FAIS Ombud rebuked by Tribunal

In the FJ Kotze case heard on 5 July 2021, the Financial Sector Tribunal made several scathing findings against the Office of the FAIS Ombud, something that the newly appointed Ombud Council would do well to investigate. Concerns raised here were already discussed in an article in 2019, indicating then already that the findings were grounds for serious introspection by the Office of the Ombud.

Background

The advice concerned a relatively small portion of the client’s investment portfolio. The adviser offered the client three options. The latter chose the third, the subject of the complaint, obviously because it presented a higher return than the other two and he invested the amount in October 2006.

The investment performed as it had to until February 2009. The client became aware of the problems at Sharemax and under the impression that he had invested directly into that scheme, informed the applicant that he held him liable for his loss.

The client filed his complaint with the Ombud on 23 February 2011, but the Ombud only asked the applicant for information on 16 March 2017. The determination was made on 5 February 2021 – 15 years after the advice and 10 years after lodging of the complaint.

The balance of this article is copied directly from the Tribunal finding.

Issues for consideration

Two issues arise typically in these matters, namely negligence and causation.

The problem with the question of negligence is that the Ombud already in the letter of 16 March 2017 made her position clear: any investment in a property syndication is high risk and any advisor who advises a client to invest in such a scheme is negligent.

Having read many of these determinations, one cannot but conclude that the Ombud approaches these matters with a fixed state of mind. However, for reasons that follow, I shall assume that the applicant was negligent in advising the first respondent as he did.

That brings me to causation. The Ombud in the section of the decision on legal causation conflated negligence and causation and was consequently wrong in principle.

The High Court in Symons NO v Rob Roy Investments CC t/a Assetsure 2019 (4) SA 112 (KZP) found that the collapse of the property syndication schemes was caused by the intervention of the SA Reserve Bank and not by negligent advice. This Tribunal has followed that decision and applied it. The Ombud, without any facts showing that the judgment is incorrect, does not apply its reasoning.

What the Ombud did, was to rely on “evidence” that became available ex post facto pursuant to a detailed investigation as reported in in City Capital SA Property Holdings Limited v Chavonnes Badenhorst St Clair Cooper NO and Others (85/2077) [2017] ZASCA 177; 2018 (4) SA 71 (SCA) and assumed that a reasonable broker would have known of those facts.

Especially disconcerting is this finding of the Ombud:

“It is apparent from the above quoted sections of the judgement of the SCA [City Capital at paras 12-13] that the mismanagement of the company existed before the Income, or dividends as the court referred to them, ceased to be paid to investors and in fact at the time were[when?] investments were being collected or received from members of the public, including the complainant.”

The Court did not say what I have underlined, and the applicant was not asked to comment on the statement.

All this means that the determination must be set aside. This Tribunal has a discretion to refer the matter back to the Ombud for reconsideration. The Office of the Ombud failed in its statutory duty to determine the complaint in a procedurally fair and expeditious manner. Fairness has two sides: being fair to the complainant and being fair to the ‘defendant’. Considering the lapse of time, it would be unjust to refer the matter back.

ORDER: The order of the Ombud is set aside.

Editorial Comment

1. There had been several rulings by the Tribunal since 2019 in which it overruled the Ombud’s finding on causation in syndication cases.
2. The latest FAIS Ombud annual report notes that there were 1 300 property syndication complaints at the start of the year under review. The target which the Office set for itself, 10% of these cases, was exceeded, which effectively means that there are still over 1 000 left. In addition, it appears that only syndication complaints are being tackled. The last short-term case was, for example, published in 2019.
3. The time lag noted in the case above should be a serious concern for an institution whose mission is “…to promote consumer protection and enhance the integrity of the financial services industry through resolving complaints impartially, expeditiously and economically.