Oldfield Knott Architects Pty Ltd v Ortiz Investments Pty Ltd

[2000] WASCA 255

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

Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[2000] WASCA 255
Court:	THE FULL COURT (WA)
Case No:	FUL:101/2000	Heard:	21 JULY 2000
Coram:	IPP J WALLWORK J ANDERSON J	Delivered:	12/09/00
No of pages:	49	Judgment Part:	1 of 1
Result:	Appeal allowed
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Parties:	OLDFIELD KNOTT ARCHITECTS PTY LTD ORTIZ INVESTMENTS PTY LTD
Catchwords:	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
Legislation:	Commercial Arbitration Act 1985, s 44 Trade Practices Act 1974 (Cth), s 52
Case References:	Belmont Finance Corporation Ltd v Williams Furniture Ltd [1979] Ch 250 Davy v Garrett [1877] 7 Ch D 473 Fluor Australia Pty Ltd v State Energy Commission (WA), unreported; SCt of WA; Library No 6682; 10 April 1987 Frigo v Culhaci, unreported; CA; SCt of NSW; BC 9803225; 17 July 1998 Gold Coast City Council v Pioneer Concrete Pty Ltd (1998) 157 ALR 135 Hornsby Building Information Centre Proprietary Limited & Anor v Sydney Building Information Centre Limited (1978) 140 CLR 216 Indian Oil Corporation Ltd v Coastal (Bermuda) Ltd [1992] Lloyd's Rep 407 Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 Kyle v Legal Practitioners' Complaints Committee [1999] WASCA 115 Thiess Contractors Pty Ltd v Water Corporation of Western Australia, unreported; SCt of WA; Library No 970561; 28 October 1997 W Scott, Fell and Company, Limited v F H Lloyd (1906) 4 CLR 572 White Industries (Qld) Pty Ltd v Flower & Hart (a Firm) (1998) 156 ALR 169 Alister v The Queen (1984) 154 CLR 404 Australian Coal & Shale Employees' Federation v Commonwealth (1953) 94 CLR 621 Banque Commerciale SA (in liq) v Akhil Holdings Ltd (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 (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 Miller v Cameron (1936) 54 CLR 572 Moran v Lloyd's [1983] QB 542 Nauru Phosphate Royalties Trust v Matthew Hall Mechanical & Electrical Engineers Pty Ltd [1994] 2 VR 386 R v Browning (1991) 103 FLR 425 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

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE FULL COURT (WA) CITATION : OLDFIELD KNOTT ARCHITECTS PTY LTD -v- ORTIZ INVESTMENTS PTY LTD [2000] WASCA 255 CORAM : IPP J

WALLWORK J
ANDERSON J

HEARD : 21 JULY 2000 DELIVERED : 12 SEPTEMBER 2000 FILE NO/S : FUL 101 of 2000 BETWEEN : OLDFIELD KNOTT ARCHITECTS PTY LTD

Applicant

AND

ORTIZ INVESTMENTS PTY LTD
Respondent

Catchwords:

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

(Page 2)

Legislation:

Commercial Arbitration Act 1985, s 44

Trade Practices Act 1974 (Cth), s 52

Result:

Appeal allowed

Representation:

Counsel:

Applicant : Mr J Gilmour QC & Mr M Howard
Respondent : Mr C B Edmonds & Mr P A Fyfe

Solicitors:

Applicant : Downings Legal
Respondent : Jackson McDonald

Case(s) referred to in judgment(s):

Belmont Finance Corporation Ltd v Williams Furniture Ltd [1979] Ch 250
Davy v Garrett [1877] 7 Ch D 473
Fluor Australia Pty Ltd v State Energy Commission (WA), unreported; SCt of WA; Library No 6682; 10 April 1987
Frigo v Culhaci, unreported; CA; SCt of NSW; BC 9803225; 17 July 1998
Gold Coast City Council v Pioneer Concrete Pty Ltd (1998) 157 ALR 135
Hornsby Building Information Centre Proprietary Limited & Anor v Sydney Building Information Centre Limited (1978) 140 CLR 216
Indian Oil Corporation Ltd v Coastal (Bermuda) Ltd [1992] Lloyd's Rep 407
Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563
Kyle v Legal Practitioners' Complaints Committee [1999] WASCA 115
Thiess Contractors Pty Ltd v Water Corporation of Western Australia, unreported; SCt of WA; Library No 970561; 28 October 1997
W Scott, Fell and Company, Limited v F H Lloyd (1906) 4 CLR 572
White Industries (Qld) Pty Ltd v Flower & Hart (a Firm) (1998) 156 ALR 169





(Page 3)

Case(s) also cited:

Alister v The Queen (1984) 154 CLR 404
Australian Coal & Shale Employees' Federation v Commonwealth (1953) 94 CLR 621
Banque Commerciale SA (in liq) v Akhil Holdings Ltd (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 (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
Miller v Cameron (1936) 54 CLR 572
Moran v Lloyd's [1983] QB 542
Nauru Phosphate Royalties Trust v Matthew Hall Mechanical & Electrical Engineers Pty Ltd [1994] 2 VR 386
R v Browning (1991) 103 FLR 425
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

(Page 4)

IPP J:

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 Act1974 (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,

(Page 5)

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: cfThiess Contractors Pty Ltd v Water Corporation of Western Australia.

