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Settle your US$ debt in US$, say Zimbabwe court

by Staff reporter
15 May 2020 at 07:46hrs | Views
THE High Court yesterday ruled that the monetary changes made by the Reserve Bank of Zimbabwe on October 1, 2018, including the conversion of the US dollar account balances into RTGS and the Finance ministry's 2% tax on money transfers were a violation of the right to property and, therefore, invalid.

In a landmark ruling, Justice Happias Zhou also declared that US$ debts incurred before the new measures were introduced were to be repaid in US$.

The order was made in a matter where Penelope Douglas Stone from The Stone/Beattie Studio took CABS, the Reserve Bank of Zimbabwe and the Finance ministry to court over its US$142 000 deposits in the building society, demanding the restoration of the value of its money.

This was after CABS had refused to pay The Stone/ Beattie Studio in US$ saying doing so would be a violation of the RBZ directive.

Stone was represented by Biti Tendai.

The Exchange Control Directive RT120/18 contained in Statutory Instrument 109 of 1996 and issued on October 4, caused huge losses in the market after government ordered that the bond note and electronic dollars would remain officially pegged at par with the US$.

Justice Zhou ruled that the RBZ was wrong in applying the law in retrospect and thus failing to preserve US$ balance values.

"It is offensive to any sense of justice that a person who holds money in a bank can wake upon any day to be told that his money means something else different from what it has always been," Justice Zhou said in his 17-page ruling.

"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 implementing monetary policy."

He added: "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."

The ruling is likely to open floodgates, with companies and individuals suing their banks seeking to restore the value of their US$ deposits.

Justice Zhou said CABS was in contract with the client and should honour its obligation, accusing the RBZ of putting the bank in a precarious position.

"The first respondent (CABS) cannot claim, as it seems to do, that the money it owed to the applicant was not in United States dollars," Justice Zhou ruled.

"The debt is in United States dollars because the account is denominated in that currency. The debt which the respondent owes to the applicant is, therefore in the sum of US$142 000 and not some other currency."

The judge added: "Banking would be meaningless if a person deposited a certain sum of money or has money credited to their account only to be told when they demand withdrawal that they can only be paid in some other means of exchange whose value is determined by authorities without recourse to the holder of the account. In such a case, the debtor will not be repaying the debt. A debtor cannot unilaterally change the value of its indebtedness."

He said the RBZ directive "fails the test of reasonableness".

"Equality of value is not something that can be arbitrarily or capriciously imposed in the manner that the governor of the second respondent (RBZ) sought to do in relation to the balance in the applicant's account. The value of money is its acceptability, and can only be fairly determined by the market," he said.

He said the directive should have only affected future transactions.

"A decision which reduces US$142 000 to a fraction of its value cannot be defended in a democratic society founded upon the values enshrined in the Constitution of Zimbabwe. It manifestly violates the right to property," the judge ruled.

"Further, the effect of the second respondent's directive is to make the first respondent breach the contractual terms of its banker-customer relationship.

"This is achieved by turning the applicant's United States dollar account into an 'RTGS FCA', a contradiction in itself because RTGS is not a foreign currency and one wonders how it could be hosted in a foreign currency account...

"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.

"In the result, it is ordered that Exchange Control Directive No R120/2018 issued by the first respondent through its governor on October 4, 2018, be and is hereby declared to be invalid, and is accordingly set aside."

CABS was ordered to pay the US$142 000 and 5% interest per annum from October 17, 2018.

Source - newsday

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