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By Jackie Cameron
Many South Africans who have paid vast sums to move money to other countries will be poring over the Mark Shuttleworth exchange control ruling with a view to ascertaining whether they, too, are entitled to a refund of exit levies. Smart lawyers will be dissecting the details on behalf of wealthy clients (scroll to end of this article for full judgment).
Will the Shuttleworth exchange control victory spark further challenges to the way exchange controls are handled, particularly by banks?
The South African Reserve Bank (Sarb) need not fear a flood of appeals, according to the Supreme Court of Appeal. “Having regard to the time that has elapsed between the commencement of the dispute between Shuttleworth and the Reserve Bank more than three years ago, there is no danger of a flood of similar claims,” it said.
Looking at Shuttleworth’s assertion that he had been acting in the public interest and was genuinely concerned about the manner in which exchange control was being managed, the Supreme Court of Appeal said it “appears that Shuttleworth’s primary purpose was not purely altruistic but to secure repayment of the 10% levy paid by him”.
The Supreme Court of Appeal said Shuttleworth (see 21), “did not challenge the principle of exchange control”. “He accepts that exchange control is necessary. He contended, however, that many facets of exchange control remain unconstitutional”.
As the judgement notes: exchange controls have been in place for a number of decades in South Africa. “Emigrants’ funds in excess of the emigration allowance were thus placed in what were described as ‘emigrants blocked accounts’ in order to preserve foreign reserves.”
“During 2002, given the improved strength and resilience of the South African economy and as part of the process of gradual exchange control liberalisation, it was decided that those ‘blocked assets will now be unwound’.”
The Minister of Finance announced that emigrants could export up to R750 000 without charge, while those wanting to export more would have to pay an exit charge equal to 10% of the amount being moved.
The Supreme Court of Appeal noted that the aim of this charge was to serve as a “disincentive to the exit of large amounts of capital – thus assisting to maintain the stability of the South African economy”.
Exchange controls, meanwhile, have eased considerably since then. You can move more money out of South Africa to invest elsewhere, though there is still red tape to work through.
It is now possible to move R1m with only South African Reserve Bank approval and an additional R4m also with South African Revenue Service approval (for more, read: Buying international shares from your laptop in SA: How to get started).
The administration of exchange controls is effectively left in the hands of bankers – who came in for criticism in the Shuttleworth matter. Banks use their discretion, acting as agents of the SA Reserve Bank.
As the judgment noted: “There may be questions that arise, in particular instances, where, for example the authority of a bank is challenged by a client or where, as in the present case, it does not faithfully execute a client’s mandate.”
It said too: “Questions might also arise in the future as to whose interests the dealer banks represent and whether or not they might, in certain circumstances, be conflicted.” These were not areas it needed to address for the purposes of the Shuttleworth hearing, said the Supreme Court of Appeal.
Meanwhile, the Supreme Court of Appeal got Shuttleworth wrong on the altruism, it seems. Shortly after this finding was delivered, the internet billionaire announced that he was donating the full refund from the Sarb to a fund to help cover other court challenges (for more, see Shuttleworth: Why I’m putting big money to help enforce SA Constitution) .
You can read the Supreme Court of Appeal judgement here: Shuttleworth vs SA (PDF). Or, see below.
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA JUDGMENT
CASE NO: 864/2013
Reportable
In the matter between:
MARK RICHARD SHUTTLEWORTH First Appellant
and
SOUTH AFRICAN RESERVE BANK First Respondent
MINISTER OF FINANCE Second Respondent
PRESIDENT OF THE REPUBLIC OF SOUTH AFRICA Third Respondent
Neutral Citation: Shuttleworth v South African Reserve Bank (864/2013) [2014]
ZASCA 157 (1 October 2014).
Coram: Navsa ADP, Ponnan & Majiedt JJA and Fourie & Mocumie AJJA
Heard: 28 August 2014
Delivered: 1 October 2014
Summary: Exchange Control – regulation 10(1)(c) of the Exchange Control
Regulations – lawfulness of the imposition of a ten per cent exit levy by the South
African Reserve Bank on the value of assets sought to be exported upon
emigration – whether court can order repayment of the levy.
2
______________________________________________________________________
ORDER
______________________________________________________________________
On appeal from: The North Gauteng High Court, Pretoria (Legodi J sitting as court of
first instance).
The following order is made:
1 The appeal and cross-appeal are upheld to the extent reflected in the substituted
order that follows.
2 The order in the court below is set aside in its entirety and substituted as follows:
‘(i) The decision of the Reserve Bank to impose a ten per cent levy payment into the
blocked rand levy account of the Reserve Bank as a condition on the applicant’s
transfer of his remaining blocked assets out of the Republic is set aside.
(ii) The Reserve Bank is ordered to repay the applicant the amount of
R250 474 893, 50 with interest at the prescribed rate from 13 April 2012 to date of
payment.
(iii) Each party is to pay its own costs.’
