgreater in 1970, after almost 14 years of regular payments, than at the outset and

had ballooned to R22 357,00 and would never be paid-off was fanciful and

failed to make any economic sense whatsoever.49This evidence was also not

disputed by the State.

47. Under cross-examination Mr du Toit did not concede that the assumptionsunderpinning his calculation were ridiculous, but accepted that the State was no

longer relying on the compensation calculation in his second report.50

48. Mr du Toit stated that apart from the assumption that both interest and rentalwere charged, there were no other flaws in the calculation.

51

He did not dispute

that in Exhibit F, when Dr Wittenberg corrected the error and redid the

calculation, the initial purchase price of R9 000,00 was paid off by September

1968.52

49. Mr du Toit also gave contradictory evidence concerning the manner in which hehad conceptualised the agreement. Initially he disagreed with the proposition

that the calculation envisaged two different transactions, a sale and a loan

48 Record: 344 345.49

Record: 195 196.50 Record: Vol. 2: 203 204.51

Record: Vol. 2: 293: 3 10.52 Record: Vol. 2: 293: 11 22.

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agreement, and characterised it as an instalment sale agreement. He also

disputed the proposition that the calculation assumed that the Florences had

borrowed the money and that there was a loan and that the loan balance

increased year by year.53

50. However, he later accepted that he had conceptualised the agreement in terms ofa loan amount54 and that the arrangement was a purchase agreement combined

with a loan.55

THE THIRD REPORT

Introduction

51. Mr du Toits third report is dated 19 February 2010.56In it he states that since thesubmission of his September 2009, he had had the benefit of investigating

market behaviour in relation to instalment sales of properties and accordingly

had prepared a supplementary report.57

Its starting point is that the Florences loss

can at best be the amount by which Yeller under-compensated them for the

cancellation of the instalment sale, and cannot be for the loss of the property.58

Notwithstanding that he submitted a fourth report containing a different

compensation calculation, Mr du Toit remained of the view that compensation

53 Record: Vol. 2: 209: 2 12 and 209: 22 24.54 Record: Vol. 2: 212: 2 3.55

Record: Vol. 2: 214 215.56 The Report is to be found at A2: 118.57

A2: 120: 1.2.58 A2: 126: para 2.7.

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should be awarded to the Florence family on the basis set out in his third

report.59

52. The report contained two compensation calculations: the first attempted toreflect how the market would have dealt with the cancellation transaction and the

second was based on how Mr Florences opinion concerning the amount of

compensation to which he was entitled.60In evidence Mr Du Toit conceded that

one should not rely on the assessment of a non-expert such as Mr Florence

for purposes of calculating compensation.61 We accordingly need not dwell on

the latter calculation.

Market practice

53. In the calculation based on market practice Mr du Toit took the sum total of thepayments made by the Florence family between 1957 and 1970, deducted from

this amount (R14 896,00) what he understood to be a reasonable rental amount

over the period (R6 241,95), and took the difference (R8 654,05) to be the extent

of the under-compensation. After making adjustments for the compensation

received (R 1350) and removal costs (R85), he came to a loss in 1970 of

R7 389,05. When adjusted to December 2009 in terms of the CPI, he estimated

the present loss to be R330 238,00.62

59Record: Vol. 2: 133 134.

60 Record: Vol. 2: 122: 6 18.61

Record: Vol. 2: 240.62 A2: 131 132. See also: Record: Vol. 2: 237 238.

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Shortcomings in research

54. In the course of Mr du Toits evidence it became apparent that there were seriousshort-comings in the research upon which he had based his third report:

54.1 He had been unaware that the subject land was located in a controlledarea in terms of the Group Areas Act and he had not had regard to the

Group Areas Act context against which the 1957 agreement was

concluded. He conceded in his evidence that the Group Areas Act

constituted one of the defining features of the sale and that he had failed

to see it as such.63

54.2 He conceded that the Parliamentary debates, upon which he placed greatreliance in his report, took place over a decade after the conclusion of

the sale in 1957.

64

He stated that these debates were the best evidence

that he could find concerning sales ofland on instalments.65

54.3 He was unable to identify a single specific transaction (for the purchaseof land in instalments) that he could find to support the conclusions in

his report.66

63Record: Vol. 2: 216 220.

64 Record: Vol. 2: 218: 1 8.65


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54.4 He placed considerable reliance on an unsigned draft deed of sale, whichwas drawn up at least 14 years after 1957, as evidence of market

practice.67

54.5 He failed to have regard to the disempowering effect of the Group AreasAct on people facing removal under it:

54.5.1In the reporthe noted that it must be kept in mind that L.F.Florence was a literate adult of31 years of age at the time of the

signing of the cancellation agreement.68

54.5.2In response to a question from the Court, he agreed that he wassuggesting that Mr Florence would have known what his legal

rights were.69

54.5.3After reading, in cross-examination, Mr Florences account ofhow he signed the cancellation agreement without having read it

or having it explained to him,70 Mr du Toit stated that he didnt

have the benefit of the transcript (at the time that he drafted his

report) but that he would normally assume that a 31 year old adult

67 Record: Vol. 2: 221: 4 7.68

A2: 122: 1.4.3.69 Record: Vol. 2: 108: 4 7. He also noted that the Parliamentary debates found that purchasers who could

read and write were not necessarily legally literate.70 Mr Florences letter is at p. 7: 184. It was dealt with in evidence a t Record: Vol. 2: 223 226.

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would take caution to make sure that what sign is proper ,

especially as his mother was illiterate.71

54.5.4After having read Mr Florences account of the sale, Mr du Toitaccepted that it did not reflect much asserting of rights on the part

of Mr Florence.72

54.5.5When it was put to Mr Du Toit that when he conducted hisinvestigations he was insufficiently familiar with the impact of

the Groups Areas Act and the manner in which it impacted upon

people who were subject to removal, he answered that he would

accept that to be the case that parties were under duress, they

werent negotiating on level fields, most certainly not.73

Misconceived purpose of the Act

55. Mr du Toit stated that the purpose of his calculation was to determine how themarket would have dealt with the cancellation of the sale agreement.74The

calculation was based on market conditions at the height of apartheid in the

1970s.75He assumed that the Group Areas Act was in place andthat the

71 Record: Vol. 2: 226: 14 20.72

Record: Vol. 2: 226: 11 13.73 Record: Vol. 2: 226 227.74


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cancellation agreement had been concluded. He then estimated what would be

fair compensation for the dispossession.76

56. Mr Du Toit accepted that:

56.1 it was common cause on the pleadings that the Florences would have become the registered owners of the property, had it not been for the

Group Areas Act;77

56.2 the purpose of financial compensation is to place the claimant, insofar asmoney can do it, in the same position as if the land had not been taken; 78

and

56.3 his calculation did not give effect to the above principle.79

57. We submit that Mr du Toits report misconceived the purpose of compensation he did not seek to place the Florences in the position in which they would have

been if the land had not been taken, but attempted to compensate them on the

basis of a fair dispossession instead.

