THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Reportable
Case No: 378/2017

In the matter between:

BUFFALO CITY METROPOLITAN MUNICIPALITY                              APPELLANT

and

NURCHA DEVELOPMENT FINANCE (PTY) LTD                   FIRST RESPONDENT
TUSK CONSTRUCTION SUPPORT
SERVICES (PTY) LTD                                                         SECOND RESPONDENT
NEW BOSS CONSTRUCTION CC

THIRD RESPONDENT

Neutral citation: Buffalo City v Nurcha Development Finance (378/2017) [2018]
ZASCA 122 (21 September 2018)

Coram:
Lewis, Seriti and Makgoka JJA, and Mokgohloa and Nicholls AJJA
Heard:
31 August 2018
Delivered:
21 September 2018

Summary:   Unequivocal conduct on the part of Buffalo City in accepting a payment
instruction, entering into a construction contract with a contractor after
acknowledging the instruction, and making payment in terms of the instruction led to
the inference that on a balance of probabilities, the City and the party issuing the
instruction had concluded a tacit contract.

____________________________________________________________________

ORDER

On appeal from: Eastern Cape Division of the High Court, East London Circuit
(Stretch J sitting as court of first instance):
The appeal is dismissed with costs.

JUDGMENT

Lewis JA (Seriti and Makgoka JJA, and Mokgohloa and Nicholls AJJA
concurring)

[1] Nurcha Development Finance (Pty) Ltd (Nurcha), the first respondent in this
appeal, is a non-profit company that is a wholly owned subsidiary of the National
Urban Housing and Reconstruction Agency, itself a non-profit company. The South
African government owns 50 per cent of the shares in the holding company. It was
established in the 1990s with the aid of the George Soros Foundation for the
purpose of facilitating the provision of housing for the indigent and the development
of businesses for historically disadvantaged people.

[2] The general arrangement with the holding company was that Nurcha would
provide finances to emerging civil engineering contractors, since would-be builders
and developers had difficulty gaining access to banking facilities. As a rule, because
they had no credit record, they were ‘unbankable’. The model envisaged by the
holding company was that Nurcha would lend funds for development and
construction to a contractor, which would be mentored by Tusk Construction and
Support Services (Pty) Ltd (Tusk), the second respondent on appeal. Tusk would in
turn administer the cash flow of the project, advance the drawdown payments to the
contractor made in terms of a building contract, initially for the payment of materials
and labour costs. For as long as progress payments were made by the building
contract employer, Tusk maintained control of the contractor’s finances so that loans

would be repaid to Nurcha, but the profits made, if any, would be kept by the
contractor.

[3] The model required that bank accounts would be opened in the name of the
contractor concerned so that it could build up a credit record. In order to maintain its
own security, Nurcha required that the entity cede it’s right to payment under the
building contract to Nurcha. This background is drawn from that sketched by Lopes J
in Nurcha Finance Company (Pty) Ltd v eThekwini Municipality, unreported decision
of the KwaZulu-Natal High Court, Durban, case number 810/2011. It was confirmed
by Mr H de Villiers, the managing director of Tusk, when he testified for Nurcha.

[4] In this matter, New Boss Construction CC (New Boss), the third respondent
on appeal, was awarded a contract by the Buffalo City Metropolitan Municipality (the
City), the appellant, for the construction of structures on 323 sites in Duncan Village,
East London in October 2010. The written construction contract was signed in
December 2010 for New Boss and for the City in January 2011.

[5] A written agreement of loan between Nurcha and New Boss was signed
before then, by New Boss on 11 October and by Nurcha on 20 October 2010.
The material terms of the loan agreement were that Nurcha would advance bridging
finance to New Boss to enable it to perform in terms of the building contract; Tusk
would administer the loan and New Boss would pay it a fee; New Boss would
arrange for all the income from the project (progress payments) to be paid into a
banking account in its name; Tusk would administer that account and have signing
powers in respect of it; and New Boss ceded its rights to money due to it by the City
to Nurcha as security for the performance of its obligations under the loan
agreement.