6 The allegation made by OldfieldKnott 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.

(Page 6)

The pleaded issues

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."

(Page 7)

PARTICULARS

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.

25.3 …

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:

(Page 8)

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

(1) …

(2) …

(3) …

(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

(Page 9)

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.

The reasons of the learned Chambers Judge

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.

(Page 10)

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

(Page 11)

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."

The parties' contentions on appeal

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.

(Page 12)

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

(Page 13)

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.

(Page 14)

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

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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."

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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) 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

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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.

The importance of counsel's opening

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: cfFrigo 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.

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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

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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:

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"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

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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

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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.

The withdrawal of allegations by Ortiz

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."

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Mr O'Neal thereby applied for orders that:

(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

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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."

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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

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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

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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.

The approach of the arbitrator

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.
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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

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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.

MR O'NEAL: Precisely, and the - - -

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.

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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 - - -

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MR O'NEAL: Yes, it is, sir.

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.

MR O'NEAL: Do you mean in the opening, sir?

THE ARBITRATOR: Anywhere."

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.

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Prejudice to Oldfield Knott

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:

"The claimant is perfectly happy to agree that Oldfield Knott's objections to the various statements in the witness statements be provided to you and if at the end of the hearing they claim that they haven't been given the opportunity to adequately deal with any of those statements that have been objected to, we can do one of two things. We can either agree then that they be struck out or we can agree to give Oldfield Knott the opportunity to do whatever it needs to do to call further evidence to recall witnesses to be cross-examined or whatever it considers necessary to rebut those statements if they remain in evidence."

He submitted that, as Oldfield Knott had had most of the witness statements in its possession for almost five months, "to suggest they are not being given the opportunity to deal with that evidence is simply nonsense." The Arbitrator replied, "I quite agree with you."

85 This submission loses sight of the problems brought about by Mr Fyfe's opening, the Arbitrator's acceptance of Mr Fyfe's submissions as to what the opening meant, the Arbitrator's omission to rule on the objections raised by Oldfield Knott and his approach generally.

86 As Oldfield Knott did not know that Ortiz was asserting that it was guilty of improper conduct until Mr Fyfe's opening, it had not prepared itself to meet such a case. The fact that it had been given Ortiz's witness statements dealing with a multitude of matters, including allegations of improper conduct, did not assist in this regard. Oldfield Knott was entitled to prepare for the arbitration on the basis that the issues were those contained in the pleadings.

87 The allegations of improper conduct were so serious that they should have been pleaded so that Oldfield Knott knew precisely what case it had to meet in that respect. Oldfield Knott was entitled to know the details of the impropriety alleged against it. The new cause of action, first adverted to in opening, took it by surprise in this sense.

88 In the absence of pleaded particulars of the improper conduct, and in the light of the Arbitrator's invitation to cross-examine on irrelevant material and the Arbitrator's approach that the case should proceed on the pleadings in their existing form, Oldfield Knott was required to lead

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evidence rebutting any allegations of improper conduct, cross-examine witnesses in that respect, and advance arguments without knowing the substance of the allegations made against it.

89 The fact that Mr Fyfe stated that he would only rely on the statements of Oldfield Knott's witnesses to argue that there was something suspicious in the relationship did not ameliorate the difficulties. The point is that once Ortiz maintained that it was open to it to mount such a generalised, unpleaded case, and once the Arbitrator agreed, Oldfield Knott was required to answer that case. It was then in an untenable position.

90 In my view, Oldfield Knott was materially prejudiced by the Arbitrator's decisions. As it was put by a member of the Court in the course of argument, Oldfield Knott was in the position of having to suffer the admission against it of irrelevant and prejudicial evidence, and the only thing it could do about it was to cross-examine on it (and lead evidence to rebut it), something which no party should be compelled to do. I would add that Oldfield Knott was required to do all those things in the context of not having been told precisely the detail of the case it was required to meet.

91 In the particular circumstances, I consider that the Arbitrator's refusal to prevent Ortiz from leading evidence in support of the allegation of improper conduct, and his refusal to hear the application to strike out irrelevant and objectionable material from the witness statements, was likely to lead to a substantial miscarriage of justice. This is not a case involving a mere error in the admission of evidence (such as discussed in Ridge v Taylor [1974] 9 SASR 428), or a case where the problem could have been resolved by a request for particulars or an adjournment, as suggested by Mr Edmonds.

Conclusion

92 I would therefore uphold the appeal, set aside the orders made by the learned Judge and order that the Arbitrator be removed as Arbitrator in the proceedings between the parties.

93 WALLWORK J: I agree with the reasons for judgment of Ipp J and to the orders proposed by his Honour.

94 ANDERSON J: These proceedings arise out of the financial failure of a builder, Gatt Constructions Pty Ltd, when it was building a substantial

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residence for Ortiz Investments Pty Ltd in Mosman Park. The house was to be the home of Mr and Mrs Ortiz. Ortiz Investments Pty Ltd claims that the failure of Gatt has resulted in financial loss of the order of some $2 million and it seeks to recover that loss from the architect Oldfield Knott Architects Pty Ltd, which is the present applicant. The engagement of the architect was on terms which included an arbitration clause and the dispute between Ortiz Investments Pty Ltd and the architect was, in due course, referred to the arbitration of Mr Frederick McCardell.

