Brief Summary

Dispute Resolution — Independent Expert — Jurisdiction — Applicant sought to interdict the second respondent and the appointed independent expert from proceeding with a fast track dispute resolution process regarding delay liquidated damages (DLDs) under an engineering, procurement and construction contract — Dispute arose over the imposition of DLDs while extension of time claims were pending — Court held that the only dispute referred to the independent expert was the imposition dispute, not the broader liability dispute — Independent expert lacked jurisdiction to determine the liability dispute as it was not expressly referred for determination — Urgent application granted, interdicting the continuation of the fast track process pending resolution of jurisdictional issues.

Comprehensive Summary

Summary of Judgment

1. Introduction

This judgment concerns an urgent application in the Gauteng Local Division, Johannesburg (Commercial Court), arising from a contractual dispute-resolution mechanism in a large construction contract. The proceedings were directed at determining the jurisdictional limits of an appointed independent expert in a contractually agreed “fast track” dispute process.

The applicant was Kathu Solar Park (RF) (Pty) Ltd (“Kathu”), the project owner/employer under an engineering, procurement and construction contract (“the EPC contract”). The second respondent was Liciastar (Pty) Ltd (“Liciastar”), the construction contractor. The first respondent, Mr Terry Mahon, was the independent expert appointed under the EPC contract to determine certain disputes on a fast-track basis; he abided the court’s decision.

Procedurally, Kathu approached the court on an urgent basis seeking to interdict the continuation of the fast-track process pending determination of the expert’s jurisdiction. The matter came before Unterhalter J for certification as a commercial court matter. The judge certified it and, instead of burdening the urgent court, heard the application for final relief on an expedited basis.

The general subject-matter was the scope of a referral to an independent expert concerning delay liquidated damages (“DLDs”) under the EPC contract, and whether the expert could proceed to decide a broader dispute than the one expressly referred.

2. Material Facts

Kathu employed Liciastar to construct a solar power plant under the EPC contract. The contract contained a dispute-resolution clause (clause 21) that provided for negotiation and arbitration as the default pathway, but also provided for a fast track process in which an independent expert could determine disputes that the contract expressly permitted to be referred directly to that process.

It was common ground that on 26 December 2018 Liciastar wrote to the Director of the Law Society of the Northern Provinces indicating that a dispute had arisen and seeking to refer it under the fast-track mechanism. In that letter, Liciastar described the dispute as relating to the owner’s intention to charge DLDs due to potential delays in achieving the Initial Acceptance Date of the plant from 18 December 2018. The letter also relied on clause 13.7.1 of the EPC contract, which provided that disputes about whether the contractor is liable to pay liquidated damages pursuant to clauses 13.5 and 13.6 must be determined by an independent expert in accordance with clause 21.2.

The EPC contract distinguished between the Scheduled Initial Acceptance Date (“SIAD”) and the Initial Acceptance Date (“IAD”). The SIAD was the scheduled date by which initial acceptance was to be achieved, while the IAD was the date on which the owner issued a certificate stating that the facility complied with the initial acceptance requirements. The contract regulated the consequences of a failure to cause the IAD to occur on or before the SIAD, including the obligation to pay DLDs.

Liciastar submitted extension of time claims which, if recognised, would move the SIAD and thereby allow more time to meet the initial acceptance requirements. The judgment records that certain claims were recognised by Eskom, which extended the SIAD to 18 December 2019. The judgment further records that Kathu nevertheless commenced the imposition of DLDs on 19 December 2018.

It was common ground that a dispute crystallised in December 2018 when Kathu began imposing DLDs while Liciastar’s extension of time claims were pending. The court identified that crystallised dispute as whether DLDs could be imposed even though the final SIAD might yet be extended. The judgment referred to this as the “imposition dispute”.

A further, broader dispute existed in concept: whether Liciastar was liable for DLDs at all (the “liability dispute”). The parties were in disagreement about whether the liability dispute had been referred to the independent expert by the December 2018 referral.

The independent expert, Mr Mahon, determined the imposition dispute in favour of Liciastar on 16 July 2019. He considered the parties’ difference about the scope of his mandate to be of “little moment” because he understood clause 21.2 to permit him to “take the initiative in ascertaining the facts and the Law”, and on that basis he proposed to proceed to entertain the liability dispute.

Kathu then sought court relief to prevent the fast-track process continuing in relation to the liability dispute, contending that Mr Mahon lacked jurisdiction to decide it.

3. Legal Issues

The court was required to determine two central questions.

The first was a jurisdictional and interpretive issue grounded in contract: what dispute or disputes had been “expressly referred” to the independent expert under clause 21.2, and therefore what dispute or disputes the independent expert was competent to determine. This was primarily a matter of interpretation of the EPC contract and the application of that interpretation to the text of the referral communication and the existence (or non-existence) of a crystallised dispute at the time of referral.