3 In respect of the appeal and cross-appeal the respondents are ordered to pay the
appellant’s costs attendant upon the employment of three counsel, where so employed,
and the respondent in the cross-appeal is ordered to pay the cross-appellants’ costs
including those attendant upon the employment of two counsel.
3
______________________________________________________________________
JUDGMENT
______________________________________________________________________
Navsa ADP and Ponnan JA (Majiedt JA, Fourie & Mocumie AJJA concurring):
[1] The primary question in the present appeal is whether a ten per cent exit levy
imposed by the first respondent, the South African Reserve Bank (the Reserve Bank)
on the value of the assets sought to be exported by the appellant, Mr Mark Shuttleworth
(Shuttleworth), upon his emigration, was lawful.
[2] That question arises for determination against the backdrop of the following facts:
Shuttleworth, is a prominent entrepreneur who was born and educated in South Africa.
He made his fortune through Thawte Consulting, initially a general internet consultancy
that progressed to specialising in security for electronic commerce. It became the first
company to produce a full-security encrypted e-commerce web server that was
commercially available outside of the United States of America. Thawte shot to
international prominence by assisting businesses throughout the world to engage in
secure transactions over the web. In 1999 he sold the company for $575 million. It was
this acquisition of vast wealth by Shuttleworth and subsequent developments that led to
his dispute with the Reserve Bank, and ultimately, to the litigation culminating in the
present appeal.
[3] Following the sale of Thawte, Shuttleworth formed a venture capital company
that he claimed, without challenge, had invested in several South African companies in
a variety of sectors such as software, pharmaceutical services and mobile phone
services, all with the goal of serving a global marketplace. He started the Shuttleworth
Foundation, a non-profit organisation that, he said, supported social innovation in
education. In 2001 Shuttleworth emigrated to the Isle of Man, a British Crown
dependency and a tax-efficient jurisdiction.
4
[4] According to Shuttleworth he emigrated in order to free up funds to invest
outside South Africa. He claimed that he emigrated due to the system of exchange
control in South Africa, which he asserted was severely restrictive and rendered
investments outside our borders prohibitive. That claim is, of course, contested by the
Reserve Bank, but more about that later. Subsequent to his emigration Shuttleworth
donated a total of R180 million to the foundation.
[5] On his emigration, Exchange Control Regulations,1 promulgated in terms of s 9
of the Currency and Exchanges Act 9 of 1933 (the Act), had the effect of blocking the
expatriation of his assets from South Africa. The aggregate value of his blocked loan
accounts was R4 276 757 134 – an amount not to be sniffed at.
[6] In terms of permission granted by the Reserve Bank, Shuttleworth was entitled
to remit out of the country, interest on the blocked loan accounts at the prime lending
rate plus two per cent, but the capital could not be transferred without its permission.
[7] On 5 March 2008 Shuttleworth applied to the Reserve Bank for permission to
transfer R1 500 000 000 of the blocked loan account out of South Africa. In accordance
with the policy of the Reserve Bank the application could not be made directly by
Shuttleworth but had to be made through an authorised dealer bank. This policy was
dubbed a ‘closed door policy’ by Shuttleworth which the Reserve Bank retorted is an
inappropriate epithet – this aspect will be dealt with later in this judgment. Shuttleworth
complied with the policy and chose the Standard Bank of Southern Africa Limited (SB)
to make the application, which was granted subject to the payment of an exit levy of
R165 000 000. However, due to an error in calculating the ten per cent exit levy,
Shuttleworth was later informed that the amount that could be transferred out of the
country was R1 485 000 000, which would ensure that the exit payment represented ten
per cent of the total amount subject to the application.
1 Exchanges Control Regulations, GN R1111, GG Extraordinary 123, 1 December 1978.
5
[8] Shuttleworth contended that he had paid the levy of R165 000 000 in the belief
that it was lawfully due. It is necessary to record that apart from the transfer of
R1 485 000 000 and the payment of the levy, Shuttleworth made various donations to
entities in South Africa, out of what remained in the blocked loan account. As a result of
those transactions the value of the assets in his blocked loan account was reduced to
R 2 504 748 935 by 26 June 2009.
[9] In June 2009 Shuttleworth decided to transfer his remaining assets out of South
Africa and applied to the Reserve Bank for permission to do so. This time he sought
advice in advance of the application as to the lawfulness of the ten per cent exit levy. He
was advised that it was unlawful. He consequently framed his application for permission
to transfer his remaining assets out of the country in such a manner ‘as to protect my
right to challenge any imposition of a ten per cent exit levy by the first respondent’.
[10] Shuttleworth, once again, in accordance with the Reserve Bank’s policy,
instructed SB to submit the application to transfer his remaining assets out of the
country. Unbeknown to Shuttleworth, SB did not attach a document supplied by him,
which explicitly reserved his rights in respect of the ten per cent exit levy. SB submitted
an application framed by it and without such reservation of rights. Contrary to his
instructions, SB also tendered to pay the Reserve Bank the ten per cent exit levy.
