This matter was placed before the full bench of this Court for confirmation of an order of constitutional invalidity pursuant to Rule 31 of the Constitutional Court Rules 2016 (hereinafter “the Rules”) as read with section 175(1) of the Constitution, against the judgment of the High Court (hereinafter “court a quo”) in the case of Penelope Douglas Stone & Anor v Central Africa Building Society & Ors HC4243/21.
At the end of the proceedings, the Court made an order, the operative part of which read as follows:
“1. The confirmation of the order of the court a quo is declined.
2. The order of the court a quo is set aside in its entirety.
3. There shall be no order as to costs.
4. Reasons for the decision are to follow in due course.”
What follows are the reasons for that order.
FACTUAL BACKGROUND
The applicants before this Court are partners in an architectural enterprise. The first respondent is Central African Building Society (CABS). The second respondent is the Reserve Bank of Zimbabwe (RBZ), with the third respondent being the Minister of Finance and Economic Development.
The applicants applied to the court a quo, purportedly in terms of section 85(1) of the Constitution. They sought a declarator to the effect, that, Exchange Control Directive No. RT120/2018, issued by the second respondent, was unconstitutional due to an alleged violation of the right to property enshrined under section 71 of the Constitution.
In addition, the applicants sought a declaration to the effect, that, the same directive was grossly unreasonable and ultra vires section 35(1) of the Exchange Control Regulations, SI109 of 1996, and was accordingly invalid.
The constitutionality of sections 44B(3)-(4) and 44C of the Reserve Bank Act [Chapter 22:15] was also impugned on the premise that the provisions in question violated section 71 of the Constitution.
A similar declaration was sought with respect to sections 21(1)(b), 22(2), 22(4)(a) and 23(1)-(3) of the Finance (No.2) Act of 2019 for allegedly violating the aforementioned section 71 of the Constitution.
Consequent to the above, the applicants sought a further declaration that the conversion of their USD142,000 to RTGS142,000 was unconstitutional and violated section 71 of the Constitution. They therefore sought an order compelling the first respondent to reimburse them the sum of USD142,000.
The genesis of the dispute stemmed from the applicants inability to access funds in USD from an account maintained by them with the first respondent.
The applicants are architects and are partners in an architectural firm. The firm operates bank accounts with the first respondent. On 17 October 2018, they demanded the release to themselves of the sum of USD142,000 from one of their accounts.
By letter dated 4 October 2018, the first respondent responded to the demand and indicated that it was unable to pay them that amount as the account was now denominated in the RTGS currency following a directive from the second respondent, the Reserve Bank of Zimbabwe (RBZ).
The first respondent advised them that the requested sum could not be paid out in United States Dollars on the basis of the Exchange Control Directive RT 120/2018, which essentially converted the pre-existing sum to RTGS denomination.
This was confirmed in correspondence between the parties on 24 October 2018.
The applicants do not accept that the conversion of that account was lawful, and, as a consequence, contend that a constitutional issue arose from the fiction of equating the United States Dollar with the local RTGS by the authorities.
It was submitted on their behalf, that, the Government itself had recognised the superficiality of the parity argument between the United States Dollar with the local RTGS currency. Contrary to its stated position, on the argument of parity between the USD and the local currency, Government had insisted on payment of certain obligations be made exclusively in United States Dollars. To cement their argument, the applicants made reference to the exclusive levy of fuel prices in United States Dollars.
It was contended, that, the first respondent would be unjustly enriched at their expense due to this legal fiction of parity.
They submitted before the court a quo, that, the impugned legislation served to deprive them of their rights under section 71 of the Constitution and could not be justified under the limitation clause in section 86 of the Constitution.
The applicants argued, that, section 71(3) of the Constitution sets out the standards for the compulsory acquisition of property, which requirements were not satisfied by the impugned legislation.
It was further submitted, that, the law of general application which authorizes compulsory deprivation must also entitle claimants to apply for compensation, which was not satisfied by the impugned law.
Further to this, the applicants contended, that, their application was properly before the court, regard being had to the judgment by the Supreme Court involving the same parties.
They contended, that, the remarks in the judgment had given them the conviction that they could succeed in suing the respondents once they had impugned the parent statute that had given birth to the Exchange Control Directive in question.
For these reasons, they contended that Exchange Control Directive No. R120/2018, sections 44B(3)-(4) and 44C of the Reserve Bank Act and sections 21, 22 and 23 of the Finance (No.2) Act of 2019 violated section 71 of the Constitution, and, that, as a consequence, the first respondent was obliged to reimburse them the sum of USD142,000.
