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Author: Tony Beamish|

03 September 2013 05:40

Shuttleworth persists in pursuit of his R250m

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IT billionaire will seek leave to appeal from SA’s Reserve Bank.

South African IT entrepreneur, billionaire and philanthropist, Mark Shuttleworth, has announced that he will seek leave to appeal the July 2013 decision of a single North Gauteng High Court (NGHC) Judge, Judge Francis Legodi, who found against him in his fight against the South African Reserve Bank’s (Sarb’s) exchange control (Excon) system.

Shuttleworth’s lawyers have served notice of his intention to ask the judge for permission to appeal his judgment.

Judge Legodi will need to decide whether another court might come to a different conclusion in order to grant the leave to appeal.  In his judgement Legodi did not agree with Shuttleworth regarding fifteen of his twenty-two individual challenges to the Excon mechanism.

His legal team will ask Judge Legodi for leave to appeal to a full bench of the NGHC.  A full bench comprises three judges.

The seven challenges in which he was successful were peripheral to his main case and they were not aspects of the Excon mechanism that had affected him personally.  The primary purpose of Shuttleworth’s litigation was to challenge the constitutional validity of the Excon mechanism.  This included the 10% exit levy, which he had paid on funds that he had exported from South Africa. 

South Africans have been subject to exchange control restraints since 1933. 

Shuttleworth made his fortune through the sale of Thawte Consulting, an internet security consultancy which he founded in 1995 in his final year at the University of Cape Town.  He sold Thawte to VeriSign in 1999 for $575m.  At the time this equalled R3.5bn.

Shuttleworth challenged four aspects comprising both law and policy at the Sarb which he said that affected him personally.  They were:

1. The decision by Sarb in 2009 to impose the 10% levy as a condition of him taking this money out of the country.  He sought repayment of R250m.

2. Certain wording in Excon circulars, regulations, orders and rulings.  He contended that these were constitutionally invalid.

3. The whole of section 9 of the Currency and Exchanges Act of 1933 declared constitutionally invalid. 

4. Sarb’s “Closed Door” policy.  This means that no individual may converse directly with the Sarb, only through his or her own bank.

Shuttleworth said in his court papers that the existing mechanism of exchange control in South Africa forced him to emigrate from the country in 2001 because it was impossible to conduct entrepreneurial ventures and philanthropic projects within the framework of the existing SA system of exchange control.  In 2001 when he formally emigrated to the United Kingdom – he now lives on the Isle of Man – his South African net worth was R4.3 bn.

Sarb then treated his funds as blocked funds.  The first R750 000 that he exported attracted no levy.  Thereafter, each time the Sarb gave him permission to export funds it levied a 10% exit tax.  Shuttleworth was understandably unhappy with this rule.  In 2009 he paid Sarb an exit levy of R250m under protest.  He then sued Sarb and the minister of finance for repayment of the contested levy amounting to R250m.

In June 2013, Advocate Gilbert Marcus S.C., acting for Shuttleworth, told Judge Francis Legodi of the difficulties experienced by his client in his dealings with Sarb through Standard Bank - which was his banker. Marcus said: “These underscore the constitutional complaint at the heart of this application. The system of exchange control in this country is governed not by laws, but by the dictates of an organ of state, which are not accessible to the public, and they do not follow any constitutionally required process of promulgation and violate numerous constitutionally entrenched rights.”

The arguments heard by Judge Legodi in June were complex ones.  They traversed Shuttleworth’s rights under the common law, rights in terms of the Bill of Rights, and fundamentals of constitutional supremacy and the rule of law.  Sarb’s defence to all these issues by Shuttleworth was that Excon is a unique form of governance, which has its own special requirements and, therefore, cannot be judged by the usual legal standards.

Shuttleworth also said Sarb’s Excon mechanism, and the 10% levy that ensued, impinged on his constitutional property rights – in this case his money – and was therefore an expropriation without compensation. This was a major leg of his challenge and the court found against him.

He contended that laws needed to be clear and unambiguous so that people can arrange their affairs with relative ease, and not be ambushed by them later on.  In terms of the Promotion of Administrative Justice Act any rules and orders made by the Minister of Finance had to be published for public comment before having legal effect.  This had not been done.  They would, at least, have had to be published for public comment before they could be promulgated.  The law was therefore unclear.

