A limited victory: IP and exchange control

Posted on Oct 24, 2014

A limited victory: IP and exchange control

In the culmination of a widely followed case, on 1 October 2014 the Supreme Court of Appeal ordered the South African Reserve Bank (SARB) to repay Mark Shuttleworth over R250 million plus interest. The money had been levied against Shuttleworth when he applied to transfer his assets out of the country in 2009. He had emigrated from South Africa several years before that, and the prevailing practice at the time was to levy an exit penalty of 10% on any person who emigrated and wished to transfer more than R750,000 from South Africa. This exit levy was dropped in 2010, but this was too late for Shuttleworth as he had already paid the R250 million under protest.

In terms of South Africa’s system of exchange control, approval is required from the SARB before capital can be exported from the country. Recent regulations (discussed here) by the SARB have included intellectual property within the ambit of the term “capital”. Shuttleworth’s initial case before the High Court sought to have the whole system of exchange control declared unlawful and set aside, which many had hoped would pave the way for freer transfer of tangible and intangible assets across South Africa’s borders. However, the Supreme Court of Appeal took a much narrower view of the matter and only sought to decide the issue specific to the case – whether or not the 10% levy imposed on Shuttleworth’s assets was lawful. The Court found it unnecessary to consider the other attacks by Shuttleworth on the exchange control system, as they had no impact on the outcome of his case. The Court warned the lower courts not to engage in speculative and academic enquiries beyond the scope of the cases before them, as such findings may have an effect on future disputes that are yet to crystallise.

The Court characterised the 10% levy as a tax, and because the SARB had not followed the proper procedure required for implementing a policy or regulation that imposes a tax, namely tabling it before Parliament, the levy was held to be unlawful. The Court referred to the well-known “no taxation without representation” principle as a founding principle of Parliamentary democracy in which the executive branch of government should not itself be entitled to raise revenue but should rather be dependent on the taxing power of Parliament, which is democratically accountable to the country’s tax-paying citizens.

The case did not have nearly as far reaching effects as some had hoped, and South Africa’s Exchange Control system remains in place for now. But in a bold and astonishing move, Shuttleworth has reportedly stated that he will commit the entire R250 million into a trust fund to be used to fight worthy Constitutional challenges against the government in future. No doubt this is far from the last word on the matter.

 Ralph van Niekerk

(Ed.) This is a guest editorial article for IPStell, reproduced here with permission of the author.  

 Ralph is a patent attorney and partner at Von Seidels. His expertise includes the preparation and filing of patents and designs, locally and internationally, and he specialises in electronic and IT related inventions. Ralph also has experience and a special focus on IP matters in the United States. He is in charge of quality standards at Von Seidels and has spearheaded the firm’s ISO 9001 certification. Ralph’s expertise includes the preparation and filing of both local and foreign patent applications, especially electronic and computer related inventions. He is experienced in registered design application drafting, patent and general intellectual property litigation, the drafting of patent infringement opinions and the drafting of patent licence agreements. Ralph spent a year studying and working in the field of intellectual property in the United States and remains in tune with the US IP system.