76Record: Vol. 2: 244: 6 11.

77 Record: Vol. 2: 241 242.78

Record: Vol. 2: 185: 14 19 and 246: 8 12.79 Record: Vol. 2: 246: 13 17.

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THE FOURTH REPORT

58. Mr du Toits fourth report, dated 17 March 2010,80disregards the cancellationagreement and market practice at the time of the dispossession.81 It contains two

calculations. The first (in annexure NN) takes a privately funded mortgage

sale of a property valued at R9 000,00 in 1957 with fixed monthly repayments of

R90,00. It then makes the critical assumption that the repayment period for the

loan was fixed for 20 years and calculates the interest rate implied by this

transaction,82which is 10.5241%. This interest rate is then used to calculate the

outstanding debt on the R9 000,00 loan in September 1970, which amounts to

R4 930,97. On this basis Mr du Toit estimates that the Florence family had

repaid R4 069,03 of the initial capital amount of R9 000,00, giving them an

interest of 45.21% in the value of the property in 1970. After adjusting for the

compensation received and removal costs, and using the CPI to translate the loss

into any 2010 terms, Mr du Toit recommends compensation in the amount of

R571 017,00.

59. In the second calculation (annexure OO) Mr du Toit assumes a fixedrepayment period of 20 years, a fixed interest rate and fixed monthly payments

of R90,00, in order to calculate a punitive interest margin of 4.5241%. Then,

using a variable interest rate and a variable repayment period, he calculates the

80 It is Exhibit K.81

Record: Vol. 2: 137.82 See Professor Wittenbergs comments in Exhibit M and at Record: Vol. 2: 5: 1 24.

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Florence familys loss in 1970 to be R8 901,09. After making the various

adjustments,he estimatesa loss of R387 922,00 in January 2010 terms. 83

Annexure OO

60. Professor Wittenberg commented that the method used of taking apunitiveinterest margin of about 4.5% and adding that onto the prime rate between

1957 and 1970, is:

Completely incoherent, you cant take two very different assumptions

and graft them together, the one assumption is that youve got a fixed

repayment period of20 years, youve got a fixed interest, fixed monthly

repayments, from that you get a penalty rate and then you now apply the

penalty rate to variable interest, variable repayment period, because it

would not have been paid off after20

years.

So basically you are

combining not just apples with oranges, you are combining two

completely different types of calculations, .... I think there is no

intellectual merit in that calculation at all and I think it is simply not

defensible...84

83Exhibit K, annexure OO read together para 6 of Exhibit M.

84 Record: Vol. 2: 9.

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61. Mr du Toit conceded in evidence that the above scenario is unlikely andaccordingly he recommended compensation in terms of his alternative

calculation (annexure NN).85

Annexure NN

62. Professor Wittenberg criticised the annexure NN calculation on the followinggrounds:

62.1 The interest rate used to calculate the outstanding debt in 1970 of4.524% is highly punitive, being 75% higher than the prime rate

prevailing in 1957;86

62.2 The assumption of a bond arrangement implies that the Florence familywould have been the owners of the property (although there might have

been some debt remaining in September 1970);87

62.3 The assumptions made in the calculation are highly questionable. Theonly argument in support of the 20 year repayment period is that current

bond repayment practices are mainly over a term of 20 years. However,

current bond practices do not include a fixed interest rate and fixed

85 Record: Vol. 2: 146: 12 16.86


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monthly repayments. Furthermore, interest rates on bonds are not

almost double the prime rate;88

62.4 If the assumptions are varied, one gets very different outcomes. InExhibit M he illustrated this by replacing the interest rate used, firstly,

with the prime rate and, secondly, with a rate of prime plus 2%. In the

first instance the R9 000,00 initial debt would have been fully paid-off

by September 1968 and, in the second calculation, by September 1970

there would have been an outstanding balance on the loan of

approximately R600,00;89

62.5 On any reasonable assumptions, including a hefty penalty interest rateof prime plus 2%, the debt would effectively have been paid off by

September 1970;90 and

62.6 Mr du Toit didnt himself believe in the fixed 20 year repayment term, because in his second calculation (annexure OO), which employs a

very different logic, he has jettisoned the assumption.91

88Record: Vol. 2: 6 7.

89 Record: Vol. 2: 7 8.90

Record: Vol. 2: 9 10.91 Record: Vol. 2: 30 31.

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The 20 year term

63. Mr du Toit accepted that the assumption of a 20 year repayment term for theloan was critical and had a huge bearing on his calculation.92

64. Mr du Toit was strongly influenced by current market practices in assuming a 20year repayment term for the transaction. However, he conceded that when

dealing with a transaction which took place in 1957, almost 55 years ago, if one

is relies on current market practices to understand the transaction, there is

enormous potential for getting it completely wrong.93

65. When questioned about Exhibits O, P and Q, the letters written by MrFlorence, he conceded that:

65.1 Exhibit O was consistent with a 1957 price for the property ofR9 000,00 and R15 000,00 being the total amount of the instalments;94

65.2 the phrase in Exhibit O we had almost completed the R15000,00 heagreed to is a very strong indication that the 1957 agreement envisaged

a total of R15 000,00 would be paid in instalments over a period of

time;95

92Record: Vol. 2: 248: 18 20.

93 Record: Vol. 2: 257 258.94


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65.3 the paragraph in Exhibit Q ending with the sentence meaning that aprice of R15000,00 was the agreed price for Sunny Croft leads to the

conclusion that Mr Florence regarded the R15 000,00 to be the total of

all the required instalments;96

65.4 it appears from the letters that Mr Florence understood that the totalamount to be paid in R90,00 instalments would be R15 000,00, to be

paid over a term of approximately 14 years;97

65.5 in drafting his report he failed to take into account these letters, the onlydirect evidence available concerning the term of the transaction.

