A notice of intention to debar that does not provide the reasons for debarment cannot be cured of its non-compliance by providing these particulars later, the Financial Services Tribunal (FST) said in a decision that set aside an insurance agent’s debarment.
GVS Makelaars notified Johannes Fourie in September last year of its intention to debar him. The notice alleged he had been dishonest in his dealings with clients and materially contravened the FAIS Act.
The debarment was effected the following month.
Fourie brought his reconsideration application on procedural and substantive grounds.
His debarment was suspended in November last year, pending the outcome of the reconsideration application.
The background to the dispute between the parties was the decision by GVS to move policies to Western National Insurance. GVS stated the move would result in clients paying lower premiums. Fourie, as GVS’s agent and representative, was entitled to broker’s fees in respect of these clients.
GVS contended it discovered in August or September 2023 that Fourie had charged the clients fees that were “excessive” – relative to what is “customary” or “generally accepted” in the industry – without their consent and through misrepresentation. It alleged there was evidence that clients’ signatures had been falsified.
Counsel for GVS, Advocate Henno Viljoen, explained to the Tribunal that the FSP’s “principle gripe” was that the clients were not informed that the move to Western National would result in an increase in the broker’s fees. The clients were told they would pay less for insurance if they consented to the move, but they were not told they could have saved more if the broker’s fee had not been increased.
“There was a net saving in the eyes of the client, but it was in essence a misrepresentation as to what that saving could be, because the insurance was cheaper but the broker fee higher,” Viljoen told the reconsideration hearing, which was held in May this year.
Counsel for Fourie, Advocate Paul Kirstein, submitted that Fourie obtained the necessary authorisation from the clients to adjust the broker’s fees.
Kirstein said Fourie, in the correspondence to GVS from his attorneys and in his reconsideration application, had provided a comprehensive explanation of what transpired with respect to each client. Based on Fourie’s version, it could not be inferred that he was not Fit and Proper or that he dealt dishonestly with any of the clients.
Viljoen, on the other hand, submitted that Fourie did not respond adequately to or deny the specific allegations of serious misconduct raised by GVS.
The Tribunal made no finding as to merits of the debarment.
Allegations of misconduct
The notice of intention to debar was sent to Fourie by Jaco Cilliers, GVS’s director and key individual, on 27 September 2023. The notice stated that a hearing would be held on 2 October. The hearing would be chaired by an independent service provider, and Fourie would have an opportunity to respond to the evidence that would be furnished, the Tribunal’s decision states.
Fourie replied on the same day. He said the GVS debarment policy document attached to the email was out of date and non-compliant with the FAIS Act, and he asked for an updated policy. He said the allegations of misconduct had to be supported with reasons. Fourie said he would attend the hearing but requested a later date, saying the time afforded was insufficient for him to prepare his response.
On the morning of 2 October, Fourie requested a “charge sheet” setting out the grounds and reasons for the intention to debar, and evidence to support the accusations. He again asked for an alternative date for the hearing.
In his reply, Cilliers said he would send emails to Fourie about misconduct in respect of 11 clients. He required Fourie’s response to questions about his dealings with these clients. Cilliers also indicated that all the evidence was on file with Fourie. Later that day, Cilliers sent Fourie emails with questions and requested a response within seven days (this deadline was subsequently extended).
It was common cause that the hearing presided over by the independent service provider did not take place.
Cilliers debarred Fourie on 18 October but did not provide reasons for the debarment. (The reasons were to be provided on 31 October.)
In its filing with the Tribunal, GVS submitted that further evidence of misconduct similar what transpired in respect of the 11 clients came to light after the debarment. Viljoen said the Tribunal should take this evidence into account when considering Fourie’s Fit and Proper status.
Failure to hold the oral hearing
During the hearing, Kirstein told the Tribunal that the notice of intention to debar did not comply with section 14 of the FAIS Act because reasons for the debarment were not provided.
His client accepted the offer to attend the oral hearing and wanted to present his case, canvass documents, and cross-examine witnesses, including Cilliers.
