About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Supreme Court of Appeal
SAFLII
>>
Databases
>>
South Africa: Supreme Court of Appeal
>>
2017
>>
[2017] ZASCA 184
|
|
Chemical Industries National Provident Fund v Tristar Investments (Pty) Ltd (960/2016) [2017] ZASCA 184 (6 December 2017)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not
reportable
Case No: 960/2016
In the matter
between:
THE
CHEMICAL INDUSTRIES NATIONAL
PROVIDENT
FUND
APPELLANT
and
TRISTAR
INVESTMENTS (PTY) LTD
RESPONDENT
Neutral
citation:
The
Chemical Industries National Provident Fund v Tristar Investments
(960/2016)
[2017] ZASCA 184
(6 December 2017)
Coram:
Cachalia,
Bosielo, Tshiqi and Mathopo JJA and Makgoka AJA
Heard:
20 November
2017
Delivered:
6 December 2017
Summary:
Validity of an investment consulting agreement –
whether the
signatories who signed the agreement on behalf of the appellant had
authority – whether the agreement was ultra
vires the rules of
the appellant.
Calculation
of income for the unexpired period of an unlawfully terminated
agreement- such task inherently speculative – court
obliged to
make an award if there is credible evidence.
ORDER
On
appeal from:
Gauteng
Local Division of the High Court, Johannesburg (Tsoka J sitting as
court of first instance):
The appeal is
dismissed with costs, including the costs of two counsel where so
employed.
JUDGMENT
Makgoka
AJA (Cachalia, Bosielo, Tshiqi and Mathopo JJA concurring):
[1]
This appeal concerns the validity of an investment consulting
agreement (the agreement) concluded between the appellant, Chemical
Industries National Provident Fund (the Fund) and the respondent,
Tristar Investments (Pty) Ltd (Tristar). The Fund is a large
pension
fund whose members are employees in the chemical industry in South
Africa. It is managed by a Board of Trustees.
[2]
Tristar is an investment consulting company, whose business is to
advise trustees on the management of their assets. The Fund
is
governed by a set of rules, in terms of which its management is
carried out by 24 trustees, half of whom are appointed by the
employers of the members and the other half by employee members.
[3]
Until the end of 2007 the Fund was administered by an entity known as
NBC (Pty) Ltd (NBC). The Fund’s investment consulting
services
were provided by an NBC-affiliated company. On 19 December 2007 the
Fund and Tristar concluded the impugned agreement
in terms of which
Tristar would provide investment consulting services to the Fund for
three years with effect from 1 January 2008.
[4]
Pursuant to the agreement, Tristar performed services on behalf of
the Fund for over three months, for which it was paid a sum
of
R2 722 207.44. On 17 April 2008, the Fund resolved to
withdraw Tristar’s appointment, contending that the agreement
was invalid because the signatories on behalf of the Fund did not
have the authority to conclude it. It also contended that the
agreement was ultra vires the rules of the Fund. Tristar viewed the
Fund’s stance as a repudiation of the agreement, which
it
accepted.
[5]
This set in motion litigation in the Gauteng Local Division of the
High Court, Johannesburg (the high court). The litigation
culminated
in a trial in which the Fund, as the plaintiff, sought an order
declaring the agreement void, for the reasons mentioned
earlier. The
Fund also claimed repayment of the sum paid to Tristar in performance
of the agreement.
[1]
Tristar denied the Fund’s allegations, and counter-claimed for
the accrued income for the unexpired period of the agreement,
as well
as for damages arising from the Fund’s cancellation of the
agreement.
[6]
The trial court declared that the agreement was valid, and was thus
unlawfully terminated by the Fund. It accordingly dismissed
the
Fund’s claim and upheld Tristar’s counter-claim in the
amount of R20 139 810.96,
[2]
but dismissed its damages claim. The high court subsequently granted
both the Fund and Tristar leave, respectively, to appeal and
cross-appeal its order.
[7]
The background facts are straight-forward, and largely common cause.
They can be stated as follows. During February 2007 the
trustees
considered to diversifying the Fund’s investment consulting
services. This task was entrusted to a sub-committee
headed by the
principal officer of the Fund, Mr Tsolo, and Ms MacIntosh, the
chairperson of the board of trustees.
[8]
On 16 and 17August 2007, Tristar and two other prospective
consultants made presentations to the sub-committee, after having
being invited to do so. Tristar emerged as the preferred bidder.
