The validity of FIFA’s arbitration clause and the independence of the CAS: A detailed review of the RFC Seraing casesDespina Mavromati
This article explains the disciplinary and competition law proceedings relating to RFC Seraing and the third-party ownership (TPO) contracts that they concluded with Doyen Sports Investment Limited (Doyen Sports).
There are two sets of proceedings: one initiated by Doyen Sports and Seraing before the Belgian courts challenging the legality of FIFA’s TPO ban; and the other initiated by the FIFA Disciplinary Committee against Seraing for violation of the FIFA Regulations on the Status and Transfer of Players (RSTP), subsequently appealed to the Court of Arbitration for Sport, and then the Swiss Federal Tribunal and the Liège Tribunal (Seraing’s home province).
Specifically, this article looks at:
The facts of the case;
The Court of Arbitration for Sport (CAS) Panel’s award of 9 March 2017;
The findings of the Swiss Federal Tribunal (SFT);
Legality of CAS;
The Parties’ Positions;
The SFT’s findings (“Lazutina II”?);
The alleged violation of the parties’ right to be heard’
Competition law, excessive commitments and substantive public policy;
The Brussels Court of Appeal’s decision;
A chronological overview of the proceedings.
This judgment can be characterized as the “sequel” of Lazutina judgment that was rendered by the Swiss Federal Tribunal 15 years ago. It is also interesting for a number of other reasons.
The case related to a disciplinary sanction imposed by FIFA on a football club for violation of the TPO provisions of the FIFA RSTP. The Appellant, a third division club (RFC Seraing) registered with the Royal Belgian Football Association (RBFA) had concluded TPO contracts with the investment company, Doyen Sports. Shortly after entering into the TPO contract, Doyen Sports and Seraing initiated a legal challenge before the Belgian courts challenging the legality of the TPO ban arguing, inter alia, that it infringes EU competition law.
Separately, FIFA brought disciplinary proceedings against Seraing on the basis that the TPO contract with Doyen Sports extended beyond the transitional period allowed for such contracts prior to the full entry into force of the TPO ban. The FIFA Disciplinary Commission imposed a four-year transfer ban on the Appellant and a CHF 150’000 fine, decision that was subsequently confirmed by the FIFA Appeal Commission. The sanction was subsequently partially confirmed by the CAS in a lengthy and interesting award.1
Background on FIFA’s TPO ban
The RSTP provisions on TPO aim at preventing third parties from acquiring ownership of the players’ economic rights.
The TPO practice consists in having a professional football club selling, totally or partially, its economic rights over a player to a third-party investor, so that this investor may benefit from any potential capital gain that the club will make upon the future transfer of the player. In return, the investor provides financial assistance to the club to allow it to resolve cash flow problems or helping it acquire a player, among other objectives. In this case, a club that is interested in a player but is unable to pay the transfer fee required by the player's current employer, calls upon an investor who will provide the necessary funds for the payment of all or part of the transfer fee. In exchange, the investor obtains a profit-sharing on the indemnity that the club will get in case of subsequent transfer of the player. As the return on the TPO investment is only triggered by a transfer (during the player’s contract), it is in the interest of the TPO provider to engineer the player’s move prior to the conclusion of the contract with the club irrespective of the views of that club (and to put in place clauses that ensure a return on the investment if such a transfer is refused or does not take place).
The CAS Panel’s Award of March 9, 2017
In its award rendered on March 9, 2017, the CAS Panel applied the FIFA RSTP and Swiss law and considered the mandatory rules of European law but refused to apply Belgian law.
The CAS Panel considered the rights guaranteed by the Treaty on the Functioning of the EU (TFEU), including the free movement of capital (Art. 63 TFEU). The restrictions on capital movements from, to or between the EU Member States from Art. 18bis and Art. 18ter RSTP were found to respect the principle of proportionality: they pursue a legitimate objective (such as safeguarding the regularity of sports competitions), they were appropriate to achieve such objective without going beyond what is necessary in order to achieve said objective (since the measures only prohibit certain financing schemes which give the investor the power to influence the independence and policy of a club).
