The FSB Appeal Board handed down a decision on 10 April 2015 in a case where a number of parties appealed against a decision by the FAIS Ombud to hold them equally liable for losses incurred by investors in certain Sharemax syndications. Below are some relevant extracts from the decision:
[1] This judgment deals with two appeals which were consolidated for the sake of convenience. The appeals are directed against determinations made by the Financial Advisory and Intermediary Services Ombud (the ‘FAIS Ombud’ or ‘Ombud’) in terms of the Financial Advisory and Intermediary Services Act 39 of 2002 (‘the FAIS Act’). The appellants in both cases are the same but the respondents, Mrs Siegrist and Mrs Bekker, are complainants who had submitted, independently, related complaints to the Ombud.
[2] The Ombud refused the appellants’ applications for leave to appeal in the Siegrist matter but the former chair of the appeal board granted leave to appeal. When the appellants subsequently applied for leave in Bekker, the Ombud refused leave in spite of the fact that leave had been granted on the same grounds. The explanation given was that the determination in the Bekker matter had brought forth new facts and she refused leave because ‘the facts are different’. In fact, her determination dealt with the appellants in five paragraphs ([103] to [108]) out of 116 paragraphs. And, as she said, she found them liable ‘for the reasons set out in Siegrist’. There is not a single fact in the Bekker determination that conceivably could have affected the legal issues which were raised in the Siegrist matter and which form the subject-matter of this appeal.
[3] Applications for leave to appeal may be irritating to the decision-maker who believes in the correctness of her or his judgment but they should nevertheless be dealt with dispassionately. In the event leave was granted by the deputy chair in Bekker.
The issues at this stage are essentially these:
(a) the jurisdiction of the Ombud against a party who was not cited as ‘wrongdoer’ by a complainant, i.e., whether the procedure adopted in relation to the appellants was legally competent and procedurally fair and
(b) the effect of the sanctioning of a scheme arrangement on a ‘complaint’.
This judgment is not concerned with the correctness or otherwise of the findings of fact contained in the Ombud’s determinations such as that the appellants had deceived the public or that the investment scheme was a Ponzi scheme. It is limited to legal issues that go to the heart of the functions and jurisdiction of the Ombud. The personal circumstances of the two respondents, as unfortunate as they are, can accordingly not play a role in the outcome of this appeal.
ORDER
- The appeals are upheld.
- The determinations and consequent orders made against the appellants in cases FAIS 00039/11-12/GP1 (Siegrist) and FAIS 06661/10-11/WC1 (Bekker) are set aside.
- There is no order as to costs.
The Appeal Board was rather critical in its comments on certain actions by the Ombud.
Concerning the decision to join the appellants in the complaint, The Board stated:
“[52] There is simply no scope within the Rules for the Ombud to determine, without reference to the complaint filed, as to who should be a respondent.”
“[53] In the light of this conclusion it becomes unnecessary to deal with the content of the notices, save to say that they did not forewarn the appellants of the factual findings the Ombud intended to make, especially those relating to the prospectus, fraud and the Ponzi scheme. This was a serious breach of the requirements of fair administrative action and any court would on review have set aside the determinations on this ground alone…”
With regards to the Ombud piercing the corporate veil, the Appeal Board said:
“[55] In her piercing she referred to a number of authorities but failed to have regard to sec 20(9) of the Companies Act, 2008. That provision on the face of it gives the right to pierce corporate veils to courts and not to tribunals. Furthermore, a finding justifying piercing requires a prescribed order and cannot simply be made during the course of a judgment especially without notice. In particular, the Ombud failed to declare that Sharemax is to be deemed not to be a juristic person in respect of any right, obligation or liability of Sharemax or of another person specified in the declaration.”
All complaints related to investments in property syndications were held in abeyance subject to the outcome of this appeal. One can expect a floodgate of new determinations, now that it has been resolved. It will be interesting to see the impact of aspects raised in this, and other successful appeals, on such determinations.
Please click here to read the full Appeal Board decision.
