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[2021] ZAGPPHC 369
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Weihmann N.O v Ombud Appointed in terms of the Financial Advisory and Intermediary Services Act, Act 37 of 2002 and Others (62044/2015) [2021] ZAGPPHC 369 (3 June 2021)
IN THE HIGH COURT OF
SOUTH AFRICA
GAUTENG
DIVISION, PRETORIA
Case No: 62044/2015
NOT REPORTABLE
NOT OF INTEREST TO
OTHER JUDGES
REVISED
In
the matter between:
JACOB
LODEWYK WEIHMANN N.O.
APPLICANT
(as the curator at litem
for Jacob Johannes van Zyl)
and
THE OMBUD APPOINTED IN
TERMS OF THE FINANCIAL
ADVISORY AND
INTERMEDIARY SERVICES ACT,
ACT
37 OF
2002
FIRST RESPONDENT
CHAIRPERSON OF THE
APPEAL BOARD OF THE
FINANCIAL
SERVICES BOARD
SECOND
RESPONDENT
PJJ
RAUCH
THIRD
RESPONDENT
JUDGMENT
BASSON
J
THE PARTIES
[1]
The applicant in this matter is Mr. Jacob
Johannes van Zyl (hereinafter referred to as the patient). After
suffering a stroke
during August 2016, the patient has since been
incapable of conducting his own affairs. Mr. Jacob Lodewyk
Weihmann was duly
appointed by the court as the
curator
ad litem
for the patient.
[2]
The
first respondent is the Financial Advisory and Intermediary Services
Ombud (the Ombud) appointed in terms of the Financial Advisory
and
Intermediary Services Act
[1]
(the FAIS Act).
[3]
The second respondent is the Chairperson of
the Appeal Board of the Financial Services Board (the chairperson).
The third
respondent is Mr. Paul James Joseph Rauch (Rauch) who
invested a substantial amount of money in the Spitzkop project
(described
in more detail hereinbelow).
[4]
Only Rauch is opposing this review
application. Although the Ombud filed a notice of intention to
oppose, no answering affidavit
has been filed. The second
respondent filed a notice to abide.
WHAT GAVE RISE TO THIS
DISPUTE?
[5]
During 2007 to 2009 a group of companies
existed referred to as the “Blue Zone Group”. This
group’s business
was to promote investments in property
syndication schemes. One of the schemes was the Spitzkop
Village (Pty) Ltd (Spitzkop
or Spitzkop project). This scheme
concerned the development of a farm within the platinum belt near
Rustenburg and was to
be developed into a township where erven would
have been established and which would have been sold off to third
parties at a profit
to the shareholders of the company. The
patient was one of the directors of Spitzkop. The other
directors were Mr.
Hendrik Christoffel Lambrecht (the managing
director who was also in charge of the finances of the company and
who had the sole
signing powers of the bank accounts of the company);
Mr. Du Randt van Zyl (the director – marketing and sales); Mr.
Izak
Jacobus Marthinus van Niekerk (the director – legal
compliance) and Mr. Herman Bester (the financial director as well
as
the company’s secretary). These individuals were also the
directors of Blue Zone Property Investments (Pty) Ltd
which was the
promotor of the development.
[6]
Spitzkop was liquidated on the 21
st
of August 2009 and Blue Zone was liquidated on the 17
th
of November 2009.
COMPLAINT WITH THE
OMBUD
[7]
Rauch lodged a complaint with the Ombud on
18 September 2009 in terms of the FAIS Act. In his complaint,
Rauch explains that
he knew one Mr. Peter Wildman (Wildman) since the
late 80’s when Wildman joined Standard Bank as a Financial
Advisor. Wildman
resigned from Standard Bank and joined the
Blue Zone group as a broker and suggested that Rauch look at an
investment in the Blue
Zone group. Rauch eventually invested an
amount of R 720 000.00 in Spitzkop.
[8]
In the complaint form, the name of the
person against which the complaint was lodge was stated as Blue Zone
and the name of the
person who the complainant dealt with was stated
to be Wildman. Rauch further stated in the complaint that “
I
would expect the full amount of R 720 000.00 to be paid by the
Blue Zone Group and/or the directors”.
[9]
Rauch alleged that he was only provided
with a Blue Zone group overview document and that he never received a
so-called disclosure
document from Spitzkop. He stated that had he
seen the disclosure document and had the opportunity to read it, he
would not have
invested any monies in the Spitzkop project.
