Brief Summary

Arbitration — Stay of proceedings — Special plea — Plaintiff sought summary judgment for payment under certified interim payment certificate; defendant raised special plea invoking arbitration clause, claiming entitlement to set off for delay damages — Court held that summary judgment application must be determined first, as it concerns a liquid claim, while the defendant's claim for delay damages is subject to arbitration — No factual disputes regarding the plaintiff's claim; the dispute centers on whether the amount claimed is due and payable in light of the defendant's arbitration proceedings.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings comprised two interlocutory applications set down for hearing on the same date in pending action proceedings in the Gauteng Division, Johannesburg. The first application was the plaintiff’s application for summary judgment. The second was the defendant’s application in terms of Uniform Rule 33(4) for the separation of a special plea and, in addition, the determination of that separated special plea.

The parties were Optipower, a trading division of Murray & Roberts Limited (plaintiff/applicant in the summary judgment application) and Goldwind 4RE SA (Pty) Ltd (defendant/respondent in the summary judgment application and applicant in the separation application). For convenience, the court referred to the parties as “plaintiff” and “defendant”.

The underlying action was instituted by the plaintiff on 19 August 2022 for payment of a certified interim payment certificate (“IPC 20”) issued under a written electrical balance of plant contract concluded in November 2018 for the Golden Valley Wind Energy Power Project. The defendant raised the arbitration issue by way of a special plea delivered on 20 September 2022, relying on the contract’s arbitration clause and seeking a stay of the action. Separately, the defendant applied to have that special plea separated and determined first.

The general subject-matter of the dispute concerned the enforceability in court (including by summary judgment) of a certified interim payment certificate that was common cause to be liquid, in circumstances where the defendant asserted an arbitrable delay liquidated damages claim which (if upheld) might defeat or extinguish the plaintiff’s claim, and where overlapping issues were already before an arbitration tribunal.

2. Material Facts

A written contract governing the works was concluded between the parties during November 2018. Under that contract, an interim payment certificate, IPC 20, was issued and certified on 17 December 2020 in the amount of R25 134 704.89 (including VAT). Following certification, the plaintiff issued tax invoice 2132, and it was common cause that payment under IPC 20 fell due on 1 February 2021.

The court treated as undisputed the conclusion of the contract, the relevant contractual terms for interim certification, the issuing and certification of IPC 20 for the amount claimed, and the fact that IPC 20 was a liquid document. It was also common cause that the plaintiff issued the required invoice, and that there were no factual disputes directed at the validity, authenticity, or correctness of IPC 20 as certified.

The dispute arose from the defendant’s contention that the plaintiff had delayed completion of various contractual sections by a total exceeding 3000 days, triggering delay liquidated damages calculated at 0.1% of the contract price per day, capped at 20% of the contract price. The defendant asserted it was entitled to R58 722 429.00 (the contractual cap) and delivered a tax invoice to the plaintiff on 16 February 2021 reflecting payment due on 19 March 2021.

The defendant instituted arbitration proceedings in respect of the delay damages claim on 15 August 2022. The plaintiff disputed that claim and delivered counterclaims on 7 October 2022, including a dispute about the contract price and a monetary claim (including ancillary relief) in an amount stated in the judgment as R69 763 792.84, and elsewhere reflecting that in the arbitration the plaintiff claimed R96 763 792.84 as owing. The arbitration was pending before a tribunal of three arbitrators.

In the action, the defendant did not bring a timeous application for a stay under section 6(1) of the Arbitration Act 42 of 1965 before pleading. Instead, it delivered a special plea invoking the contract’s arbitration clause (clause 22) and seeking an order that the plaintiff’s claim be stayed pending arbitration, alternatively pending determination of the defendant’s delay damages claim in the arbitration.

It was not disputed that IPC 20 had also been raised in the arbitration pleadings and that the plaintiff’s counterclaim in arbitration included the amount reflected in IPC 20, with the contract price itself being in dispute in the arbitration.

3. Legal Issues

The court was required to determine, first, the procedural sequencing of the two enrolled applications: whether the summary judgment application should be determined before the defendant’s Rule 33(4) separation application and special plea adjudication, or vice versa.

On the merits, the central questions were whether the defendant’s special plea and the existence of the arbitration dispute disclosed a bona fide defence or triable issue sufficient to defeat summary judgment, notwithstanding that the plaintiff’s claim was founded on a certified interim payment certificate accepted to be a liquid document.

