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Fidelis Munyoro Chief Court Reporter
In their second go at trying to have money deposited into their bank account during dollarisation retained as foreign currency instead of being automatically converted into local currency later, an architect practice has again won in the High Court this time on the basis that a 2018 Reserve Bank of Zimbabwe exchange control directive was unconstitutional.
However that judgement requires confirmation by the Constitutional Court in terms of Section 175 of the Constitution since it is coming from the lowest level court that can handle such a matter, so the High Court order that CABS must pay practice partners Ms Penelope Douglas Stone and Mr Richard Harold Stuart Beatie back the US dollars converted within seven days remains, in effect, suspended until the top court makes a ruling.
Ms Stone and Mr Beatie have been through a similar route before when they sued CABS, RBZ and the Ministry of Finance and Economic Development at the High Court over US$142 000 deposited in its business account. They won in the High Court that time as well, but saw the ruling overturned in the Supreme Court on the basis that since no argument on the constitutionality of the RBZ directive RT 120/2018 and section 44B (3) and (4) of the Reserve Bank Act had been presented, the matter was not properly before the court and the High Court had erred in making its ruling. It also agreed with the CABS argument that it had to obey a directive from its regulator, the Reserve Bank.
The legal contest between the two and their bank spilled into the High Court following RBZ exchange control directive RT120/2018 issued on October 4, 2018. But the final Supreme Court judgment meant that this directive was still in force.
However, in August 2021, Ms Stone and Mr Beatie were back at the High Court over the same issue but the push was now different, as they sought the setting aside of the Exchange Control Directive RT120/2018 and a raft of some legislative provisions of the Reserve Bank Act and of the Finance (No. 2) Act of 2019 for allegedly violating Section 71 of the Constitution which guarantees the protection to property rights.
They targeted provisions that allegedly violated s35(1) of the Exchange Control Regulations, SI 109 of 1996, including s44B (3) and (4) of the Reserve Bank Act plus s 22(1)(b) and (d), s 22(4)(a) and s 23(1) and (2) of the Finance Act.
The pair argued that the process was an infraction of their constitutional right to property and sought the reversal of the act of the conversion by their bank the deposit of US$142 000 to RTGS, which they allege was done on the authority of the monetary policy statements, the Exchange Control Directive RT120/2018.
In a judgment delivered on Wednesday, Justice Joseph Mafusire declared two portions of the directive unconstitutional and ordered CABS to pay the two their US$142 000, together with interest at the prescribed rate of 5 percent a year from November 28 2016 to the date of payment.
The judge found that two paragraphs of the directive allowed CABS and the Finance Minister to interfere improperly with the contractual rights and obligations as existing between the two architects and CABS, resulting in the deprivation of the applicants’ right to property in breach of s 71(2) of the Constitution,” he said.
The judge also ruled that the particular directive breached the Exchange Control Regulations of 1996 since those regulations did not give the power to issue the directive.
Through their lawyer Advocate Tererai Mafukidze, Ms Stone and Mr Beatie had argued that the parity ratio of one-to-one of the RTGS against the US dollar was a fiction because the two were not at par, even on inception.
To demonstrate this particular point, the lawyer cited the Finance Minister’s monetary statement of October1 2018 in relation to the purchase of fuel in Zimbabwe by foreign truckers and foreign traders buying goods in Zimbabwe.
These payments had to be made in foreign currency only. Adv Mafukidze argued that this was an admission that at the parallel market, the RTGS dollar was not at par with the USD.
This, he argued, was unconstitutional. Arguing that a credit balance in a bank account is a form of property and that right is protected by s 71 of the Constitution.
But in counter- counter-argument, RBZ and the Finance Minister represented by Adv Thembinkosi Magwalioba and Adv Lewis Uriri argued that by virtue of their constitutional powers and for the public benefit, the two as monetary authorities, have the sovereign right, power and mandate, among other things, to formulate and implement fiscal policy in order to control the supply or use of foreign currency.
By that power, the lawyers argued, RBZ and the Finance Minister, determine what may constitute legal tender in Zimbabwe including issuing bank notes and coins or they can designate something else as a medium of exchange. It was also argued that they can peg the rate of exchange between the local currency and any foreign currency or devalue the local currency.
