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[2020] ZASCA 64
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Associated Portfolio Solutions (Pty) Ltd and Another v Basson and Others (554/2019) [2020] ZASCA 64; 2021 (1) SA 341 (SCA) (12 June 2020)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
no: 554/2019
In
the matter between:
ASSOCIATED
PORTFOLIO
SOLUTIONS
(PTY) LTD FIRST
APPELLANT
PENTAGON
FINANCIAL SOLUTIONS
(PRETORIA)
(PTY) LTD
SECOND APPELLANT
and
PIETER
WILLEM BASSON
FIRST
RESPONDENT
REGISTRAR
OF FINANCIAL
SERVICE
PROVIDERS
SECOND RESPONDENT
MOONSTONE
COMPLIANCE (PTY) LTD THIRD RESPONDENT
Neutral
citation:
Associated Portfolio Solutions (Pty) Ltd &
Another v Basson & Others
(554/2019)
[2020] ZASCA 64
(12 June
2020)
Coram:
PONNAN, DAMBUZA and PLASKET JJA and GORVEN
and MATOJANE AJJA
Heard
:
07 May 2020
Delivered
:
This judgment was handed down electronically by circulation to the
parties’ legal 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 12H00
on 12 June 2020
Summary:
Administrative Law – debarment of a representative and key
individual of financial service provider under the
Financial Advisory
and Intermediary Services Act 37 of 2002
an administrative action –
relevant facts established in a preceding disciplinary inquiry for
misconduct may be taken into
account in resolving to debar a
representative – directors of financial service provider
charged with the responsibility
to debar representatives – some
measure of institutional bias present and tolerated in this mode of
regulation.
ORDER
On
appeal from:
Western Cape Division of the High Court, Cape Town
(Sievers AJ, sitting as court of first instance)
1
The appeal as to the main application is upheld with costs, such
costs, including those
of two counsel, to be paid by the first
respondent.
2
The appeal as to the counter-application is dismissed with costs,
such costs to include
those of two counsel.
3
The order of the high court is set aside and replaced with the
following:
‘
The
application and counter-application are dismissed with costs, such
costs to include those of two counsel’.
JUDGMENT
Dambuza
JA (Ponnan, and Plasket JJA and Gorven and Matojane AJJA concurring)
Introduction
[1]
This appeal, with the leave of the court below, is against a judgment
of the Western Cape High Court,
Cape Town (Sievers AJ) which set
aside the debarment of the first respondent, Mr Pieter Willem Basson
(Mr Basson) by the appellants
and dismissed a counter-application by
them, which sought a range of declaratory orders against the second
respondent, the Registrar
of Financial Services Providers (the
Registrar).
Background
[2]
From the early 2000s Mr Basson, was one of the four
founder-shareholders, directors and employees of
the first appellant,
Associated Portfolio Solutions (Pty) Ltd) (APS), a fund management
business, and the second appellant, Pentagon
Financial Solutions
(Pretoria) (Pty) Ltd (Pentagon), a financial services provider. The
two businesses operated as a quasi-partnership
and Mr Basson was a
‘registered representative’ and a ‘key individual’
in both of them under the Financial
Advisory and Intermediary
Services Act 37 of 2002 (FAIS Act).
[1]
The other directors were Mr Cornelis Kruger (also a key individual),
Mr Harold Nimmo and Mr Jacob Van Westhuizen Neethling.
[3]
During 2016 there was a falling out between Mr Basson and his fellow
directors. In September of that
year Mr Basson stopped coming to
work. Negotiations for his exit from APS and Pentagon were
unsuccessful as no agreement could
be reached as to the market value
of his shares. Subsequent thereto
, evidence of
wrongdoing on his part was brought to the attention of Mr Kruger.
On
7 November 2016 Mr Basson was suspended from his employment, pending
an investigation into the allegations of misconduct that
had been
made against him.
The investigations culminated in
a disciplinary inquiry in which Mr Basson was charged with ten counts
of misconduct
.
[4]
On 9 December 2016 Mr Basson instituted proceedings against Mr Kruger
and the other directors in the
high court, under
s 163
of the
Companies Act 71 of 2008
, alleging oppressive and unfair conduct by
them. He sought an order that they be directed to purchase his shares
in the quasi-partnership
at a fair value. He alleged that their
conduct, in laying unfounded misconduct charges against him, was
motivated by the desire
to devalue his shares so as to acquire them
for far less than their fair value. That application was referred to
arbitration.
