Sharemax et al: brokers to pay up
Johannesburg – The high court has paved the way for clients who have lost billions in dubious property schemes to claim the money back from their financial advisers without having to lodge their claims in the high court.
On Friday Judge Selby Baqwa ruled that the Financial Advisory and Intermediary Services (Fais) ombudsman has the authority to order financial advisers to pay clients back if they have contravened the provisions of the Fais Act.
He turned down with costs an application by Deeb Risk, an Edenvale financial adviser, to prevent the Fais ombudsman making decisions against him.
Risk had advised several of his elderly clients to invest in Sharemax property syndications. After the scheme collapsed, eight of Risk's clients lodged complaints against him with the ombudsman.
In each case Fais ombudsman Nolunto Bam determined that Risk should repay his clients. The total amount involved was R3.08m.
Risk argued that the ombudsman did not have the jurisdiction to make a decision about the amounts involved and had not followed fair procedures in his determinations. He argued that the cases should therefore be heard in the high court.
He also claimed that the ombudsman's actions had been unconstitutional in terms of a section of the Fais Act.
This section states that in certain circumstances the ombudsman may decide that it would be more appropriate for complaints to be heard by a court, and in such circumstances he cannot decide on disputes.
In the North Gauteng High Court on Friday Baqwa rejected the application with costs because, inter alia, the applicants had not provided adequate proof that the section in question was unconstitutional.
Baqwa said Risk should have first exercised his right to lodge an appeal against the ombudsman's decision with the Financial Services Board's appeal board before approaching the court.
Nevertheless, Risk could still follow this route.
In the court application Risk was supported by a legal team appointed and paid for by Santam as he had a professional liability policy with a Santam subsidiary.
In terms of the conditions of the policy Santam is obliged to provide cover for the legal expenses of a person insured against professional liability.
It was not known at the time of publication whether Santam would pay Risk's policy claim should he submit one.
A Santam spokesperson has previously said that, depending on the conditions of the policy, there are certain exclusions that could lead to a professional liability claim being rejected.
Among the exclusions that specifically apply to financial intermediaries and advisers is liability for losses suffered by third parties when the insured failed to comply with the terms, conditions and limitations relating to his licence as a financial adviser, as well as a loss arising from the sale or allegations of the sale of an inappropriate product to a third party.
In the decisions against Risk to date the ombudsman found that he had indeed contravened the provisions of the Fais Act and the code of conduct for financial advisers.
If Risk should lodge a claim, Santam will therefore proceed with the case in terms of the policy conditions.
Decisions by the ombudsman against an adviser become an order of the court, even meaning that his assets could be seized.
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