[11] The Reserve Bank approved the application submitted by SB. Upon discovering
that SB had tendered the ten per cent levy, Shuttleworth instructed SB to request the
Reserve Bank to reconsider its decision to impose the ten per cent exit levy and to pay
the levy under protest, pending the reconsideration. Whilst awaiting the decision of the
Reserve Bank, Shuttleworth transferred his remaining assets out of South Africa in the
manner described by him and set out below:
‘28. The payment under protest of the 10% exit fee duly took place on 11 November 2009
and the balance of my blocked assets were transferred out of the Republic as follows:
28.1. On 18 Nov 2009, R650 000 000 was transferred and then a further R1 036 128 303 was
transferred.
28.2. On 2 Dec 2009, R300 000 000 was transferred.
6
28.3. On 21 Dec 2009 the remaining R268 145 738 was transferred.’
[12] The Reserve Bank refused to reconsider its decision, stating only that it was
bound by Exchange Control Regulations. Subsequently, it supplied the basis for its
decision. The Reserve Bank relied exclusively on Exchange Control Circular No. D375
of 26 February 2003, the relevant part of which reads:
“Emigrant blocked assets are to be unwound. Amounts up to R750 000 (inclusive of amounts
already exited) will be eligible for exiting without charge. Holders of blocked assets wishing to
exit more than R750 000 (inclusive of amounts already exited) must apply to the Exchange
Control Department of the South Africa Reserve Bank to do so. Approval will be subject to an
exiting schedule and an exit charge of 10 per cent of the amount”’
The Reserve Bank stands by that circular as the basis for the decision. Reserve Bank
ruling Section B 5(E)(iii)(e) of the Exchange Control Rulings as reflected in Circular No
D380 is equally of importance:
‘Any other assets belonging to the emigrants at the time of their departure or accruing to them
thereafter will require to be brought under the control of an Authorised Dealer. The Exchange
Control Department of the South African Reserve Bank will, on application, consider requests
for the unblocking of the emigrant’s remaining assets. Any approval will be subject to an exiting
schedule, at the discretion of the Exchange Control Department of the South African Reserve
Bank, and an exit charge of 10%.’
As can be seen, that ruling also deals with the position of authorised dealers such as
SB. The total amount of the levy paid by Shuttleworth under protest was
R250 474 893.50.
[13] Shuttleworth emphasised and it was admitted by the Reserve Bank that the ten
per cent exit levy was applied on a generalised basis and there was thus no question of
any discretion being exercised in that regard. Shuttleworth characterises it as a rigid
application of policy. That description was unchallenged. The Reserve Bank did,
however, take issue with Shuttleworth’s charge that the exit levy operated as a
generally applicable revenue raising mechanism. The Reserve Bank is adamant in its
denial that the exit levy operated as a tax of sorts. It does admit though, that there is no
historical instance in which it did not impose the exit levy.
7
[14] Following on the Reserve Bank’s refusal to reconsider its decision and given the
amount of money involved, it was hardly surprising that Shuttleworth approached the
North Gauteng High Court for relief, principally against the imposition of the exit levy,
which he contended was unconstitutional. He also sought a range of far-reaching
orders. Shuttleworth launched an attack on various provisions underpinning the
exchange control system in South Africa. He sought the following extensive relief
against the Reserve Bank as the first respondent, the Minister of Finance (the Minister)
as the second respondent, and the President of the Republic of South Africa (the
President) as the third respondent:
‘1 Reviewing and setting aside the decisions of the first respondent taken on or about 16
October 2009 and 1 December 2009 to impose a 10% levy payment into the first
respondent’s Blocked Rand Levy Account as a condition on the applicant’s transfer of
his remaining blocked assets out of the Republic.
1A Substituting the decisions of the first respondent on or about 16 October 2009 and 1
December 2009 with an unconditional decision to authorise the applicant to transfer 90%
of his remaining blocked assets out of the Republic.
1B Directing the first respondent, alternatively the second respondent to repay the applicant
the amount R250, 474, 893.50.
1C Directing the first respondent, alternatively the second respondent to pay the applicant
interest on the amount of R250, 474, 893.50 at the prescribed rate from date of demand
to date of payment.
1D To the extent necessary, condoning the applicant’s failure to have served a notice on the
respondents in terms of section 3(2)(a) of the Legal Proceedings against Certain Organs
of State Act 40 of 2002.
2 Declaring that the words “and an exit charge of 10% of the amount” in
2.1 Exchange Control Circular No D375 of 26 February 2003,
2.2 Exchange Control Circular No D380 of 26 February 2003, and
2.3 Section B [5](E)(iii)(e) of the Exchange Control Rulings;
were at all material times inconsistent with the Constitution and invalid.
3. Declaring that section 9 of the Currency and Exchange Act 9 of 1933 (“the Act”) is
inconsistent with the Constitution and invalid.
4. In the alternative to prayer 3 above,
8
4.1 declaring that paragraphs (a), (c) and (f) of subsection (2) of section 9 of the Act are
inconsistent with the Constitution and invalid,
4.2 declaring that subsection (3) of section 9 of the Act is inconsistent with the Constitution
and invalid, and
4.3 declaring that subsection (5) of section 9 of the Act is inconsistent with the Constitution
and invalid.
