THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Reportable
Case no: 856/2019

In the matter between:
IMPACT FINANCIAL CONSULTANTS CC
FIRST APPLICANT
MICHAL JOHANNES CALITZ

SECOND APPLICANT
and
NOLUNTU NELLISA BAM N O

FIRST RESPONDENT
YVONNE MOKGORO N O

SECOND RESPONDENT
LORENDANA HANSEN

THIRD RESPONDENT
NATALINA NATALI

FOURTH RESPONDENT
HENDRIK FREDERICK DU PLESSIS
FIFTH RESPONDENT
ERNA ELIZABETH DU PLESSIS

SIXTH RESPONDENT
JOHANNES JACOBUS
MATTHYS COETZEE                                               SEVENTH RESPONDENT
JEANRICH HEIN EHLERS

EIGHTH RESPONDENT
ROBERT WILLIAM WHITFIELD JONES            NINTH RESPONDENT
CAROLINA JOHANNA OLIVIER
TENTH RESPONDENT
ERIKA ELISE KRUGER

ELEVENTH RESPONDENT

MARTHA HENDRINA CARSTENS
TWELFTH RESPONDENT
HENDRIK JOHANNES CARTENS             THIRTEENTH RESPONDENT
ETTIENNE DU PREEZ
VAN DER MERWE N.O.

FOURTEENTH RESPONDENT
CRAIG STEWART INCH

FIFTEENTH RESPONDENT
HENDRINA AMEDJE RAUTENBACH        SIXTEENTH RESPONDENT
GARVITTE HERMAN LOMBARD        SEVENTEENTH RESPONDENT
MARTHA CATHARINA JOOSTE          EIGHTEENTH RESPONDENT
JOHANNES ENOCH HARTSHORNE          NINTEENTH RESPONDENT
FIONA AVERY KING

TWENTIETH RESPONDENT

Neutral citation: Impact Financial Consultants CC and Another v Bam NO
and Others (Case no 856/2019) [2021] ZASCA 54
(30 April 2021)

Coram:
NAVSA ADP and MAKGOKA and DLODLO JJA and GOOSEN
and UNTERHALTER AJJA

Heard:
4 March 2021

Delivered: This judgment was handed down electronically by circulation to
the parties’ legal representatives by email, publication on the Supreme Court of
Appeal website and release to SAFLII. The date and time for hand-down is
deemed to be 09h45 on 30 April 2021.

Summary:  Ombud for Financial Services – Financial Advisory and
Intermediary Services Act 37 of 2002 – the nature of the financial product to be
identified before determination of complaint and possible compensation is
directed.

ORDER

On appeal from:  Gauteng Division of the High Court, Pretoria (Tlhapi J,
sitting as court of first instance):
1. Leave to appeal is granted with costs.
2. The appeal is upheld to the extent set out in the substituted order below.
3. The order of the high court is set aside and replaced by the following order:
‘(a)     The decision of the second respondent to refuse leave to appeal to the
Financial Services Appeal Board in case numbers FAB3/2015 to
FAB20/2015 is hereby set aside.
(b)  The determinations of the first respondent under case numbers
FAB3/2015 to FAB20/2015 are hereby set aside.
(c)
Each of the complaints lodged under case numbers FAB3/2015 to
FAB20/2015 are referred back to the first respondent for
determination in accordance with the provisions of the Financial
Advisory and Intermediary Services Act 37 of 2002.
(d)     The first respondent is ordered to pay the costs of the application.’
4.  The first respondent is ordered to pay the costs of the appeal, including the
costs of the application for leave to appeal before the high court.

JUDGMENT

Goosen AJA (Navsa ADP and Makgoka and Dlodlo JJA and Unterhalter
AJA concurring)

[1] This is an application for leave to appeal referred for oral argument by
this Court in terms of section 17(2)(d) of the Superior Courts Act, 10 of 2013.
The parties were directed to be prepared to address the court on the merits, if
called upon to do so. We heard argument on the application for leave to appeal
and on the merits. The Gauteng Division of the High Court, Pretoria (the high
court) dismissed a review application (the review application) in which the
applicants sought to set aside the dismissal of their application for leave to
appeal by the second respondent.

[2] The central issue in this matter is whether the Ombud for Financial
Services (the Ombud), established in terms of section 20 of the Financial
Advisory and Intermediary Services Act, 37 of 2002 (the FAIS Act) committed
a reviewable error in determining complaints lodged by each of the third to
twentieth respondents in terms of s 27 of the FAIS Act. The detailed background
culminating in the proceedings before us is set out hereafter.

The parties
[3] The first applicant, Impact Financial Consultants CC (Impact
Consultants), is a registered financial services provider in which the second

applicant (Mr Calitz) holds a 90% membership interest. Mr Calitz is a duly
registered financial services provider who rendered such services as a member
of Impact Consultants.

