FST case summaries involving DFF Property & Investments and another v Erwee and another

By Shamaa Sheik 

The following matters were heard in the Financial Services Tribunal on 17 January 2020: 

• DFF Property & Investments CC t/a Bergsma & Van Heerden Brokers (1st Applicant) and Hendrik Lodewyk Erwee (2nd Applicant); and Delorus Kies (1st Respondent); Ombud for Financial Services Providers (2nd Respondent) – case number: FAB 59/2019* 

Fast facts 

• Claim against Financial Service Provider – prescription – commencement of 
• Financial Sector Regulation Act 9 of 2017 – application for reconsideration – s 230 

Summary 

Introduction 

The applicant in this matter applied for a reconsideration of a decision by the FAIS Ombud’s determination that was in favour of the first respondent (Mrs Kies).  
The second applicant, Mr Erwee, was a key individual and at all material times a representative of the first applicant (the FSP) who rendered financial services to Mrs Kies. 

Background 

During the course of 2008, Mrs Kies approached Mr Erwee to invest R700 000 from the proceeds of her deceased sons’ pension and her own Pension into two property syndication schemes as follows: 

• An amount of R500 000 was invested in the Highveld Syndication (Pty) Limited 'PIC'  
• The balance of R200 000 was invested in the Sharemax Property Syndication Scheme. 

In August 2010 the Property Syndication experienced problems when the income from Zambezi or Sharemax stopped. Mrs Kies then lodged a complaint with the Ombud in November 2011. She submitted that she was to receive a monthly income of R2 881 and according to the ruling of the Ombud she was receiving R1 514,20. 

In September 2012, the Ombud had advised that the  period to resolve the complaint had expired without the complaint been resolved and that in terms of s 27(4) of the Financial Advisory and Intermediary Services Act 37 of 2002 (FAIS Act).

Section 27 of the FAIS Act governs the receipt of complaints, prescription, jurisdiction and investigation and sub-s (4) provides as follows: 

'The Ombud must not proceed to investigate a complaint officially received, unless the Ombud - 
(a) has in writing informed every other interested party to the complaint of the receipt thereof; 
(b) is satisfied that all interested parties have been provided with such particulars as will enable the parties to respond thereto; and 
(c) has provided all interested parties the opportunity to submit a response to the complaint.' 

In March 2018, the Ombud recommended that the applicants pay the loss of R700 000.
When the applicant failed to respond to the recommendation, the Ombud ordered the applicant to pay Mrs Kies the sum of R500 000,00 in respect of PIC and R200 000,00 in respect of Sharemax. 

Issues for determination 

The main issues for reconsideration were as follows: 

• Prescription  
• Licensing
• Negligence 
• Double compensation 

Findings 

As it was clear that the investment failed, the Tribunal found as follows: 

Regarding prescription, the Tribunal look at the complaint as a whole and found that– 

• a 3-year prescription period would commence when the complainant became aware of the problem with the investment. In this case, prescription could have hence only started to run in August 2010 because a complaint can only be lodged once a problem with the product is discovered. 

As the complaint was lodged with the FAIS Ombud in September 2012, it was within the 3-year prescription period hence the plea of prescription was dismissed. 

Regarding the issue of licensing– 

• The Tribunal was satisfied that Mr Erwee was authorised to provide the financial services rendered. The decision of the Ombud on the issue of licensing was accordingly set aside. 

Regarding the issue of double compensation, the Tribunal found that– 

• The applicant raised this issue in respect of the PIC investment. The applicant failed to provide any information that Ms Kies had settled the matter with PIC and that she had in fact received her capital back.  
• The status of the investment in terms of the settlement agreement was not clear to the Tribunal. 

The applicants also claimed that the settlement agreement, coupled with the Ombud’s determination regarding the repayment of the R700 000 to Mrs Kies, she would receive double compensation for her initial investment of R500 000. 

The matter regarding this issue was remitted to the Ombud for reconsideration. 

Regarding the issue of negligence, the applicants claimed that the Ombud erred in finding that Mr Erwee was negligent in investing the funds in the property syndication. In particular, the applicants claimed that products were sold at the instance and request of Mrs Kies. The fact that the previous Sharemax investments were successful did not mean that all the Sharemax investments would be successful. 

As Mr Erwee did not indicate that the advice was appropriate the Tribunal found that the Ombud was correct that there was negligence under the circumstances. 

Order 

The matter was referred back to the office of the Ombud for re-consideration. 

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The law 

• Financial Advisory and Intermediary Services Act 37 of 2002 – ss 26(1)(a)(iv); 27(1), (4)-(5); 28(1)  
• General Code of Conduct for Authorised Financial Services Providers and their Representatives – para 3(1)(a)(iii) 
• Financial Sector Regulation Act 9 of 2017 – s 230 

Case referenced 

• CS Brokers and Others v Wallace [FAB5/2016] 

Full text of the FST Decision