From CompliNEWS | Financial Service Intelligence Watch
FST determination – T Greyling and F Visser, AC Visser, FAIS Ombud (broker’s liability after referral to person skilled in property investments – ‘advice’ – Ombud’s facts and findings don’t add up, says Tribunal)
Financial Services Tribunal (‘FST’ or ‘Tribunal’)
The following matter was handed down by the Financial Services Tribunal on 23 November 2022:
• Theuns Greyling (Applicant) and Floris Visser (First Respondent), Anna Cecelia Visser (Second Respondent), The Ombud for Financial Services Providers (Third Respondent) – (case number: FAB139/2021)
Fast facts
Reconsideration application – Broker’s liability after referral to person skilled in property investments –‘ Advice’ – Wrongfulness and duty to intervene – Negligence – Causation
Summary
Background
Mr Greyling, an independent broker contracted to sell Liberty, Sanlam, Discovery and Momentum products, met with Mr Visser to discuss a possible Liberty product. According to him, when he mentioned the rental income, Mr Visser mentioned that it was too low, and Mr Greyling stated that he knew about a property investment but did not know the product very well and asked whether he could introduce a consultant from the company (‘Bluezone’). At the meeting, Mr Visser made a R300 000 investment after the consultant discussed the investment. The consultant informed Mr Greyling later that Mr and Mrs Visser made further investments totalling R900 000,00. Mr Greyling received a referral fee for introducing a client. The company was later liquidated and the Vissers lodged a complaint with the FAIS Ombud. The Ombud determined, amongst others, that Mr Greyling acted negligently and such negligence was the cause of the Vissers’ loss, both factually and legally for purposes of delictual liability. He was ordered to pay Mr and Mrs Visser R600 000,00 each, plus interest. Mr Greyling applied for a reconsideration of the Ombud’s determination.
The issue
- Whether Mr Greyling’s conduct constituted ‘advice’ as contemplated by the FAIS Act.
- Whether Mr Greyling had a duty to intervene after he – having explained to the Vissers that he did not know the product – introduced the Vissers to a personskilled in property investments.
- Whether Mr Greyling was negligent in his conduct.
- Whether factual causation had been established.
Facts of the matter
Mr Visser, having received his pension, contacted Liberty Life in 2007 to invest the amount. Mr Greyling, an independent broker, contacted the Vissers regarding the investment, and informed them that he does investments in, inter alia, Liberty Life and Sanlam. (The Vissers maintained that) Mr Greyling suggested that the pension amount be invested in property syndication because the interest rates in other investments were low, and that he introduced Mrs Stroh of Bluezone Properties Investment (Bluezone) to Mr Visser and his wife. Mrs Stroh did not have accreditation and conveyed that it was held through Bluezone. Mrs Stroh suggested ‘Spits Kop Village’ as an investment, and informed the Vissers that R1 000,00 shares are purchased in R100 000,00 units. The company (apparently either Bluezone or Spits Kop) was introduced by Mrs Stroh as a foreign company and she stated that all monies paid in were guaranteed against insolvency. Mrs Stroh informed the Vissers that the interest rate of 9,5% per year is paid in respect of capital invested and a further 7% interest on capital escalation. The amounts were paid in cheque payments and handed to Mrs Stroh. All monies were paid to the trust account of attorneys, Honey & Partners, who were supposed to hold the amount in trust until the full amount had been claimed. In June/July 2009, at a shareholders meeting regarding the Spits Kop Village ‘investment’ by Bluezone, a certain Mr Botha and other management members informed the ‘investors’ that the project was completed and would be sold to a company,
namely Share Africa at a loss of 7%, and that the management wanted R 60 million as a bonus. The amount was turned down after objection and in September 2009, the Vissers were notified that Spits Kop Village and Bluezone had been liquidated.
In 2009, the Vissers lodged a complaint with the Ombud for Financial Services (‘the FAIS Ombud’/‘the Ombud’). The Vissers claimed that the members of the board knew that they had lied at the meeting as there was never a building erected nor an offer from Share Africa. They contended, amongst others, that:
- Investors’ money was stolen by the management by means of running a pyramid scheme and paying themselves enormous salaries from investors’ monies to enrich themselves. With the liquidation, the investor is impoverished and the board member enriched with monies wrongfully taken.
- The amount that was allegedly paid as ‘interest’ on a monthly basis was in fact investors’ own money (no interest was in fact received).
- Mr Greyling was asked about a safe investment to obtain interest to live from. As a result of Mr Greyling’s poor recommendation, they were financially ruinedand financially dependent on their family.
- Mrs Stroh did not have accreditation and was not authorised / entitled to market Bluezone. She also lied in that there was no guarantee against liquidation.
- Mr Botha and the remainder of the management wrongfully used persons as marketers who did not have accreditation.
- The management paid themselves above average salaries in a corrupt way and hide behind the legislation as a result of the insolvency.