However, the final decision regarding its appointment was deferred
until its fees structure had been clarified. On 19 October 2007 the
sub-committee met with Tristar where its fees structure was
discussed, to the satisfaction of the sub-committee. The
sub-committee resolved to recommend the appointment of Tristar to the
trustees at their meeting in November 2007. In anticipation of its
appointment, Tristar furnished the sub-committee with a draft
investment consultancy agreement for perusal by the Fund’s
attorneys, Routledge Modise Attorneys. The attorneys suggested
certain amendments to the agreement, including a reduction of
Tristar’s fees.
[9]
The trustees met on 15 and 16 November 2007, when Tristar’s
appointment was approved. The decision, to which I shall fully
revert, was recorded in the minutes of the meeting as follows:
‘
After
further discussions the agreement was reached on finalising the
appointment of Tristar as the Independent Investment Consultant
to
the Fund despite strong objections having been raised by certain
Trustees and these were noted.’
[10]
On 28 November 2007, the Fund sent a letter to NBC terminating its
services as investment advisor to the Fund, and requesting
it to make
arrangements to hand over its investment consulting duties to
Tristar.
[11]
On 11 December 2007,
[3]
five trustees wrote a letter to the principal officer of the Fund,
objecting to the manner in which the appointment of Tristar
was
conducted, particularly because the decision was taken without a
formal vote.
[12]
On 14 December 2007 Mr Tsolo and Ms MacIntosh signed the agreement on
behalf of the Fund. On the same day, the sub-committee
circulated the
finalized agreement to all the trustees, as contemplated in the
November meeting. On 19 December 2007 the agreement
was signed on
behalf of Tristar.
[13]
In the wake of the letter of 11 December 2007 referred to above, the
trustees held a special board meeting on 5 February 2008,
when some
trustees voiced their objection to Tristar’s appointment.
However, after some debate, the trustees agreed that
the appointment
of Tristar would stand despite the objection. On 17 April 2008 the
trustees took a decision by a vote of more than
two-thirds, to cancel
the appointment of Tristar.
[14]
So much for the factual background. There are three issues in the
appeal. The first is whether the Fund’s representatives
who
signed the agreement, were authorised to do so. If this issue is
decided in Tristar’s favour, the Fund’s alternative
attack is that the agreement was ultra vires the rules of the Fund.
The third and final issue concerns Tristar’s counter-claim
for
the accrued income. I consider these, in turn.
[15]
With regard to the authority issue, the Fund predicates its argument
on rule 13.6.8 of its rules. It provides that all decisions
of the
trustees shall require the support of at least two-thirds of each of
the employer and member trustees. It is common cause
that no voting
took place when the decision to appoint Tristar was taken. It was
submitted on behalf of the Fund that in the absence
of a vote, it was
not possible to establish whether the requisite two-thirds of the
trustees had been met. Accordingly, it was
argued, there has not been
compliance with the rule. In this regard, reliance was placed on
Numsa v Cosatu.
[4]
There, the court found that the absence of voting on a resolution to
suspend the General Secretary of COSATU rendered the decision
irregular and unlawful.
[16]
Numsa v Cosatu
is distinguishable from the present case in one
material respect. Cosatu’s constitution expressly prescribed
voting by members
of the central executive committee over a motion
for the suspension of the General Secretary. There is no such
obligation in rule
13.6.8. All that is required is that resolutions
must be carried by a two-third’s majority.
[17]
The rule does not stipulate how the existence of the threshold is to
be ascertained. Tristar contends that in the absence of
a stipulated
method, it is permissible for the Board to employ any method to
determine the requisite level of support for a particular
decision.
In this regard, Tristar relies on the practice usually followed by
the Fund when passing resolutions.
[18]
It is not disputed that historically, decisions of trustees have been
adopted consensually, without a formal vote. Thus, even
though some
trustees might speak against a resolution and have reservations about
it, if ultimately they are prepared to ‘live
with it’, so
to speak, then it is carried. The appointment of Tristar was no
different. It appears from the minutes of the
meeting that there were
indeed strong sentiments against the decision by some trustees.
Ultimately, however, after exhaustive debate,
a decision was reached
to appoint Tristar.
[19]
It is therefore apparent that the Board was able to establish the
requisite two-thirds threshold satisfactorily without a formal
vote.
