Koch & Kruger Brockers CC and another v Financial Sector Conduct Authority and others

• Jurisdiction: http://justis.com/jurisdiction/166,South Africa
• Judge: Zondo CJ, Kollapen J, Madlanga J, Majiedt J, Makgoka AJ, Mathopo J, Potterill AJ, Rogers J and Van Zyl AJ
• Judgment Date: 15 August 2023
• Citation: 2023 JDR 3057 (CC)
• Hearing Date: 15 August 2023
• Docket Number: CCT 229/22
• Court: Constitutional Court

Rogers J (Zondo CJ, Kollapen J, Madlanga J, Majiedt J, Makgoka AJ, Mathopo J, Potterill AJ, and Van Zyl AJ concurring):

[1]

This is an application for leave to appeal a judgment of the High Court of South Africa, Gauteng Division, Pretoria (Mabuse J). The High Court’s judgment was on a separated issue. Litigants and courts must always carefully consider whether it is convenient to adjudicate a separated issue. If it is, the parties must formulate the separated issue precisely. Judges must apply their minds to the parties’ proposal and satisfy themselves that the separation is convenient and that the issue has been properly defined. The issue thus defined should be recorded in an order made by the Court in terms of rule 33(4) of the Uniform Rules. [1] The parties and the Court should

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Rogers J (Zondo CJ, Kollapen J, Madlanga J, Majiedt J, Makgoka AJ, Mathopo J, Potterill AJ, and Van Zyl AJ concurring)

also be clear on what relief will follow if the separated issue is decided one way or the other. Despite judicial warnings on these matters, [2] they continue to be ignored. The present case, which we are deciding on written submissions without an oral hearing, is an object lesson in what can go wrong.

[2]

In August 2008 and September 2009, the fifth and sixth respondents, Mr George Baben and his wife, Mrs Lucille Baben, invested R780 000 in two property syndication schemes via Sharemax Investment (Pty) Ltd (Sharemax). They did so on the advice of the second applicant, Mr Deon Kruger, who conducts business as a financial adviser through the first applicant, Koch & Kruger Brokers CC. The Babens were to receive monthly interest, which they did until August 2010. In September 2010, the South African Reserve Bank (SARB), which considered Sharemax’s operations to be unlawful, instructed Sharemax to stop accepting further money and to repay all existing investors. Monthly payments ceased and the property syndication schemes collapsed. The Babens, an elderly retired couple, are among the many people who lost money in Sharemax.

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Rogers J (Zondo CJ, Kollapen J, Madlanga J, Majiedt J, Makgoka AJ, Mathopo J, Potterill AJ, and Van Zyl AJ concurring)

[3]

In December 2012, the Babens lodged a complaint against the applicants with the second respondent, the Ombud for Financial Services Providers, who is appointed and functions in terms of Chapter VI of the Financial Advisory and Intermediary Services Act [3] (FAIS Act). The Babens alleged that the applicants had wrongly convinced them that the investment in Sharemax was sound and risk-free and that all regulatory requirements had been met; and that the applicants had not supplied them with documentation to enable them to study the property syndication schemes.

[4]

In terms of section 27(5) of the FAIS Act, the Ombud may follow and implement any procedure he or she deems appropriate. In terms of section 28(1)(b), the Ombud may, in upholding a complaint, award the complainant “an amount as fair compensation for any financial prejudice or damage suffered”. In the course of the Ombud’s investigation, the applicants supplied information and documents to the Ombud in response to requests from the latter. No oral hearing took place.

[5]

On 12 October 2018, the Ombud issued his determination. He upheld the Babens’ complaint and awarded them compensation of R780 000 with interest at 10% per annum from the date of determination to date of payment. The Ombud found that the Babens never received the Sharemax prospectus; no financial needs analysis was done; the Sharemax product was unsuitable and high-risk; the applicants’ advice that the investment would be safe had been materially flawed and negligent; and that the Babens’ loss was of the type that flowed naturally from the applicants’ breach of contract. The applicants contested, and still contest, all these findings, asserting that they ignore the detailed responses and documentation the applicants supplied to the Ombud.

[6]

Section 219 of the Financial Sector Regulation Act [4] (FSR Act) permits a person who is aggrieved by a determination of the Ombud to apply to the fourth respondent,

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Rogers J (Zondo CJ, Kollapen J, Madlanga J, Majiedt J, Makgoka AJ, Mathopo J, Potterill AJ, and Van Zyl AJ concurring)

the Financial Services Tribunal (Tribunal), for a reconsideration of the determination. [5] This is subject to section 28(5)(b) of the FAIS Act, which provides that an application for reconsideration may only be pursued with leave granted by the Ombud or, if the Ombud refuses leave, by the Chairperson of the Tribunal (Chairperson). [6] The Chairperson at the relevant time was the third respondent, retired Justice Yvonne Mokgoro.

[7]

The applicants applied to the Ombud for leave to have the matter reconsidered by the Tribunal. The Ombud refused leave. They applied to the Chairperson for leave, which she refused in a decision delivered on 12 April 2019. According to the applicants, the Chairperson’s decision noted that the issues she had considered were a complaint of bias against the Ombud, causation and the applicants’ duty to the Babens, which was to ensure that they could make an informed decision, in particular with reference to the risks of the Sharemax product. The applicants complain that the Chairperson summarily concluded, without elaborating on these issues or providing reasons, that no basis existed to fault the Ombud’s conclusions and that there was no reasonable prospect that the Tribunal would decide the matter differently.

[8]

The applicants launched review proceedings in the High Court. They sought the review and setting aside of the Ombud’s determination and a substituted decision dismissing the Babens’ complaint. In the alternative, they sought the review and setting aside of the Chairperson’s dismissal of their application for leave to pursue reconsideration in the Tribunal. The review application was based on various grounds set out in section 6 of the Promotion of Administrative Justice Act [7] (PAJA). The applicants summarise those grounds as being that the Ombud and the Chairperson were biased or reasonably suspected of bias; that their actions were procedurally

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Rogers J (Zondo CJ, Kollapen J, Madlanga J, Majiedt J, Makgoka AJ, Mathopo J, Potterill AJ, and Van Zyl AJ concurring)

unfair; that their decisions were materially influenced by an error of law; that their decisions were taken for ulterior purposes; that irrelevant considerations were taken into account and relevant considerations ignored; that they took their decisions in bad faith and acted arbitrarily and capriciously; and that their decisions were unconstitutional and unlawful.

[9]

In advance of the High Court hearing, counsel for the applicants approached counsel for the Ombud and the Babens with a proposal that the High Court be asked to determine, as a preliminary issue, whether the investigation by the Ombud of the Babens’ complaint justified the Ombud’s determination or the Chairperson’s ruling that the applicants were the factual and legal cause of the Babens’ loss. In their written submissions, the applicants say that it has not been possible to establish how the point in limine was formulated when orally conveyed to Mabuse J.

[10]

In his judgment, Mabuse J recorded that he had been asked to determine “whether the loss suffered by the [Babens], under the circumstances set out in the overview, was caused by the breach of agreement occasioned by the applicants, as it was contended by the [Babens], or by the intervention of the [SARB], as it was contended by the applicants”. The “overview” was set out thus in the preceding paragraph of the judgment:

“Through the advice of the...