In particular, section 32 imposes liability on municipal officials and political office bearers, and creates an obligation on municipalities to recover money that through expenditure that was either unauthorised, irregular, or fruitless and wasteful (the “unsecure expenditure”). Each of these three categories has its own definition and thresholds (mainly centred around intention and negligence) and, to prevent rigidity and strict liability, has its own processes for condonation. In Mbambisa and Others v Nelson Mandela Bay Metropolitan Municipality [2024] ZASCA 151, the Supreme Court of Appeal (SCA) had an opportunity to consider and interpret section 32 of the MFMA.

The case related to the liability of a number of municipal officials who were employed by the Nelson Mandela Bay Metropolitan Municipality (Municipality) under section 32 of the MFMA. They had all contributed to the appointment of a service provider in breach of the applicable legislation and in contravention of the Municipality’s supply chain management policy. As a result, the Municipality irregularly paid an amount R7,638,177.10 to an unlawfully appointed service provider. In an effort to comply with its obligations under section 32 of the MFMA and recover the money, the Municipality instituted proceedings in the High Court, whereby it sought a declaration that the appointment was unlawful and invalid and also sought monetary relief against the municipal officials and the service provider for an amount of R7,638,177.10 in terms of a claim for unjustified enrichment and a claim in delict on the basis of fraudulent misrepresentation. The High Court granted the Municipality the relief it sought and the defendants (the municipal officials and the service provider) appealed the judgment to the SCA.

SCA’s findings

The appeal centred around the correct interpretation of section 32 of the MFMA. The SCA confirmed the refined approach to interpretation that it set out in Capitec Bank Holdings Ltd and Another v Coral Lagoon Investments 194 (Pty) Ltd and Others [2021] ZASCA. In that case, the SCA held that the term “liable” in section 32 must be interpreted to include monetary liability and not just accountability in the broad sense. With respect to liability it also held that liability arises as soon as an official intentionally or negligently incurred the unsecure expenditure.

Furthermore, even though municipal officials are protected against liability to third parties for loss and damages that result from the bona fide exercise of a power or the performance of a function under section 175 of the MFMA, that does not prevent the Municipality from recovering losses or damages that have been caused by the deliberate or negligent acts of municipal official in terms of section 32 of the MFMA. The SCA held that section 32 is a self-standing provision that imposes statutory liability on municipal officials and political office bearers for unsecure expenditure.

In addition, it held that section 32 makes it mandatory for municipalities to take steps to recover any unauthorised, irregular, or fruitless and wasteful expenditure. A municipality need not establish loss or damage before it institutes recovery proceedings against liable municipal officials or political office bearers for the unsecure expenditure.

With respect to the internal condonation provisions in section 32, the SCA held that even if the expenditure is certified as being irrecoverable and is then written off by a municipal council it “is no excuse in criminal or disciplinary proceedings against the person who incurred that expenditure”.

Conclusion

The importance of this judgment is that it adds a layer of clarity in respect of the fiscal affairs of municipalities. Further, it enhances the level of accountability for municipal officials and political office bearers, who will have to think quite hard about the risks of acting in a manner that deliberately or negligently causes loss to a municipality when it comes to expenditure. At the time of publishing this alert, it was not apparent whether the judgment may be further appealed to the Constitutional Court.