Durban: Councillors and officials in eThekwini Municipality have received a dire warning following a judgment handed down by the Supreme Court of Appeal regarding liability for financial losses.
The ruling found that municipal officials could be held personally liable for financial losses suffered by a municipality as a result of irregular, fruitless and wasteful expenditure.
The judgment related to a case between a municipality in the Eastern Cape and its former employees.
The councillors and officials said an unintended consequence of the judgment was that it could make officials reluctant to take decisions, thereby hindering the municipality's ability to function effectively.
An ANC councillor described the ruling as a “knee-jerk reaction”.
In contrast, opposition parties welcomed the ruling, arguing that it could ensure that officials and councillors do not make reckless decisions that cost the municipality money.
Councillors and city officials were briefed on the implications of the judgment. At the centre of the issue is an Eastern Cape municipality that had hired a company to provide marketing and communication services. The contract was worth millions of rand.
The tender process did not comply with regulations, including the failure to put the contract out for public tender and adherence to other supply chain processes.
The Eastern Cape municipality later challenged the validity of the tender and sought to have it nullified, aiming to hold its officials personally responsible for the expenditure that was now deemed irregular, fruitless and wasteful.
While the defendants did not testify on their behalf, and not all matters justifying the transactions were ventilated—including whether value for money had been achieved in the spending—the municipality argued that the regulations governing matters of fruitless and wasteful expenditure created statutory liability. This meant that officials were liable for the expenditure, regardless of whether there was value for money.
The SCA agreed with this view and ruled in favour of the municipality, which had sought to have the appointment of the firm declared unlawful and to recover the payments made.
Malusi Mhlongo, head of legal in eThekwini Municipality, stated that the judgment posed serious implications for municipalities.
He noted that the Auditor-General had flagged more than a billion rand in irregular, fruitless and wasteful expenditure in eThekwini because the expenditure had not complied with some procurement conditions.
In terms of the SCA judgment, he warned, all officials involved in processing that expenditure could have been held liable and the money spent recovered from them.
“There are serious implications from this judgment; it could make officials reluctant to act and paralyse the municipality's ability to operate. We could also receive unjust enrichment claims from those who delivered services that we are now trying to reclaim money from,” he said, adding that it also means the conditions under which irregular, fruitless, and wasteful expenditure can be written off have become unclear.
ANC councillor Nkosenhle Madlala expressed concern about the judgment, stating that it could be challenged.
“I believe this judgment is a knee-jerk reaction and a slippery slope,” he said.
IFP councillor Mdu Nkosi remarked, “This presentation was a warning to us that we should not take decisions lightly. This means you must not be negligent and should take decisions in a correct manner so that funds are not wasted.”
DA councillor Thabani Mthethwa said the judgment was a “step in the right direction”.
“We have been calling for people to be held personally liable in cases where the municipality incurred fruitless and wasteful expenditure due to recklessness. We therefore welcome this judgment as it strengthens accountability for both officials and councillors.”