A Case in Point – Accountability at last – October 2025

ACCOUNTABILITY AT LAST

Introduction

The court reports are replete with cases involving unlawful tender awards and concomitant irregular expenditure on the part of government entities.

Although not often proven, many of these cases perfume the air with a suspicion of corruption.

Historically, the costs and losses arising from these unlawful contracts have redounded to the detriment of the state entities concerned and, ultimately, also taxpayers who, in the long run, have to ‘finance’ the burden of such costs and losses.

Generally, the officials involved have escaped with nothing more than some criticism by the courts.

In November 2024 there was a refreshing turn of events when the Supreme Court of Appeal (SCA) upheld a decision of the Eastern Cape Division of the High Court (the Court a quo) which held municipal officials personally liable for irregular expenditure connected with an illegal tender award.^[1]

Background

In February 2014 the Nelson Mandela Bay Metropolitan Municipality (the Municipality) appointed Erastyle (Pty) Ltd (Erastyle) as a consultant for purposes of developing a communication and marketing strategy for the Municipality’s integrated public transport system.

The appointment of Erastyle was for a contract price of R6 m and it occurred without a proper public tender process having been followed. This was in contravention of the Municipality’s Supply Chain Management Policy (SCM Policy).

The evidence established that Erastyle’s appointment had been promoted by certain officials in the Municipality, and it was made by the acting City Manager despite advice by the Municipality’s acting Chief Financial Officer (CFO) that the appointment would be unlawful unless the Municipality followed a valid tender process. In other words, and notwithstanding the CFO’s advice, the officials deliberately and/or negligently proceeded with the appointment of Erastyle without have gone out to tender as required by the SCM Policy.

In the two years following the conclusion of the contract with Erastyle, the Municipality paid it approximately R7.5 m. The payment of the excess over the contract price was itself irregular and not properly authorised.

Legal proceedings

In December 2015 a new Municipal Manager was appointed at the Municipality.

The unlawful appointment of Erastyle came to his attention and he decided, in February 2016, to take appropriate legal steps to remedy the situation.

The Municipality instituted legal action in the Court a quo for the setting aside of the contract awarded to Erastyle and for the repayment of the money paid out under the contract.

The Municipality’s claim for repayment of the money was directed at Erastyle and the various implicated municipal officials who were sued on a joint and several basis.

The grounds for the relief sought by the Municipality in the action were that:

(a)

The tender was awarded without a proper tender process in violation of section 217 of the Constitution and the Municipality’s SCM Policy, justifying the setting aside of the contract.

(b)

In light of the contract being unlawful, there was no legal entitlement to the amounts that had been paid to Erastyle being retained by it, and they were required to be repaid on the principles of unjustified enrichment. In support of this leg of its case, the Municipality relied on section 32(1)(c) of the Local Government: Municipal Finance Management Act, 56 of 2003 (MFMA), which provides for unauthorised, irregular or fruitless and wasteful expenditure by a municipality.

(c)

The municipal official who had misrepresented to the Municipality that the appointment would be lawful had done so fraudulently, alternatively negligently, rendering him liable to compensate the Municipality for the unlawful payments made to Erastyle.

Section 32(1) of the MFMA provides as follows:

‘(1)  Without limiting liability in terms of the common law or other legislation-

(a)

a political office-bearer of a municipality is liable for unauthorised expenditure if that office-bearer knowingly or after having been advised by the accounting officer of the municipality that the expenditure is likely to result in unauthorised expenditure, instructed an official of the municipality to incur the expenditure;

(b)

the accounting officer is liable for unauthorised expenditure deliberately or negligently incurred by the accounting officer, subject to subsection (3);

(c)

any political office-bearer or official of a municipality who deliberately or negligently committed, made or authorised an irregular expenditure, is liable for that expenditure; or

(d)

any political office-bearer or official of a municipality who deliberately or negligently made or authorised a fruitless and wasteful expenditure is liable for that expenditure.’

In essence, this means that the accounting officer and relevant officials of a municipality are liable for unauthorised or irregular expenditure deliberately or negligently incurred.

In terms of section 32(2) of the MFMA, a municipality must recover unauthorised, irregular or fruitless and wasteful expenditure from the person liable unless it is irrecoverable.

The Municipality’s case was that the municipal officials had deliberately or negligently allowed and/or authorised irregular payments to be made to Erastyle. As such, the Municipality was not only entitled to, but also obliged to, seek recoupment of that unlawful expenditure from them.

The SCA’s findings

The SCA found that:

(a)

The payments to Erastyle pursuant to the illegal contract constituted unauthorised, irregular, fruitless and wasteful expenditure.

(b)

The reference in section 32 of the MFMA to an accounting officer or official being ‘liable’ meant they were personally liable on a monetary basis and not, as argued by the officials’ counsel, merely legally ‘accountable’.

(c)

On its plain wording, section 32 makes it clear that recovery of unauthorised, irregular, fruitless and wasteful expenditure by a municipality is not optional. A municipality is enjoined to recover such expenditure from the person liable for it.

(d)

The argument by the officials that the Municipality had not suffered any loss because it had received services in return for the expenditure was irrelevant as section 32 does not detract from the right of a municipality to recover irregular expenditure, or for it otherwise being diminished or forfeited in such circumstances.

(e)

Section 32 makes it clear that personal liability on the part of municipal officials arises as soon as an official intentionally or negligently enables the incurring of such unauthorised, irregular and fruitless and wasteful expenditure.

(f)

Liability under section 32 is not limited to municipal officials but also extends to political office bearers who are not involved in the day-to-day running of a municipality.

Conclusion

The case puts municipal officials and political office bearers in municipalities on their guard and, hopefully, this will result in, or contribute to, a decline in dubious tender awards by municipalities. However, at the end of the day, whether a municipality takes appropriate action will in all likelihood also be dependent on the political will prevailing at the time.

ALASTAIR HAY

COX YEATS

September 2025

---