In addition, it was argued that that the power to do all these things is reposed solely and exclusively in the Executive and the Legislative arms of Government, and not the courts.
But in his ruling, Justice Mafusire said in terms of the Constitution the role of the courts is paramount in safeguarding human rights and freedoms and the rule of law and are bound to enforce the provisions of the Constitution in regards to the substantive and procedural requirements to be fulfilled by other constitutional bodies.
He found the business partners’ complaint to have merit, noting that the series of measures adopted by the Government in the name of reforms were undoubtedly harmful to the banking public.
“The Executive has expressly admitted as much, albeit, post facto,” he said. “The applicants’ allegation that their deposit of USD142 000, which was converted to RTGS, devalued more than 130 times by the time of litigation, has not been contested. No one is compensating them.”
“From the papers in the current proceedings, what birthed the RTGS currency was domestic borrowing by the Government, coupled with the issuance of treasury bills.
“To what extent, there is no information. At first this currency did not have a name. But somehow, it had the effect of diluting the US dollar currency. The US dollar currency had to be ring-fenced to avoid the co-mingling effect with this currency. But some things just do not add up. Quite how borrowing can create a currency has not been rationally explained. It cannot. Money or a currency do not just evolve on their own,”
The judge said, according to the Reserve Bank Act, particularly Part VI, and in accordance with common law tenets of sovereignty the world over, the designation of any chattel or thing as money is a positive declaration by the State.
In this regard, he said the declaration of any type of currency in use in an economy is made by the State.
“Money and currency cannot just incarnate in a formless shape in a formless state. Manifestly, and according to s 44B and s 44C of the Reserve Bank Act, it is the State that must create them by declaration,”.
Justice Mafusire at the time in contention, the local currency had been demonetized, not only officially through SI 70 of 2015, but also it had practically become non-existent on the ground.
People, he said, were now transacting almost exclusively in US dollars, at first in cash, but subsequently electronically. That followed an express declaration by the State, but apparently the local currency had never quite died away
“It still existed in some nameless form and in some formless realm.,” said Justice Mafusire. “The banking public was not told. Only later did reality unfold. Thus, whilst the banking public was being told that the money in their accounts was US dollars, in reality it was not all US dollars. That reality only hit the public when the Government rapidly instituted the monetary changes by among other things, purporting to introduce a new currency and proceeding to give it a name.
“That conduct by the Government could only have been a simulation because according to its explanation herein, the currency had continued to exist, albeit in its formless shape. That currency, even before being officially gazetted, had the power, among other things, to dilute the US dollar.
“But it is not explained what became of the $200 million guarantee from Afreximbank the purpose of which had been to hedge that currency against the US dollar so as to maintain the parity ratio of one-to-one. That there was such a guarantee was not just a mere policy statement, or announcement. It was actually enacted as a statutory provision.”
Justice Mafusire also noted that the modalities of the whole process of creating Nostro FCAs and RTGS FCAs and the simultaneous separation of already existing bank balances into USD and RTGS, depending on the source of the deposits, was not properly explained.
He said while the RBZ and the Minister claimed that it was left to the individual banks to use the KYC principles and trace the source of the deposits that had flowed into the individual customers’ accounts, CABS had not explained how it actually did it.
“If the nameless currency was co-mingling with the genuine US dollars, then perhaps only the banks and the monetary authorities themselves knew. Outside them, nobody else did.”
He said the multi-currency dispensation was such that all transactions were predominantly, if not exclusively, in US dollars and the local dollar had ceased to exist.
“The banking public sometimes handled real cash in USD. It has not been shown that of the $142 000 standing to the credit of the applicants’ account with the first respondents at the relevant time, none of it was from offshore sources.”
The directive separated the RTGS Foreign Currency Account from a Nostro Foreign Currency Account based on the source of funds.
Money from the pair’s business could only be paid in bond notes and coins, but not in the United State dollar which was the currency in which it was denominated.
The concept of the Nostro Foreign Currency Account came into existence following RBZ’s Monetary Policy Statement of October 1, 2018.
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