[5]
Whilst the arbitration was pending, the disciplinary enquiry against
Mr Basson proceeded. The charges
included: (a) establishing or taking
steps to establish an asset management business in competition with
and in breach of his fiduciary
obligations to the quasi-partnership;
(b) disclosing confidential information to third parties with whom he
had private business
interests, engaging in discussions with third
parties regarding the sale of assets of the quasi-partnership managed
by him (his
client book); (c) negligently communicating false and
unrealistic information about a ‘10M’ investment program;
(d)
‘purporting’ to conclude an agreement without
authorisation and without conducting due diligence, for the provision
of financial services to Germix Investments SA and Caleb Foundation;
and (e) consistently using the quasi-partnership’s resources
for private and personal business interests in conflict with his
fiduciary duties.
[6]
The disciplinary hearing was presided over by Mr Graham Leslie, an
advocate of the Cape Bar. At the
end of the hearing Mr Basson was
found guilty of five of the charges. The chairperson recommended his
dismissal. He was of the
view that each individual transgression that
had been established was, on its own, sufficiently serious to warrant
Mr Basson’s
dismissal. The ruling was delivered on 28 April
2017.
[7]
On 2 May 2017, the appellants’ attorneys wrote to the third
respondent, Moonstone Compliance (Pty)
Ltd (Moonstone), being the
appellants’ compliance officer under the FAIS Act, seeking
advice on how to proceed, now that
Mr Basson had been found guilty in
the disciplinary enquiry. On the same day Moonstone advised the
appellants’ attorneys
that, as a result of Mr Leslie’s
ruling the appellants had ‘very little choice other than to
debar [Mr] Basson as a
representative based thereon that he ha[d]
contravened the FAIS Act in a material manner and [did] not exhibit
the characteristics
of honesty and integrity’.
[8]
On 4 May 2017 the appellants’ attorneys forwarded to Mr Basson
notices of a directors’ meeting
of both appellants that was
scheduled for 17 May 2017. The notices included proposed resolutions
to be considered for the contemplated
debarment of Mr Basson,
consequent upon the findings made against him in the disciplinary
process. Save in one respect that is
not material for present
purposes, the notices in respect of each of the appellants were
identical.
[2]
In terms thereof, the board of each of the appellants was to consider
resolutions to: (
a) remove Mr
Basson from each board (resolution 1); (b) dismiss him from his
employment (resolution 2); (c) terminate a mandatory
agreement dated
18 February 2008 between Mr Basson and APS (resolution 3 – this
resolution was applicable only in respect
of APS); (d) debar Mr
Basson as a representative of each company in terms of s 14(1) of the
FAIS Act (resolutions 4 and 3 respectively);
and (e) authorise
directors to take all steps necessary to give effect to these
resolutions (resolution 5 and 4 respectively).
Mr
Basson
was, in each notice,
informed that he could ‘make a presentation, in person or
through a representative, to the meeting before
the resolutions
[were] put to the vote, save that no further presentations [could] be
made in respect of resolutions 2 and 5’.
[3]
[9]
In a letter dated 17 May 2017, entitled
‘representations to board meetings held by APS and Pentagon’,
Mr Basson’s
attorneys made representations on his behalf in
terms of
s 71(2)(b)
of the
Companies Act 71 of 2008
’.
[4]
They highlighted the fact that Mr Basson did not accept the results
of the disciplinary proceedings and warned that acceptance
thereof by
the boards would lead to legal action. They pointed to what they
considered to be ‘material shortcomings’
in the findings
of the chairperson, which included disregarding the ulterior motives
of the directors in pursuing the charges,
chief of which was to
acquire his shares cheaply. They insisted that the chairperson had
erred in his consideration of the matter
and urged the directors to
consider very carefully the implications of accepting the
recommendation to ‘dismiss [their] client’.
They alluded
to the fact that ‘[Mr Basson’s]
income
stream as a professional [was] likely to be destroyed by the adoption
of the recommendation to dismiss him, and the likely
accompanying
decision to disbar him
’
,
and to the fact that ‘the damaging consequences to both the
company and himself may be irreversible once the decision to
dismiss
him [was] taken’.
