Opposed
Application
ZHOU
J:
This
is an application for an Order that:
1.
The first Respondent pays a sum of US$142,000.00 together with
interest thereon at the rate of 5%
per annum
from 28 November 2016 to the date of payment within seven days from
the date of this order.
2.
In the alternative, the Applicants ask that the first and second
Respondents be ordered to pay the said sum of money jointly and
severally the one paying the other to be absolved.
3.
The further alternative relief is for the Exchange Control Directive
No. RT120/2018 to be declared a nullity or, in the further
alternative, that s44B(3)
and (4)
of the Reserve Bank of Zimbabwe Act [Chapter
22:15]
be declared unconstitutional.
4.
Costs of suit are in the main sought against the first Respondent
and, in the alternative, against all the Respondents jointly and
severally the one paying the others to be absolved.
The
application is opposed by all the respondents.
The
factual background to this matter is as follows:
The
applicants are partners in a firm of architects trading under the
name The Stone/Beattie studio. The partnership has a savings account,
number 1005428905, with the first respondent which was opened in
2011. This account was opened after the introduction of the
multicurrency system which became operational in February 2009. The
account was a United States Dollar account.
On
4 May 2016 the Governor of the second respondent issued a press
statement under the titre: “Measures
to deal with cash shortages whilst simultaneously stabilising and
stimulating the economy.”
In that Statement the Governor of the second respondent acknowledged
the prevailing shortage of cash, the factors contributing to such
shortage and the impact that these factors had had on the economy,
among other issues. He announced some monetary policy measures
instituted to address the challenges which he highlighted as
afflicting the multi-currency system.
In
paragraph 13 of the written statement the Governor announced that the
Reserve Bank had established a USD200 million foreign exchange and
export incentive which was facility which was supported by the
African Export-Import Bank (Afreximbank) to provide cushion on the
high demand for foreign exchange and to provide an incentive facility
of 5% on all foreign exchange receipts, including tobacco and gold
sale proceeds. He proclaimed that in order to guard against possible
abuse of the facility through capital flight the facility was to be
granted to qualifying foreign exchange earners in bond coins and
notes which would continue to operate alongside the currencies within
the multi-currency system and at a par with the united States Dollar.
The
statement also promised the introduction of the Zimbabwe Bond Notes
of denominations of $2, $5, $10 and $10 in due course to facilitate
portability given the magnitude of the USD200 million backed
facility. The facility would, further, be used to discount trade
related paper in order to provide liquidity for business trading
operations.
The
BOND currency was made part of the family of currencies in the
multi-currency basket. In the same statement the Governor announced
that the process to configure the RTGS system into the multi-currency
was already underway. It did come, in that on 31 October 2016 the
Presidential Powers (Temporary Measures) Regulations, 2016 which were
contained in Statutory
Instrument 133 of 2016
were enacted in terms of s2 of the Presidential Powers (Temporary
Measures) Act [Chapter
10:20].
As
at the end of October 20l6 the Applicants' account number 1005428905
had a credit balance of US$142,000. In response to the enactment of
the regulations referred to above the Applicants wrote a letter dated
28 November 2016 to the first respondent. The material portions of
the letter are as follows:
“RE:
The STONE/BEATTIE STUDIO Savings Account No. 1005428905
The
attached printed statement of the above account dated today's date
records that CABS
is the custodian of US$142,000.00 (one hundred and forty two thousand
United States Dollars) deposited and held on behalf of The
Stone/Beattie Studio.
You
are advised there will be no further deposits into or withdrawals
from this account after today's date until written instruction is
given to you by the partners named below being the authorized
signatories, or their successors.
Yours
faithfully
P.D.
STONE/R.H.S. BEATTIE”
The
letter is signed by the two Applicants. A statement showing a credit
balance which was attached to the letter is part of the documents
attached to the founding affidavit.
The Applicants have also
adduced proof of delivery of that letter.
On
4 October 2018 the second respondent issued the Exchange Control
Directive RT l20/20l8 which separated what was therein referred to as
the RTGS Foreign Currency Account from a Nostro
Foreign Currency Account based on the source of funds. The effect of
this was to categorise the applicants' account as an RTGS Foreign
Currency Account. Money from the applicants' account could only be
paid in the Bond note (and bond coin), but not in the United States
dollar which was the currency in which it is denominated.
