How to use a freezing order against a Swiss based sports organisation to secure a CAS debt awardRoy Levy
How can a claimant football club awarded a monetary payment in CAS proceedings from another club enforce that award if the defendant refuses to pay?
Part 1 of this series reviewed a novel case study in which a Swiss freezing order (over match premiums owing to the defendant from UEFA) was used to secure payment of the debt (see full article here1). But there are also two other methods (detailed below) that will probably be more familiar to readers.
Here in Part 2, the author reviews the three principal enforcement methods, looking at their relative advantages and disadvantages, before building on Part 1 to explore in greater detail the legal and procedural requirements of applying for a Swiss freezing order should a claimant wish to try to secure payment by freezing any monies owing to the defendant from a sports organization registered in Switzerland (e.g. FIFA or UEFA).
The three principal methods of enforcing a CAS award
- Enforcement through the courts – perhaps the best known way to enforce a CAS award is by means of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention"), according to Article III of which each contracting state shall recognize and enforce international arbitral awards the same as it does with domestic arbitral awards.2
- FIFA sanctions – a second method for football related claims is to request FIFA sanction a non-paying club according to Article 64 of the FIFA Disciplinary Code.3 This Article provides for a range of sanctions from a warning to a fine to the deduction of points or even a relegation to a lower division. It has to be noted that such FIFA sanctions may only be requested if the CAS award was the result of an appeal against a prior FIFA decision (“…subsequent CAS appeal decision…”; see Article 64 FIFA Disciplinary Code). However, if the CAS award was the result of an Ordinary Procedure or if the parties decided to appeal a domestic final decision of the national federation directly to CAS, without getting a decision from FIFA first, the FIFA sanctioning system does not apply.
- Freezing order in Switzerland - The third perhaps lesser-known strategy is to request a Swiss court to freeze any assets (or claims) that the debtor club has against UEFA, FIFA or any other International Federation domiciled in Switzerland. As a court may not only freeze the assets but also the claims a debtor has, this could include claims to: prize money, match-premiums, membership allowances, development contributions, TV rights participation etc. provided that certain legal requirements are met.
Pros and cons of the three enforcement methods
The New York Convention
One main advantage of enforcing an award by means of the New York Convention, which entered into force in 1958, is that there are many years of experience in applying it.
One of the downsides, however, is that, depending on the jurisdiction in which the award is enforced (usually the seat of the debtor), the enforcement process may be lengthy and without any guarantee of a successful outcome. In some jurisdictions, the legal authorities work slowly and it may take a lot of time to enforce an award (possibly up to 5 years in the authors experience). Further, from a practical perspective, the enforcing party may have concerns about judicial favouritism – or worse, corruption – if trying to enforce in a foreign jurisdiction.. In addition, in some jurisdictions, the judges may not be familiar with the institution of the CAS and significant efforts may be needed to convince the court that the composition of the Panel and the procedure were in accordance with the laws of the country where the arbitration took place – Switzerland.4
FIFA sanctions have many advantages. First, it is a (often – though there are exceptions) speedy and simple way to force a club to meet its obligations. Secondly, some of the sanctions, like deduction of points, may hurt a club more than a monetary measure. Thirdly, the case can be solved within the "football family" without having to involve a state court. The main disadvantage is that both creditor and debtor have to be subject to the FIFA regulations and that there has to be a prior FIFA decision, otherwise the FIFA sanctions do not apply.5
Swiss Freezing Orders
Just as with FIFA sanctions, the freezing order against an International Sports Federations in Switzerland does not directly enforce a CAS award. The primary goal of a freezing order is to freeze assets of a debtor to make sure that he cannot dispose of them as long as the order is upheld. The enforcement of the outstanding sum is often times achieved as a result of the financial restriction imposed on the debtor. If a debtor cannot dispose of financial means which he calculated to receive because they are frozen, he may be willing to agree to pay the outstanding amount, or at the least, to enter into a settlement agreement. Thus, the freezing order often achieves its goal by putting pressure on the debtor, just like the FIFA sanctioning system does.
