The Legality of the Arbitration Agreements in favour of CAS (Pechstein) Part 2
Published 06 July 2016 By: Despina Mavromati
In this two part article Despina Mavromati, the Head of Research and Mediation at the Court of Arbitration for Sport (CAS), reviews the German Federal Tribunal (Bundesgerichtshof, BGH) decision in the long-awaited Pechstein case which was handed down on the June 7, 2016 (“BGH Ruling”).1
Part one provides a background to the case and reviewed the BHG Ruling focusing on the finality of arbitral awards, the qualification of CAS as a genuine court of arbitration and the scope of the arbitration agreement between the Athlete and the International Skating Union (ISU).
Part two provides a reviews the BHG Ruling's findings in regards to the compatibility of the arbitration agreement with German anti-trust laws by examining, in particular, the athlete’s right to a fair trial; the constitutional rights of the athlete and the federation; the status of the Swiss Federal Tribunal and the issue of human rights in sports arbitration; the compatibility of sports arbitration clauses with European competition law; and finally the conformity of CAS sports arbitration clauses with Swiss Law.
All views expressed in this article are her own personal views.
The compatibility of the arbitration agreement with German anti-trust laws (Art. 19 GWB)
In the third part of the decision, the BGH examined the compatibility of the arbitration agreement between the Athlete and the ISU with the relevant provisions of German anti-trust law (Art. 19 GWB).2 The BGH upheld the Munich Court of Appeals (OLG) ruling that the ISU falls within the scope of application of Art. 19 GWB: ISU has a dominant position in the relevant market, as the organization of sports events constitutes an economic activity and ISU has a monopoly organizing the world championships in speed skating. In order to establish the prohibition of Art. 19 GWB, an abuse of dominant position has to be established: siding with the OLG München ruling, the BGH found that the imposition of an arbitration clause by a sports association is not per se an abuse of a dominant position.3 The BGH took issue with the OLG München’s ruling finding that ISU does not abuse its dominant position, thereby confirming the validity of the arbitration agreement between the parties under Article 134 BGB (Bürgerliches Gesetzbuch, German Civil Code).4
The BGH applied a balance of interest test (under Art. 19 par. 1 and par. 4 BWG) and divided its findings into five categories:
- It concluded that ISU did not abuse its dominant position in the market based on the parties’ shared interests (under (aa));
- that the imposition of the arbitration agreement by the ISU did not contradict the Athlete’s right to access to justice;
- her right to exercise her profession (Art. 12 GG) (under (bb)); and
- her right to a fair trial under Art. 6 ECHR (under (cc)).
- The conformity of ISU with Art. 102 (competition rules applying to undertakings) of the Treaty on the functioning of the European Union (TFEU) (under dd)) and the validity of the arbitration agreement under Swiss law (under ee)).5
The Right To A Fair Trial
More specifically, in its first line of arguments (aa), the BGH juxtaposed the Athlete’s interest in a fair trial by an independent (arbitral) tribunal to ISU’s interest in efficient and international sports arbitration procedures. The BGH concluded that both parties shared the interest in having an efficient dispute resolution mechanism, as this ensures uniform standards and equal treatment of all athletes across the world in doping matters.6 The BGH went on to stress the important advantages and the necessity of having uniform anti-doping rules through the adoption of the WADA Code, concluding that it would not be feasible to completely detach sports arbitration from its links to sports federations and the IOC.7 In this respect, the BGH followed the argumentation adopted by scholars that both athletes and sports federations share the interest in the swift resolution of disputes and that the federations do not impose the arbitration agreements simply in order to abuse their dominant position in the market.8
Balancing Constitutional Rights Of The Athlete And Federation
In its second line of arguments (under bb)), the BGH juxtaposed the constitutional rights of the Athlete to the constitutional rights of the federation, finding that both parties’ rights deserve equal protection.9 As to the constitutional right of access to justice under Art. 2 par. 1 GG, the BGH held that it is possible to agree to have recourse to arbitration to the extent that this is the expression of the free will of the parties to the agreement (“freiwilllig”).10 In a much criticized part of the decision,11 the BGH concluded that the Athlete entered into the arbitration agreement voluntarily.12 It then justified this finding by adopting a wide interpretation of what constitutes a voluntary acceptance of arbitration. The BGH referred to its consistent case-law accepting an “involuntary” waiver of the exercise of fundamental rights (like the waiver of Art. 2 par. 1 GG) in cases of “physical” or “mental” violence against one of the parties; of fraud; or in cases of lack of declaration of intent. In the case of an arbitration agreement signed by both parties, whereby both contractual parties define the terms, none of the parties appears to have accepted to waive its human rights against its free will.13
More specifically, the Athlete signed the arbitration agreement in January 2, 2009, in order to be able to participate in the World Championships. However, in the BGH’s view, this precise instance does not meet the aforementioned conditions of threat, fraud or mental constraint as interpreted by the BGH and The Federal Constitutional Court ("Bundesverfassungsgericht"). Most importantly, the fact that the Athlete did not wish to sign the arbitration agreement does not mean that the athlete was “forced” to sign it, all the more because, within the context of a contractual agreement, both parties to the contract undertake mutual obligations.14