98

Punitive interest rate

66. In his evidence Mr du Toit accepted that the punitive interest rate which heused of 10.5241% was an unfair amount but argued thatit was not only the

Florence family who were probably subject to such rates.99

He conceded that if

a reasonable interest rate is used, then the Florence family would be the owners

of the property.100

96 Record: Vol. 2: 253 254.97

Record: Vol. 2: 264: 6 14.98 Record: Vol. 2: 264: 15 21.99


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SUMMARY OF THE STATES CASE

67. We submit that Mr du Toit was an unimpressive witness. He was the author offour different reports:

67.1 The first report contained an incompetent CPI calculation. He concededthat he was negligent in signing it;

67.2 The compensation calculation in the second report is based on theassumption that the Florence family would pay both rent and interest.

This was described by Professor Wittenberg as ridiculous. The State

no longer relies on this calculation;

67.3 The compensation calculation contained in the third report assumes thatthe Florence family was dispossessed of the property by the Group

Areas Act and attempts to determine fair compensation for the

dispossession. Mr du Toit conceded in evidence that the purpose of

compensation in terms of the Act is to put claimants in the position that

they would have been if their land had not been taken and that his

calculation does not do this;

67.4 The crucial assumption in the fourth report is that the purchase price forthe property would be repaid over a 20 year term. This assumption was

formulated without regard to the only direct evidence concerning the

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term of the transaction, namely Mr Florences three letters. Mr du Toit

also conceded that the punitive interest rate of 10.5% used in this

calculation was unfair and that on any reasonable interest rate the

Florences would effectively have paid off the property by 1970.

68. The differences between the four reports also demonstrate the absence of anycoherent or principled approach to the determination of compensation. The first

two reports are drafted on the basis that the Florence family will receive 100% of

the benefit of the capital appreciation in the property between 1957 and 1970.

The third report changes tack completely and does not allocate the family any

share in the capital appreciation. In the fourth calculation the family receives

45% of the capital appreciation.

69. The contradictory methods used suggest an absence of any clear understandingof the basis upon which compensation should be determined.

70. Mr du Toits evidence also disclosed a lack of understanding of the Group AreasAct, its importance as forming the context against which the sale and

dispossession took place, and its impact on the Florence family.

71. There a clear basis for Professor Wittenberg comments concerning Mr du Toitscalculations:

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basically its designed with one purpose only to erode the

value of the contributions that the Florence family did actually make

as far as possible.101

my conclusion reading this document, and in particular annexure

OO is that you are determined to find the most negative combination

of factors to make the situation look as untenable as possible for the

family, if you [are] wanting to make assumptions that basically

deprive them of their home thats easy, but if those assumptions are not

backed by any facts that they are assumptions and assumptions only

...102

LEGAL PRINCIPLES: 1970 LOSS

72.

The Restitution Act contains no explicit directives concerning the determination

of compensation for purposes of equitable redress.103

It is accordingly

appropriate to begin by considering the purpose of restitution and the manner in

which the Act should be interpreted.

73. A purposive approach should be applied to the interpretation of the Constitutionand the Act (which gives effect to the right to restitution entrenched in section

101 Record: Vol. 2: 9: 14 20. This is with regard to the calculations in the fourth report.102

Record: Vol. 2: 17: 16 24.103Hermanus v Department of Land Affairs: Erven 3535 and 3526, Goodwood 2001(1) SA 1030 LCC [9].

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25(7) of the Constitution), in preference to the blinkered peering at an isolated

provision in a statute.104

74. When interpreting the Act, our Courts are obliged to scrutinise its purpose and promote the spirit, purport and objects of the Bill of Rights .105The

Constitutional Court has stated the following concerning the purpose of the Act:

...(A)lthough it is clear that a primary purpose of the Act was to undo

some of the damage wreaked by decades of spatial apartheid, and that

this constitutes an important purpose relevant to the interpretation of

the Act, the Act has a broader scope. In particular, its purpose is to

provide redress to those individuals and communities who were

dispossessed of their land rights by the Government because of the

Governments racially discriminatory policies in respect of those very

land rights.

75. It is trite that in interpreting a constitutional right, such as the right to restitution,Courts should adopt an interpretation which is generous rather than legalistic,

aim to fulfil the purpose of the constitutional right and to secure for individuals

the full benefit of their rights.106

104Department of Land Affairs v Goedgelegen Tropical Fruits 2007(6) SA 199 (CC) [51] [52].105

Goedgelegen, supra, [53].106R v Big M Drug Mart Ltd (1985) 18 DLR (4th) 321, cited in Goedgelegen, supra, [51] at note 48.

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76. A generous interpretation is particularly appropriate with regard to the Act,given that it is remedial legislation umbilically linked to the Constitution.107

77. Both this Court and the SCA have accepted that the purpose of compensation isto put the dispossessed, in so far as money can do it, in the same position as if

the land had not been taken.108

78. Furthermore, in interpreting the phrase the payment of compensation in thedefinition ofequitable redress in section 1 of the Act, this Court has accepted

that the general principle is that the displaced owner should be placed, as nearly

as possible, in the same position financially as prior to the taking.109

79. The Act recognises and accepts the subtlety, complexity and inescapablecontradictions of the situations in which claimants found themselves and

attempts to create practical solutions for them in its pursuit of equitable redress.

While it recognises the importance of registered title, it does not afford it unblemished

primacy.110

This Court accordingly has awarded restoration of full ownership rights in

cases where claimants only established lesser rights:

79.1 In the matter of the Makuleke Community: In re Pafuri area of the KrugerNational Park

111restitution of the right of ownership was awarded, in terms of

107Goedgelegen, supra, [53].108

Haakdoorinbult Boerdery CC & Others v Mphela & Others 2007(5) SA 596 (CC) [48]. See also BaphiringCommunity v Uys & Others 2007(5) SA 585 (LCC) [12], citing Birmingham City Corporation v West Midland

Baptist (Trust) Association (Incorporated) [1970] AC 874.109

Hermanus v Department of Land Affairs: In re Erven 3535 and 3536, Goodwood2001 (1) SA 1030 (LCC)

[15].110

Prinsloo and Another v Ndebele-Ndzundza Community and Others 2005 (6) SA 114 (SCA) [33] [34].111 Case number LCC 90/98, 15 December 1998, per Dodson J.