95 The matter came before this Court by way of an application by the architect under s 44 of the Commercial Arbitration Act 1985 (Cth) to have Mr McCardell removed. The specified grounds are that Mr McCardell has misconducted himself and/or is incompetent to deal with the particular dispute. The application was refused by Hasluck J, who dismissed the application on 31 May 2000. This is an appeal from that decision.

96 At the outset it should be said that we are here concerned with so-called technical misconduct. There is not the slightest suggestion of impropriety or general lack of capacity on the part of this very experienced commercial arbitrator. Essentially the complaint against the arbitrator is of procedural error in that he has indicated that:

(a) he intends to allow the claimant proprietor to present a case against the respondent architect of which no or inadequate notice has been given to the architect; and

(b) he intends to receive into evidence material which is irrelevant and highly prejudicial to the architect.

97 This amounts to a complaint that the arbitrator intends to conduct the arbitration in a manner that will be unfair to the architect, such as to deny the architect natural justice. This, if established, is "misconduct" for the purposes of the Commercial Arbitration Act: Thiess Contractors Pty Ltd v Water Corporation of Western Australia, unreported; SCt of WA; Library No 970561; 28 October 1997.

Facts

98 In the notice of dispute by which the arbitration was initiated, Ortiz Investments Pty Ltd gave notice that it claimed damages arising out of the architect's breach of s 52 of the Trade Practices Act 1974 (Cth) and/or negligence in recommending the selection of Gatt as builder; breach of contract and/or negligence in relation to the design of the building; breach of contract by instructing the builder to vary the works without the

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authority of Ortiz Investments Pty Ltd; and breach of contract and/or negligence in failing to properly administer the building contract.

99 By s 22 of the Commercial Arbitration Act, it is provided that, unless otherwise agreed in writing by the parties to an arbitration agreement, any question that arises for determination in the course of proceedings under the agreement shall be determined according to law. It is expressly provided in s 22(2) that if the parties to an arbitration agreement so agree in writing, the arbitrator may determine any question that arises for determination in the course of the proceedings ex aequo et bono, one translation of which is "according to what is equal and good". At the first meeting with the arbitrator, he asked the parties whether they agreed that he should decide issues on that basis. The parties did not agree and it is accepted on both sides that this meant the arbitration was to proceed strictly according to law. The arbitrator ordered pleadings and made directions laying down a timetable for pleadings. Pleadings closed on 10 May 1999 and comprised amended points of claim, particulars of claim, defence and reply.

100 The points of claim delivered on behalf of Ortiz Investments Pty Ltd amplified the allegations made in the notice of dispute. The basis of the claim by Ortiz Investments Pty Ltd, as appears from the points of claim, was that the architect was:

(a) negligent and/or in breach of contract in representing that Gatt had the experience and technical and financial ability to complete the work and was a suitable tenderer;

(b) guilty of misleading or deceptive conduct under s 52 of the Trade Practices Act in making those representations;

(c) negligent and/or in breach of contract in its design of the house and in its compilation of the specifications;

(d) negligent and/or in breach of contract in its administration of the contract and its inspection of the work;

(e) in breach of contract in issuing variation instructions to Gatt which were unauthorised and to the disadvantage of Ortiz Investments Pty Ltd.

101 Amongst the directions made by the arbitrator was a direction that witness statements be exchanged. The solicitors for Ortiz Investments Pty Ltd delivered 16 witness statement to the solicitors for the architect and the latter delivered nine witness statements to the solicitors for Ortiz

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Investments Pty Ltd. All of the witness statements were delivered to the arbitrator.

102 Amongst the witness statements delivered on behalf of Ortiz Investments Pty Ltd was a statement by Mr Fernando Ortiz. It contained a number of allegations of impropriety against the representative of the architect handling the matter, a Mr Strzelecki, the essence of which were that Mr Strzelecki had dishonestly contrived to secure the building contract for Gatt, due to the architect's association with Gatt and/or Gatt's quantity surveyor, Mr Rafferty. In his statement, Mr Ortiz accused Mr Strzelecki of having "got rid of" the second lowest tenderer, Cleary Bros, "with indecent haste" and "against my wishes" and of being "a little deceptive" in his dealings with Cleary Bros (par 138). He averred that Mr Strzelecki "attempted to mislead me" as to the use by Gatt of bricks called Verticore bricks, of changing "his story" as to how Verticore bricks came to be used instead of clay bricks (par 301), of not being trustworthy and of telling lies (par 368). Ortiz Investments Pty Ltd had engaged an architect, Mr Standen, to prepare an expert's report with respect to the tendering process and the manner in which the building contract had been negotiated and administered by the architect. Included in this report, which was attached to Mr Standen's written statement, were further serious allegations against the architect. Mr Standen expressed the opinion that "the architect and the builder wilfully and without lawful justification combined to achieve a result causing loss to the proprietor". As to that, he commented that "it is hard to know what the architect's motive was". He accused the architect of dealing with the builder "behind the proprietor's back" and of engaging in "a deceitful kind of conduct".

