Mbambisa and Others v Nelson Mandela Bay Metropolitan Municipality

The respondent Municipality instituted action against eight defendants, including its former senior managers (the first, third, and fifth appellants). The first appellant was the Municipal Manager, the third appellant the Chief Financial Officer (CFO), and the fifth appellant the Executive Director of Infrastructure and Engineering. In February 2014, these officials authorized the appointment of Erastyle (Pty) Ltd as a lead consultant for a communication and marketing strategy for the Municipality's Integrated Public Transport System (IPTS), valued at approximately R6 million. It was common ground that Erastyle was appointed without a public tender process and in breach of the Municipality's Supply Chain Management Policy (SCM policy). Pursuant to this appointment, the Municipality paid Erastyle R5,263,179.89, R1,390,800 and R984,197.21 (the unlawful payments). The impugned appointment was made despite objections by the Acting CFO, Ms De Scande, who refused to support a memorandum recommending the appointment and expressly stated that the SCM policy had to be followed. Following a forensic investigation by Deloitte commissioned by National Treasury in 2014, the Municipality brought proceedings seeking declarations that the appointment was unlawful, and recovery of the unlawful payments from the defendants.

• Whether section 32 of the Local Government: Municipal Finance Management Act 56 of 2003 (MFMA) creates a self-standing statutory liability for municipal officials who deliberately or negligently incur irregular expenditure
• Whether section 176(1) of the MFMA, which excludes liability of officials acting in good faith, is a prerequisite for liability under section 32
• Whether recovery under section 32 is conditional upon the municipality suffering loss or damage
• Whether the value received by the municipality for services rendered is relevant to recovery under section 32
• Whether unreasonable delay in challenging administrative action bars a claim for recovery under section 32 of the MFMA
• The proper interpretation of 'liable' in section 32(1) of the MFMA

The appeal was upheld in part. Paragraphs 2, 3 and 4 of the High Court's order dated 26 April 2022 were set aside and replaced with orders granting judgment against various combinations of defendants for the three unlawful payments: (1) against the first, second, fourth and fifth defendants jointly and severally for R5,263,179.89 plus interest and costs; (2) against the first, second, fourth, fifth, sixth and seventh defendants jointly and severally for R1,390,800 plus interest and costs; (3) against the first, second, fourth, fifth and eighth defendants jointly and severally for R984,197.21 plus interest and costs. The alternative relief against the third defendant was removed. Save for these amendments, the appeal was dismissed with costs, including costs of two counsel.

Section 32 of the MFMA creates a self-standing statutory liability for municipal officials who deliberately or negligently incur irregular expenditure as defined in the Act. The word 'liable' in section 32(1) means financial liability, not merely accountability. Recovery of irregular expenditure under section 32 is mandatory ('must') and is not conditional upon the municipality proving loss or damage or demonstrating that it did not receive value for the expenditure. Section 176(1) of the MFMA is not a prerequisite for liability under section 32; the two provisions serve different purposes and operate independently. Section 176(1) protects officials against liability to third parties when acting in good faith, while section 32 creates liability to the municipality for specified categories of expenditure. Irregular expenditure is defined in section 1 of the MFMA as expenditure incurred in contravention of the Act, the Municipal Systems Act, or the municipality's supply chain management policy. Once irregular expenditure is proved to have been deliberately or negligently incurred, authorized or made by a municipal official, the municipality is obliged to recover it from that official, subject only to the limited exceptions in section 32(2). Delay in challenging the underlying administrative decision does not bar recovery under section 32, as the section does not require prior review and setting aside of the decision.

The Court observed that it is doubtful whether it was competent for the High Court to grant judgment in favour of the Municipality on both its main claim and its alternative claim in respect of the second claim, since the alternative was specifically pleaded to apply only if the main claim failed, and contained different factual allegations. The Court noted that the seriousness with which Parliament views unauthorized, irregular, and fruitless and wasteful expenditure is underscored by sections 32(6) and (7), which oblige the accounting officer to report all cases of alleged irregular expenditure constituting a criminal offense to the police, and by section 32(5), which provides that writing off such expenditure as irrecoverable is no excuse in criminal or disciplinary proceedings. The Court emphasized that the two main reasons for the delay rule in administrative law challenges are to curb potential prejudice and to promote finality and certainty in public decision-making, but these considerations do not apply to claims under section 32 which do not require prior review of administrative action.

This judgment provides definitive guidance on the interpretation and application of section 32 of the MFMA, a critical provision for municipal financial accountability. It establishes that section 32 creates an independent statutory cause of action that does not depend on proof of loss or damage to the municipality, nor on whether value was received for expenditure. The decision reinforces the statutory framework for financial accountability of municipal officials and political office-bearers, emphasizing that municipalities are obliged to recover irregular, unauthorized, and fruitless and wasteful expenditure from officials responsible for such expenditure. The judgment clarifies the relationship between sections 32 and 176 of the MFMA, confirming they serve different purposes and operate independently. This case is significant for municipal governance and the enforcement of financial discipline in local government, particularly in the context of supply chain management policy violations. It demonstrates the courts' commitment to holding municipal officials personally accountable for deliberate or negligent contraventions of procurement requirements.