The on-going football dispute over training compensation and player loans II: Dundee Utd -v- Club Athletico Velez

Published 14 January 2015 By: Lloyd Thomas

Football Training

In an article published last year1, I considered the decision of the Court of Arbitration for Sport (“CAS”) in Panionios GSS FC v Paraná Clube2 (“Panionos”) concerning training compensation and player loans.

In that decision, given on 9 April 2013, the CAS appeared to suggest that, where one training club loans a player to another training club, the first training club loses its right to claim training compensation for any training and education it has provided before the loan takes place. CAS reached this conclusion through its interpretation of Annexe 4, Article 3.1 of the FIFA Regulations on the Status and Transfer of Players (the “Regulations”) and by relying on the case of Feyenoord Rotterdam v Club de Regatas do Flamengo.3

In the above article, I argued that this decision should be confined to its facts and not followed. I reached this conclusion because the Regulations do not provide that by loaning a player, a club loses its entitlement to training compensation. Further, the Feyenoord case did not concern the application of training compensation to a loan scenario, but rather to a scenario of sequential permanent transfers.

Moreover, my conclusion was based on the jurisprudence of the FIFA Dispute Resolution Chamber (the “DRC”), which states that a training club is entitled to training compensation for the entire period in which it has provided training and education to a player (save for any period the player has spent on loan to another club). Of course, the CAS exercises a supervisory jurisdiction over the DRC, but if it were correct that the loaning of a player prevented a training club from claiming training compensation for the period prior to that loan, training clubs would be discouraged from loaning young players to other clubs as they would lose out financially. In the author’s opinion, this cannot be the intention behind the Regulations.

Latterly, an award made by the CAS on 20 November 2013 in the case of Dundee United FC v Club Atletico Velez Sarsfield4 (“Dundee”) that is unpublished as yet but that has been bought to my attention appears to provide an alternative view on the interaction between the systems of loans and training compensation, reaching a conclusion contrary to the Panel in Panionios.5 This author suggests that the decision of the Panel in Dundee represents a better interpretation of the Regulations and one that recognises the interconnected importance of the systems of loans and training compensation to the development and education of young footballers.

 

Facts of the Dundee case

This case concerned Mr Damian Leandro Casalinuovo (the “Player”), a player of joint Argentinian and Italian nationality. The Player was registered from 11 March 2005 with the Argentinian football club Vélez Sarsfield (“Vélez”) as an amateur player and, from 25 June 2008, as a professional.

On 13 August 2008, Vélez loaned the Player to Atlético Platense (“Platense”). The Player returned to Vélez on 7 April 2009 and remained there until 30 June 2009 when he and Vélez mutually agreed to the termination of his employment contract. The parties entered into a termination agreement, which included a term stating that: “[b]oth parties declare that they have nothing to claim mutually by any concept or matter inherent to the employment contract that would bind both, and by this act is no longer applicable”.

On 3 July 2009, the Player’s International Transfer Certificate (“ITC”) was issued by the Argentine Football Association (the “AFA”) to allow registration of the Player with the Scottish side, Dundee United. Subsequently, on 20 July 2009, the Player was registered with Dundee as a professional player.

On 7 September 2009, Vélez sent a letter to Dundee requesting it pay training compensation in the total amount of EUR 400,000 for the Player. Dundee did not agree to this request.

 

The FIFA Dispute Resolution Chamber (DRC) Proceedings

On 14 October 2009, Vélez filed a claim with FIFA in which it claimed entitlement to the requested payment of EUR 400,000 plus default interest of 5% per annum starting from 21 August 2009.

On 18 December 2012, the DRC handed down its decision, determining that Dundee had to pay training compensation to Vélez for the period between 11 March 2005 and 20 July 2009.

