The Supreme Court of Appeal recently had to consider this question and the provisions of Section 32 of the Municipal Finance Management Act (MFMA) and the provisions of Section 172(1) of the Constitution in a judgment delivered on 8 November 2024 in Mbambisa and Others v Nelson Mandela Bay Metropolitan Municipality [2024] ZASCA 151 (8 November 2024).

CLAIM

The Nelson Mandela Bay Metropolitan Municipality (the Municipality) instituted action against a consultant and a number of officials of the Municipality for an Order declaring the appointment of Erastyle (Pty) Ltd (Erastyle) as a lead consultant for the development of a communication and marketing strategy unlawful and invalid.

Erastyle were appointed without a public tender process and in breach of the Municipality Supply Chain Management Policy (SCM Policy).  The Municipality paid Erastyle approximately R7.6 million following the unlawful appointment.

The Municipality also asked the Court to order the irregular expenditure recoverable in terms of Section 32(1)(c) of the MFMA because it was incurred in contravention of the SCM Policy.

The Municipality additionally pleaded a third claim in delict based on a fraudulent misrepresentation by the Municipal officials.

DEFENCE AND TRIAL

The Municipal officials defended the action, contending that the Municipality had delayed unreasonably in instituting the action for review, and denied that they had intentionally or negligently authorised or incurred irregular expenditure.

Erastyle admitted the impugned appointment but contended that payments were received after it submitted invoices to the Municipality for services rendered. 

The Municipality led the evidence of a forensic investigator regarding the project and the over-inflation of invoices.

It also led the evidence of the new Municipal manager as well as the Municipality’s CFO regarding the procurement processes that the Defendants were required to follow but did not.

At the end of the Municipality’s case, the Defendants chose not to testify. 

The High Court set aside the appointment and granted judgment for payment against the various Defendants.

APPEAL

On appeal to the Supreme Court of Appeal, the Defendants contended that Section 32 of the MFMA ought not to penalise a Municipal official where the Municipality had suffered no loss or damage and argued that they ought not to be financially liable.

The Defendants also argued that the Municipality received value for work done by Erastyle.

The Supreme Court of Appeal determined that the Municipality’s case was based principally on Section 32 of the MFMA dealing with unauthorised, irregular or fruitless and wasteful expenditure. 

PERSONAL LIABILITY

The Court held that Section 32, on its plain wording, rendered Municipal officials statutorily liable for unauthorised, irregular, or fruitless and wasteful expenditure, in addition to any liability under common law or any other legislation. 

The Court also observed that this would not be limited to Municipal officials, but could be extended to political office bearers, who are not involved in the day to day running of a Municipality.

The Court also remarked that the plain wording of Section 32 makes it clear that the recovery of such expenditure is not optional.  The Municipality is obliged to recover such expenditure from the person liable for it.

REPORTING OBLIGATIONS

The Court also pointed to the provisions of Section 32(6) of the MFMA obliging the accounting officer to report to the police, all cases of alleged irregular expenditure which constitute a criminal offence, and theft and fraud which occurs in the Municipality. 

The council of the Municipality is also obliged to take all reasonable steps to ensure cases are reported to the police, if the charge is against the accounting officer, or where that officer fails to comply with the obligation to report the alleged irregular expenditure.

PAYMENTS RECOVERABLE EVEN WHERE SERVICE IS RECEIVED

The Court went further to find that a claim under Section 32 may be made where there is value received for the work done.  The Court found that the Municipality had proved that the Defendants had incurred irregular expenditure and also that the Defendants did not establish in evidence that the Municipality had received value.

The Court found that a Municipality might benefit from a service procured in contravention of an SCM Policy, but the expenditure incurred in obtaining that service remains irregular expenditure, recoverable under Section 32(2) of the MFMA. 

The Court held that the clear intention of Section 32 is to create personal liability on the part of Municipal officials in particular circumstances.  Liability arises as soon as the official intentionally or negligently incurs unauthorised, irregular and fruitless and wasteful expenditure.  Section 32 is not conditional upon a Municipality sustaining loss or damage. 

The Court also found that the issue of undue delay is irrelevant to a claim under Section 32 of the MFMA.

Consequently, the Supreme Court of Appeal confirmed the setting aside of the appointment and granted judgment against the Municipal officials for payment, including outstanding interest and legal costs of two counsel.

COMMENT

The judgment is a timely warning to Municipal and public officials that there is no doubt that they are personally liable for irregular expenditure. This liability would extend to officials within national government where similar provisions of the Public Finance Management Act would apply.

The Court also pointed out that this personal liability may also extend to political office bearers, even where they are not involved in the day to day running of the Municipality. 

Will this be used as an effective tool for Municipalities and their councils to hold officials to account – or will this potentially be politically weaponised by rival political parties and/or factions where power changes?