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2020 MarsdenLR 127
FEDERAL COURT PUTRAJAYA
MASTER MULIA SDN BHD – Appellant
Versus
SIGUR ROS SDN BHD – Respondent
[Civil Appeal No: 02(f)-33-05-2018(W)]
The discretion to set aside an arbitration award under Section 37 of the Arbitration Act 2005 is not mandatory but permissive, requiring consideration of the breach's materiality and its impact on the award's outcome.
Headnote:(A) Arbitration Act 2005 – Section 37 – Interpretation of grounds for setting aside an arbitration award – The High Court's discretion not to set aside an award requires consideration of the materiality of any breach of rules of natural justice, as reiterated in established jurisdictions – The awarding arbitrator must ensure parties are informed of relevant evidence, and the Court must assess if any breach affected the outcome. (Paras 1, 10, 60, 62)
Facts of the case: The appellant and respondent were involved in a charter party agreement related to the redelivery of a vessel, which led to arbitration due to claims of damages and financial compensation related to the arbitration award. The award was appealed and subsequently set aside by the Court of Appeal due to procedural breaches. (Paras 4-11)
Findings of Court: The High Court found breaches of natural justice but did not set aside the award due to lack of prejudice, while the Court of Appeal ruled the entire award must be set aside when such breaches are materially relevant. (Paras 10, 24, 55)
Issues: The key legal questions involved whether the High Court was required to automatically set aside an arbitration award for breaches of natural justice and the impact of such breaches on the outcome of the arbitration decision. (Paras 1, 9, 24)
Ratio Decidendi: The Court established that a clear breach of natural justice necessitates a rigorous examination of its significance and possible effects on the arbitration result, differing from other jurisdictions in its permissive approach under the Arbitration Act. (Paras 60, 62)
Result: The appeal was dismissed, affirming the decision of the Court of Appeal to set aside the award. (Para 63)
Introduction
[1] The questions of law for which leave was granted concerns the interpretation of s 37 of the Arbitration Act 2005 ( AA 2005). Essentially, it relates to the question of: (i) whether the High Court is bound to set aside an arbitration award as a matter of course where a complaint of breach of the rules of natural justice is established; and (ii) whether the High Court is bound to set aside the whole award where the complaint in respect of only one of three principal issues before the arbitrator is made out. For the purposes of this appeal, it is necessary to appreciate the salient background facts.
Background Facts
[2] Pursuant to a Charter Party Agreement (CPA), Master Mulia (appellant) hired out its vessel to Sigur Ros (respondent) for undersea pipelines installation works in the high seas. Installed on the vessel was a pipeline installation arm called a Stinger Hitch which was essential to the works. Under the CPA, the respondent was to redeliver the vessel on or before the expiry of the charter period on 26 January 2013; in default thereof, the respondent was liable to pay a certain daily sum until the redelivery. As the Stinger Hitch was damaged on 9 January 2013, the respondent suspended works and carried temporary repairs to the damaged Stinger Hitch to enable it to complete the remaining works.
[3] The vessel was redelivered to the appellant on 5 March 2013, a period of 37 days after the due redelivery date. The appellant claimed for the charter hire calculated up to 22 May 2013 being the date after the vessel had been dry-docked for reinstatement works. For this extended period from the redelivery date to the date that the vessel was reinstated, the appellant claimed a sum of USD3,968,279.00. The appellant also claimed for the damage to the Stinger Hitch and the cost of reinstatement and other claims including replacement or replenishment of consumables and other equipment on the vessel and for damages for failing to extend the Bank Guarantee (BG) under the CPA. The respondent disputed the claim and contended that the damage was due to an inherent weakness in the Stinger Hitch.
[4] As a result of the dispute, the appellant initiated arbitral proceedings against the respondent. The arbitration was held under KLRCA's auspices and was a domestic arbitration. The arbitrator decided in favour of the appellant whereby the respondent was required to pay to the appellant the sum of USD3,023,269.52 together with pre-Award interest of USD82,332.33, the sum of RM502,141.47 towards repair and reinstatement of the vessel and post-Award interests (the Award).
[5] The respondent applied to the High Court to set aside the Award pursuant to ss 37 and 42 of the AA 2005. For the purposes of this appeal, it suffices to note that the respondent relied primarily on two principal grounds: (i) that the Award was issued in breach of the rules of natural justice and, as such, was contrary to public policy under subsections 37(1)(b)(ii) and 37(2)(b); and (ii) that the Award went beyond the scope of submission to arbitration under subsection 37(1)(a)(iv) of the 2005.
[6] The High Court found that the Award was in breach of the rules of natural justice to an extent that s 20 of the AA 2005 on equal treatment of parties was contravened. Notwithstanding that finding, the High Court affirmed the Award principally on the ground that the respondent failed to show that it suffered actual or real prejudice arising from the breach of the rules of natural justice.
[7] The respondent appealed to the Court of Appeal. The appellant did not cross-appeal against the High Court's findings that s 20 of the AA 2005 had been contravened by reason of a breach of natural justice.
[8] The Court of Appeal allowed the appeal and set aside the Award. It concluded that there had been a breach of the rules of natural justice sufficient in gravity to set aside the Award.
[9] It was against this backdrop that this Court granted leave on the follo
