CONSTITUTIONAL VALIDITY OF RBZ DIRECTIVES AND LEGISLATIVE INSTRUMENTS – A COMPARISON OF THE CONTRADICTORY JUDGMENTS IN STONE/BEATTIE STUDIO VS CABS & OTHERS HC4321 AND DUNCAN HUGH COCKDEDGE VS CABS & OTHERS HC3225/20

INTRODUCTION

On 15th February 2023, the High Court of Zimbabwe handed down a landmark judgment (hereinafter referred to as “the Stone/Beattie Studio Judgment”) in the case of Stone Beattie Studio trading as Stone/Beattie Studio Partnership vs CABS, The Reserve Bank of Zimbabwe and the Minister of Finance and Economic Development.  In terms of the Stone/Beattie Studio judgment, the High Court declared various legislative instruments and directives in terms of which Stone/Beattie Studio’s US$142 000 was converted to RTGS at the rate of 1:1 to be unconstitutional. Consequently, the High Court ordered CABS to pay back the sum of US$142 000 to Stone/Beattie Studio subject to confirmation of its order by the Constitutional Court.  

Barely two weeks later, the High Court made a conflicting judgment (hereinafter referred to as “the Cocksedge judgment”) in the case of Duncan Hugh Cocksedge vs CABS and The Reserve Bank of Zimbabwe and the Minister of Finance and Economic Development. In terms of the Cocksedge Judgment, the High Court dismissed an application which sought to impugn various legislative instruments and directives in terms of which Cocksedge’ s US$179 541.45 was converted to RTGS at the rate of 1:1. 

The facts in these two cases were similar, the applications were based on more or less similar grounds and they were both filed in the High Court but heard by different judges of concurrent jurisdiction.  

THE STONE/BEATTIE STUDIO JUDGEMENT

FACTS

1. Stone/Beattie Studio held a savings account with CABS which had a credit balance of US$ 142 000 as at the end of October 2016.
2. On 4 May 2016, the Governor of the Reserve Bank issued a statement in terms of which he introduced bond notes and coins which would operate alongside the family of currencies in the multi-currency basket. These bond notes and coins would be on par with the United States dollar as per the statement. 
3. On 31 October 2016, S.I 133/2016 was enacted which empowered the Reserve Bank to issue the bond notes.
4. On 26 November 2016, Stone/Beattie Studio instructed CABS to freeze its account with the aim of preserving the balance in the United States Dollars currency. 
5. On 4 October 2018, the Reserve Bank of Zimbabwe issued the Exchange Control Directive No. RT120/2018 in terms of which RTGS Foreign Currency Accounts were separated from Nostro Foreign Currency Accounts based on the source of funds.  The effect of the directive was to categorize the Stone/Beattie Studio Account as an RTGS Foreign Currency Account payable in bond notes and not in the United States dollar currency.
6. On 17 October 2018, Stone/Beattie Studio wrote a letter to CABS notifying its intention to withdraw the entire amount held in its account in United States dollars. In the alternative it requested that the amount be transferred into a Nostro FCA account. In response, CABS declined to pay in US dollars or to transfer the amount to an FCA nostro account on the strength of the Reserve Bank directive.
7. Disgruntled by the response from CABS, Stone/Beattie Studio filed an ad pecuniam solvendam application to the High Court under case number HC 3727/18 for the payment of the US$ 142 000 which it had deposited with CABS. Alternatively, it sought reimbursement from the Reserve Bank and the Minister of Finance. The High Court concluded that the directive was unconstitutional and proceeded to order CABS to pay the sum of US$ 142 000 in the United States currency.
8. On appeal against this decision, the Supreme Court found that the High Court had erred in ordering CABS to pay, after making a finding to the effect that CABS could not defy an extant directive of the Reserve Bank. The Supreme Court further ruled that the High Court could not have made a decision on the constitutional validity of the directive given that the issue had not been raised or motivated by Stone/Beattie Studio.
9. Unsatisfied with the Supreme Court decision, Stone/Beattie Studio approached the High Court again, albeit on different grounds. Holistically, what it sought in its second Application under case number HC 4243/21 was the impeachment of the device by which the monetary authorities managed to convert its USD142 000 bank balance into an RTGS bank balance which prevented it from accessing the amount in the original currency of the deposit.
10. Stone/Beattie Studio sought the setting aside of the conversion of their USD142 000 to RTGS142 000 on the basis of unconstitutionality, specifically, in terms of section 71 of the Constitution. It also sought the setting aside of all the statutory provisions which enabled the monetary authorities to convert its USD 142 000 to RTGS 142 000.00.

