Article 7 of the Swiss Private International Law Act (PILA) provides that a Swiss court must, on a party's request, decline jurisdiction over an arbitrable dispute arising out of an agreement that contains an arbitration clause, unless the court determines that:

Article 7 thus embodies the "negative" doctrine of kompetenz-kompetenz.

A German private client (Y) had sued a Zurich-based asset management company (X) in connection with investment losses. Y, X and two other parties had entered into an asset management agreement establishing a Panamanian foundation. The agreement provided that "all disputes arising out of or in connection with "the agreement were to be resolved by a sole arbitrator under the international arbitration rules of the Zurich Chamber of Commerce. The foundation suffered losses and it was subsequently liquidated by X. Y filed a claim against X before the Zurich Commercial Court (Handelsgericht) for the losses it had incurred. X pleaded that the court lacked jurisdiction due to the arbitration clause in the foundation agreement. The Zurich Commercial Court rejected this argument because Y's claims did not arise under the foundation agreement and were based on non-contractual causes of action. The court came to this finding even though it acknowledged that the arbitration clause encompassed the entirety of the foundation agreement.

X appealed to the Swiss Supreme Court.

The Swiss Supreme Court reversed the decision of the Zurich Commercial Court. It began by reaffirming its jurisprudence (see BGE 122 III 139 and BGE 121 III 38) on the standard of review of the arbitration agreement that a Swiss state court must apply when one party raises an exceptio arbitri (that is, an objection to the court's jurisdiction based on the arbitration agreement). Pursuant to Article 7 PILA, when the seat of arbitration is in Switzerland, the appropriate standard of review is prima facie only. Some Swiss commentators have criticised this approach. The Supreme Court, providing a fairly extensive overview of the state of the literature, addressed these critics, reasoning that limited review is justified because the state court will be able to conduct a de novo review at a later stage, in any setting aside proceedings. Moreover, the Supreme Court found support for its position in two recent legislative developments:

Here, the question was not the existence or validity of an arbitration agreement but its scope. However, as a matter of Swiss law, the prima facie standard of review applies to both issues of formation and scope.

Applying this standard to the facts of the case, the Supreme Court had little difficulty finding that the lower court had engaged in a full review and had read the arbitration agreement too narrowly. The clause purported to subject all disputes "in connection with" the agreement to arbitration. This language, in the Supreme Court's view, must be understood as encompassing all claims, contractual and non-contractual, that "arise from or directly touch upon" the subject matter regulated by the contract. There were also practical reasons favouring a common adjudication of all claims before one and the same forum.

This decision is interesting and important for three reasons. First, despite some criticism by commentators, the doctrine of negative kompetenz-kompetenz for Swiss-seated arbitrations is alive and well in Switzerland. However, the debate about applying this standard of review to Swiss-seated arbitration suggests that extending the prima facie standard of review to foreign-seated arbitrations (as envisaged by the 2008 parliamentary initiative that will be taken up as part of the general overhaul of PILA over the next few years) may prove an uphill battle – especially as a number of additional reasons have been raised against applying the same standard of review irrespective of the seat of arbitration. For further information about the development of the parliamentary initiative, see Legal update, Swiss National Council launches revision of Swiss arbitration law.

Secondly, the Supreme Court again applied the favor validitatis principle by affirming the broad scope of an arbitration agreement and confirming that the commonly-used phrase" all disputes arising out of or in connection with" establishes a presumption that the parties did not intend to refer different causes of action to different fora. Further, the decision confirms that, under such a clause, the arbitral tribunal will have jurisdiction over both contractual and non-contractual claims, at least to the extent they are closely connected to the subject matter of the parties' contractual relationship. In this respect, it would appear that based on the Supreme Court's reasoning and on the facts of the case, the standard of review was not outcome-determinative. Even a de novo review would have upheld the arbitral tribunal's jurisdiction.

Thirdly, the reference to the 2011 Swiss Code of Civil Procedure indicates that the Supreme Court will take account of the legislative innovations reflected in the rules governing domestic arbitrations to inform its jurisprudence on international arbitration.