Nelson Mandela Bay Metropolitan Municipality v Erastyle (Pty) Ltd and Others

Nelson Mandela Bay Metropolitan Municipality appointed Erastyle (Pty) Ltd as lead consultant for a communications and marketing strategy for its Integrated Public Transport System (IPTS) project during February 2014. The appointment was made without a competitive bidding process and purportedly by way of an unlawful deviation from the municipality’s Supply Chain Management (SCM) Policy. Pursuant to this appointment, three payments totalling approximately R7.6 million were made to Erastyle. Senior municipal officials, including the municipal manager, CFO, COO and other executives, authorised and facilitated the appointment and payments despite internal warnings that SCM processes had not been followed. The payments constituted irregular expenditure under the Municipal Finance Management Act 56 of 2003 (MFMA). The municipality instituted proceedings to declare the appointment and decisions unlawful and to recover the amounts from Erastyle and the responsible officials, relying on section 32 of the MFMA and, alternatively, common-law delictual liability.

The appointment of Erastyle (Pty) Ltd and all related decisions were declared unlawful, invalid and void ab initio. Judgment was granted against the first, second and fifth defendants jointly and severally for repayment of R5 263 179.89, R1 390 800.00 and R984 197.21 plus interest. Alternative liability was imposed on the third defendant. Further judgments were granted against the fourth defendant, the fourth and eighth defendants jointly, and the sixth and seventh defendants jointly for specified amounts corresponding to the unlawful payments. Costs, including costs of two counsel and a prior postponement, were awarded against the defendants.

The case affirms the strict enforcement of section 217 of the Constitution and municipal SCM rules, and clarifies that section 32 of the MFMA imposes a peremptory duty on municipalities to recover irregular expenditure from responsible officials as a statutory penalty. It confirms that recovery is not dependent on proof of loss or lack of value received, and that legality review is not a prerequisite for section 32 claims. The judgment reinforces accountability of senior municipal officials for procurement irregularities.