[10]
Rauch arranged for a meeting with the
patient which meeting took place approximately 20 months after he had
invested money in the
Spitzkop project. Rauch then lodged the
complaint. Wildman passed away soon after the complaint was
lodged.
THE DISCLOSURE
DOCUMENT
[11]
The disclosure document is central to this
dispute as well as the question whether or not Rauch had sight of the
document. This
document,
inter
alia
, states that the directors of Blue
Zone had instructed an attorneys firm which specialises in commercial
transactions to draft
a full disclosure document which was submitted
to their accountants. The document was thereafter submitted to
the compulsory
FSB authorised and appointed compliance officers of
Blue Zone.
[12]
Brokers were trained to furnish interested
investors with a full disclosure document and to explain to the
investors the details
of the said document.
[13]
The FSB appointed compliance officers
certified that the disclosure document complied with the requirements
published under Notice
459 of 2006 by the Department of Trade and
Industry.
[14]
A person who was interested in investing in
the Spitzkop project had to apply to the directors of the company to
be approved as
an investor prior to becoming an investor in the
Spitzkop company.
[15]
As part of the application to become an
investor an applicant signs a declaration that he or she has
personally received the complete
disclosure document prior to
completing the application form.
[16]
Rauch completed the application form and
submitted it to the directors of Blue Zone. The applicant
submitted that the directors
of Blue Zone and of Spitzkop were
brought under the impression by Rauch that he had received the full
disclosure document prior
to completing the application form.
[17]
Potential investors are informed in the
disclosure form that the investment is a high risk investment and
that no assurances were
given by the company or its directors about
the future profitability of the company. Some examples of
warnings related to
the risks of the project appear in the disclosure
document.
[18]
As already pointed out, Rauch insists that
he had not seen the disclosure document and that had he been afforded
the opportunity
to read it, he would not have invested monies in
Spitzkop.
THE OMBUD’S
DECISION REGARDING THE COMPLAINT
[19]
On 23 May 2013, the Ombud upheld the
complaint and held the patient jointly and severally liable with Mr.
Lampbrecht for the loss
suffered by Rauch and ordered them to repay
the amount of R 720 000.00 together with interest to Rauch.
Leave to appeal was
refused by the Ombud. The applicant
thereafter applied for leave to appeal.
LEAVE TO APPEAL
[20]
The second
respondent as per Judge CD Howie granted the
patient
leave to appeal
against the decision (the Howie order).
[21]
The appeal
board heard the appeal brought by the
patient
on
the 23
rd
of June 2015 and handed down its judgment on the 2
nd
of July 2015.
THE HOWIE ORDER
[22]
Judge Howie granted leave to appeal to be decided on two grounds
only: Firstly, whether the “procedure
adopted which resulted in
the Ombud’s dealings with the applicants as responded before
her – neither having been the
person against which the
complaint was lodged – was legally competent and, if so,
whether it is fair
.
”
The order then directs the appeal body to have
regard to various procedural issues listed in paragraphs 1.1 –
1.8 of the order.
Secondly, whether it is legally competent for the
Ombud to “
go beyond the
established legal principles if it would be equitable to do so
”.
[23]
On a plain reading of the Howie order, it thus appears that leave to
appeal was granted firstly
in respect of specific procedural grounds
taking into account that the complaint lodged was neither against the
patient nor Mr.
Lamprecht. Sub-paragraphs 1.1 – 1.8
further set out in more particularity what must be considered in
deciding whether
or not the procedure adopted was legally competent.
In sub-paragraph 1.8 the appeal board is specifically directed
to decide
whether the appellants (the patient and Mr. Lampbrecht)
“
should not have been alerted to
the possible findings of criminal or delictual conduct eventually
made against them and have been
afforded the opportunity to offer an
answer before those findings were made?”.
The
second ground is a legal question pertaining to the competence of the
Ombud to go beyond “
established
legal principles
”.
THE PROCEDURE BEFORE
AND THE JUDGMENT OF THE SECOND RESPONDENT
[24]
Subsequent to having been afforded leave to appeal, the parties, in
terms of the Rules, were
required to file heads of argument. The
applicant did so. Rauch filed heads of argument called “
Merits
of the Matter
”. The second
respondent responded to Rauch’s heads of argument and pointed
out that Rauch may be under some misapprehension
about the nature of
the appeal:
“
Second,
the Order of Judge Howie in granting leave to appeal is specific and
the Appellant’s heads in consequence deal only
with issues set
out in this Order. The points you raised in your heads are not
covered by his Order and have not been addressed
by the Appellant and
they accordingly appear to be irrelevant for purposes of the Appeal.”
