Issue: Mar/May 2011


To owe or be owed

After interest, well over R40m is involved. The stakes are high, especially for the workers.

Ahumdinger of a scrap between a provident fund (heavy with trade-union members) and its erstwhile investment consultant (not one of SA's more prominent, yet reputed to charge for its services up to five times the average charged by some of the most prominent) is likely to be heard within months by the South Gauteng high court. Application for a trial date has been made.

The dispute is between the Chemical Industries National Provident Fund (CINPF) and Tristar Investments (now called Malaczynski Burn). At issue is the validity or otherwise of an "investment consulting agreement". CINPF wants the court to declare that from the outset the purported agreement was invalid and unenforceable.

It's also claiming R2,72m plus interest from Tristar. This was the amount that CINPF's custodian bank, Standard, had paid directly to Tristar – on the instructions of Tristar, not CINPF – during the first four-month period from January to April 2008.

On the basis of its argument that the agreement was valid, Tristar is counterclaiming from CINPF:

  • R27,36m, being the accrued amount allegedly owing as the basic annual fee from May 2008 to May 2010, plus interest compounded at 15,5% annually;
  • R10,61m, plus interest, in damages.

Under the purported agreement, CINPF was to pay Tristar a basic annual fee of 0,20% of the value of its assets. Additionally contemplated was an incentive fee, provided there was an the increase in the market value of the fund's assets equalling or exceeding the fund's investment objective, calculated at a rolling three-year return equal to the consumer price index plus 4%.

Roughly, Tristar would have been receiving some R675 000 per month (over R8m a year) in basic fees alone. However, because CINPF says that the agreement was never lawfully concluded – an argument Tristar doesn't accept – CINPF won't provide Tristrar with details of its assets under the control of third-party asset managers from May 2008.

Tristar says it needs these details accurately to compute the amount owing. CINPF says there is no amount owing so, in effect, these details are none of Tristar's business.

One reason that CINPF considers the agreement to be unenforceable and invalid is that the trustees who signed it did not, under fund rules, have authority to do so. This was because, it says, the required number of board members had not approved it. Another reason is possible contravention of the Financial Advisory & Intermediary Services Act (FAIS).

It isn't apparent that the agreement could have been lawfully concluded if, until the middle of last year, Tristar/Malaczynski Burn had no FAIS licence to provide pension funds with investment consultancy services. The FSB website shows that it did receive a licence in 2005, before it attempted to obtain the CINPF business, but it appears that this licence allowed Tristar only to advise individuals about their pension benefits and collective investment schemes.

Back in February 2009, Justice Claasen found in favour of Tristar that the agreement was valid. But in April last year a full bench of the court, under Justice Willis, upheld the CINPF appeal.

Either Tristar was properly appointed as CINPF's investment consultant, or it wasn't. Because the question was factually in dispute, Willis held, it could not be determined on motion proceedings: "Although the appeal turns on the narrow issue of the accuracy of the minutes (of a February 2008 meeting of the CINPF trustee board), it seems that there are larger issues between the parties that need to be ventilated, which extend beyond even the issue of whether Tristar rendered services for which it was paid some R2,7m."

Referring the matter to trial, he emphasised that the fundamental issue of whether CINPF had entered a valid and binding agreement with Tristar could be re-litigated.

Central to the argument is a December 2007 ocument encapsulating the disputed agreement. It was common cause that, when the document was signed, there had not been compliance with the fund rule that all trustee decisions must be supported by "at least two thirds of the employers' trustees and at least two thirds of the members' trustees at any quorate meeting".

On its version, Tristar relied on the minutes of the CINPF board meeting in early-February 2008 where "the full board unanimously ratified the appointment of Tristar". For its part, CINPF disputes the accuracy of this minute. The court believed that minutes of subsequent meetings, later in February and also in April 2008, "made it plain" that there could not have been a unanimous decision to appoint Tristar.

Judge Willis was unable to find that Tristar "could not have believed" that the minute of the early-February 2008 meeting was conclusive: "In order to do justice between the parties, it seems to me that the dispute should be referred to trial."

  • Webber Wentzel is acting for CINPF and Werksmans for Tristar