ARGUMENTS RAISED

1. Stone/Beattie Studio argued that the parity ratio of one-to-one of the RTGS dollar vis-à-vis the US dollar was a fiction because the two were not in fact at par, even at inception. They further argued that the legislative architecture by which the Reserve Bank and the Minister unlawfully deprived them of the true value of their original deposit was unconstitutional. A credit balance in a bank account is a form of property and it is a right protected by section 71 of the Constitution.
2. It was the argument of the Reserve Bank and the Minister that as monetary authorities they had the sovereign right, power and mandate to formulate and implement fiscal policy with the aim of controlling the supply and/or use of foreign currency in the country. They further argued that it was through this power and mandate that the determined what constituted legal tender in Zimbabwe and that the power to make all the directives reposed solely and exclusively in the executive and legislative arms of Government and not the courts. CABS on the other hand argued that as a bank bound by the laws of Zimbabwe they had an obligation to comply with the laws of the country including all the statutory instruments, directives and orders given by the monetary authorities. As the amount deposited by them had been characterized as RTGS by the instruments put in place, CABS had no right to treat the amount held by it as US$.
3. The separation of people’s bank accounts into NOSTRO FCAs and RTGS FAC’S, so it was argued, was done in order to strengthen the multi-currency system, to conserve scarce foreign currency and ease the burden of cash shortages.

JUDGEMENT

1. 1. With regard to the issue that Stone/Beatie Studio could not bring its second Application because the issue had already been decided in the first Application, (the defence of res judicata and issue estoppel), the High Court held that in the earlier Application it had expressly declined to determine the question of constitutional validity as this was borne out by the Supreme Court Judgment. In the circumstances, this defence was not available to CABS.

• On merits, the High Court held that:

• The conversion of the amount of USD142 000-00 standing to the credit of Stone/Beattie savings account No. 1005428905 with CABS violated section 71 of the Constitution.

1. The Exchange Control Directive RT120/2018’s paragraphs 2.5 and 2.6 were held to contrary to Section 35(1) of the Exchange Control Regulations, 1996 and Section 71(2) of the Constitution.
2. Section 22(1)(b) and (d) and section 22(4)(a) of the Finance (No. 2) Act No. 7 of 2019 violated section 71 of the Constitution.

1. Accordingly, the following orders were made:
   1. Paragraphs 2.5 and 2.6 of the Exchange Control Directive RT120/2018 dated 4 October 2018 are ultra vires section 35(1) of the Exchange Control Regulations, 1996, SI 109 of 1996, and are hereby set aside;
   2. Subject to s 175(1) of the Constitution of Zimbabwe—
      1. The conversion of the amount of USD142 000-00 standing to the credit of Stone/Beattie’s savings account No. 1005428905 with CABS as at 28 November 2016 violated section 71 of the Constitution.
      2. Paragraphs 2.5 and 2.6 of the Exchange Control Directive RT120/2018 aforesaid violate section 71 of the Constitution.
      3. Section 22(1)(b) and (d) and section 22(4)(a) of the Finance (No. 2) Act No. 7 of 2019 violate s 71 of the Constitution and are hereby set aside. 
      4. CABS shall pay Stone/Beattie the sum of USD142 000, together with interest thereon at the rate of 5% per annum from 28 November 2016 to the date of payment.
      5. CABS, the Reserve Bank and the Minister of Finance and Economic Development shall the pay costs of suit jointly and severally, the one paying the other to be absolved. 
2. Save for the setting aside of paragraphs 2.5 and 2.6 of the Exchange Control Directive RT120/2018 as being ultra vires section 35 of the Exchange Control Regulations 1996, SI 109 of 1996, the orders made in paragraph ii above are subject to confirmation by the Constitutional Court. Should they be so confirmed, CABS will be obliged to reimburse Stone/Beattie Studio the sum of US$142 000.00.

