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[2013] ZASCA 59
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Tristar Investments (Pty) Ltd v The Chemical Industries National Provident Fund (455/12) [2013] ZASCA 59 (16 May 2013)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 455/12
Reportable
In the matter between:
TRISTAR INVESTMENTS (PTY) LTD
........................................
Appellant
and
THE CHEMICAL INDUSTRIES
NATIONAL
PROVIDENT FUND
.....................................................................
Respondent
Neutral citation:
Tristar
Investments v The Chemical Industries National Provident Fund
(455/12)
[2013] ZASCA 59
(16 May 2013)
Coram:
NUGENT, LEWIS,
TSHIQI and PETSE JJA and SWAIN AJA
Heard:
3 MAY 2013
Delivered: 16 MAY 2013
Summary:
Financial
Advisory and Intermediary Services Act 37 of 2002
– meaning of
‘intermediary service’.
___________________________________________________________
ORDER
___________________________________________________________
On appeal from South Gauteng High
Court, Johannesburg (Lamont J sitting as court of first instance).
The appeal is upheld with costs.
The orders of the court below are set aside and substituted with the
following:
‘
1. It
is declared that the agreement between the parties is not unlawful.
2. The plaintiff is to pay the
costs associated with disposal of the issue referred to in 1 above.
The remaining costs are reserved
for the decision of the court that
disposes of the remaining issues.’
___________________________________________________________
JUDGMENT
___________________________________________________________
NUGENT JA (LEWIS, TSHIQI and
PETSE JJA and SWAIN AJA CONCURRING)
[1] Two signatories purporting to
represent the Chemical Industries National Provident Fund – the
respondent in this appeal
– signed a written agreement with
TriStar Investments (Pty) Ltd – the appellant – under
which TriStar agreed
to provide certain services to the Fund. The
Fund contends that it is not bound by the agreement for one or other
of three reasons.
First, it alleges, the signatories who purported to
act on its behalf were not authorised to do so. Secondly, it alleges
in the
alternative, the agreement was void because it was unlawful.
And thirdly, it alleges that if it indeed became bound, the agreement
was subsequently cancelled.
[2] On those grounds the Fund
instituted action against TriStar in the South Gauteng High Court for
commensurate declaratory relief.
The trial court (Lamont J) separated
out for decision the question whether the agreement was void for
illegality. He held that
it was and made declaratory orders to that
effect. TriStar now appeals those orders with the leave of that
court.
[3] The agreement is said by the
Fund to have been unlawful because it called upon TriStar to provide
services in contravention
of the
Financial Advisory and Intermediary
Services Act 37 of 2002
.
Section 7
of the Act prohibits a person from
acting or offering to act as a ‘financial services provider’
unless that person
has been issued with a licence to do so.
[4] A ‘financial services
provider’ is defined to mean a person who, as a regular feature
of his or her business ‘furnishes
advice’
1
or ‘renders any
intermediary service’ or does both. TriStar was licensed under
the Act to ‘furnish advice’
but was not licensed to
render an ‘intermediary service’.
[5] It is not controversial that
a substantial portion of the services TriStar undertook to provide
constitutes the furnishing of
‘advice’. It is also clear
from the agreement that some of the services it undertook to provide
did not constitute
furnishing advice. The court below found that
because TriStar was licensed only to ‘furnish advice’ it
was prohibited
from rendering those other services, and the agreement
was consequently invalid.
[6] That approach to the matter
was not correct. The Act does not prohibit TriStar from performing
any service other than ‘furnishing
advice’ (which it is
licensed to do). It prohibits it only from providing an ‘intermediary
service’ in the absence
of a licence to do so. The correct
question, then, is not whether the services in issue constitute
something other than ‘furnishing
advice’ (which they
are), but instead whether they constitute an ‘intermediary
service’.
[7] In ordinary language an
‘intermediary’ is one who ‘acts between others; a
go-between’ and the word has
a corresponding meaning when used
as an adjective.
2
The Act assigns its own meaning
to the term that retains that characteristic. The definition
contemplates a person who is interposed
between a ‘client’
(or a group of clients), on the one hand, and a ‘product
supplier’ on the other hand.
It is as well to have clarity on
what is meant by those terms – which are also defined –
before turning in more detail
to the definition of an ‘intermediary
service’.
[8] A ‘product supplier’
is a person who issues a ‘financial product’. The Act
contains a comprehensive
list of ‘financial products’,
which include shares, debentures, money-market instruments, insurance
contracts, investment
instruments, and the like. A ‘client’
means (to paraphrase that definition) a specific person or group of
persons to
whom a financial service is provided’.
3
[9] With those definitions in
mind an ‘intermediary service’ is defined to mean (with a
reservation that is not now
relevant)
‘
any
act other than the furnishing of advice, performed by a person for or
on behalf of a client or product supplier –
the result of which
is that a client may enter into, offers to enter into or enters into
any transaction in respect of a financial
product with a product
supplier; or
with a view to -
buying, selling or
otherwise dealing in (whether on a discretionary or
non-discretionary basis), managing, administering, keeping
in safe
custody, maintaining or servicing a financial product purchased by a
client from a product supplier or in which the client
has invested;
collecting or
accounting for premiums or other moneys payable by the client to a
product supplier in respect of a financial product;
or
receiving,
submitting or processing the claims of a client against a product
supplier.’
