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Feedback from the FIFA DRC and the CAS

 

By Georgi GRADEV
Sport Counsel, GRADEV SPORTS EOOD
Sofia - Bulgaria

 

CAS 2015/A/4067, 4068 Valeri Bozhinov & PFC Levski Sofia v. Sporting Clube de Portugal, award of 30 June 2016 (confidential)

CAS 2015/A/3999-4000, Al Ittihad Club v. Diego De Souza Andrade & FIFA, award of 17 March 2016 (unpublished)

CAS 2013/A/3411 Al Gharafa S.C. & Mark Bresciano v. Al Nasr S.C. & Fédération Internationale de Football Association (FIFA), award of 9 May 2014

CAS 2010/O/2132 Shakhtar Donetsk v. Ilson Pereira Dias Junior, award of 28 September 2011

CAS 2006/A/1180 Galatasaray SK v. Frank Ribéry and Olympique de Marseille, award of 24 April 2007

CAS 2011/O/2521 Matteo Ferrari v. Besiktas, award of 16 October 2012 (confidential)

CAS 2013/A/3374 Al Ahli Club v. David Anthony O’Leary, award of 14 January 2016 (unpublished)

FIFA DRC, 27 November 2014 (unpublished)

FIFA DRC no. 56661, 30 May 2006

FIFA DRC no. 0113797, 23 January 2013

FIFA DRC, 17 December 2015 (unpublished)

FIFA DRC no. 03132433, 15 March 2013

FIFA DRC no. 11141064, 6 November 2014

 

This contribution is intended to brief you on how FIFA and the Court of Arbitration for Sport (CAS) deal with selected day-to-day practical issues.

1. Liquidated Damages – the “reciprocity” requirement

By using the words “unless otherwise provided for in the contract”, Article 17 of the FIFA Regulations on the Status and Transfer of Players (RSTP) gives primacy to the parties’ own agreement as to the assessment of the compensation for breach of contract in disputes between players and clubs. There is no limitation in said article as to the parties’ freedom to determine the exact amount or the method of calculation of such compensation.[1] Also, Article 17 RSTP is silent as to whether a liquidated damages clause should be reciprocal. There is no such requirement stipulated in the Swiss Code of Obligations (CO) either.

In an unpublished decision issued on 27 November 2014 by the FIFA Dispute Resolution Chamber (DRC), and with regard to the liquidated damages clause stipulated in an employment contract, “the Chamber reasoned that the employment contract did contain a clause regarding compensation to be awarded in case of breach of contract [by] the parties, but insisted that the calculations stipulated therein are not reciprocal, reason for which the DRC did not apply art. 12 of the employment contract[2] and went on to assess the compensation due to the Claimant in accordance with the other criteria laid down in Article 17 RSTP.

Following an appeal to CAS by the player, and in respect of the “reciprocity” requirement applied by the DRC, the Panel chose to follow the approach of another CAS Panel in the case CAS 2015/A/3999-4000 (presented by Mr Michele Bernasconi at the CAS Seminar in Lausanne, 2-3 September 2016), which considered as follows:[3]

158. The Panel notes that article 17 (1) of the FIFA Regulations does not require contractually agreed liquidated damages clauses to be reciprocal, nor is there any other source or legal doctrine, or at least no such source has been cited by any of the parties, based on which such test would have to be applied.

159. As a consequence, the Panel is not convinced that both liquidated damages clauses must be set aside for the mere fact that they are not reciprocal. […].

160. Rather, the Panel finds that the appropriate test should be whether there has been any excessive commitment from any of the contractual parties in respect of the conclusion of the applicable clause, i.e. in this case article 5(1) of the Employment Contract.

Consequently, the Panel decided “that there is no apparent reason as to why the liquidated damages clause shall not be applied. The Panel is not convinced that there has been any sort of excessive commitment from the side of [the club] when it entered into the Employment Contract with the Player, at least no evidence has been adduced that might lead one to believe that this has been the case. The Panel therefore finds that article 12 of the Employment Contract is in principle applicable.[4]

By this means, CAS confirmed its past approach not to apply the “reciprocity” requirement, endorsing the CAS decisions in CAS 2013/A/3411[5] and CAS 2010/O/2132[6].

Following the aforementioned CAS awards, I recommend to FIFA to drop the “reciprocity” requirement, which obviously lacks legal basis, and to rather look into the liquidated damages clause whether it contains an excessive commitment by the defaulting party and, if yes, then to what extent the pre-determined compensation could be reduced to a level that would be considered fair and proportionate in accordance with the peculiarities of each case.

 

2. The doctrine of contributory negligence in the case of liquidated damages

In the matter CAS 2013/A/3374, award of 4 July 2014, the CAS Panel had to address the question whether the liquidated damages agreed upon between the parties in the employment contract should be reduced because the coach contributed to the termination of the employment contract.

