Court of Appeal (WA)|2000-09-12|Before: Mr J, Ipp J, Wallwork J, Anderson J

Oldfield Knott Architects Pty Ltd v Ortiz Investments Pty Ltd [2000] WASCA 255 (12 September 2000)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : OLDFIELD KNOTT ARCHITECTS PTY LTD -v- ORTIZ INVESTMENTS PTY LTD [2000] WASCA 255

Arbitration - Conduct of arbitration proceedings - Application for removal of arbitrator for technical misconduct - Building contract dispute - Arbitration provided for by contract, and conducted on pleadings - Function of pleadings in arbitration - Whether respondent's opening submissions implied reliance on an unpleaded and unspecified cause of action, namely dishonesty or impropriety - Whether arbitrator erred in allowing evidence to be led on such a cause of action - Whether arbitrator erred in refusing to rule on admissibility of evidence - Arbitrator's conduct caused appellant material prejudice

Procedure - Pleadings - Function of pleadings in arbitration - Pleading and alleging dishonesty or impropriety - Counsel's duty

Australian Coal & Shale Employees' Federation v Commonwealth [1953] HCA 25; (1953) 94 CLR 621

Banque Commerciale SA (in liq) v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279

BM Auto Sales Pty Ltd v Budget Rent a Car System Pty Ltd (1976) 51 ALJR 254

Bridge Pump Co Pty Ltd v Faxio, unreported; SCt of WA; Library No 980591; 2 October 1998

Carlton & United Breweries Ltd v Hahn Brewing Co Pty Ltd (1994) 28 IPR 545

Commonwealth v Cockatoo Dockyard Pty Ltd (1995) 36 NSWLR 662

Croasdell v Cammell Laird (1906) 2 KB 569

Doran Constructions Pty Ltd v Health Administration Corporation (NSW) (1994) 12 BCL 104

Hall v Nominal Defendant [1966] HCA 36; (1996) 117 CLR 423

Hamersley Iron Pty Ltd v Lovell [No 2] (1998) 20 WAR 79

Hi Fert Pty Ltd v Kiukiang Maritime Carriers Inc (1998) 86 FCR 399

Imperial Leatherware Co Pty Ltd v Macri & Marcellino Pty Ltd (1991) 22 NSWLR 653

Indian Oil Corporation Ltd v Coastal (Bermuda) Ltd [1990] 2 Lloyd's Rep 407

Jingellic Minerals NL v Abigroup Ltd (1992) 7 WAR 566

Legal Practitioners Complaints Committee v A Practitioner (1987) 46 SASR 126

Moran v Lloyd's [1983] QB 542

Nauru Phosphate Royalties Trust v Matthew Hall Mechanical & Electrical Engineers Pty Ltd [1994] VicRp 67; [1994] 2 VR 386

Re Will of Gilbert (1946) 46 SR (NSW) 318

Remm Constructions (SA) Pty Ltd v Allco Newsteel Pty Ltd (1992) 57 SASR 180

Ridge v Taylor (1974) 9 SASR 428

SA Superannuation Investment Trust v Leighton Contractors Pty Ltd (1990) 55 SASR 327

Shirley Sloan Pty Ltd v Merril Holdings Pty Ltd t/as Airen Constructions [2000] WASC 99

Thackray v Hardcastle, unreported; FCt SCt of WA; Library No 980669; 17 November 1998

The State of Western Australia and Anor v Bond Corporation Holding Ltd and Ors [1951] 5 WAR 40

Valeriani v Gibson [1963] NSWR 1430

Technical misconduct by the Arbitrator: the parties' contentions and the issues on appeal

1 The appellant ("Oldfield Knott") is a firm of architects and the respondent ("Ortiz") is a building owner. Oldfield Knott acted as Ortiz's architect in connection with the construction of a residence for Ortiz in Mosman Park. Under the aegis of Oldfield Knott, tenders were called for and some six builders tendered. The building contract was awarded to Gatt Constructions Pty Ltd ("Gatt"). An independent quantity surveyor, Mr Rafferty, was engaged by Oldfield Knott to prepare the specification for the tender and was engaged by Gatt to price the tender and to negotiate with Oldfield Knott in regard to the tender.

2 Some months after the commencement of the building works, Gatt entered into voluntary administration. Various questions then arose as to the adequacy of the work carried out by Gatt. This in turn led to a dispute between Ortiz and Oldfield Knott. As provided by the building contract, the dispute was referred to arbitration before an arbitrator. Ortiz claims damages of some $2 million in those proceedings, relying on causes of action based on negligence, contravention of s 52 of the Trade Practices Act 1974 (Cth), and breach of contract.

3 Shortly after the hearing of the arbitration commenced, Oldfield Knott applied to the learned Chambers Judge for an order that the Arbitrator be removed as the arbitrator in the proceedings. Oldfield Knott asserted that there had been technical misconduct on the part of the Arbitrator and that he was incompetent to deal with the dispute. The learned Chambers Judge dismissed the application and Oldfield Knott now appeals against that decision.

4 Section 44 of the Commercial Arbitration Act 1985 empowers the court to remove an arbitrator where it is satisfied that there has been misconduct on the part of the arbitrator, or the arbitrator has misconducted the proceedings, or the arbitrator is incompetent or unsuitable to deal with the particular dispute.

5 Oldfield Knott contends that the Arbitrator adopted a procedure in the arbitration that unjustly prejudiced it in a material respect. It was common cause that were this to be established, the Arbitrator would have been guilty of "technical misconduct" that would justify his removal: Thiess Contractors Pty Ltd v Water Corporation of Western Australia, unreported; SCt of WA; Library No 970561; 28 October 1997. It is unfortunate that the Commercial Arbitration Act uses the word "misconduct", as this has a pejorative flavour which may be inappropriate to describe conduct that justifies the removal of an arbitrator. For that reason courts have often qualified "misconduct", as used in this context, by the adjective "technical". In this case what is said to be "misconduct" are merely procedural errors. Of course, procedural errors may be of great significance and may cause serious prejudice, but "misconduct" is not ordinarily an apt description of them. Compelled as I am by the Commercial Arbitration Act to adopt the terminology of "misconduct", I shall do so, but it is to be understood that I use the word in a technical sense, namely, of procedural error causing serious prejudice: cf Thiess Contractors Pty Ltd v Water Corporation of Western Australia.

6 The allegation made by Oldfield Knott concerning "incompetence" rested largely on the same facts on which the allegation of technical misconduct was based. The issues that arise are substantially similar and as will appear from these reasons, it is unnecessary for me to address the issue of incompetence.

7 Oldfield Knott's complaint, in summary form, is as follows: In opening Ortiz's case in the arbitration proceedings, then counsel for Ortiz, Mr Fyfe, indicated that Ortiz intended to rely, as part of its causes of action, on unspecified dishonesty or improper conduct (in a professional respect) by Oldfield Knott, as architects, in the course of the tendering process. Oldfield Knott contended that dishonesty or improper conduct had not been pleaded and Ortiz should not be allowed to raise these issues and should not be permitted to lead evidence in support of them without making appropriate amendments to the pleadings. Oldfield Knott asked the Arbitrator to rule that causes of action based on dishonesty or impropriety "will not be entertained in the course of this arbitration", that no evidence should be led in respect of such causes of action, and that the witness statements should be reconsidered, and irrelevant and prejudicial material removed from them. The Arbitrator refused to make such orders and required the arbitration to proceed on the pleadings as they stood. These rulings, according to Oldfield Knott, caused material prejudice to it, constituted technical misconduct by the Arbitrator and justified an order for his removal.

