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’.

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;

[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

2 Shorter Oxford Dictionary.

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 –
(a)
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
(b)
with a view to -
(i)
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;
(ii)
collecting or accounting for premiums or other moneys payable by the
client to a product supplier in respect of a financial product; or
(iii) 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’.

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’.

[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