- Those who marketed Bluezone did not have accreditation to act as financial advisers, and Bluezone management obtained the investments unlawfully.
- The management of Bluezone used ‘Spitz Kop’ as a front to obtain capital and misappropriated such amounts in a corrupt manner.
- Certain of the directors were partners in the firm of attorneys and obtained double compensation – first as the attorneys and then as members of the board ofBluezone.
- The capital escalation of 7% was a lie in order to attract and deceive persons.
Mr Greyling responded to the complaint in 2011 by indicating that Mrs Stroh was referred to Mr Greyling by another financial adviser, and when he met with her in January 2007, she briefly explained the Bluezone products to him and he told her that he did not really do lump sum/single premium investments but when he did do such investments he usually placed the business with Liberty/Stanlib, and that he was not comfortable in marketing property syndications because he found the product to be very intricate and confusing. Mrs Stroh said that Mr Greyling should get the client to see her and she would market the product and handle everything.
Mr Greyling also stated that:
- He met with Mr Visser after being informed by Liberty that Mr Visser wanted to invest.
- Mr Greyling informed Mr Visser that he was contracted to sell Liberty, Sanlam, Discovery and Momentum products.
- Mr Visser stated that he had R300 000 to invest and he wanted a monthly income and when Mr Greyling mentioned the monthly income on a Liberty quote forR300 000, Mr Visser remarked that it was too low.
- Mr Greyling then stated that he knew about a Bluezone investment that offered a higher income, but that he did not know the product very well and asked whether he could introduce a consultant from Bluezone to the Vissers to explain the product in detail.
- The Vissers agreed and Mr Greyling set up an appointment with Mrs Stroh, who, at the meeting, explained the product in detail to the Vissers. Mrs Stroh did a risk profile with Mr Visser, the Vissers did not ask any questions and agreed to proceed with the investment as soon as Mrs Stroh was done explaining the product.
- Mrs Stroh completed the application form with Mr Visser, and Mr Visser handed her a cheque in the amount of R300 000,00. Mr Greyling did not speak during the meeting and never saw or talked to the Vissers after that.
- In March 2007, Mrs Stroh informed Mr Greyling that Mr Visser called her to say that he wished to invest a further R900 000,00. He received commission the following month for referring the client to Bluezone.
- Mr Greyling saw Mrs Stroh a few times after but never referred business to Bluezone again. Years later, when negative rumours about Bluezone started, Mr Greyling contacted Mrs Stroh and she reassured him that everything was in order.
- A few months later Mr Greyling heard that Bluezone had been placed under liquidation. Mr Greyling later joined a group of brokers that opposed the liquidation and appointed an advocate to handle their case in ultimately recouping the clients’ monies. Mr Greyling apologised for any inconvenience caused as this was not his intention.
- The Vissers responded to Mr Greyling’s version contending that he informed them that he invests primarily with, inter alia, Liberty, that at that stage, there was no investment that could be recommended in the financial sector and that he would suggest that the Vissers look at the property market, and he referred them to Bluezone properties. The Vissers contended that Mr Greyling remained quiet whilst Mrs Stroh indicated that there would be monthly interest income of 9,5% per year and 7% interest per year on capital. Mrs Stroh stated in the presence of Mr Greyling that there was a good financial management team and everything was guaranteed against maladministration and liquidation.
In response to the Vissers’ response, Mr Greyling persisted with and elaborated on certain points including:
- When Mr Visser stated that the interest rate was too low, Mr Greyling informed him that he knows that there are property syndications which provide higher income but that he did not have sufficient knowledge of this type of product.
- After his disclosure, Mr Visser knew that he (Mr Greyling) did not have any contracts or accreditation with syndications.
- Mr Greyling asked whether he could introduce someone to Mr Visser to provide more information, and Mr Visser answered ‘yes’.
- He introduced Mrs Stroh to Mr Visser, with Mr Visser’s consent, and Mrs Stroh paid Mr Greyling a referral fee because he had introduced a client to her.
- At the meeting with Mrs Stroh, Mr Greyling kept quiet as he did not have sufficient knowledge of the types of investments and according to his licence, he was not entitled to sell such investments. He did not speak to the Vissers after the meeting for the same reasons.
- It was not his intention to give any advice on products for which he was not licensed as he was aware that this would be against the relevant legislation.
- All future investments and enquiries from the Vissers were directly handled by Mrs Stroh. For this reason, he was not able to provide a record of advice andrelated documents in respect of the financial services because he did not provide any advice or sell a product to Mr Visser.
- The advice was given by Mrs Stroh – the application form and risk profile were done by Mrs Stroh. The cheques were collected by Mrs Stroh from the client after Mr Visser contacted her.
- He was also not involved with any enquiries or general communication.
- The companies under the Bluezone management were declared an illegal deposit-taking institution by the South African Reserve Bank (SARB).