Sarb told the court, by way of example, that it needed the flexibility to react to international crises.  Central banks worldwide require this sort of flexibility.  The court agreed with Sarb.

The Judge held that the case was not only a matter of great importance for all the litigants but was also of constitutional importance.  He therefore ordered that each party bear their own costs.

If leave is granted to the full bench of the NGHC, Shuttleworth will persist in his claim for repayment of the R250m.  Legal technical argument will be presented in respect of the claims that Judge Legodi dismissed.

See Moneyweb’s table of the twenty-two points argued below and which way the court decided. They were extrapolated from the Notice of Motion.  Click here to read Shuttleworth’s court application. Read the judgment here.  The twenty-two points on which the court decided are set out in paragraph 175. 

No.

Nature of the Court Orders sought by Mark Shuttleworth

Result

1.

Substituting the decisions of the SARB with an unconditional decision to authorise Shuttleworth to transfer 90% of the remainder of his blocked assets out of the Republic.

Dismissed

2.

Directing the SARB, alternatively, the Minister of Finance to repay Shuttleworth R250,474,893-50.

Dismissed

3.

Directing the SARB, alternatively, the Minister of Finance to pay interest on R250,474,893-50 to Shuttleworth.

Dismissed

4.

Condoning Shuttleworth’s failure to have served a notice of his proposed litigation on the SARB, Minister of Finance and President.

Granted

 

 

5.

6.

7.

Declaring the words “and an exit charge of 10% of the amount” to be unconstitutional and invalid as written in: -

·       Exchange Control Circular No. D.375 of 26 February 2003

·       Exchange Control Circular No. D.380 of 26 February 2003

·       Section B.2(E)(iii)(e) of the Exchange Control Rulings

 

 

Dismissed Dismissed

Dismissed

8.

Declaring in its entirety section 9 of the Currency and Exchange Act of 1933 to be unconstitutional and invalid.

Dismissed

 

 

 

9.

10.

11.

In the event that the Court could not declare the whole of section 9 invalid, then an order declaring the following parts of section 9 to be unconstitutional and invalid: -

·       Paragraphs (a), (c), and (f) of subsection (2)

·       Subsection (3)

·       Subsection (5)

 

 

Dismissed Granted[1]

Dismissed

12.

Declaring that the Exchange Control Regulations in their entirety to be unconstitutional and invalid.

Dismissed

 

 

 

13.

14.

15.

16.

17.

18.

19.

 

In the event that the Court could not declare the Exchange Control Regulations (Excon Regs) in their entirety to be unconstitutional and invalid, then an order declaring the following parts of the Excon Regs to be unconstitutional and invalid: -

·       Paragraphs (a) to (c) of Regulation 3(1)

·       Regulation 3(3)

·       The words “(3) or” in Regulation 3(5)

·       Regulation 10(1)(b)

·       Regulation 18

·       Regulation 19(1)

·       The words “unless he proves that he did not know, and could not by the exercise of a reasonable degree of care have ascertained that the statement was incorrect” in Regulation 22 and the omission in this regulation of the words “intentionally or negligently” immediately after the words “every person who”.

 

 

 

Granted[2]

Dismissed

Granted[3]

Granted[4]

Dismissed

Granted[5]

Granted

 

 

20.

Declaring that the Orders and Rules under the Excon Regs are in their entirety is unconstitutional and invalid.

Dismissed

21.

In the event that the Court could not declare the Orders and Rules under the Excon Regs to be unconstitutional and invalid, then only declaring Order and Rule 10(a) to be unconstitutional and invalid.

Dismissed

22.

Declaring the policy of the SARB not to deal directly with members of the public  in relation to the exercise of its delegated powers under the Excon Regs, and insisting that members of the public communicate with it through the intermediation of authorized dealer banks, i.e. the so called “closed door” policy, inconsistent with the Constitution and invalid. 

Dismissed



[1] Subject to confirmation by the Constitutional Court.

[2] The partial declaration of constitutional invalidity was suspended for twelve months to enable the SARB, The Minster of Finance and The President to rectify the law.

[3] As above.

[4] As above.

[5] As above

Topics: Mark Shuttleworth, exchange control, south african reserve bank, sarb



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