Buffalo City Metropolitan Municipality v Nurcha Development Finance

Buffalo City Metropolitan Municipality appointed a contractor to construct low-cost housing following a tender award. Nurcha Development Finance, a housing finance company, lent funds to the contractor to finance the project. Before the construction contract was formally concluded, but after the tender award, Nurcha issued an irrevocable instruction to the Municipality directing that all progress payments due to the contractor be paid into a designated bank account managed by Tusk, a related entity. This instruction was signed by an official of the Municipality. Thereafter, the Municipality concluded the construction contract and, over a period of five months, paid progress payments into the designated account. Subsequently, the Municipality paid monies into a different bank account, prompting Nurcha to allege breach of contract.

The appeal was dismissed, and the finding of the High Court that the Municipality was liable to Nurcha for damages arising from breach of a tacit contract was upheld.

The case is significant for South African contract and municipal law as it confirms that municipalities can be bound by tacit contracts arising from their conduct, even in the context of public procurement and financial administration. It underscores that consistent conduct may establish contractual obligations notwithstanding the absence of a formal written agreement.