[10]
Neither Mr Basson nor his attorneys attended the meeting of 17 May
2017. The meeting proceeded and the proposed
resolutions were all
passed.
On the same day the appellants (through Mr
Kruger) wrote to Mr Basson, informing him of the outcome of the board
meetings. In relation
to Resolution 4 (and 3) the letter read:
‘
In
light of the findings of the disciplinary inquiry, and especially the
Chairman’s findings contained in [certain specified
paragraphs]
Basson no longer complies with the requirements referred to in
section 13(2)(a) of the FAIS Act and/or has contravened
or failed to
comply with the FAIS Act in a material manner, and accordingly the
Board resolves that Pieter Willem Basson be and
is hereby prohibited
from rendering any new financial service on behalf of the Company,
and his authority to act on behalf of the
Company either as a
registered representative or key individual is withdrawn; that his
name be and is hereby removed from the Company’s
register of
representatives as contemplated in section 14(1) of the FAIS Act, and
further that the Company shall inform the registrar
in writing
thereof and provide written reasons for the implementation of
Basson’s debarment as contemplated in terms of section
14(3)(a)
of the FAIS Act.’
[5]
[11]
On the same day (17 May 2017), Mr Kruger also wrote to the registrar
of the Financial Services Board (the FSB)
requesting that Mr Basson
be debarred as a representative for material contravention or
non-compliance with provisions of the FAIS
Act as well as
non-compliance with ‘Fit and Proper Requirements’. The
letter set out details of Mr Basson’s transgressions
and a copy
of the judgment in the disciplinary enquiry was attached. In a form
entitled ‘Notification of Debarment in terms
of Section 14 of
the FAIS Act’ completed in respect of Mr Basson, the appellants
were described as ‘the debarring FSP’.
On 2 June 2017,
the FSB notified the appellants’ attorneys that its register
had been updated on the previous day and that
Mr Basson’s name
appeared on it as a person who had been debarred.
[12]
On 6 September 2017 Mr Basson launched review proceedings in the high
court seeking that the decision taken by
the appellants to debar him
be set aside. The grounds for the review were that, firstly, he had
not been afforded a reasonable
opportunity to make representations
and to call witnesses before the debarment decision was taken.
Aligned to that was a contention
that the compliance authority,
Moonstone, recommended his debarment without having been involved in
the investigations and the
disciplinary proceedings, and that it made
its recommendations to the appellants based purely on the results of
the disciplinary
proceedings. Therefore the debarment recommendation
was tainted by procedural unfairness. Secondly, the majority
directors who
passed the resolutions had pre-judged the issues; the
decision was tainted by ulterior motive; and they had acted as judges
in
their own case, because they had given evidence at the
disciplinary hearing.
[13]
In the meantime,
Mr Basson had, on 23 August 2017,
prior to consideration of his review application by the high court,
been reappointed as a representative
by Rebalance Fund Managers (Pty)
Ltd (Rebalance). In
addition to opposing the review
application, the appellants brought a counter-application, in which
they sought the joinder of
Rebalance and the review of the decision
by Rebalance to appoint Mr Basson as its representative. As against
the Registrar, the
appellants sought a range of declaratory orders to
the effect that Mr Basson’s debarment ought not to have been
lifted without
the Registrar first satisfying herself that he
complied with the necessary fit and proper requirements of FAIS and
was honest and
had integrity.
[14]
The appellants also sought a declarator that Mr Basson would only be
eligible for re-appointment after the lapse
of 12 months from the
date of his debarment. It was contended that his re-appointment was
in contravention of the regulatory framework
which governed
re-appointments.
[6]
In response, the Registrar explained that Mr Basson ‘[was]
currently not a representative of Rebalance or any FSP’.
Rebalance had since removed Mr Basson as its representative. In a
further affidavit the appellants alleged that Mr Basson had once
more
been appointed by another FSP (financial service provider) - Vision
Risk and Investment Consultants (Pty) Ltd. The high court
dismissed
the counter-application on the basis that the issues raised therein
had become moot.
[15] At the time of Mr Basson’s
re-appointment by Rebalance the guidelines issued by the FSB for
re-appointment
of representatives provided that:
‘
the
onus rests on the reappointing provider . . . as a first step to
convince the [FSB] on a balance of probabilities that there
has been
a genuine, complete and permanent reformation on the part of the
representative and that the defects and character, attitude
or other
aspects that led to the representative being considered not fit and
proper, no longer exist . . . it must be clear when
the registrar
peruses the documents supplied by the provider, that the latter is
aware of the details of the applicant’s
transgression and the
provider is satisfied that the representative will not commit the
offence again’.
