The FAIS Ombud made findings that were either not supported by the facts or conflicted with the facts on record, the Financial Services Tribunal (FST) said in a decision that set aside yet another property syndication determination.
The tribunal said the evidence on the record did not support the conclusions drawn by the ombud, describing some of them as speculative.
The FST also addressed two key issues in the reconsideration application:
- Whether the FSP had provided advice to the complainants, as defined by the FAIS Act; and
- Whether the FSP had failed in his duty by not intervening to prevent the investment.
Advocate Nonku Tshombe issued her determination in August 2021, which, as the tribunal noted, was 10 years after the complaint had been filed and 15 years after the conduct complained of.
In February 2007, a pensioner couple, a Mr and Mrs Visser, each invested R600 000 in Spitskop Village Properties Ltd, which intended to acquire land and establish a residential township. The property syndication scheme was promoted by Bluezone Property Investments (Pty) Ltd.
In 2009, Bluezone and Spitskop were placed in liquidation. Although the Vissers received some “interest payments” from their investment, it seems that much of their capital will never be recovered, according to the FST.
In May 2011, the Vissers filed a complaint with the FAIS Ombud against Theuns Greyling, seeking to hold him liable for their loss. (Their complaint also made allegations of wrongdoing on the part of a Bluezone consultant, Bluezone’s management, and the firm of attorneys into whose trust account they paid their money.)
The ombud found that Greyling had acted negligently, and his negligence was the cause of the Vissers’ loss. He was ordered to pay Mr and Mrs Visser R600 000 each, plus interest of 7% a year from seven days of the date of the ombud’s order to the date of final payment.
Greyling filed a reconsideration application in October last year. The hearing was held in September this year, and the tribunal handed down its decision in November.
Silence isn’t golden?
According to the FST’s summary of the background to the dispute, Greyling, in his response to the FAIS Ombud, said he met the Vissers in February 2007 after a Liberty consultant told him that Mr Visser had some money to invest. Mr Visser had contacted Liberty about investing his pension.
According to Greyling’s version:
- He informed the Vissers that he was an independent broker who was contracted to sell Liberty, Sanlam, Discovery, and Momentum products.
- Mr Visser stated that he had R300 000 to invest, and he wanted a monthly income.
- When Greyling produced a quote, Mr Visser said the monthly income was too low, and he would have to look at other investments that offered a higher income yield.
- Greyling told him that he knew of a Bluezone investment that offered a higher income, but he did not know the product very well and asked whether he could introduce the Vissers to a consultant from Bluezone to explain the product in detail.
- Prior to this, another financial adviser had referred a Bluezone consultant, a Mrs Stroh, to Greyling. Greyling and Stroh met in January 2007, when she briefly explained the Bluezone products to him and asked whether he knew of any potential clients.
- A few days after his initial meeting with the Vissers, Greyling set up an appointment with Stroh. Stroh explained the product to the Vissers. Stroh asked Mr Visser various questions pertaining to his risk appetite. The Vissers agreed to proceed with the investment once Stroh had finished explaining the product. Mr Visser handed her a cheque for R300 000. [The Vissers made subsequent investments in March that brought their total investment to R1.2 million.]
- He did not speak during the meeting.
- After the meeting, he never saw or talked to the Vissers again.
- He received commission for referring the client to Bluezone. [Greyling did not disclose the commission. The ombud asserted it must have been R72 000.]
Based on the FST’s summary, Greyling’s and the Vissers’ versions of their interactions do not fundamentally disagree. What is at issue for the Vissers is that Greyling’s silence during and after their meeting with Stroh implied that he agreed with her assertions about the nature of the investment.
Greyling said he kept quiet because he did not have sufficient knowledge of property syndications, and his licence did not entitle him to sell such investments.
Speculative, unsupported findings
The FST found a number of grounds for setting aside the ombud’s determination.
First, it said the ombud made “many” findings that were not supported by the facts or conflicted with the facts on the record. These erroneous findings rendered the legal conclusions drawn in the determination flawed.
In this regard, the FST’s decision cited seven examples from the determination. Here are but two of them, which provide an idea of what the FST is getting at:
- “… it turned out that Stroh had lied to them [the Vissers] as investor funds were not insured against insolvency. Greyling was aware of this and said nothing …” The FST said this conflicted with the version of Bluezone in respect of the documentation that was provided to Mr Visser. “Further, there is no factual evidence whatsoever on which to base the finding that the applicant was aware of what is stated in the second sentence.”
