[MEDIA SUMMARY] Buffalo City Metropolitan Municipality v Nurcha Development Finance

Buffalo City Metropolitan Municipality (the City) appointed a contractor to build low-cost housing within its jurisdiction. Nurcha Development Finance, a subsidiary of the National Urban Housing and Reconstruction Agency, lent funds to the contractor to finance the project. Nurcha issued an irrevocable instruction to the City to pay all progress payments into a designated bank account managed by its sister company, Tusk. This payment instruction was signed by an official of the City after the contractor had won the tender award but before the construction contract was formally concluded. The City made payments into the designated bank account over a period of five months, but subsequently paid into a different bank account.

• Whether a tacit contract had been concluded between the City and Nurcha based on the payment instruction and the City's conduct
• Whether the City's acceptance and compliance with the payment instruction created contractual obligations
• Whether the City was in breach of contract when it paid into a different bank account
• Whether the City was liable for damages arising from the breach

The appeal was dismissed. The City was found to have breached its contract with Nurcha and was held liable for damages.

A tacit contract can be concluded through unequivocal conduct demonstrating acceptance of contractual terms. Where a municipality accepts a payment instruction, enters into a related construction contract, and consistently makes payments in accordance with that instruction over a period of time, it concludes a tacit contract creating binding obligations. Breach of such a tacit contract by failing to comply with the payment instruction gives rise to liability for damages.

The judgment notes that the payment instruction was signed before the construction contract was formally concluded but after the tender award, suggesting that the timing of signature relative to formal contract conclusion does not preclude the formation of a tacit contract where subsequent conduct demonstrates acceptance of the terms.

This case is significant in South African contract law as it confirms the principles governing the formation of tacit contracts through conduct. It demonstrates that municipalities can be bound by tacit contracts even where formal written agreements have not been concluded, based on their unequivocal conduct in accepting and acting upon contractual terms. The case is particularly important in the context of low-cost housing development financing and the obligations of municipalities when dealing with development finance institutions. It reinforces the principle that consistent conduct over time can evidence acceptance of contractual terms and create binding obligations, especially in the public sector context.