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Your solution starts here.”

Employer liable for damages caused to ex-employee due to non-compliance with debarment process.


By Marc de Bruyn


1.       In the matter of Pieter Reynecke v OdinFin (Pty) Ltd, the Plaintiff sued his previous Employer (�the Defendant�) for its failure to follow a fair debarment process in terms of the Financial Services and Intermediary Services Act 37 of 2002 (�the Act�) which prevented him from earning an income as a representative for approximately 12 months.


2.      These are the facts, in summary, which lead to the Plaintiff�s claim:







3.      The Plaintiff�s case as pleaded was that the Defendant had owed him a legal duty to exercise its administrative powers in terms of the Act in a fair manner which Defendant had breached by inter alia not providing him with adequate notice of the debarment proceedings and by not providing him with a reasonable opportunity to make representations. The particulars of claim alleged further that the Defendant, in performing its statutory duty, had acted negligently and unlawfully.


4.      During the trial, the Defendant conceded that its decision to debar the Plaintiff without notifying him of its intended decision and by not giving him an opportunity to be heard amounted to unfair administrative action which fell to be reviewed and set aside.


5.      The main issue to be decided by the Court was whether the Defendant�s conduct was wrongful in the circumstances.


6.      It was argued by the Defendant that the Plaintiff�s cause of action was similar to that of J J Steenkamp NO v Provincial Tender Board, Eastern Cape, 2007 (3) SA 121 (CC). In Steenkamp, the Court held that a breach of an administrative duty is normally rectified by means of public law remedies (such as judicial review) and that an aggrieved party does not have private law remedies for damages.


7.      In line with Steenkamp, the Defendant�s point of departure was that administrative action exercised in a negligent manner is not wrongful in the delictual sense and does not give rise to liability for damages unless policy considerations require that the Plaintiff should be compensated for such losses.


8.      It was accordingly argued by the Defendant that their conduct was not wrongful in that the Act did not confer any discretion on them to debar the Plaintiff, or not. According to the Defendant, the provisions of the Act are mandatory in that they are obliged to debar any representative who had acted contrary to the fit and proper requirements. The Court, however, rejected this argument by holding that the Defendant had in fact made a finding that the Plaintiff was not fit and proper for which a fair process should have been followed by them.


9.      It was further argued by the Defendant that the imposition of delictual liability on the Defendant in the exercise of its administrative function would have a �chilling effect� on all Financial Service Providers when exercising their functions in terms of the Act. By this the Defendant meant that an FSP would for instance be more cautious to debar a representative for fear of exposing itself to potential claims in the future. The Court, however, held that the FSP could prevent such risks by merely following a fair procedure prior to a debarment.


10.    In paragraph 21 of the Reynecke judgment, Louw, J stated as follows:


         �If an FSP acts responsibly and follows a fair administrative process before making a bona fide finding that a representative does not comply with the fit and proper requirements and thereafter debars the representative, it is unlikely that such a representative will succeed with a damages claim against the FSP. But if it debars a representative without following a fair administrative process and thereby potentially causing serious financial harm to the representative, the boni mores would not, in my view, require that the FSP be protected from delictual liability. 


11.    Weighing up relevant policy considerations and facts of the matter, the Court held that the Defendant�s conduct towards the Plaintiff was wrongful and negligent as a result whereof the Defendant was held liable for the damage which the Plaintiff is able to prove that he suffered as a result of the Defendant debarring him as a representative in terms of the Act.             


12.    How does the Reynecke-decision affect the role of the Financial Services Providers and the Financial Services Board in debarment proceedings? The following points are important to consider:


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