In an important judgment delivered on the 14th May, High Court Judge Happias Zhou declared that a directive issued by the Reserve Bank under the Exchange Control Act was unconstitutional because, by converting existing bank deposits from US dollars to RTGS dollars at a rate of one US dollar to one RTGS dollar, it effectively devalued the deposits.

The case was Stone/Beattie Studio v CABS & Others (HH-287/2020), and it can be accessed on the Veritas website [link]

The Facts

The applicants, the partners of Stone-Beattie Studio, had a bank account with CABS in which they deposited US dollars.  At that time the US dollar was legal tender in Zimbabwe, i.e. was a currency in which transactions could legally be conducted in this country.

The applicants were apparently worried when in October 2016 regulations were enacted under the Presidential Powers (Temporary Measures) Act (SI 133 of 2016) declaring that Bond notes and coins were legal tender at a par value with the US dollar.

So they wrote to CABS in November 2016 reminding the institution that it was the custodian of the US $142 000 in their account ‒ meaning that CABS had a duty to keep the money safe ‒ and saying that no further deposits or withdrawals would be made into or from the account.

The applicants’ fears proved justified when in October 2018 the Reserve Bank issued a directive to financial institutions [Exchange Control Directive 120/18] the effect of which was to categorise the applicants’ account as an RTGS foreign currency account from which money could be paid out only in Bond notes and coins [later called RTGS dollars], not in US dollars.  As a result, the applicants applied to the High Court for orders:


  • declaring the Reserve Bank’s directive to be unconstitutional
  • directing CABS to pay them out the money in their account in US dollars, or else to transfer the money to a Nostro account denominated in US dollars.

The court granted both the orders and so did not find it necessary to deal with a further order which the applicants sought as an alternative, namely a declaration that sections of the Reserve Bank of Zimbabwe Act which dealt with bond notes were unconstitutional.


The Judgment

Banker-customer relationship

The parties agreed that CABS’s obligations towards the applicants were based on the banker-customer contract between them, a contract which is essentially one of debtor and creditor, the bank (in this case CABS) being the debtor and the customer (the applicants) the creditor.  The contract between the parties meant that:

  • Money deposited into the account ceased to belong to the applicants.  CABS became the owner of the money and was free to use it as it pleased, so long as it paid the equivalent amount on demand by the applicants.  CABS was not obliged to repay the exact notes and coins that were deposited into the account, just an equivalent amount.
  • The debt which CABS owed the applicants had to be repaid in US dollars because the account was denominated in that currency.  As the learned Judge said:

“Banking would be meaningless if a person deposited a certain sum of money … 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.”

On the basis of the parties’ banker-customer relationship, therefore, CABS was obliged to pay the applicants $142 000 in US dollars.

However, the Reserve Bank’s directive RT120/18 stated that holders of accounts such as the applicants’ had to be paid out in Bond notes and coins, and if the directive was valid CABS could not defy it.  Hence the learned Judge turned to the directive, to decide whether it was indeed valid.

The validity of the directive

The learned Judge held that the Constitution, by entrenching constitutional supremacy, empowers Zimbabwean courts to review actions and decisions taken by every State institution and agency to ensure that they comply with the Constitution and the values that underpin it, in particular the rule of law, respect for fundamental rights and freedoms, and good governance.  Of these:

The rule of law:

  • in its procedural aspect, means that the exercise of power by a government institution or agency ‒ in this case the issue of directive RT120/18 ‒ must be rationally, i.e. reasonably, related to a legitimate purpose for which the power was given, otherwise it is arbitrary.  Reasonableness in this context is concerned with the merits of the exercise of power:  a decision will transcend the bounds of reasonableness if a reasonable person, applying their mind to the issues, would not have taken the decision.
  • in its substantive aspect, entrenched in section 44 of the Constitution, means that all government institutions and agencies must respect the fundamental rights of individuals, including their property rights.

Good governance:

This is a new feature of our constitutional dispensation and includes transparency, justice, accountability and responsiveness.  It demands that power must be exercised with sensitivity to fairness and justice, and in a manner that does not unnecessarily deprive people of their rights.

In the light of these constitutional requirements, the learned Judge held that the directive was invalid because:

  • It had retrospective effect, in that it arbitrarily converted existing US dollar balances into something else, i.e. RTGS balances.  It should have affected future transactions rather than existing balances.  Although the Government had enacted regulations stating that RTGS dollars and US dollars were equal in value, equality of value can only be fairly determined by the market.  The effect of the directive was that the applicants’ US $142 000 was now ZS $142 000, worth probably less than 4 per cent of its US dollar value at prevailing official rates.  A decision which reduced the applicants’ US $142 000 to a small fraction of its value cannot be defended in a democratic society founded upon the values enshrined in the Constitution of Zimbabwe.
  • The directive compelled CABS to breach the terms of its banker-customer contract with the applicants, as outlined earlier.
  • It amounted to a deprivation of property in breach of section 71 of the Constitution.  The sovereignty of a government to determine its currency cannot extend to arbitrarily changing the currency of money in a bank to another currency.
  • It would be contrary to all notions of justice and fairness, and to the rule of law and good governance, if the State or the Reserve Bank were to be allowed to rename money in an account and decide it had become something different.  The directive was not only arbitrary and irrational but failed the test of reasonableness.

Merits of the Judgment

The judgment is a resounding affirmation of the democratic values enshrined in the Constitution.  It makes it clear that when a court subjects administrative conduct to review ‒ i.e. when the court determines whether or not conduct is legal ‒ the substance and effect of the conduct must be considered, and constitutional values of legality, good governance and the rule of law must be taken into account.

The judgment has other merits as well:

  • It was delivered promptly, just a week after the Judge heard argument in the case.  If only judges of the Supreme Courtand the Constitutional Court were so quick to deliver their judgments!
  • The Judge was not diverted by side-issues.  He gave short shrift, for example, to an assertion by the Minister of Finance that he had been improperly joined as a party to the proceedings.  The judge held that he had a legal interest in the case since he was the Minister responsible for administering the Reserve Bank of Zimbabwe Act and for supervising the Reserve Bank.

Final Comments

The Minister and the Reserve Bank were quick to note an appeal against the judgment.  This is not surprising, since the principles expounded in it apply to all other bank accounts which the Reserve Bank’s directive converted from US dollar accounts to RTGS accounts in 2018.

If the Supreme Court upholds the judgment, as it certainly should, then all banking institutions will have to refund their account-holders, in US dollars, the amounts that they lost as a result of the conversion.

And banking institutions that are obliged to make those refunds may have a right to recover from the Reserve Bank the losses they incur as a result of complying with the Bank’s directive.

Perhaps the judgment will make banking institutions less ready to comply meekly with directives issued by the Reserve Bank ‒ to insist, for example, on a written indemnity from the Bank before they comply with a directive that prejudices their account-holders.  Put more bluntly, perhaps the judgment will make banking institutions pay more regard to their customers’ rights and interests.