JUDGMENT OF THE SECOND
RESPONDENT
[25]
The second respondent formulated the question before it as “
whether
the Ombud was ultimately correct in holding the appellant liable. It
needs to be stressed that the appeal is concerned
with the
correctness of the result and not necessarily the correctness of her
reasoning
”.
[2]
[26]
The appeal board rejected the patient’s (the appellant’s)
submission that (i) the
complainant was not cited as a party to the
complaint; (ii) the appellant was not informed that the Ombud
intended holding him
liable on the ground of fraud and that that was
in breach of the
audi alteram partem
rule and; (iii) the Ombud was not entitled to pierce the corporate
veil. Ultimately the second respondent seems to have dealt
with
the merits of the matter and not with the procedural aspects
specifically set out in the Howie order. The only aspect
pertinently dealt with by the second respondent relates to the land
claim which had been lodged against the property during August
2007
in circumstances where this fact was known to the companies and the
appellant a month prior to Rauch’s investment application.
[27]
The second respondent, in dismissing the appeal, held the applicant
vicariously liable for the
failings of the broker, Wildman, and,
inter alia,
held
that the directors of the company ran the syndication scheme
fraudulently and that they deliberately misled investors such
as
Rauch.
PROCEEDINGS BEFORE
THIS COURT
[28]
The applicant approached this court for an order setting aside both
the judgment by the Ombud
in which she upheld the complaint as well
as the judgment by the chairperson in which the applicant’s
appeal was dismissed.
[29]
The applicant submitted that, in the event the chairperson’s
decision to dismiss the patient’s
appeal is set aside, it would
follow that the Ombud’s decision that the patient should repay
the investment will have to
be reconsidered either by the chairperson
if the appeal is referred back to the chairperson or by the court if
the court decides
to exercise its discretion, having regard to the
facts of the case, to take the decision of the patient’s appeal
itself.
In this regard the applicant submitted that, having
regard to the peculiar facts of this matter, this court should
exercise
its discretion and replace the decision of the Ombud.
CONSIDERATION OF THE
PRESENT MATTER
[30]
I have already referred to the fact that leave to appeal was granted
on very specific grounds
and that the appeal board was (
inter
alia
) specifically required to consider
what is contained in paragraph 1.8 of the Howie order.
[31]
Despite the specificity of the Howie order, the second respondent did
not deal with those questions.
More specifically, the
chairperson did not consider paragraph 1.8 of the Howie order where
the question was referred to the
appeal board whether the applicant
should have been alerted to the possible findings of criminal or
delictual conduct and whether
the applicant had been afforded the
opportunity to offer an answer before those findings were made.
Although the patient
was forewarned in a letter dated 29 March
2012 that he might be held personally liable for the loss suffered by
Rauch and, although
he did respond thereto, there is no indication on
the papers that he was forewarned that an adverse finding of fraud or
dishonesty
may possibly be made against him. This, in my view,
constitutes a serious breach of the requirements of procedural
fairness.
The court was referred to a similar matter in
Sharemax
Investments (Pty) Ltd (and 4 Others) v Gerbrecht Elizabeth J Siegrist
and Another
,
[3]
where the appeal board in that matter held as follows:
“
[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 Ombud intended to make, especially
those relating to the prospectus, fraud and
the Ponzi scheme. This
was a serious breach of the requirements of the administrative action
and any court would on review have
set aside the determination of
this ground alone…. It is also basic principle of simple
justice that one may not direct
a party’s attention in one
direction (in this case a formal complaint to which they had to
respond pursuant to sec 27(4)
and then deal with the case on a
completely different basis….”
[32]
This was exactly the argument that was raised before the second
respondent. Yet, the second
respondent upheld a finding of
fraud even though the
audi alteram
partem
principle was not adhered to.
