FAIS Ombud did not act impartially in Sharemax matter, says tribunal

The Financial Services Tribunal (FST) has sharply rebuked the FAIS Ombud for the way in which she arrived at a Sharemax determination, saying the ombud not only failed to interrogate the FSP’s version, but she also championed the client’s cause instead of being an impartial adjudicator.

As in a previous decision concerning Sharemax, the tribunal said there were material disputes of fact in this case. The only way for the FAIS Ombud – and the FST – to resolve these disputes was to consider oral evidence from witnesses. The ombud had failed to do this.

Read: Tribunal appeals to FAIS Ombud to get her act together

In March 2021, the ombud ordered Jacomina Spies (trading as Jacomina Spies Financial Services) to pay R255 000 to a client (“AP”) who invested in Sharemax property syndication schemes.

AP complained to the FAIS Ombud in February 2011. The FST heard the reconsideration application in March this year.

“It bears mentioning that it has taken more than 10 years to reach this point, which the tribunal finds unacceptable,” the FST said.

The FST said Spies’s version and the client’s version of what had been disclosed and understood prior to the investment were “mutually destructive, thus giving rise to material disputes of fact which cannot be resolved without the benefit of viva voce [testimony by a witness orally] evidence”.

According to the FST, Spies submitted that she thoroughly explained the nature of the investment to AP as described in the prospectus, taking into account the client’s risk tolerance and the relevant factors required in section 8(4) of the Code of Conduct.

AP submitted that Spies had advised her that she could not lose any money, and the investment was risk-free for all intents and purposes, enjoying a capital guarantee.

Ombud was not impartial

The FAIS Ombud found that the investment was inappropriate for the client, and Spieshad breached the Code of Conduct. The tribunal said that in reaching this conclusion, the ombud either ignored or overlooked the following facts highlighted by Spies in a letter to the ombud:

• AP received, read and understood the prospectus;
• AP knew of the risks associated with the investment;
• AP knew that the capital and interest were not guaranteed; and
• More than one meeting had taken place between Spies and AP before the investment was made.

“The obvious question that arises in these circumstances is how, in the face of mutually destructive versions, the second respondent [FAIS Ombud] made a decision. The second respondent not only failed to interrogate the first respondent’s [the client’s] version; she championed the first respondent’s cause instead of being an impartial adjudicator,” the tribunal said.

“It beggars belief that in the face of the expert evidence presented by the applicant [Spies] of two experts, and in the absence of expert evidence presented by the first respondent [the client], the second respondent [FAIS Ombud] accepted the first respondent’s version and rejected the expert evidence presented by the applicant’s expert witness,” the FST said.

“It is unfathomable how in the absence of expert evidence rebutting the expert evidence presented by the applicant, the second respondent could conclude that the applicant had conducted herself unreasonably in this matter.

“The second respondent [FAIS Ombud] is not an expert concerning the investment. Even if we are wrong on this point, in the face of the expert evidence, the second respondent, who should be an independent arbiter, ought to have [or] should have sought independent expert evidence, as contemplated in section 24(e) of the FAIS Act.”

Dispute over whether the facts were in dispute

The tribunal said the material factual disputes and the expert evidence provided on behalf of Spies should have led the ombud to invoke sub-section 27(3) of the FAIS Act.

Paragraph (c) states: “The ombud may on reasonable grounds determine that it is more appropriate that the complaint be dealt with by a court or through any other available dispute resolution process and decline to entertain the complaint.”

The FAIS Ombud’s determination records that counsel for Spies made a 27(3)(c) application to the ombud.

But the ombud rejected the application, saying: “This is not a matter that cannot be determined in terms of the rules and processes of this office. There are no irreconcilable disputes of fact which require an adversarial hearing. As will be demonstrated in this determination, the issues between the parties can be resolved on the undisputed facts.”

She wrote at the time that the purpose of the FAIS Act would be defeated if parties to a complaint can, merely by application in terms of section 27(3)(c) to the Ombud’s office, elect to refer a matter to a court.

“There are no reasonable grounds on which this office can determine that it is more appropriate that the complaint be dealt with by a court. This point has never succeeded before the Board of Appeal and nor before the tribunal,” according to the determination.

Tribunal hopes for ‘a sensible and responsible approach’

Counsel for Spies initially asked the FST to dismiss the matter and not refer it back to the ombud for reconsideration, on the grounds of the extensive delays and the prejudice his client was suffering while the matter hung over her head.

Although the FST said it empathised with this argument, it did not have the authority to do so. Furthermore, the complaint and the responses “should be ventilated appropriately, as the tribunal would be unable to decide the matter on the facts currently before it”.

The tribunal set aside the determination and referred it back to the ombud for reconsideration.

The FST it hoped the ombud would adopt “a sensible and responsible approach” when fulfilling her duties to reconsider the matter.