Financial services litigation procedure in South Africa

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By Peter Leon and Jonathan Ripley-Evans

Procedure

Specialist courts

Do you have a specialist court or other arrangements for the hearing of financial services disputes in your jurisdiction? Are there specialist judges for financial cases?

There is no specialist division of the High Court for financial services matters; however, certain high courts in South Africa have established ‘Commercial Divisions’, which hear ‘commercial’ matters. The high courts in Gauteng define a commercial matter as ‘a substantial case that has as its foundation a broadly commercial transaction or commercial relationship’.

There are also several administrative and quasi-judicial bodies created by statute, described below.

The National Consumer Tribunal is composed of a chairperson and at least 10 (currently 16) other part-time members with suitable qualifications and experience in economics, law, commerce, industry or consumer affairs, appointed by the state president for five-year terms (renewable once). Most matters are heard by a panel of three members (one of whom must be a lawyer), but some can be heard by a single member. It has jurisdiction over a range of issues under the National Credit Act and Consumer Protection Act, including consumer complaints, as well as reviews of registration and compliance rulings by the National Credit Regulator. Its orders – which may include deregistration of credit providers, reversal of reckless credit or excessive charges, interdicts, interim relief and imposition of fines up to 1 million rand – are binding but are capable of appeal or review in the High Court.

The Pension Funds Adjudicator, an experienced legal practitioner appointed by the Minister of Trade and Industry (after consulting the FSCA), has jurisdiction to hear individual complaints relating to the administration of or investments by pension funds, and to make any order that a high court could make (which may, however, be reviewed by a high court). Disputes about the apportionment of an actuarial surplus may be resolved by an ad hoc specialist tribunal appointed by the FSCA.

The statutory Ombud for Financial Services Providers is now regulated under the FSR Act and must be qualified in law and possess adequate knowledge of the financial services industry. The Ombud may make any determination it deems appropriate and just, however, its decision is subject to reconsideration by the Financial Services Tribunal under the FSR Act (which has replaced the FSB’s appeal board).

The voluntary ombudsmen also make binding awards, in accordance with their constitutions and rules. The Ombudsman for Banking Services is a practising advocate, as is the Ombudsman for Short-term Insurance, while the Ombudsman for Long-term Insurance is a sitting High Court judge. Decisions of the insurance ombudsmen may be taken on appeal to a tribunal headed by a retired judge.

Procedural rules

Do any specific procedural rules apply to financial services litigation?

There are no specific procedural rules for financial services litigation in the High Court. The National Consumer Tribunal must hold its hearings in public, in an inquisitorial, informal and expeditious manner, for which it has its own procedural rules. The Ombud for Financial Services Providers is similarly required to proceed in an informal, economical, expeditious and equitable manner, in accordance with rules prescribed by the (now disbanded) FSB, whose rules still remain extant. The Pension Funds Adjudicator determines its own procedure, which is also required to be inquisitorial, informal, economical and expeditious. Proceedings before voluntary ombudsmen are informal and generally confidential.

Rules for the conduct of proceedings before the Financial Services Tribunal are also in place, as required by the FSR Act. These rules set out the manner in which the Financial Services Tribunal must be approached when an applicant wishes to challenge a decision made by a decision-maker under the FSR Act.

Arbitration

May parties agree to submit financial services disputes to arbitration?

In principle, any financial services dispute may be submitted to arbitration (subject to review by the courts), as the only disputes excluded by the Arbitration Act 42 of 1965 are matters relating to matrimony or an individual’s legal status. Even in the absence of a prior agreement, the Companies Act, Consumer Protection Act and National Credit Act each explicitly permit consumers to refer their complaints to arbitration. Note, however, that the Policyholder Protection Rules promulgated under the Short-term Insurance Act prohibit parties from agreeing that a dispute ‘can only be resolved by arbitration’ (ie, precluding original recourse to the courts).

Out of court settlements

Must parties initially seek to settle out of court or refer financial services disputes for alternative dispute resolution?

The National Credit Act provides that a consumer or credit provider may not approach the Consumer Tribunal until after an accredited alternative dispute resolution agent has certified that there is no reasonable prospect of the parties resolving their dispute by alternative means.

Remarkably, a consumer may only approach the courts to enforce the rights conferred by the Consumer Protection Act ‘if all other remedies available to that person in terms of national legislation have been exhausted. However, it is important to note that section 10 of the FSR Act excludes the application of the Consumer Protection Act in respect of certain financial services.

The ombudsmen generally encourage amicable settlement before adjudicating any dispute and are often specifically empowered to facilitate this. For example, the Ombud for Financial Services Providers, before entertaining a complaint, must explore (and may direct the parties to exhaust) any reasonable prospect of a conciliated or mediated settlement. The FSR Act describes the objective of the Ombud Council as ‘ensuring that financial customers have access to, and are able to use, affordable, effective, independent and fair alternative dispute resolution processes for complaints about financial institutions in relation to financial products, financial services, and services provided by market Infrastructures’. However, parties are not obliged to approach the ombudsman before approaching a court with their financial services dispute.

Pre-action considerations

Are there any pre-action considerations specific to financial services litigation that the parties should take into account in your jurisdiction?

The National Credit Act provides for a defaulting consumer to be given a written notice by the credit provider, proposing that the consumer approach a debt counsellor, alternative dispute resolution agent or relevant ombudsman with a view to developing a plan to bring the payments up to date. Moreover, the Act precludes a credit provider from approaching the courts to enforce any debt until:

  • at least 20 business days have elapsed since the consumer fell into default;
  • at least 10 business days have elapsed since the credit provider delivered the default notice to the consumer, by hand or by registered post; and
  • the consumer has ignored or rejected the proposals in the default notice.

The determination of whether and when a default notice can be deemed to have been ‘delivered’ to a consumer has been the subject of extensive litigation (resulting in Constitutional Court judgments and a legislative amendment), and it remains the subject of countless exceptions (technical defences) to enforcement claims by banks, as well as of countless applications for the rescission of default judgments obtained by banks.

Unilateral jurisdiction clauses

Does your jurisdiction recognise unilateral jurisdiction clauses?

In terms of South African law, jurisdiction is established by the courts and not conferred upon it by the parties. As such, the courts do not exercise jurisdiction in the absence of at least one of the established jurisdictional factors.

The National Credit Act prohibits any agreement in which a consumer consents to the jurisdiction of the High Court for debts falling within the magistrates’ courts’ jurisdiction, or to the jurisdiction of any court seated outside the area in which the consumer resides or works. In a landmark judgment by the High Court in 2015 (which was subsequently confirmed by the Constitutional Court in 2016), this prohibition was extended to outlaw clauses in which judgment debtors consent to the issuing or enforcement of emolument attachment or garnishee orders outside the areas in which they reside or work.

Similar clauses in other arm’s-length agreements would likely be struck down by a court on common law public policy grounds, if their application could potentially be oppressive or abusive to any party. In agreements falling within the scope of the Consumer Protection Act, such unilateral jurisdiction clauses would likely fall foul of the prohibition on ‘excessively one-sided’ contract terms.

Accreditation: Reproduced with permission from Law Business Research Ltd. This article was first published in Lexology Getting the Deal Through Financial Services Litigation 2019 (Published: August 2019). For further information please visit https://www.lexology.com/gtdt.