Article 186(1)bis of the Swiss Private International Law (PILA) provides that an arbitral tribunal "shall decide on its jurisdiction notwithstanding an action on the same matter already pending before a State Court or another Arbitral Tribunal, unless there are serious reasons to stay the proceedings."

The case originated in 2000, when a Portuguese soccer player terminated his employment contract with the soccer club Sport Lisboa E Benfica (Benfica) and transferred to the soccer club Atlético de Madrid SAD (Atlético). In 2001, Benfica claimed compensation from FIFA under the 1997 Fifa Regulations for the Status and Transfer of Players (1997 Rules). The FIFA Special Committee awarded Benfica US$2.5 million (First FIFA Decision), and Atlético appealed to the Commercial Court of the Canton of Zurich (Commercial Court). In a decision of 21 June 2004, the Commercial Court annulled the decision on the basis that the 1997 Rules were void as violating European and Swiss antitrust law (2004 Judgment).

A few months later, Benfica again sought a decision from the FIFA Special Committee for compensation by Atlético, but FIFA rejected the claim, relying on the 2004 Judgment (Second FIFA Decision). In the meantime, FIFA had introduced an arbitral review procedure for the decisions of the FIFA Special Committee. Accordingly, Benfica appealed the Second FIFA Decision to the Court of Arbitration for Sports (CAS). Before a CAS tribunal, Atlético opposed Benfica's appeal by relying, inter alia, on the res judicata effect of the 2004 Judgment. The CAS upheld the appeal in part and ordered Atlético to pay compensation in the amount of EUR 400'000. Atlético filed a petition with the Swiss Federal Tribunal claiming that the CAS violated procedural public policy as it disregarded the binding effect of the 2004 Judgment.

The Federal Tribunal set aside the CAS award.

It first held that the proceedings before the Commercial Court between FIFA and Atlético dealt with the annulment of a resolution of an association (that is, FIFA) under Article 75 of the Swiss Civil Code (CC). Under Swiss law, a decision annulling a resolution of an association binds not only the parties to the proceedings (that is, FIFA and Atlético) but erga omnes (that is, all) members of the association. For that reason, Benfica's claim before the CAS tribunal was barred by res judicata even though Benfica was not a party to the 2004 Judgment. Relying on previous case law, the Federal Tribunal confirmed that res judicata is a part of Swiss procedural public policy. It thus held that the CAS tribunal violated procedural public policy by granting Benfica's claim despite the 2004 Judgment.

The introduction by FIFA of an arbitral appeals procedure subsequent to the First FIFA Decision made no difference: the Commercial Court's decision was final and binding. The CAS was barred from re-examining the 2004 Judgment, just like the Commercial Court would have been bound by its previous decision.

For the first time, the Swiss Federal Tribunal has set aside an arbitral award on the basis of a violation of public policy. This is a landmark decision that will undoubtedly spawn much commentary in the Swiss and international arbitration communities. The following paragraphs summarise the authors' initial reactions, but we do not purport to provide a complete analysis of all noteworthy aspects of this decision.

This is not the first time that the Federal Tribunal has held that the principle of res judicata is part of Swiss procedural public policy. The Federal Tribunal previously decided this issue in the famous 2001 Fomento decision (BG 127 III 279), which, notably, the present case did not cite. In Fomento, the Federal Tribunal held that the lis pendens provisions of Article 9 PILA applied to international arbitrations in Switzerland, requiring an arbitral tribunal to stay arbitration proceedings while an action filed earlier in a foreign court was pending. The decision caused concern that parties could now race to initiate state court litigation elsewhere, thereby forcing the stay of arbitral proceedings in Switzerland. Fomento triggered an amendment contained in Article 186(1)bis PILA.

The decision in the present case appears to weaken the principle embodied in the new Article 186(1)bis PILA. It appears to revive the spectre of a "race", this time by the arbitral tribunal, to decide a matter earlier than a state court before which the same matter is pending, in order to avoid exposing the arbitral award to setting aside challenges on the basis of a violation of procedural public policy.

Under Swiss law, res judicata requires an identity of the parties in the previous and the subsequent proceedings. This is a well established principle in other legal orders as reflected in the International Law Association's 2006 Recommendation on Res Judicata and Arbitration, Recommendation 3.4. Here, the 2004 Judgment was between FIFA and Atlético, whereas the CAS proceedings and the subsequent setting aside proceedings before the Federal Tribunal were between Atlético and Benfica. Despite a lack of identity of the parties, the 2004 Judgment had res judicata effect, but only because of the particularities of Swiss Association Law. Therefore, the decision should not be interpreted to open the door to the doctrine of "issue estoppel" known in the United States, under which, in certain circumstances, third parties may be precluded from re-litigating issues of fact and law that have been actually determined in the prior litigation.

In sum, while we do approve of the result one might ask whether the Federal Tribunal has sufficiently appreciated that there was a singular issue of the erga omnes effect of a previous court decision rather an issue of res judicata and whether there might not have been a way to come to the same result by relying on the latter principle only. As the case now stands, the principle of res judicata has been given a broader meaning than it has under Swiss law, more particularly, by extending to other parties. Also, the holding's implicit contradiction to Article 186(1)bis PILA, which intentionally accepted the risk and result of contradicting results in order to protect the smooth functioning of arbitrations with their seat in Switzerland, was not commented on by the Federal Tribunal but is nevertheless questionable.