By
letter dated 17 October 2018 written on their behalf by their legal
practitioners to the first respondent, the applicants asked to
withdraw the sum of US$142,000.00 from their account or,
alternatively to have it transferred into a Nostro
Foreign
Currency Account. The concept of the Nostro
Foreign Currency Account came into existence following the second
respondent's Monetary Policy Statement of 1 October 2018. According
to the applicants their letter of demand was written after they were
advised by the first respondent that they could only be paid their
money in the Bond note currency.
The
applicants' case
The
applicants' case is that they are entitled to payment of the sum of
US$142,000 on the basis of the banker/customer relationship that
exists between them and the first respondent. In the alternative,
should this court find that the first respondent is excused from
paying the money in the currency of the United States in which it was
reflected in their account by reason of the Exchange Directive No. RT
l20/2018 issued by the second respondent, that that Directive be
found to be unconstitutional for being unlawful and grossly
irrational and ultra
vires
the
provisions of the enabling Act.
In
the further alternative, the applicants contend that s44B(3) and (4)
of the Reserve Bank Act contravene the provisions of s71
and s56
of the Constitution of Zimbabwe
Amendment (No.20) Act 2013 which, respectively, protect property
rights and equality before the law and the right to equal protection
and benefit of the law.
The
first respondent's case
The
first respondent contends that the applicants' cause is founded
upon a falsehood in that they allege that they instructed the first
respondent to preserve their balance in the currency of the United
States, yet the letter relied upon does not state so.
A
second argument raised in
limine
in the opposing affidavit but does not appear to have been pursued in
argument is that the application was not one for an order ad
pecuniam solvendam
but for a declaratur
and, further, that the requirements for declaratory relief were not
met.
The
first respondent states that its obligation as the banker is "to
pay on demand the equivalent of the money deposited by the
applicants." The first respondent advances the further
contention that it could not be enjoined to pay the applicants in the
currency of the United States because such payment would be contrary
to the Exchange Control Directive RT120/18 issued by the second
respondent on 4 October 2018 by which all credit balances were to
become RTGS balances unless they were converted into Nostro Foreign
Currency Accounts.
In
this respect the respondent's case is that at law it is under
obligation to comply with the terms and conditions of its
registration as a banking institution. For these reasons the first
respondent's case is that the amount in the applicants' account is
payable in the RTGS or Bond currencies.
Second
Respondent's case
The
second respondent's case is that it exercised its powers in terms of
the law by issuing the Directive referred to above. It also states
that the Bond note (and coin) is not a currency and, further, that
Bond notes are legal tender in Zimbabwe. Second respondent states
that there is "no
such thing as an RTGS balance in our law, in much the same way as
there is no currency in Zimbabwe known as the bond note (or coin)”
The
second respondent's averments that the Bond note (or coin) is not a
currency are contradictory because the impugned Directive talks of
making the Bond note part of the family of currencies in the
multi-currency basket.
Third
respondent's case
The
third respondent's case is that the dispute in this case is a
contractual one between the applicant and first respondent and that
he was improperly joined in this matter. He therefore objected to his
joinder. According to the third respondent the dispute revolves upon
an interpretation of the contractual terms arising out of the
agreement between applicant and first respondent.
Issues
for determination
The
following issues are material to the determination of this matter:
1.
Whether the third respondent was improperly joined in this
application and, if so the effect of such joinder on the proceedings?
2.
The nature of the relationship between the applicant and first
respondent and the implications thereof on the relief which is being
sought?
3.
Whether the Exchange Control Directive RT120/2018 is unconstitutional
and, if so, the implications thereof?
4.
Whether s44B(3)
and (4)
of the Reserve Bank of Zimbabwe Act [Chapter 22:15]
are unconstitutional? and, if so, the implications thereof.
There
are other matters which were raised which can be easily disposed of
as they do not quite affect the substance of the dispute between the
parties.
The
debate on whether or not the applicants' letter instructed the first
respondent to preserve the applicants' account is not material. The
letter is very clear that the applicants did not intend any other
money to be deposited into or withdrawn from that account without
their written authority.
No
amounts were deposited into or withdrawn from the account after that
letter.
Determination
of the obligations of the first respondent in respect of that account
do not depend on whether the account was ring-fenced or not but on
the relationship of the parties.