The Panel found that another case related to the TPO that led to a Swiss Federal Tribunal (SFT) judgment 4A_116/2016 was not relevant to the case at hand since it involved different parties and did not deal with the compliance of the TPO type contracts with Art. 18ter RSTP (which had not, at the time, come into force).
The sanctions imposed by FIFA were also found to be proportionate to the violation – two separate offences, deliberate and repeated violations of the RSTP and unwillingness to cooperate in the FIFA proceedings. However, since this was the first case dealing with the matter of prohibition of TPO, the panel reduced the sanction to three consecutive transfer periods while confirming the amount of fine.
The findings of the SFT
In the subsequent appeal to the SFT, the Appellant primarily alleged that the CAS is not a true arbitral tribunal (invoking thus the incorrect constitution of the arbitral tribunal of Art. 190 (2) (a) Private International Law Act 1987); it also alleged that the Chairman of the Panel violated its right to be heard through his conduct during the proceedings (Art. 190 (2) (d) PILA) and a violation of substantive public policy (Art. 190 (2) (e) PILA) for endorsing FIFA’s total ban on TPO and imposing manifestly disproportionate sanctions.
Legality of CAS (Art. 190 (2) a PILA)
The main part of the judgment focuses on the “legality” of the CAS as an arbitral institution but also its independence from FIFA, since the Lazutina judgment had only reviewed the independence of the CAS from the IOC. According to the Appellant, the obligation to have recourse to CAS is illegal also because it is imposed by a “mafia-like” association that is FIFA (at 3.1.1). Another argument raised was that FIFA is the dominant federation in terms of volume of business to the extent that it affects its independence.
The Parties’ Positions
In its answer, the CAS gave – for the first time – important information on its governance and internal financial structure, such as FIFA’s annual financial contribution of CHF 1’500’000 in order to contribute to CAS’ overhead costs, compared to CHF 7’500’000 paid by the entire Olympic movement out of a total budget of CHF 16’000’000. The CAS also highlighted the fact that most football arbitration proceedings are of commercial nature (where the parties need to pay the arbitration costs) and FIFA only plays an active role in the CAS proceedings in cases arising out of the FIFA Disciplinary Code and the FIFA Code of Ethics (approximately 5% on average). It further disclosed that 65% of the CAS’s workload involves football cases but almost half of them do not concern FIFA since they are either domestic cases, decisions rendered by continental confederations such as UEFA and so-called "direct" proceedings involving parties wishing to bring their case to the CAS without going through the FIFA instances.
The SFT Findings: Lazutina II?
The SFT repeated the arguments laid down in the Lazutina judgment of May 27, 2003 (and the subsequent jurisprudence confirming said judgment), where it had found that the CAS was sufficiently independent of the IOC as well as of all the parties calling upon its services and its decisions can be considered as “real” awards assimilated to state court decisions. It also referred to the Pechstein judgment of the German Bundesgerichtshof4 of 7 June 2016 which confirmed that the CAS is a genuine, independent and impartial arbitral tribunal (3.4.1).
As held by the SFT in its judgment, and in accordance with the principle of sovereign nations, the opinions expressed by the superior courts of an EU member state have no more weight than that of the supreme judicial authority of the country in which the case in dispute is pending (in casu, Switzerland, at 3.4.1).
The SFT reiterated its mission when controlling the legality of an arbitral institution based in Switzerland, which is not to reform the CAS nor to recast its governing regulations but must only ensure that it reaches the independence level required to be assimilated to a State court (at 3.4.2.).
The SFT further highlighted the institutional amendments made by the CAS in the last years, such as the President of the Appeals Division is no longer the IOC Vice-President but a former athlete. Furthermore, the ICAS is no longer required to have a quota of arbitrators selected from among the persons proposed by the sports organizations (1/5th each for the IOC, the IFs and the NOCs).
The alleged violation of the parties’ right to be heard (Art. 190 (2) d PILA)
Regarding the violation of the parties’ right to be heard by the Chairman of the Panel during the CAS proceedings, the SFT found these criticisms to be unfounded: the Chairman of the Panel, who had stopped the Appellant from criticizing FIFA as an organization and the conduct of some of the members of its Executive Committee, was merely directing the debates, ensuring that they were concise and inviting the parties to focus on the subject of the dispute (Art. R44.2(2) of the Code by reference to Art. R57 (3) CAS Code.
