Governance

Appeals against determinations of the FAIS Ombud – Time for a change?

The FAIS Ombud’s Office has, over the years, had a number of applications for leave to appeal its determinations.

Where leave is granted, the appeal is regarded as an appeal in the wide sense and the appeal tribunal has the power to hear new evidence which a party did not present to this Office. We, as no doubt other bodies whose decisions are taken on appeal to the appeal tribunal, have been unhappy about permitting the leading of evidence which was not put before us in the first instance. The leading of so-called new evidence often resulted in a reversal of the determination made by the FAIS Office.

The Financial Services Board Act has now apparently been amended. If a party wishes to lead evidence which it did not provide to the Ombud’s Office then the matter may be referred back to the Ombud to re-consider his decision in the light of the new evidence.

It is this Office’s view that the amendment of the Act does not address the issue adequately. What it does, in effect, is let a party to the proceedings have the proverbial ‘second bite at the cherry.’ This means the Office has to revisit a matter when the party concerned should have furnished all evidence in the first instance. It also means that the speedy resolution of a complaint, which is one of the objectives of this Office, is compromised.

Another purpose of the Ombud’s Office is to resolve complaints cost effectively. Complainants are almost invariably individuals who cannot afford the cost of litigation whereas the respondents are business entities who usually can cover, or have professional indemnity insurance to cover, the legal costs. To then allow an appeal process frustrates or negates this objective. Appellants usually hire experienced Counsel whereas the complainant is left to fend for his or herself or worse, makes no representations to the appeal tribunal at all.

It is instructive to note the approach adopted by applicants for leave to appeal. Their attorneys invariably adopt a very legalistic and technical approach. An example among the several applications for leave to appeal against some of the determinations issued by the Ombud or Deputy Ombud in the past year was that of Maduray v Action Plan Management and Renasa Insurance Co. FOC 4250/06-07/KZN (3). Both respondents filed applications for leave to appeal the determination made in favour of the complainant.

In the introduction to their applications, both respondents said they reserved their rights to challenge the constitutional validity of certain provisions of the FAIS Act. That and the fact that both respondents’ attorneys adopted a very legalistic and technical approach in attacking the reasons for the determination, prompted this Office to set out in some detail in the Ombud’s reply to the applications, the parameters within which determinations are issued:

“It is apparent from the grounds of the applicant’s application for leave to appeal that . . . [the respondents are] confusing the evidential and procedural rules of courts of law with that of a complaints resolution mechanism such as that of the Ombud. It would therefore be appropriate to place the functions and objective as well as the procedural rules of the Ombud’s Office in a proper perspective before dealing with the merits of the application for leave to appeal.

“Section 20(3) of the Financial Advisory and Intermediary Services Act 37 of 2002 (“the FAIS Act”) states:

“The objective of the Ombud is to consider and dispose of complaints in a procedurally fair, informal, economical and expeditious manner and by reference to what is equitable in all the circumstances, with due regard to-

(a) the contractual arrangement or other legal relationship between the complainant and any other party to the complaint; and

(b) the provisions of this Act.”

“Rule 2(c) of the rules framed under the FAIS Act provides:

“The services rendered by the Ombud . . . are confined to the investigation and determination of complaints in terms of the Act and these Rules.”

“In making an award the Ombud is to determine:

“. . . fair compensation for any financial prejudice or damage suffered;” (Section 28(1)(b)(i)).

“The first thing to be noted is that the Ombud deals with complaints within a particular regulatory setting and not legal causes of action as would be required in a Court of law.

“Complaints are made more often than not by lay persons who cannot be expected to, nor required by the FAIS Act, to formulate complaints with the precision and particularity required in pleadings.

“The resolution of a dispute is to be done by reference to what is equitable in all the circumstances. In the application of the law, courts generally were not, before the advent of the New Constitutional dispensation, concerned with whether a judgment resulted in unfairness or was not equitable. Under a constitution with a Bill of Rights, much emphasis is placed on concepts of fairness and equity. The United Kingdom does not have a written constitution and reliance is placed on the common law and the Rule of Law. The Financial Ombudsman Service (“FOS”) in that country determines complaints “by reference to what is, in his opinion, fair and reasonable in all the circumstances of the case[1].” In the English case of Heather Moor[2] (which considered, inter alia, the effect of the Human Rights Act 1998 and contentions based on the Rule of Law)held that:

  • It is possible to see in the fair and reasonable jurisdiction of the Ombudsman the source not merely of an alternative dispute resolution service but an important new source of law.
  • An efficient and cost effective and relatively informal type of dispute resolution should not be stifled by the imposition of legal doctrine.
  • The opportunity for development of new ideas fitting to financial services industries operating in consumer markets should be appreciated for the benefits it can bring.
  • The Ombudsman is not required to determine a matter in accordance with the law but by reference to what is, in his opinion, fair and reasonable in all the circumstances of the case.