The CAS Panel ruled as follows:

93. As the parties mutually agreed on the unconditioned consequences of a unilateral breach, i.e. “compensation of the full balance of the contract”, the Panel finds that elements that could normally be taken into account in determining an appropriate amount of compensation, as for example is done in case of application of article 17 of the FIFA Regulations on the Status and Transfer of Players in case of a dispute between a football player and a club, is, in principle, overruled by the will of the parties to an unconditioned amount of compensation.

94. As such, the Panel finds that there are two possibilities: 1) the Coach commits a contractual breach severe enough for the Club to terminate the Employment Contract with just cause, in which case the Coach is obviously not entitled to compensation; or 2) the Coach commits a contractual breach that is not severe enough for the Club to terminate the Employment Contract with just cause, in which case the contractually agreed compensation would have to be paid by the Club, without any reduction.

95. Finally, the Panel finds that contributory negligence of the Coach, if any, cannot lead to a reduction of the damages of the Coach. As stated by Swiss legal commentators:

‘Although the indemnity is considered as a claim for damages, it cannot be reduced as a result of a contributory negligence of the employee (…)(Unofficial translation from TERCIER/FAVRE/EIGENMANN, Les Contrats Spéciaux, Schulthess Verlag, 2009).

‘Although it is a claim for damages, it is not deductible for contributory negligence of the employee. Such a derogation to Art. 44(1) CO results from the clear intention of the legislator, which intended to prohibit that, in case of unjustified termination with immediate effect partially caused by the fault of the employee, the employer could, actually, reduce unilaterally the salary due.(Unofficial translation from AUBERT, Chapitre premier : Du contrat individuel de travail, 2-7 art. 337C, p. 2103).

96. Consequently, the Panel finds that the Coach’s contribution to the termination of the Employment Contract, if any, cannot be taken into account in determining the amount of compensation to be paid.”

Conversely, in the case CAS 2015/A/4067, 4068, the CAS Panel found that Article 44 par. 1 CO[7] is applicable to the matter at hand as circumstances attributable to the player exacerbated the position of the club and that the amount of compensation payable by the club to the player should be reduced as a consequence thereof. It is noteworthy that, in reaching such a conclusion, the CAS Panel referred to CAS 2014/A/3647, 3648, par. 121[8], which concerned a dispute between two clubs over a transfer agreement and not an employment-related dispute.

 

3. The 90-day time limit agreed between a player and a club in an employment contract

a. The 90-day time limit as a prerequisite for the termination of an employment contract

In the case FIFA DRC no. 56661 Galatasaray SK v. Frank Ribéry & Olympique de Marseille, decision of 30 May 2006, the DRC had to deal with a termination clause providing that an outstanding salary payment that is 90 days late needs to be communicated by the player to the club’s administrator, who has a delay of 10 days to resolve the matter. If no solution is found, the club’s committee, subcommittee, or secretariat has another 14 days to deal with the issue. Only 3 days after having gone through this procedure, i.e. after a delay of payment of 117 days, could the player cancel the contract and turn to FIFA or to the competent national labour courts in Turkey.

After a thorough analysis of the admissibility of the clauses in question, the DRC came to the conclusion that they, in essence, serve to extend the contractually stipulated payment deadlines of club A. Unquestionably, an extension of the delay for lodging a claim on unpaid salaries of 117 days is considerable since it is limiting the player in exercising one of his basic rights resulting from the employment contract. Therefore, even if these clauses have been accepted by a player in an employment contract, the DRC considered that the period of 117 days is certainly excessively stretching the admissibility of the clauses 5.1, 5.4 and 5.5 of the employment contract at the basis of the present litigation.”[9]

The CAS Panel in charge of the appeal confirmed the afore-cited DRC decision stating as follows:

“Art. 5.4 the Contract stipulates that the Player can institute an action pursuant to Art. 41 para.1 lit. a RSTP 2001 before the DRC only if the Appellant is late with its payment obligations by more than 90 days. In the view of the Panel such clause disadvantages the Player considerably. For, while the Player has to render his contractual obligations immediately when due, the Contract allows the Appellant - without any corresponding consideration - a long payment period of 90 days. This appears as a one-sided and serious prejudicial treatment of the Player, which seems no to be accordant to the autonomy granted to the parties in Arts. 21 et seq. RSTP 2001. It is doubtful to the Panel that an employee may waive his basic rights in advance in favour of the employer. The clause might well circumvent Arts. 21 et seq. RSTP 2001 because it could make the obligation to respect the contractual stability grossly one-sided to the detriment of the Player.”[10]

In the confidential award CAS 2011/O/2521, the Panel had to deal with the following termination clause:

If the Club, for whatever reason, fails and/or delay to pay any installments mentioned in section (a) above for more than 3 months, this Agreement may be terminated by the Player for just cause. In order to exercise this termination, the Player shall first make a written notification (only via facsimile as well) to the Club and if the Club does not pay the due amount within 15 days after receiving this notification, the present Agreement shall automatically terminate for just cause.”

