When a protector fails to protect

The decisions of the Constitutional Court may not always favour those who want their assets
kept from the clutches of the government.

When a protector fails to protect
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Mark Shuttleworth emigrated from South Africa in 2001. Exchange control restrictions were interfering with his international business initiatives. As a condition for transferring his funds to his new base on the Isle of Man, the SA Reserve Bank charged an exit fee of 10%. Shuttleworth challenged the exit charge and was successful in the Supreme Court of Appeal (SCA).

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The judges were unanimous that the exit charge was a tax, because the money had flowed into the national coffers. Funds already tendered to the SA Reserve Bank were to be repaid to Shuttleworth. The minister of finance then took the case to the Constitutional Court. (South African Reserve Bank & Another v Shuttleworth & Another [2015] ZACC 17.) In a divided judgement, the court ruled against Shuttleworth.

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Simply put, the majority held that the exit charge was not in fact a tax, and was therefore lawful. The constitutional safeguards intended to prevent the powers-that-be from getting their hands on the assets of those under their control seem in this instance to have been sidestepped, assisted by the very court supposed to protect those safeguards.

Shuttleworth made his fortune in the international web security industry and could just as easily have done this abroad. The fact that he did not and was initially patriotic enough to house his wealth in South Africa speaks volumes. Both judgements also acknowledged that Shuttleworth had donated millions of rands to deserving charities.

A different judgement
The dissenting judgement of His Lordship Froneman should be of some comfort to the entrepreneur and his legal team.
According to the judge, any revenue that goes to the national coffers, whether a tax or called by any other name, must be supported by original legislation.

He stated that even the authorities relied upon by the majority in the Constitutional Court were cases that dealt with original legislation, while in the matter before the court, the exit charge was levied under delegated law, unsupported by any act of parliament.

Good sense
He referred to past laws that had been struck down where delegated legislation was held to be unconstitutional because it interfered with the rights of residents. You cannot on the one hand condemn certain delegated legislation and on the other uphold other delegated legislation simply to suit the revenue authorities.The dissenting judgement makes very good sense, but, as noted, the majority held that the regulation that provided the exit charge was valid.

Questions must now surely be asked by those who have supposed the Constitutional Court to be their protector against all comers…

And is this the country to hold your assets securely?