Having confirmed that the arbitration agreement is, in fact, a contract signed by both contractual parties whereby they undertake mutual rights and obligations, the BGH acknowledged ISU’s bargaining power in this contractual relationship. Recalling that ISU has the monopoly of organizing the world ice speed-skating championships, the BGH noted that the signing of the arbitration agreement by the Athlete was in essence defined unilaterally by the ISU (“fremdbestimmt”).15
To ensure the protection of the constitutional rights in case of “Fremdbestimmung”, German law foresees the application of the general provisions of the German Civil Code, along with Art. 19 GWB. In this case, Pechstein’s right to exercise her profession (guaranteed by Art. 12 GG) was de facto restricted by the imposition of the arbitration clause by ISU.16 Nevertheless, the imposition of the arbitration clause by the ISU safeguards the – equally constitutionally guaranteed – right of the autonomy of associations, as laid down in Art. 9 par. 1 GG. Seen from this angle, a sports association aims at promoting a given sport through the establishment of criteria and conditions for the participation in the organized sports business. It is therefore essential to have uniform and coherent regulations governing the organization of that sport. Moreover, according to the BGH, it is widely accepted that sports arbitration is necessary, in particular in the field of doping, in order to ensure the uniform application of the anti-doping rules and fair competition among athletes. The BGH added to the advantages of sports arbitration the criteria of speed, efficiency and recognition and enforcement under the NYC58.17
Taking issue with the position of the OLG München Ruling, according to which the UNESCO Convention against Doping18 does not clearly impose a duty to include an arbitration clause in favour of CAS in sports-related contracts,19 the BGH found such an obligation to derive directly from the provisions of the World Anti-Doping Code ("WADC"), and more specifically Art. 13.2.1 & 23.2.2 thereof. Through the ratification of the UNESCO Convention against Doping by Germany, the WADC founding principles binding international law for Germany.20
The Swiss Federal Tribunal
By concluding that ISU did not abuse its dominant position in the market within the meaning of Art. 19 GWB, the BGH took into account a number of factors, such as the advantages of sports arbitration for both athletes and sports federations.21 The BGH further referred to the protection of the constitutional rights of athletes (like the right to exercise their profession and their right of access to justice), and the need to ensure a certain level of independence and impartiality of CAS and its arbitrators. The BGH made it clear that the wide variety of arbitrators who are on the CAS list gives sufficient margin of manoeuvre to athletes, who can appoint an independent and impartial arbitrator of their choice.22 A further step towards the protection of athletes lies in the CAS Rules, which offer the possibility to challenge an arbitrator when there are “circumstances [that ] give rise to legitimate doubts over her/his independence or over her/his impartiality”.23 Finally, the BGH reiterated that athletes still have the possibility to file a motion to set aside the CAS award before the Swiss Federal Tribunal ("SFT"), based a limited number of grounds.24 In this regard, the BGH referred to the Cañas judgment of the SFT, confirming the invalidity of the waiver to appeal to the SFT in sports-related disputes.25
Some scholars have criticized the utility and even the legality of the SFT review, suggesting that the Swiss judicial system would somehow “protect” its arbitral institutions at all costs:26 it should be noted that, in principle, the control made by the SFT (and by the vast majority of supreme courts who have ratified the New York Convention 1958 ("NYC58") is a legal control which aims at safeguarding the lawfulness of the arbitral proceedings and the basic rights of the parties to an arbitration procedure that took place in Switzerland. Evidently, the control is limited to the specific grounds exhaustively enumerated in Art. 190 para. 2 Swiss Private International Law Act and does not extend to a re-hearing of the case de novo (anew) or to all general allegations as to the lack of independence of the arbitral institution. Otherwise the SFT would have become the third instance hearing of sports disputes, and this would contradict the very spirit of arbitration, by extending substantially the duration of the case and increasing the costs of the proceedings. The SFT has indeed heard numerous motions to set aside CAS awards so far and has vacated some of them, based on a variety of grounds.27
Having said this, there are minimum standards of procedural nature that arbitral institutions must comply with and these were clearly found to be met, not only by the SFT but also by the BGH, as it was made evident by the recent BGH ruling. Indeed, the BGH concluded that there were sufficient procedural guarantees in the CAS Statutes and Code and the SFT review system and that athletes should not have any additional right to request a hearing before a German state tribunal. On the contrary, and this is an important point of the BGH ruling, the Court stressed the importance of recognizing and enforcing foreign arbitral awards under the NYC58 and under the conditions of Article V thereof (that were found, in this case, to be met).28
Finally, the BGH did not miss the opportunity to reiterate the traditionally favourable view of arbitration proceedings under German law29 but also the adoption of a federal law to fight doping in sport (Gesetz zur Bekämpfung von Doping im Sport), which equally foresees recourse to arbitration for doping-related cases.
