THE Central Africa Building Society (CABS) has been ordered to pay US$142 000 to a local architects, Penelope Douglas Stone and Richard Harold Stuart Beattie after their money was converted into local currency following the passing of a Statutory Instrument {SI) 70 of 2015 by the Reserve Bank of Zimbabwe with support from the Ministry of Finance.
CABS was also ordered to pay interest at the rate of 5% per annum from 28 November 2016 — when the money was converted – to the date of payment.
The ruling has far-reaching implications for many individuals, organisations and companies whose money was converted into bond notes or RTGS because of SI 70 of 2015 and other legislation.
Stone and Beattie own a company trading as Stone/Beattie Studio Partnership and had their savings eroded following the passing of the “illegal laws.”
Their victory follows a protracted legal battle which started in 2019.
In a landmark ruling, High Court judge Justice Jacob Mafusire, set aside part of the law which led to conversion of the duo’s money into local currency.
He also granted the order ruling that the Finance minister and the Reserve Bank had improperly interfered with the contractual rights and obligations between the couple and their banker, CABS in breach of the Constitution.
CABS, Reserve Bank of Zimbabwe (RBZ) and Finance minister, Mthuli Ncube were cited as first, second and third respondents respectively.
The judge also criticised government ever-changing policies saying the haphazard scenario needed to be explained clearly to the banking public in case they found themselves in a similar situation as the architects.
Before this court, the third respondent”(Ncube) has not provided some further insights into the thought process behind the implementation of the measures above, particularly the split of people’s bank balances into Nostro FCAs and RTGS FCAs.
“The modalities of the whole process of creating Nostro FCAs and RTGS FCAs and the simultaneous separation of already existing bank balances into USD and RTGS, depending on the source of the deposits, is not properly explained.
“The second and third respondents allege that it was left to the individual banks to use the Know Your Customer (KYC) principles and trace the source of the deposits that had flowed into the individual customers’ accounts. But the first respondent has not explained how it actually did it. If the nameless currency was co-mingling with the genuine USD, then perhaps only the banks and the monetary authorities themselves knew.
“What all this analysis boils down to is that the second and third respondents, in effecting the currency reforms aforesaid, breached one of the constitutional tenets of good governance as set out in s 3(1)(h) of the Constitution. A government must not make, let alone implement arbitrary decisions,”said the judge.
In their application, Stone and Beattie sought an order that Exchange Control Directive No. R120/2018 issued by the Reserve Bank [is]unconstitutional and invalid as it violates s 71 of the Constitution.
They also argued that the conversion of their US$142 000 to RTGS142 000 was unconstitutional and invalid as it violates s 71 of the Constitution and also applied for an order that CABS should pay them US$142 000.
Stone and Beattie also submitted that the Exchange Control Directive No. RT120/2018 is grossly unreasonable and ultra vires s 35(1) of the Exchange Control Regulations, SI 109 of 1996, and is invalid.
The judge ruled the conversion was illegal before he also slapped the respondents with costs.
“The conversion of the amount of US$142 000-00 standing to the credit of the applicants’ savings account No. 1005428905 with the first respondent as at 28 November 2016 violated s 71 of the Constitution.
“Paras 2.5 and 2.6 of the Exchange Control Directive RT120/2018 aforesaid violate s 71 of the Constitution. Section 22(1)(b) and (d) and s 22(4)(a) of the Finance (No. 2) Act No. 7 of 2019 violate s 71 of the Constitution and are hereby set aside,” he ruled.
The background giving rise to the present ruling was that the architects at all relevant times banked with CABS. As at 28 November 2016 the balance in their account was
US$142 000-00.
The designation of the account was USD. That designation was in line with the currency regime in force at the time.
At the time, the national economy was on a multi-currency system. That had been the situation since 2009.
In terms of that system, the currencies of other countries, specifically the British pound, the euro, the USD, the South African rand and the Botswana Pula had been made legal tender in Zimbabwe, courtesy of an amendment to the Reserve Bank Act [Chapter 22:15].
The local currency would float and find its own level in the basket of all these other currencies.
Over the years, the local currency depreciated in value so much that it practically became non-existent. In 2015 the State President officially demonetised it through statutory instrument [SI] 70 of 2015.
After the demonetisation some rapid developments in the monetary system followed. These were achieved through policy pronouncements and legislative changes by the State President in terms of the Presidential Powers (Temporary Measures) Act [Chapter 10:20], or the RBZ as the central bank, and the third respondent, as the Minister in charge of finance.
Among other such changes, the Finance minister was empowered in 2016, through a statutory instrument, to reintroduce some form of local currency. Such currency would comprise what would become known as “bond notes” and “bond coins”.
