Fasken successfully represented a key applicant, the South African Association for Water Use Associations (SAAFWUA), in a landmark decision made by the Constitutional Court in the Transfer of Water Use Entitlements. This follows the November 2021 victory by the applicants in the Lötter, Wiid and SAAFWUA matters in the Supreme Court of Appeal. What triggered the litigation was a unilaterally effected moratorium by the Director-General, Department of Water and Sanitation, on the transfer of water from one person to another, and or the trading or transferring of water use entitlements between two sperate legal entities, even though the National Water Act (NWA) explicitly provides for such transfer.
After a 5-year battle, the Constitutional Court found that the NWA allows for the transfer of water use entitlements, and that trading in such rights is not prohibited or unlawful and may even be transferred for compensation.
The interpretation of section 25 by the Constitutional Court is particularly relevant in the agricultural sector, where the transfer of water use entitlements is often central to the disposal or acquisition of agricultural land, and by direct implication the sustainability of food and employment security in South Africa.
The outcome of this judgement is also significant from a mergers and acquisitions (M&A) perspective, since in many commercial transactions, security of water supply and or access to the lawful use of water is a crucial consideration. A Water Use Licence is transferable in the context of broader commercial transactions, on application of the “successor in title” language included under the provision of section 51 of the NWA.
In the context of the importance of the judgment, it needs to be appreciated that usually, following the closure of an M&A transaction, water use rights transfer to a successor in title, by operation of law. Consequentially, in a sale of business transaction, the purchaser will become the successor in title of any lawful water uses associated with the business operation, post-closure of the transaction.
If the Constitutional Court did not rule that the unilateral decided moratorium on the transfer of water rights in South Africa, is irrational and unjustifiable, it could have caused catastrophic implications to the South African economy.
The Fasken was team led by Francois Joubert and included Bianca Da Costa and Julia Rushton.
