THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

JUDGMENT

Case No: 498/2017

In the matter between

Reportable

RED CORAL INVESTMENTS (PTY) LTD

APPELLANT

and

CAPE PENINSULA UNIVERSITY OF TECHNOLOGY
RESPONDENT

Neutral citation:  Red Coral Investments (Pty) Ltd v Cape Peninsula
University of Technology (498/17) [2017] ZASCA 152 (22 November 2017)

Coram:
Majiedt, Willis, Saldulker and Mocumie JJA and Schippers AJA

Heard:
10 November 2017

Delivered:
22 November 2017

Summary:
Condonation application – pleadings – exception – National
Student Financial Aid Scheme Act 56 of 1999 precluding oral agreement
between NSFAS and service provider directly or through agent on behalf of
NSFAS – exception correctly upheld by high court – no prospects of success
– condonation application dismissed with costs.

______________________________________________________________

ORDER
______________________________________________________________

On appeal from: Western Cape Division of the High Court, Cape Town
(Klopper AJ, sitting as court of first instance):

1.
The application for condonation and for the reinstatement of the appeal
is dismissed with costs.
______________________________________________________________

JUDGMENT
______________________________________________________________

Majiedt JA (Willis, Saldulker and Mocumie JJA and Schippers AJA
concurring):

[1] A claim for payment of the sum of R758 630.12, instituted by the
appellant, Red Coral Investments (Pty) Ltd (Red Coral), in the Western Cape
Division of the High Court, Cape Town (the high court) against the
respondent, Cape Peninsula University of Technology (CPUT), was met by an
exception to the particulars of claim. Klopper AJ upheld the exception and set
aside the particulars of claim, but granted leave to appeal to this Court.
Although the National Student Financial Aid Scheme (NSFAS) was sued as
the first defendant in the high court, it played no role in the exception
proceedings and does not feature in this appeal. Red Coral was out of time
with the lodging of the appeal record and, in terms of rule 8(3) of this Court’s
Rules1, the appeal had consequently lapsed. Red Coral seeks condonation of
its non-compliance and an order for the re-instatement of the appeal.

1 Rules Regulating the Conduct of the Proceedings of the Supreme Court of Appeal of South
Africa, 1998 as amended.

[2] CPUT contended that the appeal should be struck from the roll, since
ex facie Red Coral’s notice of appeal it impermissibly seeks to appeal against
the high court’s reasoning and not against its order.2 While the submission is
not without merit, CPUT agreed that we consider the merits of the appeal in
order to determine whether there are prospects of success as one of the
factors in the adjudication of a condonation application.

[3] The exception was based on a contention that the particulars of claim
lacked the necessary averments to sustain a cause of action. In essence,
CPUT’s argument was that NSFAS is precluded by the relevant legislation
from entering into the type of oral agreement which Red Coral alleged it had
entered into with NSFAS’s agent, CPUT, and on which Red Coral relied for its
claim. The claim against CPUT was framed as an alternative to the main
claim against NSFAS in the amount mentioned above. The alternative claim
was based on delict (condictio furtiva), alternatively on unjustified enrichment
(the condictio sine causa). The claims were premised on the following factual
matrix.3

[4] It was alleged that CPUT, acting as the duly appointed and authorised
agent of NSFAS, agreed to Red Coral providing rental accommodation to
CPUT students, who it was unable to accommodate on campus. These
students were recipients of funding from NSFAS which, as its name depicts,
makes available funding mainly from the public purse to eligible students. It
was alleged in the particulars of claim that Red Coral was accordingly
designated
as
an
approved
service
provider
of
private
student
accommodation for NSFAS purposes. Red Coral alleged further that, in terms
of an oral agreement between it and CPUT (as agent for NSFAS), CPUT
would pay to Red Coral the amounts allocated by NSFAS to students who

2 South African Reserve Bank v Khumalo & another [2010] ZASCA 53; 2010 (5) SA 449
(SCA) para 4.
3 In accordance with well established principles, the facts are outlined as averred in the
particulars of claim, since they cannot be said to be palpably untrue or so improbable that
they warrant outright rejection; see: Stewart & another v Botha & another [2008] ZASCA 84;
2008 (6) SA 310 (SCA) para 4.

received NSFAS accommodation allowances and who rented private
accommodation from Red Coral. Pursuant to the oral agreement, Red Coral
leased rooms to students at a fixed monthly rental.

[5] Red Coral claimed the above amount from NSFAS (and another
amount, not relevant here) allegedly due and payable in terms of the above
agreement. In the alternative, that amount was claimed from CPUT on the two
alternative bases outlined above. The delictual claim was based on the
allegation that CPUT had knowingly, unlawfully and intentionally appropriated
the said amount without Red Coral’s permission. The alternative claim of
unjustified enrichment was premised on the allegation that CPUT had been
unjustly enriched at Red Coral’s expense through the appropriation and
retention, without cause, of the funds to which Red Coral was lawfully entitled.

