THE High Court has delivered a landmark ruling declaring that the Reserve Bank of Zimbabwe (RBZ)’s 2018 directive ordering banks to convert depositors’ United States dollar (US$) account balances into RTGS balances was illegal.
This means depositors now have the right to claim their money from banks in United States dollars for balances that had accrued in their accounts by the time the directive was issued.
The ruling was delivered in favour of two businesspeople, Penelope Douglas Stone and Richard Harold Stuart Beattie, partners in The Stone/Beattie Studio who sought to recover the US$142 000 which was converted into RTGS$ by CABS soon after the ruling before its value was quickly decimated by rampant inflation.
The company had deposited the money during the multi-currency regime.
The two were represented by lawyer Tendai Biti while CABS, which was listed as the first respondent, was represented by Godknows Nyangwa. Lewis Uriri represented the RBZ, the second respondent in the matter while a P Macheka from the Attorney-General’s Office represented Finance minister Mthuli Ncube in his official capacity.
Delivering the ruling yesterday, High Court judge Justice Happias Zhou said the exchange control directive was “illegal, irrational and unreasonable for offending against the rule of law and the constitutional values of good governance”.
He said the disputed directive had retrospective application, in that it arbitrarily converted an existing US dollar account balance into something else by arbitrarily imposing an RTGS value on the US dollar value of the credit balance in the applicants’ account.
Zhou ordered CABS to pay Stone and Beattie US$142 000 or transfer that amount into a nostro foreign currency account as may be directed by two applicants within seven days with interest at the prescribed rate of 5% per annum from October 2018.
“Equality of value is not something that can be arbitrarily or capriciously imposed in the manner that the governor (Mangudya) or the first respondent sought to do in relation to the balance in the applicants’ account. The value of money is its acceptability and can only be fairly determined by the market,” he said.
“If the first respondent intended to introduce an RTGS account with a value equal to or different from the US dollar account held by the applicant then that decision ought to have affected future transactions rather than existing balances. It is offensive to any sense of justice that a person who holds money in a bank can wake up on any day to be told that his money means something else different from what it has always been.”
Zhou said Stone and Beattie, who are partners in The Stone Beattie Studio, should have been entitled to withdraw US dollars from their account prior to this directive being issued.
“The directive effectively disables any withdrawal of US dollars from that account. They can only withdraw bond notes. That reality cannot be altered by renaming the account as an RTGS FCA. This drastic deprivation of existing rights is not what is contemplated by Section 317 of the Constitution of Zimbabwe as constituting regulation of the monetary system, protecting the currency of Zimbabwe and formulating and implementing monetary policy,” Zhou said.
On May 4, 2016, Mangudya issued a press statement on: “measures to deal with cash shortages whilst simultaneously stabilising and stimulating the economy” where he announced that the RBZ had established a US$200 million foreign exchange and export incentive facility which was supported by Afreximbank.
The facility was to be granted to qualifying foreign exchange earners in bond coins and notes, which were operating at par with the US dollar.
In November 2016, Stone and Beattie wrote to CABS stating that there shall be no withdrawals and deposits into the account which had a balance of US$142 000, in response to the enactment of the RBZ regulations.
In October 2018, the RBZ then introduced the Exchange Control Directive, which separated what was therein referred to as the RTGS foreign currency account from a nostro foreign currency account based on the source of funds.
“The effect of this was to categorise the applicants’ account as an RTGS foreign currency account. Money from the applicants’ account could only be paid in the bond note (and bond coin), but not in the US dollar, which was the currency in which it is denominated. By letter dated 17 October 2018 written on their behalf by their legal practitioners to the first respondent, the applicants asked to withdraw the sum of US$142 000,00 from their account or, alternatively to have it transferred into a nostro foreign currency account. The concept of the nostro foreign currency account came into existence following the second respondent’s Monetary Policy Statement of 1 October 2018,” the order reads.
“According to the applicants the letter of demand was written after they were advised by the first respondent that they could only be paid their money in the bond note currency.
“This makes the Exchange Control Directive not only arbitrary and irrational, but fail the test of reasonableness. The decision is an incursion of vested rights. No reasonable person who had applied his or her mind to the matters in question would have taken the decision which has the effect of eroding a person’s investment or savings in this manner,” Zhou states in the order.
Zhou said if the decision of the first respondent was to be allowed to stand the effect of it is that the applicants’ money is now ZW$142 000 which is probably less than 4% of its value at the prevailing official rate which the court could not ignore.
“A decision which reduces US$142 000 to a small fraction of its value cannot be defended in a democratic society founded upon the values enshrined in the Constitution of Zimbabwe. It in substance manifestly violates the right to property,” he said.
“This makes the Exchange Control Directive not only arbitrary and irrational, but fail the test of reasonableness. The decision is an incursion of vested rights. No reasonable person who had applied his or her mind to the matters in question would have taken the decision which has the effect of eroding a person’s investment or savings in this manner.”