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Court judgment deters investors

THE RECENT Supreme Court judgment on the constitutionality of State-Indebted Companies and Reconstruction Act will further deter investors from doing business in Zimbabwe as it proves that the country does not protect individuals from losing their properties to the state, legal analysts have said.
Chief Justice Godfrey Chidyausiku and three other Supreme Court judges a fortnight ago dismissed with costs a joint application by African Resources Ltd (ARL), THZ and SMMH Zimbabwe contesting the constitutionality of the Act.

Judges Mesheck Cheda, Paddington Garwe and Luke Malaba concurred with Chidyausiku that the companies’ application had no merit and the law was constitutional. Only Justice Wilson Sandura gave a dissenting judgment. Sandura’s judgment is yet to be released.

 

The law allows the state to put under administration any company that is deemed to be state-indebted and has likelihood to fail to repay its loans because its management was involved in fraudulent activities or maladministration.

State indebtedness refers to any loans or debts the company has to a state-owned enterprise.

Legal analysts say the judgment reinforces the perception that Zimbabwe was a country that did not provide protection of private property and it introduced ad hoc laws to deal with commercial transactions that could be handled by using existing legislation.

Scanlen & Holderness senior partner Sternford Moyo said the court’s decision proved that individual rights in the country were not protected.

“All this reminds us that we do not, under the current constitution, have much property protection.  Few will need to be persuaded to understand that without adequate protection of property rights all efforts to inspire investor confidence in our country will come to naught,” Moyo said. “

 

“The current constitution-making exercise should, consequently, have as among its goals, the formulation of a stronger property protection clause than Section 16 (of the current constitution), if we are to lift our country from its current circumstances to greater prosperity.”

Moyo added that the current constitutional review process should take into consideration protection of private property.

“The current constitution-making exercise should, consequently, have as among its goals, the formulation of a stronger property protection clause than Section 16,” Moyo added, “if we are to lift our country from its current circumstances to greater prosperity.”

The Constitution of Zimbabwe Section 16 reads, “no property of any description or interest, or right therein shall be compulsorily acquired except under the authority of a law ….”

These exceptions include land for resettlement or any other property taken in the public interest.

“The judgment is a disaster for investment,” a senior lawyer close to the matter said, “Investors will continue to look at the political environment stability and hope a new government will usher in respect of private property and that that would mark an end to bad laws and judgments in the country.”

The senior lawyer added that Zimbabwe had adequate laws to handle any commercial disputes between and among business partners.

“No matter your offence, the government has no right to take over anyone’s business,” the lawyer said, “Adequate laws to deal with these disputes, and the David Whitehead case is a good example of handling liquidations, scheme of arrangements and insolvency.”

The senior lawyer remarked that Sandura’s judgment should be fully analysed and respected because his rulings invariably invite respect from law-abiding citizens.

Gutu & Chikowero Legal Practitioners senior partner and Senator, Obert Gutu, said the Reconstruction Act was not good for business investment as it paints a picture of state interference in private enterprise.

“The Reconstruction Act has the effect of unfairly introducing state involvement in matters of commercial debt,” Gutu said. “Surely, if Zesa or any other state-owned company is owed money by a debtor, there are adequate legal avenues to enable the creditor to sue the debtor for the purpose of recovering the debt.”

“The Reconstruction Act is a serious indictment on investment promotion and more so, on the genuine and broad-based economic empowerment of historically disadvantaged people,” Gutu added, “It is a draconian piece of legislation that belongs to the Dark Ages particularly in a democratic nation that seeks needs to stimulate foreign direct investment.”

The judgment is similar to the one passed by the same court on land acquisition that was delivered in 2008. Chidyausiku, again, ruled that the land acquisition cannot be contested in court by any aggrieved land owner and the government would pay compensation when it has resources.

The judgment had a net effect of making investment in agriculture unattractive to foreigners and locals alike.

Moyo said the Supreme Court judgment made investment in agriculture unappealing.

“Agricultural land was effectively taken out of the realm of commercial activity.  In an agro-based economy, this is a far-reaching development,” Moyo said at an Economic Outlook Symposium held in Harare a fortnight ago. “It does not make sense to buy agricultural land.  Consequently, it does not make sense to take agricultural land as security for borrowings.  The 99-year lease is not freely transferable.  It cannot be auctioned by the deputy sheriff to recover debts.”

Moyo added that Section 16 of the Constitution did not offer enough protection to investors as their properties could be arbitrarily taken away by the state.

He emphasised that under Roman Dutch Law, governments own the land “from heaven to hell” and everything in between and therefore the business community needs to lobby for restoration of agricultural land into the realm of commercial activity.

Commercial Farmers Union, the umbrella board that represented the majority of white former commercial farmers in the country, has since won an application at the Sadc Tribunal in Windhoek, Namibia, ruling the land expropriations illegal and racist.

Zimbabwe has, however, vowed not to respect the ruling of the tribunal they say they did not recognise and therefore its decisions will not bind the country.

The analysts agree that the state actions are not consistent with upholding the rule of law and protection of private property thereby making the country less attractive to foreign and other serious investors. — Staff Writer.

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