The Legality of the Arbitration Agreements in favour of CAS (Pechstein) Part 1
Published 06 July 2016 By: Despina Mavromati
In this two part article Despina Mavromati, the Head of Research and Mediation at the Court of Arbitration for Sport (CAS), reviews the German Federal Tribunal (Bundesgerichtshof, BGH) decision in the long-awaited Pechstein case which was handed down on the June 7, 2016 (“BGH Ruling”).1
Part one provides a background to the case and reviewed the BHG Ruling focusing on the finality of arbitral awards, the qualification of CAS as a genuine court of arbitration and the scope of the arbitration agreement between the Athlete and the International Skating Union (ISU).
Part two provides a reviews the BHG Ruling's findings in regards to the compatibility of the arbitration agreement with German anti-trust laws by examining, in particular, the athlete’s right to a fair trial; the constitutional rights of the athlete and the federation; the status of the Swiss Federal Tribunal and the issue of human rights in sports arbitration; the compatibility of sports arbitration clauses with European competition law; and finally the conformity of CAS sports arbitration clauses with Swiss Law.
All views expressed in this article are her own personal views.
Introduction - Proceedings prior to the BGH Ruling
The German Federal Tribunal (Bundesgerichtshof, BGH) issued its decision in the long-awaited Pechstein case on June 7, 2016 (“BGH Ruling”).2 The core issue at stake before the BGH was the validity of the arbitration agreement between Ms. Claudia Pechstein (the Athlete), a speed skater and five-time Olympic gold medallist, and the International Skating Union (ISU).
The case has attracted public attention and led to numerous articles, notes and commentaries that discussed the various Court decisions prior to the BGH ruling but also advocated the need for reform of the sports arbitration system, more generally.3
The Pechstein saga started in 2009, when the ISU Disciplinary Commission (ISU DC) rendered a decision on July 1, 2009 suspending the Athlete for two years for blood doping. Based on the arbitration agreement that the Athlete had signed in order to participate in the ISU competitions, the Athlete appealed against the ISU decision before the CAS. The latter issued an order on procedure (OP) on September 29, 2009, confirming inter alia its jurisdiction to decide on the issue. The OP was signed by both parties. The CAS rejected the athlete’s appeal on November 25, 2009.
The athlete subsequently filed a motion to annul the CAS arbitral award before the Swiss Federal Tribunal (SFT) pursuant to Article 190 par. 2 of the Swiss Private International Law Act (Swiss PILA).4 The SFT rejected the athlete’s motion on February 10, 2010. The athlete further filed a motion for revocation of the CAS award, relying on new medical evidence, before the SFT.5 This motion was also dismissed on September 28, 2010.6
Upon exhaustion of the legal remedies available in Switzerland, the athlete filed a claim before the German Court (“LG München”),7 suing the German Skating Federation and the ISU for damages suffered as a result of an ostensibly unlawful doping ban. The LG München dismissed the Athlete’s claim. In a nutshell, the LG München held that the arbitration clause between the Athlete and ISU was invalid (because ISU had a monopolistic structure and athletes had no choice but to sign the agreement). Nevertheless, the Court was bound by the agreement because the athlete had not invoked the invalidity of the arbitration agreement at an earlier stage.8
The Appeal To The OLG München
The Athlete appealed the LG München decision before the Munich Court of Appeals (“OLG München”), which issued an interim judgment on January 15, 2015.9 The interim judgment dealt merely with the admissibility of the claim in view of the arbitration agreement between the Athlete and the ISU. In its judgment, the LG München found that the arbitration agreement between the Athlete and ISU violated Art. 19 of the German Competition law that aims at harnessing abuses of dominant position (Gesetz gegen Wettbewerbsbeschränkungen, GWB). In the Court’s view, ISU has a monopoly in the relevant market (i.e. in the ice speed skating world championships). Even if the imposition of an arbitration agreement upon an athlete is not an abuse of market power per se, the specific circumstances of the case depicted a structural imbalance related to the selection of the arbitrators before the CAS. Furthermore, the Court held that the CAS arbitral award could not be recognized in Germany because it was in violation of German public policy.10 Finally, the OLG München granted the right to appeal to the BGH (Zulassung der Revision) due to the fundamental nature of the legal issues raised in the Pechstein case.11 Both the LG and the OLG München decisions were criticised by international arbitration practitioners, mostly related to the limits of admissible review of a final – and binding - arbitral award by foreign courts.12
The BGH Decision
The BGH issued a press release with the operative part of its decision, overturning the OLG München and upholding the arbitration clause between the Athlete and ISU. This article offers an account of the jurisdictional issues raised in the BGH Ruling under German law and discusses the legal dimensions and the repercussions of the decision for sports arbitration in Germany and at the international level.