103 There was a directions hearing before the arbitrator on 24 January 2000, after the exchange of these witness statements. Apparently, by this time, an understanding had been reached that the evidence-in-chief of each witness would be obtained by tendering his/her witness statement and supplementing it with oral evidence. If that was to be the role of the witness statements, it was, of course, desirable, if not essential, that so far as possible any inadmissible material of a prejudicial nature should be removed from them. It is not in dispute that at the hearing before the arbitrator on 24 January, Mr O'Neal, counsel for the architect, referred to the fact that there was objectionable material in the witness statements proposed to be relied on by Ortiz Investments Pty Ltd. The material which Mr O'Neal had in mind included the allegations of impropriety and deceit which appeared to have nothing to do with Ortiz Investments Pty Ltd's pleaded case. It would appear that Mr O'Neal invited the arbitrator to make directions as to how objections to the content of the witness

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statements were to be dealt with so as to ensure objectionable material did not go into evidence. The arbitrator made it clear that he would not hear Mr O'Neal's objections. He told the parties that "any matters of objection [can] be dealt with in cross-examination" and the arbitrator would "give the evidence such weight as it deserved". After further discussion, the arbitrator directed the architect's solicitors to send a list of objections to Ortiz Investments Pty Ltd's solicitors "for them to consider and for the parties to mutually work out". A list of objections (of which there were very many) was duly forwarded to Ortiz Investments Pty Ltd's solicitors. The allegations of impropriety in the witness statement of Mr Ortiz and Mr Standen, referred to above, were objected to. The objections were not accepted as valid by Ortiz Investments Pty Ltd's solicitors. Therefore, unless the arbitrator was prepared to intervene and rule on the objections, all of the allegations of impropriety against the architect would go into evidence.

104 On 3 April 2000, the arbitrator sent a letter to the parties setting out the procedure he proposed to follow at the hearing. In this letter, the arbitrator confirmed that the witness statements would be received into evidence as the evidence-in-chief of each witness and that counsel for each party would be at liberty to cross-examine upon each statement. In that letter, he fixed 5 May 2000 as the date for the commencement of the hearing.

105 So far as appears from the material before this Court, the architect's solicitors did not seek to press the arbitrator further on the question of objections to the content of the witness statements proposed to be relied on by the claimant. I must say that I think this was unwise.

The pleadings

106 An important part of the claim by Ortiz Investments Pty Ltd related to the circumstances by which Verticore bricks came to be used in the works. This aspect of the claim stems from the specifications which specified clay bricks or "equivalent concrete or sand lime silica bricks of comparable size and strength". It appears to be not in dispute that Verticore bricks are neither clay bricks nor are they concrete or sand lime silica bricks. Apparently they are cheaper than the specified bricks. In its notice of dispute, one of the allegations of breach of contract particularised by Ortiz Investments Pty Ltd was that the architect, acting without authority, instructed Gatt to vary the work by using Verticore bricks. This allegation was amplified in par 25 of the points of claim in the following terms:

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"25.(1) Under the terms of the Building Contract Oldfield Knott had authority (as between Oldfield Knott and Gatt) to instruct Gatt to vary the Works subject to an appropriate adjustment to the Contract Sum;

(2) Purportedly acting pursuant to such authority, Oldfield Knott instructed Gatt to vary the Works (illegible)

Particulars


(a) To use Verticore bricks to the ground floor and first floor walls in lieu of the 110mm or 290 x 90 x 90 clay bricks specified at Item D, Section G, page 58 of the Specification;

(b) …


(3) Oldfield Knott's instruction to vary the Works was, in breach of the Architect Agreement, issued without the agreement or consent of Ortiz which agreement or consent, if requested, would not have been given.

(4) Oldfield Knott's instruction to vary the Works resulted in that part of the Works being inferior to that required under the Building Contract and, accordingly, being unacceptable to Ortiz.

(5) Further, Oldfield Knott failed to make any adjustment to the Contract Sum by reducing it to take account of such variations and to pass the benefit thereof to Ortiz."

107 To this the architect pleaded in par 25 of its defence simply that it did issue various instructions to the builders to vary the work but did not need the permission of the proprietor to do so; anyway, the proprietor agreed to the variation; the variation did not lessen the standard of the works; and all adjustments to the price were made in accordance with the advice of the proprietor's quantity surveyor.

108 On these pleadings the main issue concerning the use of Verticore bricks was whether Ortiz Investments Pty Ltd did agree to the issuing of a contract variation to the effect that Verticore bricks be used. Subsidiary issues were whether the architect could do so without first obtaining the consent or agreement of Ortiz Investments Pty Ltd and whether, in any event, he should have ensured that Ortiz Investments Pty Ltd obtained the

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benefit of any cost saving resulting from the use of Verticore bricks. Implicit in these pleadings was an acceptance on both sides that the use of Verticore bricks came about by issue of a variation instruction.

