Property syndication complainants can approach tribunal

The more than 1 000 property syndication complainants impacted by the Ombud for Financial Services Providers (Fais) decision to close their complaints without adjudicating them have a right to approach the Financial Services Tribunal for reconsideration of this decision.

Leanne Jackson, chief ombud of the Ombud Council, highlighted this last week in reaction to the Fais Ombud’s decision.

Jackson said these historic property syndication complaints have “a long and regrettable history”, and the council has deep sympathy for the investors who have for many years hoped, to no avail, for a favourable outcome to their complaints.

“Complainants should note the Fais Ombud’s recommendation [to complainants] to obtain legal advice, where possible, and note that they have the right to approach the Financial Services Tribunal for reconsideration of the Ombud’s decision,” she said.

Jackson confirmed that Fais Ombud Advocate John Simpson has kept the Ombud Council informed of developments in this matter, including his reasons for adopting this approach.

“We have also noted recent decisions by the Financial Services Tribunal upholding the dismissal decisions,” she said.

Blow to investors

Jackson’s comments follow Simpson confirming to Moneyweb last month that his office is now writing letters to these property syndication complainants to inform them that it has determined that these complaints are more appropriately dealt with by a court.

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

Simpson said that 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.

Simpson added that it is not practical for the ombud to hold hearings and call for evidence, stressing “that is for a court process”.

Jackson said these closed cases arose from the high-profile failure, over a decade ago, of several property syndication investment schemes, with the failures triggering significant losses for many investors, often pensioners who had invested their retirement savings.

She said thousands of complaints against the financial advisors who had recommended the investments were submitted to the ombud’s office, and previous ombuds made determinations against some of the advisors, ordering them to compensate the investors.

Appeals

However, Jackson said almost all of these determinations were overturned on appeal to the Financial Services Appeal Board, the predecessor of the current Financial Services Tribunal, and in litigation in the high court.

“It became clear from the appeal decisions that the factual and legal disputes in these cases were particularly complex and required both factual and expert evidence.

“Cases were referred back to the ombud’s office for reconsideration, and complaint backlogs mounted, without any legal certainty or reasonable prospects of success for the complainants emerging.

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“This culminated in the current remaining backlog of approximately 1 000 complaints not yet resolved, with previous judgments suggesting that even if the Fais Ombud were to process them, the likely outcome would not be in favour of the complainants.

“Against this background, the current Fais Ombud has concluded that the only feasible next step is to dismiss the outstanding matters as being more appropriately dealt with by the courts,” she said.

Mandate

Jackson stressed that the Ombud Council does not handle customer complaints but oversees all financial sector ombud schemes as their regulatory authority.

She said the council has a range of rule-making, supervisory and enforcement powers over ombud schemes to ensure that they comply with financial sector laws governing them and, generally, at enhancing the effectiveness of the ombud system.

“Importantly, it is not the Ombud Council’s role, nor does it have the power, to become involved in or review or reconsider the outcome of any specific complaints handled by ombud schemes,” she said.

“This would be inconsistent with our mandate to protect the independence and impartiality of ombuds.

“The Ombud Council, therefore, does not express a view on the individual decisions taken by the Fais Ombud to dismiss the property syndication complaints.”

Jackson said the purpose of the ombud system is to provide affordable, effective, independent, accessible and fair alternative dispute resolution processes to financial customers who believe financial institutions have failed them.

She said ombud schemes, in particular, aim to ensure that complaints are resolved expeditiously, relatively informally, and cheaply with typically no cost to the complainant, as compared to the courts.

Jackson said in the large majority of cases, this aim is achieved.

‘Rare situation’

She said ombud schemes can and do conduct thorough investigations, balance opposing factual claims, and apply both equitable and legal considerations when considering complaints.

Jackson said this allows them to resolve a high proportion of complaints through mediation and conciliation rather than through formal determinations.

“Regrettably, the unusual and complex combination of factors that led to the property syndication investment losses make this one of the rare situations where the ombud system is not best equipped to resolve the dispute.

“This should have been determined much earlier so that the affected investors could consider their options,” she said.

Jackson said the Ombud Council will work with the Fais Ombud and other ombud schemes to ensure that they have workable “early warning” systems in place to identify and refer cases that should best be dealt with in other forums – such as the relevant regulators, other dispute resolution forums, or the courts – within a reasonable time.

Consultations

However, Jackson stressed that a balance needs to be struck to ensure that ombud schemes “do not shy away from difficult cases that they can and should deal with”.

“Processes to identify complaint trends, fluctuations in complaint volumes, slippage against turnaround time targets, and emerging sector-wide conduct risks are essential tools to monitor the effectiveness of the ombud system.

“The Ombud Council is currently consulting with all the ombud schemes it oversees on proposed complaint data reporting requirements, aimed at more consistently identifying and mitigating the risks of poor customer outcomes – such as those starkly demonstrated in this case,” she said.

The Ombud Council was established through the Financial Sector Regulation Act and started operating in 2021. Finance Minister Enoch Godongwana appointed Jackson chief ombud of the Ombud Council for a period of five years from 1 November 2022.

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