Article 190(2)(a) of the Swiss Federal Statute on Private International Law (PILA) provides that an arbitral award may be set aside if "…the Arbitral Tribunal was not properly constituted."

Article 190(2)(d) PILA permits an arbitral award to be set aside where "the principle of equal treatment of the parties or the right of the parties to be heard was violated."

The case arose from a contract between two Romanian state-owned companies (X & Y or "petitioners") and a Finnish-German consortium (V & W) for the rehabilitation and modernisation of a Romanian power plant. The consortium suspended work on the contract following alleged late payments by the Romanian companies, and filed a request for arbitration with the ICC for expenses resulting from the suspension of work. X and Y counterclaimed on a number of grounds, including the explosion of a flash tank. V and W then filed a cross-counterclaim on this issue.

At a telephone conference of 27 February 2008, the arbitral tribunal set a deadline of 3 March 2008 for the consortium to submit explanations on the cross-counterclaim, and a deadline of 10 March 2008 for the Romanian companies to file their observations on the consortium's submission. The consortium filed its explanations in the evening of 3 March. However, earlier that same day, the arbitral tribunal had already issued Procedural Order No. 25 admitting the cross-counterclaim. On 10 March 2008, X and Y lodged a strongly worded protest, calling the arbitral tribunal's behaviour "absolutely abusive." On 11 March 2008, the tribunal's chairman sent an email to X and Y expressing his outrage at their inappropriate reaction. Two weeks later, however, the chairman sent an email apologising to the parties, admitting that Procedural Order No. 25 had been issued prematurely, and informing the parties that the tribunal would correct this error. In Procedural Order No. 26 dated 29 April 2008, the arbitral tribunal indicated it would reconsider Procedural Order No. 25 based on the objections raised by X and Y. In Procedural Order No. 27, however, the arbitral tribunal finally confirmed its decision to admit the cross-counterclaim.

On 30 May 2008, the ICC Court rejected X and Y's challenge of the chairman. On 2 June 2009, the arbitral tribunal rendered an award in favor of the consortium. X and Y then filed a setting aside petition with the Swiss Federal Tribunal, invoking Article 190(2)(a) PILA on the improper constitution of the arbitral tribunal, and Article 190(2)(d) on the right to be heard. The petitioners claimed that the chairman's partiality was clear from his "surprising and incomprehensible" decision to admit the cross-counterclaim without awaiting their input and despite expressing doubts about the admissibility of the cross-counterclaim in a prior procedural order. In addition, the chairman's partiality was reflected in the 11 March 2008 e-mail, and in the utter lack of response to the petitioners' demand for reconsideration of Procedural Order No. 25.

The Swiss Federal Tribunal rejected the petition.

Effect of the decision of the Court of International Arbitration: consistent with prior jurisprudence, the Federal Tribunal held that, as a decision of a private entity that could not be directly appealed to the Federal Tribunal, it was not bound by the ICC Court's rejection of X and Y's challenge of the chairman. Therefore, it could freely review whether the facts underlying the challenge before the ICC Court constituted sufficient grounds for the setting aside petition before the Swiss Federal Tribunal.

Principles of independence and impartiality: an arbitral tribunal may be improperly constituted if one of its members is not sufficiently independent and impartial. In assessing these criteria, the Federal Tribunal is guided by the principles applicable to state court judges, while taking into account the specific characteristics of international arbitration and the circumstances of the particular case.

Effect of errors: procedural errors and materially wrong decisions are not sufficient to suggest a tribunal's partiality, unless they are so grave or repeated as to constitute a "manifest violation" of the tribunal's obligations. Here, aside from the fact that they were committed by the tribunal as whole, and not only by the chairman, the Federal Tribunal found that the error was inadvertent. This isolated error in the course of a four-year arbitration was not sufficient to implicate the tribunal's impartiality. It was "hard to escape the feeling" that the petitioners were using the error as a pretext to attempt to obtain the setting aside of an unfavourable arbitral award. In any event, the tribunal "fixed its mistake" by way of the subsequent procedural orders. The chairman's e-mail of 11 March 2008 was a "comprehensible and measured" reaction to an unjustified questioning of the arbitral tribunal's impartiality.

Right to be heard: a party that believes that its right to be heard has been infringed or that it has suffered another procedural violation must immediately complain during the arbitral proceedings, at the risk of waiver. It is "contrary to good faith" not to invoke a procedural violation until the setting aside proceedings if that violation could have been raised during the arbitral procedure. Here, at the end of the witness hearing, the chairman had expressly asked the parties whether they had any complaints about the arbitral procedure, especially with respect to the right to be heard. The petitioners had responded that "everything is ok … I do not have any complaint." Under those circumstances, raising an infringement of the right to be heard and the right to equal treatment now was "incompatible with the principles of good faith" and inadmissible under Article 190(2)(d) PILA.

The case confirms that procedural errors, without more, will not undermine an arbitral tribunal's impartiality, particularly where the errors are inadvertent and are subsequently corrected. The decision also confirms that even a somewhat emotional reaction does not impair an arbitrator's impartiality, at least where the reaction is justified in light of the circumstances. With respect to the right to be heard, for counsel, the decision shows once again the importance of raising procedural violations right away and continuously preserving any objections. For arbitral tribunals, it again highlights the wisdom of asking the parties at the end of a proceeding to state any objections to the arbitral procedure, thereby enhancing the "insulation" of the arbitral award from post-award challenges. At the same time, parties need to be aware that a statement confirming that they have no objections can have far-reaching effects in that it can be viewed as curing potential earlier infringements in the arbitral proceedings.