The High Court in Johannesburg has set aside a decision of the Financial Services Tribunal (FST) that overturned the debarment of a former representative, finding the Tribunal applied the incorrect legal approach when reconsidering the debarment.
In a judgment delivered in December last year, the Court found the Tribunal framed the inquiry too narrowly and failed properly to consider the fit and proper requirements applicable to debarment under the Financial Advisory and Intermediary Services Act.
Background
The case concerned Beverley Dabrowa, a former representative and key individual of Paulina Binfa and Associates trading as PBA Financial Services CC (PBA).
Dabrowa was employed by PBA from 1 July 2017 as a registered representative authorised to sell life insurance, health insurance, pension benefit investments, and short-term insurance. On 1 July 2022, she was summarily dismissed by PBA on several counts of alleged misconduct.
Following her dismissal, PBA initiated debarment proceedings in terms of section 14 of the FAIS Act.
The debarment proceedings were conducted by a designated decision-maker, who concluded that Dabrowa had acted dishonestly by entering referral arrangements with another financial services provider, earning referral commission, and failing to disclose this to PBA or its compliance officer. These findings resulted in Dabrowa’s debarment.
Dabrowa applied to the Tribunal for reconsideration of the debarment.
The Tribunal identified the issue for determination as whether Dabrowa’s failure to disclose the referral arrangements and commission income, as required by her employment contract, amounted to dishonesty for purposes of the FAIS Act.
The Tribunal found:
- PBA was unable to point to any provision in the FAIS Act or other legislation that prohibited a representative from referring clients to another FSP and earning referral commission.
- Outside the scope of the employment contract, there was no regulatory provision requiring disclosure of the referral arrangement.
- Although the evidence showed that Dabrowa had breached her employment contract, dismissal did not automatically justify debarment.
The Tribunal cautioned that debarment should not be used by FSPs to pursue contractual or other grievances unrelated to fitness or competence and concluded that debarment was not justified. The FST set aside the debarment in April 2023.
The review application
PBA approached the High Court to review the Tribunal’s decision under the Promotion of Administrative Justice Act (PAJA).
PBA argued that the Tribunal:
- committed a material error of law by misconstruing the requirements for debarment;
- failed to take relevant considerations into account and took irrelevant considerations into account; and
- incorrectly treated the matter as a contractual dispute rather than a fit and proper enquiry.
Dabrowa opposed the application, supporting the Tribunal’s reasoning and contending that PBA was attempting to abuse the debarment process to pursue an employment dispute.
The High Court’s findings
The High Court found that the Tribunal had applied the wrong approach when reconsidering the debarment.
Judge Evette Dippenaar held that the Tribunal impermissibly narrowed the scope of the inquiry by focusing on whether the conduct breached a specific statutory provision, and by treating the matter primarily as a contractual dispute because the obligation to disclose arose from the employment contract.
She said a debarment inquiry is concerned with whether a representative meets the fit and proper requirements, including honesty and integrity. This assessment is not confined to identifying express statutory prohibitions.
Judge Dippenaar found that the Tribunal did not engage in any meaningful way with the fit and proper requirements or with established authority dealing with those requirements. Instead, it focused on the source of the obligation to disclose and the absence of a specific regulatory prohibition.
By defining the issue too narrowly, the Tribunal failed to properly consider relevant factors and misapplied the applicable legal test. The Court held this constituted a material error of law and a failure to take relevant considerations into account under PAJA.
Although the review succeeded, the Court declined to substitute its own decision for that of the Tribunal.
Judge Dippenaar noted that:
- the full record of the proceedings before the Tribunal was not before the Court;
- there were conflicting versions on the papers; and
- debarment is a serious matter with significant consequences.
The Court observed that the Tribunal has the power to hear oral evidence where necessary and indicated that oral evidence may assist in resolving factual disputes.
The Tribunal’s decision was set aside, and the matter was remitted to the Tribunal for reconsideration afresh before a differently constituted panel.
Issues left open on remittal
In a commentary on the judgment, Norton Rose Fulbright noted that the High Court’s decision leaves open substantive questions that were not determined on review. These include whether, on the evidence, the representative knowingly placed herself in a conflict of interest for purposes of the General Code of Conduct, and whether her conduct ultimately contravened the fit and proper requirements applicable to debarment. Those issues, the law firm observed, will have to be addressed by the Tribunal when the matter is reconsidered.
