Impact Financial Consultants CC and Mr Calitz (a financial services provider) provided investment advice to multiple clients regarding investments in the MAT Relative Value Arbitrage Fund (RVAF Trust), described as a 'hedge fund' managed by Abante Capital under Mr Herman Pretorius. After Pretorius committed suicide in July 2012 following press reports of alleged fraud, Abante Capital and the RVAF Trust collapsed and were liquidated. Investors (third to twentieth respondents) suffered capital losses and lodged complaints with the Ombud for Financial Services under section 27 of the Financial Advisory and Intermediary Services Act 37 of 2002 (FAIS Act). They alleged Mr Calitz negligently failed to conduct due diligence, establish the registration status of the fund, undertake proper needs analyses, and advise of high risks. The Ombud found against Impact Consultants and Mr Calitz, holding they breached statutory duties under the FAIS Act and the General Code of Conduct. The applicants' requests for leave to appeal were refused by both the Ombud and the chairperson of the appeal board. They then launched a review application in the High Court, which was dismissed.
1. Leave to appeal was granted with costs. 2. The appeal was upheld. 3. The High Court order was set aside and replaced with an order: (a) setting aside the decision of the second respondent refusing leave to appeal to the Financial Services Appeal Board in cases FAB3/2015 to FAB20/2015; (b) setting aside the determinations of the first respondent (Ombud) in cases FAB3/2015 to FAB20/2015; (c) referring each complaint back to the Ombud for determination in accordance with the FAIS Act; and (d) ordering the first respondent to pay costs of the application. 4. The first respondent was ordered to pay costs of the appeal, including costs of the application for leave to appeal before the High Court.
The binding legal principle is that before the Ombud for Financial Services can make a final determination on a complaint under section 27 of the FAIS Act, the Ombud must establish the nature of the financial product that is the subject of the advice complained about, in order to determine whether it falls within the definition of 'financial product' under the Act and therefore whether the Ombud has jurisdiction to entertain the complaint. Failure to establish these foundational jurisdictional facts constitutes a reviewable error. The Ombud is obligated to exercise the extensive investigative powers conferred by section 27(6) to ascertain facts relevant to jurisdiction before finalizing complaints. The proper remedy for such an error is to set aside the determination and remit the matter to the Ombud for proper investigation and determination in accordance with the statutory provisions.
The court made several obiter observations: (1) The judgment in Atwealth (Pty) Ltd v Kernick and Others [2019] ZASCA 27 does not establish that hedge funds or the RVAF Trust were definitively outside the scope of the FAIS Act, as that case concerned common law delictual liability and the court was not called upon to decide jurisdictional issues under the FAIS Act. (2) The Ombud's view that common law principles of delictual liability (particularly causation) do not apply to determinations under the FAIS Act, and that liability follows automatically upon breach of statutory duties, is 'emphatic, insufficiently reasoned and requires further exploration.' The court noted that section 28 is widely worded regarding fair compensation, and that the objectives of the Ombud in section 20 must be considered. (3) The court questioned why a registered financial advisor should be treated less punitively for providing advice beyond regulated products when they have breached common law duties echoed in statutory provisions. (4) The court emphasized that these issues require full exploration with further evidence and debate, which should occur on remittal to the Ombud after proper factual investigation.
This case establishes important principles regarding the jurisdiction and procedures of the Ombud for Financial Services under the FAIS Act. It clarifies that the Ombud must establish foundational jurisdictional facts before making determinations, particularly the nature of the financial product that is the subject of a complaint. The judgment emphasizes that section 27(1)(c) requires the Ombud to consider the substantive nature of a complaint and whether it qualifies as a 'complaint' under the Act, which in turn depends on whether advice was given in respect of a 'financial product' as defined. The case provides guidance on the scope of the Ombud's investigative powers under section 27(6) and the obligation to exercise them to establish jurisdiction. It also raises, without definitively resolving, important questions about the relationship between statutory duties under the FAIS Act and common law principles of delictual liability, including causation. The judgment reinforces procedural fairness requirements and proper administrative decision-making in the financial services regulatory context.