## Facts

- Two South African companies agreed to supply a U.S. company 85,000 wet metric tons of fluorite annually under a long-term supply contract.
- The contract set a base 2001 price and used a formula for later years tied to “FCA” prices the buyer paid other suppliers; if the formula yielded an out-of-range price, the parties agreed to negotiate a “fair and reasonable” price in good faith.
- The contract renewed annually after 2005 unless terminated with six months’ notice; it also permitted immediate termination for an uncured “material breach” after 30 days’ written notice.
- The contract selected “the laws of Switzerland as applied between domestic parties” and provided for ICC arbitration seated in Zurich.
- The sellers terminated immediately in January 2006, asserting the buyer materially breached by not fully paying two invoices and by withholding FCA price information needed for the pricing formula.
- The buyer initiated ICC arbitration; the tribunal found some buyer noncompliance but held it was not a “material breach” justifying termination.
- Although the parties’ clause was treated as excluding the CISG as governing law, the tribunal used CISG art. 25 and UNIDROIT Principles art. 7.3.1 to interpret the undefined term “material breach” under Swiss interpretive methods.
- The sellers sought to set aside the April 2009 award in the Swiss Federal Supreme Court under PILA art. 190(2), alleging excess of authority and violation of Swiss public policy.

## Issues

1. Whether the tribunal exceeded its mandate by consulting CISG and the UNIDROIT Principles to interpret “material breach” despite the parties’ choice of Swiss law “as applied between domestic parties.”
2. Whether reliance on CISG and UNIDROIT as interpretive tools, rather than as governing law, violated Swiss public policy by undermining party autonomy and the agreed choice of law.

## Decision

- The Swiss Federal Supreme Court dismissed the set-aside application and upheld the arbitral award.
- The court held the tribunal did not exceed its authority by using CISG and UNIDROIT concepts to construe “material breach” within Swiss contract interpretation.
- The court concluded this approach did not reintroduce the CISG as the governing law and did not violate Swiss public policy.

## Legal Principles

- Under Swiss contract interpretation, if the parties’ actual common intent is not proven, terms are construed according to the understanding of a reasonable person in the same circumstances.
- A contractual choice of Swiss law “as applied between domestic parties” excludes direct application of the CISG as governing law, but does not bar consulting the CISG and other transnational instruments as persuasive interpretive material.
- An arbitral tribunal does not exceed its mandate merely by using comparative or international sources to clarify the content of the chosen law and interpret undefined contractual terms.
- Swiss public policy review of arbitral awards is narrow; an award is set aside only if it violates fundamental principles of the Swiss legal order, not because the tribunal’s interpretive methodology is debatable.

## Conclusion

The court confirmed that, even where parties select domestic Swiss law and thereby exclude the CISG as governing law, a Switzerland-seated tribunal may use CISG and UNIDROIT definitions as interpretive aids to determine how a reasonable person in international commerce would understand an undefined term like “material breach,” without exceeding its mandate or violating Swiss public policy.


A (S. Afr.) v. B (U.S.A.), No. 4A_240/2009 (Switz. Fed. Sup. Ct. Dec. 16, 2009)