109 In circumstances which are not entirely clear to me, the architect amended par 25 of its defence a day or two prior to the commencement of the hearing. The amendment related to the issue concerning the use of Verticore bricks. By the amendment the architect changed its defence on this issue. The new defence asserted that Ortiz Investments Pty Ltd had engaged in post-tender negotiation with Gatt during which Gatt provided to Ortiz Investments Pty Ltd a detailed breakdown of its tender price, by which Ortiz Investments Pty Ltd was informed that Gatt's tender was based on the use of Verticore bricks in all areas of the works except for the garage. The new defence asserted that in the negotiations that ensued Gatt and Ortiz Investments Pty Ltd reached agreement that Gatt could use Verticore bricks throughout the works including in the garage. Recast in this way the architect's defence to this aspect of the claim became that Ortiz Investments Pty Ltd had agreed to the use of Verticore bricks, not as a variation to the contract but in post-tender negotiations before the signing of the contract documents. The contention would no doubt be that the issuing of a variation instruction with respect to Verticore bricks merely brought the contract documents into line with the agreement actually reached between Ortiz Investments Pty Ltd and Gatt. Implicit in this new defence is an acknowledgment by the architect that the architect knew before the contract was signed that Gatt's tender was a non-conforming tender, based not on the bricks specified in the invitation to tender but on Verticore bricks. An integral part of the defence was, however, that Ortiz Investments Pty Ltd also knew that fact before signing the contract and proceeding with the works.

110 In summary, therefore, the architect's position now was that the tender was accepted by Ortiz Investments Pty Ltd on the basis that everyone knew, and Ortiz Investments Pty Ltd accepted and agreed, that Verticore bricks were to be substituted for clay bricks within the negotiated contract price.

111 Immediately after this amendment was made to the defence, the solicitors for Ortiz Investments Pty Ltd delivered two new witness statements to the solicitors for the architect, one from Mrs Lisa Ortiz and the other a further statement of Mr Standen. They also (one day before the commencement of the hearing) amended their reply, in order to respond to the amendments which the architect's solicitors had made to the defence.

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112 The statement of Mrs Ortiz contained obviously inadmissible material such as the following:

"18. After the meeting my husband told me he was becoming increasingly concerned with Strzelecki's behaviour and I agreed with him …

29. After Gatt had gone into administration my husband was becoming increasingly suspicious of Strzelecki … my husband was very concerned about his lies and fibs on brickwork and other matters … "

113 Mr Standen's statement contained repetitions of his earlier allegations of dishonesty and general impropriety against the architect. In it he said that the tendering process had not been honestly conducted by Mr Strzelecki. He said that Mr Strzelecki had selected Gatt knowing Gatt was "incapable of performance". He said that Mr Strzelecki had dismissed Cleary Bros, notwithstanding that Cleary Bros' tender was "more advantageous". He implied that the architect had improperly used Gatt's quantity surveyor to write the specifications. He implied that the architect had improperly failed to disclose to Ortiz and the other tenderers that the specifications had been written by Gatt's quantity surveyor. He alleged that there was a "smell" of "favouritism" in the selection of Gatt. He alleged that the architect had "masterminded" what he described as "a most unethical strategy".

114 As I have said, Ortiz Investments Pty Ltd responded to the architect's amendment to its defence by amending the reply.

115 By the amendment made to the reply, Ortiz Investments Pty Ltd denied that it had ever agreed to the use of Verticore bricks otherwise than in the garage and, as to the garage, Ortiz Investments Pty Ltd pleaded that it had agreed to the use of Verticore bricks only on certain conditions. Ortiz Investments Pty Ltd did not deny engaging in post-tender negotiations with Gatt and did not deny seeing Gatt's breakdown of its tender price and did not deny seeing in that breakdown the reference to Verticore bricks. Ortiz Investments Pty Ltd pleaded that the tender breakdown did not comprise part of the tender documents. At the end of the amended pleading, there appears the following subparagraph:

"7.(4) If the Respondent [architect] 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

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to Gatt the Respondent [architect] wrongfully advised the Claimant [Ortiz Investments Pty Ltd] that Gatt was the lowest tender in circumstances where it was not."

116 In my opinion, this is a bad plea. The allegation that "there was accordingly a substantial saving to Gatt" is a non sequitur. The use of the word "wrongfully" in this context is embarrassing for ambiguity. In its context it may mean "negligently" or "in breach of contract" or "in contravention of the Trade Practices Act". On the other hand, it may mean "dishonestly".

117 Also underlying the plea is the proposition that Gatt was not the lowest tenderer when it seems to be common ground that Gatt was indeed the lowest tenderer. The plea seems to be trying to express the idea that where a tenderer, whose price is the lowest, does not intend to carry out the works in accordance with the specification on which he has tendered, he is not the lowest tenderer. If that is what is being said it seems to me to be an incorrect use of language.

118 Be that as it may, it appeared from the pleadings that there might be a conflict between the evidence of Mr Strzelecki and Mr Ortiz, at least in relation to the use of Verticore bricks. Quite obviously, the credibility of the witnesses on each side of this issue might be in issue. Anyway, it is reasonably clear that the credibility of Mr Strzelecki on a number of other factual matters would be put in issue.

Opening address

119 This, then, is the background against which the case was opened to the arbitrator on 5 May. Counsel for Ortiz Investments Pty Ltd was entitled to open on the basis that the evidence to be given on behalf of Ortiz Investments Pty Ltd would be in conflict with the evidence to be given by and on behalf of the architect on a range of matters, including the circumstances surrounding the use of Verticore bricks, and that the arbitrator would have to decide who was telling the truth. Counsel was entitled to refer in opening to matters upon which Ortiz Investments Pty Ltd would rely in support of its case that the architect's witnesses, including Mr Strzelecki, ought not to be believed. An opening which did no more than that would be unexceptionable.