The second issue was remedial and discretionary: whether it was permissible and appropriate for the court to intervene in an ongoing private dispute-resolution process (the fast-track expert determination), and whether Kathu was entitled to the declaratory and interdictory relief it sought. This entailed a value judgment in the exercise of discretion, informed by legal principles about party autonomy in private dispute resolution, the contractual nature of expert determinations, and the practical consequences of allowing potentially futile proceedings to continue.

4. Court’s Reasoning

Contractual framework and the “express referral” requirement

The court analysed the EPC contract’s dispute-resolution architecture. It recognised that the contract created two dispute-resolution “species”: negotiation followed by arbitration as the default mechanism, and the fast track expert determination mechanism for disputes that the contract permitted to be routed directly to an independent expert.

The court emphasised the introductory wording of clause 21.2: only disputes “expressly referred for determination” pursuant to clause 21.2 were to be determined by the relevant independent expert. On this wording, the court held that two cumulative requirements had to be satisfied before an independent expert could assume jurisdiction: the dispute must be of a kind that the contract permits to go to the fast track, and it must have been expressly referred under the fast-track process.

While it was common cause that both the imposition dispute and the liability dispute were disputes that clause 13.7.1 required to be determined by an independent expert (and were therefore eligible for fast track), eligibility did not resolve the decisive question. The decisive question remained whether the liability dispute had in fact been expressly referred.

Interpretation of the 26 December 2018 referral and crystallisation of disputes

The court considered what Liciastar’s letter of 26 December 2018 actually defined and referred as “the dispute”. It reasoned that the letter’s definition of the dispute was directed at Kathu’s intention to charge DLDs due to potential delays, which the court considered to align with the imposition dispute, namely the permissibility of imposing DLDs while extension-of-time claims were pending and the SIAD might be extended.

Liciastar relied on a portion of the letter in which it stated that it wanted “to dispute any payment of DLD”. The court rejected the submission that this necessarily encompassed the broader liability dispute. It interpreted that language in context, holding that the “current project situation” described in the letter referred to the live controversy that had already arisen: the imposition of DLDs notwithstanding pending extension claims. On that interpretation, the phrase “dispute any payment of DLD” was understood as disputing payment because Kathu was said not to be entitled to impose DLDs at that stage, not as a referral of all possible questions about ultimate liability.

The court then applied a principle concerning what constitutes a dispute capable of referral. Relying on Delfante and another v Delta Electrical Industries Ltd 1992 (2) SA 221 (C), the court held that a dispute must be an issue that is palpable and genuine; absent a dispute that has crystallised, “there is nothing to refer”. The court rejected the possibility of an anticipatory referral of disputes that had not yet crystallised, noting that anticipated disputes may never arise or may be resolved by concession or compromise.

Because Liciastar conceded (as recorded by the court) that the only live dispute at the time of the referral was the imposition dispute, the court concluded that only that dispute could have been referred. Any attempt to treat the letter as referring a broader dispute that was not yet a live controversy was held to be incompetent.

Limits of the independent expert’s power under clause 21.2

The court addressed Mr Mahon’s reliance on clause 21.2’s statement that the independent expert may “take the initiative in ascertaining the facts and the Law”. The court accepted that this language could afford procedural flexibility, including inquisitorial fact-finding or controlling the order in which issues within the referred dispute are addressed. However, it held that such a power does not extend to expanding the scope of the dispute referred for determination.

The court distinguished between an expert’s ability to investigate and understand what has been referred, and any purported power to assume jurisdiction by unilateral fiat. It held that, unless the EPC contract conferred an express competence on the expert to decide his own jurisdiction and to enlarge it, the expert could not determine disputes beyond the express referral. On the facts, the court found that Mr Mahon had not ruled on the scope of referral as a jurisdictional question; instead, he proposed to proceed to decide the liability dispute on grounds of convenience, which the court held the contract did not permit.

On this reasoning, the court concluded that Mr Mahon lacked jurisdiction to determine the liability dispute.

Whether court intervention was permissible and appropriate

Liciastar argued that the parties had agreed to resolve disputes through the contract’s dispute-resolution processes rather than the courts, and that the court should be slow to intervene while the fast-track process was underway. It suggested that Kathu could object before the expert and, if unsuccessful, resist enforcement of any adverse determination later.

The court reasoned that fast-track expert determination under the EPC contract was not arbitration, and therefore not subject to the supervisory jurisdiction conferred by the Arbitration Act 42 of 1965. Nonetheless, it accepted that expert determination is akin to arbitration in that it rests on party agreement to submit defined disputes for private determination. In that respect, the court acknowledged the Constitutional Court’s emphasis in Lufuno Mphaphuli & Associates (Pty) Ltd v Andrews 2009 (4) SA 526 (CC) on respecting parties’ choices to adopt private dispute-resolution mechanisms.