5. Declaring that the Exchange Control Regulations are inconsistent with the Constitution
and invalid.
6. In the alternative to prayer 5 above,
6.1 declaring that paragraphs (a) to (c) of Regulation 3(1) of the Exchange Control
Regulations are inconsistent with the Constitution and invalid;
6.2 declaring that Regulation 3(3) of the Exchange Control Regulations is inconsistent with
the Constitution and invalid;
6.3 declaring that the words “(3) or” in Regulation 3(5) of the Exchange Control Regulations
are inconsistent with the Constitution and invalid;
6.4 declaring that Regulation 10(1)(b) of the Exchange Control Regulations is inconsistent
with the Constitution and invalid;
6.5 declaring that Regulation 18 of the Exchange Control Regulations is inconsistent with
the Constitution and invalid;
6.6 declaring that Regulation 19(1) of the Exchange Control Regulations is inconsistent with
the Constitution and invalid;
6.7 declaring that the words “unless he proves that he did not know, and could not by the
exercise of a reasonable degree of care have ascertained that the statement was
incorrect” in Regulation 22 of the Exchange Control Regulations and the omission in that
regulation of the words “intentionally or negligently” immediately after the words “every
person who” are inconsistent with the Constitution and invalid.
7. Declaring that the Orders and Rules under the Exchange Control Regulations are
inconsistent with the Constitution and invalid.
8. In the alternative to prayer 7 above, declaring that Order and Rule 10(a) of the Orders
and Rules under the Exchange Control Regulations is inconsistent with the Constitution
and invalid.
9. Declaring that the policy of the first respondent of refusing to deal directly with members
of the public in relation to the exercise of its delegated powers under the Exchange
Control Regulations and insisting that members of the public communicate with it
9
through the intermediation of authorised dealer banks, is inconsistent with the
Constitution and invalid.’
[15] Essentially, Shuttleworth’s attack on the exit levy was that taxation required a
statute passed by Parliament, which in the present case was conspicuously absent. He
submitted that the requirement contained in sections 75 and 77 of the Constitution that
a money bill as defined (including the appropriation of money or imposition of taxes)
must follow a prescribed procedure, was crystal clear. In the present case, as will be
discussed later in greater detail, the policy applied by the Reserve Bank has its genesis
in a speech made in Parliament in 2003 by the Minister, which was then recast as policy
and found its way into the circulars and rulings referred to earlier. Shuttleworth
contended that regulation 10(1)(c) upon which the Reserve Bank relied as the source
of its power to impose the levy did not, without more, authorise the raising of revenue.
Before obtaining the force of law it had, in accordance with section 9(4) of the Act, to be
approved by Parliament which, it was common cause, did not occur. These contentions
did not find favour with the high court.
[16] The high court (Legodi J) held that a reading of the applicable regulations led
compellingly to the conclusion that: (a) the ten per cent levy did not amount to a
revenue raising mechanism but was intended to act as a disincentive to the export of
capital; (b) that there was legislative underpinning for its imposition, namely, regulation
10(1)(c) and (c) that it was not unconstitutional.
[17] In respect of the ‘closed door policy’ based on rule 10(a) made by the Minister,
purportedly in terms of the Act, the high court held, first that there was legislative
underpinning for the rule and second, that it was not unconstitutional. The high court
accepted the justification supplied by the Reserve Bank for applications to transfer
assets out of the country to be processed through authorised dealers (banks), namely,
that it was a practical arrangement because the Reserve Bank’s Exchange Control
Department did not have the capacity to deal with the large number of applications and
that authorised dealers acted within the parameters of exchange control rulings and
10
orders and only when the rulings did not cater for a particular situation, was it referred
directly to the Reserve Bank.
[18] The court below recorded what it considered to be the essence of Shuttleworth’s
attack on the system of exchange control and the regulations on which it is based as
follows:
‘[130] In his written heads of argument, the applicant contends that the regulations make no
provision for the power to grant permissions and exceptions which is given to the Minister of
Treasury and has been delegated to the Reserve Bank, to be exercised in accordance with the
requirements of procedural fairness (My own emphasis).
[131] On the contrary, it is said, the regulations simply vest the Treasury or the Minister with
an unfettered discretion to grant exemptions from the blanket prohibitions on any transactions
involving foreign currency, gold or other assets readily convertible into foreign currency. They do
not prescribe any process of notice and comment which must be followed prior to the Reserve
Bank determining that an exemption or permission should be granted. This unbridled discretion
creates a system on non-participative rule making, so it is contended. This is said to be
inconsistent with the right to procedurally fair administrative action and therefore inconsistent
with the Constitution. Specifically the Regulations are said to be in conflict with sections 22,
25(1) and (2) of the Constitution. Section 25 was quoted earlier in paragraph 107 of this
judgement. Section 22 provides as follows:
“22. Freedom of trade, occupation and profession
Every citizen has the right to choose their trade, occupation or profession freely. The
practice of a trade, occupation or profession may be regulated by law.”
