In September last year, news headlines trumpeted that the FSCA had fined Viceroy Research R50 million for publishing allegedly false statements about Capitec in 2018. Viceroy had to pay the fine within 30 days.
At the time, I wrote: “Viceroy, which is based in Delaware in the US, is not regulated in this country, its directors are not South African, and it has no assets in South Africa, so what will the regulator do if Viceroy ignores the enforcement order? The FSCA said there were options it could explore, including approaching foreign courts or regulators.”
Read: FSCA versus Viceroy – Round number one
The Authority now faces another challenge: the Financial Services Tribunal (FST) has set aside the penalty.
The reconsideration hearing was held in October, and the decision was handed down on 15 November.
Before proceeding, it is necessary to clarify the use of the words “Viceroy Research” or “Viceroy” in this article. This is pursuant to what the FST pointed out at the beginning of its decision.
It said the FSCA’s penalty order was “misleading” because it quoted “Viceroy Research Partnership” as a respondent. This resulted in Viceroy, which is a limited liability company (LLC), making a separate reconsideration application to the tribunal.
The FST said “it must be accepted” that the FSCA’s intention was not to make an order against any other entity or person but the LLC’s partners – Fraser Perring, Aiden Lau and Gabriel Bernarde –and any reference in the tribunal’s decision to the applicants or Viceroy was to them as partners only.
Jurisdiction issues
Viceroy’s case was based on the argument that the FSCA did not have jurisdiction to impose an administrative penalty on them. This argument consisted of two legs:
- The acts committed by the applicants were not committed in South Africa; and
- The applicants are foreign peregrini (foreign litigants not domiciled within the jurisdiction of South Africa’s courts). Perring is a British citizen domiciled in the United States, and Lau and Bernarde are Australian citizens domiciled in that country.
The three-person panel rejected Viceroy’s argument in respect of the first leg. In respect of the second, Judge Louis Harms and Jay Pema accepted Viceroy’s argument, but Advocate Michelle le Roux dissented.
Jurisdiction over conduct
The applicants submitted that the FSCA has no jurisdiction over their conduct, because their conduct – compiling the research report (“Capitec: A Wolf in Sheep’s Clothing”) and transmitting it – occurred beyond the borders of South Africa.
In addressing this submission, the FST, quoting from the landmark 1945 case of United States v Alcoa, said it was universally recognised that “any state may impose liabilities, even upon persons not within its allegiance, for conduct outside its borders that has consequences within its borders which the state reprehends; and these liabilities other states will ordinarily recognise”.
It said the facts did not support the applicants. Their conduct had consequences in South Africa, irrespective of where the originating acts occurred. The impugned statements were “directly and indirectly” published (made public) by the applicants in South Africa, and the applicants “made a concerted effort to publish the statements as widely as possible in South Africa”, the FST said.
To put the above observations in context, the FSCA fined Viceroy for contravening sub-sections 81(1) and (2) of the Financial Markets Act. Sub-section 81(1) reads:
No person may, directly or indirectly, make or publish in respect of securities traded on a regulated market, or in respect of the past or future performance of a company whose securities are listed on a regulated market–
- any statement, promise or forecast which is, at the time and in the light of the circumstances in which it is made, false or misleading or deceptive in respect of any material fact and which the person knows, or ought reasonably to know, is false, misleading or deceptive; or
- any statement, promise or forecast which is, by reason of the omission of a material fact, rendered false, misleading or deceptive and which the person knows, or ought reasonably to know, is rendered false, misleading or deceptive by reason of the omission of that fact.
Jurisdiction over person
In summarising the majority opinion in respect of this leg of the argument, Judge Harms said the Financial Sector Regulation Act (FSRA) does not deal with jurisdiction. Therefore, whether the FSCA has jurisdiction to impose an administrative penalty on a foreign peregrinus depends on whether a superior court would, under common law, have such jurisdiction.
“According to the Supreme Court of Appeal, a superior court would not have had jurisdiction in a civil case against the applicants. It therefore ought to follow that the Authority did not have jurisdiction to impose a penalty on the applicants,” he said.
Judge Harms said this conclusion could be “tested” by examining the potential consequences – criminal, civil and administrative – of a contravention of section 81 of the Financial Markets Act:
- A criminal court would not be able to try the applicants under the Criminal Procedure Act unless they were apprehended in South Africa and brought before court. A criminal court may therefore not consider whether the applicants had committed an offence under section 81.
- Capitec, or some other affected party, could have claimed delictual damages from the applicants for breach of a statutory duty, or defamation, or some or other declarator. But South Africa’s courts would not have had jurisdiction to decide the claim without personal jurisdiction created by local presence and service or local attachment.
- The above principle applied in the administrative context. Sub-section 170(2) of the FSRA – the imposition of a penalty “has the effect of a civil judgment and may be enforced as if lawfully given in that court” – did not assist the FSCA’s argument, because “that court” could not have given any order “lawfully” against the applicants. He said a South African court would not recognise such an order given by a foreign court.
The tribunal granted the reconsideration application and set aside the penalty order.
Dissenting view
Le Roux’s dissenting view revolved around the requirement that, for personal jurisdiction to be established, summons must be served on the defendant physically while in South Africa.
The majority and minority opinions did not agree on the implications of two cases in which personal jurisdiction came to the fore: Bid Industrial Holdings (Pty) Ltd v Strang and Others, heard by the Supreme Court of Appeal in 2007, and the Competition Appeal Court’s findings in Competition Commission v Bank of America Merrill Lynch International (2020).
Le Roux said the availability of electronic service in place of personal service, as contemplated by the FSRA and FST’s rules, was “consistent with being confronted with the challenges posed by our global economy and the manner in which economic intercourse is now frequently conducted globally by way of electronic or digital media targeting domestic markets. A requirement of physical service on the defendant while in South Africa is, in my view, unduly restricted and onerous and runs the risk of defeating the objects of the Act.”
FSCA’s reaction
In a short statement on Wednesday, the FSCA said it was studying the FST’s decision and would decide “on the most appropriate way forward”.
