13 In Villani v Delstrat Pty Ltd [2002] WASC 112, McKechnie J said:

The court is given power to set aside an award where under s 42(1)(a) there has been misconduct on the part of an arbitrator or an arbitrator has misconducted the proceedings.

It is important to maintain the distinction between an appeal and an application to set aside an award on the grounds of misconduct. The scheme of the Commercial Arbitration Act and the general purpose of arbitrations will be undermined if misconduct proceedings are used as a guise to appeal against a decision on issues of fact.

That said, a party should not be prevented from bringing an application under s 42 simply because the party may have a concurrent right to bring an appeal on a question of law.

'Misconduct' is defined under s 4 inclusively as follows:

'"misconduct" includes corruption, fraud, partiality, bias and a breach of the rules of natural justice;'

It is not asserted here that the arbitrator has been corrupt, fraudulent, partial or biased.

Over the years there have been many decisions on the question of misconduct by arbitrators.

In Shirley Sloan Pty Ltd v Merril Holdings Pty Ltd t/as Airen Constructions [2000] WASC 99 Steytler J examined and analysed the authorities. It is therefore unnecessary for me to do so and I adopt, with gratitude and respect, his analysis.

The arbitrator has a duty to give written reasons: s 29(1)(c). In this case the arbitrator has done so. Whether the failure to give sufficient reasons is a breach of the rules of natural justice is a more difficult question. Counsel for the appellant referred to Garrett v Nicholson [1999] WASCA 32; (1999) 21 WAR 226; and QBE Insurance Ltd v Moltoni Corp Pty Ltd [2000] WASCA 82; (2000) 22 WAR 148; in support of the proposition that courts are required to give reasons. So much is clear: Lloyd v Faraone (1989) WAR 154. The principal rationale underlying the rule is in order to afford parties the opportunity to exercise their rights of appeal. A further reason to comply with the duty is as part of an overall obligation to afford procedural fairness to all parties [28] - [35].

Where parties under a contract agree to submit a dispute to arbitration, there must be implied a condition that the arbitrator will determine the matters in controversy. No doubt there is some limit to such a rule. It may not be essential for every matter in controversy to be resolved in order for a proper award to be made. However, where the matters in dispute are defined by points of claim and points of defence, unless there is a formal or practical abandonment of any such points, the arbitrator has a duty to resolve those defined issues. Alexander v Bridge of Allan Water Co - 7 Macph (Ct of Sess) 498 referred to by Lord Watson in Adams v Great North of Scotland Railway Case (1891) AC 31 at 46 provides an example of misconduct in an arbitrator failing to do his duty by declining to deal with certain matters.

The failure to determine all issues in dispute in an arbitration can amount to misconduct because the procedure 'has, or may have, unjustly prejudiced a party in some respect material to the outcome': Thiess Contractors Pty Ltd v Water Corporation of Western Australia, unreported; SCt of WA; Library No 970561; 28 October 1997 per Parker J at 38.

In the end, whether the failure to give adequate reasons is a breach of the rules of natural justice may not matter as Marks J pointed out in Gas & Fuel Corp of Victoria v Wood Hall Ltd & Leonard Pipeline Contractors Ltd [1978] VicRp 41; (1978) VR 385 at 394:

'Thus it can be seen that from early reported cases the courts have insisted that principles, if not of natural justice, then those akin thereto, were to be observed by arbitrators simpliciter. In Re Badger (1819), 2 B & Ald 689; 106 ER 517 Abott, CJ said: "If an arbitrator acts contrary to a general rule of law it is undoubtedly the duty of the court to set aside his determination. But there is a material distinction between those rules which are founded on the immutable principles of justice, from which neither the court nor an arbitrator can be allowed to depart, and those which depend on the practice of the court ..." (Marks J's emphasis)'.

There are, in summary, two reasons for a finding of misconduct. The second is a consequence of the first. The first reason is that there has been a failure to determine all necessary issues in controversy between the parties. As a result the dispute submitted to arbitration under the contract has not been completely determined. The award is not an award with respect to the whole dispute. The second reason is that the reasons given by the arbitrator fail, by omission, to expose the reasoning process and therefore give rise to material procedural unfairness, whether or not that also amounts to a breach of the rules of natural justice [40] - [43].

15 In BHP Billiton Ltd v Oil Basins Ltd [2006] VSC 402, Hargrave J said:

In Re Poyser and Mills' Arbitration Megaw J considered the adequacy of an arbitrator's reasons for making an award and, in doing so, made the following statement as to the nature of an arbitrator's duty to give reasons:

'Parliament provided that reasons shall be given, and in my view that must be read as meaning that proper, adequate reasons must be given. The reasons that are set out must be reasons which will not only be intelligible, but which deal with the substantial points that have been raised ... If those reasons do not fairly comply with that which Parliament intended, then that is an error on the face of the award ... I do not say that any minor or trivial error, or failure to give reasons in relation to every particular point that has been raised at the hearing, would be sufficient ground for invoking the jurisdiction of this court. I think there must be something substantially wrong or inadequate in the reasons that are given in order to enable the jurisdiction of this court to be invoked'.