[132] The Regulations under attack are said to infringe everyone’s rights under sections 22
and 25 of the Constitution because they establish a system of exchange control which prohibits
any transaction involving currency, gold or other foreign currency. The prohibition itself
interferes with every member of the public’s ability to deal with his or her property as he or she
chooses, and to engage in free trade because, it places a limit on what transactions may be
undertaken in relation to that property and in the pursuit of that trade, so it is contended.
[133] For three reasons it is said, although the Regulations make provision for the prohibitions
which interfere with the rights under sections 22 and 25 of the Constitution to be mediated or
minimized through the grant of exemptions and permissions, the relaxation on the prohibitions
does not save them from Constitutional inconsistency. The protection of fundamental rights
11
cannot be made to be departed from on the exercise of a discretion and, in my view, only in
compelling situations can the provisions of section 36 of the Constitution be brought into play.’
[19] The court below dismissed Shuttleworth’s application to have s 9 of the Act in its
entirety declared unconstitutional. It refused to declare the Orders and Rules2 under the
Exchange Control regulations unconstitutional and invalid. It did declare s 9(3) of the
Act to be inconsistent with the Constitution and invalid. Furthermore, it declared
regulation 3(1) of the Exchange Control Regulations in its entirety to be inconsistent
with the constitution and invalid. In addition, regulations 3(3) and 3(5) were declared
inconsistent with the Constitution and invalid. So too, regulations 10(1)(b) and 19(1).
Legodi J also declared certain words in regulation 22 unconstitutional and invalid.
Virtually all of the declarations of invalidity were suspended.
[20] In the present appeal Shuttleworth defended the orders granted in his favour and
appealed against the findings adverse to him. The Minister and the President lodged an
appeal to the Constitutional Court against the orders of invalidity referred to in para 19.
The Constitutional Court has stayed those proceedings pending a determination of the
present appeal and cross-appeal. Before us the Minister, the President and the Reserve
Bank defended the orders made in the latter’s favour and made common cause in the
cross-appeal against the various declarations of invalidity.
[21] Significantly, Shuttleworth does not challenge the principle of exchange control.
He accepts that exchange control is necessary. He contended, however, that many
facets of the current exchange regime is unconstitutional.
[22] According to the Minister, a system of exchange control allowances for the export
of funds when persons emigrate has been in place in South Africa for a number of
decades. Emigrants’ funds in excess of the emigration allowance were thus placed in
what were described as ‘emigrants blocked accounts’ in order to preserve foreign
reserves. During 2002, given the improved strength and resilience of the South African
2 Orders and Rules under the Exchange Control Regulations, GN R1112, GG Extraordinary 123, 1
December 1961.
12
economy and as part of a process of gradual exchange control liberalisation, it was
decided that those ‘blocked assets will now be unwound’. Thus in the Minister’s Budget
Review of 2003, he announced that emigrants wishing to export amounts up to
R750 000 could do so without charge and those wishing to export more than R750 000
would have to apply to the Exchange Control Department to do so, subject to the
submission of an exiting schedule and payment of an exit charge equal to ten per cent
of the amount sought to be exported. The ten per cent charge, so it was suggested, was
intended to constitute a disincentive to the exit of large amounts of capital – thus
assisting to maintain the financial stability of the South African economy. The new policy
thus determined a limit to the quantum of funds which may be exported by emigrants
from South Africa, and any amounts sought to be exported in excess of such limit would
only be allowed subject to the payment of a ten per cent exit levy and the provision of
an exiting schedule. On 27 October 2010 and during the course of his mid-term budget
speech to Parliament, the Minister announced the repeal of the ten per cent levy.
[23] In opposing Shuttleworth’s application, the Director-General of the National
Treasury stated on behalf of the Minister:
‘46. The core Exchange Control Regulations were published under Government Gazette 123
of 1 December 1961, the last amendment thereto being effected on 14 January 2011.
Restrictions on the export of capital, which form the nub of the applicant’s case, are to be found
in Regulation 10(1).
47. The exit charge that the applicant complains of is imposed in terms of Regulation 3(1)
read with Regulation 10(1)(c).
48. Regulation 3(1)(a) read with Regulation 10(1)(c) inter alia prohibits any person from
taking currency or capital out of the Republic without the prior permission of the Treasury or a
person authorised by the Treasury. Should such permission have attendant conditions of export,
these must be complied with by all parties, including the authorised dealer who may be
facilitating the transaction.
The determination of 10%
49. The 10% charge is a condition that was decided upon by Treasury in accordance with
Regulation 10(1)(c). It is imposed as a flat rate in the interests of consistency, certainty,
13
constancy and evenness in its application. In practice it is implemented by the first respondent
and its designated officials.
The above provisions of the Act and regulations thus form the basis of the legal framework
within which the 10% charge was located whilst it was still in force.
. . .