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this Courts power to adjust rights under section 35(4) of the Act, where this

was not the right which the community held prior to the dispossession;112

and

79.2 In the Kranspoort case,113

this Court awarded restoration of full ownership

under section 35(4) in circumstances where the community held beneficial

occupation rights prior to dispossession, on the grounds that this would be

equitable to both the current registered owner (a church which would be

compensated in full on expropriation, rather than holding formal ownership

burdened by the communitys rights to use its land) and the claimants.114

80. In a similar vein, Professor Mesthrie testified115 to the need to view the transactionsbetween the Florence family and Dr Yeller against the broader context of the Group

Areas Act and the arrangements it forced people to make in order to secure their homes.

81. We submit that a proper analysis of the evidence establishes that the Florence brothers had effectively paid off the property by the time that they were

dispossessed and that they should be regarded, for purposes of determining

compensation, as de facto owners.Mr du Toit is only able to avoid this

conclusion by making what he admits are unreasonable and unfair assumptions

concerning interest rates, based on highly speculative and generalised evidence

concerning market practices.

112See paras [4] and [12] of Dodson Js judgment.

113In re Kranspoort Community 2002 (1) SA 124 (LCC).114

Kranspoort,supra, [103] [104].115 Referred to above in the section dealing with her evidence.

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82. The above conclusion is supported by section 33 of the Act, which requires thisCourt to have regard to a number of factors in considering its decision in any

particular matter .116

The following are relevant for present purposes:

(a) The desirability of providing for restitution of rights in land to

any person ... dispossessed as a result of past racially

discriminatory laws or practises;

(b) the desirability of remedying past violations of human rights;

(c) the requirements of equity and justice;

...

(eA) the amount of compensation or other consideration received in

respect of the dispossession, and the circumstances prevailing at

the time of the dispossession;

(eB ) the history of the dispossessions, the hardship caused, the current

use of the land and the history of the acquisition and use of the

land;

(eC) in the case of an order for equitable redress in the form of

financial compensation, changes over time in the value of money;

116See Hermanussupra [9].

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(f) any other factor which the Court may consider relevant and

consistent with the spirit and objects of the Constitution and in

particular the provisions of section 9 of the Constitution.

83. The evidence relating to the above factors (particularly the need to remedy pastviolations of human rights, the requirements of justice and equity, the history of

the dispossession and the hardship caused) is analysed below in the section

dealing with the award of a solatium.These factors strongly support the

Florences claim to be treated as the owners of the property.

84. All of the principles discussed above (the purpose of the Act, the need for agenerous interpretation of Constitutional rights, the purpose of compensation, the

recognition in the Act and by this Court of the complex positions in which

claimants found themselves, the Group Areas Act context against which the sale

and dispossession took place, the irredeemable hardship experienced by the

Florence family, particularly Mr Florence and his mother, and the other section

33 factors) strongly support the Florences claim to be treated as the owners of

the property.

85. In any event, this Court has held that where there is doubt about the amount ofcompensation payable, it should not be close-fisted and should tend to resolve

the doubt in favour of a liberal (or generous) estimate. 117

117Hermanus,supra, [26].

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86. We accordingly submit that the Claimants loss in 1970 should be determined onthe basis of the market value of the subject land (R 31 778), plus the removal

costs (R85), less the compensation received (R 1350). This is an amount of

R30513.

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CONVERSION OF PAST LOSS

87. This Court has given no judgment dealing with the question as to what is theappropriate method for translating a past loss into present day monetary terms

for purposes of an award of financial compensation.

88. In two cases, Ex Parte Former Highlands Residents; In re Ash & Others vDepartment of Land Affairs118 and Hermanus v Department of Land Affairs: In

re Erven 3535 and 3536, Goodwood,119

the parties agreed that the Consumer

Price Index (CPI) should be used to translate the amount of the loss from the

date of dispossession to its value at the time of the award. This Court was

accordingly not required to consider the question of the appropriate method for

converting the past loss.

89.

In Gcaba v Minister for Safety & Security & Others

120

the Constitutional Court

endorsed the dictum of Moseneke J in his minority judgment in Van der Walt v

Metcash Trading Ltd121 that thestare decisisprinciple is not applicable where the

Court is satisfied that its previous decision was wrong or where the point was

not argued or where the issue is in some legitimate manner distinguishable .

Accordingly, the fact that the CPI was used to calculate compensation in the Ash

and Hermanuscases in no way binds this Court in the present matter.

118[2000] 2 All SA 456 LCC

119 2006(1) SA 1030 LCC.120

[2009] ZACC 26 [61]1212002(4) SA 317 (CC) [95].

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90. As indicated above, the Act contains no explicit directives concerning thedetermination of compensation for purposes of equitable redress.122 However,

section 33 of the Act requires the Court to have regard to a number of factors in

considering its decision in any particular matter .123 The relevant factors have

been set out above in our section dealing with the extent of the loss in 1970.

91. The State supports the use of CPI for the conversion of past loss, essentially onthe pragmatic grounds that it is widely used and accepted, and argues that this

position is supported by section 33(eC) of the Act.

92. The Plaintiffs case is that the purpose of financial compensation is to placeclaimants in the position in which they would have been had they not been

dispossessed. This is not achieved by the CPI which compensates for loss of

purchasing power and does not take into account any capital appreciation in the

land in the time since the dispossession. Where the dispossessed right is an

investment good (such as an immovable property) it is inappropriate to

determine compensation by means of the CPI, which measures consumption. It

follows that compensation in terms of the CPI will not enable a claimant to buy

an equivalent property to the one lost and will result in an arbitrary and

unjustifiable disparity between the value of a restitution award in the form of

restoration and restitution in the form of financial compensation. Financial

compensation should rather be determined according to the value of an award of

restoration of the lost rights (or the best available proxy for this value).

122Hermanus v Department of Land Affairs: Erven 3535 and 3526, Goodwood 2001(1) SA 1030 LCC [9].

123Hermanus ibid.

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93. We shall consider the evidence led with regard to these issues by the Claimantand the Defendant and then discuss the relevant legal principles.