8 The learned Chambers Judge dismissed Oldfield Knott's application for removal of the Arbitrator, and Oldfield Knott appeals against his Honour's order.

9 In its points of claim Ortiz alleged that a contract had been entered into between it and Oldfield Knott and that, under that contract and also at law, Oldfield Knott owed it a duty to exercise reasonable skill and care in performing architectural services. Ortiz pleaded further that Oldfield Knott had committed a breach of that contract and had been negligent in making certain false representations to Ortiz. The misrepresentations were pleaded to be that Gatt had the relevant experience and the technical and financial ability to carry out and complete the construction of the Mosman Park residence in accordance with the proposed building contract, and that Gatt was a suitable and appropriate tenderer for the proposed building contract. Additionally, Ortiz pleaded that the misrepresentations made by Oldfield Knott constituted misleading and deceptive conduct under s 52 of the Trade Practices Act.

10 Ortiz pleaded a further cause of action based on an instruction given by Oldfield Knott to Gatt that Ortiz alleged was not authorised by it and was in breach of the contract. This instruction was an alleged variation of the works under the building contract whereby Oldfield Knott instructed Gatt to use Verticore bricks to the ground floor and first-floor walls in lieu of the clay bricks specified.

11 In its defence, Oldfield Knott denied making the representations and denied that the alleged representations were false. It also denied that the instruction concerning the Verticore bricks was not authorised.

12 On 4 May 2000 (the day before the hearing commenced), Oldfield Knott amended its defence by the introduction of a new par 25.2A, which was in the following terms:

"25.2A Says that the extensive use of Verticore brick in the Works was not a variation to the Specification but was in or about mid September 1997 the subject of agreement between the Claimant and Gatt whereby, in consideration of Gatt's promise to construct the Works for the sum of $1,328,200.00 less certain savings achieved by certain other changes to the Works, the Claimant accepted that Gatt would use Verticore brick extensively in the construction of the Works."

1. In or about the first week of September 1997, following the rejection of Gatt's tender for the Works, but prior to the award of the Building Contract to Gatt, at the request of the Claimant's quantity surveyor CPC, Gatt provided to the Claimant and to CPC a detailed breakdown of its tender price.

2. To the knowledge of the Claimant by its director, Ortiz, and by the Claimant's quantity surveyor CPC, the detailed tender breakdown demonstrated that Gatt based its tender price on the extensive use of Verticore brick, in all areas of the Works but for the garage.

3. Between 5 September and 16 September 1997, in the course of negotiations between the Claimant and Gatt, Gatt proposed and the Claimant accepted, subject to the approval of the Claimant's engineer, the further use of Verticore brick in the garage of the Works, for an additional saving of $5,038.00 from the price offered by Gatt based on its detailed tender breakdown.

25.4 says that in any event any instruction by it to vary the Works was done with the agreement of the Claimant."

13 The building contract between Ortiz and Gatt was entered into on 18 September 1997. Accordingly, par 25.2A alleged that the tender documents were varied by the variation to the specification and this occurred no later than 16 September 1997, prior to the building contract being entered into. This allegation, if true, was a further answer to Ortiz's allegation that Oldfield Knott had breached the contract by unlawfully varying the works by authorising the use by Gatt of Verticore bricks. That is because, were the allegations in par 25.2A to be established, it would follow that the tender itself, with Ortiz 's agreement, provided for the use of Verticore bricks.

14 On 4 May 2000, Ortiz amended its reply by denying par 25.2A of the amended defence and pleading:

"7. The Claimant denies paragraph 25.2A of the Amended Defence. Further:-

(4) If [Ortiz] knew that Gatt's tender price of $1,328,200.00 was based on the extensive use of Verticore brick in the Works instead of the specified bricks and that there was accordingly a substantial saving to Gatt [Ortiz] wrongfully advised the Claimant that Gatt was the lowest tender in circumstances where it was not."

15 Paragraph 7(4) of the amended reply raised issues of importance. Ortiz thereby pleaded that if Oldfield Knott "knew" that Gatt's tender price was based on the use of Verticore bricks instead of the specified bricks, Oldfield Knott "wrongfully advised" Ortiz that Gatt had provided the lowest tender. This allegation assumes that Gatt's tender was not the lowest because it incorporated the use of the lower quality Verticore bricks and not clay bricks.

16 It is important to bear in mind that par 7(4) is a response to Oldfield Knott's amended defence in which it pleaded that Ortiz and Gatt had agreed to vary the tender by allowing for the use of Verticore bricks. By its amended reply, Ortiz denied that such an agreement had been concluded, and asserted that, if the tender was to the knowledge of Oldfield Knott based on Verticore bricks, Oldfield Knott "wrongfully" advised Ortiz that Gatt was the lowest tenderer. Whether Oldfield Knott in fact knew that the tender was based on Verticore bricks was in dispute. Although Oldfield Knott pleaded in its defence that Ortiz had agreed with Gatt that the tender should be varied to allow for the use of Verticore bricks, Oldfield Knott did not thereby admit that it knew that the tender had so been varied.

17 The use of the word "wrongfully" in par 7(4) of the amended reply added little to Ortiz's allegations. A wrongful act is not necessarily a dishonest or improper act, and an allegation of wrongful conduct does not, on its own, imply dishonest or improper conduct: cf the definition of "wrongful" act in the Australian Legal Dictionary, Butterworths at 1280 (namely, "An act that violates or infringes a particular right of an individual ..., or causes damage to a particular individual ...; an act that is wrong by the ordinary standards of the community"). In its context, the word "wrongful" in par 7(4) meant "in breach of contract or the common law duty of care, or in contravention of s 52 of the Trade Practices Act".

18 In summary, the pleadings, read as a whole, revealed that - relevantly for the purposes of this appeal - Ortiz relied on the following causes of action for its claim for damages against Oldfield Knott:

1. Breach of contract and the common law duty of care resulting from the misrepresentations as to Gatt's experience and technical and financial ability and Gatt's suitability as a tenderer.

2. Misleading and deceptive conduct under the Trade Practices Act resulting from those representations.

3. Breach of contract resulting from the unauthorised variation to the building contract concerning the use of Verticore bricks.

4. "Wrongful" advice that Gatt was the lowest tenderer: such advice being in breach of contract or the common law duty of care, or in contravention of the Trade Practices Act.

19 Accordingly, the submission by Oldfield Knott that there was nothing in the pleadings that alleged any impropriety or dishonest conduct on its part is correct. I did not understand Mr Edmonds, counsel for Ortiz on appeal, to contend to the contrary.

20 In dismissing the application for the Arbitrator's removal, the learned chambers Judge said:

"[I]t was apparent from the amended pleadings immediately prior to the hearing that [Ortiz] would contend that the circumstances surrounding the extensive use of Verticore bricks should be subjected to rigorous scrutiny, and, likewise, the conduct of Oldfield Knott in regard to the lowest tender issue was said to be questionable."