[6] New Boss and Tusk entered into a written ‘construction support agreement’
on 11 October 2010. The material terms of this agreement were that: Tusk would
administer the building agreement and the designated account which had been
opened in the name of New Boss; Tusk would render administrative and support
services to New Boss; and New Boss would repay its loan to Nurcha, and pay
service fees to Tusk.

[7] On the same day, Mr N E Lushozi, the member of New Boss representing it,
signed what was termed an ‘irrevocable payment instruction’, which was addressed
to the City. Lushozi instructed the City to make all payments due to it under the
construction contract into its account (account holder New Boss Construction CC) at
First National Bank. He set out the bank account number and stated in the second
paragraph (the format is not reproduced here):
‘As the Contractor has entered into a loan agreement with Nurcha Development Finance
(Pty) Ltd (“Nurcha”) and provided security in terms of which Nurcha has agreed to advance
bridging finance to the Contractor in respect of the abovementioned project, and whereas
Nurcha has appointed Tusk Construction Support Services (Pty) Ltd . . . as intermediary to,
amongst other things, provide financial, administration and construction support services to
the contractor in respect of this project, this irrevocable instruction and bank account may
only be changed with the written consent of Tusk . . .’.

[8] The letter made provision for an acknowledgment of receipt by the City.
On  14 October 2010, Mr Z Yako, who described himself as a ‘Senior Accountant
Bank Control’ signed the document below the words ‘noted and accepted by
employer’ and stamped it as ‘Buffalo City Municipality’ ‘Assets and Risk Bank
Control’.

[9] Work commenced in 2011 and the City paid into the dedicated account on
four occasions from January to May 2011. From June 2011 the City made five
progress payments into a different account, presumably at the instance of New Boss.
Negotiations with the City about payment into a different account yielded no solution.
New Boss was in serious financial difficulty and unable to perform its obligations
under the loan agreement.

[10] Nurcha thus instituted action in the Eastern Cape Division of the High Court,
East London Circuit (to which I shall refer for convenience as ‘the high court’) against
the City in early 2012. It claimed some R3.8 million in damages for breach of
contract. The contract alleged was that between Nurcha and the City concluded by
conduct over the period from October 2010 to January 2011. Nurcha alleged that in
a series of acts it and the City had concluded a contract in terms of which the City
undertook to make any payment to New Boss under the construction contract to a
dedicated account opened by Tusk in the name of New Boss. The basis of the

contract was that ‘the parties conducted themselves in a manner which was only
consistent with there being a valid and binding tacit agreement in place’.

[11] The material terms of the contract, said Nurcha, were that the City accepted
the irrevocable payment instruction and agreed to make all progress payments to
New Boss into the account reflected on the payment instruction signed for by Mr
Yako for the City. It accepted that it would only make payments into a different
account if Tusk had given its written consent, which Tusk had not done.

[12] The City pleaded first that Nurcha’s claims lay against New Boss in terms of
the loan agreement, and not against it. It asserted that the cession in that contract to
Nurcha was invalid as it did not comply with the provisions of the Local Government:
Municipal Finance Management Act 56 of 2003, and that Mr Yako did not have the
authority to enter into any contract for the City. The City also contended that no tacit
contract had been concluded by any official of the City in the circumstances alleged
by Nurcha.

[13] Stretch J in the high court found that Nurcha had established a tacit contract
and that the City was obliged to pay R1.9 million in contractual damages to Nurcha.
The City appeals against the order of the high court with the leave of this court.
It argues that a tacit contract was not established.

[14] It should be said at once that Mr Yako testified that he had not read the
payment instruction but had taken it to be a document setting out payment details.
His role at the City was to co-sign cheques requested by other departments, such as
housing. He had no authority to conclude a contract. It should also be said that
Nurcha did not sue as cessionary under the cession embodied in the loan
agreement: the cession of the right to progress payments was Nurcha’s security that
payment would be made to it.  The action is premised entirely on the alleged contract
between Nurcha and the City, in terms of which the City undertook to pay amounts
due to New Boss into a designated account managed by Tusk. It was argued on
appeal in this way as well.

