Shuttleworth Trust: Best thing to happen since the Constitution itself
Like most South Africans, I incline towards serious head scratching when politicians get away with plundering the public purse to forward their own ends – Nkandla providing the most spectacular example. We live in a Constitutional Democracy, which by its nature means our rules and laws are shaped by our much admired Constitution, something which provides the potential for a model State which is the envy of every other citizenry on earth. Our Constitution enshrines checks and balances. But except in isolated instances, South Africans have failed to impose them. As Michael Bagraim explained during this interview on CNBC Africa's Power Lunch, going to court on these matters is often too expensive for those who are trying to enforce the ultimate law of the land. He uses the Free Market Foundation's legal attack on labour legislation which is based on enforcing the Constitution. Without the deep pockets of its former chairman Herman Mashaba, that challenge would never have made it to court. That, says Bagraim, is about the change. Funds Mark Shuttleworth is injecting into this new trust will make it possible for a string of challenges based on the Constitution to fight abuse of power. For that, every citizen of this country should celebrate. You might say it's the best thing to happen since the Constitution itself. – AH
ALEC HOGG: The Supreme Court of Appeal has ordered that the Reserve Bank pay R250m plus penalties to Mark Shuttleworth. It would come to about R350m in total. Shuttleworth plans to use the money that he's getting from the Reserve Bank to support Constitutional Court cases against the State. For more, we are joined in our Cape Town studio by Michael Bagraim from Bagraim Attorneys and here in Johannesburg, by Anthony Chait from Zeridium. Anthony, you're also a non-executive Director of the Reserve Bank, we'll take that hat off and you can talk to us as a practitioner here.
A friend of mine who's a tax expert was furious last night when he saw that Shuttleworth had won the case. He says the country is under quite a lot of strain in getting the money that is required to keep it going, particularly at the moment. Now we have to find another R350m to settle something that perhaps, shouldn't have happened in the first place. Let's go back. Exchange control exists in South Africa because of the National Party bringing it in, in 1961. That's a fact. It does exist here. Surely, we're out of step with the rest of the world. I think that's what Shuttleworth's trying to say and many others do believe that as well.
ANTHONY CHAIT: That's an interesting point Alec, because in terms of the judgment, it was written that Shuttleworth wasn't seeking to challenge exchange control per se or the constitutionality thereof. His principle was quite a crisp one, and that was that yes, he paid this exit levy, which was abolished about three years later. Therefore, people who emigrate nowadays are not subject to the ten percent. However, he paid it under protest and there's a principle around law where if you pay something under protest and you challenge it, if you're successful you're entitled to get it back and he's getting it back, with interest (not penalties, as you mentioned earlier).
Exchange control exists, but if you follow the history of exchange control in the country and going back since 1994, we have been in an ongoing process of liberalising our exchange controls. In fact, at the time that Shuttleworth emigrated, he did so because that was the only means in which he could legitimately take his money out of the country. Nowadays, that need is less compelling and one has fairly generous foreign investment allowances.
ALEC HOGG: If you read Shuttleworth's statement it says he's going to put this one side and he's going to fight exchange controls because he thinks that they are a blight on the system. He thinks that they're a cartel that makes banks money and it's hard to argue with that. I have a business. I pay people overseas. I have to pay hundreds of Rands every time we transfer funds to them and fill in forms that go through the Reserve Bank. It's a costly business.
ANTHONY CHAIT: Yes. If you're importing goods or services as opposed to capital (without getting too technical) then yes, there's documentation but I don't think that's the blight that is caused by exchange control. Coming back to my previous point – and it has been through the ministers, – for example Minister Manuel, Minister Pravin Gordhan, and I've no doubt Mr Nene in his next budgeting in February next year, will all comment on this gradual process of liberalisation. Yes, other countries who no longer have exchange control… The U.K. is a classic example. It came in before the war, in 1939 and with one stroke of the pen in 1979; Margaret Thatcher abolished it after 40 years. As opposed to a 'big bang' approach, we've chosen a more general phasing out.
ALEC HOGG: Michael, we've left you out in the Cape sunshine. Your reading of the whole Shuttleworth case…
MICHAEL BAGRAIM: I take a much bigger picture and I think Shuttleworth has done the whole of South Africa a favour. In this court case itself, he wasn't actually challenging exchange control, but he was challenging something more insidious and we're seeing it in various departments in South Africa today – that insidious creep of undermining the Constitution. Let me explain what happened over here so we can get that bigger picture.
What happened was that we had taxation without representation. If the Government wants to raise money – however it wants to raise – through taxation, it has to be put on both tables in Parliament. Both the Parliament itself and the National Council of Provinces need to pass it and it needs to go through, and that's our Constitution. Everyone has a right to trade freely, everyone has that right to exchange their monies, and do whatever's necessary. Shuttleworth, of all people, is very much a proponent of that, especially in small business. What happened over here was through regulations; they raised money through this ten percent levy. That is history now because the ten percent levy is gone, so one wonders why it's become such important news.