120 I should perhaps go on to say that in my opinion it would not have been improper for counsel for Ortiz Investments Pty Ltd to refer to matters such as that there was a pre-existing association between the

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architect and Gatt, and between the architect and the quantity surveyor, and between the quantity surveyor and Gatt. I think it was fairly open to counsel on the pleadings as they stood to tell the arbitrator that he would lead evidence from which the inference should be that the architect's relationship with the quantity surveyor and Gatt and his previous dealings with them may have led the architect to be too trusting and less careful than he should have been in his dealings with them. It was fairly open to counsel to tell the arbitrator that it was the claimant's case that, in bringing about the change to the brickwork without the authority of the claimant and without obtaining any matching benefit by way of a reduction in the price, the architect had exceeded his authority and had been negligent.

121 Having read and re-read the transcript of Mr Fyfe's opening to the arbitrator, I am afraid that I have come to the conclusion that he went much further than that. So far as I can gather from the various ways in which the architect's conduct was opened by Mr Fyfe to the arbitrator, Ortiz Investments Pty Ltd wished to allege improper (in the sense of dishonest) conduct by the architect and wished to do so not as merely going to the architect's credibility or as affecting the probabilities, but as the very basis of the claim. Mr Fyfe told the arbitrator in no uncertain terms that the architect had set out to get this contract for Gatt in disregard of the interests of Ortiz Investments Pty Ltd by means which included deception. No other construction can really be put on the words which Mr Fyfe chose to use. Mr Fyfe told the arbitrator that it was Ortiz Investments Pty Ltd's case that the architect had participated in an "attempt to ensure" that the builder was "awarded the contract, notwithstanding that [its] tender was not … the lowest tender". He told the arbitrator that the architect had acted "in conjunction with" the builder's quantity surveyor to "induce" Ortiz Investments Pty Ltd to accept Gatt's tender. Mr Fyfe described the manner of notification to Cleary Bros that its tender was not successful as "a rush to prematurely terminate" that tenderer. Mr Fyfe expressly invited the arbitrator to "view" the architect's conduct in selecting Gatt as the successful tenderer "with some suspicion". Mr Fyfe told the arbitrator that the letter to Cleary Bros advising that its tender was not successful had been written without the client's authority in circumstances where there was a "close relationship" between the architect and Gatt's quantity surveyor, Mr Rafferty. Mr Fyfe even described as "subterfuge" the architect's late amendment to the defence.

122 These allegations were not allegations of oversight or lack of skill or diligence by the architect. They were allegations of a conspiracy to cheat

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the client. They were allegations of the utmost gravity in the context of professional conduct.

123 Counsel for the architect, Mr O'Neal, allowed Mr Fyfe to complete his opening. At the conclusion of his opening, the arbitrator adjourned the arbitration for a short time and, at that point, Mr O'Neal informed the arbitrator that "I just want to flag that there is a matter that I wish to raise arising from my friend's opening before we proceed further this morning and perhaps I'll tell him about that in the course of the break."

The Arbitration rulings

124 Upon resumption, Mr O'Neal informed the arbitrator that he was there to present a defence based upon the pleading and not a case based on fraud or collusion. The arbitrator responded to the effect that the pleadings did raise fraud and collusion as an issue because there was "a claim for a breach of the Trade Practices Act". In that, the arbitrator was simply wrong. It is well settled that the reference to misleading or deceptive conduct in s 52 is not a reference to, and does not import, bad faith, or dishonesty, or impropriety. A corporation which acts honestly might, nevertheless, contravene the section: Hornsby Building Information Centre Proprietary Limited & Anor v Sydney Building Information Centre Limited (1978) 140 CLR 216, especially per Stephen J at 223. Hence, it is certainly not the case that a defendant who is pleaded to have contravened s 52 by engaging in misleading or deceptive conduct must expect to be accused at trial of fraudulent, dishonest or immoral conduct.

125 This is not to say that dishonest conduct is not comprehended by s 52. Conduct which is misleading or deceptive is nonetheless so if it is dishonest, that is, accompanied by an intent to mislead or deceive. But in this case no dishonesty is alleged in the points of claim. What is alleged as to the various representations made by the architect concerning Gatt's suitability and so on is that the architect "had no reasonable grounds" for making them because the architect had not made the necessary enquiries or inspections. It is impossible to get from the pleading an allegation that the architect's conduct was deceptive in the sense of deceitful, that is, deceptive because the architect knew the representations which were made were untrue.

126 Mr O'Neal attempted to persuade the arbitrator that the breaches of the Trade Practices Act which were alleged did not include improper conduct and he asked for a ruling that "matters of those kind" (by which

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he meant the allegations of impropriety) "will not be entertained in the course of this arbitration … that no evidence will be permitted to be led in respect of those allegations". He also requested an opportunity to "revisit the witness statements" so as to renew his objections to material considered to be irrelevant and prejudicial. The arbitrator once again made it clear, as he had at the hearing on 24 January, that he would not hear Mr O'Neal's objections to the contents of the witness statements. He 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." (AB 262)

127 During all of this, Mr Fyfe was not silent. He rose from time to time to respond in a way which was, to say the least, ambiguous. At one point (AB 262) he said he had not mentioned fraud or collusion in his opening, thus implying that neither fraud nor collusion was part of his case. However, at another point (AB 263) he submitted that the allegation in the lately amended reply that the architect had "wrongfully" advised Ortiz Investments Pty Ltd that Gatt was the lowest tenderer entitled him to open the case in the way that he had done, thus implying that "wrongfully" was used in the sense of "dishonestly" and that dishonesty was indeed the basis of his case. He announced (AB 261 - 262) that he would not lead evidence from the Ortiz witnesses of the "close relationship", which he had alleged in his opening, existed between Mr Strzelecki and Gatt's quantity surveyor, Mr Rafferty, but at the same time he told the arbitrator that "if the evidence comes from the respondent 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". It is not easy to understand what Mr Fyfe had in mind in making this last remark unless it meant that the issue of fraud and collusion was still alive.

