Currency nominalism is a legal principle of keeping the amount of a debt obligation fixed despite fluctuations in the money’s purchasing power or exchange rate. According to this principle, the definition of a currency is provided by its denomination and not by its value, therefore ensuring its legal constancy. In simple terms, nominalism disregards the changing value of currency. It takes no account of inflation or depreciation. When currency depreciates, the creditor loses. Conversely, when it appreciates it is the debtor who loses out.
The principle of currency nominalism has its origins in common law and is age-old. Said Greek philosopher Aristotle “. . . money has been introduced by convention as a kind of substitute for a need or demand . . . its value is derived not from nature but from law . . . ” Brett versus Gilbert (1605), commonly known as the “Case of Mixt Monies” confirms the principle of nominalism in the common law of obligations.
Proponents of currency nominalism hold that stability and certainty in the value of money enhances legal security. This is the core of the law of contract. Any changes in the value of a contractual obligation would undermine legal security and entail either revision or cancellation of that contract.
Those opposed to nominalism hold that when force majeure (unforeseeable risks or events) occur (such as inflation), the principle of nominalism can easily lead to an absurd situation undesired by one party, while unjustly enriching or benefiting the other party.
Following the adoption of the multi-currency regime in February 2009, lawyers, human resources practitioners, arbitrators and the courts found themselves in a quandary as to how to deal with the issue of backpay and damages for labour disputes emanating from the Zimbabwean dollar era.
High Court judge Justice Chinembiri Energy Bhunu noted this dilemma when he addressed an IPMZ labour briefing in November 2009. The learned judge rightly observed that prior to the dollarisation, it was a criminal offence for Zimbabwean employers to pay their workers in foreign currency. Said Justice Bhunu: “It is therefore not permissible for any court or adjudicating authority in Zimbabwe to make an award sounding in foreign currency unless the parties had prior to the dollarisation of the economy received Reserve Bank authority for payment to be made in foreign currency. That being the case, the problem of quantification of amounts due and owing to employees or former employees during the Zimbabwean dollar era does not in the main arise because there is really nothing to quantify.” By the same token, loans granted to employees during the Zimbabwean dollar era cannot be recovered in foreign currency and will have to be written off.
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Justice Bhunu lamented the lack of action on the part of lawmakers to plug the legislative gap following the crash of the Zimbabwean dollar, leading to many creditors (including unlawfully dismissed employees) losing out through no fault of theirs.
Recent judgments from the High Court of Zimbabwe indicate that perhaps Justice Bhunu’s prayers are being answered and questions on currency nominalism may soon be settled. In the case of Mpofu versus Commissioner of Police (judgment HH 8/2011 ), the court decided that the plaintiff (Mpofu) was to be paid damages in lieu of reinstatement in foreign currency. Mpofu had been unlawfully dismissed from the police force during the Zimbabwean dollar era.
The case of Gift Bob David Samanyau and 38 Others versus Fleximail (Pvt) Ltd (judgment HH 108/11) is the locus classicus (leading case) on the subject of currency nominalism so far. For the benefit of those who have not come across this judgment, I will give a brief background.
Samanyau and his colleagues were dismissed from Fleximail in 2005 for misconduct. In July 2007 the Labour Court found in their favour and ordered Fleximail to either reinstate them or alternatively pay damages in lieu of reinstatement. Fleximail opted to pay damages. Quantification of the damages was done in December 2008. The ex-employees were to receive five years’ salary each as damages for unlawful dismissal. In February 2009, soon after the adoption of multi-currencies, Fleximail attempted to pay the former employees using Zimbabwean currency. By then, the Zimbabwean dollar had become redundant or moribund. Not surprisingly, Samanyau and his colleagues rejected this gesture and made an application to the High Court seeking a declaratory order for payment in foreign currency. Their principal argument was that the principle of nominalism runs contrary to the Labour Act’s objective of achieving social justice in the workplace.
The parties appeared before Justice Andrew Mutema. Justice Mutema ruled in favour of the dismissed employees. According to the learned judge, paying someone in Zimbabwean dollars was “tantamount to giving someone an ordinary stone and expecting him/her to transact using that stone as a medium of exchange”. Court judgments ordering payment in Zimbabwean currency would be a brutum fulmen (an empty judgment) and will be both unfair and contrary to public policy.
Justice Mutema went further to say: “The principle of nominalism works fairly in an economy which can be described as normal or stable or at the very worst, in which inflation is not hyper, not like in an environment with a runaway inflation as was the case in this country in the period immediately preceding the introduction of the multi-currency regime.
After introduction of multiple currencies in February 2009, it is beyond cavil that the Zimbabwe dollar died a natural death by disuse. To then give someone such currency which no one nationwide was prepared to accept in any transaction, let alone beyond our borders, as damages in lieu of reinstatement, after having laboured for the employer for periods ranging between 25 and 46 years — like the respondent (Fleximail) did in casu — is not only immoral, but an infringement of a human right.
The judge ordered payment at the official exchange rate applicable as at July 5 2007, the date of the Labour Court reinstatement order.
Fleximail could not afford to pay the exorbitant compensation packages to the dismissed employees emanating from the order and has accordingly appealed to the Supreme Court against it while lawyers representing the ex-employees have filed a cross-appeal with the same court.
The matter is likely to be heard before the end of this year. The Supreme Court’s position on this matter will obviously guide all lower courts and tribunals on how the issue of currency nominalism will be handled for all unresolved Zimbabwean-dollar-era cases that will be heard in future.
Isaac Mazanhi is a labour analyst. He writes in his personal capacity. He can be contacted on email: imazanhi@hotmail.com