Fais Ombud closes 1 000 property syndication complaints without adjudicating them

The Office of the Ombud for Financial Services Providers (Fais) has thrown in the towel and is closing more than 1 000 active property syndication complaints without adjudicating them.

The office is now writing letters to the complainants informing them that it has determined that these complaints are more appropriately dealt with by a court.

This decision will come as a huge blow to the investors who lodged complaints with the ombud about the advice they received regarding investing in schemes promoted and marketed by Sharemax, Highveld Syndications, Realcor and Blue Zone Investments after collectively losing billions of rand in these failed schemes.

Fais Ombud Advocate John Simpson told Moneyweb on Monday it is not practical for the ombud to hold hearings and call for evidence, stressing “that is for a court process”.

Simpson said his office took a decision in 2023 not to issue any further determinations in the property syndication matters.

“Closing letters have been issued on approximately 70 of the remaining 1 000 active matters. The process will continue until all the matters have been closed.

“No determinations will be issued on the complaints filed from 2009 to 2014. The office will assess any possible new matters arising from property syndication-related complaints on a case-by-case basis as normal,” he addded.

Moratorium

The decision by the Office of the Fais Ombud to close these complaints follows it confirming in December 2022 that it had placed a moratorium on all its outstanding property syndication complaints.

The moratorium was implemented to give it sufficient opportunity to consider decisions issued by the Financial Services Tribunal during the financial year as well as judgments by superior courts on the question of whether the South African Reserve Bank was the legal cause of the losses allegedly suffered by the complainants.

Read:
Fais Ombud places moratorium on outstanding property syndication complaints
Was Sharemax illegal, or did the Reserve Bank screw up?

The 2021/22 Fais Ombud annual report released in November 2022 revealed that it still had 1 004 active property syndication complaints.

Determinations for these complaints had been outstanding for more than 10 years.

‘Disappointment’ to be expected

Simpson admitted the complainants would “no doubt” be greatly disappointed by the decision to close their complaints.

He said his office does not have accurate statistics on the age profile of the complainants but confirmed that anecdotally he had written letters to between 60 to 70 of the complainants, and most of them were elderly, “and some of them I suspect have passed away in the meantime as well”.

Simpson said the delay in resolving these long outstanding matters “is regrettable and we can only express our sincere sympathy for the complainants”.

“As the closing letters convey, based on the decided cases in the [Financial Services] Tribunal and the conflicting court decisions, there was no clear path to resolving these disputes on an informal basis.

“There was no reasonable prospect of the office being able to resolve these highly disputed matters,” he said.

Test case

There were suggestions in the past that the Fais Ombud was considering lodging a ‘test case’ or a ‘class action’ comprising all the outstanding property syndication complaints in the high court to resolve difficulties it was experiencing with the tribunal referring appeals back to the ombud for reconsideration.

But Simpson said it is generally not appropriate for an ombud to engage in litigation on behalf of complainants.

“The ombud must be independent and impartial at all times. The Fais Act states that 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.

“The rules further state – ‘In disposing of complaints, the ombud acts independently and objectively’,” he said.

Read:
Sharemax complaints to Fais Ombud unaffected by NPA decision not to prosecute [Aug 2022]
Surprising twist in ombud’s determination against financial advisor [March 2022]

Simpson added that the litigation his office was involved in previously was unsuccessful in almost all cases and not productive or conducive to resolving these matters.

“There was no indication that even a further 10 years of litigation would result in the matters being resolved successfully as a whole,” he stressed.

Simpson said the Financial Services Tribunal ruled on about 17 property syndication matters in 2021/22, and all of the judgments were against the ombud’s determinations.

Tribunal judgments

A copy of a letter in Moneyweb’s possession to a property syndication complainant, advising them of the closing of the complaint, refers to the tribunal judgments and the problems they pose to the ombud’s office in finalising these complaints.

It says the tribunal’s judgments in the property syndicate matters refer to the various challenges with the determinations that were issued, including material disputes of fact and legal causation issues that were not resolved.

The letter says the tribunal’s judgments carefully considered the various disputes of fact raised and whether a finding could be made, adding that even if a finding could be made on the disputes of fact that the investment should not have been recommended, it could not find a basis for legal causation and that the advisor’s possible negligence in recommending the investment was sufficiently linked to the loss suffered.

Read: Can I sue a broker for poor management of funds?

It adds that the ombud must essentially decide whether there is any reasonable prospect of their complaint being resolved by the office of the ombud.

“If the issues raised by the tribunal’s judgments raise substantial factual or legal questions more suited to a court of law, a decision must be made as to whether the matter is appropriate for the ombud to deal with.

“The tribunal’s judgments also refer to the Supreme Court of Appeal and High Court judgments applicable to these matters and the conflicting decisions in this regard.

“What is clear from the judgments and the case law is that numerous factors led to the eventual failure of property syndication investments.

“The tribunal consistently found that the evidence was insufficient to prove that the advisor should have foreseen the risk,” according to the letter.

“Making a finding on the factors related to legal causation requires expert evidence and a hearing. Only a court of law is appropriate for hearings of this nature.

“An ombud is not the appropriate forum for complex cases involving disputes of fact and legal causation requiring evidence to be led.”

Different cases, similar issues

The letter adds that the complainant’s dispute is very similar to the other property syndication matters heard by the tribunal. Although the specific facts of their case will differ and the investment product may be in another syndication, the principles applicable will be the same.

It says there is often a dispute between the parties as to what was said and what advice was provided, and these disputes are usually material to making a finding on the matter and will generally require evidence to be led.

Read: Former deputy Fais ombud’s high court bid fails

“Even if a finding could be made that the advisor should not have recommended the investment, a finding must still be made that the reasonable advisor would have foreseen the risk of the investment failing,” states the letter.

“This second aspect (legal causation) is generally subject to numerous disputes and requires the evidence of various experts in the field.

“Considering all these factors, there is no reasonable prospect of the ombud being able to provide sufficient evidence of factual or legal causation for a finding to be made based on the written evidence alone.

“A court of law is a more appropriate forum for these cases.”

Read:
Orthotouch and Zephan: War of words before investors’ vote
Orthotouch, Zephan BRP offers former HS investors five cents in the rand