The judgment in the appeal by entrepreneur Mark Shuttleworth has certainly drawn significant interest in the news headlines partly due to the R 250 million amount (plus interest!) which the SA Reserve Bank (SARB) now has to pay back to Shuttleworth and partly due to his benevolent pledge of these funds to a trust for funding constitutional matters where the counterparty is the State.  Hoorah! 1-0 for Shuttleworth seems an appropriate synopsis.

On closer inspection, however, the supposed victory does not appear to be as resolute.

In the High Court, Shuttleworth was not successful in setting aside the 10% levy charged by SARB which the learned Judge Legodi held was issued in terms Exchange Control Circular No D375 (February 262003), in turn issued by the Minister of Finance, who had the authority to impose such a levy. This 10% levy translated into roughly R 250 million.

However, Shuttleworth was indeed successful in the High Court with his more targeted attacks on the exchange control structure as Judge Legodi struck down as unconstitutional a number of other provisions. Examples of these are as follows:

• Section 9(3) of the Currencies and Exchanges Act, 1933 (“the Act”) was held to be unconstitutional as it empowers the Governor General (now the President) to suspend any act of Parliament having a bearing on currency, banking or exchange.
• Regulation 3(1)(c), which prohibits paying or crediting a sum to a person resident outside the South Africa, was struck down on the basis that, in light on the need to pay for information received over the internet, the provision amounted to infringement of the right to privacy of one’s communications and was not in line with the spirit of the Constitution.
• Regulation 3(1)(a), Regulation 3(c) and Regulation 109(1)(b) were also struck down as unconstitutional as they limited the amount of money a person was able to carry out of the county to R600 and, according to the High Court, this infringed on a person’s right of freedom of movement as enshrined in section 21(2) of the Constitution.
• Regulation 3(3) and 3(5), which allow for seizure of assets was unconstitutional but could be remedied by incorporating express reference to the review mechanisms contained in the Act.
• Regulation 19 was struck down as it provided over-broad information gathering powers to the Minister of Finance and thus infringed section 14 of the Constitution.

Of course, these victories may have seemed hollow at the time as the High Court, notwithstanding the above, upheld the imposition of the 10% levy. This was on the basis that the purpose of the levy was to prevent capital flight by creating a disincentive to the removal of capital from South Africa. Accordingly, Judge Legodi rejected the argument that the levy was unconstitutional.

The SCA’s approach was markedly different as it overturned the judgment of the High Court and held that the imposition of the levy did indeed constitute a revenue-generating mechanism (to the tune of roughly R2.9 billion). The SCA held that it was common cause that the enabling regulation did not conform to the requirements set out in section 75 and 77 of the Constitution. Accordingly, in the portion of the judgement which has garnered the most interest, the court ordered that the amount paid under protest in terms of the levy be repaid to Shuttleworth.

However, it is the upholding of the cross-appeal by SARB which is in fact the most difficult part of the judgement. In its judgement, the SCA criticised the High Court for deciding these issues “in abstract and without considering of the effect of the exchange control regime and the economy as a whole”. While this is a well established principle and a legitimate criticism, the effect of the SCA order is that all of the unconstitutional provisions described above are no longer held to be unconstitutional.

Accordingly, while this judgement at first blush appears to be a step forward in relaxing of the exchange control regime, in reality it has serious implications for the broader public, pending the Constitutional Court challenge of these provisions.

In the greater scheme of things, while it is easy to empathise with Shuttleworth’s financial victory (particularly in his pledge to, essentially, donate these proceeds back to SA) the actual impact of the SCA judgment still requires a more detailed analysis in its legal impact on the exchange control regime as a whole.

Written by Ashlin Perumall (Associate) and Shmuel Moch (CA) Adams & Adams