The
precise import of the applicants' letter of 28 November 2016 is a
question of interpretation of that letter. No incorrect factual
statement arising out of its interpretation by the applicants who
allege that their intention was to have their account preserved has
been established to justify the allegation that there is a false
statement in the affidavit.
The
submission that the application is for declaratory relief arises from
the heading of the application which refers to it as one for an order
ad
pecuniam solvendam.
The
first respondent may be excused for taking this point because,
clearly, the alternative relief sought as set out in the draft order
is not just an order to pay a sum of money but, in the alternative,
includes a declaration that the Exchange Control Directive and the
cited provisions of the Reserve Bank Act are unconstitutional.
However,
nothing turns on this point as clearly the question as to whether the
declarations sought are supportable is one that pertains to the
merits of the application.
In
relation to the banker-customer relationship of the first respondent
and the applicant there is no declaratory relief being sought. Only
consequential relief is being sought based on the alleged facts of
the matter.
The
joinder of the third respondent
The
third respondent states that he was improperly join in this matter
because he was not a party to the contractual relationship between
the application and first respondent. A party may be joined in
proceedings before a court if that party has a direct and substantial
interest in the subject matter and outcome of the application. The
authorities show that what is required is a legal interest as opposed
to a financial or commercial interest which is only an indirect
interest in such litigation, see Zimbabwe
Teachers Association & ors v Minister of Education
1990
(2) ZLF 48 (HC) at 52F-53E and the cases cited therein.
The
third respondent's objection to his joinder is based on the relief
which is sought in the main by the applicant. But the alternative
relief seeks the annulment of a Directive issued by the second
respondent as well as a declaration that cited sections of the
Reserve Bank of Zimbabwe Act are invalid for contravening the
constitution. The Administration of that Act has been assigned to the
third respondent who has a lot of powers in relation to the
appointment of the Governor, Deputy Governors and Directors of the
second respondent, see, for example, s14(1);
s15(2);
s17(1)(a);
s17(2);
s17(3);
s18(1);
s18(2);
s19(1); s22(1);
s24(1)(a)
and s64.
He,
in fact, is the authority responsible for supervising the second
respondent.
He
therefore has a direct and substantial interest in the subject matter
and outcome of the instant application. The fiscal powers and
policies of the third respondent inform the monetary powers of the
second respondent which are impugned herein.
Accordingly,
he has been properly joined in this matter.
The
objection to the joinder is therefore dismissed.
The
relationship of the applicant and first respondent and its
implications
Both
the applicant and the first respondent accept that theirs is a banker
customer relationship. The relationship has its foundation in
contract, hence the general principles of the law of contract apply
to it. It, however, has its unique features which would distinguish
it from other special contractual relationships. The relationship is
explained in a leading text on Banking Law, “Paget's
Law of Banking”
13th Ed by M. Hapgood QC (Editor) at 145, as follows:
"The
relationship of a banker to customer is one of contract. It consists
of a general contract, which is basic to all transactions, together
with special contracts which arise only as they are brought into
being in relation to specific transactions or banking services. The
essential distinction is between obligations which come into
existence upon the creation of the banker-customer relationship and
obligations which are subsequently assumed by specific agreement; or,
from the standpoint of the customer, between services which a bank is
obliged to provide if asked, and services which many bankers
habitually do, but are not bound to, provide."
In
the case of Standard
Bank of South Africa v Oneanate Investments (Pty) Ltd
1995
(4) SA 510 (C) at 530 the
Court examined how this relationship of banker-customer developed to
its current status:
"The
law treats the relationship between banker and customer as a
contractual one. The reciprocal rights and duties included in the
contract are to a great extent based upon custom and usage. Although
historically the original objective of a depositor was to ensure the
safekeeping of his money, over time jurists have considered
characterizing and explaining the basic relationship as one of
depositum, mutuum or agency. All of these approaches have on analysis
proved to be inadequate. It is now accepted that the basic, albeit
not sole, relationship between banker and customer in respect of a
current account is one of debtor and creditor. In the landmark 1848
case of Foley v Hill (1843-60) AII ER Rep 16 (1848) 2 HL Cas 28 it
was strenuously argued that the banker should be treated as an agent
with authority to use his customers' money at his own discretion. The
argument was rejected in favour of the finding that the nature of the
ordinary relationship was one of debtor and creditor. The bank makes
use of the money which the customer has deposited:
'It
is then the money of the banker… he makes what profit he can, which
profit he retains for himself… he has contracted, having received
that money to repay to the principal when demanded a sum equivalent
to that paid into his hands.'”
