The recent Appeal Board Determination in the matter of J&G Financial Service Assurance Brokers (Pty) Ltd and R L Prigge is an important Determination for a number of reasons.
Mention has already been made in this publication of a number of the comments and criticisms made by the Chairman of the Appeal Board (Moonstone Investment Indicators of 26 June 2017 “Appeal Board Comments on Ombud”).
There is, in my opinion, one very important comment that bears emphasis. At paragraphs 43 and 44, the Chairman had the following to say:
|43.||In the case of a provider under the Act, more is required namely, compliance with the provisions of the Code. Failure to comply with the code can be seen in two ways. The Code may be regarded as being impliedly part of the agreement between the provider and the client and its breach a breach of contract. The other approach is that failure of the statutory duty gives rise to delictual liability.|
|44.||In both instances the breach must be the cause of the loss. We stress this point because the Ombud’s reasons give the impression that any breach of the Code makes a provider liable for damages without due regard to this aspect of causation, namely did the failure to comply with the Code cause acceptance of the advice. For instance, it is difficult to see how a failure to keep a proper record of advice could lead to a loss and liability. The advice may have been proper but not recorded. That does not mean that the provider is liable for a loss if an investment turns sour.|
A complaint as defined in the FAIS Act 2002 means:
- a specific complaint relating to a financial service rendered by a financial services provider or representative to the complainant
- in which complaint it is alleged that the provider or representative has contravened or failed to comply with a provision of the FAIS Act
- and/or has willfully or negligently rendered a financial service to the complainant
- and that as a result thereof the complainant has suffered or is likely to suffer financial prejudice or damage.
The alleged contravention or failure to comply or the willful or negligent rendering of a financial service must all have, as a direct result, the prejudice or damage suffered by the complainant. This is referred to “factual causation.” Factual causation relates to the question of whether any factual link exists between the FSP’s conduct and the detrimental consequence/s suffered by the complainant.
In International Shipping Co (Pty) Ltd v Bentley (1990 1 SA 680 (A)) the court stated:
“The first inquiry is a factual one and relates to the question as to whether the defendant’s wrongful act was a cause of the plaintiff ‘s loss. This has been referred to as ‘factual causation’. The enquiry as to factual causation is generally conducted by applying the so-called ‘but-for’ test, which is designed to determine whether a postulated cause can be identified as a causa sine qua non of the loss in question. In order to apply this test one must make a hypothetical enquiry as to what probably would have happened but for the wrongful conduct of the defendant.”
In terms of S 17 of the General Code of Conduct, every FSP must maintain an internal complaint resolution system and have procedures based on, inter alia, fairness so as to ensure that a resolution of a complaint can be effected in a manner which is fair to both clients and the provider and its staff.
It does seem appropriate then, for the complaints resolution procedures adopted by FSPs to include a very clear explanation to clients that, should they wish to complain about the rendering of any financial service, the complaint should contain a clear explanation of the nature of the alleged contravention or failure to comply or the willful or negligent rendering of a financial service and how this led directly to the loss suffered. This will enable the FSP to properly analyse the complaint and, at an early stage, determine whether there is merit in the complaint. If there is merit, the FSP should be able to resolve this with the client without the client having to revert to the services of the Ombud. If there is no merit, this can be factually explained to the client and some resolution sought to ensure the fair treatment of that client.
Factual cause is central to the handling of a complaint and should, it is suggested, be given the emphasis it requires when seeking certainty regarding any complaint or potential complaint.
It is also one way to be fair to clients and to the FSP itself.