IN THE CONSTITUTIONAL COURT OF SOUTH AFRICA
CASE NO: 194/2014 and 199/2014 In the matter between:
SOUTH AFRICAN RESERVE BANK 1st Appellant
MINISTER OF FINANCE 2nd Appellant
PRESIDENT OF REPUBLIC OF SOUTH AFRICA 3rd Appellant
and
MARK RICHARD SHUTTLEWORTH Respondent/
Cross-appellant
SOUTH AFRICAN RESERVE BANK’S PRACTICE NOTE
(A) PARTIES
1 The parties in the appeal and cross-appeal (under case numbers 194/2014 and 199/2014) are:
1.1 The first appellant/cross-respondent:
The South African Reserve Bank (“Reserve Bank”)
represented by Advs JJ Gauntlett SC, NGD Maritz SC and E Muller - instructed by Knowles Husain Lindsay Inc, Johannesburg.
1.2 The second appellant/cross-respondent:
The Minister of Finance (“Minister”)
represented by Adv PM Mtshaulana SC - instructed by State Attorney.
1.3 The third appellant/cross-respondent:
The President of the Republic of South Africa (“President”)
represented by Advs TL Sibeko SC and AL Platt - instructed by State Attorney.
(collectively the appellants or cross-respondents)
2 The respondent in the appeal and appellant in the cross-appeal is:
Mark Richard Shuttleworth (“Mr Shuttleworth”)
represented by Advs GL Marcus SC, M Chaskalson SC and K Hofmeyr) – represented by Glyn Marais Inc, Johannesburg.
[B] NATURE OF PROCEEDINGS
Appeal and Cross-appeal
3 The appeal is against the judgment of the SCA in Shuttleworth v South African Reserve Bank (864/2013) [2014] ZASCA 157 holding invalid the 10% exit charge imposed as a condition for permitting the export of Mr. Shuttleworth’s capital.
4 The SCA set aside the judgment of the High Court (Legodi J) declared the exit charge invalid and ordered the Reserve Bank to repay Mr Shuttleworth the amount of R250 474 893.50 with interest.
Cross-appeal
5 The cross-appeal is against the SCA’s reversal of the orders of the High Court holding constitutionally invalid Regulations 3(1), 3(3), 3(5), 10(1)(b) and 19(1), together with certain words in Regulation 22. The SCA did not entertain Mr Shuttleworth’s omnibus constitutional attack on the whole exchange control scheme, inter alia because of lack of standing.
[C] ISSUES THAT WILL BE ARGUED
Appeal
6 The Reserve Bank and the Minister contend that the wrong decision was impugned and set aside:
6.1 Since the Minister – not the Reserve Bank - decided to impose the exit charge in 2003, that decision remains unchallenged. The Reserve Bank merely implemented the
charge against Mr Shuttleworth in 2009. Mr Shuttleworth’s contention is that it is inconsequential who took the decision.
6.2 It was incompetent for the SCA to order the Reserve Bank – and not the Minister - to repay the exit charge. This is conceded by Mr Shuttleworth.
7 A central constitutional issue is whether or not the exit charge (whether called a “levy” or a “charge”) was invalid for being inconsistent with sections 75 and 77 of the Constitution. The Reserve Bank contends that the charge does not constitute a tax, duty or levy as contemplated in section 77 of the Constitution.
Mr Shuttleworth contends otherwise.
8 According to Mr Shuttleworth the exit charge was levied ultra vires Regulation 10(1)(c). The Reserve Bank contends the Treasury has broad discretionary powers to impose conditions for the lawful export of capital otherwise prohibited.
9 Contrary to what Mr Shuttleworth contends, the Reserve Bank’s stance is that the exit charge is not invalid:
9.1 for being inconsistent with section 25 of the Constitution, as it was levied in terms of a law of general application;
9.2 for being imposed in a procedurally unfair manner – on the ground that Mr Shuttleworth was not afforded a hearing and had to submit his application through an authorised dealer (so-called “closed door policy system”);
9.3 for being constitutionally invalid because the whole exchange control regulatory framework is allegedly inconsistent with the Constitution.
Cross-appeal
10 The issues in the cross-appeal are:
10.1 The issue of standing – The Reserve Bank contends that the SCA was right in not recognising Mr Shuttleworth standing’s (whether personal or in the public interest) in respect of his omnibus constitutional attack.
10.2 The constitutional validity of section 9 of the Currency and Exchanges Act 9 of 1933 (“the Currency Act”) - Mr Shuttleworth asserts that the section is invalid because it delegates legislative power to the executive in terms that are unguided.
10.3 The constitutional validity of Regulations 3(1)(a), (3(1)(c), 10(1)(b), 18, 19(1) and certain words in Regulation 22.
10.4 Costs (the SCA plainly erred also in respect of its costs order: this should have included the costs of three counsel, given that that was its order in the appeal – although that itself should have read “where incurred”, as only two counsel appeared for Mr Shuttleworth).