In
situations where the bank collects on behalf of a customer the
proceeds of a cheque the relationship remains the same, as
articulated by Atkin LJ in Joachimson
v Swiss Bank Corporation
1921 (3) KB 110 at 127:
"The
bank undertakes to receive money, and collect bills for its
customer's account. The proceeds so received are not to be held in
trust for the customer, but the bank borrows the proceeds and
undertakes to repay them. The promise to repay is to repay at the
branch of the bank where the account is kept, and during banking
hours. It includes a promise to repay any part of the amount due
against the written order of the customer addressed to the bank at
the branch, and as such written orders may be outstanding in the
ordinary course of business for two or three days, it is a term of
the contract that the bank will not cease to do business with the
customer except upon reasonable notice.
The
customer on his part undertakes to exercise reasonable care in
executing his written orders so as not to mislead the bank or to
facilitate forgery. I think it is necessarily a term of such a
contract that the bank is not liable to pay the customer the full
amount of his balance until he demands payment from the bank at the
branch at which the current account is kept."
Where
a current account is in credit money deposited into the account
ceases to belong to the account holder. The banker becomes the owner
of the money and is free to use it as it pleases, as long as it pays
the equivalent therefor on demand, see Zimbabwe
Revenue Authority & Anor v Murowa Diamonds (Pvt) Ltd
2009
(2) ZLR 213 (S);
Standard
Chartered Bank of Zimbabwe Ltd v China Shougang International Ltd
13-SC-049
2013
(2) ZLR 385 (s) at 388; ABC
Bank v Mackie Diamonds
SC23-13.
But
the kind of debtor-creditor relationship that exists between a banker
and its customer is a complex one and has different facets.
MOSENEKE
AJ (as he then was) described the relationship as a, “conspicuously
complex collection of juristic relationships”, see Standard Bank of
south Africa Limited v ABSA Bank Limited
1995
(2) SA 740 (T) at 746G-H.
That
is so because within that relationship there may be other contractual
dimensions such as in situations where the bank offers custodial
services to its customers in which case the relationship becomes one
of depositum
and
in a case where the account becomes overdrawn in which case the bank
becomes the creditor and the customer becomes the debtor.
It
is in this context that the debtor-creditor relationship of a banker
and its customer has been characterized as a contract sui
generis,
see G
S George consultants and Investments (Pty) Ltd v Datasys (Pty) Ltd
1988
(3) SA 726 (W) at 734-736;
Pen & Shea,
The Law Relating to Domestic Banking 2nd
Ed. p107; Malan on Bills of Exchange, Cheques and Promissory Notes
p296.
It
is a debtor-creditor relationship in a class of its own, with its own
unique facets which demand careful approach when considering the
obligations of the parties to it.
More
than many other such relationships, the banker-customer relationship
is the subject of regulation by different statutory bodies and
constitutional entities such as the first respondent.
This
court is clear that in this case the obligation of the first
respondent is to repay the equivalent sum of money and not the exact
notes or coins deposited into the bank.
Further,
some of the money may not have been deposited as notes or coins but
could have been transferred from other financial institutions as
suggested by the respondent.
Whichever
way the money was credited into the account of the applicants is
irrelevant for the purposes of determining the obligations of the
first respondent to the applicant because the value of the money is
reflected in the credit balance.
It
is US$142,000.00.
The
first respondent accepts, by reference to the case of Equitable Trust
and Insurance Company of South Africa Limited v Registrar of Banks
1957
(2) SA 167,
cited in para 30 of its heads of argument, that “a deposit of money
on the understanding that the same amount, but not the same coins and
notes, will be returned is not a depositum but rather a loan.”
The
first respondent cannot claim, as it seems to do, that the money it
owed to the applicant was not in United States dollars.
The
debt is in United States dollars, because the account is denominated
in that currency. If it was in some other currency, such as the South
African Rand or the Botswana Pula then that would have been the
currency of the account.
The
debt which the first respondent owes to the applicant is therefore in
the sum of US$142,000.00 and not some other currency.
Banking
would be meaningless if a person deposited a certain sum of money or
has money credited into their account only to be told when they
demand withdrawal that they can only be paid in some other means of
exchange whose value is determined by authorities without recourse to
the holder of the account. In such a case the debtor will not be
repaying the debt. A debtor cannot unilaterally change the value of
its indebtedness.