[6] In particularising its claim against CPUT, Red Coral prefaced its claim
as follows:
‘ 21. In the alternative to paragraph 20, only if it is found that CPUT was not acting in
the capacity as agent of NSFAS and within the scope of its authority when it made
the aforesaid deduction from the payment due to Red Coral, and that NSFAS is for
that reason alone not liable to pay the sum of R758 630.12 to Red Coral, then and in
that event Red Coral avers that . . .’ (own emphasis).
The preceding facts pleaded in this regard was that the above amount had
been paid by NSFAS to CPUT as agent, but was never paid over to Red
Coral and that CPUT was not entitled to withhold the amount. It was
contended by CPUT that, consequently, on the pleadings the claim against
CPUT for the payment of that amount cannot exist unless the condition in
para 21 above is capable of fulfilment. It is CPUT’s case that the condition is
not capable of fulfilment. In support of its case, CPUT advanced two broad
grounds why the condition is incapable of fulfilment. First, it contended that on
the pleadings NSFAS cannot in law be bound to the alleged oral agreement
relied upon. And, second, it submitted that on the pleadings, NSFAS, as
principal, would remain liable to Red Coral in terms of the alleged oral
agreement (assuming it is binding), notwithstanding the unauthorised acts of
its alleged agent, CPUT. These contentions found favour with the high court

and it upheld these two grounds, which it described as ‘the ground of ultra
vires’ and ‘the law of agency ground’. Red Coral’s appeal is against the ultra
vires ground only. The ultra vires ground emanates from the provisions of the
National Student Financial Aid Scheme Act 56 of 1999 (the Act).

[7] NSFAS is a creature of statute, having been created by the Act.4 As
such it is constrained to act within the parameters of the statute and can only
exercise the powers conferred on it by that empowering statute.5 All acts, in
particular for present purposes the conclusion of contracts, performed outside
the ambit of its statutory powers, are invalid and of no force and effect.6
Moreover, ss 66 and 68 of the Public Finance Management Act 1 of 1999
provide that where a public institution such as NSFAS enters into a
transaction not authorized by its governing legislation, the State and that
institution will not be bound by that transaction.7

[8] After a comprehensive examination of the relevant provisions of the
Act, the high court concluded that NSFAS was not empowered in law to enter
into the alleged oral agreement relied upon by Red Coral. For the reasons
that follow, I am of the view that the high court cannot be faulted in its finding.
It is plain on a close analysis of the relevant provisions of the Act that
concluding such an oral agreement does not fall within the ambit of NSFAS’s
powers.

[9] It is striking that, while the Act defines ‘bursar’, ‘borrower’ and a
‘designated public college or designated higher education institution’, it
contains no definition of a service provider. NSFAS’s functions, outlined in s 4,
are to allocate loans and bursaries to eligible students, to develop criteria and
conditions for such loans, to raise funds, to recover loans, and to advise the
Minister of Higher Education and Training. For present purposes I will restrict

4 Section 3(1).
5 G B Bradfield Christie’s The Law of Contract in South Africa 7ed at 267.
6 Abrahamse v Connock’s Pension Fund 1963 (2) SA 76 (W) at 79A – C.
7 Panamo Properties 103 (Pty) Ltd v Land and Agricultural Development Bank of South Africa
[2015] ZASCA 70; 2016 (1) SA 202 (SCA) para 22.

myself to references to a designated higher education institution. It was
common cause that CPUT is such an institution.

[10] The Act contemplates only two types of agreements. Section 19(3)
provides for a written agreement to be entered into between NSFAS and
every borrower or bursar. In terms of s 20(2)(e) a designated higher education
institution may enter into such written agreement with borrowers or bursars on
behalf of NSFAS in terms of the provisions of the Act and on the terms and
conditions determined by NSFAS.

[11] The second type of agreement contemplated by the Act is one between
NSFAS and a designated higher education institution. Section 20, which
regulates this type of agreement, reads as follows:
’20. Designated public college and designated higher education institution. –
(1) The board [of NSFAS] may enter into an agreement with a public college or a
higher education institution which agrees to become a designated public college or
designated higher education institution for purposes of administering loans and
bursaries to students of that institution on behalf of the NSFAS.
(2) The agreement referred to in subsection (1) must authorise the institution on
behalf of the NSFAS –
(a) to administer loans and bursaries granted to students of the institution;
(b) to receive loan and bursary applications from students;
(c) to consider and assess the applications in the light of the criteria for the
granting of loans and bursaries determined by the NSFAS;
(d) to grant loans and bursaries if the criteria are met, after ascertaining that
funds are available; and
(e) to enter into a written agreement with a borrower or bursar in accordance
with the provisions of this Act and on the terms and conditions determined by
the NSFAS.
(3) A designated public college or designated higher education institution must –
(a) at such intervals as are agreed on by the college or institution and the board,
report to the board on the progress made by a borrower or a bursar with regard to the
course of study followed by him or her; and
(b) immediately notify the board if a borrower or bursar discontinues his or her
studies.’