The operative part of the BGH Ruling
The operative part of the BGH ruling can be summarized as follows:
a) The CAS is a genuine court of arbitration within the meaning of Article 1025 par. 2 & 1032 par. 1 ZPO (German Code on Civil Procedure).13
b) An international sports association like the ISU has a dominant position to the extent that it has a monopoly organizing and allowing athletes’ participation in its sports competitions.
c) However, when a sports federation renders the participation in its competitions conditional on the signing of an arbitration agreement in favour of CAS in accordance with the World Anti-Doping Code (WADC), it does not abuse its dominant position.
d) There are sufficient guarantees in the CAS rules to protect the rights of athletes, notwithstanding the closed list of arbitrators or the fact that the arbitrators are appointed by the international Council of Arbitration for Sport (ICAS). ICAS is the supervising body of CAS and consists predominantly of International Olympic Committee (IOC) and International Sports Federations (IF) representatives. This is because athletes and Sports Federations have a shared interest in the fight against doping.
e) The arbitration agreement is valid, also when assessed against the right of access to justice laid down in Article 2 of the German Constitution (Grundgesetz, GG); the constitutional right of professional exercise (Article 12 par. 1 GG); and the right to a fair trial under Article 6 par. 1 of the European Convention of Human Rights (ECHR).
Finality of arbitral awards in Switzerland and the New York Convention
The finality of arbitral awards rendered by tribunals seated in Switzerland is enshrined in Art. 190 par. 1 PILA. The reasons for review by the SFT are exhaustively enumerated in Art. 190 par. 2 Swiss Private International Law Act (PILA).14 The award can be enforced (unless there is a successful request to be granted suspensive effect) in Switzerland or in a foreign state under the provisions of the New York Convention on the recognition and enforcement of arbitral awards of 1958 (NYC58), which has been ratified by 156 contracting States so far. Under the terms of the NYC58, enforcement can be refused merely based on the grounds of Art. V of the NYC 58. In this respect, we should note that the review scope by the foreign courts is very narrow and “pro-recognition” or “pro-enforcement” and should in principle avoid reviewing the decision on its merits, and this is based on the principle of res judicata (a matter already judged and therefore may not be pursued by the same parties), which in turn is based on the underlying principles of natural justice and legal certainty. As X. Favre-Bulle wrote, when a party is unhappy with a first decision and seizes a second court to hear the matter again, the second court should dismiss the action based on the principle of res judicata, even if the second court is not in the same state.15
Some brief facts about the BGH Ruling
In the Pechstein case, the Athlete seized – and exhausted – all available instances before the CAS and, subsequently before the SFT. The CAS award had become final and binding. However, the Athlete successively seized the German Courts, yet this time in Germany (her native country), in her National Federation’s offices in Munich, suing also the ISU as co-defendant according to Art. 6 par. 1 of the Lugano Convention for damages.16 The claim was formally different (claim for damages) yet the underlying principles (invalidity of the sanction) touched upon the merits of the case that was brought before – and decided by – the CAS.
Although the operative part of the BGH ruling is unequivocal regarding the validity of the arbitration agreement between the two parties, there are additional noteworthy issues in the main text of the BGH decision. It should first be noted that the BGH examined the validity of the arbitration agreement applying German law and more particularly the relevant provisions of the German Code on Civil Procedure (ZPO) for the definition of the “arbitral tribunal”.17 The BGH – just like the OLG München decision – also applied German Antitrust Law (GWB) which is imperative law in Germany according to Article 34 of the Introductory Act to the Civil Code (EGBGB).18
CAS is a “genuine court of arbitration” under German law
In its first part, the BGH ruling examined and ultimately confirmed the validity of the arbitration agreement signed between the Athlete and ISU. The BGH started its analysis by finding that the arbitration agreement signed by both parties comes within the ambit of Article 1025 ff. ZPO. It moved on to find that the arbitration agreement was valid to the extent that the CAS qualifies as a genuine court of arbitration under the relevant German civil procedure provisions, as opposed to an internal tribunal of an association or a (non-arbitral) dispute settlement body.19 The BGH further defined a genuine court of arbitration as an “independent” and “neutral” tribunal, and confirmed that the CAS meets these two conditions. The BGH found support in the judgment by the Swiss Federal Tribunal in Danilova/ Lazutina, agreeing that the CAS is independent and ensures a uniform set of jurisprudence.20
The BGH examined the claim that the existence of a structural imbalance within the supervising body of CAS (the ICAS) may impinge on the neutrality and independence of the arbitral tribunal. Under the applicable 2004 CAS Statutes,21 the ICAS was predominantly appointed by international sports governing bodies (12 out of 20 members). The ICAS members would establish a list of CAS arbitrators, three fifths of which should be composed by arbitrators proposed by the International Olympic Committee (IOC), the National Olympic Committees (NOCs) and the IFs. Departing from the OLG München ruling, the BGH found that such imbalance could not endanger the independence and neutrality of the CAS panels.22 In doing so, the BGH adopted a narrow definition of what constitutes lack of independence of an arbitral tribunal, under the standards established by the jurisprudence of the German BGH;23 according to which lack of independence exists when the arbitrators are appointed by one party alone or when the parties cannot influence the constitution of the arbitral panel. However, this is not the case in CAS arbitration, where, notwithstanding the closed list of arbitrators, both parties can appoint the arbitrator of their choice.24
To corroborate its reasoning, the BGH further referred to the CAS list of arbitrators and held that the influence of a specific federation (e.g. the ISU) on the constitution of the CAS list of arbitrators would be too small to justify a claim for structural imbalance. On the contrary, the parties can freely choose a neutral arbitrator among the 150 – 200 arbitrators in the list.25
The key argument used throughout the BGH ruling for speaking against the structural imbalance within CAS (that was supported in the OLG München ruling) was that both parties (i.e. athletes and federations) have common interests; for instance, they both share the common goal for a doping-free sport and therefore are not parties with opposing interests. This led the BGH to make the distinction between sports-related disputes and other disputes, such as employment disputes, acknowledging the sui generis character of the former.26
The BGH went on to examine the neutrality and independence of CAS from the viewpoint of the CAS rules. According to the Court, the CAS rules provide for sufficient neutrality and independence of the arbitrators: they sign the declaration of independence at the outset of their appointment, and they cannot form part of the ICAS. CAS Arbitrators should disclose any circumstances which may affect their independence with respect to any of the parties (Article R33 of the CAS Code) and they can be challenged by the parties if there are circumstances that give rise to legitimate doubts over their independence or impartiality (under Article R34 of the CAS Code).
