On 1 October 2005, X and Y entered into a service contract under which Y was obliged to deliver to X a COSS-charger-system and install it in X's electric steel plant. X was obliged to pay Y EUR 4,100,000 for its services. Subsequently, X made a contractually agreed prepayment and Y delivered and installed the COSS-system. However, Y was unable to start up the system. Thereupon, in a written communication of 16 April 2007, X rescinded the service contract due to substantial defects of the system. X invited Y to collect the uninstalled system and required Y to pay back the instalments already paid.

On 20 April 2007, Y initiated ICC arbitration, requesting payment of the remaining instalments in the amount of EUR 3,590,000. On 26 June 2007, X filed a counterclaim requesting repayment of the amounts already paid and compensation for damage incurred due to the defects in the system. In a final award of 29 January 2009, the arbitral tribunal dismissed X's counterclaim and ordered X to pay Y an amount of EUR 1,900,000. The tribunal based its decision on provisions contained in the service contract and on statutory rules derived from the applicable law.

X appealed against the final award before the Swiss Federal Supreme Court, arguing that the arbitral tribunal, in its reasoning, unexpectedly applied contractual and statutory provisions regarding rescission of the contract which had not been addressed by X in its pleadings. In doing so, X argued, the arbitral tribunal violated X’s right to be heard in an adversarial proceeding. By contrast, Y argued that it had, on various occasions (for example, in the reply and rejoinder to counterclaim and in post-evidentiary hearing briefs), mentioned the contractual and statutory provisions applied by the arbitral tribunal in its final award.

The Swiss Federal Supreme Court held that, according to its established jurisprudence, the parties have no right to comment on the court's or tribunal's legal assessment of the facts, which have been established in the course of the proceedings. The only exception to this rule is where a court or tribunal plans to base its decision on a legal foundation which the parties have not addressed in the course of the proceedings and where they could not have reasonably expected that such a legal foundation would be deemed relevant by the court or tribunal.

The Supreme Court further held that one of the main issues in the arbitration was whether or not X satisfied the contractual requirements for rescission of the service contract. Therefore, X should have expected the tribunal to consider all contractual provisions dealing with requirements for rescission and all relevant applicable legal rules. Moreover, in the course of the proceedings, on various occasions Y mentioned the contractual provisions and legal rules later applied by the arbitral tribunal in its final award, and X therefore had several opportunities to comment on Y's allegations. For this reason, X's right to be heard had been satisfied. Consequently, the Federal Supreme Court dismissed X's appeal.

In this decision, the Federal Supreme Court confirmed its consistent practice regarding the parties' constitutional right to be heard, that is that the parties only have the right to comment on court's legal assessment of the facts prior to the rendering of the final decision in exceptional cases. This derives from the principle of iura novit curia, which is prevalent in civil law jurisdictions and, in principle, also applies to arbitral tribunals in Switzerland. It means that the arbitral tribunal has the obligation to determine the legal provisions applicable to the dispute itself.

An exception to this principle exists where the court (or arbitral tribunal) plans to base its final decision on a legal foundation which has not been addressed by either party in the course of the proceedings. In such a case, the parties could not reasonably expect that the court would deem this legal foundation relevant and would therefore be taken by surprise by such a finding. In these exceptional circumstances, the parties have a right to comment on the findings of the court.