A provident fund entered into an investment consulting agreement but subsequently contended that the signatories were not authorised and that the agreement was beyond its powers granted by the fund rules.

Although there were strong objections to the agreement at the trustees meeting approving the agreement, no voting took place but the decision to appoint the investment manager clearly had the requisite two-thirds majority and the allegation that the signatories were unauthorised was without merit.

The other argument was based on the fund rule that the trustees could appoint administrators and consultants but ‘may withdraw any such appointment at any time’. The fund made the curious suggestion that although they entered into the agreement for a three-year term they could therefore withdraw at any time. The court held that this was neither a sensible nor a business-like interpretation of the rule.

The rules did not give the fund the power to lawfully terminate a fixed-term contract contrary to its terms. That would make the conduct of business by the fund unworkable and result in an absurd interpretation of the rules. Both defences failed.

[The case is The Chemical Industries National Provident Fund v Tristar Investments]