But
the situation of the first respondent is complicated by the authority
which the second respondent exercises over it as the monetary
authority of this country.
The
first respondent is correct in its submission that it could not defy
the directive of the second respondent.
The
second respondent is established in terms of s317
of the Constitution
out in the same section, which states:
“(1)
There is a central bank, to be known as the reserve Bank of Zimbabwe,
whose objects are -
(a)
to regulate the monetary system;
(b)
to protect the currency of Zimbabwe in the interest of balanced and
sustainable economic growth; and
(c)
to formulate and implement monetary policy.
(2)
An Act of Parliament may provide for the structure and organization
of the Reserve Bank of Zimbabwe and confer or impose additional
functions on it.”
In
issuing the impugned Exchange Control Directive No. RT120/2018 the
second respondent was exercising its powers as conferred by the
Constitution
and the Reserve
Bank of Zimbabwe Act [Chapter
22:15].
This
court accepts that as long as the Exchange Control Directive has not
been set aside the first respondent could not comply with the
applicants demand without incurring the penalties and other
consequences threatened by the second respondent.
On
this basis, the court cannot order the first respondent to make the
payment in the face of the Exchange Control Directive which is to the
contrary, hence the need for an inquiry into the constitutionality of
that directive and/or the section in terms of which it was issued.
The
constitutionality of Exchange Control Directive RT120/18
On
4 October 2018 the second respondent issued Exchange control
Directive RT120/18 which was addressed to all Authorised Dealers. The
Directive was issued in terms of s35(1)
of the Exchange Control Regulations,
1996 which are contained in Statutory lnstrument 109 of 1996.
The
material portions of the Directive read as follows:
“1.
Introduction
Reference
is made to the Monetary Policy Statement announced by the Reserve
Bank Governor on 01 October 2018, which presented measures aimed at
strengthening the multicurrency system, enhancing business viability,
price stability, increasing export generation capacity and improving
market confidence. In order to operationalize these measures,
Authorised Dealers are advised as follows:
2.
Separation of Foreign Currency Accounts (FCAs) based on source of
funds.
2.1
Given the need to enhance market confidence, promote transparency,
preserve value, incentivize generators of foreign exchange, promote
effective and efficient utilization of foreign currency and
strengthen the multicurrency system, with immediate effect, FCAs are
now separated according to the source of funds.
2.2
In this regard, foreign currency realized from offshore or foreign
currency cash deposits shall be eligible for crediting into the
individual or corporate Nostro FCA, while all Real Time Gross
Settlement or mobile money transfers and bond notes and coins
deposits, shall be credited into the individual or corporate RTGS
FCA.
2.3…
2.4…
2.5
In line with the Monetary Policy Statement, all existing account
balances should be separated into Nostro FCAs and RTGS FCAs by
October 2018 and these accounts should be opened at no cost using
information already with banks. In separating the FCAs, Authorised
Dealers are required to use the customer Due Diligence (CDD) and Know
Your Customer (KYC) principles to ensure a smooth transition of this
process.”
The
applicant challenges the constitutional validity of the Directive on
various grounds which include illegality, irrationality, and gross
unreasonableness. The review sought is clearly not under the common
law but under the constitutional law of Zimbabwe and these grounds
must be understood in that context. Constitutional
review differs from common law review, as was held in the case of
Commissioner
of Customs and Excise v Container Logistics (Pty) Ltd;
Commissioner
of Customs and Excise v Rennies Group Ltd t/a Renfreight
1999
(3) SA 771 (SCA),
1999 (8) BCLR 833 (SCA), para 20:
“Judicial
review under the Constitution
and under the common law are different concepts… Constitutional
review is concerned with the constitutional legality of
administrative action, the question in each case being whether it is
or is not consistent with the Constitution,
and the only criterion being the Constitution
itself. Judicial review under the common law is essentially also
concerned with the legality of administrative action but the question
in each case is whether the action under consideration is in
accordance with the behests of the empowering statute and the
requirements of natural justice.
The
enquiry in this regard is not governed by a single criterion.
