Article 190(2)(d) of the Swiss Private International Law Act (PILA) provides that an arbitral award may be set aside "where the principle of equal treatment of the parties or their right to be heard in an adversarial procedure has not been observed".

During the arbitration proceedings both parties filed their respective post-hearing briefs in accordance with the procedural timetable. The sole arbitrator made a procedural order acknowledging receipt of both parties' post-hearing briefs and declaring the proceedings closed.

However, in his award the sole arbitrator stated that the respondent had not filed a post-hearing brief and had waived its right to do so, which was wrong.

The respondent challenged the award before the Swiss Supreme Court, claiming that the sole arbitrator's failure to take into consideration its post-hearing brief and the arguments raised therein constituted:

During the setting aside proceedings, the sole arbitrator acknowledged that he had rendered his award without taking into account the respondent's post-hearing brief and apologised for this oversight, explaining that it had occurred during the implementation of a new software system in his law firm. The sole arbitrator contended, however, that the arguments raised by the respondent in its post-hearing brief were either not relevant to the outcome of the dispute, or had been implicitly dismissed in the award.

The Swiss Supreme Court set aside the award on the second ground (breach of right to be heard) but dismissed the first ground (breach of the right to equal treatment).

As regards the right to equal treatment, the Swiss Supreme Court noted that such right requires that the arbitral tribunal treat the parties in an equal manner throughout the proceedings. In order to define the scope of the term "proceedings", the Swiss Supreme Court referred to the opinion of leading Swiss legal commentators, according to whom the right to equal treatment is limited to the taking of evidence phase and does not extend to the deliberation phase. Accordingly, the Swiss Supreme Court considered that the failure of an arbitrator to take into consideration, whether by oversight or otherwise, a point of law or fact raised by one of the parties does not amount to a breach of the right to equal treatment.

As far as the second ground (breach of the right to be heard) was concerned, the Swiss Supreme Court reaffirmed its case law to the effect that, while an international arbitral award does not need to be reasoned, arbitrators are nevertheless under "a minimum duty" to examine and address all the relevant issues.

According to the Swiss Supreme Court, the right to be heard is breached when, due to an oversight or a misunderstanding, the arbitral tribunal does not take into consideration allegations, arguments or evidence submitted by one of the parties that are material to the outcome of the dispute. The party whose arguments or evidence have not been examined is in the same situation as a party who has been deprived of the opportunity to present such arguments or evidence. This ground is often referred to as the "formal denial of justice" (déni de justice formel). It is "formal" in the sense that the arguments or evidence which were ignored do not need to be correct on the merits; they only need to be relevant to the outcome of the dispute.

According to Swiss case law, the party challenging the award must establish that:

If the award is entirely silent on issues that are allegedly relevant to the outcome of the case, the burden lies on the arbitrators or the party opposing the challenge to justify that silence. They may do so by demonstrating either that the elements that were not addressed in the award were in fact not relevant to decide the case or, if they were relevant, that they were implicitly rebutted by the arbitral tribunal.

The Swiss Supreme Court reaffirmed, however, that the arbitrators are under no obligation to discuss all the arguments raised by the parties. There is no violation of the right to be heard where the arbitrators fail to address irrelevant arguments.

In the case at hand, the Swiss Supreme Court concluded, in a very detailed and reasoned decision, that two of the arguments raised by the respondent in its post-hearing brief were indeed relevant for the outcome of the dispute but had not been taken into consideration. On that basis, the Swiss Supreme Court set aside the award in its entirety and noted that:

By way of illustration, one of the two arguments which the arbitrator had failed to examine related to equitable compensation for alleged breach of the respondent's obligation to maintain valid product liability insurance during the duration of the contract. In its post-hearing brief, the respondent had opposed this claim, arguing that the failure to provide product liability insurance had not caused any damage to the claimant. In the award, the sole arbitrator stated that the respondent had not disputed the quantum of the claim calculated by the claimant and decided ex aequo et bono to grant the claimant the requested equitable compensation. Before the Swiss Supreme Court, the sole arbitrator justified the fact that the award did not address the respondent's argument as to the absence of damage by arguing, inter alia, that he had the power to decide this claim ex aequo et bono.

The Swiss Supreme Court noted that the sole arbitrator had not rebutted, even implicitly, the respondent's argument as to the absence of damage. The Swiss Supreme Court also noted that neither the award or the sole arbitrator's subsequent explanations during the setting aside proceedings explained how he had interpreted his power to decide this claim ex aequo et bono. It did not appear, in particular, that he had understood this power as authorising him to grant the disputed claim irrespective of proof of damage. On the contrary, his award referred to the UNIDROIT principles, which require the existence of damage and a causal link between the non-performance and the damage. As a result, the Swiss Supreme Court considered that the respondent's argument as to the absence of damage was indeed relevant to decide this claim but had not been taken into account by the sole arbitrator. On that basis the respondent's right to be heard had been breached.

With this decision, the Swiss Supreme Court confirms that, while the right to be heard does not require an international arbitral award to be reasoned, the arbitrators are nevertheless under a duty to examine and address the issues that are material to the outcome of the dispute. Needless to say, arbitral tribunals seated in Switzerland should therefore make sure that they examine, and that their awards address, all of the parties' arguments that are relevant to decide the parties' claims.

This decision also confirms that, notwithstanding its restrictive approach when examining challenges to international arbitration awards, the Swiss Supreme Court will redress unacceptable situations such as the one at hand, where an arbitral tribunal renders an award without taking into account one of the parties' submissions.