Article 190(2)(b) of the Private International Law Act (PILA) provides that an award can be challenged if the arbitral tribunal wrongly accepted or declined jurisdiction. Pursuant to Article 177(1) PILA, every claim of a financial nature may be subject to arbitration.

On 25 August 2008, M, a professional football coach of Serbian and Spanish nationality who has been domiciled in Spain for the last 30 years, and the Football Association of Serbia (Association) entered into an employment agreement. On 16 December 2009, after Serbia had qualified for the FIFA World Cup in South Africa, M signed a new employment agreement for the period from 1 January 2010 to 30 June 2012, which replaced the agreement of 25 August 2008.

According to this new employment agreement, M was entitled to a monthly salary of €70,000 until October 2011 and €100,000 a month for the remaining period of the contract. The salary was payable in the Serbian currency Dinar at the exchange rate of the Serbian National Bank on the date of payment.

Section 13 of this employment agreement contained the following clause:

On 15 September 2010, the Association terminated the employment agreement with immediate effect for breach of contract.

On 20 September 2010, M initiated arbitration proceedings before the Court of Arbitration for Sport (CAS), requesting that the Association be ordered to pay €2,150,000 to M, to be transferred in the Serbian currency Dinar at the average exchange rate of the Serbian National Bank, and to pay compensation of €280,000, pursuant to Article 337c(3) of the Swiss Code of Obligations.

By an award of 23 September 2011, a CAS panel largely granted M's request. The Association petitioned the Swiss Supreme Court to have the award set aside. It asserted that both parties were domiciled in Serbia. It argued that, under the Serbian Private International Law Act, parties may only agree to submit their dispute to the jurisdiction of a court with its seat outside Serbia if at least one of them is also domiciled outside Serbia. Therefore, the CAS had no jurisdiction over this case because it lacked arbitrability.

The Swiss Supreme Court rejected the petition.

Referring to its established case law, the Supreme Court reiterated that the objection of lack of arbitrability falls within the scope Article 190(2)(b) PILA and has to be raised as early in the proceedings as possible, and, in any event, before the party invoking the lack of arbitrability has entered an appearance regarding the merits of the case. If the objection is not raised at this stage at the latest, the Swiss Supreme Court will not consider the merits of the case.

The Supreme Court also indicated (obiter) that employment matters are generally arbitrable. Furthermore, the court emphasised that the issue of arbitrability is, as a matter of principle, exclusively governed by Article 177(1) PILA. According to this provision, all claims of a financial nature are arbitrable.

Under Swiss law, foreign law provisions could therefore only lead to a lack of arbitrability of the matter if ordre public reasons justify the application of foreign provisions which provide for the mandatory jurisdiction of a foreign court.

In the Elektrim case (Vivendi SA and others v Deutsche Telekom AG and others (4A_428/2008)), the Supreme Court held that Swiss law was silent on the issue of subjective arbitrability of non-state parties and concluded that the capacity of the Polish co-respondent to be a party to international arbitration proceedings was to be determined in accordance with Polish law (see Legal update, Ongoing International Arbitration Discontinued vis-à-vis an Insolvent Co-Respondent). In this case, the Association did not argue that M lacked subjective arbitrability. Rather, it argued, based on the Serbian Private International Law Act, that two parties that are domiciled in Serbia cannot submit their dispute to an arbitral tribunal with its seat outside Serbia.

By concluding that the invoked provision of the Serbian Private International Law Act does not prevail over Article 177(1) PILA, the Supreme Court confirmed with regard to the objective arbitrability (that is, the subject matter arbitrability) that, under Swiss arbitration law, it is only very rarely possible to rely on foreign provisions to challenge an award for lack of arbitrability of the matter in dispute.

Considering that it is not uncommon for parties domiciled in the same country to choose to agree on an arbitral tribunal with its seat in another country, this decision is of considerable practical importance.

The case serves as a reminder of the Supreme Court's established practice of dismissing a petition to have an award set aside for lack of arbitrability, if the lack of arbitrability has not been raised as early as possible in the arbitral proceedings.