The
grounds of review which the courts have developed over the years can
never be regarded as a numerus clausus for the simple reason that
administrative law is not static. As new notions develop and take
root, so must new measures be devised to control the exercise of
(official) functions…"
However,
the distinction is now only of academic interest given the
pronouncement by the Constitutional
Court of South Africa in the case of Ex
Parte President of the Republic of South Africa: In re Pharmaceutical
Manufacturers Association of South Africa
2000
(2) SA 674 (CC),
2000 (3) BCLR 241 (CC).
ln
that case the Constitutional
Court of South Africa held that given the entrenchment of the
supremacy of the Constitution
there is only one system of law and that law is shaped by the
Constitution.
All
law, including the common law, derives its authority from the
Constitution
and is subject to constitutional control. There are therefore no
separate common law grounds of review which are distinct from the
constitutional grounds of review.
There
is remarkable merit in this interpretation of the relationship
between the constitution and the common law scope of judicial review
which commends itself.
I
respectfully endorse the approach embraced by the Constitutional
Court of South Africa for the reason that the constitutional
supremacy clause in this jurisdiction is worded in similar terms to
that in the Constitution
of the Republic of South Africa. Thus in considering the legality,
rationality and reasonableness of the impugned Exchange Control
Directive the court must measure it against the constitutional
provisions.
The
constitutional provisions
The
Constitution
of Zimbabwe
enshrines the principle of constitutional supremacy firstly as a rule
in s2
and, secondly, as one of the founding values and principles upon
which the Republic is founded in s3.
The
other “founding
values and principles enshrined”
include the rule of law, fundamental human rights and freedom and
good governance”.
Section
2 of the Constitution
provides as follows:
“2.
Supremacy of Constitution
(1)
This Constitution
is the supreme law of Zimbabwe and any law, practice, custom or
conduct inconsistent with it is invalid to the extent of the
inconsistency.
(2)
The obligations imposed by this Constitution
are binding on every person, natural or juristic, including the State
and all executive, legislative and judicial institutions and agencies
of government at every level, and must be fulfilled by them.”
Section
3(1)
provides that:
“Zimbabwe
is founded on respect for the following values and principles:
(a)
supremacy of the Constitution;
(b)
the rule of law;
(c)
fundamental human rights and freedoms;
(d)…
(e)…
(f)…
(g)…
(h)
good governance…”
The
entrenchment of constitutional supremacy as a rule and as one of the
foundational values and principles of our Constitution
has empowered the courts in this jurisdiction in the exercise of
their judicial review powers to interrogate, analyse and examine the
basis upon which every decision made or action taken by the
executive, legislative, judicial arms of government and by other
state agencies to ensure compatibility with the Constitution
and the values which underpin it. The idea is to ensure that every
decision or conduct does not impinge upon fundamental rights or other
provisions and values and principles of the Constitution.
These
values and principles must therefore shape the interpretation of the
Constitution,
including assessment of the constitutional validity of any law,
practice, custom or conduct. The supremacy of the Constitution
means that every law, practice, custom or conduct is subservient to
all the provisions of the Constitution,
including the founding values and principles articulated in s3.
The Exchange Control Directive of the first respondent which is an
agency of the State is therefore also subject to the supremacy of the
Constitution
and its validity can be tested using the standard of the
Constitution.
The
rule of law (which includes in it the principle of legality) is a
principle that is meant to circumscribe the power of those in
authority by placing it under control in order to prevent abuse or
arbitrary use of power. The principle has its foundation in the
common law but obviously assumes a different status because of its
constitutionalisation by the current Constitution.
It
has both procedural and substantive components.
(i)
The procedural
aspect
of the rule of law means that all law and conduct must be rationally
connected to a legitimate government purpose, otherwise it would be
arbitrary. As was held by the Constitutional
Court of South Africa, in Prinsloo
v Van der Linde & Another
1997
(3) SA 1012 (CC),
1997 (6) BCLR 759 (CC) at para 25:
“(T)he
constitutional state… should not regulate in an arbitrary manner…
that serve(s) no legitimate governmental purpose, for that would be
inconsistent with the rule of law…”
In
the case of Pharmacentical
Manufacturers Association of SA: In re: ex parte President of the
Republic of South Africa
2000
(2) SA 674 (CC),
para 85, the Constitutional
Court of South Africa expressed this principle as follows:
“(I)t
is a requirement of the rule of law that the exercise of public power
by the executive and other functionaries should not be arbitrary.
Decisions must be rationally related to the purpose for which the
power was given, otherwise they are in effect arbitrary and
inconsistent with this requirement. It follows that in order to pass
constitutional scrutiny the exercise of public power by the executive
and other functionaries must, at least, comply with this requirement.