The application was opposed by all the respondents in the court a quo.
The first respondent raised the preliminary issue that the relief sought was defective. It argued that a declaration of constitutional invalidity could not give rise to any automatic positive rights on behalf of the applicants, and further, that, it could not be compelled to effect payment in a constitutional matter until such proceedings were confirmed by the Constitutional Court.
On the merits, it maintained that its actions in the matter were guided by validly promulgated laws.
The first respondent contended, that, the impugned directive only mandated the deposit of foreign currency from offshore sources into Nostro accounts. However, the funds in the account maintained by the applicants had emanated from local deposits and were therefore excluded from this category.
The first respondent further submitted, that, there could not be a claim for unjust enrichment against it because, as a Building Society, its funds were deposited with the second respondent, the Reserve Bank of Zimbabwe.
It noted that the second and third respondents had the requisite legal authority to regulate monetary and fiscal matters in terms of the Reserve Bank Act.
The first respondent also submitted, that, the plea of res judicata was applicable in casu as the matter had been argued to finality in the Supreme Court.
In turn, the second respondent also submitted that the matter was res judicata as the Supreme Court had dealt with the same matter on appeal from the court a quo.
On the merits, it submitted that the impugned legislation did not violate section 71 of the Constitution.
The third respondent also associated itself with the arguments by the first and second respondents, and, further submitted that the impugned legislation did not take away any of the applicants rights.
Counsel for the third respondent suggested that the applicants ought to have joined Parliament to the proceedings as they had sought to impugn acts done in terms of a valid statute.
In response, the applicants submitted, that, after the operationalisation of the Directive, the funds in their account with the first respondent, when converted at the official exchange rate, amounted to a mere US$1,604=52 which they suggested constituted a violation of section 71 of the Constitution.
They sought to counter the allegation that the issue had not been properly taken, regard being had to the doctrine of res judicata, on the basis that there had been no determination on the constitutionality of the exchange control directive by either the High Court or the Supreme Court.
Although the court a quo agreed that the subject matter in the dispute before it was the same as that previously litigated upon, it concluded that the matter was not res judicata because the question regarding the constitutionality of the impugned legislation remained in issue. As a consequence, it dismissed the preliminary point.
It also disregarded the preliminary point raised on the principle of subsidiarity, terming the point in limine “pedantic and a miscarriage of justice.”
On the merits, the court a quo held that it would determine the constitutionality of the Exchange Control Directive separately from the issue that it was ultra vires section 35(1) of the Exchange Control Regulations, 1996.
Although its constitutional validity was not an issue for determination before it, the court a quo found that section 35(1) of the Exchange Control Regulations 1996 was not ultra vires section 71 of the Constitution.
Thereafter, the court a quo concluded that paragraphs 2.5 and 2.6 of the Exchange Control Directive RT120/2018 were ultra vires section 35(1) of Exchange Control Regulations 1996. It further determined, that, Exchange Control Directive RT 120/2018 was impeachable along with the other impugned legislative provisions in the sense that they interfered with the contractual rights of the parties, and, in turn, breached section 71 of the Constitution. The provisions were held to invade property rights protected under section 71(2) of the Constitution.
Consequent thereto, it issued an order which is now subject to confirmation by this Court. The order reads as follows:
“(i) Paras 2.5 and 2.6 of the Exchange Control Directive RT 120/2018, dated 4 October 2018, are ultra vires section 35(1) of the Exchange Control Regulations 1996, SI 109 of 1996, and are hereby set aside.
(ii) Subject to section 175(1) of the Constitution of Zimbabwe -
1. The conversion of the amount of USD142,000 standing to the credit of the applicants savings account No.1005428905 with the first respondent, as at 28 November 2016, violated section 71 of the Constitution.
2. Paras 2.5 and 2.6 of the Exchange Control Directive RT120/2018 aforesaid violate section 71 of the Constitution.
3. Section 22(1)(b) and (d) and section 22(4)(a) of the Finance Act (No.2) Act No.7 of 2019 violate section 71 of the Constitution and are hereby set aside.
4. The first respondent shall pay the applicants the sum of USD142,000 together with interest thereon at the rate of 5% per annum from 28 November 2016 to the date of payment.
5. The respondents shall pay the costs of suit jointly and severally, the one paying the others to be absolved.”
SUBMISSIONS ON BEHALF OF THE APPLICANTS
At the onset of proceedings, the parties were directed to address the Court on whether the matter was properly before the court a quo.
