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[2021] ZASCA 117
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Ombud for Financial Services Providers v CS Brokers CC and Others (781/2020) [2021] ZASCA 117 (17 September 2021)
THE SUPREME
COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not
Reportable
Case no:
781/2020
In the matter between:
THE OMBUD FOR FINANCIAL
SERVICES
PROVIDERS
APPELLANT
and
CS BROKERS
CC
FIRST RESPONDENT
EMILE
STORM
SECOND RESPONDENT
HIS LORDSHIP MR JUSTICE
OF
APPEAL RETIRED, L T C
HARMS N O
THIRD RESPONDENT
Z MABHOZA N
O
FOURTH RESPONDENT
G MADLANGA N
O
FIFTH RESPONDENT
J B
WALLACE
SIXTH RESPONDENT
Neutral citation:
Ombud
for Financial Services Providers v CS Brokers CC and Others
(Case no 781/2020)
[2021] ZASCA 117
(17 September
2021)
Coram:
PONNAN, MATHOPO, MOLEMELA, MBATHA and GORVEN JJA
Heard
:
2 September 2021
Delivered
:
This judgment was handed down electronically by circulation to the
parties’ representatives by email, publication
on the Supreme
Court of Appeal website and release to SAFLII. The date and time for
hand-down is deemed to be 09h45 on 17 September
2021.
Summary:
Review – Financial Advisory and Intermediary
Services Act – application under s 27(3) for hearing of
oral evidence
or referral to court – Ombud’s discretion –
no discretion exercised at all – decision not to allow
application
reviewable.
ORDER
On
appeal from:
Gauteng Division of the High
Court, Pretoria (Fabricius J, sitting as court of first instance):
The
appeal is dismissed with costs, such costs to include the costs of
two counsel, wherever so employed.
JUDGMENT
Gorven JA (Ponnan,
Mathopo, Molemela and Mbatha JJA concurring)
[1]
On 19 November 2009, the sixth
respondent on appeal, Mr J B Wallace (Mr Wallace), invested a sum of
R730 000 with
a company known as Sharemax; R600 000 of this
was money entrusted to Mr Wallace by his mother, a pensioner based in
the United
Kingdom, to invest on her behalf. The balance came from
his own funds. At the time, one Mr Marais was his financial
advisor.
Mr Marais informed Mr Wallace that he was unable to advise
him on an investment with Sharemax and referred him to the second
appellant
(Mr Storm). Mr Storm functioned as an authorised
representative of the first appellant, CS Brokers CC (CS Brokers).
I shall
refer to them jointly as CS Brokers unless it is necessary to
distinguish them. CS Brokers was an authorised Financial
Services
Provider under the Financial Advisory and Intermediary
Services Act 37 of 2002 (FAIS).
[2]
Mr Wallace, Mr Marais and Mr Storm met more than
once. The investment in Sharemax resulted from these meetings.
Sharemax offered
a number of investments which were essentially
property syndications. Some of the funds of Mr Wallace and his mother
were placed
in the Villa Development and the balance in the Zambezi
Development. Each had its own prospectus. There are differing
versions
as to how this came about. In her determination, the
appellant, the
Ombud for
Financial Services Providers appointed under FAIS (
the
Ombud), noted that there was a factual dispute as to whether either
Mr Storm or Mr Marais had advised Mr Wallace to invest in
Sharemax.
She notes that Mr Storm and Mr Marais said that Mr Wallace had
already decided to do so prior to meeting Mr Storm. These
disputes,
of course, go to the heart of the claim of Mr Wallace. CS Brokers
points to other factual disputes in addition to those
noted by the
Ombud.
[3]
Despite Mr Wallace expecting income from the
investments, by September 2010, no income had been received. Mr
Wallace approached
Mr Storm and alleged that Mr Storm assured
him that the capital was safe, but that there had been a delay in
income due to
internal problems. On 9 November 2010, Mr Wallace
wrote to Mr Storm requesting the return of the capital amount
invested.
A meeting took place on 19 November 2010 but no money was
forthcoming. Mr Wallace then lodged a complaint with the Ombud.
