Article 190(2) of the Swiss Private International Law Act (PILA) provides that a Swiss arbitral award may be annulled if (among other grounds):

The case arose out of a 2004 contract for the sale and delivery of a plant for the production of dialysis machines between a German seller (Y) and a Singaporean buyer (X) for a total of EUR7 million. X was to make two advance payments of EUR 500,000 and open a letter of credit in the amount of EUR2.5 million, with the remainder of the purchase price due in seven installments following delivery.

Y made the advance payments but did not open the letter of credit.

On 28 November 2006, the parties made a conditional agreement reducing the purchase price from EUR7 million to approximately EUR5 million. (However, the arbitral tribunal decided that the conditions attached to this agreement had not been met and that the price reduction therefore did not take effect).

In November 2009, after several reminders and payment deadlines had passed, Y sold the plant to another buyer (Q) for approximately EUR5.9 million and subsequently terminated the 2004 contract for breach of contract. Even before the sale and termination, in June 2008, Y had initiated ICC arbitration proceedings to recover (most of) the purchase price. A hearing was held in September 2010. In December 2011, the ICC arbitral tribunal ruled in favour of Y but awarded a lesser amount of compensation.

X filed a petition to set aside the arbitral award, claiming that its right to be heard had been violated and the award was contrary to public policy, under Article 190(2) (d) and (e) PILA respectively.

X argued that the tribunal had violated its right to be heard by ignoring its arguments regarding:

Further, X argued that the tribunal had permitted Y to substantiate and quantify its damages claim after the pre-hearing briefs and hearing had occurred. Y had made such submissions on 2 February 2011. Although X was given leave to respond, which it did on 14 March 2011, the tribunal had denied X's request to examine witnesses with respect to the issues raised in Y's post-hearing submission.

Finally, X also argued that the tribunal had violated public policy by ignoring the 28 November 2006 price reduction and by permitting Y to substantiate its damages after the hearing, thereby violating the principle of party disposition (Dispositionsmaxime).

The Swiss Supreme Court rejected the petition.

The Supreme Court applied its often repeated principle that a petition to set aside is not an appeal on the merits. It found that X's arguments amounted to an inadmissible appeal against the arbitral tribunal's factual and legal findings. The Supreme Court held that, in any event, the tribunal had, implicitly or explicitly, addressed X's arguments in the award.

The Supreme Court held that the failure to allow Y to re-examine witnesses with respect to the issues raised in Y's post-hearing submission did not amount to a violation of the right to be heard. The court followed the tribunal's reasoning in this respect. At issue was the difference between the contract price of EUR7 million and the price of the cover sale to Q of EUR 5.9 million, as well as other possible deductions from this difference. Before the September 2010 hearing, X had already invoked this price difference (the cover sale to Q was made in 2009, one year after the arbitration had commenced), and possible deductions from that difference were discussed in two witness statements. The arbitral tribunal decided, and the Supreme Court confirmed, that Y could have examined these two witnesses at the September 2010 hearing. Also, Y was permitted to respond in writing to X's post-hearing submission.

Moreover, the court held that Y failed to show:

The Supreme Court dismissed the public policy arguments, holding that the arbitral tribunal had actually addressed the November 2006 price reduction, and that the argument that permitting X to substantiate its damages after the hearing violated the principle of party disposition was inadmissible.

The decision is of limited theoretical but of some practical importance. The Supreme Court strikes no new doctrinal ground. Its jurisprudence on the right to be heard (and even more so, on public policy) is traditionally restrictive, and it is very difficult to style a petition so that it will not be characterised as an impermissible appeal on the merits.

However, the issue of new arguments and documents after a witness hearing is significant to arbitration practitioners. It is not evident from the facts of the case why X could not, or did not, substantiate its damages claim earlier (after all, the sale to Q occurred almost 10 months before the hearing), or why the arbitral tribunal permitted the post-hearing submission on quantum. It seems certain that the Swiss Supreme Court would have decided differently had the tribunal not permitted Y to at least respond in writing to X's post-hearing submission.

Without more knowledge of the facts, it is also unclear whether the relevant quantum issues had sufficiently crystallised, such that the hearing afforded Y enough opportunity to question the witnesses. The arbitral tribunal and the Supreme Court believed they had. But arbitration practitioners will appreciate that it is one thing to know generally what to ask a witness about, and quite another to be confronted with specific new documents and new arguments that raise entirely new questions or, if one was armed with them, that could have made the original questioning much more effective. Indeed, the reasoning of the Supreme Court (that Y should have specified in full detail what was new, why the new documents and arguments required a new examination and what that examination would have shown) sounds somewhat formalistic.

Furthermore, while the decision on the violation of the Dispositionsmaxime appears formally correct, in that no violation of public policy can be shown, it raises some questions. It should not be that one party's failure to substantiate a specific element of a claim (here, quantum) can be "healed" after the witness hearing. Rather, it is, and should remain, the duty of each party, as before a state court, to prove every element of its claim in the normal rounds of a written submission. Otherwise, each party can first see how the case proceeds and only in the event that it feels that its main arguments have (or have not) been heard , adjust by making further factual decisions even at a very late stage of the proceedings.

Besides the fact that this makes the proceedings last very long (in the present case the time between the hearing and the award was 15 months), this should, as a matter of principle, not be permissible in a structured proceeding. It is impossible to tell whether the present case warrants a departure from this principle because it is not known why the arbitral tribunal allowed post-hearing submissions on damages.