[33]
The matter of
Jacobus
Johannes van Zyl v Sydney Perumal Naidoo
[4]
(hereinafter
referred to as the
Naidoo
matter)
is in point. In that matter Mr. Naidoo (Naidoo) lodged a
complaint with the first respondent against the patient and
other
directors of Blue Zone. Leave to appeal was similarly granted
on limited grounds. One of the grounds advanced
was that the
appellant in that matter was not informed by the Ombud that he was in
jeopardy as the Ombud intended to make findings
against him,
inter
alia
,
relating to fraud. In that matter the Ombud similarly held the
applicant personally liable. The appeal board, with
reference
to the judgement in
Sharemax
,
upheld the appeal and held that the failure to forewarn the appellant
(the present patient), constituted a serious breach of the
requirements of fair administrative action and pointed out that “
any
court would on review have set aside the determinations on this
ground alone
”
.
[34]
The principle of affording a person the right to
audi
alteram partem
before an adverse finding is made is not a novel principle and has
been endorsed in numerous judgments. Suffice to refer
to a few
examples. In
Nortje
and Another v Minister of Correctional Services and Others
[5]
the court reviewed an set aside a decision to limit privileges of
prisoners without affording them
audi
alteram partem
:
“
[14]
Daarteenoor is uitdruklik namens respondente toegegee dat nakoming
van die
audi
-reël
'n voorvereiste was vir die geldigheid van Venter se gewraakte
besluit. Hierdie toegewing is na my oordeel tereg en billik
gemaak.
Dit beteken uiteraard nie dat elke gevangene wat
oorgeplaas word van een afdeling van 'n gevangenis na 'n ander
of van
een gevangenis na 'n ander gevangenis geregtig sal wees op 'n
aanhoring nie. Elke geval moet op sy eie feite beoordeel word.
Volgens art 33 van die Grondwet van die Republiek van Suid-Afrika 108
van 1996, het elke persoon die reg op administratiewe optrede
wat prosedureel billik is. Ten spyte van die veranderde
konstitusionele bedeling wat deur die aanvaarding van die Grondwet
teweeggebring is, is die beginsels van die gemenereg steeds
rigtinggewend oor wat in 'n bepaalde geval prosedureel billik sal
wees … Die formulering van die gemeenregtelike beginsels in
die
verband
is te vinde byvoorbeeld in
Administrator,
Transvaal, and Others v Traub and Others
1989
(4) SA 731 (A)
op
758D - E en
South
African Roads Board v Johannesburg City Council
1991
(4) SA 1
(A)
op
10G - I. Hiervolgens vind die audi-reël toepassing waar
die administratiewe besluit 'n
persoon
tot so 'n mate kan benadeel dat die besluit, ooreenkomstig die
persoon se gebillikte verwagting ('legitimate expectation'),
nie
geneem sal word sonder om hom aan te hoor nie. Dit staan vas dat
Venter se besluit 'n ingrypende inkorting teweeggebring het
van die
voorregte en vergunnings wat appellante tot op daardie stadium
geniet het. In die omstandighede het appellante die
gebillikte
verwagting gehad dat so 'n besluit nie geneem sou word nie tensy
hulle die geleentheid tot aanhoring gebied is.
[17]
Dit is duidelik uit die gesag dat daar nie 'n universeel geldende
stel vereistes vir die nakoming van die audi-reël
bestaan
nie. Inteendeel is die
audi
-reël
weens die tallose situasies waarin dit aanwending vind juis so
buigsaam en aanpasbaar dat die vereistes vir die nakoming
daarvan
nie losgemaak kan word van die konteks waarin dit
toepassing vind nie. Die toetssteen wat aangewend word by
beantwoording van die vraag of die audi-reël in
'n bepaalde geval nagekom is, hang ten nouste saam met die
grondbeginsel van die reël. Hierdie grondbeginsel word soos volg
beskryf deur Corbett HR in
Du
Preez and Another v Truth and Reconciliation Commission
[1997] ZASCA 2
;
1997
(3) SA 204
(A)
o
p
231G - H:
'The
audi
principle
is but one facet, albeit an important one, of the general requirement
of natural justice that in the circumstances
postulated the public
official or body concerned must act fairly. . . . The duty to act
fairly, however, is concerned only with
the manner in which the
decisions are taken: it does not relate to whether the decision
itself is fair or not.'”
[35]
See also the judgment of the Constitutional Court in
Viking
Pony Africa Pumps (Pty) Ltd t/a Tricom Africa v Hidro-Tech Systems
(Pty) Ltd and Another
[6]
where the principles were confirmed as follows:
“
[37]
PAJA defines administrative action as a decision or failure to take a
decision that adversely affects the rights of any person,
which has
a direct, external legal effect. This includes 'action that has
the capacity to affect legal rights'. Whether or
not administrative
action, which would make PAJA applicable, has been taken cannot be
determined in the abstract. Regard must always
be had to the facts of
each case.