“The FAIS Act requires complaints to be determined “by reference to what is equitable in all the circumstances”. “Equitable” is defined as “fair” and “the law of equity” as being that which is distinguished from common or statute law. (Encarta Dictionary: English (U.K.))

“Walter Merricks, Chief Ombudsman at FOS said in his speech to the Financial Regulation Industry Group on 6 June 2001:

Our “fair and reasonable” jurisdiction has attracted a fair amount of attention. It allows us to look beyond the law, beyond wording of the small print, to take into account the large print in the promotional materials, good industry practice, and, if necessary, adopt a modern and fairer approach where it is clear that the law has lagged behind.

“In the Heather Moor case (at 54) it is stated that:

“the Ombudsman stated that he was not applying the relevant law, but had taken into account in deciding what was fair and reasonable in the circumstances of the case.”

“The learned Judges went on to uphold this view of the Ombudsman.

“On the question of whether the Ombudsman was required to hold an oral and/or public hearing, the learned Judges of Appeal said:

“The court must constantly bear in mind that it is to the decision maker, not the court, that Parliament had entrusted not only the making of the decision but also the choice as to how the decision is made.”

“The Constitution of the Republic of South Africa, 1996 provides in Section 39 –

(1) When interpreting the Bill of Rights, a court, tribunal or forum –

(a) must promote the values that underlie an open and democratic society based on human dignity, equality and freedom;

(b) must consider international law; and

(c) may consider foreign law.

(2) When interpreting any legislation, and when developing the common law or customary law, every court, tribunal or forum must promote the spirit, purport and objects of the Bill of Rights.

“It is therefore evident that the Ombud (as he has done in this case) is also enjoined to take into account constitutional imperatives; the Constitution being the supreme law of the land.”

It will immediately be apparent that fairness or equitable dispute resolution is most important as opposed to a technical and formal approach, which characterises litigation in courts of law.

During the almost six years since the FAIS Office was established, the Ombud has issued scores of determinations. Relatively few have been taken on appeal. A series of determinations was issued in the so-called Leaderguard cases which involved the failure of a foreign exchange trading entity called Leaderguard Spot Forex. The determinations held the brokers or intermediaries liable for the losses suffered by their clients. It is of importance to note that six of these went before the Appeal Tribunal. Of these, three appeals were abandoned before they were heard as the intermediaries concerned opted to settle the matters. Another was partially heard when the intermediary decided to settle it. Only one appeal was upheld and another was referred back to this Office for reconsideration on the basis of new evidence the appellant wished to lead. In the case of Penzhorn v Point Brokers Services CC the appellant effectively abandoned the appeal and made a settlement agreement with the complainant. But the appellant then breached the agreement and the complainant is currently pursuing legal action against it. In the Renier Reyneke Transport CC t/a Premier Trading v Smit Garrun Brokers appeal the Chairperson of the Appeal Tribunal found that the appellant broker “carried out his duties as a broker with such sloppiness and shoddiness that it borders on dereliction of duty.” But he then went on to hold that both complainant and respondent were to be blamed – in effect, only partially upholding the appeal. Similarly, the appeal in the matter of Naidoo v SA Homeloans succeeded only partially. These matters, and the considerable number of cases that are resolved, are, in my view, indicative of the fact that this Office is very successfully carrying out its mandate of resolving complaints impartially.

It is the Ombud’s considered opinion that the financial services industry has also accepted that the Ombud is impartial and gives sound reasons for his determinations. The time has now come for the financial services industry to buy into the concept of non-appealable determinations as is the case internationally in many jurisdictions. (Of course, that would not preclude any party from applying for a review of a determination on procedural grounds.)

To allay any fears that the Ombud may not have considered all the facts in a determination, it can be issued as a matter of course first in the form of a recommendation. (Provision is made in the FAIS Act for the issuing of recommendations.) The parties to the dispute can then be given a reasonable time within which to make any further representations they may wish to. A final determination can then be issued after taking into account any such further representations. It would concomitantly eliminate the need for providing an opportunity for submitting ‘new facts’ after a determination is issued and, for that matter, the entire appeal process.

It would also fulfil the objective of the FAIS Act of speedy, informal and cost effective resolution of complaints.

[1] Paragraph 3.8.1 R (1) of the scheme rules made under Schedule 17 to the Financial Services and Markets Act 2000.

[2] R(Heather Moor & Edgcomb Ltd) v Financial Ombudsman, Case No: C1/2007/2321, dated 11/06/2008 and heard in the Supreme Court of Judicature, Court of Appeal (Civil Division).







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