[4] The first respondent is the duly appointed Ombud for Financial Services,
appointed in terms of s 21 of the FAIS Act.1 The second respondent is the
chairperson of the appeal board of the Financial Services Board. The appeal
board considers appeals from determinations made by the Ombud.2 The third to
twentieth respondents (hereafter the respondents) each lodged a complaint with
the Ombud in relation to advice furnished to them by Mr Calitz to them
regarding investments which each had made. The complaints were recorded by
the Ombud under case numbers FAB3/2015 to FAB20/2015. The investments
were made in the MAT Relative Value Arbitrage Fund, later named the Relative
Value Arbitrage Fund Trust (the RVAF Trust). The RVAF Trust was controlled
or managed by Abante Capital (Pty) Ltd (Abante Capital), an investment
company controlled by Mr Herman Pretorius (Mr Pretorius). The complaints
arose pursuant to the collapse and eventual liquidation of Abante Capital and
the RVAF Trust, following the death of Mr Pretorius, who committed suicide
in July 2012, subsequent to adverse press reports about fraud allegedly
perpetrated by him, and significant losses incurred by Abante Capital.

1 The first respondent was cited nomine officio. She has since been replaced by the current Ombud. The current
Ombud participated in the proceedings before this court.
2  See s 28(5)(b) of the FAIS Act read with s 26(1) of the Financial Services Board Act 97 of 1990. The Financial
Services Board Act was repealed by the Financial Sector Regulation Act, 9 of 2017 which, in respect of the
provisions relating to the appeal board, came into effect on 1 April 2018. The appeals process is now regulated
by the latter Act.

The proceedings before the Ombud
[5] It is not in dispute that Mr Calitz furnished the respondents with advice
regarding an investment in the RVAF Trust, which was described as a ‘hedge
fund’ managed by Abante Capital. It is also not in dispute that each of the
respondents invested funds as advised. Nor is it in dispute that, in consequence
of the collapse and resulting liquidation of Abante Capital and the RVAF Trust,
the respondents suffered capital losses on their investments.

[6] It was these losses which gave rise to the complaints lodged against Mr
Calitz and Impact Consultants with the Ombud. The complaints were premised
upon the allegation that Mr Calitz had negligently failed to comply with his
obligations as a financial services provider, as set out in the General Code of
Conduct for Authorised Financial Service Providers and Representatives (the
Code)3, published in terms of s 15 of the FAIS Act. It was alleged, inter alia,
that Mr Calitz had failed: to undertake a due diligence assessment of the RVAF
Trust and / or Abante Capital; to establish that the ‘hedge fund’ in which
investments were made was not duly registered and regulated by the FAIS Act;
to establish that the scheme of investment was an illegal scheme; to undertake
a proper needs analysis in relation to each of the investors; to advise of the high
risks associated with the investment; and had generally negligently failed to
comply with his duties as a financial advisor. The respondents alleged that this
negligent conduct had caused the respondents to suffer loss. They accordingly
sought a compensatory award in terms of the FAIS Act.

3 General Code of Conduct for Authorised Financial Services Providers and Representatives, Board Notice 80
of 2003, GG 25299, 8 August 2003.

[7] In answer to the complaints Mr Calitz raised several defences. He denied
that he had rendered financial advisory services as a representative of Impact
Consultants. He asserted that he had rendered such advice in his personal
capacity as a registered financial services provider. He denied that he had failed
in his duties in any manner. He stated that he was under no obligation to conduct
a due diligence of the particular funds in which investments were to be made.
His obligation, he asserted, extended only to a requirement that he undertake a
due diligence assessment of the fund manager. In this instance that was Abante
Capital. He alleged that: he had undertaken such due diligence assessment; he
had satisfied himself that Abante Capital was a registered service provider; it
was managed by competent and qualified personnel, including Mr Pretorius
who was a highly respected fund manager; and that the returns on investment
earned by the Abante Capital hedge fund were sustainable and in line with
returns earned by similar funds. He alleged further that he had advised each of
the respondents about the nature of the risks associated with such investments
and that in many instances his clients had insisted on investing with the RVAF
Trust. He stated that Abante Capital had on two occasions been the subject of
investigation by the Financial Services Board and that no impropriety had been
discovered. The nature and extent of the fraud perpetrated by Mr Pretorius upon
investors was only discovered after his demise and upon the liquidation of
Abante Capital.

[8] Mr Calitz accordingly denied that he was negligent in any respect or that
any negligence that was established, had caused the losses suffered by the
respondents. The losses, he asserted, were occasioned by the fraud perpetrated
by Mr Pretorius and that such fraud could not have been detected by a due
diligence assessment which he (Mr Calitz) was required to undertake.

[9] Mr Calitz also raised a further defence, namely that the financial product
in respect of which he had furnished advice was not a ‘financial product’ as
defined by the FAIS Act and accordingly that the ‘advice’ he had furnished was
not regulated by the FAIS Act. The Ombud, so he contended, accordingly
lacked jurisdiction to determine the complaints against him and Impact
Consultants.

The determinations by the Ombud
[10] The first determination made against Impact Consultants and Mr Calitz
was in respect of the complaint lodged by the fifteenth respondent, Dr Inch (the
Inch Determination). Thereafter the Ombud determined all the other
complaints, essentially upon the basis set out in the Inch Determination.
Reference will accordingly only be made to the Inch Determination as reflecting
the findings of and reasoning adopted by the Ombud.

