South African Reserve Bank and Another v Shuttleworth and Another

• Jurisdiction: South Africa
• Judge: Mogoeng CJ, Moseneke DCJ, Cameron J, Froneman J, Jappie AJ, Khampepe J, Molemela AJ, Nkabinde J, Theron AJ and Tshiqi AJ
• Judgment Date: 18 June 2015
• Citation: 2015 (5) SA 146 (CC)
• Docket Number: CCT 194/14 and CCT 199/14 [2015] ZACC 17
• Hearing Date: 03 March 2015
• Counsel: JJ Gauntlett SC (with NGD Maritz SC and E Muller) for the first applicant. PMM Mtshaulana SC (with L Gcabashe and SMF Gumede) for the second applicant. G Marcus SC (with M Chaskalson SC and K Hofmeyr) for the first respondent. LT Sibeko SC (with AL Platt) for the second respondent.
• Court: Constitutional Court

Moseneke DCJ (Mogoeng CJ, Cameron J, Jappie AJ, Khampepe J, Molemela AJ, Nkabinde J, Theron AJ and Tshiqi AJ concurring): B

Introduction

[1] This dispute is about taxation. Not many people relish paying taxes. Of taxes, none less than Thomas Jefferson [1] observed:

'To compel a man [or woman] to furnish contributions of money for the C propagation of opinions which he [or she] disbelieves . . . is sinful and tyrannical.' [2]

Perhaps a less cynical and more felicitous posture on the subject is that of Justice Oliver Wendell Holmes Jr: [3] 'I like to pay taxes; with them, I buy civilization.' [4] Whatever one's temperament on them may be, taxes seem certain and inconvenient. Indeed, in Gone with the Wind, D Margaret Mitchell tersely warned: 'Death and taxes and childbirth! There's never any convenient time for any of them!' [5]

[2] Mr Shuttleworth, a prominent South African entrepreneur, feels that he has fallen victim to an invalid tax and wants it set aside by the courts. In 2001 he emigrated to the Isle of Man. He says he left the country in E order to free up his funds for investment outside South Africa. He

Moseneke DCJ (Mogoeng CJ, Cameron J, Jappie AJ, Khampepe J, Molemela AJ, Nkabinde J, Theron AJ and Tshiqi AJ concurring)

A thought that the exchange control system of the time was severely restrictive and rendered cross-border investments prohibitive. The Exchange Control Regulations blocked the transfer of Mr Shuttleworth's assets from the Republic. The capital amount could not be transferred without authorisation of the South African Reserve Bank (Reserve Bank). B He applied to the Reserve Bank to transfer out of the Republic approximately R2,5 billion blocked under the exchange control system. The Reserve Bank, seemingly acting on a determination by the Minister of Finance (Minister), imposed an exit charge of 10 % on the capital he wanted exported. Mr Shuttleworth paid the charge of approximately R250 million. He was later advised that the exit charge was a tax and had C been imposed in a manner not permitted by the Constitution or the applicable statute. Mr Shuttleworth also wanted the exit charge set aside for another reason. He argued that the entire exchange control system, or its specified parts, was at odds with the Constitution and invalid.

D [3] Before coming to this court, this contest had been to the North Gauteng High Court, Pretoria (High Court), and the Supreme Court of Appeal. The High Court held for the Reserve Bank and the Minister that the exit charge was not a revenue-raising tax and had been lawfully imposed. It did, however, hold a few and discrete exchange control legislative provisions to be unconstitutional. The Supreme Court of E Appeal then held, in the main, for Mr Shuttleworth. It set aside the order of the High Court in its entirety. It concluded that the imposition of a charge on Mr Shuttleworth's transfer of his blocked assets out of the Republic was unlawful because it had not been passed in accordance with the procedure the Constitution prescribed for a money Bill. It F directed the Reserve Bank to repay the amount paid by him, with interest. In contrast, that court refused to decide whether any of the exchange control provisions were inconsistent with the Constitution and invalid.

[4] The Reserve Bank and the Minister felt hard done by at the order of G the Supreme Court of Appeal and now seek leave to appeal against it (main appeal). Should this court grant leave, Mr Shuttleworth, in turn, has asked for leave to cross-appeal against the decision of the Supreme Court of Appeal on the discrete question of the constitutional validity of the exchange control legislative scheme.

H [5] In this court, too, the decisive question is whether the exit charge, as Mr Shuttleworth contends, was a tax imposed for the purpose of raising revenue for the state or, as the Reserve Bank and Minister submit, a regulatory charge whose main object was to disincentivise the export of capital. If the charge were a tax — a revenue-raising mechanism — then I the regulation that authorised the exit charge would be invalid. This would be so because the exit charge had not been enacted in accordance with prescribed constitutional and statutory strictures.