[10] The agreement in this case
was termed an ‘Investment Consultancy Agreement’. It
recorded the appointment of TriStar
to provide the Fund with ‘the
full range of investment consulting services’ detailed in an
annexure to the agreement.
They are detailed in the annexure under
two headings: ‘Investment policy implementation’ and
‘Ongoing monitoring
and management’.
[11] Much of what is contained
under the first heading properly constitutes furnishing advice. In
summary, TriStar undertook to
meet with the relevant functionaries of
the Fund, and others, so as to ascertain its financial objectives and
review its assets,
to construct an investment model and recommend
investments strategies that would meet those objectives, and to place
its recommendations
before the Fund for its approval. Once its
recommendations had been approved TriStar was to provide other
services, and it is those
services that the Fund submits were
prohibited by the Act.
[12] The agreement contemplated
that one or more independent asset managers would be appointed to
effect the various investments
approved by the Fund. Amongst the
services TriStar was to provide, under the heading ‘Investment
policy implementation’,
were to ‘draft detailed asset
manager mandates for [the Fund’s] domestic and international
asset managers’, and
to ‘implement the asset allocation
model, investment strategy and asset manager mandates’, and to
‘negotiate
any contractual issues with the current and any new
asset managers on behalf of [the Fund], and to ‘manage the
transition
from [the Fund’s] current domestic and international
portfolios to be created as a result of this process’. I need
not set out in detail the various services to be provided under the
heading ‘Ongoing monitoring and management’. It
is
sufficient to say that it undertook, amongst other things, to monitor
and evaluate the performance of the investments, and the
performance
of the asset managers, and, in some cases to ‘correct any
underperformance’, and in other cases to ‘take
appropriate corrective action’. Clearly the ‘corrective
action’ it was to undertake was no more than to ensure
that the
asset managers adhered to their mandates.
[13] Sub-clause (a) of the
definition of an intermediary service, properly construed,
contemplates acts that directly result in
the consequences referred
to. To construe it as including any act that indirectly has that
result would lead to absurdities. It
contemplates a person who stands
with a client (or clients) on the one side, and a supplier of
financial products on the other
side, acting as the ‘go-between’
to effect the relevant transactions. Quintessentially, that person is
the asset manager,
who is mandated to act on behalf of the Fund.
As for sub-clause (b), it
contemplates a person who manages or administers the relevant
financial products.
[14] None of the services TriStar
undertook to provide falls foul of those provisions. Initially they
were to compile and convey
the appropriate mandates and instructions
to the asset managers, and thereafter to take steps to ensure
compliance with their mandates.
It was not to bring about the
relevant transactions – those would be brought about by the
asset managers – nor was
it to manage or administer the
financial products. So far as it was to manage or administer anything
at all, it was to manage and
administer no more than the mandates of
the asset managers.
[15] In my view none of those
constitutes ‘intermediary services’ on the ordinary
meaning of the language of the definition.
I can also see no reason –
and none could be suggested – why the legislature would have
thought it necessary for services
of that kind to be regulated. In
those circumstances TriStar was not required to be licensed to
provide them, and the objection
raised by the Fund ought to have been
dismissed.
[16] The appeal is upheld with
costs. The orders of the court below are set aside and substituted
with the following:
‘
1. It
is declared that the agreement between the parties is not unlawful.
2. The plaintiff is to pay the
costs associated with disposal of the issue referred to in 1 above.
The remaining costs are reserved
for the decision of the court that
disposes of the remaining issues.’
__________________
R W NUGENT
JUDGE OF APPEAL
APPEARANCES:
For
appellants: A F Franklin SC
Instructed
by:
Werksmans
Attorneys, Sandton
Symington
& De Kok, Bloemfontein
For
respondents: A I S Redding SC
Instructed
by:
Webber
Wentzel, Johannesburg
Honey
& Partners Inc, Bloemfontein
1
'Advice'
is defined to mean (subject to exceptions) ‘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; or
(c) on the
conclusion of any other transaction, including a loan or cession,
aimed at the incurring of any liability or the acquisition
of any
right or benefit in respect of any financial product; or
(d) on the
variation of any term or condition applying to a financial product,
on the replacement of any such product, or on the
termination of any
purchase of or investment in any such product,
and irrespective of
whether or not such advice –
(i) is furnished in
the course of or incidental to financial planning in connection with
the affairs of the client; or
(ii) results in any
such purchase, investment, transaction, variation, replacement or
termination, as the case may be, being effected;
2
Shorter
Oxford Dictionary.
3
'"Client"
means a specific person or group of persons, excluding the general
public, who is or may become the subject
to whom a financial service
is rendered intentionally, or is the successor in title of such a
person or the beneficiary of such
service’.