After the separation application succeeded, the court further had to decide the separated special plea: whether the plaintiff’s court claim was one “in respect of any matter agreed to be referred to arbitration” and, if so, whether the court should grant a stay of the action under section 6 of the Arbitration Act 42 of 1965. This entailed an evaluative assessment of whether there was “sufficient reason” not to stay the court proceedings, and whether the overlap between the action and arbitration justified a stay.

The dispute thus involved a combination of application of legal principles to largely common-cause facts (summary judgment requirements; the effect of an arbitration clause; the discretion to stay proceedings), and a case-management/value judgment as to convenience under Rule 33(4) and the appropriateness of a stay to avoid inconsistent determinations across forums.

4. Court’s Reasoning

The court first addressed the order in which the applications should be heard. Although the parties accepted they should be heard together, they disagreed on sequencing. The court treated the applications as “separate and distinct” and considered that deciding summary judgment first would allow the defendant to rely on the content of its summary judgment opposing affidavit. The court reasoned that, if the separation and special plea were determined first, the defendant would be confined to the special plea’s content. On that basis, the court determined that the summary judgment application should be decided first, and only if it failed would it be necessary to determine the separation application (though, as the judgment unfolded, the separation application was then dealt with after summary judgment was refused).

In considering summary judgment, the court applied the established principle that summary judgment is not designed to deprive a defendant with a triable issue or sustainable defence of a trial. The court reiterated that it was not required to decide the probabilities or finally determine the merits of the defence. The enquiry was whether the defendant had fully disclosed the nature and grounds of the defence and the material facts upon which it was founded, and whether the defence was bona fide and good in law.

The court accepted as common cause that a certified interim payment certificate is a liquid document, equated in effect to an acknowledgement of debt, and further accepted that the existence of an arbitration clause does not, in itself, bar summary judgment. The court nevertheless located the real controversy in whether IPC 20 was presently due and payable given the pending delay damages dispute and the defendant’s set-off contentions.

The defendant relied on the broadly framed arbitration clause (clause 22), together with the definition of “dispute” in clause 1.2.66, which encompassed any question, controversy, or matter arising under or in connection with the contract, including interpretation. The court considered that the interpretative issues and the delay damages claim were arbitrable disputes, and that those issues were already before the arbitration tribunal.

While the plaintiff argued that the defendant’s delay damages claim was irrelevant to the plaintiff’s liquid claim because it was not yet “fixed and payable” (and thus could not operate as set-off), the court did not regard that contention as decisive at the summary judgment stage. The court reasoned that, even if set-off did not presently apply (and even if the liquid/illiquid character of the delay damages claim remained to be determined in arbitration), the delay damages claim and associated interpretation disputes could materially affect whether the plaintiff was entitled to immediate payment, and could potentially defeat the plaintiff’s claim if the claim were ultimately extinguished. This sufficed to establish a triable issue.

The court further took into account that IPC 20 and related monetary issues featured in the arbitration pleadings, and that the contract price was in dispute in arbitration. The court regarded there as being merit in the defendant’s concern that two different forums were being asked to determine overlapping questions about the parties’ obligations and liabilities, creating a risk of inconsistent findings between the court and the arbitral tribunal if the action proceeded. In that context, and applying the summary judgment threshold, the court held the defendant had disclosed a defence that was bona fide and legally tenable for purposes of resisting summary judgment.

Turning to the Rule 33(4) separation application, the court set out the text and purpose of Rule 33(4), namely the separate determination of a question of law or fact where it may be conveniently decided apart from others, to shorten proceedings. The court applied the approach that a separation should be granted unless the questions cannot conveniently be decided separately, with “convenience” understood as fairness and appropriateness to all parties. Given that the special plea raised a distinct question of law and fact, and that this was undisputed, the court was persuaded that it was convenient to separate and determine it.

On the separated special plea, the court identified the central issues as whether the plaintiff’s claim had to be referred to arbitration or whether it should be stayed pending arbitration. The court emphasised that the defendant had not availed itself of section 6(1) in the procedural manner contemplated (having taken further steps), but accepted that raising the issue by special plea was permissible while also noting that this meant the defendant did not challenge the court’s jurisdiction.

The court rejected the defendant’s contention that the plaintiff’s claim itself should be referred to arbitration on the basis that non-payment of an undisputed certified amount did not, merely by itself, create a “dispute” that required referral to arbitration. The court observed that, if a claim were referred, it would be for the arbitrators to determine jurisdiction and propriety of referral. The court then treated the real question as whether a stay should be granted.