However, the court held that respect for private dispute resolution does not exclude ordinary contractual remedies. Because expert determinations lack a direct statutory underpinning, the court approached them through the law of contract. It held that when an expert exceeds the mandate in a material respect, any resulting determination is a nullity, and the party affected may seek appropriate relief to enforce the agreement’s limits. The court indicated that this approach accords with English law (with reference to Shell UK Limited v Enterprise Oil PLC 1999 (2) Lloyd’s Reports 456) and that South African law is no different.

On whether it should intervene at the present stage, the court treated the issue as analogous to the question addressed in Inter-Continental Finance and Leasing Corporation (Pty) Ltd v Stands 56 and 57 Industria Ltd 1979 (3) SA 740 (W), which concerned whether to interdict arbitration proceedings where jurisdiction was disputed. The court accepted that, in some circumstances, permitting a process to run its course and dealing with jurisdiction only at enforcement may be possible, but it endorsed the Inter-Continental Finance approach that it is often neither convenient nor just to await the outcome where doing so would result in futile proceedings and wasted, at least partly irrecoverable, costs.

The court then exercised its discretion in light of the case’s circumstances. It highlighted that the jurisdictional question was self-standing, that the proceedings had not advanced beyond pleadings, that Kathu had consistently maintained the jurisdiction objection, and that there was no identifiable benefit in allowing the fast-track process to continue on a dispute beyond the expert’s mandate. The court considered that an early judicial determination would avoid unnecessary cost and avoid a later burden on the courts at the enforcement stage.

On that basis, the court held that declaratory relief was warranted, and that Liciastar, having opposed it unsuccessfully, should bear the costs.

5. Outcome and Relief

The court granted declaratory relief determining that the independent expert lacked jurisdiction in the fast-track process to determine the issues and grant the relief set out in Liciastar’s statement of claim dated 31 January 2020 (being the claim advancing the liability dispute in the fast-track process).

The court ordered that Liciastar (Pty) Ltd pay the costs of the application.

Cases Cited

Delfante and another v Delta Electrical Industries Ltd 1992 (2) SA 221 (C).

Lufuno Mphaphuli & Associates (Pty) Ltd v Andrews 2009 (4) SA 526 (CC).

Shell UK Limited v Enterprise Oil PLC 1999 (2) Lloyd’s Reports 456.

Inter-Continental Finance and Leasing Corporation (Pty) Ltd v Stands 56 and 57 Industria Ltd 1979 (3) SA 740 (W).

Legislation Cited

Arbitration Act 42 of 1965.

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that, although both the imposition dispute and the liability dispute were of a type that the EPC contract allowed to be determined by an independent expert, only disputes expressly referred could be determined under clause 21.2. On the facts, the December 2018 referral encompassed only the imposition dispute that had crystallised at the time, and did not validly refer the broader liability dispute. The independent expert’s procedural power to “take the initiative” in ascertaining facts and law did not permit him to enlarge the scope of the referral or assume jurisdiction beyond the contractually referred dispute.

The court further held that it was permissible and appropriate to intervene at this stage, granting declaratory relief to prevent the continuation of a fast-track process in respect of a dispute beyond the expert’s jurisdiction, and awarded costs against Liciastar.

LEGAL PRINCIPLES

A contractual fast-track expert determination clause confers jurisdiction on an independent expert only in respect of disputes that the contract both permits to be resolved by that mechanism and that are expressly referred for determination under the relevant clause.

A dispute capable of referral must have crystallised into a palpable and genuine controversy; an anticipatory referral of a dispute that has not yet arisen is not competent, because absent a live dispute there is nothing to refer for determination.

An independent expert’s power to “take the initiative in ascertaining the facts and the Law” is a procedural power concerning how the expert investigates and determines the dispute referred; it does not confer authority to expand the scope of the dispute or to assume jurisdiction over additional disputes not expressly referred.

Expert determinations are approached through the law of contract rather than the statutory framework applicable to arbitrations. Where an expert exceeds the contractual mandate in a material respect, the purported determination is treated as a nullity, and a party may seek judicial relief to enforce the contractual limits of the process.

Although courts generally respect parties’ choice of private dispute resolution, they retain a discretion to intervene where a self-standing jurisdictional defect would render continuing proceedings futile and costly, and where early determination provides clarity and avoids wasted expenditure.

Kathu Solar Park (RF) (Pty) Ltd v Mahon and Another (2020/4931) [2020] ZAGPJHC 277 (11 March 2020)