I pause at this stage to note that while his Honour, with respect, was undoubtedly correct in these remarks, nothing in the amended pleadings indicated that a case was being mounted against Oldfield Knott based on dishonest or improper conduct.

21 His Honour described the issue before him in the following terms :

"[The Arbitrator] was not persuaded by the submissions put to him that certain passages of Mr Fyfe's opening were objectionable and he was therefore minded to allow the hearing to proceed. Evidence about the lowest tender issue would be received on the basis that it was ultimately a question of what weight should be attributed to the evidence. I pause to say that his response to the objection is possibly open to an alternative interpretation, namely, that, at this early stage, he was not minded to rule upon the point and had decided to defer his ruling for the time being. He would deal with objections when each witness was presented and the question of what portion of the statement in question should be received was then directly under notice. Either way, it is quite clear that he was not prepared to uphold Mr O'Neal's objection at that stage or make a ruling of the kind applied for by Mr O'Neal. It therefore becomes an issue in the present proceedings as to whether Mr Fyfe's observations about the lowest tender issue ... could be thought to have introduced a new issue, or were unduly prejudicial to Oldfield Knott ..."

22 The learned Judge then referred to various matters and concluded:

"I am not satisfied that ... the Arbitrator's stance was unfair. To my mind, Mr Fyfe, having made it clear that fraud or collusion was not being alleged, and that the evidence he proposed to lead was relevant to issues on the pleadings, including the lowest tender issue arising from the recently-amended pleadings, the Arbitrator was entitled to assume that the case before him would be governed by the pleadings. Looked [at - sic] in that light, Oldfield Knott had formal notice of the case it was required to meet and, as to evidential materials, as a consequence of the preparation and exchange of witness statements - bearing in mind that much of the evidence of the so-called "close relationship" was reflected in Oldfield Knott's own witness statements - Oldfield Knott was not taken by surprise. Counsel for that party was in a position to cross-examine with a view to reducing the effect of the disputed passages.

In my view, the evidence proposed to be led by Mr Fyfe concerning the so-called close relationship was relevant and admissible because it served to explain the nature of the relationship between the claimant and his architect, and other interested parties, and could be said to have a bearing upon whether the architects exercised due care and whether their actions amounted to misleading and deceptive conduct. I have already noted that, as to the latter issue, although proof of a dishonest intent is not a necessary constituent of a case based upon misleading and deceptive conduct, there is some authority for the proposition that a demonstrated intent to mislead will be of evidentiary value in assessing the nature and consequences of the conduct complained of. Further, evidence concerning the so-called close relationship and the lowest tender issue was also relevant to assessing the credibility of the parties and their witnesses."

23 Basically, Oldfield Knott's argument on appeal was based on the following propositions:

* Although Mr Fyfe stated that fraud or collusion was not being alleged, he nevertheless maintained, implicitly, that Oldfield Knott was guilty of impropriety or dishonesty in the tendering process and it was open for the Arbitrator to so find. That impropriety or dishonesty was not specified in any detail, and the allegations remained essentially vague, but according to Mr Fyfe it concerned Oldfield Knott's "close" relationship with Mr Rafferty and Gatt, and related to the award of the tender to Gatt, as well as to the instructions given by Oldfield Knott to Gatt concerning the use of "Verticore" bricks.

* Although the Arbitrator had ordered that the arbitration proceedings be governed by pleadings, he had manifested an intention not to be bound by them. Despite the fact that the pleadings made no reference to dishonesty or impropriety of any kind, the Arbitrator proposed to allow evidence to be led on that issue. The Arbitrator also appeared to be of the view that it was open to him to find against Oldfield Knott on grounds based on dishonesty or impropriety of some unspecified kind.

* The witness statements that had been filed contained allegations as to the relationship between Oldfield Knott, Rafferty and Ortiz and, according to Mr Fyfe, were capable of supporting an argument based on dishonesty or impropriety on the part of Oldfield Knott. The Arbitrator, however, wrongly refused to order that these allegations be struck out.

* The Arbitrator should have ordered that no argument be advanced, and no evidence be led or cross-examination be allowed on any matter relating to the alleged dishonesty or impropriety, unless the pleadings were amended appropriately.

* The learned Judge's finding that "much of the evidence of the so-called 'close relationship' was reflected in Oldfield Knott's own witness statements" was no answer to these contentions. It is one thing for that evidence to be led merely as background, as Oldfield Knott intended. It is something else entirely for that evidence to be characterised (as it was by Ortiz) as being capable of supporting a case based on dishonesty or impropriety, raised for the first time in opening and not pleaded.

* The Arbitrator had allowed the proceedings to continue in the knowledge that a case of dishonesty or impropriety was being put, although not pleaded. Oldfield Knott was prejudiced thereby as it had not been told precisely what case of dishonesty or impropriety was being made against it, did not know what evidence it should lead in evidence in chief to rebut that case, and did not know what questions should be asked in cross-examination. It was materially prejudiced thereby in its conduct of the arbitration.

* In the circumstances, the Arbitrator's refusal to make the orders sought by Oldfield Knott constituted technical misconduct.

24 Mr Edmonds on the other hand supported the reasoning of the learned Judge, save for the proposition that evidence of impropriety or dishonest conduct was relevant in that "a demonstrated intent to mislead will be of evidentiary value in assessing the nature and consequences of the conduct complained of". As I understood his submissions, he accepted that Ortiz was not entitled to lead evidence of dishonesty or impropriety on that ground.

25 As I have mentioned, Mr Edmonds also accepted that dishonesty or impropriety on the part of Oldfield Knott was not an element of any of Ortiz's pleaded causes of action (that is, breach of contract, negligence or misleading or deceptive conduct under the Trade Practices Act). He said that it was never Ortiz's intent to mount a case based on dishonesty or impropriety.

26 The main plank of Mr Edmonds' argument was that Mr Fyfe, in opening, had not alleged that Oldfield Knott was guilty of dishonesty or impropriety of any kind. He submitted that, in any event, even if Mr Fyfe had made such an allegation, he had later withdrawn or abandoned it.

27 Mr Edmonds submitted that Mr Fyfe's comments upon the close relationship between Oldfield Knott, Mr Rafferty and Gatt merely supported the inference that Oldfield Knott was negligent as alleged in the pleadings (particularly, in negligently advising Ortiz that Gatt was the lowest tenderer). According to Mr Edmonds, the close relationship induced Oldfield Knott to rely on Mr Rafferty instead of making its own inquiries. Further, the close relationship explained why Oldfield Knott, in breach of that duty, terminated negotiations with another tenderer, Cleary Constructions, and awarded the tender to Gatt (when Gatt was not the lowest tenderer).

28 In the alternative, Mr Edmonds submitted that, if Mr Fyfe's comments are to be construed as meaning that Oldfield Knott was guilty of dishonesty or impropriety, those comments were relevant to credibility (as the learned Judge found), and, moreover, (as the learned Judge observed) evidence of the close relationship appeared from Oldfield Knott's own witness statements. This meant, he submitted, that Oldfield Knott could not have been taken by surprise by Ortiz's reliance on the close relationship.

