Secondary

Likelihood of Financial Prejudice

We discussed the importance of when a client’s right to lay a complaint with the FAIS Ombud expires in last week’s Moonstone Monitor.

To recap: a client has three years to approach the Ombud with a complaint. The starting date of this period is the date by which the complainant became aware, or ought reasonably to have become aware of, the offending conduct and the likelihood of financial prejudice occurring.

Alan Holton, an associate of Moonstone Compliance, remarked on a very interesting aspect highlighted in the Ehmke Appeal Board decision. He pointed out eight paragraphs from the decision to clarify his point:

15. Section 1(1) of the FAIS Act defines the word “complaint” to mean a specific complaint relating to a financial service rendered by an FSP and in which it is alleged that the FSP by “act or omission” caused financial prejudice or likelihood thereof, to the complainant.

19. The above makes plain that in accordance with the legislative scheme, in order for an “act or omission” to be capable of founding a “complaint”, it would suffice that it had caused a likelihood of financial prejudice or damage. Actual financial prejudice is thus not a requirement.

20. The crux of the appellant’s argument is that the date from which prescription begins to run is 6 February 2011, that being the date on which the appellant became aware of actual financial damage flowing from the financial services rendered by the respondents. (This is the date on which the appellant was informed, at a meeting of investors, that the investment would in all likelihood be lost – Editor)

22. Emphasis was laid, throughout oral argument and, indeed, in the written submissions, on the crystallisation of the “actual loss’‘, as opposed to the likelihood thereof, as the time for the commencement of the running of the three year period provided for in sections 27(3) and 27(4) of the FAIS Act.

25. It behoves mention at this stage that the appellant conceded, in written submissions and, indeed, in oral argument, that he had become aware of the loss or a likelihood of the investment and returns thereon occurring as early as September 2010.

27. The appellant’s main argument is that the three-year period of prescription was suspended until 6 February 2011 because until then, the appellant was not aware, or could not have become so aware by the exercise of reasonable care, of the actual financial damage suffered. The appellant allegedly became aware of the financial damage on 6 February 2011 when it became a foregone conclusion that the respondents’ advice had “in fact” caused him financial or prejudice. Accordingly, so goes the argument, the running of prescription falls to be reckoned from 6 February 2011 with the result that appellant’s complaint to the Ombud was not time-barred.

33. In the result we find that the appellant ought, by the exercise of reasonable care, to have become aware of the financial damage or a likelihood thereof during September 2010.

34. It follows from the above that the running of prescription should commence from the time when the complainant became aware or ought reasonably to have become aware of the offending conduct and actual prejudice or of offending conduct and the likelihood of financial prejudice occurring, which in our finding is September 2010.

The strong emphasis on “the likelihood” as being the determining factor, as opposed to the “actual loss”, is likely to play a more significant role in future determinations, both from the perspective of the adviser and the client.

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