[16]
Subsequent to the removal of Mr Basson as a representative for
Vision Risk, the Registrar withdrew the reappointment guidance
notice,
which was in force at the time of Mr Basson’s
re-appointment and on which the appellants had largely relied in
their counter-application.
A fresh guidance notice was issued in
which the Registrar advised that it played a ‘relatively minor
role’ in supervising
entry into and debarment from the
profession, ‘mainly relating to the updating of the central
register of representatives’.
[17]
In setting aside Mr Basson’s debarment and dismissing the
appellants’ counter-application, the high
court found that
because the disciplinary proceedings were regulated by provisions of
the
Labour Relations Act 66 of 1995
, the results thereof could not
inform the debarment proceedings as the latter fell under the FAIS
Act. The court was of the view
that a separate ‘debarment
inquiry’ should have been held under s14(1) of the FAIS Act ‘to
determine whether
Mr Basson complied with the “fit and proper”
requirements contemplated in s 13 of [that] Act and published in
regulations
under section 6A’. It also
found
that the responsibility lay exclusively with the appointing FSP
(Rebalance) to ensure that the pre-requisites were met for
Mr
Basson’s re-appointment and upheld the argument by the
Registrar that the relief claimed in the counter-application was
moot.
[18]
On appeal, the appellants took issue with the key finding of the high
court – that the disciplinary and debarment
processes were
separate and distinct and that the earlier process could not inform
the later one. It was submitted on their behalf
that on a finding
that Mr Basson lacked integrity and honesty, the appellants had a
duty to debar him. The appellants also persisted
in their appeal
against the dismissal of their counter-application because of Mr
Basson’s further appointment by Vision Risk.
[19]
Mr Basson also persisted in his procedural unfairness contention,
re-asserting that he was not afforded the opportunity
to make
representations and to call witnesses prior to his debarment. He also
insisted that his debarment was fatally flawed as
a result of bias on
the part of his co-directors.
Debarment and administrative decision
[20]
An overview of the relevant sections of the FAIS Act is helpful for
an understanding of the context and the relationship
between the
parties. The purpose of the Act is, according to its long title, to
‘regulate the rendering of certain financial
advisory and
intermediary services to clients’. It does so by means of an
administrative system of licencing, controlled
by the FSB under the
management of its Registrar, and largely thereafter, by a system of
self-regulation in which licenced FSPs
ensure that their
representatives and key individuals are fit and proper persons to be
entrusted with providing financial advice
to the investing public.
[7]
[21]
In terms of s 7, the FSP may not provide financial services unless it
is licenced in terms of s 8. Neither may
a representative of a FSP do
so unless he or she has been appointed as such by an ‘authorised’
or licenced FSP in terms
of s 13. FSPs are required to keep registers
of their representatives and key individuals.
[8]
[22]
The Act decrees a close supervisory responsibility by FSPs over their
representatives. In terms of s 13(1)
(b)
(i),
no person may act as a representative of an authorised (inconsistent
spelling, elsewhere you have use authorised FSP unless,
prior to the
rendering of a financial service, he or she provides to clients
confirmation certified by the FSP, that the FSP accepts
responsibility for the activities of the representative performed
within the scope of or within the course of implementing a service
contract with the FSP. Section 13(iA) prescribes that a
representative must meet the ‘fit and proper’
requirement.
In terms of s 13(2)
(a)
an authorised FSP must, at all times, be satisfied that its
representatives and key individuals are competent to act and that
they comply with the fit and proper requirement. FSPs are charged
with the duty to take reasonable steps to ensure that representatives
comply with any applicable code of conduct and applicable laws in the
conduct of business.
[23]
Under s 14 of the FAIS, the FSPs bear the duty to debar
representatives, who do not meet the fit and proper requirement.
Section 14(1)
(a)
provides
that an FSP must debar its representative and key individual if
satisfied that he or she (the representative and key individual)
does
not meet, or no longer complies with the requirements set in s
13(2)
(a),
or has contravened any provision of the Act in a material way. Mr
Basson’s debarment was effected in terms of s 14(1) of
the Act.
