Merifon (Pty) Ltd v Greater Letaba Municipality and Another

Greater Letaba Municipality required land for human settlements but lacked funds. With assistance from the Limpopo Provincial Department of Cooperative Governance, Human Settlements and Traditional Affairs and the Housing Development Agency, negotiations were undertaken for the purchase of certain portions of the farm Mooiplaats 434 LT from Merifon (Pty) Ltd for R52 million plus transfer costs. A departmental letter indicated that funds were budgeted, and the municipal council adopted a resolution approving the department’s commitment letter. A written agreement of sale was concluded between Merifon and the municipality. Subsequently, the Provincial Treasury refused authorisation for the expenditure, finding the purchase price excessive, and the funds were not released. Merifon sued the municipality for specific performance, claiming payment of the purchase price and transfer costs. The municipality resisted, contending that the agreement was unlawful and unenforceable due to non-compliance with section 19 of the Municipal Finance Management Act 56 of 2003 (MFMA).

The appeal was dismissed with costs, including the costs of two counsel, and the declaration that the agreement was null and void and unenforceable stood.

The case affirms the centrality of the principle of legality and strict compliance with the MFMA in municipal contracting. It confirms that agreements concluded by municipalities in breach of section 19 of the MFMA are unenforceable, that specific performance cannot be ordered where it would sanction illegality, and that estoppel cannot be used to validate ultra vires municipal conduct. The judgment reinforces fiscal discipline, accountability, and good governance in local government.