Article 190(2)(a) of the Swiss Private International Law Act (PILA) provides that an award can be challenged if the arbitral tribunal was improperly constituted.

In 1994, the National Iranian Oil Company (NIOC) started ad hoc arbitration proceedings against the state of Israel. Its claims, which amounted to approximately US$800 million, arose in connection with an agreement for the construction and maintenance of an oil pipeline from the Gulf of Eilat, which the parties had entered into in 1968 (under the regime of the Shah of Iran).

The arbitration clause provided that each party was to appoint an arbitrator and that:

NIOC had nominated its arbitrator when it initiated the arbitration. Israel, however, refused to nominate an arbitrator. In 1996 and again in 1999, NIOC applied to the lower French courts, requesting that they appoint an arbitrator for Israel. The lower courts rejected the application, but NIOC successfully appealed their decision. The decision on appeal was then challenged by Israel. The appeals and challenge proceedings lasted until 2005, when the French Cour de Cassation rendered a final judgment, confirming the jurisdiction of the French courts to appoint an arbitrator for Israel. The Cour de Cassation considered that the jurisdiction of the French courts was justified, as NIOC would be denied access to justice (déni de justice) if they did not intervene.

Israel's arbitrator was appointed while the case was still pending before the Cour de Cassation. The arbitration proceedings started in 2002 and the arbitrators determined that the seat of arbitration would be Geneva (a point on which the parties were in agreement). Israel, however, maintained its objection against the composition of the arbitral tribunal and requested that this issue be decided at the outset of the proceedings.

The arbitral tribunal rendered a partial award on jurisdiction in February 2012. It rejected the objections raised by Israel and considered that it had authority to hear the case. It held that the primary duty of any party to an arbitration clause is to nominate an arbitrator. In cases where one party refuses to fulfil that obligation, the other party is entitled to request the assistance of the state courts. The arbitral tribunal pointed out that the parties had had ample opportunity to develop their arguments before the French courts and that the decision of the Cour de Cassation could not legitimately be called into question.

Israel petitioned the Swiss Supreme Court to have the partial award set aside. Israel argued that the nomination of its arbitrator was not made in accordance with the arbitration clause and that this was an issue that had not been examined by the French courts. It also challenged the finding of the French Cour de Cassation that the right to request assistance of a "juge d'appui" in arbitration could (indirectly) fall within the scope of Article 6(1) of the European Convention on Human Rights. It further argued that an award rendered by an arbitral tribunal, which had been constituted without taking into account the will of the parties, would be unenforceable.

The Supreme Court rejected the petition.

The court pointed out that the case in question presented two particularities:

The Supreme Court held, referring to the second particularity, that it was questionable whether Israel now still had an interest in challenging the appointment of its arbitrator by the French courts. Indeed, even if the partial award were to be lifted and Israel's arbitrator removed, NIOC could simply request that an appointment be made by the courts at the seat of arbitration, Geneva, pursuant to Article 179(2) and (3) PILA (which specifically provides for the jurisdiction of the juge d'appui in this regard). Israel would then find itself in the same position as before.

The Supreme Court found that the first particularity mentioned above meant that it was barred from reviewing the decisions of the French courts regarding their own jurisdiction or the reasoning of those decisions. The court accepted that, when a Swiss juge d'appui appoints an arbitrator, that decision is not considered res judicata, and the arbitral tribunal is therefore free to decide on its own jurisdiction and to review its constitution. However, the Supreme Court considered that the case at hand presented several significant differences. First, the appointment proceedings occurred in a state other than the seat of the arbitration. Second, despite Israel's arguments to the contrary, the decisions of the French courts could not be considered "administrative" decisions akin to the appointment decisions made by the ICC Court. In fact, the jurisdiction of the French courts to make an appointment had been examined in depth by the highest court of France, after the parties had been afforded the opportunity to present their arguments in full. Therefore, Israel was barred from indirectly challenging those decisions, especially as it had recognised before the Supreme Court that the decision of the Cour de Cassation was final and binding.

According to the Supreme Court, in the end, the only question that needed to be decided was whether an appointment by a juge d'appui (from any state) was incompatible with the process agreed upon by the parties and reflected in the arbitration clause. That question, it seemed, had not been addressed by the French courts. Israel argued that the parties had consciously agreed on a clause that did not provide for a solution where the respondent refused to appoint an arbitrator. The parties, Israel alleged, had above all wished to exclude any intervention by state courts other than the courts of Israel or Iran. The Supreme Court held that there was nothing in the wording of the clause that would support such an interpretation. It was difficult, if not impossible, to imagine that the parties would consciously accept that one of them could effectively prevent arbitration proceedings by refusing to nominate an arbitrator.

The Supreme Court also considered that Israel's argument that an award rendered by an "irregularly constituted" arbitral tribunal would be unenforceable was irrelevant. It referred to its long-standing case law (developed in relation to the issue of arbitrability), according to which the potential unenforceability of an award abroad is a risk that the parties must assess and bear. According to the Swiss lex arbitri, an arbitral tribunal seated in Switzerland is not required to take into account issues of enforceability abroad.

The Supreme Court was faced with a highly unusual set of circumstances. Indeed, cases in which the juge d'appui is located in a state other than the seat are quite rare. Determining the nature and effect of the decisions of the French courts was therefore tricky. The Supreme Court considered itself bound by those decisions, at least in relation to the issue of the French courts' jurisdiction. In the circumstances, the finding is reasonable. As the Supreme Court pointed out, the parties had been given a full hearing and the decision of the French courts to accept jurisdiction was justified given that, absent intervention on their part, NIOC risked being denied access to justice.

It is also worth noting that the decision of the Cour de Cassation was incorporated in the revised French decree on arbitration, enacted in 2011. Article 1505 of the French Code of Civil Procedure now expressly provides that the President of the Tribunal de Grande Instance of Paris has jurisdiction as juge d'appui when one of the parties faces the risk of denial of access to justice.

Whether or not the Supreme Court's decision can serve as a precedent for future cases remains to be seen. It is not entirely clear whether the fact that the parties had had a full and fair opportunity to present their case before the French courts was the main reason for which the Supreme Court considered that it could not review the decisions of those courts, or whether its reasoning had a more general scope. It is therefore not certain whether, if a similar case were ever to present itself in the future, the Supreme Court would consider itself bound by the decision of the foreign courts. It is conceivable that it might, at the very least, be required to examine whether the appointment of an arbitrator by a foreign juge d'appui raises concerns with regard to Swiss public policy.

In any event, this decision marks the end of a drawn-out battle by NIOC to bring its quite significant claims to arbitration. The case may now proceed on the merits, nearly 20 years after it was initiated.