[6] Before I wrestle with this core question on the merits, it may be expedient to narrate background facts, a résumé of the litigation thus far J and then decide whether leave to appeal should be granted.

Moseneke DCJ (Mogoeng CJ, Cameron J, Jappie AJ, Khampepe J, Molemela AJ, Nkabinde J, Theron AJ and Tshiqi AJ concurring)

Background A

[7] The Great Depression is said to have lasted a decade, from 1929 to 1939. [6] It was reputed to be the deepest and longest-lasting economic downturn in the history of industrialised economies. Although South Africa was then a developing country, which it still is, it was not shielded from a deep recession. Its currency and economic conditions, much like B those of other countries, were on a downward slope at the time. Amidst the depression South African authorities were fearful of diminished direct investment and capital flight. They put measures in place to prevent the total economic collapse of the country.

[8] In 1933 parliament passed the Currency and Exchanges Act. [7] C Section 9(1) empowered the President to make regulations on any matter affecting or related to currency, banking or exchanges. [8] The threat of economic recession and related capital flight reared its head again after the Sharpeville shootings of 1960. [9] Relying on s 9(1), the President introduced the Exchange Control Regulations (the Regulations). [10] Their core provision, amongst others, is reg 10(1)(c). It provides: D

'No person shall, except with permission granted by the Treasury or by an authorised dealer and in accordance with such conditions as the Treasury or the authorised dealer may impose —

. . . E

(c)

enter into any transaction whereby capital or any right to capital is directly or indirectly exported from the Republic.'

The Regulations define 'Treasury' as the Minister of Finance. [11] In this way they serve to prohibit the export of capital from the Republic unless certain conditions imposed by the Minister are complied with. F

[9] Following our first democratic elections in 1994, a process of the relaxation of exchange controls commenced. Ordinarily, during his annual budget speech before the National Assembly, the Minister announced, as authorised by reg 10(1)(c), the conditions he had G

Moseneke DCJ (Mogoeng CJ, Cameron J, Jappie AJ, Khampepe J, Molemela AJ, Nkabinde J, Theron AJ and Tshiqi AJ concurring)

A imposed in relation to the export of capital from the Republic. The Reserve Bank then reduced the Minister's announcement of the conditions into public circulars. [12]

[10] In 2003 the Minister took the view that our economy had become more resilient, enabling it to withstand capital outflows. As part of the B progressive relaxation of exchange controls, he permitted emigrants to unwind and export blocked assets subject to specified conditions. [13] To this end the Minister announced:

'The following dispensation will apply with immediate effect:

C . . .

Holders of blocked assets wishing to exit more than R750 000 (inclusive of amounts already exited) must apply to the Exchange Control Department of the SA Reserve Bank to do so. Approval will be subject to an existing schedule and an exit charge of 10% of that amount.' [14]

[11] In practice this meant the Regulations blocked the expatriation of D Mr Shuttleworth's assets from South Africa. The aggregate value of his blocked loan account was just over R4,2 billion. The Reserve Bank permitted Mr Shuttleworth to remit the interest on the blocked loan account at the prime lending rate plus 2%.

[12] On 5 March 2008 Mr Shuttleworth applied to the Reserve Bank for E permission to transfer around R1,5 billion from the blocked loan account out of South Africa. The Reserve Bank policy required that an application to export capital could not be made directly to it but rather had to be made through an authorised dealer. Mr Shuttleworth instructed Standard Bank, an authorised dealer, to make the application in his stead. The Reserve Bank granted the application subject to the F payment of an exit charge amounting to approximately R165 million. However, there was an error in the calculation of the exit charge, which ought to have been 10 % of roughly R1,5 billion. Later, Mr Shuttleworth was informed that the amount that could be transferred out of South Africa was around R1,485 billion.

G [13] Mr Shuttleworth paid the exit charge. He explained that he paid the charge in the belief that it was lawfully due. In addition to this payment and the transfer of the funds out of South Africa, Mr Shuttleworth made

Moseneke DCJ (Mogoeng CJ, Cameron J, Jappie AJ, Khampepe J, Molemela AJ, Nkabinde J, Theron AJ and Tshiqi AJ concurring)

donations to several South African entities out of the blocked loan A account. By 26 June 2009 the amount in that account had been whittled down to about R2,5 billion.

[14] During June 2009 Mr Shuttleworth decided to transfer his remaining capital out of South Africa. Ahead of applying to the Reserve Bank for permission to do so, he sought advice on the lawfulness of the exit B charge. He was advised that it was unlawful. He framed his application to the Reserve Bank in a manner that reserved his right to challenge the lawfulness of the imposition of the charge. He complains that his authorised dealer, Standard Bank, submitted the application without reserving his rights as he had instructed. He only became aware of this C omission when the Reserve Bank approved the application subject to the payment of the 10% exit charge, which Standard Bank...