Until now, management of municipalities have largely been legally immune from criminal or financial liability for wasteful expenditure. But this has changed, due to a precedent-setting court ruling at the Supreme Court of Appeals, which affirmed the ruling of the Eastern Cape High Court against the management staff of Nelson Mandela Bay Municipality.

Under South Africa's Local Government: Municipal Finance Management Act (MFMA), the question of when municipal officials can be held personally liable for "unauthorised, irregular, fruitless and wasteful expenditure" has been limited to cases where officials acted in bad faith - Section 176(1) of the Act places good faith action as an explicit caveat.

The present appeal thus turned on whether this exemption could shield officials from financial penalties, particularly when public funds are mismanaged (supposedly) without intent of personal gain.

But judge Schippers made a clear point about the spirit of the law superseding the until-now pharisaical manipulations of their literal contents:

(a)           Section 32, construed in the context of that section as a whole and the wider context of the MFMA, makes it clear that the place and function of s 32 is to create personal liability on the part of municipal officials in particular circumstances. The meaning conveyed by the wording of s 32 is clear and unambiguous. Liability arises as soon as an official intentionally or negligently incurs unauthorised, irregular, and fruitless and wasteful expenditure: s 32 is not conditional upon a municipality sustaining loss or damage.

(b)           Section 32 gives effect to the intention of Parliament: to secure sound and sustainable management of the fiscal and financial affairs of municipalities, by holding political office-bearers and municipal officials personally liable for the intentional or negligent incurrence of the defined expenditure. This is what renders s 32 completely different from s 176(1) of the MFMA in its purpose and operation.

(c)            This construction is not unconscionable and produces no absurdity. The construction that the defendants contend for – that a municipality can recover unauthorised, irregular, and fruitless and wasteful expenditure only if it has suffered loss or damage – renders s 32 meaningless. 

In a partial, comparatively insignificant victory for the appellants, the court restructured the payment liabilities, and imposed joint liability on multiple defendants, and amounting to R5.26 million, R1.39 million, and R984,197.21 from various combinations of defendants, alongside accruing interest and costs, including those related to trial postponements, and dismissed their appeal with costs.

What this means for municipalities going forward is double - on the one hand, this creates a far greater capacity for municipal officials to be held accountable. On the other hand, in a country with a considerable, if not ubiquitous corruption, the incentives to use bribery, coercion and secrecy to protect and cover up irresponsible financial management have now become much deeper.

The battle to clean up our municipalities can now begin in earnest, but it may get very messy very soon.

‍