Article 190(3) of the Swiss Private International Law Act (PILA) states that the time limit for lodging an appeal will commence when an interlocutory award is communicated.

In December 2004, a Swiss manufacturer of pharmaceutical products (the Manufacturer) and an Israeli distributor of such products (the Distributor) entered into an exclusive distribution agreement (the Agreement) containing an arbitration clause. In May 2006, the Manufacturer commenced arbitration in Switzerland against the Distributor, seeking payment of unpaid bills and penalties. In September 2006, the Distributor filed a claim against the Manufacturer before the district court in Tel Aviv-Jaffa, seeking payment based on a claim for goodwill.

The Manufacturer applied to the court in Tel Aviv-Jaffa for a stay of the proceedings due to the pending arbitration concerning identical parties and claims. It applied to the arbitral tribunal for, among other things, a payment of 100,000 Swiss Francs (CHF), arguing that the Distributor had breached the arbitration clause by commencing the court proceedings. The Manufacturer later amended its claim to seek a declaration that the Distributor owed the Manufacturer compensatory damages for breach of the arbitration clause. The Distributor challenged the tribunal's jurisdiction over the Manufacturer's claim for a declaration.

In November 2008, in a partial and interim award the arbitral tribunal held that it had jurisdiction over the Manufacturer's claim for a declaration (the first award). The Distributor did not appeal against that decision. In August 2009, the tribunal issued a second partial and interim award (the second award), in which it confirmed its jurisdiction with respect to the Manufacturer's claim for a declaration. It further held that the Distributor had breached the arbitration clause contained in the Agreement by commencing proceedings in the Israeli courts and that the Distributor was liable to the Manufacturer for damages incurred as a result of this breach, provided that the Manufacturer, in later arbitral proceedings, could establish the remaining elements of its claim under Article 97 of the Swiss Code of Obligations.

The Distributor appealed against the decision of the arbitral tribunal before the Swiss Federal Supreme Court. It argued that:

The Federal Supreme Court dismissed the Distributor's appeal on all of the grounds raised.

Tribunal's jurisdiction: The Federal Supreme Court noted that the Distributor had not appealed against the arbitral tribunal's first award in which it had accepted jurisdiction, and had only appealed against the second award. However, in the second award, the tribunal had merely confirmed its earlier decision on jurisdiction and had not decided the issue of jurisdiction anew. If the Distributor had wished to appeal against the tribunal's decision on jurisdiction, it should have appealed against that earlier decision (that is, the first award). The Federal Supreme Court further held that, in order to succeed, the Distributor needed to show that the issue of breach of the arbitration clause was not covered by the arbitration clause, thus depriving the tribunal of jurisdiction to decide that issue. However, the Distributor had confused the issue of the breach of the arbitration clause and that of jurisdiction over the Distributor's goodwill claim.

Denial of right to address state court: The Federal Supreme Court held that with respect to arbitrable claims the parties are free to exclude the state court jurisdiction by entering into an arbitration clause. Since the Distributor and the Manufacturer validly concluded the arbitration clause, the exclusion of the state court jurisdiction was binding and the tribunal did not violate public policy by deciding the Manufacturer's claim for a declaration.

The Federal Supreme Court also rejected the Distributor's argument that an arbitral tribunal may not influence the state court's decision on costs of the proceedings and, in particular, may not punish a party for addressing a state court with its claims. The tribunal had only decided on its own jurisdiction (and not the jurisdiction of the state court) and did not try to influence the state court's decision on costs. Further, the Federal Supreme Court held that awarding damages for breach of an arbitration clause was a decision in substance and had nothing to do with the issue of jurisdiction. It could thus not be brought before the Federal Supreme Court.

Request for declaration violated public policy: The Federal Supreme Court held that the Distributor was correct in alleging that, where Swiss law is applicable, according to the rules developed by the Swiss state courts, the admissibility of a request for declaratory relief must be determined in accordance with Swiss law. However, this was not an issue of Swiss public policy. Therefore, the Supreme Court did not have to deal with the Distributor's argument that the arbitral tribunal did not properly apply those requirements.

The arbitral tribunal also had to decide whether the Manufacturer violated the Distributor's name and trademark rights. The Distributor argued that the tribunal violated Swiss public policy as it decided the issue according the Swiss law, the substantive law chosen by the parties in the Agreement, instead of applying the Israeli law. The Federal Supreme Court held that the issue of the applicable law and the issue whether the parties' choice of Swiss law was binding with respect to disputes regarding name and trademark rights did not constitute public policy and could thus not be brought before the Federal Supreme Court.

This decision confirms the importance of filing a timely complaint against an interlocutory award on jurisdiction. More interesting, however, is the issue of whether a tribunal has jurisdiction over a claim in damages by one party against another party who commences court proceedings in breach of an arbitration clause. Although the Federal Supreme Court did not have to address this issue because of its finding that the Distributor's appeal was out of time, it stated (obiter) that an arbitral tribunal does have jurisdiction for such claims. Furthermore, regarding the merits of the damages claim, it rejected the ordre public violation claim which was based mainly on the fact that the Israeli courts had accepted their jurisdiction and thus no violation of the arbitration clause could be perceived. This decision will deter parties in arbitration proceedings with a seat in Switzerland from filing parallel proceedings before state courts.

The Federal Supreme Court left open the issue of which rules apply to the admissibility of declaratory relief in international arbitration (since this is not an issue of public policy). However, it is worth noting that there is debate as to whether the test for admissibility of declaratory relief is an issue of procedure or the substance (merits) of the case.

If it is considered as a procedural issue and since the procedural rules at the seat of the arbitral tribunal do not apply automatically, there is some uncertainty for users of arbitration as to what test (if any) applies.

If it is considered as a substantive issue under Swiss law the situation is that claims for declaratory relief are limited to seeking a declaration on the existence or non-existence of a certain legal relationship or on the legal consequences of such legal relationship based on certain facts. Where a party is in a position to request specific performance of duties arising from the same legal relationship or payment of a certain amount of money, a request for declaratory relief is inadmissible and must be dismissed without prejudice. More specifically, where a request for specific performance is possible, the party seeking merely declaratory relief lacks the "legally relevant interest" in such declaratory relief because the uncertainty regarding the legal relationship between the parties can be eliminated by way of the performance request and therefore such performance request is a valid option for obtaining an enforceable judgment granting affirmative relief. It is only where the request for performance is not possible and the uncertainty regarding the legal relationship between the parties can only be eliminated by way of a declaratory judgment that an interest in a declaratory judgment is worthy of protection under Swiss law.