Counsel for the applicants submitted, that, the matter was properly before the court a quo.
He argued that the applicants rights, under section 71 of the Constitution, had been violated by the impugned laws. He suggested that the co-joining before the court a quo of constitutional and non–constitutional issues was not improper.
To that end, he made reference to several authorities that he contended provided exceptions to the principle of constitutional avoidance, and, in this particular respect, submitted that the conflation of issues was held to be non-fatal in the seminal case of Mudzuru & Anor v Minister of Justice, Legal & Parliamentary Affairs NO & Ors CC12-15, now reported as M & Anor v Minister of Justice, Legal & Parliamentary Affairs N.O. & Ors 2016 (2) ZLR 45 (CC).
Counsel for the applicants submitted, that, the principle of res judicata was inapplicable in casu because the aforementioned constitutional issues were not determined in previous litigation.
Therefore, his view was that the matter was properly before the court a quo.
SUBMISSIONS ON BEHALF OF THE FIRST RESPONDENT
Per contra, counsel for the first respondent submitted, that, the matter was not properly before the court a quo.
Counsel contended that the matter, as pleaded by the applicants, went beyond the confines of an application within the contemplation of section 85(1) of the Constitution.
In addition, it was contended on behalf of the first respondent, that, the applicants pleadings lacked the specificity required by the Rules and that the court a quo, mero motu, had identified paragraphs 2.5 and 2.6 of Exchange Control Directive RT128/2018 as being impeachable, and, therefore, unconstitutional.
Counsel for the first respondent further argued, that, the court a quo over-reached its jurisdictional ambit by determining a constitutional issue once it had dealt with a non–constitutional issue.
In addition, it was his contention that the principle of res judicata was applicable in casu since there was previous litigation concerning the same subject matter between the same parties, and, critically, premised on the same cause of action.
He further submitted, that, the court a quo fell into error when it invalidated section 22 of the Finance Act [Chapter 23:04] because that piece of legislation sought to be impugned had only come into effect after the applicants cause of action had allegedly arisen.
SUBMISSIONS ON BEHALF OF THE SECOND RESPONDENT
In turn, counsel for the second respondent associated himself with and concurred with submissions made on behalf of the first respondent, that, the constitutional jurisdiction of the court a quo was not properly invoked.
He made specific reference to Rule 107 of the High Court Rules 2021 as indicative of the appropriate procedure to be followed in constitutional matters before the High Court.
Counsel for the second respondent submitted, that, the applicants reliance on section 85(1) of the Constitution placed an obligation on the applicants to establish the violation of a fundamental right. He pointed to the applicants reliance on exceptions to the general rule of constitutional avoidance as an admission that the matter was principally non–constitutional in nature.
Consequently, counsel for the second respondent submitted, that, the judgment of the court a quo ought to be set aside in its entirety.
SUBMISSIONS ON BEHALF OF THE THIRD RESPONDENT
Counsel for the third respondent also buttressed the point, that, the matter was improperly before the court a quo.
He submitted that the constitutional relief sought before the court a quo was merely tangential to the motive of the applicants, which was the recovery of USD142,000.
He submitted that there must be specificity in the pleadings when declarations of constitutional invalidity are sought in order to preserve the principle of the separation of powers.
It was his submission that the relief sought should not be granted.
THE LAW
Section 175(1) of the Constitution provides, that, where a court makes an order concerning the constitutional invalidity of any law or the conduct of the President or Parliament, the order has no force or effect unless it is confirmed by this Court. Thus, the order of constitutional invalidity by a subordinate court does not bind the Constitutional Court.
It must itself conduct an examination into the constitutionality of the impugned conduct or statute as it is the sole court with the jurisdiction, under the Constitution, to declare such conduct or statute as being unconstitutional or invalid.
As a consequence, the law requires that the Constitutional Court must itself be satisfied as to the invalidity of the law or conduct being impugned.
It is trite that under section 175(1) of the Constitution any declaration is subject to the over-arching jurisdiction and supervisory role of the Constitutional Court.
In this enquiry, it must first decide whether the challenge to the constitutional validity of the law or impugned conduct was properly before the court a quo.
By operation of law, the confirmation proceedings before this Court are, in essence, a process of review of the proceedings before the court a quo.
The principles which are applicable in confirmation proceedings are settled:
(i) Firstly, given the limited jurisdiction of the Constitutional Court as a special court, it has to be determined whether there was a constitutional matter before the subordinate court.
