A guide to the Higher Regional Court’s decision in the Pechstein case

Published 29 January 2015 | Authored by: Christian Keidel

On 15 January 2014, the Higher Regional Court in Munich (Oberlandesgericht München) issued a partial award in the long running proceedings of Claudia Pechstein vs. the International Skating Union that calls into question the current system of dispute resolution in sports, and the jurisdiction of theCourt of Arbitration for Sport (CAS) in Lausanne, Switzerland.1

In an interview for LawInSport, Christian Keidel, counsel for the International Skating Union, explained to us the backgound to the case, the reasons behind the Higher Regional Court’s recent decison, and the likely next steps.

Background

In December 2012, Ms. Pechstein filed a claim at the Regional Court in Munich for damages in the amount of EUR 4.4 million against the International Skating Union (ISU)2 based on the allegation that a two-year doping ban handed down against her in 2009 had been invalid. She filed the claim before the state court even though (i) she had signed in her athletes’ admission form an agreement that any dispute with the ISU be submitted exclusively to the CAS and settled definitively in accordance with the Code of sports-related arbitration (the “Arbitration Agreement”); and, (ii) the CAS had already heard and rejected her appeal against the doping ban in 2009 (see CAS 2009/A/1912),3 a decision that was later confirmed by the Swiss Federal Tribunal.4  

Decision of the Court of first instance

The Court of first instance deemed that the Arbitration Agreement in the athletes’ admission form was “forced” on Ms. Pechstein, as she had no choice but to to sign the form in order to be able to to participate in ISU competitions. The Court held that such “forced“ arbitration agreements in favor of CAS are void, finding that CAS arbitration does not meet all requirements of Article 6 of the European Convention on Human Rights5 (right to a fair trial), in particular as regards the requirement for the independence of the tribunal. The Court based this finding in particular on the following two points:

  1. There is a closed list of arbitrators, of which only 1/5 are appointed taking into account the athlete's interests, without the athletes having a formal right to propose arbitrators for the list. This, according to the Court, unlawfully institutionalizes the predominance of sports federations.
  2. The chairman of three-arbitrator panel in appeal proceedings is appointed by the President of the CAS’ Appeals Division. The Court found this questionable because the appointment procedure is not sufficiently transparent, meaning the parties are unable to tell why a particular arbitrator has been appointed as chairman.

Nevertheless, the Court of first instance ultimately decided to reject Ms. Pechstein's claim under the “res iudicata” principle, i.e. that they were precluded them from hearing the matter again because it had already been judged by the CAS, which had found Ms. Pechstein’s doping ban to be valid. The Court held that it was obliged to recognize the CAS award in accordance with Article V of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards6 (“the New York Convention”).

In respect to the recognition of the CAS award, the first instance found that Ms. Pechstein would be hindered from raising the argument of an alleged invalidity of the arbitration agreement, as she herself had initiated the proceedings before the CAS without ever raising any objection against such agreement, thus implicitly approving its validity. 

Decision of Higher Regional Court

Ms Pechstein appealed the ruling and, on 15 January 2014, the Higher Regional Court in Munich overturned the first instance decision, finding that the Arbitration Agreement in favor of the CAS, and the CAS award issued on the basis of that agreement, violated mandatory German Cartel Law, which prohibits an abusive conduct by companies that have a dominant position on a particular market according to Section 19 of the Act against Restraints on Competition.7

The Court explicitly noted that, despite their dominant market position, sports federations were entitled to “force” athletes to sign arbitration agreements, owing to the special, specific needs of the sports market, e.g. consistent decisions in doping matters. However, importantly, the Court found that, under the current CAS structure, such an action would qualify as an abuse of the federations’ dominant position because the composition of the “ICAS” (the International Council of Arbitration for Sport, which administers the CAS and the list of arbitrators)8, with a majority of it representatives constituted of members of sports federations, fundamentally challenges the neutrality of the CAS itself. As in the first instance decision, the Court also criticized the fact that, in absence of an agreement between the parties in ordinary proceedings, and always in appeals proceedings, the chairman of a CAS panel is appointed non-transparently by the respective CAS Division President, who himself is appointed by the sports-federation-dominated ICAS.

On this reasoning, the Higher Regional Court then disagreed with the Court of first instance’s conclusions on having to recognise CAS’s award under Article V of the New York Convention, finding instead that the recognition of the CAS award would be contrary to the public policy of Germany, as it would perpetuate the abuse of ISU’s dominant market position due to the “forced” Arbitration Agreement, and accordingly they were not bound to recognize the CAS award pursuant to the effect of Article V para. 2 (b) of the New York Convention, which states that:

Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that:

……

(b) The recognition or enforcement of the award would be contrary to the public policy of that country.9

The Court’s decision did not however address the fact that it was Ms. Pechstein who initiated the CAS proceeding without any reservation and who presumably would have been satisfied with the CAS and the “forced” nature of the Arbitration Agreement had she have won.

 

The next steps

The Court intentionally only issued a partial award – i.e. relating to the admissibility of the claim - in order to give the parties the chance to request a review of the legal questions relating to the admissibility by the highest court in Germany, the German Federal Court of Justice (the Bundesgerichtshof). According to the Court, there should be a final decision on the admissibility of the claim, before the parties begin reconsidering the very complicated merits of the case – including the legitimacy of the doping ban.

The ISU intends to file an appeal to the German Federal Court of Justice.

 

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About the Author

Christian Keidel

Christian Keidel

Christian Keidel is a salary partner at Martens Lawyers in Munich, Germany. He joined Martens Lawyers as part of the initial spin-off team from Beiten Burkhardt, an international commercial law practice. Christian holds a legal degree from the University of Munich and has also studied at the University of Seville.

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