[11] The Ombud found that Mr Calitz, acting on behalf of Impact Consultants,
had failed to conduct a needs analysis in terms of s 8 of the Code4 from which
it could be determined whether the selected investment product was likely to
satisfy the investor’s needs. The Ombud was critical of Mr Calitz’s advice to
place the greater part of the savings into a high risk investment, without any
thought as to diversification. The Ombud held that in breach of sections 4 and
5 of the Code, Mr Calitz had failed to make proper disclosure by not providing
full details of what they were investing in and with whom they were dealing. It
was also found that Mr Calitz had failed to maintain a record of the advice that

4 Ibid.

was required to explain what range of financial products had been considered
as being appropriate to meet his client’s needs.

[12] The Ombud also found that Mr Calitz had failed to comply with Part III,
s 4 and Part IV, s 5 of the Code. Regarding the latter provision, it was found
that insufficient details were provided to ensure that the client knew and had
access to full details of the relevant product supplier. As to the former provision,
it was found that, on the documentation supplied by Mr Calitz, all that could be
ascertained was that his client was investing capital in a limited partnership,
styled the ‘Relative Value Arbitrage Fund En Commandite Partnership’.
Neither the nature of this partnership, nor the rationale for this contractual
relationship, it was found, were explained to the client.

[13] In regard to the conduct of a due diligence assessment, Mr Calitz alleged
that he conducted such assessment of Abante Capital. The Ombud dismissed
this defence ‘as an afterthought’, noting that there was no reference to Abante
Capital in the disclosure documents. The Ombud found that since the RVAF
Trust was promoted as a hedge fund, and since the RVAF Trust directly
accepted clients’ funds and accounted for them, the RVAF Trust in fact
provided intermediary services on a discretionary basis. It therefore fell within
the definition of a hedge fund financial services provider, as provided by Board
Notice 89 of 2007, issued by the Registrar of Financial Services Providers.
Based upon this, the Code of Conduct for Discretionary Financial Services
Providers5 applied. Section 8A(4) of this Code requires that a hedge fund
financial services provider must obtain a written mandate from a client which

5 Code of Conduct for Administrative and Discretionary FSP’s Amendment Notice, Board Notice 89 of 2007,
GG 30228.

confirms that  the client approves the investment objectives, guidelines and
trading philosophy of the hedge fund financial services provider. No evidence
was provided that established compliance with this requirement or that Abante
Capital had concluded such mandate with the RVAF Trust.

[14] The Ombud concluded that the complainant (in this instance Dr Inch) was
not adequately apprised of the risks associated with an investment in a hedge
fund. In relation to the fact that the RVAF Trust was not registered, the Ombud
found that proper due diligence would have disclosed this fact. It did not avail
Mr Calitz to rely on the fact that the FSB had not established any impropriety
on the part of Abante Capital or Mr Pretorius.

[15] The upshot of these findings was that the Ombud concluded that
Mr Calitz had negligently breached the statutory duties owed to his clients. This
negligent conduct had resulted in the investments being placed in the RVAF
Trust and the subsequent losses incurred. Impact Consultants and Mr Calitz
were accordingly found to be jointly and severally liable for the losses incurred.

The applications for leave to appeal before the Ombud and the second
respondent
[16] Applications for leave to appeal against each of the determinations were
made to the Ombud in terms of s 28(5)(i) of the FAIS Act. The applications
were prosecuted on the basis that the Ombud erred in finding that Mr Calitz and
by extension Impact Consultants had negligently breached the statutory duties
imposed by the FAIS Act and the Code.  It was contended that even if such
breach was established and that it was found that Impact Consultants and Mr

Calitz had been negligent, it had not been established that such negligence had
caused the loss suffered. The cause of the loss was the fraudulent conduct of Mr
Pretorius. In the circumstances, Mr Calitz could not reasonably have foreseen
fraudulent conduct on the part of Mr Pretorius. It was argued that liability was
not established.

[17] The Ombud dismissed the applications for leave to appeal. She found that
there was no reasonable prospect that her factual findings would be overturned.
She held that reliance upon common law concepts such as causation and
foreseeability of harm did not apply in the context of statutory provisions
enacted to protect the clients of financial services providers. In effect, the
Ombud found that once it was established that a financial services provider had
negligently breached their statutory duties and a client has suffered loss, liability
and compensation must follow.

[18] Aggrieved with the refusal of leave to appeal, an application for leave to
appeal was directed to the chairperson of the appeal board, in terms of s 28
(5)(b)(ii). To facilitate the conduct of those proceedings a request was directed
to consolidate the applications of each of the respondents.

[19] The second respondent granted the consolidation and dismissed the
applications for leave to appeal, holding that, having regard to the record in each
matter and the reasoning of the Ombud, there was no prospect of success on
appeal.

The review application
[20] The dismissal of the applications for leave to appeal by the second
respondent resulted in a review application launched in the high court, in which
the applicants sought an order reviewing and setting aside such dismissal. They
sought an order granting such leave, alternatively an order reviewing and setting
aside the determinations made by the Ombud in respect of the complaints
lodged by the respondents.

