Article 190(2)(b) of the Swiss Private International Law Act (PILA) provides that an award shall be set aside if the arbitral tribunal wrongly accepted or declined jurisdiction.

On 19 February 2003, the football club X and the football agency Y entered into an agreement (2003 contract) regarding the transfer of player A. Section 4 of the 2003 contract contained the following clause:

Following the transfer of A and two other football players, a dispute arose between X and Y regarding the transfer fees.

On 10 September 2008, Y initiated arbitration proceedings before the FIFA Players' Status Committee, requesting that X be ordered to pay €534,186 and US$100,000 to Y. By letter of 10 December 2008, the FIFA Players' Status Committee declined jurisdiction.

After the FIFA Players' Status Committee had confirmed this decision on 15 January 2009, Y requested the High Court of the Canton Zurich to nominate an arbitrator. The High Court of the Canton Zurich granted this request with its decision of 20 October 2009, holding that there was sufficient evidence to conclude that X and Y had entered into an arbitration agreement.

However, by an award of 13 April 2010, the appointed sole arbitrator declined jurisdiction. He held that, while X and Y had obviously agreed to submit the present dispute to an arbitral tribunal specialising in sports law, this did not mean that the parties had agreed to submit their dispute to a sole arbitrator.

On 14 May 2010, Y filed a request for arbitration with the CAS. On 17 March 2011, the CAS rendered an interim award accepting jurisdiction over the parties' dispute regarding the transfer of A on the basis of the arbitration agreement in the contract of 19 February 2003.

X challenged the award on jurisdiction before the Swiss Supreme Court.

Confirming existing case law, the Swiss Supreme Court reiterated its liberal approach with regard to the formal requirements of arbitration agreements in sports-related matters which it also applied in the cases 4A_640/2010 of 18 April 2011 (see Legal update, Swiss Supreme Court dismisses appeal to set aside CAS award for lack of jurisdiction) and 4A_548/2009 of 20 January 2010 (see Legal update, Swiss Federal Tribunal affirms CAS jurisdiction despite lack of arbitration agreement). This trend towards a more liberal approach is discussed in detail in Article, Switzerland: round-up 2011/2012.

As none of the parties had requested that the law governing the merits of the case be applied to the issue of the substantive validity of the arbitration agreement, the Swiss Supreme Court applied Swiss law.The Swiss Supreme Court emphasised once more that there is an arbitration agreement if parties have agreed that certain specified disputes shall be resolved by an arbitral tribunal rather than by the state courts and the competent arbitral tribunal can at least be determined.

Further, the Supreme Court confirmed that pathological arbitration clauses are not per se invalid if the parties' intention to arbitrate is clear. Rather, such clauses have to be interpreted and supplemented according to the general rules of contract law, in particular according to the principle of interpretation in favorem validitatis (that is, the law favours the validity of the arbitration agreement), in order to respect the parties' true intention.

Turning to the case at hand, the Swiss Supreme Court held that, even though section 4 of the 2003 contract did not expressly mention the terms "arbitration", "arbitral tribunal", "arbitrator", "arbitration agreement" or similar, the parties' agreement to submit disputes concerning their contract of 19 February 2003 to "the FIFA Commission, or the UEFA Commission" had to be understood as a clear referral to an arbitral tribunal and as waiver of the jurisdiction of the state courts.

Further, the Supreme Court held that even though the "FIFA Commission, or the UEFA Commission" are not competent to hear a dispute between X and Y and that therefore the dispute resolution mechanism provided in section 4 of the 2003 contract is impossible ab initio, this does not render the arbitration agreement null and void. Relying on the hypothetical intention of the parties, the Swiss Supreme Court came to the conclusion that the parties would have entered into an arbitration agreement if had they known that none of the committees referred to in section 4 of the 2003 contract could hear their dispute and that section 4 of the 2003 contract is therefore partially invalid. In this context, the Swiss Supreme Court stated that where there is any doubt as to the parties' hypothetical intent, partial invalidity is to be favoured over total invalidity. Therefore, the contractual principle of favor validitatis also applies to arbitration agreements.

In order to fill the ensuing contractual lacuna, the Supreme Court relied on the parties' hypothetical intention and came to the conclusion that X and Y would have submitted their dispute directly to the jurisdiction of the CAS, if they had known that the FIFA Commission, or the UEFA Commission were not competent to hear it. This was on the basis that it was the parties' intention to submit their disputes to an arbitral tribunal with its seat in Switzerland which specialises in sports matters, in particular in transfer matters, and that FIFA decisions regarding the transfer of players can be appealed to the CAS.

Based on these grounds, the Swiss Supreme Court confirmed the jurisdiction of the CAS with regard to claims arising from the transfer of the football player A and dismissed the petition to set the award aside.

This decision, which will be published in the official court reporter, shows that when applying a prima facie analysis, cantonal courts such as the High Court of the Canton Zurich have a rather low threshold for assuming the existence of an arbitration agreement when asked to appoint an arbitrator. The decision also confirms the Swiss Supreme Court's liberal approach to the formal requirements of arbitration agreements in sports-related disputes.

The Supreme Court used this case to issue a number of clarifications regarding the interpretation of pathological arbitration clauses, including:

Finally, it is worth noting that even though Article 178(2) PILA provides that the validity of the arbitration agreement is subject to:

The Swiss Supreme Court will directly apply Swiss law to this issue, unless the parties argue that another law is applicable to this question. Thus, if one of the parties would like have a law other than Swiss law applied, in particular because there is a risk of invalidity under Swiss law, it needs to expressly plead this.