In this regard, it is instructive that all the decisions of the
trustees, except one, were adopted in this manner. The only
exception
was the one taken on 17 April 2008, reversing Tristar’s
appointment. But, as is apparent from the evidence, that
decision was
self-serving, and only taken by vote for the sole purpose of removing
Tristar and reinstating NBC. Rather than bolstering
the Fund’s
argument for a formal vote, that decision fortifies Tristar’s
assertion that the November 2017 decision,
like others before, was
taken by consensus, and that this was the method employed by the
trustees to determine whether the two-thirds
threshold had been
reached. It is worth noting that both the decision to appoint NBC,
and later to reinstate it in August 2008,
were not taken by a formal
vote. The Fund’s insistence on a formal vote, in the
circumstances, is without merit.
[20]
It is clear from the factual background leading to the decision to
appoint Tristar that it was a carefully considered and managed
process: A decision was taken to diversify consulting services;
potential service providers were identified; prospective consultants,
including Tristar made presentations; Tristar was identified as a
preferred bidder; Tristar’s fees were clarified (and reduced),
with the involvement of the Fund’s attorneys; Tristar was
appointed in November 2007 and the agreement was signed on behalf
the
Fund on 14 December 2007 by Tristar on 19 December 2007.
[21]
Viewed in light of these events, the inescapable conclusion is that
the Fund’s representatives had the authority to sign
the
agreement on its behalf. It follows that the Fund’s assertions
to the contrary lack merit. Given this conclusion, I do
not deem it
necessary to consider the two further disputes regarding the issue of
authority, namely whether the appointment of
Tristar was subsequently
ratified, and whether issue estoppel operated against the Fund. The
trial court found in favour of Tristar
on both issues.
[22] I turn
briefly to the Fund’s alternative attack, that the agreement
was ultra vires the rules of the Fund. It is based
on rule 13.7.5,
which provides:
‘
The
Trustees may appoint administrators and consultants on such terms as
they may determine and may withdraw any such appointment
at any time;
provided that a consultant shall not rank as officer of the Fund.’
[23]
The Fund’s argument is that because the rule allows the Fund to
withdraw an appointment at any time, an agreement which
purports to
run for a fixed term such as a three-year term provided for the
impugned agreement, is ultra vires and invalid.
[24]
I have some doubt that a rule which permits a fund to terminate a
contract contrary to its terms is enforceable against a third
party
such as Tristar as this would mean that it permits the fund to breach
or repudiate any agreement. But it is not necessary
to decide this
question as I do not think that this is a sensible or business-like
interpretation of the rule. In my view the rule
simply gives the Fund
the power to lawfully terminate a contract, whatever its duration.
The rule does not give it the power to
terminate a fixed-term
contract contrary to its terms as this would necessarily imply that
all contracts concluded by the Fund
are invalid unless they had
summary termination clauses. This would make the conduct of business
by the Fund with service providers
unworkable and result in an absurd
and unworkable interpretation of the rules.
[25]
It follows that the first two issues, namely whether the Fund’s
representatives were authorised to sign the agreement,
and whether
the agreement was ultra vires the rules of the Fund must be decided
in favour of Tristar, as the high court correctly
found.
[26]
What remains to be considered is Tristar’s counter-claim for
the accrued income. In terms of the agreement, the Fund
undertook to
pay Tristar a basic annual fee of 0.2 per cent per annum for the
gross returns of the Fund. The fee was payable in
monthly instalments
on the last day of each month following the commencement of the
agreement. The claim involves a computation
of fees that Tristar
would have earned over the applicable period, and of the saved costs
for the Fund. Thus, the payment of a
basic fee was contingent upon
Tristar saving the Fund transaction and other costs over an
eighteen-month period. The method for
calculating the savings was
this: establish the costs through the assistance of an advisor and
the custodian bank at the beginning
of the eighteen-month period, and
perform the same exercise eighteen months later, in order to
establish the savings.
[27]
The Fund contends that the basic fee was not proved because Tristar
did not demonstrate the cost savings promised in the agreement.
However, it does not lie in the Fund’s mouth to make this
assertion. It terminated the agreement well before the eighteen-month
period contemplated in the agreement. Tristar was consequently unable
to give the Fund the benefit of its advice over that period,
and the
actual cost saving could not be computed. The result is that the
evidence in this regard was bound to be speculative.