[21] The applicants contended that the Ombud had committed an error of law
inasmuch as she had found that liability followed on the finding of negligence
without considering whether the impugned conduct was the cause of such loss.
Upon receipt of the record filed in terms of rule 53 of the Uniform Rules of
Court, the applicants supplemented their grounds of review to include the
following:
(a)
that the Ombud had no jurisdiction to entertain the complaints since the
investors had invested in the Relative Value Arbitrage Fund En Commandite
Partnership, which is not a financial product as defined by the FAIS Act;
(b)
that the provisions of s 27(3)(c) ought to have been invoked by the
Ombud to refer the dispute for determination by a court in the light of the
disputes;
(c)
that the Code does not provide for civil liability by reason only of a
breach thereof; and
(d)
that the appeal board has in a similar matter ruled that the product was
not a financial product as defined by the FAIS Act and, accordingly, that the
Ombud did not enjoy jurisdiction in respect of such complaint.

[22] The high court did not address the challenge to the jurisdiction of the
Ombud. It set out the contentions of the parties in some detail but did not
identify all the issues to be adjudicated in relation to the grounds of review. In
relation to the applicants’ reliance upon the failure to consider causation as a
separate element of liability, framed as an error of law, the high court was not
persuaded that the applicants had established the materiality of such error, even
on the assumption that the error was established. The high court appears to have
accepted the basis upon which the Ombud determined liability as being the
correct basis.

[23] The following is recorded in the judgment:
‘In the answering affidavit the first respondent states that it is not correct that she determined
that liability followed automatically from a transgression of the Code: “I submit that I made
the findings against the Applicant which cumulatively point to his wrong advice and
negligence as the cause of the complainant’s loss…..the Applicant’s negligent failure to
establish the nature of the entity or product (RVAF) he invested in.”’(Emphasis in original
text).

[24] The high court went on to find as follows:
‘The first respondent denies that how she dealt with the matter constitutes an error of law. As
I see it, the standard of service that the applicants are held to is what is provided for in the
Code, and nothing more and it is not only the transgressions that she relied upon as
constituting liability but the cumulative effect of all the transgressions, as having given rise
to liability.’ (Emphasis added.)

[25] In coming to this finding, the high court did not consider whether,
properly considered, liability for the negligent breach of the provisions of the
FAIS Act and the Code arises strictly upon such breach or, upon the

establishment of a causal link – both factual and legal – between the culpable
conduct and the loss suffered. The court considered that there was no error of
law in relation to the refusal of leave to appeal and consequently did not embark
on an analysis of the specific grounds of review raised by Calitz.

[26] The review application was dismissed with costs. The high court
subsequently refused leave to appeal against its order.

The proceedings before this Court
[27] Before this Court, the issue was whether leave to appeal ought to be
granted to the applicants and, if so, what relief should follow. The appellants
framed the question for adjudication as follows: whether upon the facts it could
be found that the Ombud enjoyed jurisdiction to determine the complaints
lodged by the respondents. As I have detailed, the Ombud made no definitive
finding that she had jurisdiction. The Ombud proceeded upon the assumption
that she enjoyed such jurisdiction. The high court similarly did not make a
finding that the Ombud had jurisdiction, notwithstanding that the issue was
squarely raised. For reasons that will become apparent the principal question is
whether the Ombud established the foundational facts upon which a
determination could be based. And consequentially whether that constituted a
reviewable error.

The statutory scheme
[28] The purpose of the FAIS Act is to provide assurance to consumers of
financial services and financial products that those who render such services are
subject to effective regulation and control. These broad objects and purposes
are achieved by establishing a system of licencing and governance to which

providers of financial and intermediary services are subject.6 The FAIS Act (in
conjunction with allied and related legislation) does so by establishing
standards, in the form of Codes of Conduct which service providers are required
to meet.7 Enforcement of these provisions is achieved by various mechanisms8,
including the establishment of an Ombud clothed with the power to investigate
and adjudicate disputes and to provide remedies for regulatory non-compliance.

[29] The office of the Ombud is established in terms of s 20 of the FAIS Act.
Section 20(3) outlines the objectives as follows:
(3) The objective of the Ombud is to consider and dispose of complaints in a procedurally
fair, informal, economical and expeditious manner and by reference to what is equitable in
all the circumstances, with due regard to—
(a) the contractual arrangement or other legal relationship between the complainant and any
other party to the complaint; and
(b) the provisions of this Act.9

6 Section 7 of the FAIS Act provides that a financial services provider is not authorized to offer such services
unless they have been issued with a license to do so by the Financial Services Board in terms of s 8 of the FAIS
Act. In terms of s 8 the Registrar is required to establish ‘fit and proper’ requirements to be met by applicants
for authorization.
7 Section 15 of the FAIS Act permits the registrar to publish codes of conduct to regulate the conduct of service
providers. Such codes of conduct must comply with a set of principles set out in s 16.
8 Section 9 allows for the withdrawal or suspension of a licence under specified conditions.
9 This is how s 20(3) read at the time that the Ombud was engaged with this matter. The section was
subsequently amended by s 290 of the Financial Sector Regulations Act, 9 of 2017 (the FSR Act), which
commenced on 1 April 2018, read with Schedule 4 to the FSR Act. There is no substantive difference between
the provisions. The new subsection now reads as follows:
‘(3)  The objective of the Ombud is to consider and dispose of complaints under this Act, and complaints for
which the Adjudicator is designated in terms of section 211 of the Financial Sector Regulation Act, in a
procedurally fair, informal, economical and expeditious manner and by reference to what is equitable in all the
circumstances, with due regard to—
(a) the contractual arrangement or other legal relationship between the complainant and any other party to the
complaint; and
(b) the provisions of this Act and the Financial Sector Regulation Act.’