Arbitration and Human Rights
In its third line of arguments in order to substantiate, through the balance of interests test, its position that ISU did not abuse its dominant position,30 the BGH examined the conformity of the arbitration agreement with Art. 6 of the ECHR (under cc)). Said provision guarantees the right to a fair trial. The BGH reiterated its previous findings on the voluntary participation of the Athlete to the arbitration agreement, developed in par. 53 and 54 of the BGH Ruling and discussed earlier. In addition, the BGH referred to the jurisprudence of the ECHR in order to substantiate its findings.31 In this respect, it must be noted that the Athlete had also filed in 2010 a complaint with the European Court of Human Rights ("ECHR"), which is currently pending before said Court,32 but the ECHR is not bound by the decisions and the findings of national courts.33
European Competition Law
As a fourth (under dd)) criterion in order to substantiate its finding that ISU did not abuse its dominant position, the BGH examined – and subsequently excluded – the violation of Art. 102 TFEU, which is a provision almost identical to Art. 19 GWB (the national equivalent to Art. 102 TFEU) and finds parallel application in Germany.34 Like under Art. 19 GWB, Art. 102 TFEU only prohibits the abuse of a dominant position.35 Abuse of a dominant position may be either exploitative (directly harming consumers) or exclusionary (that could exclude the market to competitors). It should be noted that the OLG München decision (which only examined the compatibility of the arbitration clause with Art. 19 GWB and not with Art. 102 TFEU) was criticized in its considerations on competition law.36 The OLG decision had failed to scrutinize whether the anti-doping rules could be justified on the basis of their legitimate objective, without taking into account the actual effect of the rules.
Conformity With Swiss Law
Finally, the BGH proceeded to an examination of the conformity of the arbitration agreement with Swiss law (ee).37 Following the tenets of German civil law, the BGH applied Swiss law as the law of the country where arbitration proceedings have to take place in case of dispute pursuant to the arbitration agreement.38 Distancing itself from the OLG München ruling once again, the BGH determined that the arbitration agreement was valid based on Swiss law, irrespective of the fact that the Athlete was obliged to sign the arbitration agreement in order to be able to participate in the competitions. The BGH applied Swiss law as it would have been applied by Swiss Courts. Thus, it referred to the SFT jurisprudence and to the Cañas judgment, according to which non-voluntary arbitration agreements are valid to the extent that a right to appeal before the SFT is guaranteed. Such right cannot be lawfully waived for sports-related disputes and this comes as a counter-balance to the favourable view of sports arbitration by the SFT and as a further guarantee of legality for athletes.39
Some concluding remarks
The BGH clearly distinguished between labour law disputes and sports-related (doping-specific) disputes, indirectly recognizing the peculiarities of sports-related disputes among athletes and federations. This is an important finding, as the limitations existing in labour law arbitration cannot find analogous application in the sports sector. The BGH justified this by the common – or rather non-conflicting – interests of both athletes and sports federations in the swift resolution of disputes and in the fight against doping.
The BGH further employed the “balance of interests” test in order to examine whether the ISU abused its dominant position in the relevant market. In addition, the BGH seemed to adopt a much narrower control as the foreign court in the enforcement mechanism of arbitral awards.40 The BGH appeared to weigh carefully the actual effects on competition since a possible confirmation of the OLG München ruling could have had a long-term adverse impact on other, non-State arbitration mechanisms.41
The BGH found that the fact that the athlete did not wish to sign what constitutes a “contractual agreement” does not meet the high legal standard of a “forced” waiver of the party’s constitutional rights as established in the jurisprudence of the BGH. However, the BGH acknowledged that the signature of the arbitration agreement was “fremdbestimmt” (defined by a party having monopoly in the organization of world championships) and therefore proceeded to balancing the relevant interests according to the general provisions of civil law and the basic constitutional rights of the Athlete.
Moreover, while the OLG München found that there was no rational justification for the structural imbalance in favour of the sports associations nor were there shared interests between athletes and sports associations,42 the BGH concluded exactly the opposite. Despite the peculiarities of the CAS arbitrators’ appointment process, no structural imbalance can be identified that puts into question the independence and impartiality of the institution.