THE COCKSEDGE JUDGEMENT

FACTS

• Cocksedge held a bank account with CABS. The balance in his account was US$179 541.45 as of 5 December 2016. On the 4th May 2016, the Governor of the Reserve Bank issued the statement referred to above which introduced bond notes and coins. On 6 December 2016, Cocksedge wrote to CABS requesting payment in the sum of US$179, 541.45 which was not made. 

• Cocksedge held that CABS was liable to pay this amount and in the alternative he averred that Statutory Instrument 33 of 2019, Exchange Control Directive RT/120/2018, Reserve Bank of Zimbabwe Legal Tender Regulations 142 of 2019 and section 21, 22 and 23 of the Finance Act No. 7 of 2019 converted the US dollar balances that existed in Zimbabwe into RTGS dollars at the exchange rate of 1:1. The conversion was unlawful and unconstitutional in that it violated sections 56(1) and 71 of the Constitution of Zimbabwe.

• On the strength of the above, he approached the High Court seeking the following:

• Payment in the sum of US$179,541.45 by CABS, alternatively:

• An order nullifying the Exchange Control Directive No. 120/2018; and

• An order declaring section 22(1) (b), (d) and (e) of the Finance No.2 Act of 2019 unconstitutional on the basis that it violates section 71 and 56 of the Constitution of Zimbabwe;

• Payment in the sum of US$179,541.45 by CABS, the Reserve Bank and the Minister jointly and severally the one paying the other to be absolved

ARGUMENTS RAISED BY PARTIES

• Cocksedge argued that the changes in law which resulted in the conversion of US dollar bank balances to RTGS at the rate of 1:1 amounted to unlawful expropriation of value and that it infringed on section 56(1) and 71 of the Constitution of Zimbabwe.

• CABS argued that it had a legal obligation to comply with the law and with directives issued by the Reserve Bank and the Minister of Finance and Economic Development. All that it had done was to comply with the directives and the law.

• The Reserve Bank argued that Cocksedge did not have the locus standi to challenge Exchange Control Directive RT120/2018 on the basis that this Directive was issued to banks as “authorised dealers”, which he was not. It also argued that the Exchange Control Directive could not be nullified before its empowering statute was impugned.

• The Reserve bank also argued that Cocksedge’ s claim was incompetent at law. CABS could not be ordered to pay the sum of US$ 179 541,45 in the absence of an order invalidating Statutory Instrument 33 of 2019 and Statutory Instrument 142/2019 and the Finance (No.2) Act of 2019. It raised a further argument that it could not be held liable to pay the sum of US$179 541.45 jointly or severally as there was no contract between Cocksedge and the Reserve Bank.

• On the issue of deprivation of property, the Reserve Bank argued that section 71 of the Constitution has exceptions; property may be deprived in certain circumstances.

• The Minister of Finance and Economic Development argued the changes in the monetary regime were effected in terms of a law of general application, thus meeting the exceptions provided for in section 71(3) of the Constitution. He also argued that there was nothing irregular or improper in issuing the Exchange Control Directive as it was merely a monetary regulation to ensure stability in the money market.

JUDGMENT

1. The court dismissed the preliminary points on privity of contract, misjoinder and incompetent relief.
2. The High Court ruled that the principle of privity of contract can be relaxed where a third party can show that he has been affected action or flaws arising from a contract to which they are not a party.
3. On the issue of misjoinder, the Court ruled that it was necessary to join the Minister since CABS had claimed indemnity by the Reserve Bank and the Minister. 
4. On the issue of incompetent relief, viz a viz that the relief sought could not be granted without nullifying Statutory Instrument 33/2019, Statutory Instrument 142 of 2019 and the Exchange Control Regulations, 1996, the court ruled that these issues could only be decided after considering the full facts.
5. On merits the court held that:

1. The regulation of banking activities to achieve stability in the economic sector and to protect the banking public falls exclusively within the Executive arm of Government. How the government makes policies aimed to achieve monetary stability is a political question, best left to the politicians and not the courts.
2. In issuing the Exchange Control directive, the Reserve Bank tabulated reasons for such an intervention. Cocksedge had failed to demonstrate that the directive was without reasonable foundation and therefore irrational.
3. The Exchange Control Directive RT120/2018 was of national and public interest; consequently, the Court must respect it and not interfere with it.
4. Regarding infringement of section 56(1) of the Constitution, the High Court held Cocksedge failed to demonstrate how he was unlawfully and unjustifiably distinguished from other bankers whose accounts which did not receive US$ deposits from offshore accounts, his claim was therefore unfounded.
5. The conversion of Cocksedge’ s funds from US$ to RTGS amounted to deprivation of property, but such deprivation was done in terms of the law of general application. 
6. Cocksedge failed to demonstrate that the Exchange Control Directive and the Finance (No.2) Act of 2019 are not laws of general application.