[24]
Once debarment has been effected, the FSP must immediately withdraw
any authority that may still exist for the
person to act on its
behalf, remove the name of the debarred person from the its register
of representatives, immediately take
steps to ensure that the
debarment does not prejudice the interests of clients, notify the FSB
of the debarment within five days,
and provide the authority with the
reasons for the disbarment. A (previously) debarred person may only
carry on business or render
financial services to clients or act as a
representative or a key individual of an authorised provider if he or
she complies with
the requirement set in s 13(1)
(b)(
ii)
of the FAIS Act.
[25]
The appellants, being private juristic entities, exercised their
authority under s 14(1) of the FAIS Act to debar
Mr Basson. In doing
so they acted in furtherance of the objects of the FAIS Act –
and in the public interest. They exercised
public power in terms of
that Act. The debarment had an adverse impact and direct, external
legal effect on his rights.
[9]
It was not in dispute that the debarment of Mr Basson was an
administrative action and that it was therefore reviewable under s
6(2) of the Promotion of Administrative Justice Act 3 of 2000 (PAJA).
Section 6(2) of the PAJA enumerates the grounds for review
of
administrative action. In terms of s 6(2)
(c)
a court may set aside administrative action if it ‘was
procedurally unfair’, whilst s 6(2)
(a)
(iii)
provides that administrative action may be set aside if the
administrator who took it ‘was biased or reasonably suspected
of bias’.
Procedural fairness
[26]
Section 33 of the Constitution provides that everyone has a right to
administrative action that is lawful, reasonable
and procedurally
fair. Section 3(1)
(a)
of PAJA
incorporates the procedural fairness requirement by providing that
‘administrative action which materially and adversely
affects
the rights and legitimate expectations of any person must be
procedurally fair’. What is fair in the particular
circumstances, will depend on the context of each case.
[10]
But the core of the right comprises the giving to the affected person
of ‘adequate notice of the nature and purpose of the
proposed
administrative action’; a ‘reasonable opportunity to make
representations’; and a ‘clear statement
of the
administrative action’ (section 3(2)
(b)
of PAJA).
[27]
The procedural fairness requirement is, again, ordained in ss 14(2)
and (3) of the FAIS Act wherein the procedure
for debarment
is
prescribed as follows:
‘
(2)
(a)
Before effecting a debarment in terms of subsection (1), the provider
must ensure that
the debarment process is lawful, reasonable and
procedurally fair.
(b)
If a provider is unable to locate a person in
order to deliver a document or information under subsection (3),
after taking all
reasonable steps to do so, including dissemination
through electronic means where possible, delivering the document or
information
to the person's last known e-mail or physical business or
residential address will be sufficient.
(3) A financial services provider must-
(a)
before debarring a person-
(i) give
adequate notice in writing to the person stating its intention to
debar
the person, the grounds and reasons for the debarment, and any
terms attached to the debarment, including, in relation to
unconcluded
business, any measures stipulated for the protection of
the interests of clients;
(ii) provide
the person with a copy of the financial services provider's written
policy
and procedure governing the debarment process; and
(iii) give the
person a reasonable opportunity to make a submission in response;
(b)
consider any response provided in terms of
paragraph
(a)
(iii),
and then take a decision in terms of subsection (1); and
(c)
immediately notify the person in writing of-
(i)
the financial services provider's decision;
(ii) the
persons' rights in terms of Chapter 15 of the Financial Sector
Regulation Act;
and
(iii)
any formal requirements in respect of proceedings for the
reconsideration of the decision
by the Tribunal.’
[28]
Against the factual background and legislative framework, it becomes
readily apparent that the contention that
Mr Basson was not given a
fair opportunity to make representations cannot be supported. The
letter addressed by the appellants’
attorneys to Mr Basson
(dated 4 May 2017 - almost two weeks prior to the date of the
meeting) and the notices attached thereto
were an express invitation
to Mr Basson to attend the meeting of the appellants’ boards on
17 May 2014. He was expressly
invited to make representations in
relation to the proposed resolutions.
