Shuttleworth exchange control: a legal view

A legal expert has weighed in on the challenge South Africa’s legal system faces, with billionaire entrepreneur Mark Shuttleworth squaring off against the South African government in court to have the country’s exchange control system declared unconstitutional.

Shuttleworth blames the existing system of exchange control in South Africa for forcing him to emigrate from South Africa in 2001. He said in court papers that the system made it impossible to conduct his entrepreneurial and philanthropic ventures, Sapa reported.

He had assets worth over R4.27 billion in South Africa when he emigrated, but transferred the assets out of the country in 2008 and 2009, each time paying a 10% levy.

Shuttleworth currently lives on the Isle of Man and holds dual South African and United Kingdom citizenship.

His advocate, Gilbert Marcus SC, on Monday argued that the system of exchange control in South Africa was governed not by laws, but by the dictates of an organ of state which were not accessible to the public. They did not follow any constitutionally required process of promulgation and violated numerous constitutional rights.

He argued that the imposition of the levy was based on a policy decision by the finance minister and was unconstitutional because it operated as a revenue-raising mechanism without following the Constitution.

A legal view

Alastair Morphet, director in the finance and banking practice at Cliffe Dekker Hofmeyr said: “This is a fascinating case, because while others have challenged particular provisions in the Regulations promulgated under the Currency and Exchange Act 1933, Mr Shuttleworth has questioned the legal validity of a whole system run by administrative fiat.”

“The officers of the Reserve Bank were carrying out a decision of the Minister of Finance announced in Parliament,” the legal expert said.

“While this type of delegated legislative power was common in the Westminster parliamentary system, it does not sit well in a constitutional democracy subject to the rule of law.”

“You apply for an order through an agent of the Reserve Bank, and have no right of review for the decision handed down. But the learned judge will have a difficult task balancing the practical effect of striking down the legal framework of Exchange Control and the rights of citizens under the Constitution.”

“Radical court order”

On Tuesday, the SA Reserve Bank (SARB) said that Shuttleworth’s case could have a devastating effect on the country.

Jeremy Gauntlett SC, for the SARB, argued that the order sought by Shuttleworth in the High Court in Pretoria was “the most radical court order imaginable”.

“He quite deliberately decided to attack the heart of the scheme and seeks to bring down the pillars of the temple,” said Gauntlett.

“If the applicant succeeds in striking down Section Nine of the Currency Act and declaring all orders and rules unconstitutional, there would be no inhibition on removing capital from this country at all,” Sapa reported Gauntlett as saying.

Shuttleworth also wants the High Court in Pretoria to set aside a levy of over R250 million he had to pay to get some of his assets out of the country in 2009, and order the SA Reserve Bank to return the money.

He further seeks an order declaring the bank’s so-called “closed door policy”, of insisting that the public communicate with it through the intermediation of authorised banks, unconstitutional and invalid.

The application continues before Judge Francis Legodi.

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Shuttleworth exchange control: a legal view