The reason why it's become important news is because what he's done, unlike what the judges said in this case (they said he's trying to get back the money), and when you start adding not only the R250m plus the interest – that's R350m -, but you also have certain of his costs. It's close on R400m. The reason is that what he wants to do now is he wants to empower South Africans to say 'let's have a look at all our regulations in various departments, and have a look to see if it's gone through and passes Constitutional muster'. In this case, it didn't. This court looked at it very carefully and said they are raising money through a taxation, which has not been passed by Parliament and therefore, it was wrong. That bodes well for a whole lot of other departments.
Our Government needs to be more careful to have a look at the Constitution as being our guiding document – it's basically, the Bible of South Africa – and then have a look at how we've implemented the particular law.
ALEC HOGG: Michael, I think that's a very strong point and Anthony, I'm sure you…well, I'm not sure, but he makes a good point. The Constitution is there. It's a great document. We don't refer to it often enough and Shuttleworth is saying 'let's do that'.
ANTHONY CHAIT: Yes. It is a great Constitution and one of the finest in the world. From time to time, because of archaic legislation, there are provisions in our statutes that offend the Constitution. Whilst there has been a review if you take for example, our tax laws from time to time and there've been constant amendments to bring our tax laws more in line with the Constitution. However, every now and then, you're going to find someone who is 'hard done by', by the particular statute and will then seek some sort of relief. I think that's what the kitty or the fund, which Shuttleworth is creating, is for.
ALEC HOGG: But would you support the application of the money in the fund or not necessarily? In other words, the money that's sitting there…what he's decided to do with it… He hasn't gone and spent it on another jet.
ANTHONY CHAIT: Yes, or another space walk or something like that.
ALEC HOGG: He's put it to good use.
ANTHONY CHAIT: Yes. I think that's quite an altruistic gesture on his part. There may be people who ordinarily, wouldn't have access to the legal system because it's an expensive process. As was mentioned, the costs that he is awarded are significant as well, so the proverbial man or woman in the street may have access to test the constitutionality of certain of our laws as a result of this fund.
ALEC HOGG: It's going to be an interesting process to decide who gets to be able to do the testing. As Shuttleworth said in his statement 'there is going to be a group of his attorneys – his trusted lawyers'.
ANTHONY CHAIT: Yes, Trustees who would look after the proper distribution of the money.
ALEC HOGG: Anthony, thanks for coming through and for giving us those insights. Michael, before we let you go, just the thought… You've given us a lot of background now on why you like the Constitution so much, but do you think there are any glaring issues that someone will pick up on, now that there is money to fight them?
MICHAEL BAGRAIM: Yes. I've been in the legal business now for 35 years. Often, people come to me and they say 'isn't this contrary to the Constitution' and you look at it and glaringly, it is. It is contrary to it. Most of my clients are small businesses and I tell them that 'unfortunately, this is going to cost you a good 7/8/9/10 years. It's going to cost you R3m or R4m to pick up a Constitutional challenge' and we're seeing this every day. To put fund together like this, unlike what the judges thought in the Shuttleworth case, which is very interesting because they said 'it's not that altruistic. He wants a quarter-of-a-million Rand back into his pocket'. To show them up, what Shuttleworth has done is he's now left it in a fund//trust where he says 'I'm going to fund others who have particular cases'.
I know that for instance, the Free Market Foundation had to find an outside funder to challenge a Constitutional point in the labour laws and they were lucky to get someone like Herman Mashaba, who has a pocket for that sort of thing. However, the man in the street – you and I – can't go to the Constitutional Court because we don't have that sort of money. Lawyers are expensive, the administration costs are expensive, and by the time you've gone to the Constitutional Court, it would have cost you R3m. My strong belief is what Shuttleworth has done for South Africa, is a blessing. He said 'here is a fund. I've appointed trustees. I've appointed my lawyers to look after this. You come to me with a challenge, which is sustainable and against our Constitution' and I don't think there is one South African today – not one – who will come forward and say that our Constitution is bad.
I meet people in all walks of life and we always talk about the Constitution. It is a glowing document. This is the prize that we received when we became a democracy, and this was well negotiated, it is a fantastic Constitution, and of course, it's respected around the world. As Mr Chait says, at the end of the day, we need to protect that with everything we have. There are foundations for instance, such as the FW de Klerk Foundation that is especially set up to protect our Constitution. We expect all the political parties in Parliament to respect that Constitution and to implement it. We're seeing the same now with the old Nkandla disaster where somehow, the Constitution's being bastardised and one doesn't want that. One doesn't want to see it. We want to go forward in South Africa.
Yes, I think the Reserve Bank is right in certain respects, in that we need to be very careful about the exodus of capital out of South Africa. No one wants that because we need the money. The bottom line is I'm happy with our Constitution.