An arbitration award may be set aside if breaches of natural justice can be established, emphasizing the necessity for fair treatment in arbitral proceedings.

[1] The appeal before us concerns an application to set aside an arbitration award dated 23 January 2015 under ss 37 and 42 of the Arbitration Act 2005 [Act 646]. In the course of submissions, learned counsel for the appellant confined the appeal to complaints under s 37, more specifically ss 37(1)(b)(ii) and 37(2)(b) of Act 646. The complaint under these two provisions is that there is a breach of the rules of natural justice either during the arbitral proceedings or in connection with the making of the Award and that such breach is in conflict with the public policy of Malaysia. Consequently, the Award must be set aside.

[2] The learned JC agreed with the appellant and found that the learned Arbitrator had indeed committed two breaches of natural justice under s 20 read with ss 37( 1 )(b)(ii) and 37(2)(b) of Act 646 during the arbitration proceedings and during the deliberation and making of the Award. Despite such finding, the learned JC nevertheless dismissed the application on the groundthat the appellant was not prejudiced by the breaches.

[3] It is the appellant's argument that ss 37(1) and 37(2)(b) do not require proof of prejudice, whether actual or real, before the discretion is exercised in its favour. Consequently, the learned JC is in error and the appeal must be allowed. We were constrained to disagree with the learned JC. We unanimously found that His Lordship had misdirected and misapprehended the law such that appellate intervention is warranted in this appeal. We therefore allowed the appeal.

Some Factual Background

[4] The appellant chartered a pipe-laying barge, "PI-B MAS Mulia "[vessel] from the respondent to carry out, amongst others, pipe-laying works in Indonesia. A charter party agreement dated 23 October 2012 based on the standard form "BIMCO Time Charter Party for Offshore Services Code Name Supply time 2005" was signed between the parties [CPA]. The original period of hire from 23 October 2012 to 21 November 2012 was extended twice with the final date being 26 January 2013. The charter party was paid until 14 February 2013 and the vessel was redelivered on 5 March 2013.

[5] As required under cl 43 of the CPA, the appellant provided an irrevocable, unconditional and 'on demand' bank guarantee for a sum of RM3,719,115.00 [BG] in favour of the respondent. When the charter period was extended, this BG was not extended. The appellant obtained a declaratory order from the High Court at Kuala Lumpur that the BG had expired and that the respondent was not entitled to call on the BG. The respondent did not appeal against that order.

[6] On 7 March 2013, a surveyor, Matthews Daniel International Pte Ltd [MDI], appointed by the respondent [MDI's appointment had not been agreed to by the respondent], discovered the stinger hitch of the vessel was damaged. A dispute arose between the parties over who is to bear the costs of its repair.

[7] The respondent claimed that it was the appellant who had damaged the stinger hitch and had failed to inform it of the damage when the vessel was redelivered. By letter dated 8 March 2013, the respondent put the appellant on notice requiring the vessel to be redelivered in its original condition, failing which the vessel would remain on hire and the appellant was obliged to reinstate the vessel. By another letter dated 12 March 2013, the respondent required the appellant to submit a proposal to repair and/or reinstate the vessel failing which the respondent would do so at the appellant's expense, as provided under cl 4 of the CPA.

[8] By a letter dated 14 March 2013, the appellant disputed liability. The appellant claimed that it was in fact the respondent who was in breach of express and/or implied representations of the CPA. Under cl 3(a) of the CPA, the respondent is said to have represented t