The dichotomy and future of sports arbitration - Compelled consent

Published 20 July 2016 | Authored by: Nick De Marco QC

This four part series of articles by Nick De Marco¹ reflects on the recent Pechstein case, a case that placed the Court of Arbitration for Sport (“the CAS”) and the sports arbitration system under great scrutiny, and consider:

The issue of consent and compulsion in sports arbitration (Part 1);
The appointment of arbitrators (Part 2);
The use and accessibility of legal aid/assistance for players/athletes and the publications of decisions (Part 3); and,
The structure of domestic sports arbitration, with a focus on The Football Association (Part 4).

Throughout this series of articles the author makes a number of recommendations to change the procedure of both the CAS and domestic sports arbitral bodies in order to promote fairness and impartiality and protect players.

Part 1

“The plaintiff has signed the arbitration agreement voluntarily. The fact that she acted determined by others since she would not have been able to compete otherwise does not render the agreement invalid”. With this contradictory reasoning, Germany’s Federal Court of Justice (the Budesgerichtshof, “the BGH”) announced its judgment in the much anticipated Pechstein case.² The BGH held that a clause requiring players ( the term "players" is used in this article to describe sportsmen and sportswomen across sport) charged with anti-doping rule violations to submit to the jurisdiction of the CAS and exclude the jurisdiction of national courts was consensual and lawful, despite the fact that any professional sportsperson who wished to compete was required to agree to that clause.

This article reflects on that judgment. First, briefly considering the role of consent in arbitration and then considering whether it is necessary to require players to consent to sports arbitration. In postulating that effective international sports regulation depends on a compulsory, specialised, centralised system of international dispute resolution, the article suggests reforms to the procedure of both the CAS and domestic sports arbitral bodies in order to promote fairness and impartiality and protect players.

Consent

Consent is central to the entire concept of arbitration. It is only following an agreement to arbitrate that parties can exclude the jurisdiction of nat³ There are few exceptions to this rule—even international investment disputes (where there is often no privity of contract between the parties to the arbitration) can only be submitted to arbitration if both parties consent in writing.⁴ Accordingly, where consent has been compelled (owing to a significant inequality between the parties, for example) how can an arbitration agreement be regarded as valid and enforceable?

So foundational is mutual consent to arbitration that compulsion, or the undue influence of one party over the other, is protected against in a number of statutory regimes. The Arbitration Act 1996, which regulates all arbitrations that have their seat in England and Wales or Northern Ireland, provides that “parties should be free to agree how their disputes are resolved”.⁵ Party autonomy is one of three general principles that underpins the whole of the Act.⁶ The Consumer Rights Act 2015, which regulates consumer contracts in the UK, provides that in a contract between a trader and a consumer, a term that “has the object or effect of excluding or hindering the consumer’s right to take legal action or exercise any other legal remedy, in particular by—(a) requiring the consumer to take disputes exclusively to arbitration not covered by legal provisions” shall be presumed unfair and unenforceable.⁷ It is then for the trader to prove that the contract was fair and did not create a significant imbalance of rights and obligations before the clause can be relied on.⁸ The Employment Rights Act 1996 (which applies in England, Wales and Scotland) prevents parties to an employment agreement from excluding the provisions of the Act and precluding a person from bringing proceedings under the Act before an employment tribunal.⁹ Such provisions properly reflect the gravity of an arbitral agreement and guard against parties being forced to surrender their legal rights.

Unequal bargaining positions, however, are not uniformly well-protected against. In an employment relationship, for example—where employees (in the great majority although clearly not all employment contracts) usually depend more on their employer for work and income than the employer does on that individual employee for service and labour—employees are often unable to freely negotiate the terms of their employment contract. And yet, in the USA mandatory (non-negotiable) arbitration agreements are regularly drafted into contracts of employment, which the US Courts regularly uphold.¹⁰ Even in the UK, despite legislation preventing employees from contracting out of their statutory rights, there has recently been favourable discussion of the suitability of arbitration to the resolution of employment disputes.¹¹ These mandatory arbitration clauses in employment contracts are concerning, not only because of the unequal bargaining power between (most) employers and employees, but also as employment disputes often concern questions of broad public importance—such as whistle blowing, discrimination and equality—which are better suited to resolution in a public forum with certain statutory and procedural protections available to the parties than a private and procedurally ad hoc arbitration. Nonetheless, even where those mandatory arbitration agreements are upheld in the US, the courts have held that the equalities commission (or similar body) may bring legal proceedings on the employee’s behalf in the national courts.¹² In England and Wales, it has been suggested that the protections of the Employment Rights Act 1996 could be incorporated into arbitration agreements in order to protect the employee’s statutory claims.¹³ Accordingly, even where an arbitration agreement is mandatory, or non-consensual to some degree, the party that has not given free consent should be protected by provisions in the agreement itself, or a system that allows commissions—such as the Equality and Human Rights Commission—to bring claims in domestic courts on their behalf when fundamental rights are infringed.