The complaint was supported by an unsworn statement and responded to
by CS Brokers in like manner.
[4]
The complaint was laid with the Ombud on 10
December 2010. She posed certain questions to CS Brokers, to which
she received a response.
On 9 May 2011, CS Brokers applied
to the Ombud under s 27(3) of FAIS to hold a hearing or to refer
the complaint
to a court. The motivation was that it was a matter
requiring oral evidence and cross-examination to resolve factual
disputes as
well as expert evidence. On 11 May 2011, the
Ombud in effect refused that application. She went on to deal with
the matter
on the material before her. Some five years later, on
26 April 2016, the Ombud made a determination. She ordered
CS Brokers
to pay Mr Wallace the sum of R730 000 along with
interest. CS Brokers applied to the Ombud for leave to appeal, which
was
refused.
[5]
CS Brokers then applied to the Chair of the
Appeal Board under s 26B(12) of the Financial Services Board Act
97 of 1990 (the
Board Act). Such an application is one to allow
further oral and written evidence or factual information and
documentation not
made available to the Ombud prior to the making of
the decision against which the appeal was lodged. The members of the
Appeal
Board (the Board) are the third, fourth and fifth respondents
in this appeal. The Chair dismissed that application. CS Brokers then
applied to the Board for leave to appeal against the determination of
the Ombud and were granted leave to appeal on limited grounds,
namely:
‘1. Was Mrs Wallace a
‘complainant’ as defined in sec 1 of the FAIS
Act and if
not, was the Ombud entitled to make an order in respect of her loss?
2. Does the
Plascon-Evans rule apply in inquisitorial investigations – and
in that context did the Ombud in deciding the disputes of fact use
her inquisitorial powers or did she decide the factual disputes
on
the counter-allegations only?
3.
Did the Ombud conflate the risk profiles of the three different
investors?
4. Was the advice at
the time it was given negligent taking into account the extent
to
which the risks were indicated? In this regard are the reasons of the
Ombud in her determination and her dismissal of the leave
to appeal
the same or materially different?
5. Would a reasonable
FSP have reasonable grounds at the time of the advice to
suspect that
the Sharemax scheme was a Ponzi scheme?
6.
Did the Ombud rely on ex post facts for her conclusion?
7.
Was the loss reasonably foreseeable at the time of the advice?’
After
considering the record of the Ombud and forming its own view, the
Board dismissed the appeal against the Ombud’s determination
in
respect of CS Brokers.
[6]
This prompted an application by CS Brokers to the
Gauteng Division of the High Court, Pretoria (the high court), to
review and set
aside a range of decisions. By the time the matter was
argued, the following relief was sought:
‘1.
The decision by the First Respondent, alternatively the failure by
the First
Respondent to make a decision not to grant the application
brought by the Applicants in terms of Section 27(3)
(c)
of the
Financial Advisory & Intermediary Services Act 37 of 2002, to
decline to entertain the complaint, is reviewed, set aside
and
substituted with the following decision: “
This office
declines to entertain the complaint in terms of Section 27(3)(c) in
that it would be more appropriate for the complaint
to be dealt with
by a Court or through any other available dispute resolution
process”
.
2.
All actions of the First, Second, Third and Fourth Respondents,
following upon
the First Respondent’s aforesaid impugned
decision are as a consequence of the setting aside of that decision,
also set aside.
3.
It is recorded that should the Fifth Respondent institute action
against the
Applicants, based on the facts contained in his complaint
to the First Respondent, the Applicants undertake not to raise
prescription
as a Plea, subject to such action being instituted
within a 6 (six) month period of the date of this order.
4.
The First Respondent is ordered to pay the costs of the Applicants.’
[7]
The matter was heard by Fabricius J, whose order,
properly construed as agreed by the parties, reviewed and set aside
all of the
decisions of the Ombud and the Board. These included: the
refusal of the application under s 27(3); the determination by
the
Ombud; the refusal of the Chair of the Board of the application
under s 26B(12) of the Board Act; and the dismissal of the
appeal by the Board. The Ombud then applied for leave to appeal,
which was refused. The appeal is before us as a result of this
Court
granting leave. As was the case in the high court, the third to sixth
respondents take no part in the appeal.
