Exchange control and the Shuttleworth litigation

South Africa still has, strangely enough, exchange controls limiting the ability of residents to invest their own money outside of South Africa. This limits residents’ ability to diversify the country risk.

This restriction has major investment implications. The UK, under the Thatcher government, abolished exchange controls in 1979. Exchange controls are probably unconstitutional, and a while ago it was planned to take the matter to the Constitutional Court. The then Minister of Finance however indicated that the plan was to gradually abolish exchange controls and therefore there was no real point in the constitutional challenge.

Even if the Constitutional Court ruled against exchange controls, the abolition would need to be managed which would take time. It was then decided not to continue with the constitutional challenge.

The then Minister of Finance was correct and exchange controls were relaxed, but that seems to have come to an end. The matter is now on its way to the Constitutional Court for a different reason and that reason is the 10% levy imposed on residents by the South African Reserve Bank (SARB) who wished to take their money with them when emigrating from South Africa.

A R250 million levy was imposed on Mark Shuttleworth, which he paid under protest, and subsequently he approached the courts to get his own money back. The High Court ruled against him, the Supreme Court of Appeal (SCA) ruled in his favour and now the matter goes to the Constitutional Court. This article discusses the SCA’s judgement.

The letter of the law

The legal question is very simple. The SARB required a payment in excess of R250 million as a levy to allow Shuttleworth to take his own money out of South Africa. Is this lawful? If South Africa government operated within the fundamental principles of constitutional law, the answer would be equally simple: it is not lawful. That is the decision the SCA rightfully came to.

It was not specifically pointed out by the SCA that the reasons for this go back a long time. This year is the 800th anniversary of the signing of the Magna Carta. The question posed by this case was in fact settled 800 years ago. The problem is that everyone forgets about this and so the same old problems have reappeared over the 800 year period.

If we just stuck to the law, life would be much simpler but when it comes to taking money that is unlikely to be the case. King John, 800 years ago, wanted to impose taxes on his subjects. Those who believed in the Divine Rule of Kings could not see a problem with this, but the Barons saw it differently. Their position was that there could be no tax without the consent of the taxed. This principle became embedded in the Magna Carta.

In a civilised society, not a single cent would be payable without the consent of the taxed. Tax is not the product of an arbitrary obligation imposed by the state. No tax without the consent of the taxed has morphed into no tax without the consent of parliament.

Resistance to the system

The position in England was thus initially clear and quite different to other parts of Europe. Governments have never liked this, they prefer people to believe that tax is an arbitrary decision by governments.

Many years after the Magna Carta was signed, another King – King Charles I - tried to raise taxes without anyone’s consent, this time that of parliament. Consequently, he is the only British King to have had his head chopped off.

Later, it was the British Parliament which tried to levy taxes without the consent of the taxed, which was in this case the American Colonies. This resulted in the American War of Independence as the battle cry became, “No tax without representation”.

The South African quandary

Once again, the point has to be made that there can be no tax without consent. I have pointed out previously South Africa is developing unitary States within the State. Departments are trying, unconstitutionally, to grab all the powers of a state; to make law, adjudicate and to raise taxes, ultimately for themselves.

The SARB is not Parliament, although it may well think so, and it has no taxing powers. Unless it was parliament which imposed the tax, the R250 million taken from Shuttleworth was an unlawful tax as it has been for 800 years. Our Constitution has strict safeguards to prevent taxes from being imposed under various guises. The levying of the R250 million did not go through these safeguards. The tax, the SCA declared, that the SARB levied was unlawful.

Barring the back door

The second possibility is that the SARB could impose taxes via secondary or subordinate legislation. In other words, SARB is empowered by Parliament to impose these taxes. However, the safeguards in our constitution prevent this.

Firstly, Parliament did not authorise the SARB to levy taxes. And even if it had tried to, there would have been a problem. The legal principle is delegatus non potest delegare; which means that when a person is appointed as a delegate to do something, that person has no power to delegate that power to someone else.

Parliament can therefore not delegate its taxing powers to others, especially to the government or any of its quangos.

Taking a chance

There is yet another argument. The SARB maintained that it imposed a levy, and not a tax. The reality is that a rose by any other name remains but a rose. Call tax by any other name and it remains tax. Failure to understand this will result in all legislation being circumvented by merely using different words.

Many problems could be avoided, and life could be pleasant, if only the laws remained simple and were applied correctly. Instead we complicate matters beyond belief. In the Shuttleworth case, it was a pleasure to read a judgement formulated so clearly producing a historically consistent outcome.

Some disappointment

Some commentators were however disappointed that the SCA did not declare the entire exchange control system to be unconstitutional. This argument misses an important point. Parliament passes laws of general application in the public interest, whereas courts ensure that simple justice is served between man and man.

In this case, simple justice for Shuttleworth was achieved by him getting access to his money, unlawfully withheld by the SARB. Accordingly, in this case, there was no need for the SCA to declare the exchange control system to be unconstitutional.

On the other hand, if it was accepted that taking the R250 million was within the purview of the legislation, then to ensure that simple justice is done the legislation as a whole could be declared unconstitutional.