29 Mr Edmonds argued that, for all these reasons, Mr Fyfe was entitled in opening to refer to and comment upon the close relationship. He conceded that when Mr Fyfe said to the Arbitrator that he could rely upon the evidence of the relationship for whatever purpose he liked, Mr Fyfe was putting the matter too broadly, but submitted that Mr Fyfe meant merely that the Arbitrator could rely upon that evidence in relation to any pleaded issue between the parties. Accordingly, he submitted that the Arbitrator was justified in refusing to make the orders sought by Oldfield Knott, as Mr Fyfe had said nothing that was not covered by the pleadings.

30 Finally, Mr Edmonds submitted that the Arbitrator made no order that Ortiz was entitled to go beyond the pleadings by relying on dishonesty or impropriety and indicated that issues as to relevance of material contained in the witness statements be dealt with after each witness had given evidence in chief and when cross-examination commenced. For this reason, the application for the removal of the Arbitrator was premature.

31 On these contentions, the issues on appeal are as follows.

(a) Did Mr Fyfe open on the basis that Ortiz could rely on an unpleaded cause of action based on impropriety or dishonesty, or was he merely referring to evidence that would support Ortiz's allegations of negligence.

(b) If Mr Fyfe was contending that Ortiz could rely on some unspecified cause of action based on impropriety or dishonesty, did he later abandon or withdraw that contention.

(c) If not, was Mr Fyfe, in any event, in opening, entitled to refer to dishonesty and impropriety on the part of Oldfield Knott, on the ground that these matters were relevant to credibility.

(d) Did the Arbitrator order, in effect, that the arbitration proceed on the basis that Ortiz could rely on unpleaded and unspecified causes of action relating to dishonesty or impropriety, and did he refuse to strike out material in the witness statements that bore on such causes of action (or did he indicate that he would deal with the application to strike out when each witness was cross-examined).

(e) Did the Arbitrator's orders cause Oldfield Knott material prejudice.

The function of pleadings in arbitration proceedings

32 Section 14 of the Commercial Arbitration Act empowers the arbitrator, subject to the Act and to the arbitration agreement, to conduct proceedings in such manner as he or she thinks fit. It is, of course, open to an arbitrator to dispense with pleadings. In this case the Arbitrator ordered that pleadings be filed. Given the complexity of the issues that arose between the parties, that was a sensible ruling. Such a ruling having been made, the parties were entitled to assume that the ordinary rules applicable to pleadings would, in substance, apply. In particular, both parties were entitled to assume that, for the purposes of preparing for and conducting the proceedings, the issues in the arbitration were only those identified by the pleadings and that the pleadings would furnish a sufficiently clear statement of the issues to allow each party a fair opportunity to deal with them.

33 I bear in mind that in Indian Oil Corporation Ltd v Coastal (Bermuda) Ltd [1992] Lloyd's Rep 407, Evans J said at 411:

"There is, as Mustill & Boyd in Commercial Arbitration (Second Division 1989) observed, a range of possible uses for pleadings in a commercial arbitration. At most, they will have the same status as the pleadings in Commercial Court litigation. I will assume that they have the status in the present arbitration, though with the reservation that in my view arbitrators should be more ready to emphasise the practical advantages of pleadings, in terms of notifying the opposing party (and the tribunal) of the factual matters which will be relied upon, rather than what may be called the negative function of preventing a party from raising issues which he has not pleaded."

34 I accept generally the practical approach manifest from these remarks. However, when allegations of serious impropriety in a professional respect are made against architects in opening in an arbitration to which the architects are a party, where the proceedings are controlled by pleadings filed in accordance with an order made by the arbitrator, and where the pleadings reveal no such allegation of impropriety, in my view the arbitrator is duty bound to prevent any evidence being led in support of such allegations.

35 More than 100 years ago, it was said that "no rule was more clearly settled than that fraud must be distinctly alleged and as distinctly proved, and that it was not allowable to leave fraud to be inferred from the facts" (Davy v Garrett [1877] 7 Ch D 473 at 489 per Thesiger LJ). In Belmont Finance Corporation Ltd v Williams Furniture Ltd [1979] Ch 250 at 268 Buckley LJ was concerned with whether the facts alleged in a statement of claim were sufficient to bring home to the defendants a charge that the object of an alleged conspiracy was a dishonest one and that they actually knew or must be taken to have known that that was so. He said:

"An allegation of dishonesty must be pleaded clearly and with particularity. That is laid down by the rules and it is a well-recognised rule of practice. This does not import that the word 'fraud' or the word 'dishonesty' must necessarily be used ... The facts alleged may sufficiently demonstrate that dishonesty is allegedly involved, but where the facts are complicated this may not be so clear, and in such a case it is incumbent upon the pleader to make it clear when dishonesty is alleged. If he uses language which is equivocal, rendering it doubtful whether he is in fact relying on the alleged dishonesty of the transaction, this will be fatal; the allegation of its dishonest nature will not have been pleaded with sufficient clarity."

See also Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 at 573.

36 In Fluor Australia Pty Ltd v State Energy Commission (WA), unreported; SCt of WA; Library No 6682; 10 April 1987 it was held that if allegations, effectively of fraud, are made in support of a plea of negligent misstatement, they must be pleaded with the same clarity as in an action in deceit. Similar allegations apply to conduct said to be in breaches of s 52 of the Trade Practices Act: See Gold Coast City Council v Pioneer Concrete Pty Ltd (1998) 157 ALR 135 where Drummond J said at 149:

"Precision in identifying the facts relied on as constituting the statutory cause of action is just as necessary as precision in pleading a case of common law fraud."

As the pleading in question did not identify in clear fashion the conduct said to be misleading or deceptive, the relevant paragraphs were struck out. See generally in this respect Seaman, "Civil Procedure in Western Australia", par 20.9.2.

37 In White Industries (Qld) Pty Ltd v Flower & Hart (a Firm) [1998] FCA 806; (1998) 156 ALR 169 Goldberg J (at 241) referred to recent authorities in which it was pointed out that "behind the principle relating to the need to plead fraud specifically and not as a general allegation was the policy relating to the protection against the risk of abuse of court process". His Honour observed (at 242) that "an unwarranted allegation of fraud when there is no factual basis for it is sufficient, in my view, to constitute a serious dereliction of duty or serious misconduct by a solicitor", and pointed out that the law attaches great significance and seriousness to allegations of fraud.

38 In my opinion, the aforegoing principles apply equally to allegations of professional impropriety or misconduct, whether they arise in the context of an action brought in a court or in arbitration proceedings. Allegations of this kind are so serious and potentially so damaging that a defendant is entitled to have them specified in appropriate detail in order to know precisely the case which it has to meet. It is no answer then to say that the Arbitrator did not have to order pleadings or that the Arbitrator was not bound by the rules of evidence but might inform himself as he thinks fit. The point is that once pleadings are ordered the parties are entitled to prepare for and proceed with the arbitration on the basis that the real issues in the arbitration are disclosed by the pleadings. Unpleaded allegations of professional impropriety or misconduct are so serious that it would be highly prejudicial and unfair to require the party to proceed with an arbitration subject to pleadings where these allegations are not pleaded.

39 The remarks I have made in connection with the pleading of professional impropriety apply equally to the opening of a trial or arbitration.

