Terminating without just cause: when is a new club jointly liable for compensation under the FIFA Regs? The latest Mutu decision

Published 13 May 2015 By: John Shea

Adrian Mutu

The latest decision1 by the Court of Arbitration for Sport ("CAS") in the lengthy case involving former Chelsea player, Adrian Mutu (the “Mutu Award”), has given helpful guidance when, in cases involving unlawful breaches of contract or contract terminations by the player, the player’s new club is jointly liable under the FIFA Regulations on the Status and Transfer of Players (“RSTP”) to pay the former club compensation.2

The Mutu case involved the club terminating the player’s contract following the player’s unlawful breach, but the decision also relates to the more common cases of when it is the player who unlawfully terminates his contract.

 

History of Adrian Mutu’s cases

Facts

Chelsea lawfully terminated Mutu's employment contract in October 2004 for a repudiatory breach after the player tested positive for cocaine.3 Mutu was banned by the English Football Association for seven months in November 2004,4 which was extended by FIFA's Disciplinary Committee to have worldwide effect.

Despite being banned, Mutu moved to sign a five-year contract with Juventus in January 2005. Juventus, though, were unable to register him directly, as they had already signed their permitted annual number of non-EU players from abroad. There was at the time, however, no restriction imposed on the number of non-EU players signed from other Italian clubs and so Livorno, a club who had a close relationship with Juventus and who relied upon loan signings from larger Italian clubs, agreed to register Mutu first and then transfer him to Juventus two days later in order to circumvent the quota restrictions. Mutu eventually made his debut for Juventus in May 2005, once his worldwide ban came to an end.

In addition to terminating his contract for a repudiatory breach, Chelsea claimed damages from Mutu for the losses that they incurred flowing from his £15.8m transfer fee from Parma.

The procedural history has been as protracted as the case which has, in some form, come before the CAS on three previous occasions.

Previous cases before the CAS and DRC

The Football Association Premier League Appeals Committee (FAPLAC) initially found that Mutu’s actions amounted to a breach of his contract without just cause that entitled Chelsea to treat the contract as at an end. As a result, the FAPLAC also confirmed that Chelsea were entitled to seek compensation against Mutu5 from FIFA’s Dispute Resolution Chamber (“DRC”) in accordance with Article 21 of the 2001 version of the RSTP, which provided for compensation to be payable by the player in the event that there is a unilateral breach of contract without just cause.

Mutu appealed that decision to CAS who dismissed the appeal in December 2005 and confirmed that Mutu had breached his contract with Chelsea without just cause (CAS 2005/A/876 Mutu v Chelsea Football Club).6 Despite Mutu claiming that he was not liable for compensation because it was Chelsea who terminated his contract, CAS concluded that there is no distinction between a player terminating his contract and a player unlawfully breaching his contract through serious misconduct. In this case, it was Mutu’s unlawful breach of contract that gave rise to the claim for compensation irrespective of the fact that it was Chelsea who terminated the contract as a result of that breach.7

Following that decision, Chelsea applied to the DRC for a compensation award against Mutu who initially decided that it did not have jurisdiction to make a compensation award.8 However, CAS annulled that decision in May 2007 (CAS 2006/A/1192 Chelsea Football Club Limited v Adrian Mutu).9 The case was referred back to the DRC and in May 2008 the DRC ordered Mutu to compensate Chelsea in the sum of £14.5m. Mutu subsequently appealed the decision to CAS, and in July 2009 the CAS panel upheld the DRC's May 2008 decision (CAS 2008/A/1644 Adrian Mutu v Chelsea Football Club Limited).10

A further appeal by Mutu to the Swiss Federal Tribunal was rejected in 2010, and he is currently pursuing a complaint against Switzerland before the European Court of Human Rights.11 Mutu’s appeal in those proceedings effectively challenges the CAS arbitration system at a fundamental level and a decision should be forthcoming soon, but that topic should be the subject of a separate commentary.

The latest case

Not surprisingly, Chelsea have been unable to enforce12 the compensation award against Mutu, so they submitted a claim with FIFA’S DRC in July 2010 seeking a declaration that both Juventus and Livorno were jointly liable for the compensation award. Chelsea’s claim was based on Article 14.3 of the 2001 version of the RSTP, which states,

"If a player is registered for a new club and has not paid a sum of compensation within the one month time limit referred to above, the new club shall be deemed jointly responsible for payment of the amount of compensation."13

The DRC concluded14 that, under the clear wording of Article 14.3, a player’s new club is jointly responsible for the compensation award due by the player and, because the transfers between Livorno and Juventus were so closely connected, “both should be considered the player's new club.

Juventus and Livorno subsequently filed separate appeals with CAS, which were heard in October 2014, and the result of those appeals was the decision that was published on 21 January 2015.15

 

Perspectives on the latest case

Was the legal nexus between the clubs contractual or statutory?

Interpretation of Article 14.3 was key to the dispute. According to Chelsea, there was a contractual relationship under Swiss law between the parties as a result of the clubs being members of FIFA. This meant that Juventus and Livorno were contractually liable to compensate Chelsea under Article 14.3.

