Articles 190(2)(d) and 190(2)(e) of the Private International Law Act (PILA) provide that an award can be challenged if the relevant arbitral tribunal has violated a party's right to be heard or the award is incompatible with public policy.

In 2009, a football team (team X) entered into a contract with another team (team Y) for the transfer of a player. The agreement required team X to pay a flat fee and also make additional bonus payments, the value of which was tied to its performance in various competitions. The contract was followed by a further agreement (Protocol) between teams X and Y that reiterated much of the contract's contents but also differed on certain issues. The discrepancies between the Protocol and the contract gave rise to a dispute relating to the payments. Team Y initiated proceedings with the dispute resolution bodies of FIFA. FIFA decided to hear the claims in two separate proceedings because of the different nature of the sums requested by team Y. One set of claims was referred to FIFA’s Dispute Resolution Chamber and the other to FIFA’s Player's Status Committee. The Committee ordered team X to pay team Y a sum of EUR750,000.00 plus interest, while the Chamber partly dismissed team Y's claims.

Both the Committee's decision (Appeal 1) and the decision of the Chamber (Appeal 2) were subsequently appealed to the CAS by team X and team Y respectively. Appeal 1, in which both parties had expressly stated their satisfaction with the proceedings, was almost completed when team X, in a reply submission in Appeal 2, requested the consolidation of the Appeals. When the CAS tribunal rejected the request, team X asked instead that witness statements from one appeal be admitted in the other, or that certain witnesses from Appeal 1 could be called to testify in Appeal 2. This further request was also rejected. The following day, the CAS tribunal in Appeal 1 rendered its award, dismissing team X's appeal.

Shortly thereafter, team X filed a request with the Supreme Court to have the award in Appeal 1 set aside, contending that the CAS's failure to consider the claims in Appeals 1 and 2 in parallel had violated both its right to have its case heard and procedural public policy. The two sets of claims were considered by the same institution (FIFA) and founded on the same set of facts. In addition, they related to the same agreements and addressed the same issue (namely the relationship between the Protocol and the contract). Inconsistencies also allegedly existed between contentions made by team Y in Appeals 1 and 2. Furthermore, certain allegedly relevant documents were not produced in Appeal 1, despite being requested by team X and produced in Appeal 2. Accordingly, X argued that both sets of claims should have been considered together.

Team X also alleged that the CAS tribunal had violated substantive public policy by giving priority to the Protocol over the contract while nonetheless confirming the latter's validity, thereby challenging the principle of pacta sunt servanda.

The Supreme Court upheld the CAS tribunal's award. In so doing, it first addressed an issue of admissibility. Under Swiss law, applicants are required to file their request with the Supreme Court within 30 days of being notified of the relevant award. Team X first received the award by fax and then by registered mail. Team X filed its request more than 30 days after it received the award by fax. However, the Supreme Court, confirming its finding in a previous decision (Case 4A_428/2011, discussed in Legal update, Swiss Supreme Court on consent in sports arbitration and a non-signatory's standing to bring a claim before the CAS), stated that mere notification by fax is not sufficient to initiate the 30-day time limit for filing a request.

The Supreme Court quickly rejected team X's contention regarding its right to be heard, on the grounds that team X had failed to raise the alleged violation during the arbitral proceedings. The Supreme Court once more confirmed the established principle in Swiss case law (as well as many other jurisdictions) that any perceived violation of a party's procedural rights must be brought to the attention of the arbitral tribunal immediately, when it is still in a position to consider an objection on the matter and change its mind accordingly. Failingto do so, but nonetheless subsequently attempting to rely on such a violation to challenge an award, is contrary to good faith.

The Supreme Court also noted that the requirements for consolidation pursuant to Article 52.4 of the CAS Code had not been met, as Appeals 1 and 2 related to two entirely separate decisions by FIFA. However, it remarked that mere compliance with the applicable arbitration rules does not preclude a violation of the right to be heard, which is guaranteed by Article 182(3) of the PILA "irrespective of the procedure that has been chosen". Accordingly, the Supreme Court proceeded to examine (in surprising detail) team X's arguments regarding the violation of the right to be heard.

It first noted that the mere possibility of incompatible awards in two cases addressing the same facts and legal issues cannot, in itself, give rise to a violation. It also found that the documents which team X sought to introduce in Appeal 1 were not necessary to prove any particular point. Accordingly, their non-admission was not a violation of the right to be heard. The Supreme Court even closely examined the positions taken by team Y in both Appeals, determining that they were not actually incompatible.

Regarding the alleged violation of procedural public policy, the Supreme Court referred to a consistent line of decisions confirming that public policy, as found in Article 190(2) of the PILA, is a subsidiary guarantee intended to address procedural vices that the legislator did not otherwise anticipate in its grounds for setting aside an arbitral award. It cannot therefore sustain a claim that would otherwise fall within the scope of another ground for setting aside an award, such as a violation of the right to be heard (see, for example, Case 4A_488/2011, discussed in Legal update, Swiss Supreme Court on effect of untimely appeal before the CAS and on burden and standard of proof in sports arbitration).

Discussing the alleged violation of pacta sunt servanda, the Supreme Court again referred to a long line of decisions confirming that an arbitral tribunal can only commit such a violation if it contradicts itself by refusing to apply a contractual provision to which it nonetheless regards the parties to be bound, or if it applies a provision to which it does not consider the parties to be bound. By comparison, the interpretation of a contract, just like almost any other element of a dispute over the alleged breach of a contract, is not governed by pacta sunt servanda (see, for example, Case 4A_150/2012, discussed in Legal update, Swiss Supreme Court confirms admissibility of anticipated assessment of evidence and denies violation of pacta sunt servanda and bona fides). In finding that the Protocol and the contract could co-exist, but that the Protocol would have priority in case of any discrepancy, the arbitral tribunal could not therefore have violated the principle.

While the decision addresses a number of issues, of particular note is the Supreme Court's reminder that, in seeking to ensure that they do not violate the basic procedural rights of the parties, arbitral tribunals cannot always take comfort in merely respecting the provisions of the arbitration rules applicable to the case: in certain instances, these provisions may contravene the mandatory rules of the Swiss lex arbitri.

This principle was argued in another recent case of the Supreme Court, which noted that a refusal by the arbitral tribunal to appoint a neutral expert could constitute a violation of the right to be heard even if the applicable arbitration rules leave such appointments entirely to the arbitral tribunal's discretion (case 4A_274/2012, discussed in Legal update, Swiss Supreme Court examines violation of the right to be heard arising out of arbitral tribunal’s rejection of a party's request for a tribunal-appointed expert).