1. The High Court thus made the following order:

1. The main claim for payment of US$179 541.45 by CABS was dismissed
2. Cocksedge’ s claim in the alternative be dismissed.
3. The points in limine raised by CABS, The Reserve Bank and The Minister are dismissed.
4. Costs of suit on a higher scale.

 

ANALYSIS.

• The facts of the above two cases are largely similar. The issues presented before the court, however, were somewhat different. The common denominator is the constitutionality of legal instruments that were used to implement the conversion of United States dollar balance to RTGS balances at the rate of 1:1. Some of the notable differences are as follows:

• In the Stone/Beattie Studio Judgment, paragraphs 2.5 and 2.6 the Exchange Control Directive RT/120/18 were challenged on account of them being ultra vires section 35(1) of the Exchange Control Regulations, 1996, whereas in the Cocksedge judgment, the directive was challenged on account of it being irrational.  

• The Stone/Beattie Studio judgment went a step further and declared paragraphs 2.5 and 2.6 of the directive to be unconstitutional on account of violation of section 71 of the constitution. In terms of the Stone/Beattie Studio Judgment, the High Court found that the directive was ultra vires the enabling statute. The High Court also found the referenced paragraphs of the Exchange Control directive to be unconstitutional. This aspect of the Stone/Beattie Studio Judgment is subject to confirmation by the Supreme Court. 

• The question of constitutional validity did not arise in the Cocksedge judgment viz a viz the Exchange Control Directive. In the Cocksedge judgment, the High Court found that the directive was reasonable. In addition, the Court took the position that the question of how the government makes policies aimed to achieve monetary stability was a political question, best left to the politicians and not the courts. 

• In our considered view the application of the political questions doctrine was misplaced. In addition, the mere fact that the Reserve Bank and the Minister tabled reasons behind the exchange control directive did not confer rationality on the duo’s actions.  That said, however, the Exchange Control Regulations1996, could not be invalidated without impugning the enabling statute, that is, the Exchange Control Act. 

• The Stone/Beattie judgment found that the currency reforms introduced by the Reserve Bank of Zimbabwe and the Minister had the effect of depriving Stone/Beattie Studio of its property. They were therefore contrary to section 71 of the Constitution of Zimbabwe and therefore unconstitutional. Whilst the deprivation might have been in terms of a law of general application in terms of section 71(3)(a), among other things, the reasons advanced by the respondents as the purpose for which they deprived the applicants of their right, did not fall within the constitutional framework of section 71(3)(b). 

• In the Cocksedge judgment the Court ruled that Cocksedge was not compulsorily deprived of his property. His proprietary rights were merely limited and the limitation was done in terms of a law of general application. It could not be said therefore that the provisions in question violated section 71 of the constitution. The High court in the Cocksedge judgment, paid a blind eye to the effect that even where a limitation is in terms of a law of a general application, the limitation itself must be fair, reasonable, necessary and justifiable in a democratic society. 

• It would appear, however, that the court in the Cocksedge judgment acknowledged the Stone/Beattie Studio judgment but disagreed with the reasoning of the Court in Stone/Beattie Studio without expressly saying so.

• Does the Cocksedge judgement overturn the Stone/Beattie Studio judgment?  The answer is a simple no. The judgments are both valid and extant until confirmation or discharge of the Stone/Beattie Studio by the Supreme Court/Constitutional Court.

