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[2014] ZASCA 157
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Shuttleworth v South African Reserve Bank and Others (864/2013) [2014] ZASCA 157; 2015 (1) SA 586 (SCA); [2014] 4 All SA 693 (SCA); 77 SATC 145 (1 October 2014)
THE SUPREME COURT
OF APPEAL OF SOUTH AFRICA
JUDGMENT
CASE NO: 864/2013
DATE: 01 OCTOBER
2014
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.
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.
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]
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 757134 - 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.
[8]
Shuttleworth contended that he had paid the levy of R165000000 in the
belief that it was lawfully due. It is necessary to record
that apart
from the transfer of R1485000000 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 2504748935 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.
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.
[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,
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 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 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 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 Rules
[2]
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 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 R750000
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, 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
. . . .
.
. .
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:
‘
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:
‘
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.’
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 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] ZASCA 49
;
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 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 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.
(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
V PONNAN
JUDGE OF APPEAL
APPEARANCES:
FOR
FIRST APPELLANT: Adv. G Marcus S.C. (With him M Chaskalson S.C)
Instructed
by:
Glyn
Marais Incorporated, Johannesburg
Lovius
Block Attorneys, Bloemfontein
FOR
FIRST RESPONDENT: Adv. J J Gauntlet S.C. (with him A Cockrell S.C.
and A Friedman)
Instructed
by:
Knowles
Husain Lindsay Inc., Johannesburg
McIntyre
& van der Post, Bloemfontein
FOR
SECOND RESPONDENT: Adv. P M Mtshaulana S.C. (with him L Gcabashe and
S M F Gumede)
Instructed
by:
The
State Attorney, Pretoria
The
State Attorney, Bloemfontein
FOR
THIRD RESPONDENT: Adv L T Sibeko S.C. (with him A L Platt)
Instructed
by:
The
State Attorney, Pretoria
The
State Attorney, Bloemfontein
[1]
Exchanges
Control Regulations, GN R1111,
GG
Extraordinary
123, 1 December 1978.
[2]
Orders
and Rules under the Exchange Control Regulations, GN R1112,
GG
Extraordinary
123, 1 December 1961.