The bond notes and coins eventually came into operation in March 2017. This was achieved through an amendment to the Reserve Bank Act. 6The amendment practically reproduced SI 133 of 2016.
In a press statement on 4 May 2016 the RBZ had disclosed the extent of that financial guarantee.
The next significant development was on 4 October 2018. On that date, the RBZ issued the Exchange Control Directive RT120/2018.
The background to the Exchange Control Directive RT120/2018 is this. At that time the economy was still operating in the multi-currency system.
Bank accounts were all Nostro foreign accounts.
A bank in Zimbabwe will operate a Nostro account with a foreign or correspondent bank in the world financial centres where a float of money designated in foreign currency is maintained. Of the basket of currencies in use, the USD was the most predominant. Thus, most Nostro foreign currency accounts were predominantly in USD.
For the present narrative, RTGS would be the new form of the local currency. It would eventually be brought into circulation by the central Government via SI 33 of 2019. Its effective date was 22 February 2019.
As at 1 October 2018 the currencies in use in the economy were both the USD and another which had been created by the State through borrowing from the RBZ, and the issuance of treasury bills.
The latter currency was at first nameless even though it continued to pass off as USD. In RBZ’s statement of 1 October 2018, financial institutions were directed to separate their customers’ bank accounts into two categories: those holding actual dollars of the United States, and those holding this other nameless currency still passing off as USD.
Banks would open Nostro FCAs into which genuine dollars of the United States would be deposited.
That other non-United States dollar currency would remain as the existing customers’ accounts.
Such a process of separation would take about ten days. The modalities would be left to the financial institutions themselves. They would use their own data bases such as the Know Your Customer [KYC] principles to determine the source of the deposits in their individual customers’ accounts.
Henceforth, deposits or remittances from sources outside the country would be channelled into the Nostro FCAs which would automatically be created by the banks at no cost to their customers. Ncube eventually gave the nameless currency a name, RTGS through SI 33 of 2019 and there other ups and downs in the financial sector.
Stone and Beattie told the court that watching those changes from 2016, they feared the value of their deposit would devalue significantly. To them, the unfolding situation was not without precedence.
They cited the bearer cheque dispensation of 2007 and 2008 when inflation had risen phenomenally.
Money would be counted in quintillions of dollars. When the economy had dollarised, people’s savings had been wiped out.
Therefore, to avert another disaster, the applicants say they instructed CABS on 28 November 2016, to “freeze” their account so that no deposits or withdrawals from it would be effected except upon the written instructions by the authorised signatories.
CABS then refused citing the controversial policy and legislative changes and also said it had to comply. According to the architects, their bank account which previously reflected a balance of USD142 000 now reflected the same figure but in RTGS. So, in 2019 they sued CABS on the basis of the banker-customer principles of the common law.
In the alternative, they sued the monetary authorities, being RBZ and Ncube in the main impugning Exchange Control Directive RT120/2018.
They won the case but they lost on appeal. Stone and Beattie reformulated their case again at the High Court but respondents raised several objections.
RBZ argued that this substantive claim was determined to finality by both this court and the Supreme Court. The central bank said the initial High Court judgement became invalid on appeal.
“There ended the case. There is no right of appeal beyond the Supreme Court,” said RBZ.
Mafusire said this was incorrect.
“But significantly, in paragraph 6 of the draft order, the applicants seek the setting aside of the conversion of their USD142 000 to RTGS142 000 on the basis of unconstitutionality, specifically s 71 of the Constitution,” Mafusire said.
“This is the crux of the dispute. It shall be the focus of the determination. For these reasons, the second respondent’s objection No. 2 is hereby dismissed.”
The respondents had argued that the duo’s demand to be paid in USD cannot be met because following the enactment of SI 33 of 2019 aforesaid, all debts previously denominated in USD became debts payable in RTGS from the effective date. But the judge ruled, “With all due deference, I need not be detained by this objection. The constitutionality of SI 33 of 2019 is part of the raft of legislation that is under challenge.
“The applicants’ complaint is not without merit. The series of measures adopted by the Government in the name of reforms were undoubtedly harmful to the banking public. The Executive has expressly admitted as much, albeit, post facto,” Mafusire said.
“The applicants’ allegation that their deposit of USD142 000, which was converted to RTGS, devalued more than 130 times by the time of litigation, has not been contested.
“No one is compensating them. The statement issued by the State President on 7 May 2022 dubbed “Measures to Restore Confidence, Preserve Value and Restore Macroeconomic Stability” does not seem to apply to the applicants, or to anyone else outside the threshold of the amounts stated therein.”
— Staff Writer.