[15] Nurcha does not rely on Yako’s authority to enter into a contract as the sole
basis for contending that the City and Nurcha entered into a contract. It relies on a
series of events and acts which, when considered as a whole, lead to the conclusion
that the parties had intended to enter into a contract on the terms pleaded.
Nurcha argues that the City, by signing for the irrevocable payment instruction,
acknowledged that Nurcha had financed the construction contract; acknowledged
that Tusk would act as intermediary between Nurcha and New Boss; accepted the
payment instruction and acknowledged that the instruction could be changed only
with the consent of Tusk. And then, most importantly, the City complied with that
instruction for several months.

[16] The test for establishing the intention of the parties to conclude a tacit contract
is now settled.  In Butters v Mncora [2012] ZASCA 29; 2012 (4) SA 1 (SCA), where a
universal partnership between co-habitees was relied upon, Heher JA said (para 34):
‘This appeal is about an alleged tacit agreement. As in all such cases, the court searches the
evidence for manifestations of conduct by the parties that are unequivocally consistent with
consensus on the issue that is the crux of the agreement and, per contram, any indication
which cannot be reconciled with it. At the end of the exercise, if the party placing reliance on
such an agreement is to succeed, the court must be satisfied, on a conspectus of all the
evidence, that it is more probable than not that the parties were in agreement, and that a
contract between them came into being in consequence of their agreement. Despite the
different formulations of the onus that exists (see the discussion in Joel Melamed and
Hurwitz v Cleveland Estates (Pty) Ltd; Joel Melamed and Hurwitz v Vorner Investments (Pty)
Ltd 1984 (3) SA 155 (A) . . . this is the essence of the matter.’
This statement is in a minority judgment but the majority did not take issue with the
principle. It was only the application of the principle that was in dispute.

[17] As I see it, the principle expressed by Heher JA is clear and puts to rest the
apparent conflict between two statements made by Corbett JA in Joel Melamed
(above) and Standard Bank of SA Ltd v Ocean Commodities Inc 1983 (1) SA 276
(A). In Ocean Commodities Corbett JA had held that the test was as follows (at
292A-B):
‘In order to establish a tacit contract it is necessary to show, by a preponderance of
probabilities, unequivocal conduct which is capable of no other reasonable interpretation

than that the parties intended to, and did in fact, contract on the terms alleged. It must be
proved that there was in fact consensus ad idem.’ (My emphasis.)

[18] In Joel Melamed, however, Corbett JA stated that although this was the
‘traditional statement of the principle’ (at 164I) there had been criticism of the
formulation since it appeared to indicate ‘a higher standard of proof than that of
preponderance of probability as regards the drawing of inferences from proven facts’
(at 165A-B). He went on to say (at 165C-E):
‘While it is perfectly true that in finding facts or making inferences of fact in a civil case the
court may, by balancing probabilities, select a conclusion which seems to be the more
natural or plausible one from several conceivable ones, even though that conclusion is not
the only reasonable one, nevertheless it may be argued that the inference as to the
conclusion of a tacit contract is partly, at any rate, a matter of law, involving questions of
legal policy. . . . [I]t could be said that a tacit contract should not be inferred unless there was
proved unequivocal conduct capable of no other reasonable interpretation than that the
parties intended to, and did in fact, contract on the terms alleged.’
However, Corbett JA did not consider that the case was an appropriate one in which
to resolve the tension between the two tests, nor did he suggest what matters of
legal policy might be relevant.

[19] In Christie’s Law of Contract in South Africa (7 ed) by G B Bradfield a
‘synthesized approach’ is suggested (pp 100 -101).
‘A synthesis embracing both the no other reasonable interpretation test and the balance of
probabilities test . . . could be stated as follows: In order to establish a tacit contract it is
necessary to prove on a preponderance of probabilities, conduct and circumstances that are
so unequivocal that the parties must have been satisfied that they were in agreement. If the
court concludes on the preponderance of probabilities that the parties reached agreement in
that manner, it may find the tacit contract established.’

[20] In my view, we need not go to any great lengths to reconcile the ‘no other
reasonable inference’ test with the ‘balance of probabilities test’. There appears to
me to be no reason why the onus of proof should be more burdensome for the party
alleging a tacit contract than in other civil matters. I do not see why, as a matter of
legal policy, the onus should be greater. And in Butters, the court was unanimous in

finding that the party alleging a tacit contract need prove unequivocal conduct giving
rise to an inference of consensus on a balance of probabilities.

