Article II(3) New York Convention (NYC) requires that the court of a contracting state, when seised of an action in a matter in respect of which the parties have entered into an arbitration agreement, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.

The dispute arises out of an "Asset Management Facilitation Agreement" (AMFA) entered into between Y Investments N.V., an investment firm domiciled in the (now dissolved) Netherlands Antilles, and X Holding AG, a Swiss company. Claiming that Y had infringed its duties under the AMFA, X first obtained a freezing order over Y's assets in Curaçao. X then introduced a request for arbitration with the International Centre for Dispute Resolution (ICDR) in New York (the international arm of the American Arbitration Association (AAA)) based on Article 22 AMFA, which was worded as follows:

The ICDR rejected the request for arbitration, stating that the ICC Rules, whose application was provided for in Article 22 AMFA, were incompatible with the Rules of the AAA. X then filed a new request for arbitration with the United States District Court for the Southern District of New York. This request was also rejected, on the grounds that the AMFA did not contain a valid arbitration clause. X appealed this decision to the United States Court of Appeals for the Second Circuit.

While the above-mentioned proceedings were pending, Y filed a claim against X before the Cantonal Court of Zug, Switzerland. It requested, among other things, that the AMFA be declared invalid. X disputed the jurisdiction of the Cantonal Court, claiming the existence of a valid arbitration clause, and requested a stay of proceedings until the appeal pending in the United States had been decided.

Both the Cantonal Court and the Appeals Court of Zug rejected the challenge to their jurisdiction and the request for a stay of proceedings.

The United States Court of Appeals for the Second Circuit rendered its judgment shortly before the decision of the Cantonal Court of Zug. It held that Article 22 AMFA was ambiguous, quashed the decision of the United States District Court for the Southern District of New York and returned the case to the latter for reconsideration. The petitioner introduced this judgment as evidence before the Appeals Court of Zug. However, the latter held that the judgment had not been submitted in a timely fashion (that is, it should have already been introduced before the Cantonal Court) and was therefore not to be taken into consideration.

The Supreme Court dismissed the petition to set aside the judgment of the Appeals Court of Zug.

The Supreme Court first confirmed the applicability of the NYC to this. It reiterated its case law according to which Swiss courts are entitled to examine the validity of an arbitration agreement with full power of review where, according to said agreement, the seat of arbitration is abroad. Where the arbitration agreement provides for a seat of arbitration in Switzerland, the Swiss courts may only carry out a prima facie examination of its validity.

The parties had not included a choice of law clause in the AMFA. Consequently, the validity of the arbitration agreement should have been examined according to the law of the state in which the award was to be rendered (according to the agreement), that is, in the United States. However, as neither party invoked US law, the courts of Zug applied Swiss law instead. The parties did not challenge this application during the proceedings before the Supreme Court. The latter therefore held that it would also apply Swiss law.

The Supreme Court then restated and confirmed the principles of interpretation of arbitration agreements. It indicated that the choice of the parties to submit their disputes to arbitration proceedings may have far-reaching consequences, especially as the legal remedies available to the parties are seriously limited by the waiver of their right to bring their claims before state courts. The Supreme Court stressed that an intent by the parties to waive this right should not be assumed lightly and that, in this respect, arbitration agreements are to be interpreted restrictively. However, where such intent has been established any remaining ambiguities within the agreement will generally be subject to an arbitration-friendly interpretation.

In this case, the Supreme Court held that the wording of Article 22 AMFA did not indicate a clear will of the parties to submit disputes arising out of the AMFA to arbitration, to the exclusion of the jurisdiction of state courts. The parties agreed "[…] to have the dispute submitted to binding arbitration through the American Arbitration Association or to any other US court. […] The arbitration shall be conducted based upon the Rules and Regulations of the International Chamber of Commerce (ICC 500)". The Supreme Court found that the term "or to any other US court" could not clearly be understood to mean that such other US court would be bound to carry out arbitration proceedings and to thereby refer to another US arbitral tribunal. The term could also be understood to refer to a state court. The fact that Article 22 AMFA came under the heading "Arbitration" was not sufficient to resolve this uncertainty. The only way of unequivocally indicating that "any other US court" referred to arbitral tribunals would have been by using a term such as "US arbitral court".

With regard to the Appeals Court of Zug's refusal to consider the judgment of the United States Court of Appeals for the Second Circuit, the Supreme Court ruled that the petitioner had not raised sufficient objections against the findings of the Court and the latter's decision could therefore not be reversed.

In this decision, the Supreme Court took a rather hard-line approach with regard to the degree of clarity that an arbitration clause must meet in order to be valid. This is however in line with its case law on the subject, namely that if the parties' intent to waive their right to submit their claims to state courts is not clearly apparent from the wording of the clause, the latter is to be interpreted restrictively. It should therefore be borne in mind, when drafting arbitration agreements, that the will of the parties to exclude the jurisdiction of state courts by submitting their dispute to arbitration must be completely unequivocal.

The decision touches on a further issue which is of current interest, namely the scope of the Swiss courts' power to review the validity of an arbitration agreement. A parliamentary initiative is currently under discussion to introduce a second paragraph to Article 7 of the Private International Law Act (PILA), which would read: "[…] Swiss courts shall, irrespective of the seat of the arbitral tribunal, refrain from rendering a decision until the arbitral tribunal has ruled on its own jurisdiction, unless a prima facie examination shows that there is no arbitration agreement between the parties". The aim of this new provision is to guarantee that the determination on the validity or invalidity of an arbitration agreement – and thereby the existence and scope of the arbitral tribunal's jurisdiction – remains the prerogative of the arbitral tribunals themselves in all cases, that is, not only if the seat of arbitration is in Switzerland, and to avoid the Swiss courts making rulings which may come into conflict with later arbitral awards, as in this case.

4A_279/2010 (25.10.2010).