Tribunal appeals to FAIS Ombud to get her act together

The Financial Services Tribunal has sharply criticised the FAIS Ombud for not holding an oral hearing during which material disputes of fact could be aired and considered, before making a finding. The tribunal set aside the ombud’s determination against an FSP who advised his client to invest in Sharemax and ordered her to reconsider the complaint.

This is not the first time the tribunal has rebuked the ombud for not exercising the discretion accorded to her by section 27(3) of the FAIS Act and adopting the appropriate procedure, as we have previously reported (for example, see here).

The application to the tribunal was a sequel to the determination issued in October last year.

The FAIS Ombud found that Ermelo-based Gawie en Adri du Toit Makelaars and Gawie du Toit were liable for the financial loss incurred by a client who invested in the Zambezi and The Villa property syndication schemes. Advocate Nonku Tshombe ordered them to pay the client R516 000 and R670 000 – the amounts invested in each scheme respectively.

The applicants contended before the tribunal that:

• The ombud’s record of decision was defective, and, as a result, the tribunal would not be able to reconsider the matter appropriately. Two “extensive” responses from the applicants did not form part of the ombud’s records. The responses were material because the determination considered them.
• There were material disputes of fact. The ombud “ignored” documentation submitted by the applicants that showed that the risk associated with the investment had been “fully disclosed” to the client. He had thus been in a position to make “an informed decision” as to whether he wanted to invest in Sharemax.

Conflicting versions

The tribunal found that, based on the evidence placed before it, the FSP’s and the client’s versions were in conflict.

“By virtue of the ombud’s statutory powers in terms of the FAIS Act, the ombud was required to address the said disputes in the appropriate manner.”

The tribunal referred extensively to the Supreme Court of Appeal’s observations in the recent judgment in Ombud for Financial Services Providers v CS Brokers CC and Others. This case turned on whether the ombud properly exercised her discretion in dealing with the matter in terms of section 27(3) of the FAIS Act.

The tribunal said the SCA took “a dim view” of the ombud’s response that she did not hold a hearing with oral evidence, but applied a predetermined policy, without reference to the specific issues.

‘Heed our concerns’

The tribunal appealed to the ombud to “heed” its concerns.

It said procedural criticisms have been made “time and again” against the ombud similar to those that were raised in this matter. These were that the ombud:

• Did not follow the proper process in investigating and determining the matter;
• Did not act fairly and impartially; and
• Accepted the complainant’s version despite evidence to the contrary and where there were material disputes of fact.

“The fact that such matters come before the tribunal and for the tribunal to make a finding that the [ombud] failed to deal with the matter appropriately is concerning. Such an approach is contrary to the very purpose for which the [ombud’s] office was established, which includes the expeditious and effective resolution of matters.”

In addition, the tribunal had found it difficult to prepare properly for the hearing, because the record was not only “replete with irrelevant documents” but incomplete. “The said responses were material and should have been before this tribunal.”

The tribunal listed several reasons – including the ombud’s observations in her determination – that should have alerted her to material disputes of fact.

Based on the “albeit incomplete” record, “material disputes of fact seem to exist that should be properly ventilated”. As a result, the ombud should have appropriately exercised her discretion in terms of section 27(3) of the FAIS Act.

The tribunal referred the matter back to the ombud “on the understanding that the proper and appropriate processes would be followed by its office”.