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THE FINANCIAL SERVICES TRIBUNAL

 

CASE NO.: FSP20/2022

 

 

In the matter between:

 

GERALD PETER CAHI                                                       APPLICANT

 

and

 

MOMENTUM CONSULT (PTY) LTD t/a

CONSULT BY MOMENTUM                                               RESPONDENT

 

 

Re: Debarment of FSR – sec 14(1)(b) of the FAIS Act 37 of 2002.

 

 

DECISION

 

 

1          The applicant applies for the reconsideration of his debarment in terms of sec 14 of the FAIS Act 37 of 2002 by the respondent, a financial service provider. The applicant had been a representative of the respondent.

 

2          The present application is under sec 230 the FSR Act 9 of 2017 and the parties have waived their right to a hearing before a full panel of the Tribunal.

 

3          There were some procedural skirmishes, but these play no role in the decision and need not be discussed. It may just be noted that the applicant withdrew his application to cross-examine and that the respondent’s application to file further evidence was granted, which automatically introduced the applicant’s reply thereto.

 

4          The applicant was debarred because he allegedly contravened or failed to comply with provisions of FAIS Act in a material manner.

 

5          The applicant applied for reconsideration on three grounds, namely (i) that the reasons for his debarment were not known to the respondent while he was a representative of the respondent (sec 14(1)(b)); (ii) that the proceedings were unfair because he had not been given a reasonable period to defend himself, and (iii) that the allegations against him were not established.

 

6          I intend to restrict the debate to the first ground.

 

7          The relationship between the applicant and the respondent was regulated by two agreements. The first was a Franchise House agreement. It provided as follows:

 

·                MC [the respondent] appoints the Franchise House [the applicant] as an independent contractor to render Financial Services under MC's FSP licence. The Financial Services to be provided by the Franchise House shall include, amongst others, canvasing and obtaining applications for the various Financial Products offered by the Product Provider(s), to distribute, maintain and service these Financial Products and to provide services relating to asset administration.

 

·                The Franchise House shall be entitled to appoint Financial Adviser(s), subject to MC's approval, to provide Financial Services under MC's FSP licence.

 

·                MC undertakes to register the Franchise House and its duly appointed Financial Adviser(s) as Representative(s) on its FSP license. Upon the removal of the Franchise House from MC's Representative register, for whatsoever reason, this Agreement shall be deemed to be automatically terminated.

 

8          The second agreement was a Financial Adviser agreement. The term ‘adviser’ was used as a synonym of ‘representative’. The applicant was appointed as a registered representative of the respondent. It recorded the following:

 

·                MC [the respondent] and the Franchise House [the applicant] have concluded a Franchise House Agreement in terms of which, inter alia, the Franchise House would have the authority, subject to the written approval of MC, to appoint the Financial Adviser to assist the Franchise House in rendering Financial Services under MC's FSP licence;

 

·                MC has approved the appointment of the Financial Adviser by the Franchise House and is willing to register such Financial Adviser as a Representative on MC's FSP licence subject to the terms and conditions set out in this Agreement; and

 

·                The Financial Adviser and the Franchise House are willing to accept the appointment of the Financial Adviser as a registered Representative of MC on the terms and conditions set out in this Agreement.

 

9          There are two further relevant terms of the Franchise House agreement:

 

·                Either Party may terminate this Agreement by delivering 30 (thirty) days Written notice to the other party.

 

·                Termination of this Agreement will result in MC's removal of the Franchise House from its Representative Register, and, as a result of this removal, the Product Provider(s) will not accept New Business submitted by the Franchise House under MC's FSP license.

 

10       The Adviser agreement had similar provisions:

 

·                Either Party may terminate this Agreement by delivering 30 (thirty) days Written notice to the other Party.

 

·                Termination of this Agreement will result in MC's removal of the Financial Adviser from its Representative Register, and, as a result of this removal, the Product Provider(s) will not accept New Business submitted by the Financial Adviser under MC's FSP license. The Parties agree further that a termination of this Agreement, for whatsoever reason, will result in the automatic termination of the Financial Adviser's Appointment Contract, subject to any Applicable Laws.

 

11       It is common cause that when the respondent became aware of the alleged transgressions, the 30 days of the applicant’s written notice of termination had not yet expired. The respondent, relying on the definition of ‘representative’ in sec 1 of the FAIS Act, namely that ‘representative’ means any person, including a person mandated by a FSP, who renders a financial service to a client for or on behalf of a financial services provider, in terms of any other mandate, submitted that since the mandate had not yet terminated in terms of the contract, the applicant remained its representative and that it could, accordingly, validly commence debarment proceedings against him.

 

12       The applicant’s case is that despite the absence of a written cancellation, the respondent had accepted his oral resignation and had agreed to and assisted in selling the business of the Franchise House to a third party. The applicant also raised estoppel as a response.

 

13       I believe that the respondent did not take account of the whole of the Adviser Agreement and the effect of the sale of the franchise house business of which it was the in a sense the architect. Clause 3.2 of the Adviser Agreement stated as follows:

 

The Financial Advisor will, for the duration of this Agreement, be linked to a franchise house contracted to MC. In the event that the Financial Adviser is no longer linked to one of MC's franchise houses, or if the Financial Adviser is removed from MC's FSP register for any reason whatsoever, this Agreement shall be deemed to be automatically terminated.

 

14       The sale agreement recorded this:

 

·                The Seller is the owner of, and carries on, the Business which provides tailored financial advice, financial solutions, insurance, investments, employee benefits and health products;

 

·                The Purchaser wishes to purchase the Business which includes all assets, commission and fee income flows, including the client base contracts and the income streams attributable thereto and the Seller wishes to sell the Business entity, all assets, commission and fee income flows of the Business to the Purchaser.

 

15       The relevant provision for present purposes is clause 22, which imposed a restraint of trade on the applicant. It is apparent that the applicant was because of the sale no longer linked to the Franchise House. Clause 22.2.4 makes that clear:

 

22.2.4. The Purchaser may agree that the Seller may operate as a sub adviser under the Purchaser's business entity. This agreement may only be effected by means of a sub adviser agreement detailing the terms and conditions applicable thereto. This agreement will be in respect of new clients only, all clients listed as per Annexure 2 form part of the restraint agreement as per Clause 25.

 

16       In other words, the applicant did no longer act as adviser of the Franchise House and could only if a sub-adviser agreement were to be concluded, which, patently, was not the case since the applicant moved to the Cape and entered the employment of another FSP. This means that the Advise Agreement terminated automatically on the sale of the Franchise House business since the applicant was no longer linked to a franchise house of the respondent.

 

17       Counsel for the respondent, Mr Heher, made much of the fact that the applicant, on his emails, represented that he was an FSR of the respondent and that he had failed to explain why he had not changed his designation. The misrepresentation or misinterpretation does not change the factual position.

 

18       In the result the debarment is set aside and it is so ordered.

 

 

Signed on behalf of the Tribunal on 9 September 2022.

 

 

LTC HARMS (deputy chair)

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