If it does not, it falls short of the standards demanded by our
Constitution
for such action.”
A
court faced with a challenge to action or a decision founded on
rationality must examine the means selected and employed to determine
whether they are rationally related to the objective sought to be
achieved, Albutt
v Centre for Violence and Reconciliation and Others
[2010] ZACC 4, 2010
(3) SA 293 (CC),
2010 (5) BCLR 391 (CC) para 51; Democratic
Alliance v President of the Republic of South Africa and Others
[2012] ZACC 24 at p.23.
The
substantive
component
of the rule of law directs that government, its functionaries or any
other authority for that matter, must respect the individual's basic
rights, see Iain Currie and J. de Waal, The
Bill of Rights Handbook 5th
Ed.
pp.12-13.
This
aspect of the rule of law has also been entrenched as a rule in s44
of the Constitution of Zimbabwe
as follows:
“The
state and every person, including juristic persons, and every
institution and agency of the government at every level must respect,
protect, promote and fulfil the rights and freedoms set out in this
Chapter.”
In
light of the constitutional provisions, every decision taken by the
respondents should not exceed the bounds of rationality, but must
comply with the doctrine of legality which is encapsulated in the
value and principle of the rule of law. If it is found to be
irrational or arbitrary then it would fail the legality test and is
liable to be judicially reviewed and set aside for being
unconstitutional, see Movement
for Democratic Change and Another v Chinamasa and Another NNO
2001
(1) ZLR 69 (S);
also the South African cases of Albutt
v Centre for the Study of Violence and Reconciliation and Others
2010
(3) SA 293 (CC)
at para 49; Minister
of Military Veterans v Motau 2014
(5) SA 69 (CC)
at para 69; Democratic
Alliance v Ethekwini Municipality
2012
(2) SA 151 (SCA)
at para 21; Democratic
Alliance v President of the Republic of South Africa and Others
Case No. 24396/2017 (High Court of South Africa Gauteng Provincial
Division, Pretoria) (Per VALLY J) at p.11.
Reasonableness
in the context of constitutional review is concerned with the merits
of the impugned decision, in this case the Exchange Control Directive
No. RT120/18. A decision would fail to pass the test of
reasonableness if it is not “one that a reasonable decision-maker
could reach”, see Bato
Star Fishing (Pty) Ltd Minister of Environmental Affairs and Tourism
and Others
[2004] ZACC 15, 2004
(4) SA 490 (CC),
2004 (7) BCLR 687 (CC); Democratic
Alliance v President of the Republic of South Africa and Others
[2012] ZACC 24 at p.23.
In
other words, a decision would transcend the bounds of reasonableness
if a reasonable person applying their mind thereto would not have
taken such a decision.
Application
of the constitutional provisions and principles to the facts
The
impugned Exchange Control Directive has retrospective application, in
that it arbitrarily converts an existing United States Dollar account
balance into something else by arbitrarily imposing an RTGS value on
the United States dollar value of the credit balance in the
applicants' account. Equality of value is not something that can be
arbitrarily or capriciously imposed in the manner that the Governor
of the second respondent sought to do in relation to the balance in
the applicants' account.
The
value of money is its acceptability and can only be fairly determined
by the market. If the first respondent intended to introduce an RTGS
account with a value equal to or different from the United States
dollar account held by the applicant then that decision ought to have
affected future transactions rather than existing balances. It is
offensive to any sense of justice that a person who holds money in a
bank can wake up on any day to be told that his money means something
else different from what it has always been. The applicants would
have been entitled to withdraw United States dollars from their
account prior to this Directive being issued. The Directive
effectively disables any withdrawal of United States dollars from
that account. They can only withdraw bond notes. That reality cannot
be altered by renaming the account as 'an RTGS FCA'.
This
drastic deprivation of existing rights is not what is contemplated by
s317
of the Constitution of Zimbabwe
as constituting regulation of the monetary system, protecting the
currency of Zimbabwe and formulating and implementing monetary
policy.
For
it to pass the test of rationality “conduct
must not only be legally but also morally justified; it must be shown
to be just, reasonable or correct or defensible",
not just by reference to the procedure invoked but also by reference
to its merit and outcome, see Carephone
(Pty) Ltd v Marcus NO and Others
1999
(3) SA 304 (LAC),
para 31-32. The democratic founding values of accountability,
responsiveness, justice and transparency would be violated by a
decision which, without recourse to any affected individual,
businessperson or investor, changes the currency of money in a bank.