CLAIMANTS EVIDENCE

94. The Claimants case concerning the appropriate method of translating a past lossinto present monetary terms rested on the evidence of three witnesses:Professor

Wittenberg, Professor Nicoli Nattrass, and Mr Jerry Margolius.

95. Professor Wittenberg considered five different approaches to the calculation of aloss in October 1970 as at December 2008 in his summary, namely:

95.1 The CPI;

95.2 The 32 day notice deposit rate;

95.3 The yield on Government bonds;

95.4 The prime overdraft rate; and

95.5 The mortgage rate.

96. The report demonstrated that R30 000,00 in October 1970 was worth thefollowing (as at December 2008):

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96.1 Using the CPI R1 226 250,00

96.2 32 day notice deposit rate R1 787 280,19

96.3 The yield on Government bonds R3 341 708,86

96.4 Prime overdraft rate R8 692 522,65

96.5 Mortgage rate R8 095 370,39124

97. In Exhibit L Professor Wittenberg prepared updated calculations in which aninitial amount of R30 513,00 was converted from October 1970 to December

2010 terms. The updated amounts were as follows:

97.1 32 day notice deposits R2 072 678,66

97.2 Yield on Government Bonds R4 036 797,00

97.3 Prime overdraft rate R10 964 727,55

97.4 Mortgage rate R10 219 913,38125

98. In his expert report Professor Wittenberg summarised his reasoning in thefollowing terms:

124See: A2: 14.

125 The updated calculations are dealt with by Professor Wittenberg in his evidence at Vol. 2, 2 4.

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Given the nature of the loss (a property) it seems that the risk-free

return available to an individual should be a lower bound on the value

placed on the loss. It is difficult, however, to attach a higher value to

the loss, since the individual would have had to bear some risk in order

to achieve those returns. In my opinion the 32 day notice deposit rate is

probably the most realistic way of valuing the loss.

99. In his evidence Professor Wittenberg stated that the 32 day notice deposit rate(which is essentially the short-term interest rate)126 is effectively a risk-free

investment and that it is the lower bound of the band of returns that would be

derived from an investment. Although the other instruments he considered in his

report would give higher returns, they would be riskier.

100.Professor Wittenberg stated that while the 32 day rate constituted the lower bound of what is reasonable, the bond rate (which was preferred by Professor

Nattrass) would be on the upper bound of reasonable rates.127 While the bond

rate was not unreasonable, he opted to be more conservative and preferred an

investment open to private individuals. However, he conceded that there was

merit and logic in the use of the bond rate, which was the rate at which

government would have borrowed.128

126 Record: 146 - 147127

Record: 184.128 Record: 186 187.

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101.Professor Wittenberg stated that if there was an official Reserve Bank housingindex, it would be entirely appropriate for this Court to use it to translate past

losses into current terms. However, there is no such official index. The most

commonly used housing index is the ABSA house price index, which reflects the

transactions made by clients of ABSA bank. However, he was uncertain as to

how the index is constructed and he would not be in a position to defend it.129

102.Professor Nattrass is Professor of Economics at the University of Cape Town.She is a former Rhodes scholar and in 1991 was awarded a D. Phil. (Economics)

by Oxford University. Hercurriculum vitae is impressive,130

as was her

testimony in the witness box.

103. In her expert summary, Professor Nattrass motivated her choice of the yield ongovernment bonds as the appropriate mechanism for converting a past loss into

present terms on the following grounds:

Dr Wittenberg argues that the 32-day notice deposit rate is the lower

bound of the value of that lost investment. I agree that this is the lower

bound but would argue that the lower bound is not the most appropriate

bound to use. In my opinion, the yield on Government bonds would be a

more appropriate rate of interest with which to compensate the Florence

family for their lost investment. Not only are Government bonds the

most risk-free form of investment available, but given that it was

129Record: 150 151.

130 A2: 246 258.

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Government policy which facilitated the forced redistribution of wealth

from the Florence family to Dr Yeller, it seems appropriate for the

Government to be held accountable for having effectively borrowed the

money from the Florence family. The interest rate on that borrowing

(i.e. the yield on the Government bond) [is] thus appropriate ....131

104.Professor Nattrass stated that if there was an official house price index she wouldcertainly consider using it, since it would be getting close to trying to value the

asset that was lost. The problem with the existing house price index is that it is

done by a bank and she was uncertain as to how it is constructed.She stated that

while she would consider an official index as an indicator of value (if one was

available), she would still prefer to use the bond rate in order to calculate

compensation.132

105.The Claimants final witness on the question of translating a past loss intocurrent terms was Mr Jerry Margolius. The brief given to Mr Margolius was to

assume that the subject land remained in the condition that it was as at the date

of dispossession and to estimate its current market value. In his expert summary

he concluded that the market value of the subject property in March 2010 would

have been R2 800 000,00.133

131 A2: 244 245. This was considered in her evidence at Record: 395 399.132

Record: 374 375.133 A2: 45.19.

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106.Mr Margoliusfreely acknowledged that his investigations were conducted undersubstantial time and financial constraints and he was compelled to piggy-back

on Mr du Toits research.134

Although these constraints resulted in some errors

in the report, these did not relate to the substance of his conclusions and would

not have led to him changing his valuation.135

107. It is to be noted that the State did not put forward any alternative opinion as tothe present market value of the dispossessed property.

108.We submit that Mr Margolius valuation is of considerable assistance to thisCourt in determining its compensation award.

THE STATES EVIDENCE

109.The State case in respect of the appropriate method for translating past lossesinto present terms was based on the evidence of Professor Francois Viruly, an

Associate Professor of Construction Economics and Management at the

University of Cape Town. A number of criticisms can be levelled against

Professor Virulys evidence:

109.1 In his summary he stated that South African Courts have tended to turnto the CPI to overcome the subjectivity associated with the choice of an

134Record: Vol 2: 37 38.

135 Record: Vol 2: 78 80.

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appropriate compensation benchmark.136

Under cross-examination he

conceded that:

109.1.1 in the two cases which he relied upon for this statement,the CPI had been used by agreement between the parties;

109.1.2 the two cases did not reflect any tendency, or decisions, ofour Courts;

109.1.3 the question of the subjectivity associated with the choiceof appropriate compensation benchmarks simply did not

arise in either case;137

and

109.1.4 a line could be drawn through the relevant paragraph ofhis summary.