In Peter Schwarz (Overseas) Pty Ltd v Moreton Byrne J considered applications (as in this case) for leave to appeal against an arbitral award and seeking to set the award aside for misconduct. The grounds relied upon by the applicant included an allegation that the arbitrator had failed to give sufficient reasons for the award [17] - [18]. (footnotes omitted)

16 In my view, failing to determine issues in dispute between the parties and failing to provide any, or any proper reasons can amount misconduct in terms of s 42(1) of the Act.

17 The arbitrator in the award lists seven matters to be determined:

1. Which of the two contracts signed on May 8, 2006 governs the relationship between the parties.
2. Whether the Builder was entitled to suspend the works on July 27, 2007 for alleged non payment by the Owner of Progress Claim No 6 for $31,297.98. Depending upon this finding, whether or not the Owner is entitled to damages.
3. Responsibility for the positioning of the retaining wall on the side boundary between Lot 210, No 15 and Lot 2, No 13A The Strand.
4. Responsibility for the positioning of the retaining wall and parapet garage wall on the side boundary between Lot 212, No 11 and Lot 2, No 13A The Strand.
5. Completion of outstanding items as per list prepared by Housepect Pty Ltd.
6. Costs: Legal and Arbitration costs (to be determined in Final Award).
7. Interest and/or Damages (to be determined in Final Award).

18 This is clearly a summary but nonetheless the applicant says it does not fully reflect the matters in issue in that it does not refer to:

1. the entitlement to issue Progress Claim No 6;
2. the credits claimed by the owner; nor
3. the payment of Progress Claim No 7.

19 The entitlement to issue Progress Claim No 6 is raised at par 9 of the amended points of claim and par 9 of the respondent's amended points of defence and counterclaim. The credits claimed by the owner are raised at par 23 of the respondent's amended points of defence and counterclaim and the payment of Progress Claim No 7 is raised at par 10 of the amended points of claim and at par 10 of the respondent's amended points of defence and counterclaim.

20 It is not clear from the award what is dealt with under the heading 'Suspension of Works'. The disputed claims appear to be but it is far from clear whether the entitlement to issue Progress Claim No 6 and the suspension of works has been determined. The determination of each of these issues is material and to the extent they have not been determined this would amount to misconduct in the sense referred to in s 42 of the Act.

21 It is clear the award does not refer to the payment of Progress Claim No 7. The fact that the disputed items which relate to Progress Claim No 6 have been addressed does not lead one to the inescapable conclusion that the question of the suspension of works has been determined.

22 The inclusion of the determination at par 2.6 of the award could lead one to the view that the matter relating to the issue of Progress Claim No 6 had been determined. If that were the case, it should have been more clearly expressed and reasons for the determination given.

23 I am satisfied that the award does not deal with the payment of Progress Claim No 7 and it is unclear what has been determined in relation to Progress Claim No 6.

24 Section 29(1)(c) of the Act places a duty upon the arbitrator to give written reasons. In this case he has produced a written interim award which the applicant claims does not contain adequate reasons.

25 In my view, the reasons are not sufficient for the parties to understand why they have won or lost. In that regard, I will refer to several portions of the award by way of example. Under the heading 'Relevant Contract Document' the evidence given by a particular party is recorded at pars 1.2 and 1.4 but there is no statement as to whether the evidence was accepted or not, and then the bald statement at par 1.6 that the HIA Cost Plus Contract governs the relationship.

26 Under the heading 'Suspension of Works' it is not clear the question of suspension has been determined and, if it was, whether it was because of the non payment of Progress Claim No 6 dated 31 July 2007 or the unresolved situation with the side boundary retaining and parapet walls. It is unclear how either of those events would justify the suspension of work on 27 July 2007.

27 By virtue of the determination at par 2.6 it could be argued that the matter of the entitlement to issue Progress Claim No 6 has been determined, but if it has the reason for the decision is not apparent.

28 Under the heading 'Responsibility for the positioning of the retaining wall on the side boundary between Lot 210, No 15 and Lot 2, No 13A The Strand', par 3.2 of the award acknowledges there is a dispute about what was said in a particular conversation but it is not clear which version of events was accepted by the arbitrator. One can perhaps draw a conclusion that this was determined in favour of the builder's version but, if that is so, the reasoning for that is unclear.

29 In my view, there are two reasons for the finding of misconduct. The first is the failure to determine all necessary issues in controversy between the parties. The second is the reasons of the arbitrator fail to expose the reasoning process and therefore give rise to material procedural unfairness. For those reasons I would set aside the award.