However, the panel rejected the argument that there was a contractual relationship between the parties because there was no specific agreement concluded by them regarding the specific player in question. Therefore, in the absence of a liability imposed by contract, the new club’s liabilityunder Article 14.3, if any, was effectively a statutory liability16 under the RSTP and the question in this case was its scope.

 

The scope of Article 14.3: contractual stability vs. free movement?

Chelsea’s interpretation of Article 14.3 was that a new club’s liability arises from simply being the player’s new club. In support, Chelsea claimed, “the rationale of Article 14.3 is not only to prevent poaching of players but also to ensure that the new club does not obtain a sporting or financial benefit from acquiring the player's services for free while the original club is left uncompensated following the unjustified breach caused by the player.17 Article 14.3, therefore, acts to protect contractual stability and as a deterrent to intentional breach without consequences.

On the other hand, Juventus and Livorno claimed that Article 14.3 only applied in cases where a player unilaterally terminates his employment contract with a club with the intention of joining another one, and was not designed “to compensate a club that has decided to unilaterally terminate a player (for reasons that have nothing to do with the player's intention to quit the club)."18

The Panel identified that the context surrounding the implementation of the RSTP was crucially important for interpreting the scope of Article 14.3. Following the Bosman decision in 1995, FIFA adopted the RSTP in 2001 which, according to the Competition Commissioner at the time, Mario Monti, found a balance between the players’ fundamental right to free movement and stability of contracts together with the legitimate objective of integrity of the sport and the stability of championships.19

Contractual stability, one of the key objectives of FIFA’s regulations and considered to be "of paramount importance in football,20 was crucial in this case. The Panel noted, however, the potential conflict between rules governing contractual stability and players' freedom of movement and how measures taken by sports federations with a view to ensuring the proper functioning of competitions may not go beyond what is necessary for achieving the aim pursued."21

The Panel noted that “the Player was the author of his misfortune, but the Club was not required to terminate his employment if they still valued his services and preferred to hold him to his contract.” As “[t]he Club was entitled, not obliged, to dismiss him” this made “all the difference in terms of assessing the position of his subsequent employer(s) under the FIFA regulations, read in light of their object and purpose.22 Here, the Panel found that there was no issue of contractual stability, as it was Chelsea who decided to terminate the player’s contract and so “it strains logic for the club now to contend that the Appellants somehow enriched themselves by acquiring an asset (the player) which it chose to discard.23

The Panel also found it difficult to understand how Juventus and Livorno could be liable when they had nothing to do with the contractual breach asserted by Chelsea as the basis for terminating the player and did not participate in the previous proceedings awarding the compensation to Chelsea.

The Panel noted that there were also free movement concerns with Chelsea’s interpretation of Article 14.3, as there must be a balance between a player’s fundamental right to free movement and contractual stability. Chelsea's assertion that every new club was liable for compensation under Article 14.3 “whether it is responsible or not for the breach of the contract24 would mean that players would clearly be prevented from finding new employers in such circumstances. The panel found this “untenable25 as it “would bring the matter back into pre-Bosman times, when transfer fees obstructed the players' freedom of movement.26

The Panel noted that “Chelsea's conduct appears to have had no other purpose than to increase its chances for greater financial compensation” and that the Panel “does not see the connection between the damage being claimed and the interest of protecting legitimate contractual expectations.27

In summary, Chelsea's proffered interpretation of Article 14.3 went “beyond the objective of protecting contractual stability28 and would upset the balance sought by the RSTP between players' rights and an efficient transfer system. Accordingly, the appeals by Juventus and Livorno succeeded, and the DRC decision declaring them liable to pay Chelsea compensation was set aside.

 

Comment

The panel confirmed that a new club is not jointly liable for compensation where it was the previous club’s decision to terminate the contract of a player who “had no intention to leave the club in order to sign with another club and where the New Club has not committed any fault and/or was not involved in the termination of the employment relationship between the old club and the Player.29 In the Panel’s opinion, contractual stability would not be compromised by this interpretation, and would actually be enhanced, as it will act as a deterrent to players looking to terminate their contract to play for another club if they know they will be solely liable to compensate their former club.

It therefore seems clear from the Panel’s clearly worded decision and analysis regarding contractual stability and free movement that a new club would only be jointly liable to pay compensation to the player’s former club if it is at fault for the termination or involved in the circumstances leading to the termination.

In addition, this case adds a new dimension to CAS cases insofar as it heavily relies on or references EU law. This will be necessary to ensure appropriate enforcement of any award in this area, and it behoves lawyers and arbitrators in this field to ensure they are aware of the EU law effects of any particular case and to reference the authorities appropriately in their submissions or decisions.

It remains to be seen whether this case will spur on future CAS decisions or create regulatory change or reform on this topic by FIFA, but as a fundamental matter, having this important question answered gives more certainty to the process of player movement than existed before and in this regard is a positive step, regardless of how you feel about the reasoning or the outcome.

 

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Author

John Shea

John Shea

John is a senior associate in the Sports Business Group at Lewis Silkin specialising in contentious, regulatory and disciplinary issues for clubs, agencies, governing bodies and athletes

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