Article 190(2)(d) of the Swiss Federal Statute on Private International Law (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.

On 3 September 2008, Turkish company Y and Romanian company X entered into a contract for the sale of metallic bars. After X had failed to comply with its obligation to effect payment by opening a letter of credit, Y avoided the contract and claimed damages. The parties' attempt to settle failed, and Y brought a claim for damages of US$396,425 before a sole arbitrator appointed by the CCIG. On 27 August 2009, the arbitrator rendered an award in favour of Y. X then brought a petition to set aside before the Swiss Federal Tribunal, claiming that the award violated public policy because it was contrary to the principles of pacta sunt servanda (agreements must be kept) and good faith and the right to be heard (Article 190(2)(d),(e) PILA).

The Swiss Federal Tribunal rejected the petition.

It held that for the purposes of challenges under Article 190(2)(d) PILA, the principle of pacta sunt servanda is only violated if an arbitral tribunal refuses to apply a contractual provision that it has determined is binding on the parties, or, conversely, if a tribunal imposes a contractual provision that it has determined is not binding on the parties. The arbitral tribunal thus must have applied or refused to apply a contractual provision in contradiction of its own interpretation as to the existence or content of that provision. By contrast, the process of contractual interpretation itself, and the legal consequences drawn from it, are not grounds for an ordre public challenge.

The Federal Tribunal further explained that the rules governing the interpretation of "good faith" are those applied by the Swiss jurisprudence under Article 2 of the Swiss Code of Obligations.

Here, the Federal Tribunal found that the arbitrator had simply interpreted a provision of the contract and had rendered a decision consistent with that interpretation. While the petitioner claimed the interpretation was contrary to the intention of parties, an argument that the Federal Tribunal observed had "nothing to do" with the principle of pacta sunt servanda.

The Federal Tribunal has not opined frequently on the meaning of pacta sunt servanda and rarely as clearly as in this case. The interpretation of this principle and the principle of good faith set high hurdles for parties seeking to set aside a Swiss arbitral award for violation of substantive public policy.