According to Article 190(2)(d) of the Swiss Private International Law Act (PILA), an arbitral award may be annulled in cases where the principle of equal treatment or the right to be heard was violated during the arbitration proceedings.

In a recent decision[1] the Swiss Supreme Court was called upon to determine, among other things, whether an arbitral tribunal violated the parties’ right to be heard by not taking into account material arguments and evidence put forth by one party.


In 2006, an agreement was concluded with respect to the delivery of certain boiler equipment and material, the seller being a Finish company and the buyer being a Romanian company. The agreement contained a provision broadly excluding liability for indirect damages and loss profit and an additional liability cap as well as an arbitration clause providing for arbitration in Switzerland (which was later replaced by an arbitration clause providing for ICC arbitration in Zurich). Additionally, the parties agreed that their contractual relationship was to be construed in accordance with Swiss law.

In 2009, the Romanian company (the “Claimant”) commenced arbitration under the auspices of the ICC claiming (i) contractual penalties due to late delivery of certain documents and equipment, (ii) damages, and (iii) a reduction of the purchase price. In addition, Claimant argued that the Finish company (the “Respondent”) had acted in a grossly negligent manner and thus was not allowed to invoke the contractually stipulated limitations of liability (see Article 100 Swiss Code of Obligations). Respondent raised counterclaims for performances rendered and for the unlawful draw down of a bank guarantee.

The arbitral tribunal bifurcated the proceedings in order to first deal, inter alia, with the question whether Respondent performed its contractual obligations in a grossly negligent manner. By way of a partial award the arbitral tribunal ordered Respondent to pay a certain amount for the delayed delivery of documents; the claim for contractual penalty, however, was dismissed. In addition, the arbitral tribunal held that Claimant had not proved that Respondent had indeed acted grossly negligently.

In its final award the arbitral tribunal ordered Respondent, inter alia, to pay a certain amount as purchase price reduction, a certain amount for expenses incurred, plus interest on the sum ordered to be paid by the partial award.

Against this final award, Respondent commenced setting aside proceedings before the Swiss Supreme Court arguing, inter alia, that the arbitral tribunal violated its right to be heard according to Article 190(2)(d) PILA. According to Respondent, the arbitral tribunal had ignored Respondent’s argument as to the limitation of liability provided for in the contract which had been invoked by Respondent in all its submissions.


The Supreme Court granted Respondent’s petition based on a violation of the right to be heard. Generally, the right to be heard does not encompass the right to a reasoned arbitral award. Nevertheless, the arbitral tribunal has the minimum obligation to carefully examine and consider the material issues at hand for reaching its decision (entscheidungserhebliche Fragen). An arbitral tribunal violates such obligation where it does not consider – by accident or due to a misunderstanding – material allegations, arguments, evidence or applications for evidence. Such violation of the right to be heard of any of the parties, allows setting aside the arbitral award, whereby it is irrelevant whether such violation would actually entail a different decision by the arbitral tribunal.

Where an arbitral award is issued without even addressing such facts that are material to the decision, the arbitral tribunal or the counter party has the burden to prove that such facts are not material respectively that these were dealt with by the arbitral tribunal implicitly. On the other side however, the arbitral tribunal is certainly not obliged to deal with every single argument of the parties, meaning that it is not obliged to rule out each irrelevant argument explicitly or impliedly.

In the case at bar, the Supreme Court found – among other things – that the limitation of liability argued by Respondent was material for the decision in particular with regard to the fact that the arbitral tribunal had bifurcated the proceedings to first assess whether Respondent had acted in a grossly negligent manner. The arbitral tribunal had mentioned the question on the limitation of liability only when summarizing the parties’ arguments and had omitted to address this issue in its considerations. It cannot be determined whether the arbitral tribunal had actually addressed the contractual limitation of liability at least implicitly.


Looking at the Swiss Supreme Court’s decisions rendered over the past few years (cited in 4A_460/2013) it appears as if the court is now more closely looking at whether arbitral tribunals have indeed dealt with the parties’ arguments. In principle, this can be seen as a positive trend strengthening the quality control of arbitral awards. However, in doing so, the court runs the danger of entering into a review of the decision on the merits. It will be interesting to see whether there is indeed a tendency arising to this effect in Switzerland.

By comparison, the Austrian Supreme Court seems to follow a strict approach that has been discussed intensively and critically in the past few years in legal writing. The Austrian Supreme Court’s legal rule for a number of decades has been as follows: “An arbitral award may only be challenged and is invalid if the right to be heard was not afforded at all to one party. The incompleteness of relevant facts or the insufficient discussion of legally relevant facts does not constitute the basis for the challenge.” In a recent decision, the Austrian Supreme Court noted that this was criticized by legal scholars but that in the particular case there was no need to deviate from the permanent case law as it could not be said with the required certainty that the arbitral tribunal had not considered the party’s arguments which could – at best – justify the annulment of the arbitral award.[2] Although claimant’s arguments had not been mentioned explicitly by the arbitral tribunal, the arbitral tribunal drew the respective (legal) conclusions thereto.  It is unclear whether the Austrian Supreme Court’s decision can be interpreted as a first step in deviating from the restrictive case law in relation to the right to be heard.

Since 1 January 2014 the Austrian Supreme Court is the first and last instance when it comes to the annulment of arbitral awards. A special senate has been constituted dealing exclusively with arbitration related matters. It remains to be seen how this specialized senate will approach the above issue.