Competition Law, Excessive Commitments and Substantive Public Policy (Art. 190 (2) e PILA)
Finally, with respect to the alleged violation of substantive public policy, the SFT referred to the Tensacciai judgment of March 8, 2006 and confirmed that the provisions of any competition law do not fall within the scope of substantive public policy (at 5.2). What is more, an obligation imposed by an award to compensate another party fairly would not fall within the restricted scope of substantive public policy even if it contradicted a norm of supranational law (at 5.2).
Within the scope of substantive public policy, the Appellant also attacked the CAS award for violation of Art. 27 (2) CC that prohibits excessive commitments (at 5.4.1). The SFT reiterated that there needs to be a severe and obvious violation of Art. 27 (2) CC to fall within the scope of substantive public policy, conditions that were not found to be fulfilled in this case: By prohibiting TPOs, FIFA is restricting the economic freedom of the clubs for certain types of investment but does not suppress it. Clubs remain free to pursue investments, as long as they do not secure them by assigning the economic rights of the players to third party investors.
The Brussels Court of Appeals Decision
RFC Seraing, Doyen Sports and other parties seized the State Courts in Belgium with a view to annulling the ban on TPO on the basis that it, inter alia, infringed EU competition law. The 18th Chamber of the Brussels Court of Appeal issued, on August 29, 2018, an interlocutory decision dismissing the request for provisional measures filed by FC Seraing and Doyen Sports Investments Ltd against FIFA et al.5 In this decision, the Court accepted its jurisdiction, considered that it can hear the case to the extent that its effects are limited to the Belgian territory (based on Art. 6 (1) Lugano Convention) and, finally, rejected the request for provisional measures filed by Doyen Sports and Seraing for lack of new elements that would otherwise constitute a change of circumstances likely to question the appreciation of the Court in its judgment of March 10, 2016.
The most interesting point of the interlocutory decision of August 29, 2018 is the examination of validity of the arbitration clause enshrined in the FIFA Statutes. The Belgian Court proceeded to the interpretation of the FIFA arbitration clauses under Belgian law and found them to be too broad to be valid since the scope is not limited to a “defined legal relationship”.6 The Court was equally not convinced by FIFA’s argument that the clauses were meant to cover FIFA’s activities and its relationship with its members through its specialized statutes. The argument that disputes covered by the FIFA clause would implicitly only cover “sporting disputes” (since the CAS could only accept those disputes) was equally dismissed, since it is not part of the arbitration clause and the CAS is a third entity free to amend its rules at all times irrespective of the FIFA statutes.
The Court further found that the principle of “favor arbitrandum” is not a general principle that would go so far as to circumvent the specificity of the scope of the arbitration clause.
Finally, and more generally, an arbitration clause – even if it involves only two parties – can only cover a defined legal relationship between them and not all possible disputes. The exceptions from the CAS jurisdiction for cases where the jurisdiction of the Zurich State Courts is foreseen only confirm the broad scope of the FIFA arbitration clauses (paras. 14-16 of the Decision of the Brussels Court of Appeal).
The debate is set to continue in the next months / years. However, what is the value of the finding that the FIFA arbitration clause is too broad and thus unenforceable under Belgian law? The SFT held in its 4A_260/2017 judgment that, based on the principle of national sovereignty, the opinions expressed by the superior courts of an EU member state have no more weight than that of the Swiss supreme judicial authority (4A_260/2017, at 3.4.1).
Furthermore, this finding does not affect the CAS, since CAS Panels are called to rule on their jurisdiction based on the Kompetenz-Kompetenz doctrine and on a case-by-case basis. While the FIFA arbitration clause has been the object of many CAS awards so far, there has not been a case where the legality of the clause was questioned as such.7 The “exclusive” jurisdiction of CAS included in the FIFA Statutes was merely examined in conjunction with the validity of the arbitration clause that was found to be too broad, and not as a separate matter. Nothing would therefore prevent an association from providing for the exclusive jurisdiction of CAS – or any other arbitral tribunal – to the extent that the other conditions are fulfilled (i.e. scope of the arbitration clause limited to a specific legal relationship).
