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The constitutional challenges facing the prescription of assets

Opinionista • Paul Hoffman • 15 September 2019

Until all alternative avenues have been properly explored it will be easy to argue that ‘less restrictive means’ to achieve the purpose of prescribing assets have not been tried.

Somewhat vaguely, the President has confirmed that government is considering the “prescription of assets” as a way of raising funds to keep underperforming or technically insolvent state-owned enterprises funded.

Who would lend money to a loss-making enterprise? Only extreme optimists and those compelled to do so. By requiring private pension schemes to lend to SOEs the government hopes to find “easy money” to keep the state functioning, the lights on, and the SAA aircraft flying.

This type of step was taken in the darkest days of apartheid when the ability of the state to pay its creditors came under considerable pressure due to banking sanctions and other anti-apartheid activities. Why not now?

The difference is that during apartheid SA was a parliamentary sovereignty, but now we are a constitutional state in which the provisions of the constitution and the rule of law are supreme.

This change in the foundation of the state has a direct impact on the ability of the government to introduce the prescription of assets. It cannot be done “willy nilly” and simply because someone in the Union Buildings considers it a capital way of raising funding.

Section 2 of the Constitution tells us that “law or conduct inconsistent with it is invalid, and the obligations imposed by it must be fulfilled.”

In turn, Section 7(2) of the Bill of Rights requires the state to respect, protect, promote and fulfil all of the rights in the Bill of Rights. One of these rights is the right to property. A pension is undeniably property. Under Section 25(1): “No one may be deprived of property except in terms of law of general application, and no law may permit arbitrary deprivation of property.”

A law which targets those prudent enough to contribute to a private pension fund is not a “law of general application”. It is arguably a form of unfair discrimination against savers who invest in pensions and would accordingly fall foul of the proscribed forms of unfair discrimination itemised and outlawed in section 9 of the Constitution, our “Equality Clause”.

There will be those who argue that the right to your pension is not an unlimited right and that a law allowing the prescription of assets is still a “law of general application” because it involves all holders of pension rights.

It is true that Section 36 of the Bill of Rights lays down that: “(1) The rights in the Bill of Rights may be limited only in terms of law of general application to the extent that the limitation is reasonable and justifiable in an open and democratic society based on human dignity, equality and freedom, taking into account all relevant factors, including-

(a) the nature of the right; (b) the importance of the purpose of the limitation; (c) the nature and extent of the limitation; (d) the relation between the limitation and its purpose; and (e) less restrictive means to achieve the purpose.(2) Except as provided in subsection (1) or in any other provision of the Constitution, no law may limit any right entrenched in the Bill of Rights.” Assuming, without conceding, that the “law of general application” hurdle can be overcome by skilful legislative drafting, the further hurdle is likely to see the whole scheme of the notion of prescribed assets crash and burn. The crafting of a limitation that is “reasonable and justifiable in an open and democratic society” is not legally possible. When the factors in (a) to (e) above are examined and considered it is plain that the introduction of prescribed assets will not be able to pass constitutional muster.

The “nature of the right” (in this case the right to property that every pension holder and pensioner has to their pensions) is one of the cardinal aspects of the Bill of Rights. The right to property is internationally regarded as part of the rule of law. The rule of law cannot be tampered with other than by way of a 75% majority in Parliament, and, even with EFF support, the ANC does not command sufficient votes to get over this hurdle. Expropriation of pension rights without compensation is not allowed under Section 25.

The importance of the purpose of the limitation on the rights to pensions is that the state needs to raise funds to keep failing SOEs afloat. Vanity projects such as SAA are not a worthy cause; other avenues, such as the unbundling or privatisation of Eskom, Prasa, Denel and others are available to the government; only hidebound and outdated ideology is preventing the alternative cures from being implemented. These are not good reasons for the introduction of prescribed assets.

The nature and extent of the limitation have been described as “theft” by the DA. Even if theft is not involved in the way in which the prescription of assets is constructed, it is difficult to see how the expropriation of the pensions or a percentage of them are not in direct contravention of the provisions of Section 25. The relation between the limitation and its purpose is that the state will be seen to be scrounging around for easy targets to relieve of assets so as to prop up its failing SOEs. This is hardly a convincing argument for limiting rights guaranteed to all in the Bill of Rights. There are many less restrictive means of achieving the funding of failing SOEs, such as selling them off, closing them down and unbundling them with a limited sell-off of a percentage of those SOEs which seem to stand a chance of survival. More importantly, the failure of SOEs is attributable to their mismanagement and to the looting of their assets during the heyday of state capture in SA. The state is well able to take steps to discharge the incompetents in management positions; it does not do so at its peril and for fear of upsetting parts of its constituency.

The recovery of loot, wherever it may be in the world, is a possibility that has not yet been sufficiently explored by the state. The Saxonwold complex abandoned by the Guptas has not been on the receiving end of attention from the Assets Forfeiture Unit, funds schlepped offshore by a myriad of miscreants ranging from the Guptas to the Watsons have not been followed up, as they easily can be if the necessary political will to take on the state capturers can only be generated by those now governing. Fear of a “fight back” is no justification for the ongoing inaction on this front.

There are hundreds of Eskom deals under review by the Helen Suzman Foundation – if the government conceded that they should be set aside, the invalidation would see positive cash flow into Eskom. In a similar vein the “tall trains” bought by PRASA should be sent back for credit as they are patently unfit for the purpose for which they were bought.

Going further back in history: all of the arms deals are tainted by irregular tendering, the lack of authority to borrow offshore to fund them and the corruption which indelibly tainted them. Setting aside the arms deals would generate a refund from arms dealers of in excess of R70-billion, which could come in handy in these testing times of fiscal austerity. The Peace Centre has an action pending in the High Court in Pretoria on the BAe deal. The state could throw in the towel (as was done on the Seriti Commission review) and release some R35-billion in that matter alone. Debt collection in respect of the loot of state capture is an international boom industry in which SA seems to be shy to participate.

Until all of these alternative avenues have been properly explored it will be easy to argue that “less restrictive means” to achieve the purpose of prescribing assets have not been tried. Pensioners should draw comfort from the wording of Section 36(2) and the DA should, as it says it will, gird up its loins for a constitutional challenge. DM

Paul Hoffman SC is a director of Accountability Now.

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