128 None of these statements by Mr Fyfe satisfied Mr O'Neal who told the arbitrator that on the pleadings as they stood it was not open to Ortiz Investments Pty Ltd to put forward a case based on impropriety, even at the end of the case. He sought a ruling to that effect. It was a ruling to which he was plainly entitled. To this, the arbitrator responded, "If that comes up we'll deal with it as it comes", and he invited Mr Fyfe to call his first witness.

129 This can only be understood as a non-ruling. It left things on the basis that the whole case may yet turn on an issue which had not been joined on the pleadings.

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130 The trouble too was that the allegations against the architect of deceitful, dishonest and unethical conduct remained in the witness statements, which were going to be tendered as the evidence-in-chief of each witness. There was no resolution of this matter of the witness statements. The arbitrator made it clear that he would not adjourn the proceedings to enable amended witness statements to be presented. In response to Mr O'Neal's request as to whether that was his intention, the arbitrator said (AB 264):

"No let it come up as the points arise."

131 Mr O'Neal asked whether this meant that the witnesses were to read their statements. No doubt he had in mind raising the objections as the evidence unfolded. To this (AB 265), the arbitrator said, "No." Mr O'Neal then inquired how Mr Fyfe's concession that irrelevant and objectionable material would not be admitted into evidence would be dealt with and the arbitrator said, "Perhaps when you come to cross examination will be the time. You can bring it up in turn then." In the context of the proceedings as a whole this can only be understood as a ruling that objectionable material was to be made the subject of cross-examination.

132 This response overlooks the basic distinction between evidence which is inadmissible and evidence which is controversial. It is the latter kind of evidence to which cross-examination is addressed. Generally speaking, parties should not have to cross-examine to discredit evidence that ought never to have been heard.

133 Mr Ortiz was then called and was asked to say that his witness statement was true and correct, which he did. In this way it seems the whole of his written statement was admitted into evidence. He then commenced to give supplementary oral evidence by reference to a bundle of documents.

134 On the pleadings as they stood, all imputations of dishonesty in the witness statements were irrelevant as being beyond the issues joined on the pleadings unless the word "wrongfully" in the reply meant "dishonestly". Even so, the word "wrongfully" in the plea related only to the giving of advice as to which tender was the lowest. It was not a plea of general impropriety. It could not provide any justification for the wide-ranging allegations made by counsel for Ortiz Investments Pty Ltd in his opening address, nor could it make relevant the wide-ranging allegations of improper conduct contained in the witness statement.

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135 The rule is very strong in civil litigation that if a party wishes to allege dishonesty as a form of breach of duty, that party must make it clear in its formal pleadings that this is the party's case. As the authors of Odgers "Principles of Pleading and Practice" tell us in the 21st edition at 113, under the heading "Charges of Misconduct and Negligence":

"Particularity is especially needed where the pleading contains an imputation on the character of your opponent; as then it is only right and fair that he should know definitely before the trial what is the charge which is made against him. Justice requires you to define the accusation you bring against anyone; and this is a very different thing from setting out the evidence by which you intend to establish it. 'The court will require of him who makes the charge that he shall state that charge with as much definiteness and particularity as may be done, both as regards time and place' (per Lord Penzance in The Marriner v Bishop of Bath and Wells [1893] P at p146). It is no excuse for the omission of such details that the opponent must already be perfectly well-aware of the facts. Each party is entitled to know the outline of the case that his adversary is going to make against him, and to bind him down to a definite story."

See also Davy v Garrett [1877] 7 Ch D 473 at 489; Belmont Finance Corporation Ltd v Williams Furniture Ltd [1979] Ch 250 at 268; W Scott, Fell and Company, Limited v F H Lloyd (1906) 4 CLR 572 at 576 - 577.