In that context, the BGH’s ruling that consent that was “determined by others” was nonetheless “voluntary” is surprising. Where there is such a clear imbalance between the parties—where a player depends for their livelihood on being granted permission to compete by their governing body—how can it be said that an arbitration agreement between the player and governing body is freely consented to? And if, as it should, that imbalance gives rise to a concern as to the consensual nature of the agreement then why are players given no protection against unfair agreements? It is on this basis (amongst others) that Ms Pechstein seeks to challenge the BGH decision to the German Federal Constitutional Court.¹⁴

However, the case has provoked much broader discussion of and demands for a structural and procedural reform of the CAS.¹⁵ Drawing on many of those demands for reform, this article goes on to consider why mandatory arbitration agreements might be necessary in international sports regulation and dispute resolution and, if such coercion is necessary, what reforms may be made to make the system fairer for players.

Compulsion

Shortly before the Pechstein decision, John G Ruggie¹⁶ published a report on FIFA and Human Rights.¹⁷ Professor Ruggie considered the prohibition of legal claims in sports disputes (that is, mandatory arbitration clauses) to be a “complex issue, especially as it relates to human rights”.¹⁸ However, the report dismissed the alternative scenario of resolving disputes in domestic courts as unworkable: it would “wreak havoc on common standards and consistency of application”; it is too time consuming; and it is vulnerable to bias in favour of national clubs or associations.¹⁹ The report concluded that mandatory arbitration clauses, despite problems of consent, were the most suitable dispute resolution procedure in the context of international sport. But the report also made quite clear that FIFA needed to strive to make those tribunals human rights compliant: “if an arbitration system is going to deal effectively with human rights-related complaints, it needs certain procedural and substantive protections to be able to deliver on that promise”.²⁰

Those observations are relevant to arbitration in all sporting fields. As Professor Ruggie identified, the alternative to international sports arbitration is resolution of those disputes in domestic courts. There are obvious disadvantages to this. Litigation would often take longer and cost more than arbitration and the courts, as non-specialist tribunals, would not be well-placed to resolve these specialised disputes. These disadvantages could be partly overcome by the creation of a system of national sports tribunals with specialist judges and expedited procedures. However, such a system would be expensive and time-consuming to implement and would remain ill-placed to accommodate the inherent internationalism of these disputes—the application of international rules to players in international competitions—and would make consistent decision making and the development of common standards extremely difficult.

It is precisely for these policy reasons that the BGH dismissed Pechstein’s case finding, “[T]he benefits related to single international Arbitration such as harmonized standards and rapid decisions apply not only for federations but also for athletes.”²¹ Other learned authors have recognised the “myth of consensual arbitration” in sport;²² the reality is that reasons of sporting necessity require a compulsory international system of alternative dispute resolution supported by arbitral law. Whilst this article accepts this necessity on policy grounds, and goes on to set out the reforms to sports arbitration that should reflect its hybrid role, it must remain open to players to consider further challenges, in different jurisdictions, to the validity of compelled arbitral clauses in sports contracts on grounds of fundamental principle, as and when the appropriate case arises.

What is required, in this hybrid system of compelled consent, is reform of the CAS and other arbitral bodies to increase transparency and fairness. Such reform could alleviate concerns over a player’s right to an effective remedy and a fair trial. If the CAS and other arbitral bodies could be relied upon to give open, fair, transparent judgments then the criticisms of coerced consent lose their potency.

Click here to continue reading Part 2 on the appointment of arbitrators.