[11]
Mr Basson’s attention (and that of his attorneys) was drawn
pertinently to the findings of the chairperson in the disciplinary
process and the effect those had on his position as a financial
service provider. More particularly in relation to proposed
resolutions
4 and 3 respectively the notice referred to specific
portions of the chairperson’s findings in his judgment
[12]
and warned that:
‘
Basson
no longer complies with the requirements referred to in section
13(2)
(a)
of the FAIS Act and/or has contravened or failed to comply with the
FAIS Act in a material manner, and accordingly the Board resolves
as
follows:
“
that Basson be and is hereby
prohibited from rendering any new financial service on behalf of APS,
and his authority to act on behalf
of APS either as a registered
representative or key individual is withdrawn; that his name be and
is hereby removed from APS’s
register of representatives as
contemplated in section 14(1) of the FAIS Act, and further that APS
shall inform the registrar in
writing thereof and provide written
reasons for the implementation of Basson’s debarment as
contemplated of section 14(3)(a)
of the FAIS Act”.
[29]
Not only was Mr Basson apprised, through the notices, of the
implications of the findings made against him in the
disciplinary
process, but it is clear from the record that he was independently
aware of the significance thereof. In his representations
(dated 17
May 2017), his attorneys wrote that ‘his income as a
professional is likely to be destroyed by the adoption of
the
recommendation to dismiss him and the likely accompanying decision to
disbar him’. Significantly, Mr Basson responded
pertinently to
the invitation to make representations but did not address the core
question of debarment – except in passing.
He can hardly
complain of procedural unfairness when the resolutions were passed
after he had chosen not to address that core issue.
[30]
The fact that in the disciplinary hearing Mr Basson was not required
to address issues of his honesty and integrity
or whether he was a
fit and proper person, weighed heavily with the high court, leading
to the finding that there was a failure
to afford him an opportunity
to make representations. Whilst it is correct that the disciplinary
enquiry was not directly concerned
with whether Mr Basson was a fit
and proper person to represent APS and Pentagon, the disciplinary
inquiry afforded him the opportunity
to respond to the transgressions
under consideration, the nature of which pertinently implicated his
honesty and integrity.
[13]
[31]
The argument that a ‘debarment factual inquiry’ should
have been held in compliance with procedural
fairness prescripts is
unsustainable. It was clear in the notices of 4 July 2017 that the
outcome of disciplinary hearing was the
factual basis for the
meetings and the proposed resolutions. The facts established in the
disciplinary proceedings impacted directly
on Mr Basson’s
honesty and integrity, raising the issue squarely whether he met the
crucial requirement of a fit and proper
person to be a representative
and key individual under s 8(1) of the FAIS Act.
[14]
Any further inquiry would have been absurd and unnecessary,
particularly as it could hardly be accepted that whilst not a fit and
proper person qua employee, he could nonetheless be a fit and proper
person qua representative. To insist on a further inquiry
in these
circumstances would be to place form above substance.
[32]
At the hearing of the appeal, Counsel for Mr Basson accepted that the
disciplinary hearing could indeed have unearthed
facts that enjoined
the appellants to exercise their authority under the FAIS Act. But
even then, it was submitted (without reference
to any authority),
they could only take into account common cause facts. Allegations
that were in dispute at the disciplinary hearing
had to be
adjudicated afresh, so it was submitted. The argument rested on an
untenable distinction between the appellants qua employers
and qua
FSPs. And, contrary to the submission, the facts on which the
debarment was founded had already been established in the
disciplinary proceedings. Those facts had been established after a
full enquiry. Mr Basson had participated fully in the enquiry.
He had
every opportunity to test the allegations levelled against him. By
the conclusion of the enquiry many serious allegations
that impacted
substantially on Mr Basson’s honesty and integrity were either
common cause or undisputed. None of that could
subsequently have
changed.
Was the debarment decision free of bias?
[33]
In this regard the argument on behalf of Mr Basson was threefold –
a) that the decision was motivated by
an ulterior motive, b) that the
majority shareholders had pre-judged the matter, and c) that they had
acted as judges in their
own case. The high court held that the
majority of the directors of APS and Pentagon pre-judged Mr Basson’s
debarment because
that decision was based on the findings made by the
chairperson and Moonstone’s advice. That court also found that
the directors
were biased because they testified in the litigation
initiated by Mr Basson regarding his exit from the companies and the
fair
value of his shares.
[34]
Mr Kruger denied that the resolutions were passed for the ulterior
purpose of rendering Mr Basson’s shares
worthless. His denial
was a detailed explanation of precisely how the resolutions came to
be proposed and why they were passed.