136 Now, it must be accepted that these proceedings are commercial arbitration proceedings before a lay arbitrator and no doubt it is appropriate to take a less technical approach to the role of pleadings in a commercial arbitration than in a court of law. As Hasluck J rightly observed at p 25 of his judgment, it is apparent from various provisions of the Commercial Arbitration Act that arbitration is a special procedure designed to achieve a less rigid and less expensive resolution of commercial disputes. For example, s 19(3) provides that unless the parties agree in writing the arbitrator "is not bound by the rules of evidence and may inform himself … in such manner as the arbitrator … thinks fit." But even if the rules were to be relaxed to the point of requiring only that the pleadings give reasonable notice of the claim and the broad basis of it, fairness would demand that, even in arbitration proceedings, an intention to put forward dishonesty as a basis of the claim should be notified to the other side in advance. In an arbitration which is to proceed strictly according to law and where pleadings have been

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ordered, the proper way to do that is to do it by way of pleading. No party should be put in the position that he learns for the first time at the hearing itself that the case against him is that he is liable because he was dishonest. It is no answer to say that the imputations of dishonesty or facts from which dishonesty is to be inferred are contained in the witness statements which have been exchanged. In a case which is run on pleadings, it is not the role of witness statements, depositions or discovery to define the issues that are for trial. The contrary is true. It is the pleadings which define and delimit the evidence that may be adduced. After exchange of witness statement, the parties are entitled to take the position that material in the statements that goes beyond the issues that are joined on the pleadings can be objected to if an attempt is made actually to lead the evidence. And they would be entitled to expect their objections to be upheld.

137 I am bound to say that the arbitrator did not appear to appreciate these things. On more than one occasion he referred to not being bound by the rules of evidence in terms which suggested that he was entitled to disregard the requirements referred to above, which are not just technical rules of evidence but basic rules of fairness. That he had not really understood or accepted what was common cause between the parties, that impropriety in the sense of dishonesty was nowhere alleged in the points of claim, is evident from what took place during the examination-in-chief of Mr Ortiz on the first day of evidence. After Mr Ortiz had been giving evidence for some time, he was referred to the witness statement of the quantity surveyor, Mr Rafferty, and Mr Fyfe began to ask him some questions about the evidence which Mr Rafferty proposed to give. Apparently, there was a reference in Mr Rafferty's witness statement to the fact that he shared office space with the architect. Mr Fyfe referred Mr Ortiz to that evidence and asked the question, "When did you become aware of that?" The purpose of that question could only be to raise in a perjorative way the relationship between the architect and the builder's quantity surveyor, a matter on which Mr Fyfe had said he would not lead evidence. Mr O'Neal objected to the question. He indicated that in so doing he was merely repeating objections already made. He said, "It is not said in the particulars to this claim that there is anything unseemly or improper about this relationship …. What Mr Rafferty's relationship was [with the architect] is not properly the subject matter of this arbitration and I renew my objection on that basis."

138 The exchanges which followed show that the arbitrator did not agree. The following exchange occurred: (AB 294 - 295)

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"ARBITRATOR: I think the claimant says that he is because Mr Rafferty was tied up in some way with the builder.

O'NEAL: And that is my point Mr Arbitrator because this issue of there being some sort of improper tie-up is not properly before you with respect. What is before you is a garden variety claim of a breach of duty and an innocent breach of the Trade Practices Act, not some improper collusion which is being inferred by these questions.

ARBITRATOR: I think the suggestion is, is that it is not innocent, isn't it?

O'NEAL: Precisely, precisely.

ARBITRATOR: Well I think we saw that right from the beginning … with the inference.

O'NEAL: Yes Mr Arbitrator and that is the reason that I am concerned about this because it is not a matter on the pleadings that the respondent is having to defend.

ARBITRATOR: I thought we heard of it right from the beginning?

O'NEAL: We did.

ARBITRATOR: We inferred it right from the beginning, from the original points of claim.

FYFE: The eh.

ARBITRATOR: Was that not the intention?

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

ARBITRATOR: I don't mean this precise point.

FYFE: 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 … "

139 I think this exchange reveals that the arbitrator had simply not understood the point of the objections that had been expatiated upon by Mr O'Neal. He had not understood, or had not accepted, that no case of

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impropriety was pleaded against the architect and, hence, no evidence in support of a case of impropriety ought to be permitted. On the face of the transcript, notwithstanding all the debate that had occurred and notwithstanding the concessions that had been made by Mr Fyfe, such as they were, the arbitrator's attitude appeared still to be that the pleadings (presumably the plea of misleading or deceptive conduct under the Trade Practices Act) alleged dishonesty and that the architect's solicitors ought always to have appreciated that fact.

140 The matter was left there. Mr Ortiz continued to give evidence, but did not again that day expressly refer to improper conduct. However, of course, his statement of evidence had been received into evidence complete, it seems, with the objectionable material.

141 The arbitration then adjourned for the weekend. When the proceedings resumed on Monday morning, Mr O'Neal informed the arbitrator that he was instructed to make an application for removal of the arbitrator on the grounds of misconduct, essentially on the basis that it appeared that the arbitrator intended to entertain a case based on impropriety on the part of the architect - that the arbitrator did not intend to confine the proceedings to the pleaded issues. He requested an adjournment to enable that application to be made. The arbitrator refused to adjourn and Mr O'Neal thereupon announced his withdrawal and the proceedings in this Court were commenced.

Conclusion

142 With all respect to the learned Judge at first instance, the overwhelming impression that one is left with on a review of the proceedings is that the architect was being required one way or another to answer unpleaded and unparticularised charges of impropriety in the form of deceit. The arbitrator appears to have been convinced that it was open to him to consider and weigh evidence in the witness statements calculated to establish deceit on the part of the architect and to treat the pleadings as alleging deceit when they did not. He made it clear he intended to go ahead with the arbitration on that basis.

143 For reasons which I have tried to explain, that would have been to conduct the arbitration in a manner that was unfair to the architect.

144 In my opinion, the appeal must be allowed.