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BY Aslam Moosajee AND Zameer Omar
SCA holds municipal officials personally liable for irregular expenditure
In the case of Mbambisa and Others v Nelson Mandela Bay Metropolitan Municipality, the Supreme Court of Appeal (“the SCA”) found former officials (“the officials”) of the Nelson Mandela Bay Municipality (“the Municipality”) personally liable for the incurring of expenditure. The Municipality’s claim was based on section 32 of the Local Government: Municipal Finance Management Act 56 of 2003 (“MFMA”).
Background
Municipal officials appointed Erastyle (Pty) Ltd (“Erastyle”) as a consultant and facilitated payments of ZAR7, 638 177.10 to Erastyle. This included ZAR984, 197.22 which was paid to Erastyle following the officials' approval of an increase in the contract value. The appointment was made without a public tender process and in breach of the Municipality’s Supply Chain Management Policy (“SCMP”).
The officials argued that the Municipality unreasonably delayed in instituting proceedings for the recovery of the amount and for that reason, the claim should be dismissed. It was further contended that since the Municipality benefited from Erastyle’s services, it could not have been the intention of the legislature for the Municipality to be able to claim repayment of the monies expended when it benefited from the services rendered.
It was disputed that section 32 of the MFMA provided for individual officials to be held personally liable. Instead, the officials contended that the word “liable” should be read as “accountable” as opposed to personal monetary liability attaching.
High Court findings
The Eastern Cape Division of the High Court of South Africa, Gqeberha (“the High Court”) held that section 32 of the MFMA creates a statutory claim for the recovery of unauthorised, irregular, fruitless and wasteful expenditure (“expenditure”) from the officials who deliberately or negligently incur the expenditure. This is a penalty and not damages. Section 32 constitutes a self-standing claim based on the jurisdictional requirements contained in the provision and the Municipality is obliged to recover such expenditure from the persons specified in section 32.
Whether the Municipality received value for the expenditure is not a relevant factor as no preconditions are set for the recovery of the expenditure in the provision. The issue of delay is irrelevant to a claim under section 32 of the MFMA. A perceived procedural obstacle should not prevent the court from considering a challenge to the lawfulness of the exercise of public power.
The evidence was incontrovertible. There was no lawful basis for the payments and the officials responsible for implementing the SCMP authorised the unlawful payments to Erastyle. Erastyle received the full contract value in advance, and the officials, either intentionally or negligently breached their duty to act in good faith and avoid conduct prejudicial to the Municipality when they authorised the increased contract value.
The officials were held personally liable for the expenditure under section 32(1)(c) of the MFMA.
SCA findings
In interpreting section 32, the SCA employed a contextual and purposive interpretation and reiterated that the starting point is always the plain language of a provision. The court also emphasised that it is trite that words cannot be read into a statute by implication, unless that implication is necessary.
On the plain wording of section 32, municipal officials are liable for the deliberate or negligent incurrence of the expenditure. Section 32 applies not only to municipal officials but also to political office-bearers who are not involved in the day-to-day running of a Municipality.
The provision also makes it a “must” for the Municipality to recover such expenditure from the relevant person. It is not an option. Furthermore, the SCA concurred with the High Court that section 32 creates an independent self-standing claim that imposes liability for the deliberate or negligent incurrence of the expenditure.
Section 32 is clearly worded, and a literal interpretation would give effect to the objects of the MFMA, “to secure sound and sustainable management of the fiscal and financial affairs of municipalities and municipal entities”. Reading the word “liable” as “accountable” would ignore the plain language of the provision and would not align with the objects of the MFMA. Personal liability is required for these objects to be accomplished.
The question of delay where a claim is founded on section 32 is irrelevant. Whether the Municipality benefits from work done despite incurring the expenditure is irrelevant. As soon as the expenditure is proven, which it was, liability attaches. Additionally, the SCA concurred with the High Court that whether the Municipality received value for the expenditure is not a relevant factor for a section 32 claim.
Section 176 of the MFMA did not assist the officials. The SCA held that the loss or damage specified in section 176 is not the expenditure stipulated in section 32. Section 176 merely underscores the fact that section 32 is a self-standing provision and has nothing to do with the recovery of such expenditure.
The SCA replaced the High Court’s order because the High Court’s order duplicated the amount payable. The SCA still found the officials jointly and severally liable for the total of ZAR7 638, 177.10. Save for the correction of the order, the officials’ appeal was dismissed with costs, including the costs of two counsel.
Aslam Moosajee
Executive | Dispute Resolution
Zameer Omar
Candidate Legal Practitioner | Dispute Resolution