There can be no doubt that
there was a strong rational connection between the facts that were
found to have been established in
the disciplinary enquiry and the
decision to debar Mr Basson. The fact that a resolution for debarment
was proposed prior to the
meeting of the 17 May 2017 was consistent
and in compliance with the provisions of s 14(1) of the FAIS Act.
Once the findings impacting
on Mr Basson’s honesty and
integrity were made by the chairperson the appellants were obliged to
inquire into whether or
why he should not be debarred. The duty fell
on the appellants and no one else. Section 14(1)
(a)
compels a provider to debar a representative or a key individual who
has misconducted him or herself, if he or she is no longer
a fit and
proper person to be trusted to give financial advice to members of
the public. Mr Basson’s argument that the decision
should have
been referred or left for the Registrar to make is untenable: the
Registrar had no power to decide on Mr Basson’s
debarment. So
too was the submission that it was improper for the appellants to sit
in judgment of Mr Basson in the middle of a
pending dispute about the
valuation of his shares. The appellants were the only persons
empowered by the FAIS Act to decide whether
Mr Basson should be
debarred.
[35]
Curiously the objection based on bias was never raised prior to the
debarment. In any event, nothing on the record
supports the argument
that the debarment was made for reasons other than those prescribed
in the FAIS Act. The very purpose of
giving Mr Basson notice of the
contemplated resolutions was to afford him the opportunity to make
representations. To suggest that
this amounted to pre-judgment is
unsustainable, otherwise every administrative decision requiring
prior hearing would be susceptible
to being set aside on account of
pre-judgment. Moreover, the FAIS Act vests the power to debar in
persons who inevitably would
have a history to speak of – and
be aware of the misdeeds of – what may be described as an
errant representative. This
method of regulation thus accepts that
some institutional bias may be present and will be tolerated in
respect of debarment proceedings
in terms of the FAIS Act.
The counter-application
[36]
The appellants persisted in their appeal against the dismissal of
their counter-application on the basis that although
Rebalance had
revoked Mr Basson’s registration as its representative he was,
once more, registered as a representative for
Vision Risk. It was
also submitted that there was evidence of laxity in the supervision,
by the Registrar, of reappointment of
formerly debarred
representatives. Much reliance was placed on
Financial
Services Board v Barthram and Another
[15]
in which this court held that debarment of a representative in terms
of s 14(1) of the FAIS Act becomes effective on an industry-wide
scale because of the risk posed to the public by a debarred person
who does not meet the requirements of honesty and integrity.
[37]
However, as far back as December 2017, it was stated on behalf of the
FSB that Mr Basson was not registered as
a representative of any FSP.
There was also an explanation that Mr Basson’s online
appointment by Rebalance resulted from
compliance with a court order
in terms of which the FSB was ordered to remove publication of his
debarment from its website. This
resulted in an inadvertent disabling
of a search function for debarred representatives on the website,
allowing the uploading of
Mr Basson’s appointment by Rebalance.
In this sense his appointment by Rebalance was never a
‘reappointment’,
but no more than an administrative
error.
[38]
In this context the counter-application had indeed become academic.
There had been no reviewable decision by the
FSB. Neither could the
FSB ‘take any steps as may be required in terms of s 14A (now s
153) of the FAIS Act in regard to
[Mr Basson]’.
[16]
The order
[39] Consequently, it is ordered that:
1
The appeal as to the main application is upheld with costs, such
costs, including those
of two counsel, to be paid by the first
respondent.
2
The appeal as to the counter-application is dismissed with costs,
such costs to include
those of two counsel.
3
The order of the high court is set aside and replaced with the
following:
‘
The
application and counter-application are dismissed with costs, such
costs to include those of two counsel’.
________________________
N
DAMBUZA
JUDGE
OF APPEAL
Appearances
For
appellants:
Adv Kirk-Cohen SC with him Adv Mark
Greig
Instructed
by:
Webber Wentzel Attorneys, Cape
Town
Symington & De Kok Attorneys, Bloemfontein
For
1
st
Respondent: Adv
Van Riet SC with him Adv Dorsten
Instructed
by:
De Waal Grobbelaar Fischer
Attorneys, Cape Town
JL
Jordaan Attorneys, Bloemfontein.
