The directors of Sharemax appealed against a determination made against them in terms of the FAIS Act by the FAIS Ombud in January 2013. The initial case found that the directors were liable for the losses suffered by two retirees who brought independent complaints to the Ombud on related complaints.
The Ombud, Noluntu Bam, found each of the directors liable and ordered them to refund the losses suffered by the two complainants, as she found the directors liable for the investors’ losses.
The directors then sought leave to appeal the determination but were denied the leave by the Ombud. The FSB Appeal Board then agreed to hear the appeal. An appeal cannot be heard based on an error in fact, only an error of law.
The main issue thus dealt with was whether the Ombud exceeded her jurisdiction by joining parties (the directors) who were not parties/respondents to the initial case.
The panel found that the Ombud could not merely determine who should be respondents to the appeal without referring to who the respondents were in the initial case. In the initial case the respondents were the financial advisers of the investors who lost their money, and not the directors of Sharemax. The Ombud therefore ‘replaced’ the initial respondents and this is not according to procedure.
The panel stated that even if the Ombud could legally join the directors, the correct procedures had to be followed and that the directors should have been prepared and notified of the Ombud’s intention to do so.
This was found to be a “serious breach of the requirements of fair administrative action and any court would on review have set aside the determinations on this ground alone”.
The appeal panel set aside the determinations and consequent orders made against the Directors of Sharemax. The two financial advisers, who were the respondents in the initial case, are still liable for their clients’ losses.