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Kathu Solar Park (RF) (Pty) Ltd v Terry Mahon (First Respondent) and Liciastar (Pty) Ltd (Second Respondent)

23 March 2020

The applicant, Kathu Solar Park (RF) (Pty) Ltd contracted with the second respondent, Liciastar (Pty) Ltd in terms of an Engineering Procurement and Construction contract (the contract) to construct a solar power plant. A dispute arose between the parties regarding the imposition of Delay Liquidated Damages (DLDs) by the applicant.

The second respondent relied on clause 21 of the contract to refer the dispute to fast track dispute resolution (FTDR) by an independent expert. The first respondent, Mr Mahon, was appointed as the independent expert.

A dispute arose between the parties on the jurisdiction of Mr Mahon which formed the basis of the urgent application and its subsequent certification as a commercial court case before Judge Unterhalter.  

In its letter of reference of the dispute, the second respondent advised that the ‘dispute related to the intention of the Owner to charge Delay Liquidated Damages to the Contractor due to potential delays in achieving the Initial Acceptance Date of the Plant from the 18th December 2018 (the “Dispute”)’.

The contract provided for a scheduled initial acceptance date (SIAD), which may be extended or amended. Initial acceptance is when the facility is considered capable of commercial operation and ready for initial acceptance by the Owner. The contract differentiates between the SIAD and the IAD (initial acceptance date), being the date when the Owner delivers a certificate to the Contractor stating the date on which the facility complied with the initial acceptance requirements. The contract provided for the payment of DLDs in the event of IAD not occurring before SIAD.

Extension of time claims were submitted by the second respondent and SIAD was extended to 18 December 2019. The applicant however commenced the imposition of DLDs on 19 December 2018. This was the dispute that was referred by the second respondent in its letter aforementioned (referred to as “the imposition dispute” by the learned Judge to differentiate from the second dispute). The applicant contended that this was the only dispute referred to the independent expert, for his determination. The second respondent contended that the dispute referred to the first respondent was wider and also encompassed the second respondent’s liability for DLD’s (“the liability dispute” i.e. the second dispute). The first respondent believed that he was empowered under clause 21 of the contract to decide both disputes.

The judge held that the first respondent derived his jurisdiction from the contract, however before he can assume jurisdiction as an independent expert , two requirements must be met. The contract must permit resolution of the specific dispute under the fast track mechanism and secondly, the matter must be expressly referred to the independent expert under the fast track. Both disputes were permissible to be referred to FTDR, however the issue to be determined was whether both the imposition and the liability disputes were referred to the first respondent.

The second respondent contended that its referral placed in dispute the payment of DLDs as well as liability for DLDs. The learned judge found that the referral limited the dispute to only the imposition of DLDs. This was based on the fact that at the time of the second respondent’s referral i.e. 26 December 2018, the only issue that had crystalised was the applicant seeking to implement DLDs even though extension of SAID was simultaneously being sought by the second respondent. Even though the second respondent submitted that its referral letter placed in dispute any payment of DLDs and that covered the liability dispute, the learned judge found that the liability dispute had not yet crystalised and any anticipation by the second respondent of further disputes, was irrelevant.

The learned judge also referred to the first respondent’s  interpretation of clause 21.2 of the contract to permit him to “take the initiative” and thereby entertain the liability dispute and held that this was not a competence enjoyed by the first respondent. It was held that the first respondent was limited to ascertaining the facts and the law applicable to the dispute before him and was not empowered to expand the scope of the dispute before him, hence he could not determine his own jurisdiction.

The learned Judge also held that the applicant was within its rights to approach the Courts for appropriate relief as there had been non-compliance with the contract. It relied on the case of Inter-Continental Finance[1] which decided between two lines of authority and found that the court should grant a remedy that interferes with a dispute resolution process that is already underway.

The learned judge accordingly found in favour of the applicant and held that the first respondent did not have the requisite jurisdiction to hear the liability dispute.

[1] Inter-Continental Finance and Leasing Corporation (Pty) Ltd v Stands 56 and 57 Industrial Ltd 1979 (3) SA 740 (W)