Article 190(2) of the Swiss Federal Statute on Private International Law (PILA) permits a final award to be set aside for a limited number of reasons. Under Article 190(2)(d) PILA, an award can be set aside if the parties' right to be heard was violated.

The dispute relates to the construction of a US airbase in Iraq. The US Government awarded the works to the US company Y. In 2004, Y entered into a subcontract with the Turkish company X. In 2005, Y terminated the subcontract with X for cause. X disputed the rightfulness of the termination and started an ICC arbitration in Geneva against Y. Y raised a counterclaim and claimed damages in the amount of US$4 million based on a termination for cause.

The arbitral tribunal, in its award of 25 June 2009, decided that Y's termination for cause had been rightful. The tribunal dismissed X's claim and awarded Y damages in the amount of about US$2.4 million.

In July 2009, X requested the arbitral tribunal to correct and interpret the award. X furthermore applied to the Supreme Court to set aside the award. On 31 December 2009, before the first exchange of briefs before the Supreme Court was concluded, the arbitral tribunal rendered an addendum that partially rectified its award of 25 June 2009 (Addendum). The Addendum reduced the amount awarded to Y to about US$480,000.

X based its application to set aside the award in particular (but not exclusively) on a violation of its right to be heard.

X asserted, among other things, that the arbitral tribunal had violated X's right to be heard by not addressing significant arguments raised by X regarding the payments that Y had allegedly made to X, such arguments being capable of determining the quantum of damages awarded to Y. In its calculation of damages, Y included payments that it had booked in its accounts as having been paid to X. X disputed the amount of payments and repeatedly alleged in the course of the arbitration that Y had withheld 30% of a specific payment and that Y admitted this fact in the arbitration. Nevertheless, the award concluded that Y was entitled to treat all amounts booked as liabilities towards X as if Y had actually paid these amounts, but did not give any reason for this conclusion. In particular, the award did not address X's arguments regarding the withheld amount.

The Supreme Court held that the Addendum did not constitute an additional award, but a rectifying award. The rectifying award shares the fate of the original award. Thus, the award of 25 June 2009 and the Addendum of 31 December 2009 together were the subject of the Supreme Court's decision.

In its observations to the Supreme Court, the arbitral tribunal explained that the issue of the withheld payment was not contained in X's post-hearing briefs. However, the Supreme Court noted that this observation was incorrect and that X had in fact addressed the issue in one of its post-hearing submissions.

In its Addendum, the arbitral tribunal stated that it had not ignored X's allegation, but that it had based its decision on an expert report produced by Y. This expert report established that the amounts in question were correctly booked in Y's accounts. The Supreme Court held that the tribunal's reference to the expert report did not respond to X's allegation, since X had alleged that it had not received the full amount that was booked in Y's accounts. Thus, according to the Supreme Court, it was not established that the arbitral tribunal took X's allegation into consideration and implicitly rejected it.

In its Addendum, the arbitral tribunal furthermore stated that X had "failed specifically to address the consequences of the retainage to the calculation of [Y's] claim". The Supreme Court rejected this justification. According to the Supreme Court, the consequences of Y's withholding of the amounts concerned were obvious.

As a result, the Supreme Court held that the arbitral tribunal had not taken into consideration X's allegation that Y had withheld a part of the payments to X. Since X's allegation was relevant for determining the amount of damages that X owed to Y, the arbitral tribunal had not fulfilled its obligation to address the relevant problems. Thus, the arbitral tribunal had violated X's right to be heard. The Supreme Court therefore set aside the award and referred the matter back to the arbitral tribunal.

It is very rare that the Supreme Court sets aside an award on the grounds that the arbitral tribunal violated a party's right to be heard regarding an allegation of fact. However, the Supreme Court based its decision on principles that are fully in line with its long-standing practice. Arbitrators do not have to discuss all allegations and arguments made by the parties in order to respect the parties' right to be heard. Rather, arbitrators can implicitly reject allegations and arguments that are objectively not relevant. If however the award is completely silent on properly asserted allegations and arguments that are relevant for the outcome of the decision, and if it is not discernible from the award that the tribunal had tackled these allegations or arguments, the tribunal or the counterparty has to justify this silence before the Supreme Court in order to avoid the award being set aside. In the present case, the Supreme Court found the arbitral tribunal's justification to be insufficient. The decision is a reminder that arbitrators need to be very careful to check whether they have addressed all relevant issues, especially in complicated cases with a voluminous file.