Rulings and circulars
54. The first respondent issues rulings and circulars. These are administrative measures
designed to facilitate the application of the legislation (including subordinate legislation) on
exchange control. The rulings and circulars published by the first respondent guide the
authorised dealers in the day to day transactions that they undertake on behalf of their clients.
They are intended to address the individual factual issues that arise with respect to the clients of
the authorised dealers.
55. The rulings are different from the orders and rules contemplated in section 9(5)(a) of the
Act. Unlike the Regulations and orders and rules, the rulings and circulars have no force of law.
56. I hasten to explain that though the authorised dealers are appointed by the Minister, they
are the agents of the clients whom they serve, and on whose behalf they apply to engage in
various exchange control related transactions.
57. The majority of requests concerning exchange control are transacted by the authorised
dealers on behalf of their clients without any reference to the Exchange Control Department. It
is only when a particular application falls outside the ambit of the rulings that it must be referred
to the Exchange Control Department by the authorised dealer.
58. In this instance, for example, the application of the applicant to export capital from the
country was one of those that required the approval of the Exchange Control Department
because the quantum to be exported was in excess of the allowed limit.
. . .
75.3 I am not able to comment on the discussions or instructions given to the applicant’s
authorised dealer or the detail of the communication between the first respondent and the
authorised dealer, save to state that Exchange Control Circular No. D375 of 26 February 2003
administratively communicated the policy decision of the government.
75.4 impose a condition of this nature.
75.5 I reiterate that the exit charge was imposed in accordance with the law. Regulation
10(1)(c) is the source of the authority . . . .
. . .
14
81.5 The circulars and rulings are administrative measures publicised in execution of the policy
directives of government.
. . .
81.11 I deny that crucial legislative determinations are made in the rulings and circulars or that
critical law making functions are performed by the designated officials of the first respondent by
means of rulings and circulars.
81.12 The source of the power to regulate exchange control transactions is the Act read with
the Regulations, not the rulings and circulars.
81.13 Rules and orders constitute law, unlike rulings and circulars which do not.’
[24] According to the Reserve Bank:
‘78.2.1 The application received from the Applicant was dealt with according to the then
prevailing policy established by the Minister of Finance, which policy was set out in
Exchange Control Circular D 380.
78.2.2 the Department exercised no discretion in relation to this application, but
applied the then-prevailing policy laid down by the Minister of Finance, as it does in all
such cases. . . .’
[25] Section 9(1) of the Act empowers the President to make ‘regulations in regard to
any matter directly or indirectly relating to or affecting or having any bearing upon
currency, banking or exchanges’. Section 9(5)(a) of the Act provides that: ‘[a]ny
regulations made under this section may provide for the empowering of such persons
as may be specified therein to make orders and rules for any of the purposes for which
the [President] is by this section authorized to make regulations’. In terms of the
regulations, the control over South Africa’s foreign currency is vested in the Treasury.
The Treasury is defined in regulation 1 as the Minister of Finance or an officer of the
Department of Finance who, by virtue of the division of work in that Department, deals
with the matter on the authority of the Minister.
[26] The respondents now rely exclusively on regulation 10(1)(c) as the ostensible
enabling power for the imposition of the exit levy. In broad terms regulation 10(1)(c)
prohibits the export of capital or any right to capital from the Republic. It provides that:
15
‘No person shall, except with permission granted by the Treasury and in accordance with such
conditions as Treasury may impose enter into any transaction whereby capital or any right to
capital is directly or indirectly exported from the Republic’.
Considering the history of Exchange Control and prior concerns about the outflow of
capital on a scale that would be detrimental to South Africa’s economy, this regulation
clearly served a legitimate purpose. Even now the external balance of payments must
be a continuing concern for Treasury. However, notwithstanding that the regulation was
intent on ensuring that the outflow was regulated and that conditions could be attached
in relation to the outflow of funds, it does not follow that the regulation was intended to
or could be utilised as a revenue-raising mechanism. On the contrary, as will become
evident, for the collection of revenue, taxes or levies, prescribed procedures have to be
followed.
[27] Acting in terms of regulation 10(1)(c), so we are told, the Minister granted
permission generally for the export of capital from the Republic. The grant of that
general permission though was subject to a condition, namely payment of a ten per cent
levy. The effect therefore was the grant of a general permission subject to a blanket
condition. The consequence, as Treasury understood the situation, was that its
discretion was rigidly fettered because it was obliged to apply the policy of the Minister
instead of assessing the peculiar facts of the application before it. The Reserve Bank’s
officials were therefore responsible only for mechanically applying the policy decision of
the Minister.