---------------------------

This four part series is taken from the author's original paper which can be found here.²³ For those who wish to read more about the Pechstein case and sports arbitrations the following articles will also be of interest:

The Legality of the Arbitration Agreements in favour of CAS (Pechstein) Part 1 by Despina Mavromati
The Legality of the Arbitration Agreements in favour of CAS (Pechstein) Part 2 by Despina Mavromati
The Pechstein judgment: CAS’s reaction & potential ramifications by Andrew Smith
A guide to the Higher Regional Court’s decision in the Pechstein case by Christian Keidel
Another round in favour of sports arbitration: Court confirms boxing disciplinary appeal panel is an Arbitration by Nick De Marco
10 key considerations arising from Kaneria by Nick De Marco
Civil liability for sports injuries and why courts compete with arbitration in Belgium by Sven Demeulemeester and Grégory Ernes
Interview with Matthieu Reeb, Secretary General of the Court of Arbitration for Sport by Sean Cottrell

To subscribe to the Blackstone Chambers sports law updates, which includes additional blogs not on LawInSport, go to https://sportslawbulletin.org/

References

Barrister at Blackstone Chambers specialising in sports law. Nick is an expert in sports arbitration having acted for sports regulators in the leading recent UK cases on the developing area (such as the ECB in Kaneria and the BBBC in Paul Smith, mentioned below in the article); he regularly appears before a variety of domestic and international sports arbitral panels, including the CAS, representing both sports governing bodies and players; he sits as arbitrator across a number of sports (football, rugby and wrestling); he is currently assisting the football players’ union, the Professional Footballers’ Association, in attempts to reform certain disciplinary/arbitral processes in football.
See the BGH’s press release dated 7 June 2016:
https://www.rdes.it/Decision%20Pechstein%20Case.pdf. The BGH has not yet published its judgment in English. The facts and history of this litigation is as follows. In July 2009, Claudia Pechstein (“CP”) was banned for two years by the ISU, after an in-competition blood test showed unusually high levels of red blood cells, indicative of doping. CP appealed to the CAS, who dismissed her appeal, and then to the Swiss Federal Tribunal, who also dismissed her appeal. In Germany, CP sued the ISU and German Skating Federation for damages. This claim was dismissed at first instance despite the court finding the arbitration clause was invalid and in breach of CP’s Article 6 rights. The Munich Court of Appeal allowed CP’s appeal applying German competition law finding that the ISU was the only provider in the market for speed-skating world championships and therefore had a monopoly on that market and a dominant position. The Munich court also found that the structure of the CAS and the system for appointing arbitrators was biased in favour of sports federations. The Munich court concluded that in those circumstances the exclusive arbitration clause in favour of the CAS which the ISU required players to sign, was an abuse of ISU’s dominant position and a violation of German anti-trust law and that as a result it was contrary to German public policy to recognise the CAS award. On appeal, the BGH overturned this decision.
Russell on Arbitration (24th ed., 2015) at [1-001] and [1-011]; R Merkin Arbitration Law (1st ed., 2004) at [1.23]
Where two states agree an investment treaty, any legal dispute between one of those states and a national of the other arising directly out of the investment can be submitted to the International Centre for Settlement of Investment Disputes only where both parties consent in writing to do so (see Arbitration (International Investment Disputes) Act 1996, Schedule 1, paragraph 1, articles 25(1) and 36(2)).
s. 1(b) of the Arbitration Act 1996
Ibid., s. 1
Paragraph 20 of Schedule 2 and s.63(a) of the Consumer Rights Act 2015. It was held in Mylcrist Builders Ltd v Mrs G Buck [2008] EWHC 2172 (TCC), [2008] BLR 611 that an arbitration governed by the Arbitration Act 1996 was not an arbitration “covered by legal provisions”; that “covered by legal provisions” only excluded arbitrations required by statute ([54] per HHJ Ramsey). In Mylcrist, the High Court considered the validity of an arbitration agreement in the standard terms and conditions of a construction agreement. The court held the term to be unfair and void for the following reasons: (i) the clause caused a significant imbalance in the parties’ rights to the detriment of Mrs Buck, (ii) the arbitrator’s fees were significant in relation to the small claim, (iii) the impact of the clause had not been clearly set out and was not immediately apparent to the lay client, (iv) had the clause been drawn to Mrs Buck’s attention she would likely have objected to it ([52-60] per HHJ Ramsey).
s. 62 of the Consumer Rights Act 2015