138

109.2 He contradicted himself in his evidence concerning the use of the CPI asa measure for the risk-free rate of return on investment. After stating

that it had often been used, when asked to refer to any book or reputable

article in his support of his answer, he attempted to change the question

136 A2: 221.137


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before reversing his answer and conceding that the CPI has not been

used as a measure of the risk-free rate;139 and

109.3 He failed to answer questions directly and showed considerablereluctance to make concessions.140

110.The thrust of Professor Virulys evidence is summarised in the conclusion to hisexpert report:

The purpose of determining the compensation for a lost opportunity

that occurred in the past must ultimately be focused on a benchmark

that is just and equitable. Such a benchmark should attempt to reflect a

calculable opportunity costs [sic] in an objective manner that reflects

available information.

The use of a financial benchmarks [sic] that attempt to second-guess the

possible investment that a household may have undertaken is difficult to

ascertain and often based on premises that are highly subjective.

Household investment decision-making is a function of disposal income,

savings requirements, financial literacy, the expected risk profile that

the household is comfortable with as well as numerous other

characteristics. When a cash flow extends over a long period,

consideration must be given to ever changing investment opportunities

139Record: Vol. 2: 607 608.

140 See Record Vol. 2: 621 626, cf. 682 683; see also 567 585, 650 655 and 690 719.

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and the fact that financial conditions, the performance of investments

change with time. Finally, problems arise in attempting to match

investment vehicles and interest rates with the envisaged investment

horizon.

Such problems are largely overcome by using the Consumer Price Index

(CPI) as a benchmark. The benchmark has proven itself globally as a

preferred index used in business, in the public sector, and in courts in

order to compensate for their opportunity cost associated with time and

rise in prices. Further, it avoids issues regarding the subjective

extrapolation of household investment decisions and potentially

unrealised investment outcomes.141

Section 33(eC)

111.Professor Viruly also placed considerable reliance on section 33 (eC) of the Actwhich provides that regard should be had to changes over time in the value of

money when making an order for equitable redress in the form of financial

compensation. In his report he stated that it would be difficult to interpret

changes over time in the value of money as this phrase is used in the Act as

anything other than the CPI.142 He repeated this in his oral evidence.143

141 A2: 223. This was dealt with in evidence at Record: Vol. 2: 534 538.142

A2: 222.143 See: Record: Vol. 2: 503 3 12; Vol. 2: 533: 15 25.

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112.We submit that Professor Virulys understanding of section 33(3C) was flawedin several respects:

112.1 He was unfamiliar with the principle of the nominalism of currencywhich, in the words of Grosskopf JA:

underlies all aspects of South African law, including the law

of obligations. Its essence, in the field of obligations, is that a

debt sounding in money has to be paid in terms of its nominal

value irrespective of any fluctuations in the purchasing power of

currency. This places the risk of a depreciation of the currency

on the creditor and saddles the debtor with the risk of an

appreciation.144

112.2

He refrained from commenting on the proposition that the purpose of

section 33(eC) was to ensure that the principle of nominalism of

currency was not to be applied with regard to awards of financial

compensation. He said that it was a legal rather than an economic

concept.145 This consideration had not deterred him from giving hi s

interpretation of the provision earlier in his evidence;146

112.3 Professor Nattrass wrote a note, Exhibit J in which she stated thatthere is no single value of money because money can be used for two

144SA Eagle Insurance Company (Ltd) v Hartley 1990 (4) SA 833 (A) 839F - H.145

Record: Vol. 2: 745 748.146 Record: Vol.2: 503 and 533.

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purposes: either for consumption or for saving. If money is used for

saving, then the value of money changes over time as interest is earned

and added to the amount saved. Value for saving purposes is typically

adjusted over time using a risk free interest rate.147

112.4 It follows, Professor Nattrass testified, that the value of money isdetermined in two distinct ways and there is no reason why the phrase

changes over time in the value of moneyshould be read as excluding

changes in the value of money for investment over time. 148

112.5 Professor Viruly considered Exhibit J on two different occasions inthe course of his evidence.149In his evidence in chief he accepted that

economic theory suggests that we use money for both transaction and

investment purposes.150 However, he asserted that Professor Nattrass

was referring to the uses of money rather than its value and he proceeded

to make an unrelated point that ultimately people invest in order to

obtain money for consumption purposes.151

147 Exhibit J and Record: 384 386.148

Record: Vol. 2: 440 441.149 Record: Vol. 2: 529 533 and Vol. 2: 661: 5 24.150


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112.6 Under cross-examination he accepted that if money is used for saving,then its value changes over time as interest is earned and its value is

typically adjusted over time using a risk-free interest rate.152

112.7 In summary, he accepted that money can be used for two purposes, forconsumption and for saving, and that when it is used for saving its value

is typically adjusted over time using a risk free interest rate. These

concessions are destructive of his repeated assertion that the phrase

value of money in section 33 (eC) refers to inflation as measured by

the CPI.153

FAILINGS OF THE CPI

113.The CPI is unsuitable for translating past loss into present terms for threereasons:

113.1 It does not place claimants in the position that they would have been ifthey had not been dispossessed;

113.2 Its use gives rise to a discrepancy between the value of financialcompensation and restoration; and

152 Record: Vol. 2: 661: 5 24.153

Professor Nattrass evidence was that the phrase value of money can be read either as the CPI or the risk-

free interest rate, see Record: 424 425 and 426 427.

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113.3 It under-compensates people who are not in the wealthiest quintile (i.e.the top 20% of income earners).

Purpose of compensation

114.The purpose of compensation should be to place the dispossessed, to the extentthat money can do it, in the same position that they would have been if the y had

not been dispossessed of their rights.154

115.The above principle was fundamental to the approach adopted by the Plaintiffswitnesses. Professor Wittenberg, in his expert summary, stated that, given the

nature of the loss, a property, the lower bound on the value placed on that loss

should be the risk-free investment return available to an individual.155

116. In his evidence Professor Wittenberg stated that the CPI is an inadequate remedyfor purposes of placing individuals in the same situation (as they would have

been if they had not been dispossessed), as it effectively forces them to cash out

of their investments which would appreciate in value over time. While the CPI

will compensate for inflation, it will not compensate for any capital gains in the

lost property. Ultimately, compensation by means of the CPI would not enable

154The basis for this submission is set out in our section dealing with the relevant legal principles.

