Sharemax case: High Court rules on the status of the FST chairperson’s decisions

A decision by the chairperson of the Financial Services Tribunal (FST) is not an order of the Tribunal and can be impugned only through a legality review, not a review under the Promotion of Administrative Justice Act (PAJA), the High Court in Pretoria has ruled.

The applicants in the matter, Koch & Kruger Brokers CC and Deon Kruger, have litigated all the way to the Constitutional Court following a final determination by the FAIS Ombud in October 2018.

The Ombud ordered Kruger to pay compensation of R780 000 plus interest to a couple – George and Lucille Baben – whom he advised to invest in two Sharemax property syndication schemes in 2008 and 2009.

The applicants applied to the Ombud for leave to have the determination reconsidered by the Tribunal. The Ombud denied them leave. Subsequently, they sought leave from the chairperson of the Tribunal, Justice Yvonne Mokgoro, who also rejected their application in April 2019.

In July 2021, Koch & Kruger launched an application in the High Court to have the Ombud’s determination set aside and replaced with a decision dismissing the Babens’ complaint. Alternatively, they sought the review and setting aside of the chairperson’s dismissal of their application for leave to have the matter reconsidered by the Tribunal.

The review application was based on various grounds in terms of section 6 of PAJA.

Before the High Court heard the matter, both parties agreed that the issue of causation should be decided separately.

The court ruled on this matter in November 2021. It concluded that the applicants were negligent in advising the Babens to invest in Sharemax, and they failed to exercise the degree of skill, care, and diligence expected from an FSP. It attributed the loss suffered by the Babens to the applicants’ breach of contract.

The applicants’ attempts to obtain leave to appeal were unsuccessful in both the High Court and the Supreme Court of Appeal. They then took their case to the Constitutional Court, which also refused leave to appeal in August last year.

In its decision, the Constitutional Court said the separation of issues was fundamentally flawed, especially because the case involved a PAJA review of the decisions by the Ombud and the Tribunal’s chairperson, not an action for damages.

The apex court said the parties should argue the review application in the High Court (but under a different judge).

Read: Constitutional Court dismisses Sharemax adviser’s appeal

The review application was heard by Judge Graham Moshoana in May this year.

The issues before the High Court were whether the process leading to a determination by the FAIS Ombud, the determination itself, or a refusal to permit leave to appeal a determination amount to administrative actions.

Ombud’s determination is not administrative action

Judge Moshoana’s decision emphasised that the applicants brought their review application in terms of PAJA, not in terms of the principles of legality.

He ruled that the Ombud’s determination is not an administrative action reviewable under PAJA. The ruling notes the following:

• Section 6(1) of PAJA provides that any person may institute proceedings in a court or a tribunal for the judicial review of an administrative action.
• A PAJA judicial review is available only for administrative actions, whereas a legality judicial review is available for the exercise of all public or statutory powers that are not administrative in nature.
• Section 1(ee) of PAJA excludes judicial functions from the purview of an administrative action. In other words, a civil judgment does not constitute an administrative action and therefore it is not reviewable under section 6(1) of PAJA.
• In terms of section 28(1) of the FAIS Act, a determination by the Ombud is final in nature and is regarded as a civil judgment, which is appealable only with the leave of the Ombud or if refused, with the leave of the chairperson of the FST.
• The process followed by the FAIS Ombud under section 27 of the FAIS Act amounts to an exercise of statutory powers and may be reviewable under the principle of legality. But the applicants did not launch a legality review.

Refusal to grant leave to appeal is not administrative action

Judge Moshoana similarly held that the FST chairperson’s refusal to permit leave to appeal does not constitute an administrative action.

The decision drew attention to the following aspects of the Financial Sector Regulation Act (FSRA) and the FAIS Act:

• Section 235 of the FSRA states: “Any party to proceedings on application for reconsideration of a decision who is dissatisfied with an order of the Tribunal may institute proceedings for a judicial review of the order in terms the Promotion of Administrative Justice Act or any applicable law.” (Court’s emphasis.)
• The definition of “Tribunal orders” in section 234 of the FSRA excludes a decision to refuse permission to appeal.
• In terms of section 220, the Tribunal is constituted by at least two persons who are retired judges or are persons with suitable expertise and experience in law and at least two other persons with experience or expert knowledge of financial products, financial services, financial instruments, market infrastructure, or the financial system.
• Section 224 contemplates that when the Tribunal considers an application for reconsideration, a panel of three – the presiding member and two other panellists – must be constituted.

The decision of the chairperson of the FST is not a panel decision and therefore not a Tribunal order, Judge Moshoana said.

When the late Justice Mokgoro refused permission for leave to appeal, she exercised a statutory power emanating from section 28(5) of the FAIS Act.

In terms of section 28(5)(b)(i)(aa) and (bb) of the FAIS Act, in determining whether leave to appeal must be granted, the Ombud must consider the complexity of the matter or the reasonable likelihood that the board of appeal (now the FST) may reach a different conclusion.

In the absence of complexity and reasonable likelihood, the chairperson of the FST is endowed with a statutory discretion to refuse permission for leave to appeal, Judge Moshoana said.

He held that Justice Mokgoro was performing a quasi-judicial function, not an administrative function, when refusing permission to appeal.

“The function is similar in nature to the powers contemplated in section 17(2)(f) of the Superior Courts Act where the President of the Supreme Court of Appeal may in exceptional circumstances, whether of his or her own accord or on application, refer the decision to refuse leave to appeal to the court for reconsideration and if necessary, variation,” Judge Moshoana said.

The High Court dismissed the application and ordered the applicants to pay the costs on a party-and-party scale.

Click here to download the full judgment.