Are the proposed Community Schemes Ombud Service Practice Directive orders within the Ombud’s jurisdiction?

October 1st, 2023
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Picture source: Gallo Images/Getty

On 14 March 2023, the Community Schemes Ombud Service (CSOS) promulgated a draft Practice Directive on s 39(7)(b) of the Community Schemes Ombud Service Act 9 of 2011 (CSOS Act). The pivotal question is whether the Chief Ombud can legally institute 12 novel adjudication orders via this directive.

The executive summary of the provisional Practice Directive clarifies the Chief Ombud’s authority to issue practice directives on any matter pertinent to the operation of the service. Moreover, the Practice Directive aims to interpret ‘any other order proposed by the Chief Ombud’ within the ambit of s 39(7)(b) of the CSOS Act, which covers relief measures and additional orders related or consequential to orders under s 39 of the CSOS Act.

This Practice Directive introduces 12 new relief proposals and orders under s 39(7)(b) of the CSOS Act, with an aim to expand the existing adjudication orders in s 39. This article focuses on two legal questions arising from the Practice Directive.

Can the Chief Ombud legitimately extend the scope of the orders in s 39 of the CSOS Act by way of a practice directive?

In support of the Practice Directive, one could argue that the Chief Ombud should possess the flexibility to broaden the spectrum of orders through practice directives. This adaptability would enable the CSOS to address unanticipated issues within community schemes not envisaged by the legislature when drafting the CSOS Act. Additionally, it could enhance the dispute resolution process by offering supplementary relief options beyond s 39 of the CSOS Act, promoting better resolution of disputes and more effective governance within the community scheme landscape.

The introduction of new orders could fill gaps in existing legislation and regulations. The Chief Ombud’s proposed expansion could provide better protection and coverage for parties in disputes within community schemes.

The primary counterargument is that including 12 new orders beyond those listed in s 39 of the CSOS Act exceeds the CSOS’ and the Chief Ombud’s jurisdiction. This action appears to modify and expand s 39 of the CSOS Act, which necessitates an amendment to the CSOS Act, achievable solely through the legislative process. This perceived transgression could be construed as encroaching on the legislative function, thereby violating the principle of separation of powers.

The doctrine of the separation of powers, fundamental to democracy, is enshrined in the Constitution. It divides government into three branches, namely, the –

  • legislative (the National Assembly and the National Council of Provinces, addressed in ch 4);
  • executive (the organs of state government, including the CSOS, addressed in ch 5); and
  • judicial (the courts that interpret and apply the law, addressed in ch 8).

This principle prevents power abuses and upholds democracy by ensuring that no single entity possesses excessively extensive or absolute authority.

A secondary counterargument is that s 39 constitutes a numerus clausus (a closed list) of orders demarcated by statute, limiting the CSOS’s jurisdiction to the orders encapsulated therein. The purpose of s 39(7)(b) is to allow the Chief Ombud to address unique or unexpected issues that may arise in specific cases. However, s 39(7)(b) does not grant the Chief Ombud the power to issue a practice directive with 12 new routine orders, as if they were orders specified in s 39.

Are the proposed additional orders appropriate outcomes for CSOS adjudications?
  • Contractual matters

In this regard, the Chief Ombud proposes three new orders –

‘(i) an order declaring a contract term and/or condition to be contrary to the CSOS legislation and/or its regulations relating to community schemes;

(ii) an order declaring an enforcement and/or recognition of a contract term and/or condition relating to community schemes to be contrary to the CSOS legislation and/or its regulations; or

(iii) an order requiring an association to pay overpayments and/or refund deposits to a former member of the scheme.’

The first two proposed orders incorrectly assume that the CSOS Act and its regulations can and will impose restrictions on the terms and conditions that can be incorporated in community scheme contracts. In our view, any such restriction could only be contained in the various laws and regulations governing the administration and management of community schemes, not in the CSOS Act. If these proposed orders were amended to address this issue, it could be argued that they would allow for the more effective management and regulation of contracts within community schemes. They could prevent the enforcement of contract terms that contravene relevant laws and ensure the return of overpayments or deposits, thereby protecting community scheme members from unfair contractual conditions.

The third of these orders seems unnecessary as s 39(1)(e) already grants adjudicators a widely phrased power to give ‘an order for the payment or re-payment of a contribution or any other amount’. The proposal addresses the issue of whether an ex-member of a community scheme is a person who has a material interest in the scheme. In our view, if a CSOS application involves payment arising from the scheme’s administration, the ex-member would have a material interest.

  • Adjudication orders

In this regard, the Chief Ombud proposes two new orders –

‘(i) an order setting aside an adjudication order where adjudication proceedings did not follow the approved CSOS procedure; or

(ii) an order setting aside an adjudication order where objective facts and/or evidence indicates that an adjudicator failed to properly apply his/her mind to issues which were material to the determination of the dispute and/or misconceived the nature and/or purpose of the inquiry.’