Another advantage, which may be essential in some jurisdictions, is that the freezing order placed on match premiums in Switzerland anchors jurisdiction for enforcement in Switzerland. As mentioned above, depending on the place of jurisdiction of the debtor, an enforcement via the state courts may be a very lengthy and burdensome proceeding without any guarantee of success. Hence, it may be preferable to take advantage of the well functioning Swiss legal system, and to bring the case before a Swiss state court (according to the author's experience as a Swiss litigator, in Swiss courts most legal proceedings take in average 6-18 months and corruption among judges is very rare).
One of the disadvantages of the freezing order is that the debtor must play (or have played without the money having been paid out yet) in a UEFA or FIFA competition that entitles it to prize money, match premiums or other kind of financial contribution from the international governing body. Another downside is that if the debtor is not willing to pay despite the freezing order, a second court proceeding is required to get at the frozen money by prosecuting the freezing order (see below 'procedural requirements').6 Further, if the frozen claims (or assets) are of less value than the outstanding sum, the enforcement of the award is just a partial one.
It also has to be noted that a creditor filing a freezing order against a debtor may be requested by the court to furnish security (i.e. make a payment into court) for potential commercial damages suffered by the debtor or a third party in the event that the freezing order proves unjustified. However, this provides that the debtor can establish the prima facie (on the first appearance) validity that the freezing order is unjustified and that it will result in financial damages for the debtor. A freezing order is unjustified if either the claim is not valid or the prerequisites of the freezing order are not met. If there is a CAS award granting a sum to a club, and that club does not pay within a set time limit, it is very unlikely that the freezing order is unjustified, thus the claimant’s risk of having to pay a security is low.
A closer look at Swiss freezing orders
As noted in the introduction, a freezing order was the subject of the Swiss Federal Tribunal decision in ATF 5A_328/2013 dated 4 November 2013 (see the full case review here). In brief, the tribunal found that the creditor football club was entitled to an order to freeze not only current but also future match premiums owing to the debtor football club by UEFA (in Switzerland) from participating in the UEFA Europa League.
Although it is a decision handed down by a Swiss court relating to football, it will be of interest to all sports lawyers around the world given the number of international sports federations that are domiciled in Switzerland and that are, therefore, subject to the Swiss law of debt enforcement (e.g. FIFA, IOC, UEFA, IIHF, FEI, FIBA, FIS, UCI, FIVB etc.).
Legal requirements to freeze assets or claims of a debtor
According to Article 271 Swiss Debt Enforcement and Bankruptcy Act,7 creditors may request a Swiss court to order a freeze of certain assets or claims belonging to the debtor, provided that all the legal prerequisites are fulfilled.
The freezing order has the effect of a provisional seizure of these assets or claims and may only be ordered if the creditor can establish the prima facie validity of his claim, as well as one of several statutory prerequisites for a freeze.
According to Swiss debt enforcement laws, the creditor may apply for an order to freeze assets of the debtor if (i) the claim is matured (ii) there are assets or claims of the debtor in Switzerland and (iii) one of the six grounds to freeze the assets or claims of the debtor provided for by the law applies (cumulative requirements). The ground has to be one of the following:
- the debtor has no fixed domicile;
- the debtor is concealing his assets, absconding or making preparations to abscond so as to evade the fulfilment of his obligations;
- the debtor is passing through or belongs to the category of persons who visit fairs and markets, for claims which by their nature must be fulfilled at once;
- the debtor does not live in Switzerland, and none of the other grounds for a freezing order is fulfilled, provided the claim has a sufficient connection with Switzerland or is based on an enforceable court judgement or on a recognition of debt;
- the creditor holds a provisional or definitive certificate of shortfall against the debtor; or
- the creditor holds an enforceable award or judgment against the debtor.
In sports related disputes, in most cases ground number 4 or 6 will apply. If there is a CAS award ground number 6 will apply. If there is only a FIFA decision but no CAS award, ground number 6 does not apply, but possibly ground number 4.
A sufficient connection with Switzerland according to ground 4 is fulfilled if for example Swiss law applies to the disputed contract or in some cases if assets of the debtor are in Switzerland. Whether or not a sufficient connection is fulfilled has to be verified on a case-by-case basis. If there is not even a FIFA decision, but just a mature claim, a freezing order may not be recommendable as the subsequent prosecution of the freezing order in a state court may be in contradiction to the arbitration clause of the FIFA Statutes, which provides that all football disputes shall be brought to a FIFA judicial body (or the CAS), and not to the state courts.8 Thus, applying for a freezing order with the state courts should only be done after the internal arbitral proceeding of the sports federation has been finished (or at least initiated).
