In April 2008, the International Ice Hockey Federation (IIHF), a foundation based in Switzerland, entered into a contract (CHL Agreement) with the Swiss Ice Hockey Federation (SIHF) and the Swiss Ice Hockey National league GmbH (NL-GmbH) regarding the participation of Swiss ice hockey clubs in the Champions Hockey League (CHL), a European ice hockey tournament. Under the CHL Agreement, Switzerland's top league national champion was entitled to represent Switzerland in the CHL tournament. The CHL Agreement was governed by Swiss law. It provided for arbitration before the CAS for "any dispute between the parties under or relating to the subject matter of this Agreement".

As a consequence of the financial crisis, SIHF lost a financial supporter and was not able to fund the prize money for the 2009/2010 and the 2010/2011 CHL tournaments.

The SCB Ice Hockey AG (SCB) qualified for participation in the CHL 2009/2010 and 2010/2011. On 13 October 2010, it filed an action with the CAS, requesting the IIHF to pay the minimal prize money that SCB would have earned in the 2009/2010 and the 2010/2011 CHL tournaments. Further, it claimed reimbursement of sums that SCB had expended for hiring three additional players for the 2009/2010 season.

In a preliminary award rendered on 13 September 2011, the CAS tribunal confirmed its jurisdiction to hear the case. IIHF petitioned the Swiss Supreme Court to have the partial award set aside.

The Supreme Court admitted the petition and set aside the preliminary award. Its decision was rendered under the provisions governing domestic arbitration because both parties' seats were in Switzerland, and they did not waive the application of domestic rules by agreeing to apply the rules on international arbitration.

The Supreme Court recalled its case law on the subjective scope of arbitration clauses. It stated that, in order to determine its jurisdiction, the arbitral tribunal has to examine which persons are bound by the arbitration agreement. Based on the principle of privity of contract, the arbitration agreement is, in principle, only binding on the parties to the contract. However, under certain circumstances, such as in the case of assignment, assumption of debt or transfer of contract, the arbitration clause can also be binding on non-signatories to the contract. This is also the case if a third party was involved in the performance of the contract in such a way that it is possible to infer from its conduct an implicit intent to be bound by the arbitration agreement. Moreover, the beneficiary of a contract to which it is not a party may rely on the arbitration clause in proceedings against one of the parties to the contract, if under the contract it is entitled to claim performance in its own right.

In this case, the CAS tribunal had held that the CHL Agreement conferred an entitlement on the national clubs who fulfilled the qualifying criteria to participate at the CHL tournament to claim performance of certain clauses of the CHL Agreement in their own right.

The Supreme Court first examined the findings of the CAS tribunal on the common intent of the parties. Because this was a factual question and the rules on domestic arbitration applied, the grounds for challenge included arbitrariness. An arbitral award is arbitrary if it is based on facts that are obviously erroneous or if statutory law or equity are evidently violated and this leads to an arbitrary result. The facts are obviously erroneous if they are contrary to the documents on file or if the arbitral tribunal wrongly assumed that certain facts were established evem though there was no evidence of that in the file.

In this case, the Supreme Court found that the arbitral tribunal's findings on the common intent of the parties were not arbitrary as they were the result of the CAS tribunal's assessment of the evidence rather than of obviously erroneously stated facts.

The Supreme Court then examined the CAS tribunal's objective interpretation of the CHL Agreement. Here, the Supreme Court found that the CAS tribunal had wrongly concluded that the CHL Agreement conferred a right on the national clubs to claim performance in their own right. Neither the wording of the CHL Agreement, nor the way the parties could and should have understood the CHL Agreement at the time of conclusion led to an interpretation that granted the national clubs the right to claim performance in their own right. Since the national clubs were not entitled to claim performance under the CHL Agreement in their own right, they also could not rely on the CHL Agreement's arbitration clause. Therefore, the CAS tribunal did not have jurisdiction to hear the case and the petition to set aside its preliminary award on jurisdiction was admitted.

Although this decision concerns a domestic arbitration, it is still pertinent to international arbitration practitioners as the provisions regarding the grounds for setting aside an award for lack of jurisdiction are identical for international and domestic arbitration.

The decision addresses the issue of entitlement of a third party beneficiary to rely on the arbitration clause to enforce its claim against one of the parties to the contract. It is the latest in a series of decisions that deal with the privity of arbitration clause principle and its exceptions (see also: DFT 134 III 565, 129 III 727 and 4A_44/2001 (see Legal update, Third party beneficiaries entitled to rely on arbitration clause in contract between promisor and promisee)). The Supreme Court makes it clear that, based on the privity of the arbitration agreement, only the parties to the arbitration agreement can, in principle, rely on it. One of several exceptions to this principle is where a third party beneficiary is entitled under the contract to claim performance in its own right. The third party beneficiary's entitlement to rely on the arbitration clause is inherently linked to its entitlement to claim performance in its own right. This means that the arbitral tribunal only has to determine whether the parties to the contract intended to confer on the beneficiary an entitlement to claim performance in its own right in order to assess its own jurisdiction over the third party beneficiary.