On 27 February 2013, upon the request of both clubs, the DRC communicated the grounds of its decision. In respect of the disputed training compensation, it stated, among other things, as follows:

In respect of Dundee United’s argument that due to the loan of the Player to Atlético Platense, the chain for calculating training compensation was broken and that it would only be payable for the period of registration of the Player with Vélez Sarsfield between 7 April 2009 and 2 July 2009, the FIFA DRC “(…) came to the firm conclusion that for the purposes of the provisions of the [FIFA Regulations] governing training compensation, the loan of a young player from his club of origin to other clubs does not interrupt the ongoing training period of the player and the obligation to pay training compensation arises only in case a player is transferred on a definitive basis, with the effect that, at that moment, the club which transferred the player on a loan basis to another club is entitled to training compensation for the entire period of time during which it effectively trained the player, however, excluding the period of time of the loan.” 6

Consequently, and in light of the above-mentioned considerations, the Chamber decided to partially accept [Vélez’s] claim and decided that [Dundee United] is liable to pay training compensation to [Vélez] in the amount of EUR 230,000.” 7

 

The Arbitral Proceedings before the CAS

On 18 March 2013, Dundee filed a Statement of Appeal with the CAS, arguing that the decision of the DRC should be quashed and requesting that the CAS issue a new decision rejecting Vélez’s claims for payment of training compensation.

Dundee raised a number of arguments to support its position: that the player passport submitted by Vélez was false; that no payment of training compensation should be made in respect of any period where no training and development was provided; and that no training compensation should be due to Vélez at all because the Player is an Italian citizen and as such he is entitled to all rights and protections of EU law (in this regard Dundee averred that the Player’s freedom of movement rights would be inhibited by any requirement to pay training compensation to a former club and that such a requirement would contravene EU competition law). For the purposes of this article, we will consider the arguments relating to the period in which training compensation should be paid. The other arguments raised by Dundee are outside the scope of this article.

After the parties had made their written submissions, and attended a hearing, the CAS issued a decision dated 20 November 2013, in which it partially confirmed the decision of the DRC and ordered Dundee to make payment to Vélez in the sum of EUR 195,000 plus 5% interest per annum accruing from 21 August 2009. The sum was calculated to take into account the 10 months the Player spent at Vélez in 2005 (EUR 50,000); 12 months in 2006 (EUR 60,000); 12 months in 2007 (EUR 60,000); and 5 months in 2008 (EUR 25,000). CAS was unclear as to how the DRC had reached its calculation of the relevant amount.

Importantly for our purposes, CAS confirmed that, as regards the determination of entitlement to training compensation, it agreed with the DRC’s decision that the loan to Platense did not prevent Vélez claiming training compensation for the period before the Player was loaned to Platense. CAS stated that a club is, in theory, entitled to training compensation for the entire period in which they have effectively trained the player in question.

In support of its decision, CAS approved the following quote from the DRC’s decision:

… the Chamber, stressed that one of the aims of the last sentence of art. 10 par. 1 of the Regulations is to ensure that training clubs which register a player on a loan basis also benefit from the solidarity mechanism and training compensation, provided that the relevant prerequisites in the pertinent provisions of the [Regulations] are fulfilled. This approach is also in line with the Chamber’s well-established jurisprudence that all clubs which have in actual fact contributed to the training and education of a player as from the age of 12 until the age of 21 are, in principle, entitled to training compensation for the timeframe that the player was effectively trained by them.

In this respect, the Chamber deemed it at this point essential to emphasise that, as to the liability to pay training compensation, the analogy established in art. 10 par. 1 of the [Regulations] could not be extended to the case in which a player is loaned to a club and thus is not being definitely transferred to the latter club. In other words, the transfer of a player from the club of origin to the club that accepts the player on loan, as well as the return of the player from the club that accepted him on loan to the club or origin, do not constitute a “subsequent transfer” in the sense of art. 3 par. 1 sent. 3 of Annex 4 of the [Regulations]. The Chamber was eager to point out that it could not have been the intention of the legislator of the relevant regulatory provision (i.e. art. 10 par. 1 of the [Regulations]) to trigger the consequences of art. 3 par. 1 of Annex 4 of the [Regulations] on the occasion of a transfer on a loan basis and, thus potentially deprive the loan of its essential flexibility and, in connection with the training and education of player, its purpose of providing young players with the opportunity to gain practical experience in official matches for another club in order to develop in a positive way…

… Hence, the Chamber came to the firm conclusion that for the purposes of the [Regulations] governing training compensation, the loan of a young player from his club of origin to other clubs does not interrupt the ongoing training period of the player and the obligation to pay training compensation arises only in case a player is transferred on a definitive basis, with the effect that, at that moment, the club which transferred the player on a loan basis to another club is entitled to training compensation for the entire period of time during which it effectively trained the player, however, excluding the period of time of the loan.” 8

It was therefore CAS’s view that a club is entitled to training compensation for the entire period in which it provided effective training and education to the player, save for any time spent by that player on loan at another club (i.e. when the parent club was not providing the player with training and education). It considered that the loan of a player does not interrupt the chain of transfers and a training club will in effect be entitled to the payment of training compensation for the periods both before and after the loan of a player.