[38]
Detecting a reasonable possibility of a fraudulent
misrepresentation of facts, as in this case, could hardly be
said
to constitute an administrative action. It is what the organ of
State decides to do and actually does with the information it has
become aware of which could potentially trigger the applicability of
PAJA. It is unlikely that a decision to investigate and the
process
of investigation, which excludes a determination of culpability,
could itself adversely affect the rights of any person, in
a
manner that has a direct and external legal effect.”
[36]
The Ombud found that the directors of Spitzkop (of which the
applicant was a director) “
ran
the syndication scheme fraudulently and they deliberately misled
investors such as the respondent. The disclosure document in
terms of
which the investment was marketed contained factual inaccuracies and
misleading information. Where there is fraud or dishonesty
a court
(and also the Ombud) is entitled to pierce the corporate veil and
hold the directors personally accountable
”
.
[7]
This finding undoubtedly, to use the words of the court in
Viking
,
“
could
itself adversely affect the rights of any person, in a manner
that has a direct and external legal effect
”
.
As such, the failure to grant the applicant
audi
alteram partem
in this regard is a serious breach of the principles of
the
audi alteram partem
rule.
A court is thus entitled to set aside the determination on this
ground alone.
[37]
The decision to dismiss the applicant’s appeal and order the
applicant to repay to Rauch
the amount of his investment with
interest thereon is set aside. The matter is remitted to the
second respondent for a re-hearing
of the appeal in terms of the
order of Judge Howie dated 14 January 2015.
[38]
The applicant submitted that, should the court uphold the review, the
court should exercise its
discretion to substitute the order with an
appropriate order. I am of the view that it would be
inappropriate to do so. The
applicant has not shown the
existence of exceptional circumstances in line with the judgment of
the Constitutional Court in
Trencon
Construction (Pty) Ltd v Industrial Development Corporation of South
Africa Ltd and Another
.
[8]
In
that matter the Constitutional Court emphasized that, when a court is
called upon to exercise the discretion conferred upon it
to grant or
refuse an order of substitution, it must bear in mind the separation
of powers principle and afford the necessary deference
to the
administrator whose decision is sought to be reviewed.
[39]
I am in agreement with the principle that a court should afford the
necessary deference to the
administrator or decision-maker as they
are in the best position to make a decision. In the present
circumstances I am not
persuaded that I am in a better position than
the decision-maker.
[40]
Regarding costs, although Rauch has opposed this application, I
exercise my discretion not to
order him to pay the costs of this
application and find that it would be unfair in these circumstances
to order him to pay costs.
ORDER
[41]
In the event the following order is made:
(i)
The decision to dismiss the applicant’s
appeal and order him to repay the third respondent the amount of his
investment with
interest thereon is set aside.
(ii)
The matter is remitted to the second
respondent for a re-hearing of the appeal in terms of the order of
Judge Howie dated 14 January
2015.
(iii)
No order as to costs.
A.C. BASSON
JUDGE OF THE HIGH
COURT
GAUTENG DIVISION OF
THE HIGH COURT, PRETORIA
Electronically
submitted therefore unsigned
Delivered:
This judgment was prepared and authored by the Judge whose name is
reflected and is handed down electronically
by circulation to the
Parties/their legal representatives by email and by uploading it to
the electronic file of this matter on
CaseLines. The date for
hand-down is deemed to be 3 June 2021.
APPEARANCES
For the
Applicant:
MR. VAN RIJN
Instructing
attorneys:
VAN ZYL LE ROUX INC
For
the Third Respondent:
MR. RAUCH IN PERSON
Date
of hearing:
25 May 2021
Date
of judgment:
3 June 2021
[1]
37
of 2002.
[2]
Ad
para 10 of the judgment of the appeal board.
[3]
FAIS
00039/11-12GP1 and FAIS 06661/10-11/WC1 dated 10 April 2015.
[4]
Case
FAB 2/2015 dated 29 October 2015.
[5]
2001
(3) SA 472 (SCA).
[6]
2011
(1) SA 327 (CC).
[7]
Judgment
para 6.
[8]
2015
(5) SA 245
(CC).