 CONFIRMATION OF THE HIGH COURT JUDGMENT BY THE CONSTITUTIONAL COURT

1. In terms of s 175(1) of the Constitution, any declaration of invalidity of any law or any conduct of the President or Parliament made by a competent court has no force until it has been confirmed by the Constitutional Court. 
2. This section is complemented by s 167(3) of the Constitution, which provides that the Constitutional Court makes the final decision on whether an Act of Parliament is constitutional and must confirm an order of invalidity made by another court. 
3. The Constitutional Court Rules, 2016 sets out the procedure for confirmation of an order of constitutional invalidity. Confirmation proceedings may be set in motion either by the Registrar of the High Court or the party in whose favour the order would have been granted.
4. In cases where the process is driven by the Registrar, the procedure is as follows:

1. The Registrar of the High Court is required to file the record of proceedings with the Constitutional Court within fourteen days of the order being granted;
2. On receipt of the record highlighted above, the Registrar of the Constitutional Court is required to call upon the parties to the proceedings to file written legal submissions on the law which are referred to as heads of arguments; and
3. Thereafter, the Registrar of the Constitutional Court is required to set the matter down for hearing within thirty days of the date of filing of the last set of the heads of argument by the parties. see Rule 31(1) and (2) of the Constitutional Court Rules.

1. In cases where the process is party-driven, the procedure is as follows:

1. The party desirous of having the order confirmed must file an application for confirmation of the order with the Registrar of the Constitutional Court within fifteen days of the order being granted;
2. Thereafter, the matter may be determined in terms of directions given by the Chief Justice.

1. It is also worth noting that the application for confirmation of an order of constitutional invalidity may be made by “any person with a sufficient interest” as provided for in section 175(3) of the Constitution which means that this avenue is not only limited to those parties who instituted the legal proceedings in the first place.
2. In proceedings for confirmation of an order of constitutional invalidity, the Constitutional Court is not bound by the High Court order or findings. It is guided by the considerations enunciated in the case of S v Chokuramba CCZ 10/19, wherein the Court Constitutional Court held as follows: 

” The Court is empowered to confirm an order of constitutional invalidity only if it is satisfied that the impugned law or conduct of the President or Parliament is inconsistent with the Constitution. It must conduct a thorough investigation of the constitutional status of the law or conduct of the President or Parliament which is the subject-matter of the order of constitutional invalidity. The Court must do so, irrespective of the finding of constitutional invalidity by the lower court and the attitude of the parties. Thorough investigation is required, even where the proceedings are not opposed or even if there is an outright concession that the law or the conduct of the President or Parliament which is under attack is invalid. The reason for this strict requirement is that invalidity of the law or the conduct of the President or Parliament is a legal consequence of a finding of inconsistency between the law or the conduct in question and the Constitution. Inconsistency is a matter of fact, on the finding of which the court a quo and the Court may differ.” (emphasis is mine) 

1. In the circumstances, the Constitutional Court still retains the power to decline an order of confirmation of constitutional invalidity, particularly where it is convinced that the order will have no practical effect or where the party challenging it has failed to show that he or she or it is injured by the operation of the impugned law. 
2. Confirmation of the judgment by the Constitutional Court would have far reaching consequences. Many creditors lost massive value arising from contractual and financial obligations that had been expressed in United States dollars prior to the 22nd of February 2019. Pensioners’ funds were negatively impacted. 
3. On the other hand, many debtors were relieved of their financial burdens. Bank loans were paid back in RTGS at the rate of 1:1. Some creditors obtained judgments in ZWL at the rate of 1:1. Some of the judgment debts have since been recovered, whilst some are yet to be enforced. It is possible that banks lost huge volumes of profits as loans extended in US dollars were paid back in RTGS at the rate of 1:1.  However, it is also arguable that Banks and the Reserve Bank benefited from the conversion of bank balances from US dollars to RTGS at the rate of 1:1. Assuming that this is correct, would it be prudent to impose liability for payment of value lost on banks only to the exclusion of the Reserve Bank? Is it possible for bank customers and lenders to recover the actual value lost without opening a Pandora’s box? Can they go back to the courts for value lost?
4. The answers to these questions depend on many factors and it is not a simple yes or no. Partly, the circumstances of each case will dictate, whilst the reaction of the legislature will also contribute. 
5. It would be premature to venture any answers until the courts have made further decisions on the questions that arise. Suffice to say, the above questions may indirectly inform the decision of the Constitutional Court on the subject matter. 

 

Article written by Pauline Mwandura, an Associate at Wintertons Legal Practitioners. 

 

This opinion does not constitute legal advice, should you require specific legal advice kindly contact the writer at pauline@wintertons.co.zw