Secondary

FAIS Ombud

Second Appeal also unsuccessful

The Ombud made a determination on 30 March 2012, holding the appellants liable for the repayment of the amount invested.

An appeal was upheld by the Appeal Board on 26 February 2014. In terms of the order, the matter was remitted to the Ombud for investigation of certain aspects which, according to the decision, had not been investigated properly or at all, and for reconsideration of the matter thereafter.

The Ombud made the investigations required by the Appeal Board and reconsidered the matter, and in her second determination again upheld the complaint. Dissatisfied, the appellants applied to the Ombud for leave to appeal, which was refused. They then applied to the deputy chair of the Appeal Board, and leave was granted, but in respect of specific issues only.

The Appeal Board makes a number of interesting points in its decision.

Procedure followed by the Ombud

The main (written) argument was that the process followed by the Ombud was unconstitutional and fundamentally flawed and should be set aside on that ground alone.

“The Ombud should be obliged by the FSB to adopt a fair process in terms of section 27 (5) which must include, at least, a charge sheet, statement of claim or similar notification to inform the FSPs is of all factual allegations that sought to be held against them, a hearing where cross-examine may take place and legal representation.”

The Appeal Board responded to this as follows:

First, the Ombud is independent and the FSB cannot oblige her to follow any process.

Second, what the appellants in effect submitted was that the Ombud must follow a formal trial procedure irrespective of what is fair, economical, expeditious or equitable in the circumstances of the case. The submission flies in the face of the express wording of the Act. If resolution of a matter requires an investigation of that detail and formality, the Ombud has a discretion in terms of sec 27(3)(c) to decline to entertain the complaint and leave it to the parties to explore other avenues such as litigation.

It is always open for an aggrieved party to make out a case that the procedure, which in the specific case was followed, was procedurally unfair or that it was inequitable in the circumstances of the case and that, as a result, the determination could not be justified on the record. In other words, the procedural fairness is fact specific and there is no general rule which should or could apply in all circumstances.

Basis of liability of an FSP

Another general complaint raised by the appellants is that the Ombud decides cases on “equity” and not on legal principles. The Ombud denies this and there is no reason to doubt that the Ombud sought to apply legal principles. Whether they are correctly applied on the facts of any particular matter is another question and once again depends on the particular facts of the case.

The legal liability of an FSP towards a complainant, which is subject to the jurisdiction of the Ombud, may arise from different causes of action. There is, in the first instance, a possible contractual liability. There is also the possibility of delictual liability and then there is unjust enrichment.

It is necessary to reiterate that the function of the Appeal Board is to decide whether, on the record as it now stands, the second determination of the Ombud was correct. The reasons of the Ombud are not the issue but her conclusion, on a fair evaluation of the facts, because she may have reached the correct conclusion for the wrong reasons.

The question is then whether the advice to invest in the Bluezone scheme was “bad” (in the general sense). There is merit in the submission that the Ombud’s determination is capable of being read as based on hindsight: because if it transpired that Bluezone was a Ponzi scheme, or a fraud, it has to follow that the advice must have been bad. The question, instead, must be answered with reference to the merit of the advice at the time it was given, a matter to which little attention was given by either the Ombud or the parties. (My emphasis).

The latter is an important consideration that we will expand on in Monday’s Moonstone Investment Indicators, particularly in view of due diligence considerations raised by the Appeal Board.

Click here to download the full determination.

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