The Financial Sector Conduct Authority has invited interested parties to participate as amici curiae in a High Court application that will determine whether the Authority can impose administrative penalties on foreign entities or individuals without physically serving them legal documents while they are in South Africa.
The outcome of the case could reshape the ability of the FSCA to enforce penalties against foreign entities.
The application is a consequence of the decision by the Financial Services Tribunal (FST) to set aside the R50-million penalty the FSCA imposed on Viceroy Research.
In January 2018, Viceroy published a scathing report on Capitec Bank, titled “Capitec: A Wolf in Sheep’s Clothing”, alleging accounting irregularities, an overstated loan book quality, and systemic risks, which precipitated a massive sell-off of Capitec’s shares.
The FSCA investigated and, in September 2021, imposed a R50m administrative penalty on Viceroy and its principals for publishing “false, misleading, or deceptive statements, promises, or forecasts regarding material facts about Capitec, which they ought reasonably to have known were not true”. This was a contravention of section 81 of the Financial Markets Act.
Viceroy challenged the fine before the FST, arguing that the FSCA lacked jurisdiction over foreign entities whose reports were produced and distributed from outside South Africa.
Viceroy Partnership LLC is registered in Delaware in the United States. Viceroy’s founder, Fraser Perring, is a British national who lives in the US. The other authors of the report named by the FSCA were Aiden Lau and Gabriel Bernarde, both Australian citizens domiciled in that country.
In a majority ruling delivered in November 2022, the Tribunal upheld the application for reconsideration and set aside the fine.
Two members (Judge Louis Harms and Jay Pema) of the three-person panel found that the FSCA did have jurisdiction over the applicants’ conduct, even though the Viceroy report was not compiled in South Africa. But they said the Authority did not have jurisdiction over their persons because they were foreign litigants not domiciled within the jurisdiction of South Africa’s courts.
Advocate Michelle le Roux disagreed with the majority finding on the requirements for establishing personal jurisdiction.
Read: Tribunal rules on Viceroy’s application against R50m penalty for Capitec report
In 2023, the FSCA brought an application for the High Court to review and set aside the Tribunal’s decision.
This week, the Authority published a Rule 16A Notice inviting interested parties to participate as amici curiae (“friends of the court”) when the case is heard by the High Court in Pretoria.
Rule 16A of the Uniform Rules of Court is designed to ensure transparency when constitutional issues are raised in High Court proceedings and provides a structured pathway for amici curiae to contribute.
What the FSCA is seeking
The Notice also sets out the context to the FSCA’s application.
The FST’s majority decision was that penalties imposed on foreign peregrini – foreign entities or individuals – require adherence to two common law conditions established by the Supreme Court of Appeal in Bid Industrial Holdings (Pty) Ltd v Strang and Others. These are: (1) “there is sufficient connection between the suit and the area of jurisdiction of the court concerned so that disposal of the case by that court is appropriate and convenient”, and (2) “the summons is served on the defendant while in South Africa”.
The Authority imposed penalties on Perring, Lau, and Bernarde without serving them the notice of intention to penalise or the penalty notice while they were physically in South Africa. Instead, the FSCA sent the documents by email to South African attorneys appointed by them to represent them in their dealings with the FSCA. The Tribunal determined that this method failed to meet the common law service requirement, thus negating the FSCA’s jurisdiction.
The FSCA contests the Tribunal’s decision, arguing primarily that the FST made a mistake by applying rules typically used in civil court cases – specifically, the rule that a penalty notice must be physically delivered to a foreign entity within South Africa – to the FSCA’s process for imposing administrative penalties under the Financial Sector Regulation Act (FSRA).
As an alternative, the FSCA urges the court to develop the common law under section 173 of the Constitution. It proposes that, for administrative penalties under the FSRA, the physical service requirement is replaced with a new standard that reads as follows:
“A financial sector regulator may to impose an administrative penalty, conferred on it by section 167(1) of the Financial Sector Regulation Act 9 of 2017 in relation to a foreign peregrinus if the connection between the conduct of the foreign peregrinus and South Africa is sufficiently close to make it appropriate and convenient for the regulatory power to be exercised, in which event the regulator shall notify the person concerned, by any means which is effective in conveying the contents of the notice to them, including electronic or digital means, of its intention to impose the penalty and of their right to make representations as to why it should not do so; and, if the regulator thereafter decides to impose the penalty, the regulator shall serve the penalty order on the person concerned by any means which is effective in conveying the contents of the order to them, including electronic or digital means.”
The FSCA provides three reasons for this proposed change.
First, the strict application of a requirement of physical service on the person concerned while in South Africa will mean that the financial sector regulators will not be able to impose administrative penalties for contraventions, however serious, of the country’s financial sector laws committed by foreign peregrini who never set foot in South Africa or (in the case of juristic persons) have no presence in South Africa.
Second, such a requirement may defeat the objectives of the FSRA, which include promoting the efficiency and integrity of the financial system, and the prevention of financial crime.
Third, the availability of electronic or digital service will enable financial service regulators to confront the challenges posed by the global economy and the manner in which economic intercourse is now frequently conducted globally by way of electronic or digital media targeting domestic markets.
How to participate
The Notice, dated 5 May, invites interested parties to join the proceedings within 20 days of the notice’s publication with all parties’ written consent, or, if consent is not obtained, apply to the court within five days thereafter. Such applications must describe the party’s interest, their intended submissions, and how these will assist the court and differ from other parties’ arguments.
The details of how interested parties can apply to participate as amici curiae are contained in the Notice.