155 A2: 7.

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the Florences and other dispossessed individuals to buy back equivalent

properties, which would have appreciated in line with investment returns.156

117.Similarly, Professor Nattrass stated in her expert summary that:

To put the Florence family back in the position that they were as of

1970 , they should be compensated for their lost investment not the

lost purchasing power of the value of the property.157

118.Professor Viruly was concerned with a fundamentally different exercise. In hiswords, the Florences had a house, in 1970 the house disappeared, the family

suffered a loss as a result of the dispossession and he was requested to furnish an

opinion as to the value, in todays terms, of the loss suffered by the Florences in

1970.158

He conceded that his brief was to look at the value of money over time,

not the value of a house and that if he had known that it was a house, thenI

would have had to find an index for houses or something of that sort.159

119.The above passage illustrates vividly the conceptual flaw at the heart of theStates case. Compensation calculated on the basis suggested by Professor

Viruly does not aim to place claimants in the position that they would have been

had they not been dispossessed, but rather aims to restore them to their position

156Record: 172 173. See also: 222 223.

157 A2: 243. See also: Record: 392 393.158

Record: Vol. 2: 527 528 and 622 624.159 Record: Vol. 2: 624 625. See also: Vol. 2: 681 682 and 686.

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after the dispossession, once they had been compensated.160

This is contrary to

well established legal principles, which will be discussed below, and results in

an illogical discrepancy between the value of restitution in the form of

restoration and financial compensation.

Discrepancy between restoration and compensation

120.Professor Wittenberg pointed out in his evidence that by using the CPI totranslate past loss into current terms, one compensates claimants for inflation but

not for any capital gains on their properties.161This results in a disparity between

the value of a restitution package in the form of restoration and the value of

restitution in the form of financial compensation. The extent of the disparity is

the difference between the CPI and investment returns. This is illustrated, in the

case of the Florences,by the fact that the CPI would deliver a return to them of

roughly R1.3 million, while the 32 day notice deposit rate would lead to an

amount of R1.9 million and the ABSA house price index R2 million.162 It

follows that the award of R1.3 million suggested by the CPI would not enable

the Florences re-purchase their property at the cost of R2.6 million,163 as

suggested by Mr Margolius valuation. The use of the CPI would result in

160 Record: Vol. 2: 626: 2 8.161

Record: 172 173; 222 223.162 This was on the basis of his calculations prior to them being updated to December 2010.163

Taking the valuation of R 2.8 million and making an adjustment for the compensation received in 1970 of

R1350.

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substantial under-compensation, of the order of 50%, in the value of the

award.164

121.Professor Viruly in his evidence accepted that:

121.1 The CPI would not compensate the Florence family for the capital gainsin the house in the period since the dispossession;

165

121.2 The likelihood is that a risk averse investment would have outperformedthe CPI in the period since 1970;166 and

121.3 The calculations done by Professor Wittenberg show that the CPI wouldnot have allowed the Florences to acquire an equivalent property to the

one of which they were dispossessed.167

122.There can be no justification for an award of financial compensation in anamount substantially less than the value of an award of restoration, particularly

in circumstances where restoration has been rendered impossible as a result of

circumstances beyond the control of the claimants.

164Record: 223 224.

165 Record: Vol. 2: 690: 5 14.166


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BIASED AGAINST LOWER INCOME EARNERS

123.Professor Nattrass in her expert summary stated that the CPI measures changesin the general level of prices of consumer goods and services and is made up of a

representative basket of goods. Overall (or headline) CPI accordingly reflects

average spending patterns rather than the spending of any representative

household. It follows from its primary purpose, which is to measure the overall

inflation rate rather than the change in living standards experienced by the

average person or household, that:168

4.4 This means that the headline CPI is biased significantly towards

the spending patterns of richer households and hence is only an

appropriate measure for measuring changes in living standards

of the top quintile. This [is] why Statistics South Africa also

provides CPIs for different quintiles and these can be sharply

different from the headline CPI. For example in 2008 , headline

inflation between January and December was 7.7%, but for the

poorest quintiles it was 11.3% and for the richest quintile 6.8%.

... the spending patterns of the poorest quintile account for only

3.2% of the headline CPI, whereas that of the top quintile

contributes 64.1%.169

168A2: 238 239.

169 A2: 239.

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124.Professor Wittenberg endorsed Professor Nattrass comments concerning thebias of the CPI towards the spending patterns of the top quintile and referred to

criticism, in the economic literature, of the CPI as being plutocratic.170

125.The lack ofobjectivity of the CPI was dealt with at length in the evidence ofthe expert witnesses.

171Professor Viruly accepted the evidence of the

Claimants experts that if the Florence family had not been in quintile 5 (i.e. the

top 20% of income earners) the use of the CPI would result in them being under-

compensated.172

126.There was much debate in evidence as to which quintile the Florence familywould have fallen into.173 However, whether or not the Florence family fell

within any particular quintile is beside the point for purposes of this Courts

decision on the appropriate method for translating past loss into present terms. It

is not in dispute that the CPI will under-compensate poorer families who fall

outside the fifth quintile. We submit that this renders it unfit for use by this

Court as a general method for calculating compensation.

170 Exhibit H, para 4.171Professor Wittenberg dealt with the issue at Record: 212 216 and 280 282. Professor Nattrass discussed

the question at Record: 379, 380 383, 434 435 and 437 439. Professor Viruly dealt with it at Record:

Vol. 2: 524 526, 569 582, 585 586 and 594 595.172

Record: Vol. 2: 594 595.173 See: Record: Vol. 2: 753 759 and 770 785.

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LEGAL PRINCIPLES

127.Our Courts have accepted the general principle that the purpose of compensationis to place claimants in the position in which they would have been if their land

had not been taken.174This principle is accepted in international law, which

Courts are required by section 39(1)(b) of the Constitution to consider when

interpreting the Bill of Rights (and by implication the Act).