What is more, the findings of this case are limited to “indirect members” such as RFC Seraing and not to “direct” members of sports federations, which reminds us of the differentiation made before the German Courts in the Wilhelmshaven judgment.8
Last, the Swiss courts do not seem to have dealt with a similar question related to the arbitration clauses included in the statutes of a sport association before.
In any event, the Belgian Court finding was enough to allow the claim to proceed before the Belgian Court and dismiss the “exception d’arbitrage” objection filed by FIFA et al. The finding that the FIFA arbitration clause was too broad means that other similar arbitration clauses included in the statutes of sports federations may have a similar fate, if their validity is challenged before another court - in particular where not otherwise supported by other binding agreements. In any event, this should lead to a reconsideration of the arbitration clauses of all sports federations in order
to become more specific and resist potential challenges in the future.
The SFT judgment 4A_260/2017 put an end to the judicial journey of the RFC Seraing in Switzerland but the debate seems far from being terminated in Belgium. The issues that seem to have been bindingly discussed and decided by the SFT in this “Lazutina reloaded” judgment are the following (relevant in terms of Art. 190 (2) (a) and (e) PILA):
first, the CAS is an independent arbitral tribunal and its awards can be assimilated to state court judgments.9 The CAS is further sufficiently independent from the FIFA, notwithstanding the fact that the latter is one of the principal users of its services.
second, a prohibition of TPO agreements seems to be compliant with European law: it pursues a legitimate objective (safeguarding the regularity of sports competitions) and seems appropriate to achieve such objective since the measures only prohibit certain financing schemes which give the investor the power to influence the independence and policy of a club.
On the other side, the debate continues in Belgium where the Brussels Court of Appeals proceeded to a strict and objective interpretation of the arbitration clause enshrined in the FIFA Statutes, irrespective of the principle “favor arbitrandum” and the “specificity of sport” that once led the Swiss Federal Tribunal to see arbitration clauses related to sport (and more specifically doping-related disputes) with a certain “benevolence”.10
The finding that the FIFA arbitration clause was too broad theoretically means that other similar arbitration clauses included in the statutes of sports federations could have a similar fate, if their validity is challenged before state courts in Belgium. Irrespective of the practical consequences and the impact this finding might have on Swiss Courts, the Brussels Court of Appeal interlocutory decision is a good reminder that sports federations should draft their clauses carefully since CAS jurisdiction is neither self-evident nor automatic and should rely upon a valid – and therefore not too broad – arbitration clause.
TPO prohibition and FC Seraing v. FIFA - A chronological overview
Please note: although depicted in chronological order, the proceedings before the Brussels Commercial Courts are separate from the disciplinary proceedings before FIFA/CAS/SFT (even though they both relate to the same legal matter which is the legality of the TPO ban). The Liège proceedings relate to a challenge to the enforcement/recognition of the disciplinary sanction as upheld by the CAS award.
Orange = Competition proceedings before Brussels Commercial Court.
Brown = Disciplinary proceedings before FIFA DRC / CAS / SFT / Liege Tribunal.
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- Tags: Belgium | Brussels Commercial Court | Court of Arbitration for Sport (CAS) | FIFA | FIFA Disciplinary Commission | FIFA Regulations on the Status and Transfer of Players (RSTP) | Royal Belgian Football Association (RBFA) | Swiss Federal Tribunal (SFT) | Third Party Ownership (TPO) | Treaty on the Functioning of the European Union (TFEU)
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About the Author
Despina is a qualified lawyer with many years of experience in international sports law and arbitration and the founder of SportLegis, a highly specialized international sports law practice based in Lausanne (Switzerland). She is an Accredited Mediator and a Fellow of the Chartered Institute of Arbitrators (FCIArb). She sits as arbitrator in international arbitrations administered by Sport Resolutions (UK) and is a member of the Doping Hearing Panel of the International Powerlifting Federation. Despina served as Managing Counsel at the Court of Arbitration for Sport (CAS) for nine years, where she was responsible for the drafting of legal opinions, mediation proceedings, the scrutinizing of CAS awards and appeals to the Swiss Federal Tribunal.