Secondary

Time Barring on FAIS Ombud Complaints

A recent appeal tested whether the FAIS Ombud was correct in finding that the appellant’s complaint was time-barred in terms of section 27 of the FAIS Act.

The appellant lodged a complaint, claiming financial prejudice suffered in respect of an investment of R1 million and returns thereon in the Villa Retail Park Holdings Limited, a property syndication scheme promoted by the Sharemax Investments (Pty) Ltd.

The following timelines are relevant:

  • During July 2009, the appellant invested R1 million in the Villa and received monthly interest payments for one year.
  • In July 2010, the monthly interest payments stopped. At that stage, there was wide media coverage concerning Sharemax related investment schemes which included reports on an investigation, at the time, carried out by the Reserve Bank.
  • In September 2010, the appellant made enquiries about the investment.
  • On 6 February 2011, the appellant was informed, at a meeting of investors, that the investment would in all likelihood be lost.
  • On 20 January 2012, the High Court confirmed the scheme of arrangement for the companies within Sharemax Group.
  • On 6 January 2014, the appellant lodged a complaint against the first and second respondents with the Ombud.
  • The Ombud ruled that the complaint had, by then, become time-barred.
  • Leave to appeal was sought from the Ombud on 22 April 2014, and refused on 12 August 2014.
  • Leave to appeal was granted by the Appeal Board on 09 December 2014.

Section 27(3) of the FAIS Act provides that:

The Ombud must decline to investigate any complaint which relates to an act or omission which occurred on or after the date of commencement of this Act but on a date more than three years before the date of receipt of such complaint by the Office.

Where the complainant was unaware of the occurrence of the act or omission, the period of three years commences on the date on which the complainant become aware or ought reasonably to have become aware of such occurrence, whichever occurs first”.

The rationale for this is explained as follows:

“In the interest of social certainty and the quality of adjudication, it is important that legal disputes be finalised timeously. The realities of time and human fallibility require that disputes be brought before a court as soon as reasonably possible. Claims thus lapse, or prescribe, after a certain period of time. If a claim is not instituted within a fixed time, a litigant may be barred from having a dispute decided by a court. This has been recognised in our legal system and others for centuries…”

The Appeal Board found that awareness of the “act or omission”, consisting of actual financial loss “…actually occurred during September 2010 when it became clear to the appellant that he had suffered some loss as to the capital invested as well as any returns thereon as payments to that effect had suddenly stopped in June 2010.”

The Appeal Board disagreed with the reasoning of the appellants (which included the FAIS Ombud) that the claim prescribed by July 2012, three years after the actual investment.

At that stage, there was nothing to show that the “act” complained of had resulted or was likely to result in financial loss or prejudice. Thus, the causality and awareness elements of the definition were not yet extant.

The appeal was dismissed on the basis that the actual prescription date was in fact three years after September 2010.

In effect, barring different circumstances, investors and financial advisers will differ greatly in their reaction to this news.

Investors who failed to lay complaints with the FAIS Ombud against financial advisers for placing their investments in Sharemax property syndications will no longer be able to do so.

Their advisers, on the other hand, will breathe a sigh of relief.

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