In a December 2024 judgment, the High Court confirmed that the doctrine of estoppel precludes government entities from raising their own non-compliance with internal arrangements and formalities to avoid contractual obligations.
The matter arose from a protracted dispute between a private school and a municipality over a substantial municipal water account. After negotiations, the private school agreed to pay the municipality approximately R8.5 million in full and final settlement of the outstanding account. Despite this settlement and payment of the agreed amount, the municipality failed to update its records to reflect the settlement, leading to repeated disconnections of water supply to the school premises.
The private school applied to court on an urgent basis, seeking to enforce the settlement agreement and to interdict the municipality from implementing further disconnections. The municipality argued that the settlement agreement was void due to the municipality’s non-compliance with its own internal procedures when the agreement was concluded.
The court was therefore required to determine whether the private school could raise the doctrine of estoppel against the municipality. Estoppel, if raised successfully, generally prevents a contracting party from denying the validity of a contract, if that party had represented to the other contracting party that the contract was valid, and the other party relied on that representation to its detriment.
In applying the doctrine of estoppel, the court distinguished between:
- acts that are beyond the municipality’s legal powers; and
- acts that are within the municipality’s legal powers but which have been exercised irregularly.
In the former case, estoppel may not be raised as that would effectively amount to judicial endorsement of an unlawful act. However, in the latter case, estoppel may be raised, including in circumstances where the municipality has failed to adhere to its internal arrangements and formalities. In this matter, there was nothing in law that prohibited the municipality from settling the dispute with the private school by agreement.
On that basis, the court found that the municipality was precluded (‘estopped’) from invoking its internal non-compliance against the private school. The court granted the private school’s application and awarded costs against the municipality.
The judgment illustrates that parties dealing with government entities in good faith may generally assume that those entities have complied with their internal procedural requirements, similar to the well-known Turquand-rule which applies in South African company law.