If the decision of the first respondent was to be allowed to stand
the effect of it is that the applicants money is now Zw$142,000 which
is probably less than 4% of its value at the prevailing official
rates which this court cannot ignore.
A
decision which reduces US$142,000 to a small fraction of its value
cannot be defended in a democratic society founded upon the values
enshrined in the Constitution
of Zimbabwe.
It in substance, manifestly violates the right to property.
Further,
the effect of the first respondent's directive is to make the
second respondent breach the contractual terms of its banker-customer
relationship as explained above. This is achieved by turning the
applicant's United States Dollar account into an “RTGS FCA", a
contradiction in itself because RTGS is not a foreign currency and
one wonders how it could hosted in a foreign currency account. The
sovereignty of any Government to determine currency cannot extend to
arbitrarily changing the currency of money in a bank to another
currency as that would not only be unlawful deprivation of property
in contravention the right protected in s71(2)
of the Constitution of Zimbabwe
but compels a party, the first respondent, to breach its contractual
obligations.
It
would be contrary to all notions of justice and fairness, and to the
rule of law and good governance if the State or the first respondent
was to be allowed to simply rename money in an account and decide
that it has become something else different from what is in the
account. This makes the Exchange Control Directive not only arbitrary
and irrational, but fail the test of reasonableness. The decision is
an incursion of vested rights.
No
reasonable person who had applied his or her mind to the matters in
question would have taken the decision which has the effect of
eroding a person's investment or savings in this manner. When regard
is had to the loss which would be involved if the applicants were to
be paid a sum of Z$142,000 or even the 'equivalent' thereof at
the official exchange rate the Exchange Control Directive reflects
insensitivity and unresponsiveness which offends against the values
espoused by the Constitution.
The
Constitution
in s1
proclaims that Zimbabwe is, inter
alia,
a democratic Republic. In the preambular section “the
need to entrench democracy”
is recognized. Good governance which is enshrined in s3(1)(h)
is an essential feature of democracy. Good governance which,
according to s3(2)(g),
binds the State and all institutions, includes “transparency,
justice, accountability and responsiveness”.
The value of good governance is a new feature of our constitutional
dispensation having been introduced by the 2013 Constitution.
It demands that a new approach to decision making be embraced by all
arms of the government and other public institutions. Power must be
exercised with sensitivity to fairness and justice, and in a manner
that does not unnecessarily deprive persons of their rights.
The
Exchange Control Directive is, in my view, illegal, irrational and
unreasonable for offending against the rule of law and the
constitutional values of good governance.
It
is therefore unconstitutional.
The
constitutionality of s44B(3) and (4) of the Reserve Bank Act
In
view of the conclusion reached in respect of the constitutionality of
Exchange Control Directive RT120/2018, it is unnecessary for the
court to determine the constitutionality of s44B(3) and (4) of the
Reserve Bank Act.
This
is so because the matter stands to be disposed of on the basis of
this court's conclusion that the impugned directive is
unconstitutional and consequently invalid.
Costs
The
applicants have succeeded in obtaining the relief which they sought
before this court. There are no special reason warranting departure
from the usual conclusion that costs should follow the result.
The
applicants are therefore entitled to recover their costs of suit.
Disposition
In
the result, IT IS ORDERED THAT:
1.
Exchange Control Directive No. R120/2018 issued by the second
Respondent through its Governor on 4 October 2018 be and is hereby
declared to be invalid, and is accordingly set aside.
2.The
first Respondent shall pay to the applicant the sum of US$142,000.00
in the currency of the United States of America or transfer that
amount into a Nostro
Foreign
Currency Account as may be directed by the Applicants within seven
days from the date of this order together with interest thereon at
the prescribed rate of 5 percent per
annum
from the 17th October 2018, being the date of the letter of demand,
to the date of full payment or transfer into the Nostro
Foreign Currency Account as directed herein.
3.The
Respondents shall pay the costs jointly and severally the one paying
the others to be absolved.
Tendai
Biti Law, applicants legal practitioners
Mawere
Sibanda, first respondent's legal practitioners
GN
Mlotshwa & Company, second respondent's legal practitioners
Civil
Division of the Attorney-General's Office, third respondent's
legal practitioners