[30] Section 27 of the FAIS Act provides for the receipt of complaints, matters
dealing with prescription, the jurisdiction of the Ombud and its powers of
investigation. The relevant portions of the section read as follows:
‘(1) On submission of a complaint to the Office, the Ombud must—
(a) determine whether the requirements of the rules contemplated in section
26 (1) (a) (iv) have been complied with;
(b) in the case of any non-compliance, act in accordance with the rules made under that
section; and
(c) otherwise officially receive the complaint if it qualifies as a complaint.
(2)  ….
(3)   The following jurisdictional provisions apply to the Ombud in respect of the
investigation of complaints:
(a)(i)  The Ombud must decline to investigate any complaint which relates to an act or
omission which occurred on or after the date of commencement of this Act but on
a date more than three years before the date of receipt of such complaint by the
Office.
(ii) Where the complainant was unaware of the occurrence of the act or omission
contemplated in subparagraph (i), the period of three years commences on the
date on which the complainant became aware or ought reasonably to have
become aware of such occurrence, whichever occurs first.
(b)(i) The Ombud must decline to investigate any complaint if, before the date of official
receipt of the complaint, proceedings have been instituted by the complainant in
any Court in respect of a matter which would constitute the subject of the
investigation.
(ii) Where any proceedings contemplated in subparagraph (i) are instituted during any
investigation by the Ombud, such investigation must not be proceeded with.
(c) The Ombud may on reasonable grounds determine that it is more appropriate that the
complaint be dealt with by a Court or through any other available dispute resolution
process, and decline to entertain the complaint.
(4)  ….
(5)  ….
(6)  For the purposes of any investigation or determination by the Ombud, the provisions
of the Commissions Act, 1947 (Act No. 8 of 1947), regarding the summoning and
examination of persons and the administering of oaths or affirmations to them, the
calling for the production of books, documents and objects, and offences by
witnesses, apply with the necessary changes.’

[31] Section 27(1)(c) requires, in addition to consideration of compliance with
the procedural requirements for the submission of a complaint, that the Ombud
consider the substantive nature of the complaint. A ‘complaint’ is defined in
s 1,
‘means, subject to section 26(1)(a)(iii), a specific complaint relating to a financial service
rendered by a financial services provider or representative to the complainant on or after the
date of commencement of this Act, and in which complaint it is alleged that the provider or
representative—
(a)
has contravened or failed to comply with a provision of this Act and that as a result
thereof the complainant has suffered or is likely to suffer financial prejudice or damage;
(b)
has wilfully or negligently rendered a financial service to the complainant which has
caused prejudice or damage to the complainant or which is likely to result in such prejudice
or damage; or
(c)
has treated the complainant unfairly;’.

[32] Section 26(1)(a)(iii) provides that the Board may make rules regarding-
‘the type of complaint justiciable by the Ombud, including a complaint relating
to a financial service rendered by a person not authorised as a financial services
provider or a person acting on behalf of such first-mentioned person’.

[33] The following definition which appears in s 1 of the FAIS Act is
significant. ‘Advice’ (as it bears upon the present matter) is defined to mean,
‘…any recommendation, guidance or proposal of a financial nature furnished, by any means
or medium, to any client or group of clients—
(a) in respect of the purchase of any financial product; or
(b) in respect of the investment in any financial product’.
(Emphasis added)

[34] A financial product, in turn, is defined to mean,
‘(a) securities and instruments, including—

(i) shares in a company other than a “share block company” as defined in the Share Blocks
Control Act, 1980 (Act No. 59 of 1980);
(ii) debentures and securitised debt;
(iii) any money-market instrument;
(iv) any warrant, certificate, and other instrument acknowledging, conferring or creating
rights to subscribe to, acquire, dispose of, or convert securities and instruments referred to in
subparagraphs (i), (ii) and (iii);
(v) any “securities” as defined in section 1 of the Financial Markets Act, 2012 (Act No. 19
of 2012);10
(b) a participatory interest in one or more collective investment schemes;
(c) a long-term or a short-term insurance contract or policy, referred to in the Long-term
Insurance Act, 1998 (Act No. 52 of 1998), and the Short-term Insurance Act, 1998 (Act No.
53 of 1998), respectively;
(d) a benefit provided by—
(i) a pension fund organisation as defined in section 1 (1) of the Pension Funds Act, 1956
(Act No. 24 of 1956), to the members of the organisation by virtue of membership; or
(ii) a friendly society referred to in the Friendly Societies Act, 1956 (Act No. 25 of 1956), to
the members of the society by virtue of membership;
(e) a foreign currency denominated investment instrument, including a foreign currency
deposit;
(f) a deposit as defined in section 1 (1) of the Banks Act, 1990 (Act No. 94 of 1990);
(g) a health service benefit provided by a medical scheme as defined in section 1 (1) of the
Medical Schemes Act, 1998 (Act No. 131 of 1998);
(gA) an investment, subscription, contribution, or commitment in an alternative investment
fund;11

10 Sub-para (v) substituted by s 175(d) of Act No. 45 of 2013, i e after the complaints arose but at a time when
the complaints were being determined by the Ombud.
11 This is a pending amendment: Paragraph (gA) to be inserted by s 290 read with Sch. 4 of Act No. 9 of 2017
with effect from a date determined by the Minister by notice in the Gazette – date not determined.