Supporters of these proposed orders might suggest that they could ensure that the adjudication process is transparent, fair, and follows due process and that they would allow the CSOS to correct instances where required procedures were not correctly followed, thus increasing the public confidence in the CSOS’s adjudications.

The counterargument is that these proposed orders give the CSOS the authority to review its own adjudicator’s orders. In our view, a practice directive could allow a peer review process before finalising an order, but only an amendment to the CSOS Act can provide for a CSOS review process thereafter.

  • Trustees

In this regard, the Chief Ombud proposes two new orders –

‘(i) an order settling the question of who the lawful trustees of a Body Corporate are; or

(ii) an order declaring that a trustee of a body corporate has acted in breach of his or her fiduciary duty, and to:

(a) pay, in his or her personal capacity, for any loss suffered as a result thereof by the body corporate; or

(b) pay back, in his or her personal capacity, any economic benefit received by the trustee by reason thereof.’

These proposed orders inaccurately assume that all community schemes are sectional title schemes. To be potentially appropriate, the wording of these orders would have to be amended to refer to scheme executives and associations, not trustees and bodies corporate. With these amendments, it could be argued that the proposed orders would enhance accountability and ensure fiduciary responsibilities are upheld. If trustees or scheme executives are found in breach of their duties, the personal financial liability would serve as a strong deterrent against misconduct.

The counterarguments in this case are that these proposed orders would grant CSOS adjudicators the right to make intricate findings of personal culpability and liability which, in our view, are issues better adjudicated by the High Court, particularly because the consequent penalties and possible criminal actions could make members of community schemes reluctant to serve as volunteer executives.

  • Administrators

In this regard, the Chief Ombud proposes one new order –

‘(i) an order requiring an administrator to cite the CSOS as an interested party in their papers for:

(a) any extensions to their term of appointment; or

(c) any amendment to their terms of appointment.’

This proposed order also inaccurately assumes that all community schemes are sectional title schemes and requires amendment to apply to all persons to whom CSOS, a court, or any other competent authority gives partial or total executive control of a community scheme.

With these alterations, it could be argued that by imposing a legal obligation on the compulsory scheme executive to involve the CSOS as an interested party in any administrative matters relevant to their mandate, transparency and oversight could be increased, thereby promoting the effective functioning of the community schemes.

The principal counterargument is that this proposed order deals with an issue that would be more suitably addressed either in the regulations under legislation governing the appointment and conditions applicable to such scheme executives, as the CSOS Act and regulations contain no provisions that give it the power to deal with this issue.

  • Managing agents

In this regard, the Chief Ombud proposes two new orders –

‘(i) an order barring a managing agent from managing finances within community schemes; or

(ii) an order requiring the Property Practitioners Regulatory Authority to make a determination regarding the conduct of a managing agent as a property practitioner.’

The first of these orders would allow a CSOS adjudicator to prohibit a specific managing agent or agency from undertaking any engagement or employment that involves the management of community scheme finances. The second proposes that an adjudicator be entitled to require the Property Practitioners Regulatory Authority to initiate disciplinary action against a managing agent.

It could be argued that these proposed orders could increase the accountability of managing agents and protect community schemes from potential misconduct and that giving a CSOS adjudicator the power to direct the Property Practitioners Regulatory Authority might also enhance the professional standards of managing agents.

The first counterargument is that these orders deal with issues that should be determined by the High Court because of the negative effects for the managing agent. A second counterargument is that in terms of s 4(1) of the CSOS Act, which sets out the CSOS’ functions, there is no provision that can be seen as a foundation for either of these proposed orders.

Conclusion

While arguments may support expanding the scope of orders through practice directives, in our opinion, the principle of separation of powers suggests that the Chief Ombud lacks the legal authority to do so. The CSOS, a state-owned entity, cannot exercise legislative or interpretive powers, which are reserved for Parliament and the High Court respectively. CSOS adjudicators have limited quasi-judicial powers under s 39 of the CSOS Act, while the role of the Chief Ombud and other CSOS officials is to implement the CSOS Act and its regulations. It is only within this context that the Chief Ombud may issue practice directives that ‘direct the performance of any act in the operation of the Service’.

If new types of orders are necessary, the legislature should implement such amendments. If the Chief Ombud believes the CSOS needs jurisdiction to allow its adjudicators to routinely issue orders not provided for in s 39 of the CSOS Act, to conduct reviews of completed adjudications or to perform other acts not provided for in the CSOS Act, the CSOS Act requires the Minister of Human Settlements to initiate an amendment to that Act. In our view, these outcomes cannot be achieved by way of an internal Chief Ombud’s practice directive.

Jennifer Paddock LLB (UCT) LLB (University of New England, Australia) and Graham Paddock BA LLB (UCT) are legal practitioners at Paddocks in Cape Town.

This article was first published in De Rebus in 2023 (Oct) DR 24.

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