A freezing order regarding the assets of foreign debtors establishes a forum (jurisdiction) in Switzerland under Swiss private international law,9 where the debtor may be sued by the creditor. An exception to this rule is where the Lugano Convention10 applies.11 The Lugano Convention, which was signed by most European states and which precedes the International Private Law Act, provides an exception to the establishment of a forum in Switzerland to prosecute the freezing order. This means that a forum in Switzerland is only established if the Lugano Convention does not apply, i.e. if the states of one of both of the parties to the proceedings are not signatories of the Lugano Convention.
The procedure to obtain and enforce a freezing order is a two steps procedure. The first step is to apply for a freezing order and the second step is to prosecute the freezing order. The freezing order can be requested at the court of the seat of the assets or claims. This procedure is an ex parte provisional measure (i.e. without hearing the debtor's arguments) in order to secure the debt. The freezing order has the effect that the debtor can no longer dispose of his assets freely. The freezing order specifically names and estimates the value of the frozen assets. Once the freezing order is granted, the debtor can submit his arguments and evidences by filing an appeal against such freezing order within 10 days since its issuance.
The second step is that if the creditor had not already instituted enforcement proceedings or brought a court action prior to applying for the freezing order, he must do so within 10 days of service of the freezing order document, otherwise the freezing order elapses (prosecution of the freezing order). Once this is done, the second proceeding is suspended for as long as the appeal procedure against the freezing order is pending. Since the freezing order establishes a forum at the court which granted the freezing order, the subsequent lawsuit or debt collection request may be filed at the same place. If the lawsuit/debt collection request is successful, the frozen assets/claims may be enforced, i.e. they may be realized to pay the debt. The freezing order elapses if the creditor (i) fails to comply with the deadlines provided for by the law, (ii) withdraws the action or the enforcement application or allows them to elapse, or (iii) loses the court action, once the judgment has become res judicata (i.e. barred because it has already been judged).
Filing for a freezing order against a Swiss based sports organization to secure a CAS debt award may be a valid alternative to enforcing the award by means of the New York Convention or the FIFA sanctioning system. If the legal requirements are met, the freezing order is a speedy way to restrict the free disposition of the debtor's assets (based in Switzerland).
The timeframe from filing the request for a freezing order to its issuance is approximately 2 – 4 weeks. Once the assets and claims are frozen, many debtors are voluntarily entering into a settlement agreement in order to free their assets/claims. But even if the debtor continues to refuse to pay, the freezing order establishes a forum in Switzerland (except if the Lugano Convention applies) to enforce the claim which may be preferable to the place of jurisdiction of the debtor's seat which would apply if the CAS award had to be enforced by means of the New York Convention.
A creditor who wishes to request a freezing order in Switzerland should first of all verify that the debtor has assets or claims in Switzerland. As Part 1 showed, playing in a UEFA or FIFA competition with an entitlement to match premiums at the time the freezing request is filed suffices to apply for a freezing order. If the other legal requirements are met, the freezing order may be a valid alternative to enforce a CAS debt award.
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- Tags: Contract Law | Court of Arbitration for Sport (CAS) | Dispute Resolution | FIFA | FIFA Disciplinary Code | FIFA Statutes | Football | Freezing Order | Governance | Lugano Convention | New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards | Portugal | Regulation | Russia | Swiss Debt Enforcement and Bankruptcy Act | Swiss Federal Supreme Court | Switzerland | UEFA | United States of America (USA)
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About the Author
Roy is an attorney-at-law, at Probst Partner AG, Zurich, Switzerland. He specialises in litigation and arbitration relating to sports law e.g. disciplinary and ethical matters (challenging sanctions), transfer disputes, training compensation, eligibility issues, TV rights, doping, match fixing, players/agents contracts. He regularly represents clubs, federations, players and coaches before the judicial bodies of FIFA, UEFA and the Court of Arbitration for Sport (CAS). He also has expertise in employment, intellectual property and media law.