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In its decision of 6 August 2024, the Swiss Federal Supreme Court (“SFSC”) deliberated on the effects of a negative decision on jurisdiction by a foreign arbitral tribunal to state courts in Switzerland (case no. 4A_621/2023 [in German], intended for official publication).

Factual background

In the case at stake, a dispute arose between a Slovenian and Swiss company concerning a distribution agreement. Subsequent to numerous disagreements, the Slovenian company (the claimant and subsequently defendant before the SFSC proceedings) filed a request for arbitration with the Slovenian Chamber of Commerce to resolve the ongoing issues. The arbitral tribunal ruled that the Swiss company (the respondent and appellant before the SFSC proceedings) was not bound by the arbitration agreement. Consequently, the claimant initiated legal proceedings before the Commercial Court of the Canton of Aargau in Switzerland. However, this court declared that it lacked jurisdiction and directed the parties to adhere to the arbitration clause in the distribution agreement.

Subsequently, the claimant initiated proceedings before the competent district court in Slovenia and prevailed. This decision was upheld by the higher courts in Slovenia. Thereafter, a debt enforcement request was filed at the respondent’s registered offices in Switzerland. The competent court in the Canton of Aargau granted the request and rejected the respondent’s attempt to set it aside. The Cantonal High Court of Aargau dismissed the appeal against this decision, stating that the decision should be recognized and enforced in accordance with the Lugano Convention (“LC”), even if the Slovenian court had issued the decision in disregard of the arbitration agreement. This was not affected by the fact that the Commercial Court of the Canton of Aargau had initially denied jurisdiction and referred the claimant to arbitral tribunal.

The respondent then filed an appeal against this decision with the SFSC, contending, inter alia, that the Commercial Court of the Canton of Aargau had already resolved the jurisdictional issue in favour of the arbitral tribunal, and this decision should be binding on the lower court.

Binding effects of a foreign arbitral tribunal’s decision on jurisdiction to Swiss state courts

In Switzerland, the binding effect of a decision on jurisdiction, in which a state court in Switzerland renders a decision declining jurisdiction in favour of an arbitral tribunal, has not yet been definitively clarified. According to Swiss case law, an arbitral tribunal that has been mutually agreed upon and is seated in Switzerland is not bound by the decision of the state court. This position is endorsed by the Swiss legal doctrine. However, the question of whether such a decision is also binding and must be recognised by any other Swiss court remains contentious. According to one doctrine, such a decision declining jurisdiction only has binding effect for the respective court. According to another doctrine, such a decision also binds the other state courts in Switzerland to the established validity of the arbitration agreement.

In the present case, the SFSC considered that the question of whether such a decision also binds all other state courts in Switzerland with regard to the established validity of the arbitration agreement is not to be examined. Instead, the question of whether a state court in Switzerland is bound by the negative jurisdiction decision of an agreed arbitral tribunal seated abroad has to be assessed. This is only possible if the foreign arbitral tribunal has declared itself incompetent and this arbitral decision is recognised in Switzerland. In such a scenario, the Swiss state courts are bound by the arbitral decision on jurisdiction rather than by the negative jurisdictional decision of the Swiss state court, which had declared itself incompetent based on its interpretation of a valid arbitration agreement. Consequently, the SFSC concluded that the lower court was bound by the arbitral award and not by the decision of the Commercial Court of the Canton of Aargau.

Concluding remarks regarding the decision on jurisdiction

In the event that a state court opts to decline jurisdiction on the basis of an arbitration clause, this decision does not subsequently bind a seized arbitral tribunal. In such cases, the arbitral tribunal is required to determine its own jurisdiction (principle of relative ‘kompetenz-kompetenz’; cf. Art. 186(1) of the Private International Law Act [“PILA”]). The tribunal is entitled to re-examine, with unrestricted authority, the existence of a valid arbitration agreement between the parties. Should the arbitral tribunal determine that it lacks jurisdiction due to the invalidity, non-existence, or non-applicability of the arbitration agreement to the subject-matter of the dispute, the claim may be referred back to the ordinary state courts, which are bound by this decision on jurisdiction.

In light of this precedent, the SFSC has reaffirmed the principle of ‘kompetenz-kompetenz’, thereby ensuring that arbitrators are the judges of their own jurisdiction.

Author

Dr. Valentina Hirsiger-Meier is a partner in Baker McKenzie's Zurich office. She advises parties in the field of dispute resolution and general contract law, with a focus on national and international disputes in commercial, construction and corporate law. Valentina has extensive experience as a party representative in commercial disputes before both international arbitral tribunals and Swiss state courts and acts as a part-time judge of the Supreme Court of Liechtenstein.

Author

Lukas Frommelt is currently working on his Ph.D. in law with the University of St. Gallen (HSG). Previously, he was working as a trainee lawyer at Baker McKenzie's Zurich office. His area of specialization is dispute resolution, general contract and corporate law, as well as mergers and acquisitions. He obtained his law degree from the University of St. Gallen (HSG). Prior to his studies in law, he studied business administration as well as accounting and finance at the University of St. Gallen. Lukas previously also trained with several large business law firms in Zurich.