MAY & ORS v RESERVE BANK OF ZIMBABWE 1985 (2) ZLR 358 (S)

Flynote

Constitution — s 16 — compulsory acquisition of external securities — calculation of adequate compensation.

Exchange Control Regulations, 1977 — s 12 — acquisition of external securities — whether adequate compensation includes compensation for premium payable on transfer of external securities within Zimbabwe.

Headnote

Since the unilateral assumption of independence in 1965, local residents have had no right under exchange control legislation to purchase external securities with local funds save to the extent that the total investment did not exceed the value of a "pool" of foreign exchange in the form of locally-held foreign securities already acquired prior to that event or enlarged by the addition of the value of external securities brought in by immigrants. External securities held in the pool were traded on the Zimbabwe Stock Exchange at a price quoted in Zimbabwe currency. A sale would take place on the local Stock Exchange but would be effected thereafter by the local broker on a foreign stock exchange under his name. The foreign currency generated by the sale would be held by the local broker and would be available for the purchase by residents of further foreign securities. The demand for access to this foreign currency in order to purchase foreign securities brought about, when demand exceeded supply, the payment of a premium on the externally-quoted share price; if demand were less than the supply a discount prevailed. From November 1983 until 14 March 1984, when dealings in foreign securities were suspended as part of the expropriation scheme under s 12A of the Exchange Control Regulations, 1977, the prices of South African shares on the Zimbabwe market was higher than the price of the same shares on the South African market converted at the ruling rate of exchange, the higher price being equivalent to a premium of 31% on buying transactions and 31% on selling transactions. The premium was established by brokers each day, and at the time of expropriation was 30%. Appellants had acquired South African securities which were expropriated under the scheme put into effect by the respondent. If dealings had not been suspended the premium of 30% on selling transactions would probably have continued until at least May 1984; had the securities been voluntarily sold the price realised would have been that quoted on the Zimbabwe Stock Exchange. The compensation payable under the scheme was the value of the securities on the Johannesburg Stock Exchange on the day of expropriation, converted to local currency at the ruling rate of exchange. Appellants contended that, in order for the compensation to be "adequate" in terms of s16 of the Constitution of Zimbabwe, it should be based on the locally quoted value, ie it should take cognizance of the premium.

Held (per DUMBUTSHENA CJ, SANDURA AJA concurring), that the premium was not part of the integral value of the shares and for that reason alone it would have been wrong to assess compensation on the basis that the premium was an integral part of the value of the shares.

Held, further, that to be adequate, compensation must sufficiently recompense the owner for his loss without imposing an unwarranted penalty on the public; the payment of compensation in respect of the premium would entail the imposition of such unwarranted penalty in that the community would be paying for the risk undertaken by the appellants that the premium would be recovered.

Held, further, that whereas in terms of the Regulations the compensation was required to be the "market value" of the shares, this market value meant the best price which could be obtained on the open market which had to ⁱ be based on the Johannesburg Stock Exchange.

Held, further, (per McNALLY JA, SANDURA AJA concurring), that prior to the 1980 Constitution the State had the right to expropriate external securities without paying compensation for the premium, and announced its intention to exercise that right; persons holding or acquiring securities thereafter undertook not only the usual risk of depreciation in value of ^j the securities, but the additional risk in respect of the possible expropriation of the securities and loss of the premium; the introduction of the existing Constitution only guaranteed existing rights and could not convert the precarious right in respect of the premium into an absolute right; adequate compensation was accordingly the lesser amount calculated ^k on the basis of ignoring the premium.

Held, further, that the respondent did not acquire the premium but merely ^l deprived the appellants of its benefit and is accordingly only obliged to pay compensation in respect of that which it acquired namely the securities themselves.

Held, further, (per BECK and GUBBAY JJA dissenting), that the only market in which local investors could deal was the local market; on that local market the premium paid was an inseparable component of the value of ^m the shares; the Constitution obliges the payment of adequate compensation; compensation is to be determined with reference to the value of the property to the person from whom it is acquired, any alteration in value caused by the expropriation itself being ignored; it being accepted that the market value will be adequate compensation, the market value of the external securities was their Zimbabwe market value inclusive of the ⁿ 30% premium.