In assessing the stay, the court referred back to its earlier discussion (in the summary judgment context) concerning the overlap of issues and the pending arbitral determination of delay damages and set-off-related interpretation questions. The court also noted that because the action was launched after the arbitration was instituted, the defendant could not invoke Uniform Rule 22(4) to have a counterclaim determined together with the claim in the action, which the court treated as contributing to a tactical imbalance in favour of the plaintiff. The court accepted that this tactical advantage was a factor supporting a stay.

The court stressed that the merits and prospects of success of the delay damages claim were not for it to decide, and that the arbitration tribunal would determine the interpretational issues and whether set-off was available to defeat the plaintiff’s claim. On that basis, the court upheld the special plea in its alternative form and granted a stay of the action pending arbitration on the defendant’s delay liquidated damages entitlement.

5. Outcome and Relief

The court refused the plaintiff’s application for summary judgment, holding that the defendant had disclosed a bona fide defence and triable issue arising from the pending arbitrable delay damages dispute and the risk of inconsistent findings across forums. Costs followed the result.

The court granted the defendant’s application under Rule 33(4), ordering that the defendant’s special plea be separated for determination. The plaintiff was directed to pay the costs of the separation application.

The court upheld the defendant’s special plea (in its alternative formulation) and stayed the plaintiff’s claim in terms of section 6(1) of the Arbitration Act 42 of 1965 pending determination by arbitration of the defendant’s entitlement to delay liquidated damages. Costs were awarded against the plaintiff.

Cases Cited

Joob Joob Investments (Pty) Ltd v Stocks Mavundla Zek Joint Venture 2009 (5) SA 1 (SCA).

Maharaj v Barclays National Bank Ltd 1976 (1) SA 418 (A).

PLC Consulting (Pty) Ltd t/a Phillips Consulting SA v Tresso Trading 119 (Pty) Ltd 2009 (4) SA 68 (SCA).

Capricorn Beach Home Owners Association v Potgieter (752/2012) [2013] ZASCA 116 (19 September 2013).

Schierhout v Union Government (Minister of Justice) 1926 AD 286.

Lappeman Diamond Cutting Works (Pty) Ltd v MIB Group (Pty) Ltd (No 1) 1997 (4) SA 908 (W).

Legislation Cited

Arbitration Act 42 of 1965, section 6(1) and section 6(2).

Rules of Court Cited

Uniform Rule of Court 33(4).

Uniform Rule of Court 22(4).

Held

The court held that, despite the plaintiff’s reliance on a certified interim payment certificate accepted to be a liquid document, the defendant’s disclosure of a pending arbitrable delay liquidated damages dispute and associated set-off and interpretation issues raised a bona fide defence and triable issue sufficient to defeat summary judgment.

The court held further that it was convenient under Rule 33(4) to separate and determine the defendant’s special plea, and that while the plaintiff’s claim was not ordered to be referred to arbitration as such, the action should be stayed under section 6(1) of the Arbitration Act 42 of 1965 pending the arbitration’s determination of the defendant’s entitlement to delay liquidated damages.

LEGAL PRINCIPLES

A defendant resisting summary judgment is not required to prove its defence on a balance of probabilities. The defendant must disclose fully the nature and grounds of the defence and the material facts upon which it is founded, and the court must be satisfied that the defence is bona fide and good in law, without deciding the merits.

The existence of an arbitration clause does not, in itself, preclude summary judgment. However, where the defendant raises an arbitrable dispute that bears on whether the plaintiff’s claim is due and payable, and where that dispute may ultimately defeat or extinguish the claim, this can constitute a triable issue sufficient to refuse summary judgment.

A certified interim payment certificate was treated as a liquid document, comparable in effect to an acknowledgement of debt; nonetheless, disputes concerning contractual entitlements (including delay liquidated damages and any set-off implications) may still bear on enforceability and timing of payment.

Under Uniform Rule 33(4), a court should order the separate determination of a question of law or fact if it may conveniently be decided separately, with “convenience” understood as fairness and appropriateness to the parties and the efficient conduct of proceedings.

Section 6 of the Arbitration Act 42 of 1965 empowers a court to stay legal proceedings brought in respect of a matter agreed to be referred to arbitration if there is no sufficient reason not to refer the dispute to arbitration, and the court may impose terms it considers just. Where overlapping issues are already before an arbitration tribunal and there is a risk of inconsistent determinations, a stay may be justified pending arbitration.

Optipower a trading division of Murray & Roberts Limited v Goldwind 4RE SA (Pty) Ltd (016154-2022) [2023] ZAGPJHC 794 (17 July 2023)