[8]
The parties agreed that the appeal stands or
falls on whether the high court should have granted the following
order:
‘1.
The decision by the First Respondent, to decline to entertain the
complaint
in terms of s 27(3)
(c)
of the FAIS Act, is reviewed,
set aside and substituted with the following decision: “
This
office declines to entertain the complaint in terms of
Section 27(3)(c) in that it would be more appropriate for the
complaint to be dealt with by a Court or through any other available
dispute resolution process.”
.’
The basis of
the appeal is the submission that the Ombud properly exercised her
discretion when she refused the application in terms
of s 27(3)
of FAIS. In argument, this was posed by the parties as the sole issue
to be decided by this Court.
[9]
A brief synopsis of the relevant legislation will
assist. Section 20 of FAIS created the office of the Ombud, whose
functions are
to be performed by the Ombud. Sections 20(3) and
(4) set out the objective of the Ombud as follows:
‘(3) The Objective
of the Ombud is to consider and dispose of complaints in a
procedurally fair, informal, economical and
expeditious manner and by
reference to what is equitable in all the circumstances, with due
regard to –
(a) the contractual
arrangement or other legal relationship between the complainant and
any other party to the complaint; and
(b) the provisions of this
Act.
(4) When dealing with
complaints in terms of sections 27 and 28 the
Ombud is independent and must be impartial.’
[10]
The Ombud was thus created as a mechanism for the
speedy resolution of disputes, which would otherwise be dealt with in
court. A
complainant has an election to either utilise the Ombud or
approach a court. Financial Services Providers have no such election.
They must meet the claim in whichever forum is selected by the
complainant. The powers of the Ombud are akin to those of a court
as
seen in s 28. The relevant parts are contained in ss 28(1) and
28(5).
Section 28(1),
provides:
‘The Ombud must in
any case where a matter has not been settled or a recommendation
referred to in section 27(5)
(c)
has not been
accepted by all parties concerned, make a final determination, which
may include –
(a)
the dismissal of the complaint; or
(b)
the upholding of the complaint, wholly or partially, in which case –
(i) the complainant may be awarded an amount as fair compensation for
any
financial
prejudice or damage suffered;
(ii) a direction may be issued that the authorised financial services
provider,
representative or other party concerned take such steps in relation
to the complaint
as the
Ombud deems appropriate and just;
(iii) the Ombud may make any other order which a Court may make.’
and s 28(5),
which provides:
‘A determination –
(a)
or a final
decision of the board of appeal, as the case may be, is regarded as a
civil judgment of a Court, had the matter in question
been heard by a
Court, and must be so noted by the clerk or registrar, as the case
may be, of that Court;
(b)
is only
appealable to the board of appeal –
(i)
with the leave of the Ombud after taking into consideration –
(aa)
the complexity of the matter; or
(
bb
)
the reasonable likelihood that the board of appeal may reach a
different
conclusion;
or
(ii)
if the Ombud refuses leave to appeal, with the permission
of the
chairperson of the board of appeal.’
[11]
The procedure for the Ombud to deal with
complaints is set out in s 27. Of relevance is s 27(3)
(c)
of FAIS, which provides:
‘(3) The following
jurisdictional provisions apply to the Ombud in respect of the
investigation of complaints:
. . .
(c)
The Ombud may
on reasonable grounds determine that it is more appropriate that the
complaint be dealt with by a Court or through
any other available
dispute resolution process, and decline to entertain the complaint.’
and
s 27(5)
(a)
, which provides:
‘(5) The Ombud –
(a)
may, in
investigating or determining an officially received complaint, follow
and implement any procedure (including mediation)
which the Ombud
deems appropriate, and may allow any party the right of legal
representation.’
[12]
It can thus be seen that the Ombud is granted
extensive substantive powers. It was correctly conceded in argument
by the Ombud that
these are akin to quasi-judicial powers rather than
purely administrative ones. A determination is regarded as a civil
judgment
of a court. In addition, the Ombud is accorded a discretion
as to the appropriate procedure. This includes a discretion under
s 27(3)
(c)
to
decline to entertain the complaint on the basis that a court, or some
other dispute resolution forum, is the more appropriate
forum to
decide the complaint. In addition, the procedural discretion allows
the Ombud to receive oral evidence, among other options.
