A (South Africa) v. B (U.S.A.)

Company A (plaintiff) was a chemical company from South Africa. Company B (defendant) was a chemical company from the United States. Company A and company B contracted for company A to sell chemicals to company B. The contract contained an arbitration provision. The contract required company B to submit data for pricing purposes and permitted either party to terminate the agreement if the other party was in material breach of the agreement. The contract also contained a choice-of-law clause stating that the contract should be construed according to Swiss law “as applied between domestic parties.” Company A terminated the agreement after several years, alleging company B materially breached the contract by failing to make all payments and provide necessary data. Company B denied company A’s claims and initiated arbitration proceedings against company A. The arbitral tribunal found that company B did not fully perform its obligations under the contract, but it also found that company A could not terminate the contract, because company B’s conduct did not constitute a material breach. The concept of material breach did not exist under Swiss law, so the arbitral tribunal interpreted the term according to the Convention on Contracts for the International Sale of Goods (CISG) and the UNIDROIT Principles of International Commercial Contracts (the UNIDROIT Principles) published by the International Institute for the Unification of Private Law (UNIDROIT). The CISG and UNIDROIT Principles were both commonly used, widely known instruments addressing international contracts. Company A applied to the Swiss Federal Supreme Court, seeking to set aside the arbitral award. Company A argued that the arbitral tribunal exceeded its authority by applying the CISG and UNIDROIT Principles because the parties explicitly chose the domestic laws of Switzerland to govern the contract.