- The cause of the loss of investments by investors was not the conduct of any of the brokers.
- Whilst the relevant company had been investigated for a very long period, neither the investors nor the financial advisers were informed of this fact.Ten years after the complaint was filed, the Ombud found, amongst others, that:
- Mr Greyling acted negligently.
- The Vissers would never have known, much less invested in Bluezone, but for Greyling introducing the property syndication investment and introducing theVissers to Stroh.
- The negligent conduct of Greyling was sufficiently closely connected to and directly the cause of the loss of the Vissers’ capital.
- The Ombud directed Mr Greyling to pay to each of them an amount of R600 000 plus interest.Mr Greyling applied to the Tribunal for reconsideration of the Ombud’s determination. He contended that:
- He gave no advice, and did not intend to give any advice, as he was not entitled to do so in terms of the law – which is why he referred the Vissers to Mrs Stroh.
- The referral of clients to another broker does not constitute advice for purposes of the Act.
- Not saying something does not constitute advice.
Findings
The FST panel considered the objectives of the Ombud, and the disputes of fact on various aspects. It pointed to a number of incorrect findings by the Ombud and found that that the erroneous factual findings rendered the legal conclusions in the Ombud Determination flawed. Such incorrect findings included, amongst others:
- Mr Greyling was aware that investor funds were not insured against insolvency.
- Mr Greyling created a false impression that the Bluezone product was promoted by Liberty Life.
- The probabilities are inescapable that Greyling colluded with the Liberty consultant to share the commission.
- Mr Greyling must have realised that there was a conflict of interest and that he could not rely on Mrs Stroh to make a full and frank disclosure of all the factsabout the investment.
- Mr Greyling convinced the Vissers to invest in Bluezone.
The FST found that:
- The incorrect findings were inconsistent with the facts which indicated that it was Mrs Stroh who gave the advice regarding Bluezone and Spitz Kop, not Mr Greyling.
- Mr Greyling repeatedly stated that he gave no advice (as understood in terms of the FAIS Act).
- The facts do not accord with the Ombud’s findings regarding what the Vissers’ complaint entailed, inter alia, that Stroh promised the interest rates that theinvestment would yield, and that there was insurance against liquidation.
- On the facts of the matter, Mr Greyling did not render advice. Mrs Stroh furnished the information regarding the product, the advice and the recommendations, and it was this advice that induced the Vissers to invest in the scheme.
- Not saying anything, after referring the Vissers to a person with knowledge in the relevant field, cannot be construed as giving advice.
- Contrary to the Ombud’s finding, Mr Greyling’s conduct was not the same as that of the advisor in Durr v Absa Bank Ltd and Another 1997 (3) SA 448 (SCA):Mr Greyling told the Vissers where his skills ended.
- Mr Greyling had no contact with the Vissers after the meeting where Mrs Stroh met with the Vissers. It was only after that meeting that the Vissers decided to invest further amounts totalling R900 000.
- Insofar as the determination of the Ombud deals with an omission on the part of Mr Greyling to intervene, there can be no duty to intervene in circumstances where intervening to advise would render the conduct of Mr Greyling unlawful.
- On the facts, it cannot be concluded that a reasonable broker in the position of Mr Greyling would have foreseen harm of the general kind that actually occurred and it cannot be concluded that Mr Greyling acted in a negligent manner.
- The facts and the probabilities do not show that Mr Greyling was the factual cause of the loss suffered by the Vissers. The Vissers themselves point to various causes for their actual loss.
- The Ombud’s determination must be set aside.
Conclusion and Order
The determination is set aside and referred back to the FAIS Ombud for reconsideration.
The law
- Financial Advisory and Intermediary Services Act, Act 37 of 2002 – ss 1(3)(a); 8; 9(b); 13(1); 20; 28(1)
- Financial Sector Regulation Act 9 of 2017 – s 230; 232(1)(a); 232(2), 232(4)-(5)Cases considered
- Atwealth (Pty) Ltd and Others v Kernick and Others 2019 (4) SA 420 (SCA)
- Centriq Insurance Company Limited v Oosthuizen and Another 2019 (3) SA 387 (SCA)
- Durr v Absa Bank Ltd and Another 1997 (3) SA 448 (SCA)
- International Shipping Company (Pty) Ltd v Bentley 1990 1 SA 680 (A)
- J L Weihmann N.O. FAB1/2015
- Minister of Safety and Security v Van Duivenboden 2002 (6) SA 431 (SCA)
- Mukheiber v Raath and Another 1999 (3) SA 1065 (SCA)
- OK Bazaars (1929) Ltd v Standard Bank of SA Ltd 2002 (3) SA 688 (SCA)
- Symons NO and Another v Rob Roy Investments CC t/a Assetsure 2019 (4) SA 112 (KZP)
- Van Eeden v Minister of Safety and Security (Women’s Centre Trust, as Amicus Curiae) 2003 (1) SA 389 (SCA)