Fais Ombud places moratorium on outstanding property syndication complaints

The Office of the Ombud for Financial Services Providers (Fais Ombud) has placed a moratorium on all of its outstanding property syndication complaints.

This emerged through Moneyweb enquiries following the release of the ombud’s latest annual report.

Spokesperson Thuso Ngwagwe said the moratorium was imposed to give the ombud sufficient opportunity to consider the decisions issued by the Financial Services Tribunal in the year to end-March 2022 – during which only five property syndication complaints were resolved.

It will also allow the ombud to consider the decisions of the superior courts on the question of whether the South African Reserve Bank was the legal cause of the losses allegedly suffered by many of the complainants, according to Ngwagwe.

A 2018 high court judgment dismissed a R5 million damages claim by an investor in a Sharemax investment scheme on the basis that the Reserve Bank’s intervention into Sharemax was the cause of the investors’ loss and not any breach by his financial advisor.

The slow grind before the halt

In the 2019/20 financial year, then acting ombud Advocate Nonku Tshombe made a commitment to reduce the original number of 1 300 active property syndication complaints by a minimum of 10% annually.

The ombud’s latest annual report indicates that by 31 March 2022, it had reduced its active property syndication complaints from 1 036 to 1 004 – which is just 3.09%.

The office said a further four cases were resolved post its year-end (until 31 October 2022).

There is however a discrepancy in the annual report regarding the number of property syndication complaints resolved in the period. The stated figures are indicative of the resolution of 32 complaints, while a graphic specifically states that only five property syndication complaints were resolved. The reason for this discrepancy is unclear.

Ngwagwe attributed the failure of the office to reduce the backlog by 10% in the past financial year primarily to the office electing to place a moratorium on all property syndication complaints.

Beyond the scope of the ombud?

Ngwagwe said that in its decisions, the Financial Services Tribunal commented on the completeness of the investigations undertaken by the office of the ombud in respect of individual cases.

“It has specifically considered and made findings on whether the investigations were procedurally fair and whether the office properly dealt with the question of legal causation,” she said.

It has however “on more than one occasion found that this office should have sought independent expert evidence” before issuing the determinations that were subsequently set aside by the tribunal, she added.

“In order to prudently resolve the complaints that require reconsideration and all active property syndication complaints, the office must heed the decisions of the tribunal.”

Ngwagwe said the office of the ombud will be reviewing each of the complaints to determine whether it may be more appropriate to decline to investigate any of them – “on the grounds that it is more appropriate that the complaint be dealt with by a court or through any other available dispute resolution process”.

“Any such decision will be communicated to the parties to the complaint.”

Blow to investors

This decision will come as a blow to the more than 1 000 property syndication complainants, many of whom are pensioners.

They have been waiting more than 10 years for the Fais Ombud to issue determinations to complaints they lodged against their financial advisors and their requests that they be repaid the funds they invested in these schemes.

Read: Fais Ombud recovers almost R50m for consumers in 2020/2021

Ngwagwe said the ombud is not in a position to provide a definite number of complaints that relate to investments in schemes promoted and marketed by Sharemax.

Sharemax Investments collapsed in 2010 when the finding of a registrar of banks investigation that Sharemax’s funding model had contravened the Banks Act became public knowledge.

About 18 700 investors invested an estimated R4.6 billion in Sharemax’s various schemes.

The original Section 311 Schemes of Arrangement explicitly tasked Nova Property Group to repay investors within 10 years, a period that ended in January this year.

However, Nova failed to do so, citing that the board has the discretion to delay repayment beyond 10 years.

Read:
Nova may be a bigger failure than Sharemax [Dec 2021]
‘Sharemax investors screwed twice’ [Feb 2022}
Nova board may not have the ‘capacity or intent’ to repay former Sharemax investors [Sep 2022]

‘Top of the agenda’

Ngwagwe said previous initiatives implemented by Tshombe are being reconsidered by the newly appointed Fais Ombud, Advocate John Simpson.

“Advocate Simpson is committed to looking at the property syndicate cases to find a way to finalise these long outstanding matters as soon as possible.”

Ngwagwe said Simpson confirmed that the office is unable to provide any definitive timeline at this stage “but the issue is at the top of his agenda”.

An example of tribunal decisions that are hindering the ombud is one that was handed down on 29 November 2022.

Financial advisor Johannes Mostert lodged an appeal to a determination by the ombud ordering him to repay a widow the R650 000 he advised her to invest in Zambezi Retail Park, a property syndication scheme promoted and marketed by Sharemax.

Material factual disputes

Advocate MG Mashaba SC, on behalf of the appeal panel, said Mostert engaged three expert witnesses in support of his case and that it was clear from the facts of the matter that there were material factual disputes between Mostert and the first respondent, the complainant.

Mashaba said such disputes are wide ranging and also impact essential questions that are required to be answered to arrive at a proper determination, including the elements of negligence and causation.

He said the tribunal cannot simply reject the evidence and/or opinions of such experts – unless there was expert evidence in rebuttal of their evidence or for some other valid reason – and neither can the former acting Fais Ombud (Tshombe), “but she has”.

“It is the tribunal’s view that only once the material disputes of fact have been ventilated can the inquiry into the issue of negligence and causation be addressed and resolved,” he said.

“This would most appropriately be done through expert evidence.”