128. In the Factory at Chorzowcase,175 the Permanent Court of International Justicestated the following:

The essential principle contained in the actual notion of an illegal act

a principle which seems to be established by international practice and

in particular by the decisions of arbitral tribunals is that reparation

must, as far as possible, wipe-out all the consequences of the illegal act

and re-establish the situation which would, in all probability, have

existed if that act had not been committed. Restitution in kind, or, if this

is not possible, payment of a sum corresponding to the value which a

restitution in kind would bear; the award, if need be, of damages for

loss sustained which would not be covered by restitution in kind or

payment in place of it such are the principles which should serve to

174 This principle is established in the judgment of Harms ADP in Mphela , supra, [48] and in the judgments of

Gildenhuys AJ in Baphiring,supra, [12] and Hermanus ,supra, [15].175 (Germ. v Pol.), 1928 PCIJ, (ser. A) No. 17 (Sept. 13) [125].

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determine the amount of compensation due for an act contrary to

international law.

129.The court went on to state that the offending party had an obligation to restorethe factory which had been dispossessed, and if that was not possible, to pay its

value at the time of the indemnification, which value is designed to take the place

of restitution which has become impossible .176

130.The Court articulated its task in determining compensation as being to place thedispossessed as far as possible in the economic situation in which they would

probably have been if the seizure had not taken place.177

131.The Chorzow principle is widely accepted in international law and has beenadopted in:

131.1 Article 35 of the Draft Articles on State Responsibility for InternationallyWrongful Acts with Commentary;

178

131.2 The United Nations Pinheiro Principles ,Handbook on Housing andProperty Restitution for Refugees and Displaced Persons;

179and

176Factory at Chorzow, supra, [126].

177Factory at Chorzow, supra, [132].178

These were adopted by the International Law Commission in 2001.In terms of Article 65: A State

responsible for an internationally wrongful act is under an obligation to make restitution, that is, to re-establish

the situation which existed before the wrongful act was committed, provided and to the extent that restitution:

(a) is not materially impossible; (b) does not involve a burden out of all proportion to the benefit deriving from

restitution instead of compensation.

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131.3 Numerous decisions of international courts and tribunals. 180

132.This Court endorsed the Chorzow Factorycase in Mphela v Engelbrecht.181TheConstitutional Court and the SCA have also recognised the primacy of

restoration of land as a remedy in terms of the Act which supports the

approach adopted in Chorzow that the amount of financial compensation should

be designed to take the place of the restoration of the rights (which has become

impossible).182

133.The Claimants evidence was consistent with the Chorzow principles.Professors Wittenberg and Nattrass in their evidence sought to determine

compensation which would place the Florence family in the position in which

179In the Handbook on Housing and Property Restitution for Refugees and Displaced Persons, Principle 21

states:

1. All refugees and displaced persons havethe right to full and effective compensation as an integral component

of the restitution process. Compensation may be monetary or in kind. States shall, in order to comply with the

principle of restorative justice, ensure that the remedy of compensation is only used when the remedy of

restitution is not factually possible, or when the injured party knowingly and voluntarily accepts compensation

in lieu of restitution, or when the terms of a negotiated peace settlement provide for a combination of restitution

and compensation. 2) States should ensure, as a rule, that restitution is only deemed factually impossible in

exceptional circumstances, namely when housing, land and/or property is destroyed or when it no longer exists,

as determined by an independent, impartial tribunal. Even under such circumstances the holder of the housing,

land and/or property right should have the option to repair or rebuild whenever possible. In some situations, a

combination of compensation and restitution may be the most appropriate remedy and form of restorative

justice.

In applying principle 21, the Handbook notes:

alternative is compensation in order to restore the value of the loss of the destroyed property. Compensationmust be granted with the same intention as restitution, however, so that victims are returned as far as possible to

their original pre-loss or pre-injury position (i.e.status quo ante). [Emphasis added]180

Notably: Legal Consequences of the Construction of a Wall in the Occupied Palestinian Territory,

(Advisory Opinion), ICJ Reports 2004, pp.181-194, Paras.114-137; Case Concerning Armed Activities Case in

the Territory of the Congo (Democratic Republic of Congo v . Uganda), (Judgment), ICJ Reports 2005, p. 82,

Para. 259; and Guiso-Gallisay v ItalyEuropean Court of Human Rights (Grand Chamber) 2009.

181 Case No. LCC 66/01, 9 March 2005, per Moloto J.182

Mphela & Others Haakdoorinbult Boerdery CC & Others 2008(4) SA 488 (CC) [32]. See also Khosis

Community, Lohatla & Others v Minister of Defence & Others 2004(5) SA 494 (SCA) [30] [31].

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they would have been if the land had not been taken. The thrust of their

criticism of the CPI was that given that the family had lost an investment good (a

house) rather than cash for consumption, it was inappropriate to compensate

themfor the loss of purchasing power.

134.Finally, the use of the CPI leads to irrational consequences:

134.1 It will not enable a claimant to buy a property equivalent to the one lost, as itdoes not take into account the capital gains which would have accrued since

the dispossession; and

134.2 It will result in a disparity in the value of restitution in the form of restoration(which will include the capital gains in the period since the dispossession) and

restitution in the form of financial compensation.

135. It is a requirement of the rule of law that every exercise of public power must berational.183 The arbitrary disparity between restoration and financial

compensation that follows from the use of the CPI is inconsistent with the rule of

law.

136.The use of the CPI is also inconsistent with the requirement that constitutionalrights be interpreted generously so as to afford individuals the full benefit of

those rights and the purpose sought to be achieved by the Restitution Act.

183Pharmaceutical Manufacturers of SA: In re ex parte President of the RSA 2000 (2) SA 674 (CC) [85].

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137.We submit that Professors Wittenberg and Nattrass are correct when they statethat in converting the past loss suffered by the Florence family into current

terms, the fixed deposit rate should be used to determine the lower bound,and the

bond rate the upper bound, of the loss.

138.Using Professor Wittenbergs calculations updated to December 2010, set out inExhibit L, the above conclusion implies that the Florence familys 1970 loss of

R 30 513amounts to between R2 072 678,66 and R4 036 797,00 in current terms.

We submit that in the circumstances an award of R3 million, towards the middle

of the acceptable range, would be appropriate.

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SOLATIUM

139.Professor Uma Mesthriepresented evidence concerning the hardship experiencedby the Florence family as a result of the dispossession. She is an expert on the

Group Areas Act and had done extensive research on the Black River removals,

including 36 interviews with former residents (including Mr Florence).She stated

that she had come across the Florence family and Sunny Croft in several

instances in the archival material she had studied.

140.Professor Mesthrie described the removal process from 1955 when

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