Another property syndication determination has been sent back to the FAIS Ombud, with the Financial Services Tribunal (FST) stating that the ombud had, among other things, not dealt fairly with the evidence of expert witnesses who testified in favour of the FSP.
Read: Tribunal advises FAIS Ombud on how to reconsider Sharemax determination
Read: FAIS Ombud did not act impartially in Sharemax matter, says tribunal
In February last year, the ombud issued a determination in favour of a complainant, “JH”, who lost her capital of R600 000, plus the interest payments, when the property syndication schemes in which she had been advised to invest collapsed.
Click here to download the ombud’s determination.
The determination was issued 10 years after JH lodged her complaint with the ombud, in September 2012. The reconsideration hearing was held in March this year, and the FST set aside and remitted the determination in July.
JH invested R300 000 in PIC Syndication’s Highveld Syndication No. 21 in September 2009 and R300 000 in Sharemax’s The Villa in January 2010. The funds for these investments were derived from her late husband’s life insurance policies.
In her determination, the ombud ordered Dawie Joubert Versekerings Makelaars (sic) and the close corporation’s sole director, Dawie Joubert, jointly and severally to pay JH R600 000, plus interest.
The investment proposal confirmed that Joubert was instructed to provide specific services regarding property syndications. The proposal set out the product features of the property syndication, which included that:
- The income was guaranteed at 12.5% a year;
- The capital was guaranteed by a buy-back agreement;
- The interest rate easily beat inflation;
- The investment was in unlisted shares; and
- The investment must be for five years.
The service level agreement entered into by the parties confirmed that JH did not require a needs analysis, and it disclosed the commission that would be earned.
FAIS Ombud: FSP acted negligently
In her determination, the FAIS Ombud held there was no justification for investing in a product where the client risked losing all her capital.
It also held that the FSP acted negligently in not making full and frank disclosures, thereby depriving the client of the right to make an informed decision.
The ombud stated that Joubert must be judged by the standard of a reasonably competent FSP in the same circumstances. She said the FSP’s conduct fell short of this standard, and Joubert and his firm were the factual and legal cause of JH’s loss.
Grounds for reconsideration
The applicants (Dawie Joubert Versekerings Makelaars and Joubert) brought their application for reconsideration on a number of grounds. They submitted that the FAIS Ombud failed to follow fair process, failed to apply the correct legal principles, and approached property syndication matters with a predetermined bias against FSPs.
Regarding their submission that the ombud was biased, the applicants took particular exception to the ombud’s “simply dismissing” the evidence of two expert witnesses who testified in their favour.
Counsel for the applicants also contended it was “impossible” to find that the syndication schemes were doomed to fail. They submitted that “undisputed” expert evidence demonstrated that Sharemax collapsed because of the intervention of the South African Reserve Bank.
‘Ombud dismissed the applicants’ version’
In its decision, the FST said that in order to determine negligence, both factual causation and legal causation must first be established. It was not sufficient merely to establish that an FSP failed to comply with the Code of Conduct and the FAIS Act.
Legal liability must be proved, namely that the FSP acted not only negligently, but caused the loss as well. In other words, the full factual disputes must be properly determined.
In this matter, the ombud was confronted by material disputes of fact, which included whether the FSP explained the nature of the syndication scheme.
It was common cause that the client sought an investment that would yield higher returns so that she could maintain the standard of living to which she and her late husband had been accustomed. The ombud should have investigated how this could be achieved, the tribunal said.
The FST said the ombud seemed to have dismissed the applicants’ version on paper without demonstrating that it was far-fetched, palpably false or fanciful.
Similarly, it said the ombud had not dealt fairly with the experts’ evidence; she rejected it without any countervailing expert evidence. It seemed the ombud had relied on her own views and perceptions of the applicants’ experts.
The tribunal said it was difficult to see how the ombud could reject the applicants’ version, while accepting client’s version, when there were clear material disputes of fact.
“It seems to us that the ombud should at least have heard oral evidence; or alternatively, the ombud should have enquired further, on the limited disputes identified in the applicants’ submissions made before the ombud.”
Disputes of fact must be properly ventilated
On the issue of causation, the tribunal said causation could be determined only on the basis of evidence placed before the ombud.
When the evidence consists of irreconcilable versions, it said the ombud was obliged to resolve such material disputes by means of a process that went beyond the papers presented before the ombud.
“We cannot prescribe what process the FAIS Ombud adopts, because she has a wide discretion in terms of the Act, However, is it clear that where there is a material dispute of fact on the papers, then the FAIS Ombud is obliged to adopt a fair process that affords the parties the opportunity to properly ventilate those disputed aspects of their evidence before the ombud.”