 

COMMENT

It is submitted that CAS’s decision in Dundee is preferable to the conclusion on the interpretation of the Regulations reached by the Panel in Panionios.9

First, and contrary to the position adopted in Panionios,10 the Panel’s decision follows DRC jurisprudence, which is authority for the proposition that a loan does not interrupt a training club’s entitlement to training compensation. The decisions of the FIFA DRC in L v P,11 P v G,12 R v L FC13 and C v P14 are all authorities for this position. By way of example, in L v P, the DRC stated that:

…the obligation to pay training compensation solely arises in case a player is definitively transferred to another club while still being contractually bound to his club of origin (yet, with the effects of the relevant contract being temporarily suspended), such as a loan. In other words, the club which transferred the player on a loan basis to another club is entitled to training compensation from the club that ultimately engages the player on a definitive basis for the entire period of time during which it effectively trained the player, however, excluding the period of time of the loan(s).” 15

Second, CAS’s decision shows a nuanced appreciation of the interaction between the systems of training compensation and loans. It expressly acknowledges that the intention behind the Regulations is to encourage the recruitment and training of young players. The practical conclusion to draw from its decision is that the systems of training compensation and loans should be complementary, not mutually exclusive. In this respect, the CAS states that:

The Panel also finds that this conclusion is consistent with the actual rationale of the training compensation system, which is to encourage the recruitment and training of young players. To hold that the loan of a player would interrupt the training period could, in the opinion of the Panel, deter training clubs from loaning players. It occurs frequently in the world of football that young players are not proficient enough for the first team, or to give these players a chance to train and play in order to try and reach the required level to play for the first team, a solution regularly used is to loan the player concerned to another team in order for the player to gain experience with another club and to prepare him or give him the chance to reach the requisite professional level for playing in the first team of the training club. However, if the making of such loan would entail the consequence that the training club would thereby waive its entitlement to training compensation, the training club might decide not to loan the player to another club merely in order to secure its entitlement to training compensation. In such a situation, the player would be deprived from the very training considered to be the most suitable for him. The Panel would regard such a situation as undesirable, and endorses the view of the FIFA DRC insofar it argued that any other interpretation of the FIFA Regulations would potentially deprive young players of the opportunity to gain practical experience in official matches for another club in order to develop his footballing skills in a positive way.”

As suggested in my earlier article,16 if it were correct (as suggested in Panionios17) that a loan precluded a training club from claiming entitlement to training compensation for the period before a player was loaned out, training clubs would be dissuaded from loaning their young players. To do so would mean that they would lose out on significant sums, particularly in circumstances where the club had trained the player from the age of 12 and is on the brink of first team football. Equally, this would prevent players having the opportunity to develop their careers, a fundamental purpose of the loan system.

With respect to the learned Panel that reached the decision in Panionios,18 the author’s view is that the decision in Dundee should be preferred as an explanation of the mechanics of the Regulations concerning the interaction between training compensation and the loan system. Both systems must work together to promote the development of young players. The financial considerations that result from the application of the training compensation regime should not therefore inhibit a club’s desire to loan young players in order to enhance their development.

Generally speaking, arbitral bodies tend not to ascribe precedential value to their awards. The CAS however takes a more flexible approach to precedent. Its tribunals typically follow past CAS awards but are nonetheless permitted to depart from such awards if the interests of justice require it. The existence of the Panionios decision would not therefore prevent the tribunal in Dundee from deciding as it did, provided it considered that the interests of justice required it to so decide.

 

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Author

Lloyd Thomas

Lloyd Thomas

Lloyd Thomas is an associate in Squire Patton Boggs’ Litigation department and is part of the Sports Law team based in its London office.

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