The failure to convene the hearing was in breach of GVS’s debarment policy and paragraph 3.5.3 of Guidance Notice 1 of 2019: “FSPs must exercise their duties without bias. If the FSP might be perceived as biased, it is recommended that an independent person be designated to evaluate whether there are valid grounds for debarment.”
Once the right to appear has been offered, it cannot simply be taken away, Kirstein said.
He said the requirement to hold an oral hearing presided over by an independent party was relevant in the context of his client’s assertion that there was an “ulterior motive” for the debarment. Fourie and two other employees informed GVS on 5 September that they wanted to leave the brokerage.
Viljoen disagreed with this timeline. He submitted that Fourie’s decision to leave was precipitated by an email sent on 14 August in which he was asked to provide the consent letters of 96 clients. On GVS’s version, Fourie did not comply fully and adequately with this request.
Kirstein told the Tribunal his client brought the procedural irregularities to Cilliers’ attention, and Fourie’s attorneys also set out the defects in the debarment process in emails to GVS on 10, 16, and 18 October. His client was afforded an opportunity to respond to GVS’s reasons for debarring him only when the FSP filed its papers with the Tribunal.
Notice and emails ‘should be read together’
Viljoen submitted that the notice of intention to debar of 27 September should be read in conjunction with the emails of 2 October, which had the subject line “notice of debarment”. It should have been clear to Fourie that the attachments to the emails should be read together as the “charge sheet”.
FST panel member Advocate Salmé Maritz put it to Viljoen that the FAIS Act was peremptory in respect of the requirements for a notice of intention to debar.
Viljoen said to the extent that the notice may be non-compliant with those requirements if taken on its own, the non-compliance could be cured by providing the particulars later. “It would be a matter of form over substance if it were impossible for that to be cured by subsequent documents.”
Panel members Advocate Chris Woodrow and Advocate Elias Phiyega asked why the proffered and accepted hearing did not take place.
Woodrow commented it is difficult to prove allegations of fraud on papers.
Phiyega said it appeared there were personal issues between Cilliers and Fourie. In this context, a hearing presided over by an independent person was necessary to avoid perceptions of bias and prejudice.
Viljoen said there was no absolute requirement for a hearing presided over by an independent chairperson. The initial indication that there would be such a hearing was “overtaken” by the lack of coherent answers to pertinent and important questions about Fourie’s conduct. Viljoen submitted that an independent hearing would have served no purpose because Fourie’s version was “bare and sketchy”.
He said the inter-personal issues arose when the debarment came into view. This was to be expected because the FAIS Act envisages that a KI is responsible for making the decision to debar a representative. There is an inherent perception of bias on the part of the KI because of the way the Act sets up the debarment process.
Process was not lawful or procedurally fair
In its decision, the Tribunal said there were several problems with GVS’s contention that the notice to debar read together with the emails sent to Fourie, and the further opportunities to respond, rendered the process fair. These problems included:
- The lack of detail in the notice to debar was not cured by the emails, and the process was rendered haphazard and procedurally unfair in the manner in which it was conducted.
- Although an oral hearing is not a requirement (paragraph 3.4 of Guidance Notice 1 of 2019), once such a hearing is offered and accepted, and thereafter insisted upon by the applicant, it is procedurally unfair to deny the applicant such a hearing.
- The initial stance adopted by GVS – to have an oral hearing led by an independent institution – would have been appropriate in the circumstances. Fourie’s questioning the partiality of Cilliers, and the nature of the allegations levelled against Fourie were such that a fair process would have required an oral hearing. “The requirements of audi are contextual and relative.”
- There was non-compliance with the audi The substantial volume of reasons and documentation that GVS filed were not put to Fourie so he could respond thereto. The further documents (concerning the clients who were not part of the emails dealing with the 11 clients) were also not put to Fourie.
The Tribunal found that GVS did not adopt a lawful, reasonable, or procedurally fair process, as required by section 14(2)(a) of the FAIS Act, and that GVS failed to comply with section 14(3) of the Act.
The FST set aside Fourie’s debarment and remitted the matter to GVS for consideration after complying with section 14(3).