Overall, the BGH rendered a landmark decision in the Pechstein case, confirming the favourable view of German state courts vis-à-vis arbitration proceedings in general and the sports-related arbitration system in particular. The decision also constitutes a confirmation that CAS, even with its imperfections, can be a reliable alternative dispute resolution mechanism as the last instance for doping-related disputes. Crucially, the BGH found that the OLG München had gone too far in its control of the arbitration agreement and most particularly the control of “independence” and “neutrality” according to the German Code on Civil Procedure and the jurisprudence of the BGH for the recognition and enforcement of arbitral awards under the NYC58, thereby pre-empting any future light-hearted attacks to the existing sports dispute resolution system but also to arbitration proceedings, more generally.
Indeed, as highlighted above, one of the milestones of international arbitration is the finality of the arbitral awards and their recognition and enforcement by the foreign courts that have ratified the NYC 58, without entering into the merits of the case. As some scholars said after the OLG München Ruling, the Pechstein case could have had important systemic repercussions for arbitration in general, as it could jeopardise the legal certainty that arbitral awards made in Switzerland offer, suggesting that arbitral awards can be reviewed by foreign courts without limits.43 The BGH seems to be mindful of these systemic ramifications. All in all, it is submitted that avoiding to open the Pandora’s box of endless challenges against arbitration awards is, on balance, a correct decision.
At the same time, the BGH ruling must be placed in its context, i.e. it concerns the recognition of validity of an arbitration clause that resulted in a foreign arbitral award (rendered by an arbitral institution) in a sports-related, anti-doping dispute between an athlete and a sports federation. Also, the control made by the BGH on the institutional structure of CAS was based on a situation that existed back in 2009 (the 2004 version of the CAS Code was applicable back then).44 The role of the BGH was to control all elements of the case under German civil and competition law (but also under Swiss law) and proceed to a judgment on the specific case at hand. Strictly speaking, the decision could only have a precedential value to the extent that the 2004 version of the CAS code would apply.
Against this background, and independently of any external “political” pressure or an “unfavourable” BGH decision, CAS has been working, already since 2012, on a series of important institutional reforms, including, amongst other things, the most recent effort to increase the number of (former and present) elite athletes as CAS arbitrators.45 Since 2012, the CAS Code has completely abolished the quotas for IOC and IF members who may appoint CAS arbitrators for the CAS roster of arbitrators (Art. S14, which was scrutinized by the OLG München Ruling); the CAS list of arbitrators currently comprises approximately 350 arbitrators from practically every corner of the world;46 the constitution of ICAS has also been modified with the addition of many ICAS members who have no links to the IFs or the IOC (stemming mostly from the judiciary).47 The ICAS has further created a legal aid fund (granting legal aid to physical persons (i.e. athletes) who lack the financial means to bring their case to the CAS.48
Certainly, there will always be interesting propositions from academics and arbitration practitioners regarding institutional modifications which are necessary to boost the trust of athletes in the CAS system. Some issues may even take a philosophical dimension, and opinions are far from unanimous. Take for instance the recurring issue of opening the list of CAS arbitrators. Here again, it can be argued that arbitrators who do not figure on the list would be prone to be against such list and to suggest its abolition. It should be noted that most of the policies and the rules adopted by the ICAS (on the constitution of the panel, the conduct of the proceedings and the issuance of the award) were inspired by other successful arbitration rules in institutional arbitration and may have advantages and disadvantages, depending on the perspective.49
Finally, a question that legitimately arises is whether the BGH would reach a similar decision in non-doping cases. From the argumentation in the first part of the decision (according to which the CAS is a genuine court of arbitration under the applicable German laws but also the arguments as to the advantages of sports arbitration and the autonomy of associations), one can reasonably speculate that the BGH ruling would not be much different.
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- Tags: Anti-Trust | Bundesgerichtshof | Bürgerliches Gesetzbuch | Competition Law | Court of Arbitration for Sport (CAS) | Dispute Resolution | Europe | European Court of Human Rights | German Anti-Trust Law | German Civil Code | German Code on Civil Procedure | Germany | Governance | International Council of Arbitration for Sport (ICAS) | International Skating Union | New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards | Olympic | Regulation | Swiss Federal Tribunal | Swiss Private Law Act (PILA) | Switzerland | Treaty on the Functioning of the European Union (TFEU) | Winter Sports | World Anti-Doping Agency (WADA) | World Anti-Doping Code (WADC)
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Dr. Despina Mavromati, LL.M., is an attorney (Bar of Thessaloniki / Ordre des Avocats Vaudois) practicing in the field of international sports law and arbitration. She is the founder of a Lausanne-based practice (SportLegis Lausanne) and represents athletes, clubs, and sports federations in all aspects of arbitration, trials, and drafting policies.