40 The need for counsel to express accurately their factual instructions when informing a court of the case that they intend to make was emphasised in Kyle v Legal Practitioners' Complaints Committee [1999] WASCA 115. Where dishonesty or impropriety is not part of a pleaded cause of action, counsel should be careful not to inform the tribunal to the contrary, particularly in arbitration proceedings where the arbitrator is not legally trained. In such circumstances, there is an acute need for counsel not to misinform the arbitrator. Where it is known that an arbitrator is unfamiliar with legal principles, counsel has a duty to draw his or her attention to all relevant matters: cf Frigo v Culhaci, unreported; CA; SCt of NSW; BC 9803225; 17 July 1998. If, at a late stage in the proceedings, a party does wish, for the first time, to mount a case involving dishonesty or impropriety, the way to do so is to apply to make appropriate amendments to the pleadings.

41 If counsel does inform the arbitrator in opening that he or she intends to rely on dishonesty or impropriety, and opposing counsel objects on the ground that this would constitute a case based on an unpleaded cause of action, it is of the utmost importance that the arbitrator rule on the issue before the hearing proceeds further. A party should not be obliged to defend any legal proceedings, for any period, involving unspecified causes of action based on generalised allegations of dishonesty or impropriety.

42 Nothing I have said is intended to detract from the right of a party, in opening, to inform the tribunal that evidence of dishonest or improper conduct will be led in support of that party's case concerning particular pleaded issues, or credibility questions. In that event counsel should make plain the purpose of the evidence in question. Moreover, dishonesty or impropriety in general terms should not be asserted. Counsel should explain to the tribunal in appropriate detail the nature of the dishonesty or impropriety asserted and the particular grounds on which those allegations are based.

43 Irrespective of whether the proceedings are before court or an arbitrator, whenever an attack on the character of a party is made, the procedural rules and safeguards to which I have referred should be closely observed. The integrity of the legal process is dependent on meticulous compliance with them.

Ortiz opens its case: the allegations of dishonesty and impropriety

44 The arbitration hearing commenced on 5 May 2000. The parties had exchanged witness statements before this date, and Oldfield Knott had raised various objections to certain statements filed by Ortiz. By 4 May 2000, Oldfield Knott had agreed with Ortiz as to certain alterations that were to be made to Ortiz's statements, save that agreement had not been arrived at concerning a responsive statement by Ortiz's witness, Mr Standen. Of course, Oldfield Knott's agreement as to the admissible content of the witness statements was based on the issues as revealed by the pleadings.

45 On 5 May 2000, Mr Fyfe opened Ortiz's case before the Arbitrator. He commenced by saying:

"Sir, it's the claimant's case that the evidence in this case will show that not only did [Oldfield Knott] fail to properly carry out any necessary enquiries ... but that [Oldfield Knott] in conjunction with the builder's quantity surveyor effectively induced the claimant to accept Gatt Constructions' tender. Notwithstanding that it wasn't the lowest tender on [Oldfield Knott's] own case because Gatt Constructions' tender was based on Gatt Constructions using Verticore throughout the works instead of the specified bricks and more particularly not the standing [sic - notwithstanding] that [Oldfield Knott] had not carried out any property [sic - proper] enquiries into Gatt Constructions' capacity as a builder."

Mr Fyfe later conceded that the reference to Oldfield Knott acting "in conjunction with the builder's quantity surveyor" was irrelevant and did not relate to any pleaded issue.

46 Mr Fyfe proceeded to tell the Arbitrator that there was "evidence to show that [Oldfield Knott] knew at the time Gatt Constructions' price was not the lowest" because Gatt's tender was based on the use of Verticore bricks. He said that this evidence was forthcoming from Mr Rafferty himself. For my part I do not think that Mr Rafferty's witness statement went that far, but I accept that it is ambiguous in this respect. The point is that, at this early stage in the opening, the Arbitrator was told that there was evidence that Oldfield Knott knew that Gatt's tender was not the lowest (because it was based on the use of Verticore bricks) but nevertheless advised Ortiz to accept the tender without revealing to it the truth about the use of Vertricore bricks.

47 Mr Fyfe proceeded to refer to Oldfield Knott's reliance in par 25.2A of its defence on the "detailed tender breakdown" which, according to it, "demonstrated that Gatt based its tender price" on the use of Verticore brick. He referred in this regard to "the very real difficulties that can be created by professional people who don't understand the meaning of a conflict of interest". The conflict of interest to which Mr Fyfe was referring was apparently based on the fact that Mr Rafferty had acted for Oldfield Knott in preparing the specification for the tender (as it was put by Mr Fyfe, Mr Rafferty was the "ghost author of the specification") and had been engaged by Gatt to price the tender and to negotiate with Oldfield Knott on Gatt's behalf. Implicit in Mr Fyfe's overall submissions was the proposition that Mr Rafferty's "conflict of interest" (which was never specified with any greater particularity than that to which I have referred) was to be attributed to Oldfield Knott.

48 The reliance on conflict of interest was explained by Mr Edmonds as being an argument "that it is surprising that Oldfield Knott would by its amended defence rely upon Rafferty's tender breakdown to prove Ortiz knew of the substitution [of Verticore bricks] when Rafferty had a conflict". The relevance to the pleaded causes of action of the "surprising" nature of Oldfield Knott's defence escapes me (and I do not see anything surprising in the pleading in question). I also fail to see anything sinister in Mr Rafferty's involvement on the bare facts asserted. The point is that, after referring to Oldfield Knott's "knowledge" that Gatt's tender was based on Verticore bricks, Mr Fyfe told the arbitrator that the tender itself had been prepared in circumstances involving "professional people who don't understand the meaning of a conflict of interest". This was the commencement of a series of innuendoes about the tender process.

49 Mr Fyfe then referred to a letter dated 29 August 1997, seven days after tenders closed, written by Oldfield Knott to the second-lowest tenderer, Cleary Constructions, advising it that its tender was not successful. He informed the Arbitrator:

"It will be [Ortiz's] evidence that this letter was sent without its authority and notwithstanding [Ortiz's] specific instructions to [Oldfield Knott] to obtain further information from and negotiate with the 2 lowest ... tenderers which at that stage [Ortiz] believed to be Gatt Constructions and Cleary Constructions in that order on the basis of what [Ortiz] now knows that is that Gatt Constructions was not the lowest tender and on the basis of the close relationship between Oldfield Knott, Gatt Constructions quantity surveyor [Mr Rafferty] and Gatt Constructions it is submitted that the rush to prematurely terminate Cleary Constructions' involvement in the tender negotiation process can only be viewed with some suspicion."

This is an important passage. Mr Fyfe had already told the Arbitrator that Oldfield Knott knew that Gatt's tender was not the lowest and that it had been prepared in circumstances involving conflicts of interest. Now he told the Arbitrator that, despite Ortiz's "specific instructions" to obtain further information from and negotiate with the two lowest tenderers, "on the basis of the close relationship" between Oldfield Knott, Mr Rafferty and Gatt, "the rush to prematurely terminate Cleary Constructions' involvement in the tender negotiation process can only be viewed with some suspicion." Against this background, the references to "the close relationship", and to "the rush to prematurely terminate Cleary Constructions' involvement in the tender negotiation process" coupled with the proposition that these matters "can only be viewed with some suspicion," clearly imply that Oldfield Knott, for some improper reason concerning the close relationship, hastily terminated Cleary Constructions' involvement in the tender process.