(h) any other product similar in nature to any financial product referred to in paragraphs (a)
to (g), inclusive, declared by the registrar by notice in the Gazette to be a financial product
for the purposes of this Act;12
(i) any combined product containing one or more of the financial products referred to in
paragraphs (a) to (h), inclusive;
(j) any financial product issued by any foreign product supplier and which in nature and
character is essentially similar or corresponding to a financial product referred to in paragraph
(a) to (i), inclusive;’13

A reviewable error
[35] As noted earlier, the Ombud did not deal with the challenge to her
jurisdiction, namely that the financial product in which the investment was
promoted, was not a financial product as defined by the FAIS Act. The difficulty
extends further than this.

[36] The respondents identified the financial product in which they were
advised to invest as being a ‘hedge fund’. Mr Calitz, in his answer to the
complaints, admitted that what was promoted was an investment in the RVAF
Trust, apparently being a hedge fund managed by Abante Capital. The
documents disclosed during the investigation indicated that the respondents had
invested in what was designated as the RVAF En Commandite Partnership.
They had accordingly, so Mr Calitz maintained, become partners in a limited
partnership and the returns earned by them were profits earned by the limited
partnership.

12 Paragraph (h) substituted by s 175(e) of Act No. 45 of 2013, i.e. after the complaint in this matter arose but
at a stage when the Ombud was called upon to determine the complaint.
13 Paragraph (j) substituted by s. 290 read with Sch. 4 of Act No. 9 of 2017 with effect from a date determined
by the Minister by notice in the Gazette: 1 April, 2018 (Government Notice No. 169 in Government Gazette
41549 of 29 March, 2018). This is after the determination of the complaints by the Ombud.

[37] In its determinations the Ombud treated the investment as an investment
in a ‘hedge fund’. It also treated the RVAF Trust as a discretionary financial
services provider which invested in a hedge fund. The Ombud however,
recognised that the true nature of the investment was not explained and was not
known or understood by the respondents. Indeed, the Ombud found that
Mr Calitz did not understand the nature of the financial product in which the
investment was made.

[38] What is apparent from a reading of the complaints and the record, is that
although the product was described as a ‘hedge fund’ the true nature of the
investment product and indeed, if it was an investment product at all, remained
unknown. That being so, it was not possible to ascertain whether the investment
that was the subject of the compliant was a financial product as defined in the
FAIS Act. And if not, what consequences, if any, this would have for the Ombud
exercising jurisdiction to entertain the complaint.  It is common ground that
hedge funds were not included in the definition of a financial product in the
FAIS Act at the time that the complaints arose.

[39] The failure to determine the nature of the financial product which was the
subject of the advice furnished by Mr Calitz, constituted a fundamental error on
the part of the Ombud. It is not known, nor were any steps taken to ascertain,
whether the funds were in fact placed in any investment product at all or
invested in a hedge fund or merely siphoned off by Mr Pretorius. That ought to
have been ascertained. It also ought to have been ascertained whether Mr Calitz
had taken steps to determine the destination of the invested funds. Absent a
proper determination of the nature of the financial product and without

establishing what is referred to earlier in this and the preceding paragraphs, the
Ombud was not entitled to conclude her adjudication and to finalise the
complaints lodged in terms of s 27 of the FAIS Act. The Ombud enjoys
extensive powers of investigation in terms of s 27(6), the exercise of which
would have permitted the Ombud to ascertain facts relevant to the issues
identified above, which relate to jurisdiction and remedy for a complainant, if
any. This she failed to do. That was what the high court ought to have concluded
was a reviewable error, necessitating a remittal.

[40] It is necessary to deal briefly with two aspects which arose in argument
before us. The first concerns the judgment of this Court in Atwealth (Pty) Ltd
and Others v Kernick and Others (Atwealth).14 The second concerns the
approach of the Ombud to the application of principles of the common law.

[41] The Atwealth matter concerned a claim for damages against a financial
services provider who was alleged to have furnished advice in breach of legal
duties owed to a client. The legal duties alleged to have been breached were
those set out in the FAIS Act and in the General Code of Conduct for Financial
Services Providers promulgated under the FAIS Act. The investment product
which was promoted was an investment in the RVAF Trust Fund operated by
Abante Capital, ie the same ‘product’ promoted in the present matter. The
judgment in Atwealth was relied upon by counsel for the applicants, as authority
for the proposition that the advice relating to the RVAF Trust was not advice in
relation to a financial product as defined by the FAIS Act. In this regard
reference was made to a passage in the judgment where Davis AJA records that:

14 Atwealth and Others v Kernick and Others [2019] ZASCA 27 (SCA); [2019] 2 All SA 629 (SCA); 2019 (4)
SA 420 (SCA).

‘Central to appellants’ case was whether Ms Moolman provided advice to the Kernicks and,
if so, whether this advice, failed to comply with Ms Moolman’s legal duties and caused the
Kernicks to invest in ill-fated products. Before the court a quo and again in this Court,
Counsel for both parties focussed their arguments on whether Ms Moolman breached the
provisions of the FAIS Act read together with the General Code of Conduct for Authorised
Financial Service Providers and Representatives (the “Code”). There was some debate before
us in regard to the applicability of these provisions as hedge funds were not regulated by the
Financial Services Board until 1 April 2015, when they were declared to be collective
investment schemes in terms of section 63 of the Collective Investment Schemes Control
Act 45 of 2002.’15
(Emphasis added.)