[28] The ten per cent levy on the export of capital was a levy of general application
that, whilst in force, was imposed on every export of capital in excess of R750 000. It
can thus hardly be in dispute that the levy was a revenue-raising mechanism for the
State. The levy could therefore only have been intra vires regulation 10(1)(c) if that
provision legitimately authorised the raising of revenue for the State. Section 9(4) of the
Act, however, prescribes how a regulation calculated to raise revenue has to be
promulgated. Section 9(4) states:
16
‘The Minister of Finance shall cause a copy of every regulation made under this section to be
laid upon the Table of both Houses of Parliament within fourteen days after the first publication
thereof in the Gazette, if Parliament is in ordinary session during the whole of that period, and if
Parliament is not in ordinary session during the whole of that period then within fourteen days
after the beginning of the next ordinary session of Parliament; and if any of such regulation is
calculated to raise any revenue, he shall cause to be attached to the copy so laid upon the
Table a statement of the revenue which he estimates will be raised thereby during the period of
twelve months after the coming into operation thereof. Every such regulation calculated to raise
any revenue shall cease to have the force of law from a date one month after it has been laid on
the Table unless before that date it has been approved by resolution of both Houses of
Parliament.’
[29] It is undisputed that regulation 10(1)(c) had not followed the procedure for
taxation prescribed by s 9(4) of the Act. Thus, even if the regulation can be construed
as authorising the raising of revenue, the problem is that it has not been approved in
terms of s 9(4) of the Act. Section 9(4), it would seem, is animated by the ‘no taxation
without representation principle’. A founding principle of Parliamentary democracy is
that there should be no taxation without representation and that the executive branch of
government should not itself be entitled to raise revenue but should rather be
dependent on the taxing power of Parliament, which is democratically accountable to
the country’s tax-paying citizenry.
[30] Our Constitution is careful to ensure that the power of taxation is tightly
controlled. Section 77(1) of the Constitution defines a ‘money bill’ as follows:
‘77. Money Bills –
(1) A Bill is a money Bill if it-
(a) Appropriates money;
(b) Imposes national taxes, levies, duties or surcharges.’
Section 77(2) provides:
’77. (2) A money bill may not deal with any other matter except –
(a) a subordinate matter incidental to the appropriation of money
(b) the imposition, abolition or reduction of national taxes, levies, duties or surcharges.’
17
Section 73(2) states that only the Minister of Finance may introduce a money bill in the
House of Assembly. According to sections 55(1)(b) and 68(1)(b) of the Constitution, the
ordinary power of the National Assembly and the National Council of Provinces to
initiate and prepare legislation does not extend to the initiation or preparation of money
bills. And, s 73(3) prevents the introduction of money bills in the National Council of
Provinces. All of these constitutional provisions thus render it unconstitutional for taxes
or levies to be raised by delegated legislation which is not specifically authorised in a
money bill enacted in accordance with the money bill provisions of the Constitution.
[31] The levy raised revenue for the State. It brought ten per cent of the value of any
capital in excess of R750 000 exported out of the country, into the National Revenue
Fund. Whilst in force, it raised approximately R2.9 billion. The levy thus fell within the
category of ‘taxes, levies or duties’ contemplated by sections 75 and 77 of the
Constitution. The reference in regulation 10(1)(c) to the power of Treasury to impose
conditions on the export of capital from the Republic cannot be construed to include the
power to impose a tax or levy on such export of capital. It must follow that the imposition
of the ten per cent levy was inconsistent with sections 75 and 77 of the Constitution and
invalid and ultra vires regulation 10(1)(c).
[32] It appears to be clear from the history of the matter, including the
correspondence exchanged between the Reserve Bank and Shuttleworth that the
former relied principally and enduringly on the speech delivered by the Minister in
Parliament for the imposition of the ten per cent levy. The more recent reliance on
regulation 10(1)(c) is, in our view, contrived and an ex post facto attempt to
contextualise the levy within an enabling regulatory framework.
[33] It is now necessary to consider whether the ten per cent levy unlawfully imposed
by the Reserve Bank has to be repaid to Shuttleworth. It is common cause that the levy
was paid by Shuttleworth under protest to the Corporation of Public Accounts as the
representative of Treasury. He therefore pursues the repayment claim against the
18
Minister. Almost a century ago in Union Government (Minister of Finance) v Gowar
1915 AD 426 at 433-4, Innes CJ observed:
‘It would be in the highest degree inequitable that the Treasury should be permitted to retain
what it had no right to claim; and the question is whether the law will allow it to take up such a
position. . . . It seems to me that money wrongly exacted by the possessor of goods from the
true owner as a condition precedent to their delivery, and paid by the latter not as a gift, but in
order to obtain possession of his own property and with a reservation of his rights would be
recoverable by a condictio. . . . Where goods have been wrongly detained and where the owner
has been driven to pay money in order to obtain possession, and where he has done so not
voluntarily, as by way of gift or compromise, but with an expressed reservation of his legal
rights, payments so made can be recovered back, as having been exacted under duress of
goods. The onus of showing that the payment had been made involuntarily and that there had
been no abandonment of rights would, of course, be upon the person seeking to recover.’
Wessels AJA in a concurring judgment stated (at 453):
‘I think we may well take the further step and hold that a payment is involuntary and, therefore,
recoverable, even though it was not made metus causa in the Roman law sense, but was made
under pressure at the demand of one in authority who had it in his power to withhold the
property or to suspend the rights of the person making the payment.’
