Article 190(2)(b) of the Swiss Private International Law Act (PILA) permits an arbitral award to be set aside "if the Arbitral tribunal wrongly accepted or declined jurisdiction".

Article 190(2)(c) PILA permits an arbitral award to be set aside "if the Arbitral tribunal's decision went beyond the claims submitted to it, or if it failed to decide one of the items of the claim".

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."

Article 190(2)(e) PILA provides that an award may be annulled if it is contrary to public policy.

The petitioners X and Y mine for fluorite in South Africa. US company Z is a major producer of hydrofluoric acid which requires substantial amounts of fluorite as input material. On 16 February 2001, X and Y signed a contract for the delivery of a yearly amount of 85,000 wet metric tons of fluorite to Z (the Contract). For the year 2001, the parties agreed a base price of US$ 106.25 per dry metric ton. For the following years, the price would be calculated using a formula based on the free carrier prices that Z paid to its other suppliers. The Contract was initially limited to 31 December 2005 and provided for an automatic annual extension thereafter. The Contract could be terminated by either party for "material breach". The Contract contained the following choice-of-law clause:

On 19 January 2006, X and Y terminated the Contract claiming that Z was in material breach because it refused to pay invoices for two deliveries and did not disclose the free carrier prices it paid to its other suppliers. Z brought a request for arbitration claiming that X and Y had wrongfully terminated the contract and were liable for damages. X and Y filed a counterclaim.

On 3 April 2009, the arbitral tribunal awarded Z damages in the amount of US$ 1,243,824 and rejected the counterclaim. The tribunal found that, although Z breached the agreement by not disclosing the free carrier prices, this did not amount to a material breach and did not justify a termination of the Contract. X and Y filed a petition to set aside the award for a violation of Articles 190(2)(b), (c), and (d) PILA.

The Swiss Federal Tribunal rejected X and Y's petition.

The arbitral tribunal decided that the parties excluded the application of the CISG by choosing Swiss law "as applied between domestic parties". To interpret the term "material breach", the arbitral tribunal nevertheless referred to the CISG and to the UNIDROIT Principles of International Commercial Contracts, because the term is not used in Swiss contract law. The Federal Tribunal reasoned that the arbitral tribunal, by assessing how these international parties would have and could have understood this term including in light of the CISG, had engaged in contractual interpretation based on Swiss legal principles. It therefore rejected the petitioners' claim that the arbitral tribunal had improperly exceeded its competence (Article 190(2)(b)), decided a question not before it (Article 190(2)(c)), or violated public policy (Article 190(2)(e)) by applying the CISG despite the Swiss choice-of-law clause.

The Federal Tribunal also rejected X and Y's right to be heard claim (Art. 190(2)(d)). There was no improper "surprise" in analysing the meaning of the term "material breach", which was central to the case. It was entirely foreseeable that the arbitral tribunal would resort to an analysis of the international commercial understanding of that term, and that it would look to the CISG and the UNIDROIT principles for that purpose. Here, the Federal Tribunal explained that in reviewing international arbitral awards, it exercises particular restraint in deciding whether the application of the law by the tribunal was "surprising". This restraint reflects:

The Federal Tribunal reaffirmed its jurisprudence on setting aside petitions based on violations of actionable principles of substantive public policy. These principles include pacta sunt servanda, the prohibition on the abuse of law, the principle of good faith, the prohibition against uncompensated takings, the prohibition against discrimination, and the protection of individuals incapable to act.

Here, X and Y claimed a violation of the contractual principle that continuing legal relationships can be terminated prematurely for important reasons. The Federal Tribunal disagreed, finding that the arbitral tribunal had not denied such right and the Contract could have been terminated precisely in the case of a material breach. The fact that the arbitral tribunal found that the breach had not been material did not mean the petitioners could obtain "appellate review" of this decision under the guise of a public policy challenge.

For a similar reason, the Federal Tribunal rejected the petitioners' challenge that the arbitral tribunal violated the principle of good faith. In fact, the arbitral tribunal had considered that principle but had drawn different conclusions from those advanced by petitioners. Again, Article 190(2) PILA could not serve as a basis to challenge the factual and legal conclusions of the arbitral tribunal.

In this decision, the Federal Tribunal confirmed its practice regarding the reliance on unexpected (or "surprising") legal considerations that could amount to a violation of the right to be heard. However, it took the opportunity to state that because of the special features of arbitrations, when reviewing petitions to set aside international arbitral awards, the Federal Tribunal would not find a "surprise effect" easily. The Federal Tribunal further addressed but left open the question of whether the principle that continuing legal relationships can be terminated prematurely for important reasons can be considered as part of substantive public policy. In one earlier (unpublished) decision the Federal Tribunal had stated that the right to terminate a continuing or long term relationship in a situation where its continuation constituted an excessive onus on one party was an expression of the principles of acting in bona fides and the prohibition of abuse of rights and that therefore it was part of the substantive ordre public (AP.172/1999, decision of 17 February 2000).