The BGH rejected all arguments raised and supported in the OLG München decision about the non-disclosure of recurrent appointments by arbitrators or the scrutinizing of the CAS awards by the CAS Secretary General under Article R59: according to the BGH, these issues cannot alter the character of the CAS as a “genuine court of arbitration”.27 In this respect, the BGH drew an analogy to other major institutional arbitral tribunals that foresee similar practices, like the International Chamber of Commerce (ICC).28 By the same token, the BGH stressed the broad definition of “a genuine court of arbitration” under German law (Art. 1025 ff. ZPO), which essentially leaves outside its scope only tribunals that are not statutorily organized as independent tribunals or act merely as the tribunal of an association.
The BGH equally referred to the BGH jurisprudence on the marginal review made by the German tribunals when called to rule on the independence and impartiality of foreign arbitral tribunals in order to recognize or enforce foreign arbitral awards under the New York Convention of 1958.29 Foreign arbitral awards should only be declined recognition when the arbitrator was the executor of the will of one of the parties or because the arbitrators promoted unilaterally the interests of one party based on irrelevant considerations.30 This means that the violation of the principle of impartiality in arbitration must have a concrete impact on the proceedings, and this could not be established in the case of the Athlete during the CAS proceedings. In this respect, the BGH departed from the findings of the OLG München ruling, which had not examined this element specifically with regard to the Athlete’s doping ban, but merely considered that there was a risk that the CAS arbitrators would favour the interests of the sports associations.31
Overall, the BGH stressed the broad scope of Article 1025 ff. ZPO regarding the definition of a “genuine court of arbitration” and confirmed the compatibility of the CAS rules with the requirements of German law pertaining to the neutrality and independence of the CAS arbitrators. It also highlighted the marginal review typically undertaken by German Courts when it comes to examining possible violations of the principle of impartiality of an arbitral tribunal under the New York Convention. The Court further ruled out a predominant influence of the sports federations on the CAS proceedings based on the common interests of both athletes and sports federations in their shared fight against doping. By doing so, it explicitly differentiated between sports-related disputes and labour law disputes (where employers and employees have opposing interests). This means that, in the BGH’s view, the limitations applying to employment (or consumer) arbitration do not apply to sports arbitration in doping-related disputes. It is however questionable whether this specific argument of shared interests could also be applied to other types of disputes, such as football contractual disputes.
In part two, Despina goes on to review the BHG Ruling's in regards to the compatibility of the arbitration agreement with German anti-trust laws by examining in particular the athlete’s right to a fair trial; the constitutional rights of the athlete and the federation; the status of the Swiss Federal Tribunal and the issue of human rights in sports arbitration; the compatibility of sports arbitration clauses with European competition law; and finally the conformity of CAS sports arbitration clauses with Swiss Law.
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- Tags: Anti-Trust | Bundesgerichtshof | Bürgerliches Gesetzbuch | Competition Law | Court of Arbitration for Sport (CAS) | Dispute Resolution | Europe | European Court of Human Rights | German Anti-Trust Law | German Civil Code | German Code on Civil Procedure | Germany | Governance | International Council of Arbitration for Sport (ICAS) | International Skating Union | New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards | Olympic | Regulation | Swiss Federal Tribunal | Swiss Private Law Act (PILA) | Switzerland | Treaty on the Functioning of the European Union (TFEU) | Winter Sports | World Anti-Doping Agency (WADA) | World Anti-Doping Code (WADC)
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Dr. Despina Mavromati, LL.M., is an attorney (Bar of Thessaloniki / Ordre des Avocats Vaudois) practicing in the field of international sports law and arbitration. She is the founder of a Lausanne-based practice (SportLegis Lausanne) and represents athletes, clubs, and sports federations in all aspects of arbitration, trials, and drafting policies.