Financial Tribunal outcome

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– The right to state your case is not negotiable

Audi alteram partem (or audiatur et altera pars) is a Latin phrase meaning “listen to the other side”, or “let the other side be heard as well”. It is the principle that no person should be judged without a fair hearing in which each party is given the opportunity to respond to the evidence against them.

This phrase was particularly relevant in the outcome of a recent Financial Tribunal case where the chairperson commented: “…failure to observe the audi alteram partem rule is fatal”.

But what lead to this outcome?

The Applicants, M Financial Services, appealed against an original Determination of FAIS Ombud, that found that they had to pay the complainant’s loss in a failed investment – an amount of R500 000.

About the original FAIS Ombud case

On 22 February 2011, the executors of the Estate of Late Mr. O filed a complaint with the FIAS Ombud against M Financial Services and Mr G, (the respondent). The complaint arose from a failed investment made by the complainant, on the respondent’s advice, into Sharemax, a property syndication scheme.

About the failed investment

On 18 March 2009, the complainant, a 74 year old retired veterinary surgeon, sought advice from the respondent in respect of investing R500 000, to generate an income during retirement. This amount represented a significant portion of the complainant’s entire life savings which totalled R800 000.

As a result of the investment the complainant received a monthly income of R4791.67 from April 2009 until August 2010 when all income payments ceased.

The outcome of the original FAIS Ombud case

  • The FAIS Ombud found that the risks in the investment were not disclosed, in violation of Section 7 (1) of the General Code of the Conduct. The section calls upon providers other than direct marketers to provide “a reasonable and appropriate general explanation of the nature and material terms of the relevant contract or transaction to a client, and generally make full and frank disclosure of any information that would reasonably be expected to enable the client to make an informed decision’”
  • The respondent further violated the Code in terms of section 8 (1) (a) to (c) and section 2. The investment represented a significant portion of the complainant’s accumulated savings.
  • The respondent also failed to provide complainant with a recommendation that was appropriate to his needs and circumstances and, despite the fact that the complainant had sought a higher income, there is no indication that respondent had adhered to the provisions of section 8 (4) of the Code.
  • The representations made to complainant therefore were incorrect and in violation of section 3 (1) (a) (vii) of the Code. There is no doubt that had the complainant been made aware of the risks involved in these investments, they would not have invested in any of the schemes.

As a result the FAIS Ombud recommended that the respondent pay the complainant’s loss in the amount of R500 000. The respondents were invited to revert to the FAIS Office within ten working days with their response to the recommendation. Failure to respond with cogent reasons would result in the recommendation becoming a final determination in terms of Section 28 (1) of the FAIS Act10.

What the Tribunal’s investigation found

The Ombud’s letter (the outcome of the Ombud case) was sent to the Applicants using a wrong e-mail address and it never reached them. The letter was not sent or copied to the Applicants’ attorneys.

As a result of no response from the applicant, the office of the Ombud issued a Determination in terms of Section 28(1) of the Act to be read in conjunction with the recommendations in terms of Section 27(6)(c) which upheld the complaint and ordered the Applicants to jointly and severally pay the Respondent the sum of R500 000.

It was therefore clear that there was an oversight at the Ombud’s office in that the Applicants were never given the opportunity to respond to the Recommendation.

Section 20 of the FAIS Act specifically reads:
“Section 20(3)
(3) The objective of the Ombud is to consider and dispose of complaints in a procedurally fair, informal, economical and expeditious matter and by reference to what is equitable in all circumstances…”

It is thus clear that there was procedural unfairness in this matter and that the Applicants were denied the right to be heard as required by the audi alteram partem rule.

The outcome of the matter was referred back to the Office of the Ombud and the applicants were permitted to respond to the recommendations.

Click here to download the original FAIS Ombud determination.

Click here to download the Financial Tribunal’s’ Judgement.

Financial Tribunal outcome

Posted on by

– The right to state your case is not negotiable

Audi alteram partem (or audiatur et altera pars) is a Latin phrase meaning “listen to the other side”, or “let the other side be heard as well”. It is the principle that no person should be judged without a fair hearing in which each party is given the opportunity to respond to the evidence against them.

This phrase was particularly relevant in the outcome of a recent Financial Tribunal case where the chairperson commented: “…failure to observe the audi alteram partem rule is fatal”.

But what lead to this outcome?

The Applicants, M Financial Services, appealed against an original Determination of FAIS Ombud, that found that they had to pay the complainant’s loss in a failed investment – an amount of R500 000.

About the original FAIS Ombud case

On 22 February 2011, the executors of the Estate of Late Mr. O filed a complaint with the FIAS Ombud against M Financial Services and Mr G, (the respondent). The complaint arose from a failed investment made by the complainant, on the respondent’s advice, into Sharemax, a property syndication scheme.

About the failed investment

On 18 March 2009, the complainant, a 74 year old retired veterinary surgeon, sought advice from the respondent in respect of investing R500 000, to generate an income during retirement. This amount represented a significant portion of the complainant’s entire life savings which totalled R800 000.

As a result of the investment the complainant received a monthly income of R4791.67 from April 2009 until August 2010 when all income payments ceased.

The outcome of the original FAIS Ombud case

  • The FAIS Ombud found that the risks in the investment were not disclosed, in violation of Section 7 (1) of the General Code of the Conduct. The section calls upon providers other than direct marketers to provide “a reasonable and appropriate general explanation of the nature and material terms of the relevant contract or transaction to a client, and generally make full and frank disclosure of any information that would reasonably be expected to enable the client to make an informed decision’”
  • The respondent further violated the Code in terms of section 8 (1) (a) to (c) and section 2. The investment represented a significant portion of the complainant’s accumulated savings.
  • The respondent also failed to provide complainant with a recommendation that was appropriate to his needs and circumstances and, despite the fact that the complainant had sought a higher income, there is no indication that respondent had adhered to the provisions of section 8 (4) of the Code.
  • The representations made to complainant therefore were incorrect and in violation of section 3 (1) (a) (vii) of the Code. There is no doubt that had the complainant been made aware of the risks involved in these investments, they would not have invested in any of the schemes.

As a result the FAIS Ombud recommended that the respondent pay the complainant’s loss in the amount of R500 000. The respondents were invited to revert to the FAIS Office within ten working days with their response to the recommendation. Failure to respond with cogent reasons would result in the recommendation becoming a final determination in terms of Section 28 (1) of the FAIS Act10.

What the Tribunal’s investigation found

The Ombud’s letter (the outcome of the Ombud case) was sent to the Applicants using a wrong e-mail address and it never reached them. The letter was not sent or copied to the Applicants’ attorneys.

As a result of no response from the applicant, the office of the Ombud issued a Determination in terms of Section 28(1) of the Act to be read in conjunction with the recommendations in terms of Section 27(6)(c) which upheld the complaint and ordered the Applicants to jointly and severally pay the Respondent the sum of R500 000.

It was therefore clear that there was an oversight at the Ombud’s office in that the Applicants were never given the opportunity to respond to the Recommendation.

Section 20 of the FAIS Act specifically reads:
“Section 20(3)
(3) The objective of the Ombud is to consider and dispose of complaints in a procedurally fair, informal, economical and expeditious matter and by reference to what is equitable in all circumstances…”

It is thus clear that there was procedural unfairness in this matter and that the Applicants were denied the right to be heard as required by the audi alteram partem rule.

The outcome of the matter was referred back to the Office of the Ombud and the applicants were permitted to respond to the recommendations.

Click here to download the original FAIS Ombud determination.

Click here to download the Financial Tribunal’s’ Judgement.