50 I am quite unable to discern any connection between the pleaded causes of action and the propositions so enunciated by Mr Fyfe. Mr Edmonds submitted that the termination of Cleary Constructions' involvement could be viewed with "some suspicion" because of the "close relationship". What has to be explained by Ortiz, however, is not how the suspicion was justified (as to which I express no opinion), but why it was relevant to the pleaded issues.

51 Mr Edmonds sought to explain how Mr Fyfe's remarks were relevant to the pleaded causes of action by submitting that "Ortiz suspect[ed] that the termination was not made on merit but because Rafferty was promoting Gatt and Oldfield Knott was closely related to Rafferty". I agree that that submission encapsulates the innuendo that arose from Mr Fyfe's remarks. But it does not suggest that Mr Fyfe was addressing negligence at all.

52 On that basis Mr Fyfe was saying that the suspicion arose that Oldfield Knott did not terminate Cleary Constructions involvement on merit, but rather because it wished to please Mr Rafferty, to whom Oldfield Knott "was closely related", and who was tainted by a conflict of interest involving Ortiz (which Oldfield Knott well knew). This seems to me to be an unambiguous assertion that Oldfield Knott deliberately, for motives ulterior to its contractual and professional obligations to Ortiz (so as to benefit itself to the prejudice of its client, Ortiz), terminated the involvement of Cleary Constructions. By no stretch of the imagination did this allegation assist Ortiz in proving negligence (or any of the other causes of action in the form they were pleaded). It constituted a new cause of action that was not pleaded. For the sake of convenience I shall refer to it as falling into the generic category of improper conduct or impropriety.

53 Immediately after making these remarks, Mr Fyfe referred to the amendment to Oldfield Knott's defence pleaded in par 25.2A of the amended defence and said:

"One only has to look at [Oldfield Knott's] own particulars at paragraph 25.2A of the amended defence to appreciate the subterfuge involved in this allegation."

It is not clear to me what "subterfuge" was so involved, but the use of this terminology tended to reinforce the clouds of suspicion that were being invoked, indirectly and by innuendo, as to improper conduct on the part of Oldfield Knott.

54 The implicit allegation that Oldfield Knott improperly chose Gatt as the successful tenderer was repeated and reinforced by Mr Fyfe when he said:

"[I]t appears that there has been some attempt to ensure that Gatt Constructions was selected as a tenderer ... and ultimately awarded the building contract notwithstanding that Gatt Constructions' tender was not on [Ortiz's] case the lowest tender ..."

The mere contention that Gatt was awarded the building contract despite its tender not being the lowest does not give rise to any implication of impropriety. However, the words that "there has been some attempt to ensure" that Gatt was awarded the building contract in those particular circumstances, in my opinion, repeated the innuendo that there was a deliberate attempt by Oldfield Knott to favour Gatt, and this is to be seen in the context of the previous allegations.

55 In my view, having regard to the precise words used by Mr Fyfe in opening, and the context in which the particular words were uttered, the improper conduct asserted by him was not said to be relevant to allegations of negligence or any pleaded cause of action. In any event, I do not consider that the improper conduct implicitly adverted to by him is capable of being so relevant. In explaining that the close relationship between Oldfield Knott, Rafferty and Gatt was relevant to improper conduct on the part of Oldfield Knott that affected the tender process, Mr Fyfe went far beyond the pleaded issues. It is apparent, as I shall indicate, that the Arbitrator understood Ortiz's case in this way.

56 After Mr Fyfe had made the above-mentioned remarks, counsel for Oldfield Knott at the arbitration, Mr O'Neal, objected. He asserted that, on the basis of Mr Fyfe's submissions, "fraud or collusion" had been alleged. He said that his concern was that:

"[T]he witness statements are larded with reference to matters that might readily be regarded as casting aspersions on the character of [Oldfield Knott]. Even with the best will in the world ... if those allegations are allowed to be made now and the evidence is allowed to stand in that form it is difficult to see how [Oldfield Knott] at this stage of affairs can defend itself against those kind of allegations ... [W]e are not here to defend the case of alleged collusion and in my respectful submission it is appropriate and I am making an application that you rule that matters such as those that I have referred to and I am happy to give you further details of those if it's necessary to formalise it - matters of those kind will not be entertained in the course of this arbitration. That no evidence will be permitted to be led in respect of those allegations and finally I am asking that we be given the opportunity now that this matter has crystallised and come to a head to revisit the witness statements - objections - ... and to remove irrelevant and prejudicial material from the witness statements and that's my application to you."

(i) the allegations of improper conduct in a broad sense (including fraud and collusion) would not be raised in the arbitration;

(ii) no evidence would be permitted to be led in respect of those allegations; and

(iii) Oldfield Knott be given the opportunity to object to particular passages in the witness statements.

57 Before the Arbitrator made any ruling in respect of this application, Mr Fyfe responded:

"Sir, in respect to the close relationship between the architect and the builder's quantity surveyor [Ortiz] doesn't propose to give any evidence that the matters that my friend's complaining about in the witness statements are simply comments acknowledging the close relationship that's demonstrated on Oldfield's own witness statements. So I'm happy to have anything that makes judgments about what the result of those close relationships is deleted from any of [Ortiz's] witness statements because that's ultimately a matter for you to determine what the results of that relationship might be."

He went on to say that Ortiz would not lead any evidence about the relationship between Oldfield Knott and the quantity surveyor, Mr Rafferty. He explained:

"We don't intend to lead any evidence about the close relationship between the architect and the builder's quantity surveyor [Rafferty]. Yet that evidence is on - in there on [Oldfield Knott's] own witnesses statements and we are entitled to ask you to infer whatever you may from that. So we are quite happy to agree that we won't lead any evidence as to the close relationship. We're quite happy to agree that we won't lead any evidence in the context that - to the effect that Gatt's tender price was not the lower tenderer except that the evidence - except to that might be obvious from the evidence that - the documentary evidence and we are entitled to ask you to make whatever you will of that if the evidence is in - we are not setting out to - I certainly didn't mention any - didn't mention fraud. I certainly didn't mention collusion in my opening and what we do allege that there was misleading and deceptive conduct ... on the part of [Oldfield Knott] to either carry out the proper investigations as to Gatt's financial circumstances - as to Gatt's capacity as a builder ... and ... [Oldfield Knott] knew that Gatt's tender price wasn't the lowest [and] it wrongfully advised [Ortiz ] that Gatt was the lowest."

58 Thus, despite the fact that Mr Fyfe informed the Arbitrator that Ortiz did not intend to lead any evidence about the "close relationship" between Oldfield Knott, Mr Rafferty and Gatt, and Ortiz was not alleging fraud or collusion, he submitted that, as relevant evidence concerning the relationship appeared from Ortiz's own witness statements, Ortiz was entitled to ask the Arbitrator "to infer whatever you may from that". Mr Fyfe thereby implicitly asserted that the suspicions previously adverted to continued to apply to the awarding of the tender to Gatt and, should they be substantiated as the arbitration proceeded, they would be determinative of the arbitration.

59 The suspicions referred to by Mr Fyfe concerned Oldfield Knott's alleged improper conduct in terminating Cleary Constructions' involvement, not on merit but because it wished to benefit Mr Rafferty and Gatt. The close relationship between Oldfield Knott, Mr Rafferty and Gatt, which was established from Oldfield Knott's own witnesses, allegedly gave rise to the suspicions about Oldfield Knott's conduct in this respect. In this sense the suspicions related to improper conduct that was neither fraud nor collusion.