(ii) Secondly, the constitutional matter which would have arisen in the subordinate court must have been properly before that court, and that court must have had the competence to deal with the matter.
The power of this court, in confirmation proceedings, takes the form of a review of the constitutional matter to satisfy itself that the order of constitutional invalidity was correctly made: see S v C (A Juvenile) (Justice for Children's Trust and Zimbabwe Lawyers for Human Rights Intervening as Amici Curiae) 2019 (2) ZLR 12 (CC) and Mupungu v Minister of Justice Legal & Parliamentary Affairs CC07-21.
In Makamure v Minister of Public Service, Labour and Social Welfare and Anor CC01-20 MALABA CJ pertinently posited the following:
“The Court is also not bound by the order of constitutional invalidity made by the court a quo. In S v Chokuramba CC10-19, the Court held at p6 of the cyclostyled judgment as follows:
'The Court is empowered to confirm an order of constitutional invalidity only if it is satisfied that the impugned law or conduct of the President or Parliament is inconsistent with the Constitution. It must conduct a thorough investigation of the constitutional status of the law or conduct of the President or Parliament which is the subject-matter of the order of constitutional invalidity. The Court must do so irrespective of the finding of constitutional invalidity by the lower court and the attitude of the parties.'”
The Court therein noted, that, the invalidity of the law or conduct was a legal consequence of a finding of inconsistency between the law and conduct which the Court might not necessarily be in agreement with.
Thus, the Constitutional Court is empowered to confirm an order of constitutional invalidity only if it is satisfied that the impugned law or conduct of the President or Parliament is indeed inconsistent with the Constitution.
See also Phillips and Anor v Director of Public Prosecutions and Ors 2003 (3) SA 345 (CC)…,.
Given the foregoing, it seems to me that three issues arise for determination:
(i) The first is whether the court should have found that the matter was res judicata, and, as a consequence, declined exercising its jurisdiction in determining the application.
(ii) The second, but quite fundamental issue, is whether a proper constitutionally based cause of action was placed before the court a quo justifying its assumption of jurisdiction and the order that it made.
The respondents contend, that, the lack of specificity in pleading the cause of action should have non-suited the applicants before the court a quo.
(iii) The third is whether the court a quo should have declined to consider the alleged unconstitutionality of the Directive based on the doctrine of subsidiarity, as argued by the respondents....,.
WHETHER HIGH COURT SHOULD HAVE UPHELD THE PLEA OF RES JUDICATA
The applicants took this issue and argued it before the court a quo as a preliminary point. The respondents contend, that, the court a quo should have declined jurisdiction on the ground that the matter before it was res judicata, or, that alternatively, issue estoppel applied.
However, the court a quo disregarded this procedural issue on the basis that the reasoning of the High Court, in the earlier dispute between the parties, was vacated by the Supreme Court under SC15-21 and hence the constitutionality of Exchange Control Directive No. R120/2018 remained unresolved as an issue for determination.
The court a quo found, or alternatively observed, that, the first and second applicants had previously litigated on the same subject matter, involving the same respondents “in the main impugning Exchange Control Directive RT120/2018.” The court a quo further found that the said applicants were “now back again in this court, their cause of action having been re-formulated.”
The learned author, ISAACS, in his text Beck's Theory and Principles of Pleading in Civil Actions, specifies in what respects a previous judgment may be res judicata. At p171, he states as follows:
“The previous judgment is only res judicata as regards matters between the parties which the judgment actually affects and when the plea is raised, it therefore becomes essential to determine whether the present claim is actually affected by the previous judgment.”...,.
See also Wolfenden v Jackson 1985 (2) ZLR 313 (S)...,.
An authoritative discussion on the requirements of res judicata was set out by SANDURA JA in Banda & Ors v Zisco 1999 (1) ZLR 340 (S), wherein the court affirmed the dicta in several decided authorities on the issue. The court stated:
“The requisites of the plea of res judicata have been set out in a number of previous cases. In Pretorius v Barkly East Divisional Council 1914 AD 407 at 409, Searle J set them out as follows:
'As to the first point, the requisites for a plea of res judicata have several times been laid down in this court.
The three requisites of a plea of res judicata, said the Chief Justice in Hiddingh v Denyssen & Ors (1885) 3 Menz 424, quoting Voet (44.2.3), are that the action in respect of which judgment has been given must have been between the same parties or their privies, concerning the same subject matter, and founded upon the same cause of complaint as the action in which the defence is raised…,.
