Swiss Federal Tribunal overrules CAS award in a landmark decision

Swiss Federal Tribunal overrules CAS award in a landmark decision
Published 12 October 2012 | Authored by: Roy Levy

For the first time in history, an award of the Court of Arbitration for Sport (CAS) was annulled by the Swiss Federal Tribunal because it violated fundamental principles of law, the so called substantive public policy. This marks the first time that a CAS award has been overruled based on substantive law and not procedural law.

 

The case concerns the Brazilian footballer Francelino Matuzalem da Silva (Matuzalem), who currently plays for Lazio. In 2007, he terminated his current contract with the Ukrainian club Shakhtar Donetsk with immediate effect (but without just cause) to play for the Spanish club Real Zaragoza. FIFA ordered Matuzalem to pay to Shakhtar Donetsk EUR 6.8 million in compensation for the breach of contract. The CAS almost doubled the amount to EUR 11,858,934 and ordered that Matuzalem and Real Zaragoza were jointly and severally liable to pay the amount. The Swiss Federal Tribunal upheld this decision in 2009.

As neither Real Zaragoza nor Matuzalem were able to pay the amount, FIFA’s Disciplinary Commission threatened to ban Matuzalem at the request of Shakhtar Donetsk from any football related activity until he pays the entire amount. This is possible because FIFA's Disciplinary Code not only provides for sanctions for breach of contract but also empowers FIFA to implement additional sanctions to enforce the imposed sanctions (art 22 and 64 of FIFA's Disciplinary Code). All clubs and players accept these FIFA regulations when playing international matches. The Swiss Federal Tribunal in an earlier decision affirmed FIFA's power to regulate its sport through suitable rules and decision-making processes (see decision 4P.240/2006 of 5 January 2007).

The CAS upheld FIFA's decision to ban Matuzalem. Awards of CAS, having its seat in Switzerland, may be appealed to the Swiss Federal Tribunal who in a recent decision granted Matuzalem's appeal against the CAS award and removed the fundamentally unlawful disciplinary action by FIFA. According to the Swiss Federal Tribunal, the unlimited ban from any football-related activity amounts to a serious infringement of the personality rights of the individual, and it ignores that a person may not enter into a contract (in casu the FIFA Disciplinary Code) which is excessively binding or which otherwise limits the person’s freedom in an excessive manner (art 27 Swiss Civil Code). A contractual restriction of economic freedom is considered excessive when a person is subjected to another person’s arbitrariness, gives up his economic freedom or limits it to such an extent that the foundations of his economic existence are jeopardized.

Further, the court ruled that the ban would prevent the player from earning an income which could allow him to fulfill his obligation. As Shakhtar Donetsk could enforce its claim for damages under civil law (by means of the New York Convention), the imposed sanction is not even necessary.

Finally, it was also reasoned that the sanction was not justified by an overriding interest of FIFA or its members. The Swiss Federal Tribunal ruled that the abstract goal of enforcing the contractual obligation of football players to their clubs had clearly less weight than the consequences of a de facto lifelong ban on any football-related activity.

Why is this a landmark decision? 

The grounds to annul CAS awards are very limited and mainly procedural ones (i.e. violation of the right to be heard, problems of jurisdiction etc.). Up to the Matuzalem case, the Swiss Federal Tribunal has uniformly rejected challenges to the merits of a CAS panel’s decision.This is the first decision of the Swiss Federal Tribunal where a CAS award was overruled based on substantive law and not just procedural law. As the CAS is a specialized court of arbitration which the parties mutually agreed upon to decide over the case, the Swiss Federal Tribunal may only review the merits of the case if it violates fundamental principles of law, the so called public order (art 190(2)(e) Private International Law Act), e.g. the principle of equity and good faith, protection of personality rights, the principle of pacta sunt servanda (lat. agreements must be kept). 

In this case, the Swiss Federal Tribunal considered the personality rights of the player more important than the principle of keeping the agreement he entered into (i.e. the FIFA Disciplinary Code to which he agreed). It also declared that the threatened ban based on FIFA's Disciplinary Code violates the fundamental legal principle that no one may contractually bind himself in an excessive manner. 

What is the impact of this decision?

It will be interesting to see whether this decision will have an impact on other cases of unlimited bans, in particular in match fixing matters where this year two cases of lifelong bans have been reported (see the cases of David Savic (CAS media release of 6.9.2012) and Daniel Köllerer (CAS 2011/A/2490)). In my opinion, it will be difficult to convince a court that the Matuzalem case shall also apply to these cases as there are entirely different interests at stake. In the Matuzalem case the only interest of FIFA was to enforce its regulations in order to sanction a defaulting player. On the other hand, match fixing (and also doping) are direct threats to the proper functioning of a sport and have much more weight in the balance of overriding interests. 

The Matuzalem case showed that the enormous compensations which FIFA and the CAS used to order footballers to pay to their former clubs for terminating their contracts without just cause, are difficult to enforce. Thus, the purpose of the CAS jurisprudence to use these high compensation payments as deterrents to prevent players from terminating their agreements with the clubs without just cause or without agreeing on the terms of such an exit, is now jeopardized. Sanctions which cannot be enforced are no deterrents. 

It is time for CAS to review its jurisprudence in such employment matters and for FIFA to review its sanctioning system. 

An extended version of this article will be published in the upcoming edition of the International Sports Law Journal.

See decision of the Swiss Federal Tribunal: 4A_558/2011 of 27 March 2012

About the Author

Roy Levy

Roy Levy

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.

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