The majority decision in this matter found that section 25 allows for the transfer of water use entitlements in two circumstances:
This interpretation of section 25 by the SCA 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. In this respect, it was found that the transfer of rights similar to water use entitlements (eg. mining rights, commercial fishing rights and the right to trade liquor) whose regulation typically involves public interest, is common-place and these rights are transferable from one party to another. Furthermore, the court found that, the NWA does not prohibit trading in water use entitlements. On the contrary, it held that the NWA clearly promotes the execution of transactions involving water use entitlements and for the payment of compensation in this respect.
From a mergers and acquisitions (M&A) perspective, this decision lends weight to the argument that WULs are transferable in the context of broader commercial transactions, on application of the 'successor in title' language included under section 51 of the NWA. It is generally accepted that, following the closure of an M&A transaction, water use rights transfer to a successor in title, by operation of law (ie. sections 50 and 51). For instance, 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. This transfer must, however, be formalised in terms of section 51, to reflect the purchaser as the licensee or successor in title of the water use rights, which aligns with the SCA's interpretation of section 25.
This SCA decision is likely to be welcome news to many. It, however, remains to be seen whether the decision will be appealed to the Constitutional Court.