s. 203 of the Employment Rights Act 1996 restricts contracting out of statutory rights (subject to certain limited exceptions including settlement agreements); and see for application of the principle, Clyde & Co LLP v Bates van Winkelhof [2011] EWHC 668 (QB); [2012] I.C.R. 928 in which Slade J. found a clause in a limited liability partnership providing for disputes to be settled by arbitration could not be relied upon to enforce a stay of employment tribunal proceedings for discrimination or whistleblowing as it offended s. 203 of the Employment Rights Act 1996.
See discussion in T Giles and A Bagley ‘Mandatory Arbitration of Employment Disputes: What’s New and What’s Next?’ in 39 Employee Relations Journal 22 vol. no. 3 (Aspen Publishers, New York: Winter 2013), available at: https://www.crowell.com/files/Mandatory-Arbitration-of-Employment-Disputes-Whats-New-and-Whats-Next.pdf
See, for example, P Goulding and P Frost ‘Arbitration of employment disputes’ in ELA Briefing (May 2014) pp.13-15, available at: https://www.blackstonechambers.com/news/publications/arbitration.html
See EEOC v Waffle House, INC 534 US 279, 122 S CT 754 (2002), and discussion in J Byrnes and E Pollman ‘Arbitration, consent and contractual theory: the implications of EEOC v Waffle House’ in Harvard Negotiation Law Review (Spring 2003) 290
See, Goulding and Frost ibid.
See a link to CP’s statement (in German) here: Andy Brown, sportsintegrityinitiative.com in association with Morgan Sports law, 7 June 2016, accessed 19 July 2016, https://www.sportsintegrityinitiative.com/analysis-pechstein-to-appeal-after-german-court-throws-out-her-case/
Such demands have been made by many athletes’ and players’ unions. See, for example, UNI Global Union: 'Players will continue Claudia Pechstein’s heroic fight to reform sport’s justice system' dated 7 June 2016, accessed 19 July 2016, https://www.uniglobalunion.org/news/players-will-continue-claudia-pechsteins-heroic-fight-reform-sports-justice-system; FIFPro: Despite decision, Pechstein must trigger reform, 7 June 2016, accessed 19 June 2016, https://fifpro.org/en/news/despite-decision-pechstein-must-trigger-reform, Does football need CAS?, 31 March 2105, accessed 19 June 2016https://fifpro.org/en/news/does-football-need-cas
Berthold Beitz Professor in Human Rights at Harvard’s Kennedy School of Government and Affiliated Professor in International Legal Studies at Harvard Law School
J G Ruggie, “FOR THE GAME FOR THE WORLD.” FIFA and Human Rights. Corporate Responsibility Initiative Report No 68. (Cambridge, MA: Harvard Kennedy School, 2016)
Ibid. p.26
Ibid.
Ibid.
Press release, see footnote 2, above.
See, e.g. A Rigozzi and F Robert-Tissot (2015) ‘"Consent" in Sports Arbitration: Its Multiple Aspects’ in E Geisinger and E Trabaldo de Mestral (eds) Sports Arbitration: A Coach for other players?, ASA Special Series, pp. 59-95., at p. 59-60: “sports arbitration is far from the traditional idea of arbitration being the consensual alternative dispute adjudication process that we read about in every textbook on arbitration […]. Rather, it is clear that sports arbitration is fundamentally non-consensual in nature, since athletes have no other choice but to agree to whatever is contained in the statutes or regulations of their sports governing bodies”; and see A Duval and B Van Rompuy, The compatibility of forced CAS arbitration with EU competition law: Pechstein reloaded, 23 June 2015, available at:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2621983">https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2621983
Nick De Marco, 'Compelled Consent—Pechstein & The Dichotomy And Future Of Sports Arbitration', Blackstone Chambers, 4 July 2016, last accessed 19 July 2016 https://www.blackstonechambers.com/document.rm?id=680

Copyright notice

This work was written for and first published on LawInSport.com (unless otherwise stated) and the copyright is owned by LawInSport Ltd. Permission to make digital or hard copies of this work (or part, or abstracts, of it) for personal use provided copies are not made or distributed for profit or commercial advantage, and provided that all copies bear this notice and full citation on the first page (which should include the URL, company name (LawInSport), article title, author name, date of the publication and date of use) of any copies made. Copyright for components of this work owned by parties other than LawInSport must be honoured.

Tags: Arbitration | Court of Arbitration for Sport (CAS) | Dispute Resolution | England | Football | Germany | Governance | Ice-Skating | International Skating Union | Litigation | Olympic | Professional Footballers’ Association (PFA) | Regulation | Switzerland | The FA | United Kingdom (UK) | Winter Sports

Views

11213

About the Author

Nick De Marco QC

Nick is rated a leading silk in Sports Law and is a member of Blackstone Chambers.

He has advised and acted for a number of sports governing bodies, athletes, most Premier League football clubs and many world-class football players in commercial and regulatory disputes.