60 Later, Mr Fyfe reiterated that Ortiz did not intend to lead any evidence "in respect to the close relationship" and repeated that "the close relationship is evident on [Oldfield Knott's] own witness statements". He submitted, "All [Ortiz's] witnesses have done is commented on what they think the effect of that is. I am happy, sir, to have those comments struck out." Nevertheless, he continued:

"I'm not intending to lead any evidence as to the close relationship, but if the evidence comes from [Oldfield Knott] I do say I'm entitled to ask you to make of that what you will of the evidence that's produced in this arbitration."

Mr Fyfe thereby took precisely the stance he had taken previously. In other words, he asserted, in effect, that it was open to him to raise improper conduct of the kind to which he had previously referred. He proceeded to repeat that he was relying upon Oldfield Knott's relationship with Mr Rafferty and its failure to advise Ortiz that Gatt's was not the lowest tender, and again told the Arbitrator, "You can make what you like of that relationship."

61 Mr O'Neal thereupon observed that if Ortiz was making allegations of that kind, it should be brought "out in the open" and dealt with "properly". He argued that Ortiz should amend its pleadings to allege the improper conduct, but Mr Fyfe asserted, in effect, that the allegations of impropriety appeared in the pleadings. As I have held, he was wrong in this regard.

62 Later, Mr Ortiz testified as Ortiz's first witness. In the course of his examination-in-chief, Mr Fyfe referred him to Mr Rafferty's witness statement and put questions to him based on the fact that Mr Rafferty had drafted the specification for Oldfield Knott and Mr Rafferty shared office space with Oldfield Knott. Mr O'Neal objected to that line of questioning. He said:

"It is not said in the particulars to this claim that there is anything unseemly or improper about this relationship. The complaint is that they should not have had this builder for two reasons. What Mr Rafferty's relationship was is not properly the subject matter of this arbitration and I renew my objection on that basis."

The Arbitrator observed that he had inferred from the original points of claim that Ortiz's case was that the breach of duty and the breach of the Trade Practices Act were not alleged by Ortiz to be "innocent" (hence, implicitly, it was open to Ortiz to raise breaches that were not innocent by way of evidence and argument). He asked whether this was not the intention. Mr Fyfe replied:

"It certainly wasn't, well I must say until this statement was provided we weren't aware that Mr Rafferty ... "

This response is ambiguous. It was capable of meaning that initially it was not Ortiz's intent to rely on breaches that were not innocent, but when Mr Rafferty's witness statement was provided, that intent changed.

63 The Arbitrator then explained that he did not mean "this precise point", and Mr Fyfe responded:

"Well, there was some concern expressed. Look, I don't think I need to take that any further. I mean the facts are in Mr Rafferty's own statement anyway ... "

In other words, Mr Fyfe was saying that he did not intend to say anything more about the matter, as he was relying on the facts disclosed in Mr Rafferty's statement. He was thereby implicitly repeating the position he had previously taken, namely, that it was open for him to argue improper conduct by relying on Oldfield Knott's own witness statements.

64 On Monday 8 May 2000, when the arbitration proceedings recommenced, Mr O'Neal submitted that the Arbitrator had been led into error "with respect to the nature of the case to be tried", and informed him that Oldfield Knott intended to bring an application under s 44 of the Commercial Arbitration Act for his removal on the grounds of technical misconduct. Mr O'Neal sought an adjournment to enable this to be done and submitted:

"Now we cannot know on what basis we are supposed to defend; whether we are supposed to be refuting allegations of some improper agreement or whether it is the case that we understood from the beginning. We can't effectively cross-examine the claimant's witnesses or lead evidence of our own without knowing beforehand the nature of the case."

65 Mr Fyfe repeated that he did not intend to lead any evidence as to any improper relationship between Oldfield Knott and Mr Rafferty, but again stated:

"We say evidence of that is already in Oldfield Knott's own witness statement. We don't need to lead any evidence in that context."

Again, this was merely repetitive of his previous position.

66 In my opinion, when regard is had to all the relevant material, the conclusion is inescapable. Mr Fyfe did not abandon or withdraw his contention that the relationship between Oldfield Knott, Rafferty and Gatt was "suspicious" and that it was open to the Arbitrator to draw any inference he wished as to Oldfield Knott's conduct in the tender process that it had conducted (including, implicitly, the inference that Oldfield Knott had been guilty of improper conduct).

Was impropriety otherwise legitimately referred to in the opening?

67 I have dealt above with Mr Edmonds' submission that the allegation of improper conduct was relevant to Ortiz's case based on negligence and the other causes of action pleaded. I have concluded that the way in which Mr Fyfe expressed this allegation indicated, in effect, that it constituted a separate, albeit unpleaded, cause of action on which the arbitrator could find for Ortiz. Moreover, I have concluded that, in any event, the allegation of improper conduct was not capable of being relevant to the negligence as pleaded and the other pleaded causes of action.

68 I turn now to the contention that Mr Fyfe was entitled to refer to impropriety on the part of Oldfield Knott in the course of the opening as this was relevant to credibility issues.

69 I have above pointed out that circumstances may be such that counsel, in opening, is entitled full well to refer to dishonesty or impropriety on the part of a witness to the extent that these matters bear on the credibility issues. In my view, however, Mr Fyfe had no intention of referring to improper conduct on the part of Oldfield Knott for this purpose and, in fact, did not do so.

70 I have pointed out the context in which references to alleged improper conduct were made, and none of these concerned the credibility of a witness. The references were made to support the argument that the tender process was tainted by Oldfield Knott's deliberate, hasty termination of Cleary Constructions' involvement and the deliberate award of the tender to Gatt so as to benefit the latter (and Mr Rafferty) to the prejudice of Ortiz. The references had no bearing on credibility.

71 When Mr O'Neal first applied for orders that improper conduct not be raised in the arbitration, that evidence not be led in support of such allegations and that Oldfield Knott be given the opportunity to object to certain parts of the witness statements, the Arbitrator said:

"I see no reason why the evidence as set out in the witness statements shouldn't be given and I'll give what weight I think should be given in every case."

In other words, the Arbitrator indicated that, despite the absence of this issue in the pleadings, he would allow evidence to be led on the issue and he would decide what weight was to be given to that evidence.

72 Unsurprisingly, Mr O'Neal again objected and drew attention to the fact that Oldfield Knott was conducting its case on the basis of the pleadings and that it would be highly prejudicial if it were obliged to defend itself against allegations of professional impropriety when that was not pleaded. This objection was unsuccessful.

