The Chemical Industries National Provident Fund v Tristar Investments (Pty) Ltd

The Chemical Industries National Provident Fund (the Fund), a large pension fund for employees in the chemical industry, concluded a three-year investment consulting agreement with Tristar Investments (Pty) Ltd on 19 December 2007 to commence from 1 January 2008. Prior to this, the Fund had been administered by NBC (Pty) Ltd until the end of 2007. The appointment process involved: a sub-committee headed by the Fund's principal officer (Mr Tsolo) and chairperson of trustees (Ms MacIntosh) considering diversification of investment consulting services in February 2007; presentations by Tristar and two other consultants in August 2007; Tristar emerging as the preferred bidder subject to clarification of fees; fees being discussed satisfactorily in October 2007; approval by trustees at their meeting on 15-16 November 2007; the agreement being signed by Mr Tsolo and Ms MacIntosh on 14 December 2007 and by Tristar on 19 December 2007. Tristar performed services for over three months and was paid R2,722,207.44. On 17 April 2008, the Fund resolved to withdraw Tristar's appointment, contending the agreement was invalid because signatories lacked authority and the agreement was ultra vires the Fund's rules. Tristar viewed this as repudiation and accepted it.

• Whether the signatories who signed the investment consulting agreement on behalf of the Fund had the requisite authority to do so
• Whether the decision to appoint Tristar was validly taken in the absence of a formal vote, given Rule 13.6.8 requiring two-thirds support from employer and member trustees
• Whether the three-year fixed-term agreement was ultra vires the Fund's rules, specifically Rule 13.7.5 which permits withdrawal of consultant appointments 'at any time'
• How to calculate accrued income for the unexpired period of an unlawfully terminated agreement where evidence is inherently speculative

The appeal was dismissed with costs, including the costs of two counsel where so employed. This upheld the high court's declaration that the agreement was valid and unlawfully terminated by the Fund, dismissal of the Fund's claim, and award to Tristar of R20,139,810.96 for accrued income (the high court had initially awarded R15,186,166.96 but amended this under Rule 42).

1. Where rules require a specified level of support (such as two-thirds majority) for decisions but do not prescribe the method of ascertaining that support, it is permissible to employ any reasonable method including consensus-based decision-making, provided this method is consistent with established practice and can reliably establish the requisite threshold. 2. Rules in pension fund constitutions permitting withdrawal of consultant appointments 'at any time' should be interpreted as authorizing lawful termination of contracts in accordance with their terms, not as permitting breach or repudiation contrary to contractual provisions. Such rules do not render fixed-term contracts ultra vires merely because they lack summary termination clauses. 3. Where a party unlawfully terminates a contract before the period necessary to calculate performance-based remuneration, thereby rendering evidence of what would have been earned inherently speculative, courts must nonetheless assess damages on the available evidence where it is certain that pecuniary loss has been suffered. The speculative nature of evidence is not a basis for refusing to make an award.

The court expressed some doubt about whether a rule permitting a fund to terminate contracts contrary to their terms would be enforceable against third parties, as this would essentially permit the fund to breach or repudiate any agreement. However, the court found it unnecessary to definitively decide this question given its interpretation of Rule 13.7.5. The court noted that the decision of 17 April 2008 to terminate Tristar's appointment was 'self-serving' and taken by vote 'for the sole purpose of removing Tristar and reinstating NBC', suggesting this undermined rather than supported the Fund's argument that formal voting was required. The court observed that examining the results achieved by Tristar's other clients would not be the appropriate basis for assessing returns, as the key factors would be the unique characteristics and investment objectives of the Fund itself rather than other funds.

This case is significant in South African contract and pension fund law for several reasons: 1. It clarifies that corporate decision-making procedures need not require formal voting unless expressly stipulated, and that consensus-based decision-making can satisfy numerical threshold requirements where this is consistent with established practice. 2. It establishes that rules permitting 'withdrawal at any time' of appointments should be interpreted as authorizing lawful termination rather than breach or repudiation of contractual terms, applying business-like and sensible interpretation principles to pension fund rules. 3. It confirms the approach to damages in speculative cases, affirming that courts must make awards based on available evidence even where calculations are inherently speculative, particularly where the party claiming impossibility of proof caused the uncertainty through its own wrongful termination. 4. It provides guidance on contractual interpretation in the pension fund context, balancing the fund's need for flexibility with the rights of third-party service providers and the need for workable commercial relationships. 5. It demonstrates the application of principles from Southern Insurance Association Ltd v Bailey NO regarding assessment of damages where evidence is necessarily speculative but pecuniary loss is certain.