HARARE – Fiscal and monetary changes announced by the Reserve Bank of Zimbabwe on October 1, 2018, including a 2 percent tax on money transfers and conversion of account balances into RTGS “manifestly violate the right to property” and are invalid, the High Court said in a far-reaching judgement delivered on Thursday.
Exchange Control Directive RT120/18, which was contained in Statutory Instrument 109 of 1996 issued a few days later on October 4, caused the collapse of the surrogate bond note currency on the black market even as authorities said the bond note and electronic dollars would remain officially pegged at 1:1 to the United States dollar.
The move wiped out billions of dollars in savings and caused the collapse of pension funds.
Justice Happious Zhou of the Harare High Court said the apex bank should have preserved all balances in United States dollars, with its directive affecting only future transactions.
“It is offensive to any sense of justice that a person who holds money in a bank can wake up on any day to be told that his money means something else different from what it has always been. This drastic deprivation of existing rights is not what is contemplated by section 317 of the Constitution of Zimbabwe as constituting regulation of the monetary system, protecting the currency of Zimbabwe and implementing monetary policy,” Justice Zhou said in a devastating 17-page judgement.
“No reasonable person who had applied his or her mind to the matters in question would have taken the decision which has the effect of eroding a person’s investment or savings in this manner.”
The ruling could open the floodgates as individuals and companies sue their banks to restore the value of their United States dollar balances which they held before the now nullified RBZ directive.
The High Court was asked to rule on the matter after Penelope Douglas Stone and Richard Stuart Beattie, who were partners in a firm of architects, had US$142,000 held in a company account converted into RTGS following the RBZ directive.
Through their lawyer Tendai Biti, the partners took their bank, the Central African Building Society (CABS), to court, demanding that the value of their money should be restored. They also sued the RBZ and finance ministry, arguing that the directive was unlawful, grossly irrational and unconstitutional.
CABS, which refused to pay Stone and Beattie in United States dollars, argued in court that it was only following an RBZ directive and risked penalties if it had defied the central bank.
In nullifying the RBZ directive, Justice Zhou said the central bank had put CABS in an invidious position, yet it was CABS which was in a contract with Beattie and Stone and the bank should therefore honour its obligations to its customers.
“The first respondent (CABS) cannot claim, as it seems to do, that the money it owed to the applicant was not in United States dollars. The debt is in United States dollars because the account is denominated in that currency. The debt which the respondent owes to the applicant is therefore in the sum of US$142,000 and not some other currency,” Justice Zhou said.
“Banking would be meaningless if a person deposited a certain sum of money or has money credited to their account only to be told when they demand withdrawal that they can only be paid in some other means of exchange whose value is determined by authorities without recourse to the holder of the account. In such a case, the debtor will not be repaying the debt. A debtor cannot unilaterally change the value of its indebtedness.”
Justice Zhou said “every law, custom, practice or conduct is subservient to all the provisions of the constitution”, and the RBZ directive “fails the test of reasonableness”.
The judge explained: “The impugned Exchange Control Directive has retrospective application in that it arbitrarily converts an existing United States dollar account balance into something else by arbitrarily imposing an RTGS value on the United States dollar value of the credit balance in the applicant’s account.
“Equality of value is not something that can be arbitrarily or capriciously imposed in the manner that the governor of the second respondent (RBZ) sought to do in relation to the balance in the applicant’s account. The value of money is its acceptability, and can only be fairly determined by the market.
“If the second respondent intended to introduce an RTGS account with a value equal to or different from the United States dollar account held by the applicant, then that decision ought to have affected future transactions rather than existing balances.
“If the decision of the second respondent was to be allowed to stand, the effect of it is that the applicant’s money is now Z$142,000 which is probably less than 4 percent of its value at the prevailing official rates which this court cannot ignore. A decision which reduces US$142,000 to a fraction of its value cannot be defended in a democratic society founded upon the values enshrined in the constitution of Zimbabwe. It manifestly violates the right to property.
“Further, the effect of the second respondent’s directive is to make the first respondent breach the contractual terms of its banker-customer relationship. This is achieved by turning the applicant’s United States dollar account into an ‘RTGS FCA’, a contradiction in itself because RTGS is not a foreign currency and one wonders how it could be hosted in a foreign currency account…
“This makes the Exchange Control Directive not only arbitrary and irrational, but fail the test of reasonableness. The decision is an incursion of vested rights.
“In the result, it is ordered that Exchange Control Directive No. R120/2018 issued by the first respondent through its governor on October 4, 2018, be and is hereby declared to be invalid, and is accordingly set aside.
“The first respondent shall pay the to the applicant the sum of US$142,000 in the currency of the United States of America or transfer that amount into a Nostro Foreign Currency Account as may be directed by the applicants within seven days from the date of this order together with interest thereon at the prescribed rate of 5 percent per annum from October 17, 2018, being the date of the letter of demand, to the date of full payment or transfer into the Nostro Foreign Currency Account as directed herein.
“The respondents shall pay the costs jointly and severally, the one paying the others to be absolved.”
Prominent Harare lawyer Advocate Thabani Mpofu said Zhou’s judgement could hurt banks.
“I can’t imagine there will be too much sympathy from depositors for the banks. Banks should have been the first ones to challenge these measures,” Mpofu told ZimLive.
He added: “This is a beautiful judgment. It is well written, well reasoned, and is in my view a delightful breath of fresh air. It’s not only a lucid elaboration of the law but draws from and is faithful to the lived realities of the people of Zimbabwe and unquestionably serves their legitimate interests.
“You get to understand, from reading the judgment, the purpose as opposed to the power of a judge.”