[34] In Commissioner for Inland Revenue v First National Industrial Bank Ltd 1990 (3)
SA 641 (A) at 647 para C-D, Nienaber AJA, after referring with approval to the aforesaid
dicta from Gowar, stated:
‘. . . the condictio indebiti is not, of course, confined to the recovery of an indebitum solutum
which was involuntary because it was paid by mistake; it is now also available when the
payment (or indeed any performance), although deliberate, perhaps even advised, was
nevertheless involuntary because it was effected under pressure and protest.’
Here Shuttleworth’s blocked assets would not be released until he paid the ten per cent
exit levy. He thus paid an amount of R250 474 893.50 under protest to secure the
release of his blocked assets. This is thus clearly a case that falls within the ambit of
Innes CJ’s recognition in Gowar that such payments can be recovered under the
condictio indebiti. By paying under protest, Shuttleworth sought to convey that the
payment was not a voluntary one and that he reserved the right to seek to reverse that
payment. By an amendment to his notice of motion on 13 April 2012 he claimed interest
19
on that amount at the prescribed rate from the date of demand to date of payment.
Interest at the prescribed rate will thus run on the sum of R250 474 893.50 from 13 April
2012.
[35] In our view, therefore there is no bar to an order that the ten per cent levy be
repaid to Shuttleworth with interest. Having regard to the time that has elapsed between
the commencement of the dispute between Shuttleworth and the Reserve Bank and the
abolition of the ten per cent levy more than three years ago, there is no danger of a
flood of similar claims.
[36] In respect of the remainder of the relief sought, it was contended on
Shuttleworth’s behalf that he had been acting in the public interest and was genuinely
concerned about the manner in which exchange control was being managed by the
Reserve Bank and as a result the extensive orders sought were warranted. This
submission, with good reason, was not advanced with any vigour. First, it appears to us
that Shuttleworth’s primary purpose was not purely altruistic but to secure repayment of
the ten per cent levy paid by him. Second, the ten per cent levy has in any event been
done away with. Third, that situation obtained at the time of the high court’s order and it
appears somewhat contradictory for the high court to have denied Shuttleworth his
primary relief but then to have proceeded to strike down various legislative provisions
underpinning our exchange control regime. Thus, the high court’s orders issued: (a) in
the abstract and without due regard to people other than Shuttleworth and permutations
beyond the facts of the present case; and (b) without proper consideration for its effect
on the exchange control regime and on the economy as a whole. This court has
repeatedly warned against deciding cases which will have no practical effect and for
courts to guard against speculative and academic enquiries in circumstances in which
there is no factual foundation for findings that might have an effect on future disputes
that are yet to crystallise. (See Radio Pretoria v Chairman Independent
Communications Authority of South Africa 2005 (1) SA 47 (SCA) and the authorities
there cited). In those circumstances one can appreciate the concerns of the Minister
20
and Treasury about the range and breadth of the orders issued by the high court that
motivated the cross-appeal.
[37] In respect of the relief sought in para 9 of the notice of motion, which impacts on
what Shuttleworth termed the ‘closed-door policy’, the same considerations as set out
in the preceding paragraph apply. Moreover, there is force in the justification proffered
by the Reserve Bank, namely, that it has limited resources and would not be able to
deal with the flood of applications for the export of capital that occur on a regular basis.
There may be questions that arise in particular instances, where, for example, the
authority of a bank is challenged by a client or where, as in the present case, it does not
faithfully execute a client’s mandate. Questions might also arise in the future as to
whose interests the dealer banks represent and whether or not they might, in certain
circumstances, be conflicted. Once again, those are not areas that, for present
purposes, we need to address.
[38] In the light of the conclusions reached it follows that the appeal in relation to the
imposition of the ten per cent exit levy must succeed. So too must the cross-appeal in
relation to all of the declarations of invalidity. Costs in each instance should follow the
result. It is necessary to record that Shuttleworth did not in his notice of motion seek
costs. The substituted order proposed in the notice of appeal is to similar effect. The
high court ordered each party to pay its own costs. Thus, save for the order relating to
costs, the remainder of the high court’s order falls to be set aside.
[39] The following order is made:
1. The appeal and cross-appeal are upheld to the extent reflected in the substituted
order that follows.
2. The order in the court below is set aside in its entirety and substituted as follows:
‘(i) The decision of the Reserve Bank to impose a ten per cent levy payment into the
blocked rand levy account of the Reserve Bank as a condition on the applicant’s
transfer of his remaining blocked assets out of the Republic is set aside.
21
(ii) The Reserve Bank is ordered to repay the applicant the amount of
R250 474 893,50 with interest at the prescribed rate from 13 April 2012 to date of
payment.
(iii) Each party is to pay its own costs.’
3. In respect of the appeal and cross-appeal the respondents are ordered to pay the
appellant’s costs attendant upon the employment of three counsel, where so employed,
and the respondent in the cross-appeal is ordered to pay the cross-appellants’ costs
including those attendant upon the employment of two counsel.
________________________
MS
NAVSA
ACTING
DEPUTY
PRESIDENT
_____________________
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