FIFA shown the red card

1 October 2010

ARBITRATION GROUP

Historic reversal by Swiss Federal Supreme Court of Court of Arbitration for Sport decision

FIFA may not have come out of the World Cup 2010 very well but, just prior to it, FIFA was also given a judicial red card before the Swiss Federal Supreme Court (“SFSC”) in a landmark case in which the SFSC set aside an arbitral award rendered by the Court of Arbitration for Sport (“CAS”) for a violation of public policy – the first appeal to succeed on this often pleaded but never accorded ground pursuant to the Swiss Federal Act on Private International Law (“PIL Act”).

The appeal was brought by Club Atletico de Madrid SAD (Appellant) against Sport Lisboa E Benfica –Futebol SAD (Respondent). FIFA participated in the appeal. Both Appellant and Respondent belong, through their respective National Federations, to FIFA, a Swiss Association with its seat in Zurich. The decision of the Court was handed down in German (4A_490/2009; judgment April 13, 2010)

Briefly, the facts of the case are as follows:

  • In September 2000 the Respondent hired a player from AFC Ajax NV. A contract of employment was entered into by the player and the Respondent for a four year term. A dispute arose and the player terminated the contract in December 2000. Immediately thereafter he entered into another employment contract with the Appellant. The dispute between the player and the Respondent was eventually settled before the Lisbon Labour Court in January 2003.
  • In the meantime, in June 2001 the Respondent made a claim against the Appellant for compensation for training and promotion in accordance with the then in force FIFA Regulations for the Status and Transfer of Players (Article 14.1, October 1997 Edition).
  • In April 2002 FIFA’s Special Committee ordered the Appellant to pay to the Respondent compensation in the amount of US$2.5 million. In June 2002 the Appellant challenged the decision of FIFA before the Commercial Court in Zurich.
  • In June 2004 the Zurich Court held that FIFA’s decision was void because its Transfer Regulations breached European and Swiss competition laws. The Respondent did not participate in these proceedings and no appeal was lodged against the judgment.
  • Further to the judgment of the Zurich Commercial Court the Appellant and FIFA entered into an agreement in August 2004 according to which FIFA undertook to take into consideration the judgment of the Zurich Commercial Court should the Respondent make any new claims with FIFA against the Appellant in this matter.
  • In October 2004 the Respondent again sought a decision from FIFA as to compensation for training and promotion with regard to the player in question and submitted that the Appellant should pay Euros 3.167 million. FIFA’s Special Committee rejected the Respondent’s claim in its decision of 14 February 2008 (but only notified in December 2008).
  • In January 2009 the Respondent appealed FIFA’s decision to the CAS and requested that FIFA’s decision be reversed and compensation should be paid in the amount of Euros 3.167 million or alternatively that the CAS remit the decision back to FIFA for a new decision. The Appellant opposed the appeal, inter alia relying on the res judicata effect of the Zurich Commercial Court of June 2004.
  • In an Award of August 2009 the CAS granted Respondent’s appeal in part and ordered the Appellant to pay Euros 400,000 to the Respondent based on the 1997 FIFA Transfer Regulations.

The SFSC has now set aside the Award of the CAS on the basis that CAS had breached public policy pursuant to Article 190(2) (e) of the PIL Act. Essentially, the Zurich Commercial Court judgment had found FIFA’s Special Committee’s decision to be void because it was based on transfer regulations which were in breach of competition laws. The CAS could not award compensation based on FIFA’s Regulations which the Zurich Commercial Court had found to be void and this finding had res judicata effect and could not be ignored by the CAS. The Award of CAS disregarded the material legal effect of the Zurich Commercial Court’s judgment and therefore must be set aside because an arbitral tribunal violates procedural public policy when it ignores the legal force of an earlier judgment

This decision is the first time the SFSC has set aside an arbitral award on the grounds of a breach of public policy. It is a bold decision which sends a message to both FIFA and the CAS that they cannot be laws unto themselves.

One should also put this decision in the context of appeals from arbitrations to the SFSC in general. Appeals from awards in Switzerland are a one-stop appeal straight up to the SFSC. The chances of success are very slim indeed and submissions must be made on very strict legal grounds. Article 190(2) of the PIL Act sets out that an award may only be annulled (a) if the arbitral tribunal was not properly appointed; (b) if the arbitral tribunal wrongly accepted jurisdiction; (c) if the arbitral tribunal’s decision went beyond the claims submitted to it , or failed to decide on one of the items of the claim; (d) if the principle of equal treatment of the parties or their right to be heard was violated; or (e) if the award is incompatible with public policy.

The chances of success to appeal an arbitration to the SFSC is approximately 6.5%. Of the some 40 appeal cases since 2005 that invoked a violation of public policy this is the first time it was accorded. Moreover, one has seen over time that CAS awards are increasingly susceptible to appeals, which has had a statistical impact on the number of appeals lodged against arbitral awards in Switzerland. Indeed, as one author has pointed out (F. Dasser, ASA Bulletin vol. 28, no 1, 2010 p. 97) the data on appeals shows that the large number of challenges to arbitral awards over the last few years is largely due to appeals in sports law cases handled by the CAS because when one separates appeals from CAS from the rest one notes that appeals against ordinary commercial arbitration cases in Switzerland is in fact decreasing.

Ian Meakin is a member of XXIV Old Buildings and is based in our Geneva office. He specialises in international arbitration and sports law and is recommended in the directories in both these areas.