Red Coral Investments (Pty) Ltd v Cape Peninsula University of Technology

Red Coral Investments (Pty) Ltd (Red Coral) claimed payment of R758,630.12 from Cape Peninsula University of Technology (CPUT), alleging that CPUT, acting as the duly appointed and authorised agent of the National Student Financial Aid Scheme (NSFAS), had entered into an oral agreement with Red Coral. In terms of this alleged oral agreement, Red Coral would provide rental accommodation to CPUT students who were recipients of NSFAS funding and could not be accommodated on campus. Red Coral was allegedly designated as an approved service provider of private student accommodation for NSFAS purposes. Red Coral claimed that CPUT would pay Red Coral the amounts allocated by NSFAS to students who received NSFAS accommodation allowances and rented accommodation from Red Coral. When payment was not made, Red Coral instituted a claim against NSFAS (as first defendant) and alternatively against CPUT based on delict (condictio furtiva) or unjustified enrichment (condictio sine causa). The alternative claim against CPUT was premised on the condition that CPUT was not acting as agent of NSFAS. Red Coral was out of time with lodging the appeal record and the appeal had lapsed in terms of rule 8(3) of the Supreme Court of Appeal Rules. Red Coral sought condonation and reinstatement of the appeal.

• Whether the particulars of claim disclosed a cause of action against CPUT
• Whether NSFAS had the statutory power to enter into an oral agreement (directly or through an agent) with a service provider for student accommodation
• Whether the exception to the particulars of claim was correctly upheld
• Whether condonation should be granted for non-compliance with the rules regarding lodging of the appeal record, particularly in light of prospects of success on appeal

The application for condonation and for the reinstatement of the appeal was dismissed with costs.

The binding legal principles established by this case are: (1) A statutory body such as NSFAS can only exercise powers conferred on it by its empowering statute and any acts performed outside the ambit of its statutory powers are invalid and of no force and effect; (2) The National Student Financial Aid Scheme Act 56 of 1999 contemplates only two types of agreements: written agreements between NSFAS and borrowers/bursars (section 19(3)), and agreements between NSFAS and designated higher education institutions for purposes of administering loans and bursaries (section 20); (3) Section 20(2) of the Act contains a closed list of functions which a designated higher education institution is authorised to perform on behalf of NSFAS, and entering into contracts with third parties (such as service providers of student accommodation) is not within that closed list; (4) The payment system under the Act is that loans or bursaries are paid by NSFAS to the designated institution by way of allocations in respect of amounts payable to the institution by the borrower or bursar (section 19(5)), and the Act does not envisage payment by NSFAS, directly or through its agent, to third party service providers; (5) Where a public institution enters into a transaction not authorized by its governing legislation, the State and that institution will not be bound by that transaction (sections 66 and 68 of the Public Finance Management Act 1 of 1999); (6) Particulars of claim that rely on an agreement which a statutory body has no power in law to enter into, lack the necessary averments to sustain a cause of action and an exception will be upheld; (7) Condonation for non-compliance with procedural rules will not be granted where there are no prospects of success on the merits.

The court made the following non-binding observations: (1) While CPUT contended that the appeal should be struck from the roll on the basis that ex facie Red Coral's notice of appeal it impermissibly seeks to appeal against the high court's reasoning and not against its order, the court noted that this submission was not without merit but agreed to consider the merits of the appeal in order to determine prospects of success as one of the factors in adjudication of the condonation application (paragraph 2); (2) The court explained the rationale behind the system of payments envisaged by the Act, noting that it is designed to provide financial aid to eligible students, enable management of funds by public colleges and higher education institutions, and prevent NSFAS funds from being used irresponsibly to incur debts for students. The court observed that there are several checks and balances in the Act to protect public funds, including requirements for institutions to report on the progress of bursars or borrowers and to inform NSFAS of termination of studies (paragraphs 14 and 15).

This case is significant in South African law for several reasons: (1) It reinforces the principle that statutory bodies such as NSFAS are constrained to act within the parameters of their empowering legislation and can only exercise powers conferred on them by statute; (2) It clarifies the scope and limits of NSFAS's powers under the National Student Financial Aid Scheme Act 56 of 1999, particularly regarding the types of agreements NSFAS may enter into and the payment mechanisms envisaged by the Act; (3) It demonstrates the application of sections 66 and 68 of the Public Finance Management Act 1 of 1999, which provide that where a public institution enters into a transaction not authorized by its governing legislation, the State and that institution will not be bound by that transaction; (4) It illustrates the principle that 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; (5) It provides guidance on the requirements for a valid cause of action in pleadings, particularly where a claim is based on an agreement that is alleged to have been entered into by a statutory body or its agent; (6) It confirms that prospects of success on appeal is a key factor in determining whether condonation should be granted for non-compliance with procedural rules.