[D] RECORD
11 Apart from the judgments of the High Court and SCA [CC record vol 1 p71 – vol 3 p211], the portions of the record particularly
relevant for the determination of the appeal are the respective statements of fact filed by the parties [CC record vol 1 p1-70], the notice of motion [CC record vol 3 p212-218], founding affidavit and annexures FA1-FA11 [CC record vol 3 p219 – vol 4 p331], Reserve Bank’s answering affidavit and annexure AE6 [CC record vol 5 p401-457 and vol 6 p502], Minister’s answering affidavit [CC record vol 6 p541-589], President’s answering affidavit [CC record vol 6 p503-540], Shuttleworth’s replying affidavit and annexure RA5 [CC record vol 6 p590 – vol 7 p651 and vol 8 p788-791], Reserve Bank’s further affidavit - excluding annexures [CC record vol 14 p1327-1352]. Relevant to the attack on the “closed door policy system” are the Orders and Rules [CC record vol 4 p332-341], Rulings [CC record vol 8 p792 – vol 12 p1137], Circulars [CC record vol 12 p1138 – vol 13 p1292] and exchange control manual [CC record vol 7 p654 – vol 8 p787].
[E] DURATION OF ORAL ARGUMENT
12 The estimated time for oral argument - one day.
[F] SUMMARY OF ARGUMENT
Appeal
Wrong decision
13 Apart from ordering the Reserve Bank (and not the Minister) to repay the exit charge, the SCA failed to appreciate (as the High Court had done) that there was no reviewable decision on the part of the Reserve Bank. It merely implemented in 2009 (against Mr Shuttleworth) the Minister's decision on 26 February 2003 to
impose an exit charge as a condition in terms of Regulation 10(1)(c) of the Exchange Control Regulations to permit any emigrant to export capital in excess of R750 000. The evidence by the Minister and Reserve Bank stands uncontested and should be accepted. The well-established principles enunciated in Plascon- Evans, Oudekraal and Kirland cannot be disregarded.
A tax?
14 The SCA erred in holding that the exit charge was invalid for being inconsistent with sections 75 and 77 of the Constitution because it was a tax.
15 The charge inter alia lacks the following classical features of a tax:
15.1 The dominant purpose of the charge was to protect South Africa’s external balance of payments and to act as a disincentive to emigrants to export capital - not to defray government expenditure in general. It constituted a
“regulatory charge” and not a tax; a distinction which Canadian constitutional law endorses.
15.2 The charge had a limited application.
15.3 The charge was not compulsory – it was only payable by emigrants such as Mr Shuttleworth – electing to abide by the condition imposed in order to obtain the benefit to export their capital lawfully from the Republic.
15.4 The charge was not levied in terms of the South African tax system, regulated and administered by the South African Revenue Service.
16 As acknowledged by this Court, the mere fact that the charge raised revenue for the State cannot in itself justify a conclusion that the charge constituted a tax.
17 It is not constitutionally offensive for regulators such as the Treasury to impose pecuniary charges, fees, penalties or user charges (as opposed to “taxes”) in performing their regulatory duties. To held otherwise would place an unjustifiable limitation on regulators.
Ultra vires Reg 10(1)(c)?
18 The charge was levied within the purview of Regulation 10(1)(c) despite not having been promulgated in accordance with the special procedure provided for regulations “calculated to raise revenue” as contemplated in section 9(4) of the Currency Act.
Regulation 10(1)(c) was not promulgated with the purpose to raise revenue. There is nothing in the wording of the regulation that prohibits the imposition of a regulatory charge as a condition to export capital. The SCA’s reasoning was with respect circular:
because the exit charge as a matter of fact raised revenue (despite not having been designed with the purpose to raise revenue), it had to be imposed in terms of a regulation calculated (i.e primarily designed) to raise revenue – and was therefore ultra vires any other “ordinary” regulation such as Regulation 10(1)(c).
Law of general application (Constitution s25)
19 The exit charge is not constitutionally offensive. It was levied in terms of a law of general application: Regulation 10(1)(c), promulgated under the Currency Act.
Procedural fairness
20 The circumstances within which the charge was imposed - by the Minister as Head of National Treasury - did not warrant Mr Shuttleworth the granting of a hearing by the Reserve Bank, the administrator of the charge. The submission of his application through the system of authorised dealers (“closed door policy system”) is justifiable. The Reserve Bank does not have the capacity to deal with individual applications.
Attack on regulations as a whole
21 The National Treasury requires broad discretionary powers to allow it swiftly to impose conditions for the lawful export of capital (otherwise prohibited) in a volatile world economy. In context, extensive public participation in the rule-making process is not appropriate and the system does not offend the rule of law.
Cross-Appeal
22 In the absence of evidence pertaining to any alleged violations by the Regulations sought to be impugned by Mr Shuttleworth, he
should not be allowed to advance the omnibus attack as this Court is not required to deal with abstract, hypothetical issues.
[G] LIST OF AUTHORITIES
23 The Reserve Bank’s list of authorities is attached.
J J GAUNTLETT SC NGD MARITZ SC E MULLER Counsel for the South African Reserve Bank Chambers Cape Town and Pretoria