- Greyling “… convinced [the Vissers] to invest in Bluezone. He was firmly focused on his lucrative commission and was hardly interested in acting in the best interests of his clients …” The FST said this statement was not supported by the evidence. “If anyone convinced the Vissers to invest in Spitskop, the evidence in the record indicates that this person was Mrs Stroh and not the applicant. The finding is speculative, unsupported, and does not accord with the facts on the record.”
Greyling’s referral and silence were not ‘advice’
The FST said that ordinarily, in a case based on a loss suffered as a result of negligent advice, the claim is pursued on the simple basis that the adviser furnished negligent advice to the investor and the investor suffered loss in consequence of following that advice. However, in this case, the starting point was whether Greyling furnished any advice at all, and what, in fact, the nature of his conduct was.
It said the ombud erroneously found that the Vissers invested on Greyling’s advice. But these findings did not accord with the facts on the record. The facts indicated that it was Stroh who gave the advice.
The FST quoted paragraphs from the ombud’s determination where, in setting out the nature of the Vissers’ complaint, it is stated that Stroh spoke about the Spitskop investment, whereas Greyling said nothing.
After citing the definition of “advice” in the FAIS Act, the FST commented:
“The referral of clients to another broker does not constitute advice for purposes of the Act. Not saying something does not constitute advice. The fact that the applicant stated that there were higher rates of interest/income in the property market may arguably be construed as advice, but this must be understood with reference to the facts of this matter – the applicant conveyed that he could not give advice about property investments, and this was the reason for the referral to Mrs Stroh, who acted on behalf of Bluezone.”
The FST said that based on the facts, as they appear from the record, Greyling did not render advice. The facts indicated that Stroh furnished the advice and the recommendations, and it was this advice that induced the Vissers to invest in the scheme.
“In fact, the Vissers criticise the applicant for not saying anything. Not saying anything, after referring the Vissers to a person with knowledge in the relevant field, cannot be construed as giving advice.”
Intervening would have been unlawful
The FST said the question of wrongfulness was relevant insofar as the ombud’s determination dealt with an omission to intervene and some or other duty to intervene. It cited the following example from the determination: “… Greyling as their FSP was under a duty to intervene. But he said nothing, creating the impression that he agreed with Stroh…”
The tribunal said there can be no duty to intervene in circumstances where intervening to advise would render the conduct unlawful. If Greyling had advised the Vissers, he would have been in breach of the relevant legislation.
The FST referred to the FAIS Act: section 13(1) (“Qualifications of representatives and duties of authorised FSPs”) and section 8(9)(b). The latter states “no person may perform any act which indicates that the person renders or is authorised to render financial services or is appointed as a representative to render financial services, unless the person is so authorised or appointed”.
Was the conduct negligent?
Turning to whether Greyling’s conduct met the test for negligence, the FST said this boiled down to whether the following constituted negligent conduct:
- Suggesting that the property market provides higher returns than the financial markets;
- Introducing the Vissers to a broker who provided advice in the property syndication market; and
- Not intervening when (or after) Stroh gave advice to the Vissers.
The tribunal said the facts in the record did not lead to the conclusion that a reasonable broker in Greyling’s position would have foreseen the loss of the investment, or the causal sequence that resulted in the loss of the investment.
Factual and legal causation
Addressing the issue of whether Greyling was factually the cause of the Vissers’ loss, the FST quoted from the determination: “Factually, it has already been established above that the complainants would never have known, much less invest in Bluezone, but for Greyling introducing property syndication investment and introducing the complainants to Stroh …”
The tribunal said the fallacy in the ombud’s reasoning was illustrated by another statement in the determination: “If Liberty acted legally [and did not give the contact details of the Vissers to the applicant], then Bluezone and Greyling would have remained unknown to them, and they would not have lost their live (sic) savings.” Based on this line of reasoning, there were practically an “unlimited number” of factual causes for the Vissers’ loss.
Neither the facts nor the probabilities showed that Greyling was the factual cause of the loss, the FST said. The Vissers themselves pointed to various causes for their loss (other than Greyling’s conduct), including Stroh’s conduct and Bluezone’s conduct. Greyling furnished evidence that the property syndication scheme collapsed because of the intervention of the South African Reserve Bank. Bluezone stated that the project failed for other reasons.
The facts and the probabilities also did not show that Greyling was the legal cause of the Vissers’ loss. Neither his referring the Vissers to Stroh nor his not speaking up about the alleged risks was linked sufficiently closely or directly to the loss for legal liability to ensue. The loss was too remote, the tribunal said.
The FST set aside the determination and referred it back to the ombud for reconsideration.