[42] Based on this passage, it was asserted that the RVAF Trust Fund was not,
at the time of the Ombud’s determination, a financial product within the
meaning of that term as defined and, therefore, the Ombud lacked jurisdiction.

[43] The passage, however, is not authority for such proposition. It merely
records that hedge funds were only defined to be collective investment schemes
in 2015 and thereby came within the ambit of the definition of a financial
product in the FAIS Act. The court in Atwealth was not called upon to decide
whether the product was indeed a hedge fund and that the provisions of the
FAIS Act accordingly did not apply. The claim in Atwealth was premised upon
the breach of common law legal duties owed by a financial advisor to their
client. The provisions of the FAIS Act were pleaded as reflecting the legal
duties of the financial advisor.

15 Ibid para 25.

[44] This Court equally did not decide that financial advice provided in
respect of any financial product (whether or not it is one as defined by the FAIS
Act) renders a financial advisor subject to the enforcement mechanisms
provided by the FAIS Act. In the first instance the court made no such finding.
Secondly, it was called upon to decide issues of wrongfulness and fault to
establish liability in the context of the pleaded case. It is in this context that the
following passage in the judgment should be understood.
‘Ms Moolman’s Counsel contended that she had merely given the Kernicks objective
information about particular financial products and, at best for them, no more than advice on
the procedures for concluding an investment transaction. In Counsel’s submission this did
not constitute “advice” as defined in the FAIS Act. Furthermore, he contended that the
Kernicks
had
invested
in
a
hedge
fund,
which
was
structured
as
an en
commandite partnership. He submitted that a hedge fund or a partnership of this particular
kind did not constitute a “financial product” as defined in terms of the relevant law as it
existed in 2009 and therefore, whatever Ms Moolman might have told the Kernicks, it could
not have constituted “advice” for the purposes of the FAIS Act read together with the Code.
The difficulty with these contentions was that, even if they had merit, on a careful parsing of
the language of the FAIS Act, the presentation by Ms Moolman constituted, in ordinary
parlance, the giving of financial advice, at least in the form of product information, to the
Kernicks. It was advice on which they clearly intended to rely and on which they were
entitled to rely, coming as it did from a professional financial advisor from whom they had
sought that advice.’16

[45] That brings me to the second issue, namely the Ombud’s approach to the
application of common law principles in the determination of a complaint. As
indicated earlier in this judgment, in response to the application for leave to
appeal to the board of appeal the Ombud suggested that common law principles

16 Ibid para 30

of delictual liability do not apply. She took the view that the statutory scheme
establishes liability upon a breach of the FAIS Act and the Code. This view is
emphatic, insufficiently reasoned and requires further exploration. We need
however express no definitive view on this. Section 28, which deals with
determinations, is rather widely worded, and provides that fair compensation
may be awarded for financial prejudice or damage suffered.17 Furthermore a
‘complaint’, as indicated above, is widely defined in the FAIS Act as is advice.
In addition, the objectives of the Ombud as set out in s 20 must also be taken
into account. Why, one might rightly enquire, should a registered financial
advisor, be dealt with less punitively for providing advice beyond the products
recognised and regulated under the FAIS Act, when such an advisor has
breached both common law duties echoed in the statutory provisions.  Be that
as it may, it is foundationally necessary to establish the true nature of the
investments complained about before any final conclusions are reached,
including in relation to questions related to compensation.

Remedy
[46] It follows from what is set out above that the applicants are entitled to
relief before this Court, both in relation to the application for leave to appeal

17 The relevant portion of s 28 of the FAIS Act reads as follows:
‘(1)  The Ombud must in any case where a matter has not been settled or a recommendation referred to
in section 27(5)(c) has not been accepted by all parties concerned, make a final determination, which may
include—
(a) the dismissal of the complaint; or
(b) the upholding of the complaint, wholly or partially, in which case—
(i) the complainant may be awarded an amount as fair compensation for any financial prejudice or damage
suffered;
(ii) a direction may be issued that the authorised financial services provider, representative or other party
concerned take such steps in relation to the complaint as the Ombud deems appropriate and just;
(iii) the Ombud may make any other order which a Court may make.’

and in relation to the merits of the appeal, on the circumscribed basis presaged
above.

[47] In the light of the finding that it is necessary for the Ombud to determine
her jurisdiction in respect of the complaints on the basis of facts, no purpose
would be served by permitting an appeal to the appeal board. Instead, the only
appropriate remedy is to set aside the determinations made by the Ombud and
to refer each of the complaints back to the Ombud for investigation and
determination in accordance with the guidance provided in this judgment. All
the issues identified above require full exploration and further evidence and full
debate.