73 At a later stage Mr O'Neal again submitted that it would be unfair and prejudicial to Oldfield Knott to allow the case to proceed on the basis that impropriety could be established without allegations of impropriety being pleaded. The Arbitrator, however, was not prepared to rule in his favour. This particular exchange commenced when Mr O'Neal referred to Mr Fyfe's submission that the pleadings contained an allegation that if Oldfield Knott knew "that Gatt's tender price was not the lowest, it wrongfully advised the claimant that Gatt was the lowest tender in circumstances where it was not". Mr O'Neal contrasted this allegation with the statement in opening that there was an "attempt to ensure that Gatt was selected notwithstanding that Gatt was not the lowest tender". He submitted, in effect, that the latter allegation involved improper conduct on the part of Oldfield Knott, and argued that, unless a case on this basis was "made plain and express," Oldfield Knott would be prejudiced. The Arbitrator said: "If that comes up we'll deal with it as it comes. Now let's hear your first witness Mr Fyfe". Mr Fyfe then remarked: "If I could just repeat my statement that I am prepared to look [at] taking out anywhere [Ortiz's] witness statements have made comments as to the effect of the relationship that I am prepared to take out of the witness statements and I repeat that". Mr O'Neal replied that he wished to take the course suggested. The Arbitrator said, however: "No let it come up as the points arise. ... [I]n my last amended directions I said that you will be permitted to ask the witness to elaborate on any point not quite clear in the witness statement".

74 The Arbitrator's attitude as so expressed was unequivocal. He refused to allow the strike out application to be heard, even though Mr Fyfe had consented to such a course, and held merely that if a witness statement contained objectionable material, the witness could be questioned about it.

75 Consistently with this approach, the Arbitrator indicated that the witnesses should not read their witness statements but that they should be put in and stand as evidence in chief (that is, without any objection being made). Mr O'Neal asked how Mr Fyfe's proposal that "irrelevant and objectionable material be removed" was to be dealt with. The Arbitrator replied, "Perhaps when you come to cross-examination".

76 Mr Fyfe then called his first witness, Mr Ortiz. Mr Fyfe sought to tender, through Mr Ortiz, a copy of Oldfield Knott's business card. Mr O'Neal objected on the ground that that was irrelevant to any issue in the pleadings. The discussion then expanded from the particular to the general. Mr O'Neal asserted that he did not propose to cross-examine the witness about irrelevant matters. The Arbitrator replied:

"Well, if irrelevant matters have been brought up in examination-in-chief then you'll get the chance to cross-examine on those points. It's quicker to do it that way ... "

The Arbitrator proceeded to suggest that the business card should not be put in "if it will make life easier," but nevertheless his remarks indicate that his approach continued to be that no objection should be made to irrelevant material and that Mr O'Neal should cross-examine on that material if he thought that it would be to his benefit.

77 Later, when Mr O'Neal repeated that the allegations made in opening were "a world away from the case that we embarked on in the beginning", the Arbitrator replied, "It seems to me that all of this is what usually comes up in the final submissions." The Arbitrator thereby again displayed the approach that the matter should proceed and that he would deal with the issues about which Mr O'Neal was complaining in the course of final addresses.

78 There were other episodes in the exchanges between counsel and the Arbitrator that revealed serious misconceptions in the Arbitrator's approach, generally. I shall refer briefly to these.

79 Despite the fact that the Arbitrator had indicated expressly that the only way in which he would allow irrelevant and objectionable material to be dealt with was by allowing Oldfield Knott to cross-examine thereon, Mr O'Neal continued to submit that impropriety should be raised squarely and not by innuendo or hints. The following exchange occurred:

"THE ARBITRATOR: But you're talking about the pleadings.

THE ARBITRATOR: I need not have allowed any pleadings to be given.

MR O'NEAL: But the case has proceeded on pleadings, Mr Arbitrator.

THE ARBITRATOR: Yes, but I'm not bound by the rules of evidence.

MR O'NEAL: Yes, I appreciate that, Mr Arbitrator, but the simple point is the way the matter has progressed, regardless of whether the rules of evidence are applied or not. Oldfield Knott doesn't now know what evidence it needs to meet the case that is apparently - - -

THE ARBITRATOR: That's part of the rules of evidence."

This exchange reveals a fundamental misconception on the part of the Arbitrator. While he was not bound to order pleadings to be filed, he did in fact make such an order. That being the case, it seems to me as I have indicated above, the Arbitrator was bound to apply the ordinary rules applicable to pleadings.

80 The Arbitrator's reference to the rules of evidence is also significant. Section 19(3) provides:

"Unless otherwise agreed in writing by the parties to the arbitration agreement, an Arbitrator or umpire in conducting proceedings under an arbitration agreement is not bound by rules of evidence but may inform himself in relation to any matter in such manner as the Arbitrator or umpire thinks fit."

The Arbitrator appeared to be under the impression that, by reason of s 19, he was not bound to follow the rules applicable to pleadings - despite the fact that he had ordered pleadings to be filed. That, too, is a misconception. The rules regarding pleadings are not rules of evidence. They are rules of procedure which govern the conduct of the case and determine the relevance of the evidence that is led. The general approach of the Arbitrator seemed to be that it was open to him to allow the evidence of impropriety to be led, even though allegations of such impropriety might not have been made in the pleadings. In my view, such an approach was wrong.

81 The concern that Oldfield Knott had as to the Arbitrator's approach must have been exacerbated by the following exchange:

"MR O'NEAL: ... The one thing that is absolutely certain is that at the end of this case you will be urged to find that the conduct of Oldfield Knott was not simply negligent but was the result of some improper arrangement - that is obvious enough.

THE ARBITRATOR: But isn't the claim that the Trade Practices Act was contravened - section 52 isn't it - - -

THE ARBITRATOR: - - - on deceptive - what's the reading of section 52?

MR FYFE: It's misleading or deceptive conduct, sir.

THE ARBITRATOR: Misleading or deceptive conduct. Surely the word 'deceptive' covers what has been brought up.

This attitude on the part of the Arbitrator is consistent with his statement, referred to above, that he had inferred from the original points of claim that Ortiz was contending that the breach of duty and the breach of the Trade Practices Act were not "innocent" (and, therefore, it was open to Ortiz to raise breaches that were not innocent by way of evidence and argument).

82 The view so adopted by the Arbitrator, with respect, is erroneous. In its points of claim Ortiz alleged misleading or deceptive conduct on the part of Oldfield Knott constituted by the misrepresentations pleaded. There was no allegation of any impropriety arising out of any relationship between Oldfield Knott or Gatt, Oldfield Knott or Mr Rafferty, or in regard to the award of the tender to Gatt. The Arbitrator appears to have been of the view that, merely by relying on a cause of action based on s 52 of the Trade Practices Act, it was open to Ortiz to lead evidence and for the Arbitrator to make findings in regard to a cause of action based on impropriety on the part of Oldfield Knott, even though that had not been pleaded as constituting the misleading or deceptive conduct on which Ortiz relied.

83 I should say that the Arbitrator's view was a direct consequence of the submissions that had been made to him by Mr Fyfe. In other words, the Arbitrator understood Mr Fyfe's submissions to have the same meaning that I have found them to mean.

84 It also seems that the Arbitrator was of the view that the mere allegation of "deceptive conduct" under the Trade Practices Act was wide enough to cover impropriety of any kind. That is not correct. Impropriety may be neither misleading nor deceptive.

After Mr O'Neal had informed the Arbitrator that Oldfield Knott intended to apply for his removal, Mr Fyfe (apparently in an attempt to stave off the application) stated:

Oldfield Knott Architects Pty Ltd v Ortiz Investments Pty Ltd [2000] WASCA 255

At a glance

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Before

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Judgment (289 paragraphs)

Oldfield Knott Architects Pty Ltd v Ortiz Investments Pty Ltd [2000] WASCA 255 (12 September 2000)

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Legislation Cited (2)

Cases Cited (22)