[12] The following important aspects are evident in s 20:
(a) First, the agreement is between NSFAS and a designated institution for
the purpose of administering loans and bursaries to students of that institution
on behalf of NSFAS.8
(b) Second, there is a closed list of functions which the institution is authorised
to perform on behalf of NSFAS.9 Entering into contracts with third parties is
not one of them. In the present case, this aspect is crucial – any act, power or
function performed by CPUT, ostensibly on behalf of NSFAS, outside the
purview of s 20(2), would be invalid. Where the contravention of a statute by
an act or contract defeats the very purpose of the statute, the contravening
act or contract will be void.10 The alleged oral agreement between Red Coral
and CPUT (on behalf of NSFAS) falls within this category – it would defeat the
very purpose of the Act. Section 2(1) provides that ‘[t]he purpose of this Act is
to establish a financial aid scheme for students at public colleges or at higher
education institutions.’
(c) Third, and closely related to the previous aspect, the designated higher
education institution is required to report regularly to NSFAS on the progress
of borrowers and bursars,11 and to notify NSFAS forthwith in the event of a
borrower or bursar discontinuing his or her studies.12

[13] Section 19(5) provides that ‘the amount of the loan or bursary is paid
by the NSFAS to the designated higher education institution concerned by
way of allocations in respect of amounts payable to the institution by the
borrower or bursar’. Thus, a bursary which could conceivably encompass a
bursar’s tuition, accommodation, transport and study materials, is paid by
NSFAS as an allocation to the institution. Nowhere does the Act envisage a
scenario where NSFAS itself, or through its agent (CPUT), pays a service
provider such as Red Coral in the present instance.

8 Section 20(1).
9 Section 20(2)(a) – (e).
10 Standard Bank v Estate van Rhyn 1925 AD 266 at 274; Metro Western Cape (Pty) Ltd v
Ross 1986 (3) SA 181 (A) at 188 F-J.
11 Section 20(3)(a).
12 Section 20(3)(b).

[14] The rationale behind the system of payments envisaged by the Act is
evident from its purposes: to provide financial aid to eligible students and for
the management of the funds by public colleges and higher education
institutions. It is designed to prevent NSFAS funds from being used
irresponsibly to incur debts for students. In order to fulfil the objects of the Act,
payments are made only to the institution. Thus, s 19(2) is plain and
unambiguous in its purpose: ‛[a] loan or bursary is granted in respect of a
particular course of study, which must be specified in the loan or bursary
agreement in question, and may not be used for any other purpose’.
Understandably, in order to fulfil that purpose, the Act envisages payment
only to the institution concerned, and to no other person or entity. And the
institution is required to report on the progress of the bursar or borrower and
to inform NSFAS without delay of the termination of his or her studies by the
bursar or borrower. Not only is the disbursement of funds strictly
circumscribed, but there are also several checks and balances to protect
public funds.

[15] The Act defines a loan widely:
‘”[L]oan” means a loan granted to a person by the NSFAS in order to enable the
person to defray the costs connected with his or her education at a designated public
college or designated higher education institution, and those connected with the
board and lodging of that person for purposes of attending the institution.’
But, ultimately, a loan is to be understood to be strictly confined to the
‘allocations in respect of amounts payable to the institution’ (s 19(5), above). It
was contended on behalf of Red Coral that the power to conclude a contract
such as the one relied on, is implied in the Act. The submission is untenable.
As I have attempted to demonstrate, the Act is clear and unambiguous
regarding the payment system.

[16] In the premises, Red Coral’s reliance on an oral agreement between it
and CPUT, as an agent of NSFAS, is unsustainable in law. As a
consequence, the condition postulated by Red Coral in para 21 of its
particulars of claim, is incapable of fulfilment and the particulars of claim lack

averments to sustain a cause of action. The high court rightly upheld the
exception. Absent any prospects of success, no case has been made out for
condonation. There is no reason why costs should not follow the outcome.

[17] The following order is issued:
The application for condonation and for the reinstatement of the appeal is
dismissed with costs.

________________________

S A MAJIEDT

JUDGE OF APPEAL

APPEARANCES

For Appellant:

A R Newton
Instructed by:

Jay Reddy Attorneys, Wynberg
Phatshoane Henney Attorneys,
Bloemfontein

For Respondents:

B L Studti

Gunstons Attorneys, Cape Town

Bezuidenhout Attorneys,

Bloemfontein