For
2
nd
Respondent: Adv
Pillay SC
Instructed
by :
Bisset Boehmcke Mcblain,
Cape Town
Webbers, Bloemfontein
[1]
In terms of s1 of the FAIS
Act a ‘key individual’ in relation to an authorised
financial services provider means a
natural person responsible for
managing and overseeing the activities of the authorised financial
services provider. A ‘representative’
means any person
who renders a financial service to a client for or on behalf of the
financial services provider, in terms of
conditions of employment or
any mandatory agreement, , but excludes a person rendering clerical,
technical, administrative, legal
accounting or other service in a
subsidiary or subordinate capacity, which service –
(a)
Does not require judgment on the part of
the latter person; or
(b)
Does not lead a client to any specific
transaction in respect of a financial product in response to general
inquiries.
[2]
Save for one resolution
relation to termination of an agreement dated 18 March 2008 which
was not applicable to Pentagon.
[3]
The last resolution
in
respect of Pentagon was resolution 4.
[4]
This section prescribes the
procedure by which a board may remove a director.
[5]
The specified paragraphs related to the findings made by Mr Leslie
on the complaints in respect of which Mr Basson was found
guilty.
In
complaint 4, Mr Basson was found to have sent an email dated 22
September 2016 from his work email address to a Mr Richard
Turner
advising him that the returns on a ‘10M’ investment
program were “. . . 300% in 30 days, and then about
50% per
week from 40 weeks”, and that it was a very good program”.
The chairperson found that, as an experienced
financial services
representative he should have been extremely careful before
accepting the legitimacy of the 10M programme.
His unqualified
endorsement of it amounted to gross negligence which posed a risk to
his employer’s reputation and business.
In relation to complaint 5, Mr Basson was found to have
concluded an agreement between himself, APS, Germix Investments SA
and
C.A. L.E.B Foundation without the necessary authority.
In relation to complaint 8, he was found to have
repeatedly failed to comply with internal compliance procedures and
statutory
obligations relating to the completion of client
documents.
In relation to complaint 9, he was found to have caused
the appellants’ names to be used in what may well have been
illicit
diamond trade dealings with Congolese nationals, which
dealings had nothing to do with the appellants.
[6]
Titled ‘Determination
of Requirements for Reappointment of Debarred Representatives,
2003’, published in Board Notice
82 of Government Gazette
25299.
[7]
See the FAIS Act, ss7, 8 and
13.
[8]
In terms of s 1 ‘an
‘authorised service provider’, or provider means a
person who has been granted an authorisation
as a financial service
provider by the issue to that person of a licence in terms of
section 8’.
[9]
In terms of s 1 of PAJA administrative action as any decision taken
or any failure to take a decision by:
an
organ of state when:
exercising a power in terms of the Constitution or a
provincial constitution; or
exercising a public power or performing a public
function in terms of any legislation; or
a natural or juristic person, other than an organ of
state, when exercising a public power or performing a public
function in
terms of an empowering provision, which adversely
affects the rights of a person and which has a direct, external
legal effect.
[10]
Section 3(2)
(a)
of PAJA. See also
Chairman,
Board on Tariffs and Trade v Brenco Inc
2001 (4) SA 511
(SCA) at para 19.
[11]
Except Resolutions 2 and 5
(and 4 respectively) in terms of which the directors would be
authorised to execute the directives
of the resolutions.
[12]
See para 10 supra.
[13]
In terms of s 6A(2) of the FAIS Act ‘Fit and proper
requirement may include, but are not limited to, appropriate
standards
relating to –
(a)
personal character qualities of honesty and integrity;
(b)
competence, including-
(i)
experience;
(ii)
qualifications; and
(iii)
knowledge tested through examinations determined by the
registrar;
(iv)
operational ability
(v)
financial soundness; and
(vi)
continuous professional development’.
[14]
In the representations Mr
Basson threatened to challenge any decision taken on the basis of
the chairman’s finding. However
no challenge was pending at
the time of the hearing of the appeal.
[15]
Financial Services Board v
Barthram and Another
[2015]
3 All SA 665 (SCA)
[16]
This was the alternative
order sought by the appellants in the alternative to remittal of the
reappointment for reconsideration.
Section 153 of The Financial
Sector Regulation Act No 9 of 1017 also regulates debarment under
the authority of the Reserve Bank.