[21] In Butters, Brand JA for the majority, in deciding whether a universal
partnership had been established, held that (para 18):
‘Where the conduct of the parties is capable of more than one inference, the test for when a
tacit universal partnership can be held to exist is whether it is more probable than not that a
tacit agreement has been reached.’

[22] Accordingly I consider that we need to ascertain whether Nurcha has shown
on a balance of probabilities unequivocal conduct on the part of the City that proves
that it intended to enter into a contract with Nurcha that it would pay New Boss
progress payments into the designated account managed by Tusk.  There is no
doubt as to Nurcha’s intention to enter into such a contract. It would not have
advanced funds to New Boss in terms of the loan agreement had it not had the
security that the City would make progress payments into the designated account.
But what of the City’s conduct?

[23] There is no dispute as to the sequence of events leading to the conclusion of
the construction contract between the City and New Boss. We know that the bid had
been awarded to New Boss by the City in early October. Nurcha and New Boss had
entered into the loan agreement pursuant to that, New Boss signing the written
agreement acknowledging the way in which the loan would be administered on
11 October 2010. The construction support services agreement had been signed on
the same day. The irrevocable payment instruction was also signed by New Boss on
11 October. It was delivered to the City and signed for by Mr Yako on 14 October.
The construction contract was signed by New Boss only after that, on December
2010, and by the City in January 2011.

[24] Thus at the time of concluding the construction agreement, officials of the City
knew precisely how the arrangement with Nurcha and Tusk was to proceed. And it
must have intended to make payment into the designated account administered by
Tusk, and knew it should not pay into any other account without the written consent
of Tusk. Indeed, it acted in accordance with that instruction over a period of five

months. That is unequivocal conduct manifesting the intention that it was bound to
comply with the instruction.

[25] Moreover, the subsequent conduct of the City, after it had paid into a different
account, was acknowleged by it to be in conflict with the payment instruction. This is
recorded in a letter written by Nurcha’s legal adviser to the City, after a meeting
between Nurcha and City officials in the housing department had been held.
The letter, dated 12 August 2011, recorded that:
‘[Y]ou recognized the fact that there is documentation in place, signed and acknowledged by
[the City], regulating the payment of the contractor, which documentation was not considered
when the contractor was paid directly. We record that you confirmed that you would amend
the banking details of the contractor to reflect the correct position as a matter of urgency.’

[26] The material facts alleged in the particulars of claim by Nurcha were not
disputed. It was only when the plea was filed that the City denied that it had
undertaken to pay into the designated account. The City did not lead any evidence to
gainsay that of Mr De Villiers of Nurcha that the entire scheme had been agreed with
officials of the housing department in the City. Mr Yako could not say what
arrangements were made by the housing department, but there would not have been
progress payments to be made without the approval of that department. In the
circumstances it is not necessary to consider whether the officials in question had
the authority – actual or ostensible – to conclude the agreement to pay into a
designated account. They did so and there was no evidence led to rebut the
evidence of De Villiers as to the nature of the contract with the City and its approval
by municipal officials. There can be no better evidence of a contract’s conclusion
than the parties’ performance of their obligations under it.

[27] In the circumstances I consider that Nurcha has proved on a balance of
probabilities that there was a tacit contract between it and the City that all progress
payments payable to New Boss would be paid into the account designated by it,
managed by Tusk. Nurcha is entitled to be paid what was due to it under the loan
agreement in the form of damages payable by the City, which was in breach of the
contract.

[28] Accordingly the appeal is dismissed with costs.

________________________
C H Lewis
Judge of Appeal

APPEARANCES

For Appellant:

R G Buchanan SC (with him S Swartbooi)

Instructed by:

Makhanya Attorneys, East London

Bezuidenhouts Inc, Bloemfontein

For Respondents:
S D Wagener SC

Instructed by:

SB Coetzer Inc t/a Coetzer & Partners

Honey Attorneys, Bloemfontein