[48] In respect of costs, the second respondent abided the decision of this
Court. There is no compelling reason why, in respect of the Ombud, the costs
should not follow the result.

[49] In the result the following order is made:
1.
Leave to appeal is granted with costs.
2.
The appeal is upheld to the extent set out in the substituted order below.
3.
The order of the high court is set aside and replaced by the following
order:
‘(a)
The decision of the second respondent to refuse leave to appeal to
the Financial Services Appeal Board in case numbers FAB3/2015
to FAB20/2015 is hereby set aside.
(b)
The determinations of the first respondent under case numbers
FAB3/2015 to FAB20/2015 are hereby set aside.

(c)
Each of the complaints lodged under case numbers FAB3/2015 to
FAB20/2015 are referred back to the first respondent for
determination in accordance with the provisions of the Financial
Advisory and Intermediary Services Act 37 of 2002.
(d)     The first respondent is ordered to pay the costs of the application.’
4.
The first respondent is ordered to pay the costs of the appeal, including
the costs of the application for leave to appeal before the high court.

________________________
G. GOOSEN
ACTING JUDGE OF APPEAL

Appearances

For applicants:

M Daling

Instructed by:

Laas & Scholtz Inc., Cape Town

c/o Webbers, Bloemfontein

For first respondent:
S L Shangisa and B B Mkhize

Instructed by:

Kgokong Nameng Tumagole Inc., Johannesburg

c/o Lovius Block, Bloemfontein.
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT
OF APPEAL

FROM:
The Registrar, Supreme Court of Appeal
DATE:
30 April 2021
STATUS:
Immediate

Please note that the media summary is intended for the benefit of the media and does not
form part of the judgment of the Supreme Court of Appeal.

Impact Financial Consultants CC and Another v Bam NO and Others
(Case no 856/2019) [2021] ZASCA 54 (30 April 2021)

The Supreme Court of Appeal (the SCA) today upheld an appeal against an order of the
Gauteng Division of the High Court, Pretoria (Thlapi J) (the high court) dismissing a
review of determinations made by the Ombud for Financial Services (the Ombud).

In 2015, several complaints were lodged with the Ombud (established in terms of the
Financial Advisory and Intermediary Services Act 37 of 2002 (the FAIS Act)) against
Impact Financial Consultants CC (Impact Consultants) and its principal member, Mr Calitz
(the applicants). The applicants were authorised financial services providers as provided
by the FAIS Act.

The complaints arose in consequence of the collapse of an investment scheme involving
Abante Capital (Pty) Ltd (Abante Capital) and the Relative Value Arbitrage Fund Trust
(the RVAF Trust). In 2012 allegations of fraud perpetrated by Mr Pretorius, a key figure
in Abante Capital, were reported in the financial press. Following the death of Mr Pretorius
and the liquidation of Abante Capital and the RVAF Trust, fraudulent conduct was
established in relation to the investment scheme.

The complainants alleged that Mr Calitz, and by extension Impact Consultants, had
negligently breached the duties imposed upon financial advisors by the FAIS Act and the
General Code of Conduct for Financial Advisors and Representatives (the Code) enacted
in terms of the FAIS Act. It was alleged that Mr Calitz had, inter alia, failed to undertake a
due diligence assessment of the RVAF Trust and had negligently advised his clients to
invest in a high risk and illegal scheme. This had resulted in the complainants suffering
substantial losses.

The Ombud upheld the complaints and ordered Impact Consultants and Mr Calitz to pay
compensation to each of the complainants. The Ombud refused leave to appeal against
these orders, as did the chairperson of the appeal board of the Financial Services Board.
The applicants then brought a review application in the high court alleging, inter alia, that
the Ombud did not enjoy jurisdiction and had failed to consider that the losses suffered by
the complainants were as a consequence of fraud on the part of Mr Pretorius and not
negligence on the part of Impact Consultants or Mr Calitz. They alleged that the Ombud
had committed an error of law in respect of the bias upon which liability is determined in
terms of the FAIS Act.

The high court dismissed the review application and refused leave to appeal. The applicants
filed an application for leave to appeal with the SCA. The SCA ordered that the application
be referred for oral argument and that the parties also address the merits of the appeal.

The SCA found that the Ombud is required to establish the nature of the investment made
upon the advice of the advisory in order to determine whether it falls within the ambit of a
financial product as defined by the FAIS Act. This is a foundational factual enquiry which
enables the Ombud to decide upon the exercise of its jurisdiction to determine the
complaint and to order any remedial compensation which may flow from such
determination. In this instance the Ombud had failed to do so, notwithstanding the
investigative powers conferred by the FAIS Act.

The SCA therefore found that the high ought to have found that the Ombud had committed
a reviewable error and set aside the determinations. In the light of the absence of a factual
basis upon which to determine the nature of the investment and therefore the Ombud’s
jurisdiction, no purpose would be served by allowing an appeal to the Financial Services
Board. The SCA therefore granted the applicants leave to appeal and upheld the appeal. It
set aside the determinations made by the Ombud and referred the complaints back to the
Ombud for investigation and determination in accordance with the FAIS Act. The court
ordered the Ombud to pay the costs of the application before the high court and the cost of
appeal.