[28]
Tristar relied on the evidence of Mr Alex Burn, its Chief Executive
Officer, and Mr Brian Abrahams, an independent chartered
accountant.
Mr Burn testified about a presentation he made at the trustees’
meeting on 28 February 2008 at which he reported
that Tristar had had
meetings with the Fund’s custodian bank (Standard Bank) and had
managed to reduce the fees charged by
the custodian to the Fund. He
was emphatic that, given its past performances, Tristar would have
been able to achieve a reduction
in fees from certain asset managers.
According to him, there had never been a situation where Tristar was
unable to achieve this.
[29]
With regard to the cost savings Tristar actually brought about by
April 2008, Mr Burn explained that Tristar had negotiated
lower
custodian, mandate, and script lending costs on behalf of the Fund.
According to him, the fact that Tristar had achieved
a cost saving in
respect of the custodian’s costs was an indication that Tristar
had commenced the process of achieving cost
savings for the Fund.
[30]
Mr Abrahams testified that the lost revenue would be based on the
estimated value of the assets which would be determined,
among
others, by the market returns and by the investment consulting advice
rendered by Tristar over the period of the agreement.
In his opinion,
the key factors would be the unique characteristics, including the
investment assets and objectives of the Fund
itself, rather than
those of other funds subject to Tristar’s investment consulting
advice over the period of the agreement.
He postulated the basic
annual fee using the actual market value of the Fund’s assets
over the period of the agreement.
[31]
Counsel for the Fund criticised the evidence presented on behalf of
Tristar. According to counsel, the only basis on which
returns would
have been achieved through Tristar’s advice was to examine the
actual results achieved by Tristar’s other
clients, using the
same advice over the period of the agreement. Because this
information was not provided, it was impossible to
determine the
claim properly. To my mind, this criticism is not warranted. As
explained by Mr Abrahams,
the
key factors would be the unique characteristics, including the
investment assets and objectives of the Fund itself, rather than
those of other funds subject to Tristar’s investment consulting
advice over the period of the agreement.
[32]
Because of the inherently speculative nature of the evidence, the
court could only do its best to assess whether the requisite
cost
saving was likely to have been achieved had Tristar’s
appointment not been terminated. Indeed, the trial court adopted
‘a
robust approach’ in the computation of Tristar’s accrued
income.
[33] What is more, the fact
that the evidence is open to criticism is no reason for the court not
to make an award. In
Southern Insurance Association Limited
v Bailey NO
1984 (1) SA 98
(A) at 113F-114E Nicholas JA observed
that determining an appropriate award in circumstances such as the
present manifestly involves
guesswork to a greater or lesser extent.
But, the learned judge remarked, ‘the Court cannot for this
reason adopt a
non possumus
attitude and make no award.’
The learned judge then referred to the dictum in
Hersman v Shapiro
& Co
1926 TPD 367
at 379 where Stratford J said:
‘Monetary
damage having been suffered, it is necessary for the Court to assess
the amount and make the best use it can of
the evidence before it.
There are cases where the assessment by the Court is little more than
an estimate; but even
so, if it is certain that pecuniary damages
have been suffered, the Court is bound to award damages.’
[34]
Given all these considerations, I am of the view that there is no
basis for this court to interfere with the award made by
the high
court in respect of Tristar’s accrued income.
[35] In the
result the following order is made:
The
appeal is dismissed with costs, including the costs of two counsel
where so employed.
_______________________
T
M Makgoka
Acting
Judge of Appea
APPEARANCES
For
the Appellant:
A Redding SC
Instructed
by:
Webber Wentzel, Sandton
Honey
Attorneys Inc, Bloemfontein
For
the Respondent:
A Franklin SC
Instructed
by:
Werksmans Attorneys, Sandton
Symington
& de Kok, Bloemfontein
[1]
During the closing argument in
the high court, counsel for the Fund conceded that no case had been
made out in respect of this
claim, and accordingly abandoned the
claim.
[2]
Initially the
high court awarded an amount of R15 186 166.96, but subsequently
amended this in terms of rule 42 of the Uniform
Rules of Court, at
the instance of Tristar.
[3]
The actual
letter is dated 26 November 2007, but the covering letter is dated
11 December 2007.
[4]
National Union of
Metalworkers of South Africa and others v Congress of South Africa
and others
(32567/13)
[2014] ZAGPJHC 59 (4 April 2014).