In order to determine the cause of complaint, the pleadings, and not the evidence, in the case must be looked at.'
Subsequently, in Mitford's Executor v Ebden's Executors & Ors 1917 AD 682 at 686, Maasdorp JA said the following:
'The question now arises whether that decision was given under circumstances which preclude the plaintiff from bringing his present action. Are the first defendants entitled to set up that decision as res judicata in the present action? To determine that question, it will be necessary to enquire whether that judgment was given in an action -
(1) With respect to the same-subject matter;
(2) Based on the same ground; and
(3) Between the same parties.'”
From the above authorities, the following essential elements of the plea may be distilled as follows:
(1) The two actions must be between the same parties or their privies;
(2) The two actions must concern the same subject-matter; and
(3) The two actions must be founded upon the same cause of action.
The first two elements of the plea are common cause. The parties in the suits under discussion are the same.
In its judgment, the court a quo made the finding that the subject matter was the same as that of the case which culminated in the appeal under SC15-21.
The third element is that both actions are founded on the same cause of action - this is related to the legality of the legislation in question.
This last is the issue that the court a quo decided to determine.
The court a quo decided to hear the matter on the premise that it could legitimately do so on the “basis that the issue of the constitutionality of the Directive, and of those legislative provisions, was not determined, either to finality or at all.”
The court a quo specifically found, that, the plea did not apply because the earlier judgment by the High Court, which had discussed the Directive, had been set aside by the Supreme Court. The court said:
“[15] I disagree, that, in the present application, issue estoppel or res judicata can be invoked successfully for the reason that the Supreme Court has determined that the consideration of the constitutionality of the Exchange Control Directive RT120/2018 had not been properly motivated before this court in those proceedings and had therefore been improperly decided. The decision of this court on that point has been vacated. Manifestly, it remains open. In other words, the question of the constitutional validity of the Exchange Control Directive RT120/2018 and of section 44B(3) and (4) of the Reserve Bank Act has not been determined.”
The following passage of the court a quo's judgment perfectly encapsulates the essence of the applicants cause of action as follows:
“[22] Holistically, what the applicants want in these proceedings is the impeachment of the device by which the monetary authorities managed to convert their USD142,000 bank balance into an RTGS bank balance, and, thereafter, to be able to stop the applicants from accessing the amount in the original currency of the deposit.”
It is a settled principle, that, where a matter is res judicata, no court can competently re-open it.
In Wolfenden v Jackson 1985 (2) ZLR 313 (S)…, the court held as follows:
"The exceptio rei judicatae is based principally upon the public interest that there must be an end to litigation and that the authority vested in judicial decisions be given effect to, even if erroneous: see Le Roux en 'n Ander v Le Roux 1967 (1) SA 446 (A) at 461H.
It is a form of estoppel and means, that, where a final and definitive judgment is delivered by a competent court, the parties to that judgment or their privies (or, in the case of a judgment in rem, any other person) are not permitted to dispute its correctness."
In casu, the High Court proceeded to hear the matter in the face of spirited objections from the respondents. They contended, that, the court was procedurally barred from hearing the parties on the specific application before it.
By parity of reasoning, a finding by the High Court that the matter before it was res judicata would have disposed of the dispute at that stage.
The respondents have raised the same issue before this Court, arguing that the High Court ought to have upheld the objection by withholding its jurisdiction.
Notwithstanding the allegation of a plea of res judicata, the Constitution provides, in section 175(1), that where a court makes an order of constitutional invalidity, such order has no force and effect unless and until confirmed by the Constitutional Court.
Since confirmation proceedings are in the nature of constitutional review, the court is enjoined to carry out an independent investigation as to whether the proceedings which resulted in the order of constitutional invalidity of legislation now before it, for confirmation or variation, followed the adjectival or procedural tenets of constitutional litigation before confirming or declining to confirm the proceedings as required by section 175(1) of the Constitution.
The High Court proceeded with the matter and this renders the question of issue estoppel as being moot.
Whether the matter was res judicata is of no moment in view of the role of the Constitutional Court in confirmation proceedings following a declaration of invalidity of any law. The Constitutional Court would be seized with the matter irrespective of the plea of res judicata.
A finding that the matter was res judicata would not be dispositive of the dispute nor would it satisfy the requirements set out in section 175(1) of the Constitution which oblige the Constitutional Court to undertake a review of the proceedings resulting in the order of invalidity.