[13]
As indicated, the matter turns on whether the
Ombud properly exercised her discretion in dealing with the
application of CS Brokers
under s 27(3). It requested her to
decline to decide the matter and to refer it to court, alternatively
to hear oral evidence
on the basis that factual disputes existed
which could only be resolved by following that procedure.
[14]
There was much debate before us as to the nature
of the discretion to be exercised by the Ombud. This also occupied
the high court.
The Ombud submitted that she had a broad discretion
as to procedure and had properly exercised her discretion against
hearing oral
evidence or declining to deal with the matter on the
basis that it should be dealt with by a court. CS Brokers, on the
other hand,
contended that the discretion was one which was required
to be exercised judicially. Interesting though that debate may be, in
my view it does not arise in the present matter and need not detain
us. That is because this matter turns on the facts.
[15]
As indicated, the application under s 27(3)
was dated 9 May 2011, in which the attorneys representing CS Brokers
requested
that the Ombud hold a hearing or defer to the court in
respect of the complaint. On 11 May 2011, the Ombud responded by
letter,
saying simply: ‘this Office does not hold hearings’.
[1]
[16]
During argument, counsel for the Ombud readily
conceded that the application required a specific ruling along with
reasons. The
reason given for not holding a hearing with oral
evidence is simply that the Ombud does not do so. The response is one
which clearly
indicates that no discretion at all was exercised on
the application. Instead, a predetermined policy was applied, without
reference
to the specific issues in the matter before her. This when
the Ombud is invested with a wide range of procedural options which
can be tailored to different situations and complaints. This does not
constitute an improper exercise of her discretion but an approach
which, as the Board put it in the appeal determination, ‘disregards
her statutory obligation to exercise her discretion’.
With this
statement, I can find no fault.
[17]
In argument, the Ombud referred to the final
determination to attempt to demonstrate that reasons were given. What
is said in the
determination is:
‘Storm’s
attorneys criticize this office for not holding hearings to resolve
“material factual disputes”.
This office does not have a
policy that prohibits the holding of hearings. Where it is
appropriate, a hearing will be held. In
this case there are no
material disputes of fact that require such a hearing.’
This clearly
contradicts the refusal at the time on the basis that ‘this
Office does not hold hearings’. It is the latter
statement by
which the Ombud responded to the application. In any event, the
reasons given in the determination do not address
the factual
disputes noted by the Ombud herself which go to the heart of the
claim of Mr Wallace.
It suffices to say that it
is difficult to discern which factors weighed and occupied her mind
when she gave her decision. To say
that there were no material
disputes of fact when the parties disagreed whether Mr Wallace had
already decided to invest in Sharemax
when he met with Mr Storm
simply beggars belief.
[18]
It is therefore unnecessary to address the manner
in which the discretion of the Ombud should be exercised and the test
for interference
with it on review. If no discretion is exercised,
when the Ombud was indeed vested with a discretion, that has to be
the end of
the matter. As was agreed by the parties before us, the
entire appeal turns on this single issue. It is clear in these
circumstances
that the appeal must fail.
[19]
In the result, the appeal is dismissed with
costs, such costs to include the costs of two counsel, wherever so
employed.
T R GORVEN
JUDGE OF APPEAL
Appearances
For appellant:
S Shangisa SC (heads prepared by V
Ngalwana SC and S Shangisa SC)
Instructed by:
Ramushu Mashile Twala Incorporated,
Sandton.
Claude
Reid Inc Attorneys, Bloemfontein.
For First and Second
respondents: P F Louw SC (with
him E Van As)
Instructed by:
Bieldermans Incorporated, Sandton.
Honey Attorneys, Bloemfontein.
[1]
The full response was: ‘
Your
application that the matters involving your clients be referred to
court is inappropriate as that is the decision of the
Ombud. We add
that there is nothing distinguishing the matters involving your
clients to the hundreds of matters handled by this
office. Once
again, this Office does not hold hearings’.