On 30 June 2011, the player put the club in default with regard to outstanding salaries, tax reimbursements and medical costs. On 11 July 2011, the player notified the club of his decision to unilaterally terminate the contract, with immediate effect, prior to the expiry of the 15-day time limit stipulated in the termination clause contained in the contract.

The Panel considered that the player did not have to wait until the end of the 15 day-period fixed by the player in his notice of 30 June 2011, “given the new facts which occurred between that date and 7 July 2011.”[11] In particular, the Panel noted that, upon his arrival in Istanbul on 30 June 2011, the player was excluded from his team and forced to train with only one other player, in condition unworthy of a professional football player of his level. In the meantime, the rest of the team travelled to Austria for a training camp, from which the player was also omitted. The club put forward no explanation for these measures and did not properly inform the player about his future at the club. The player, therefore, had good reasons to consider that the club is no longer interested in his services and in the future performance of the contract. In fact, the club did not show any intention of paying the outstanding amounts, neither during nor after the 15 day-period starting on 30 June 2011. Notably, the club never paid those amounts. Accordingly, on 11 July 2011, the player in good faith did not have any reason to expect the club to be willing, all of a sudden, to comply fully with the contractual obligations. Under such circumstances, the player was entitled to anticipate the club’s non-compliance with its duties.[12]

In the case FIFA DRC no. 0113797 Agim Ibraimi v Eskisehirspor, decision of 23 January 2013, the DRC had to deal with a termination clause providing that if “the receivables of the player are not paid by the club, the player may claim his receivables to be paid to him within 90 days by giving notice in writing to the club through notary. In case the receivables are not paid to the player within 15 days after receiving the written notice, the player may terminate this Contract”.

The DRC highlighted that such clause was worded in such a way that it would greatly be to the benefit of the club. Furthermore, the DRC agreed that the player had no reason to believe that the club would have paid him his receivables in the event that he would have fully respected the time limits contained in the termination clause. The DRC felt confirmed in this belief on the basis of the fact that the club, neither within the context of the player’s notice dated 27 December 2010 nor until the day of the decision, has remitted any payment to the player. Moreover, the DRC took into account that the club had not indicated any (valid) reasons that possibly could have justified the non-payment of the player’s remuneration during a considerable period of time. Therefore, the DRC decided that the player terminated the contract with the club for just cause, irrespective that he did not follow the procedure stipulated in the termination clause.

In the case FIFA DRC no. 03142787 Daniel Bozhkov v Widzew Lodz, decision of 28 March 2014, the DRC had to deal with a termination clause providing that “[the player] may apply to the PZNP Competition Division for the termination of the contract (…) in the event of a gross breach of [the club’s] obligations, in particular a breach of the obligation to pay (…) for a period of no fewer than three months” [emphasis added].

Based on said clause, the club sustained that two outstanding remunerations were not considered by the parties as just cause to terminate the contract.

The DRC rejected the club’s argument, considering that, “by using the verb “may”, it clearly granted a right to the player to terminate the contract if a certain criteria is met, nevertheless, by no means imposes a limitation on when the contract can be terminated. What is more, the Chamber wished to reiterate that, apart from the two outstanding salaries, the Claimant had been excluded from training with the team and had not been registered for the 2011/2012 season.”[13]

However, in full contrast with the above FIFA decision, in an unpublished decision of 17 December 2015, the DRC surprisingly dealt with the following termination clause: “This contract may be terminated […] if the club does not pay the salary […] during 3 months.”

The player put an end to the contract for non-payment of 2 monthly salaries, having alerted the club. In the notice of termination, which was adduced to FIFA, the player indicated, inter alia, that: “[the termination clause] does not and cannot come into play in the present matter, because the use of the verb “may” in the phrase “[t]his contract may be terminated […] if [the] club does not pay the salary intended in Article 5.1. of the contract during 3 months” [emphasis added] clearly grants [the player] a right that by no means imposes a limitation/obligation on when the Contract can be terminated. “May” is obviously different from “must” or “shall”. This is also the position under FIFA recent jurisprudence (cf. FIFA Ref. No. [03142787], decision of 28 March 2014, par. II.27).”

In reply to the player’s claim to FIFA, the club did not even mention the player’s non-compliance with the procedure stipulated in the termination clause.

FIFA, all of the sudden and without considering providing the player with the opportunity to express his view on the termination clause or taking into account his position on the issue under the notice of termination, decided that the termination clause stipulates that the contract “may” (!) [emphasis added] be terminated in the case that the club does not pay the player’s salary for three months. This was not only freely agreed between the player and the club in their contract but it is also in line with the DRC’s longstanding jurisprudence (!). Thus, given that the player terminated due to non-payment of just 2 salaries, FIFA surprisingly decided that the player did not have a just cause to unilaterally terminate the employment contract, obviously failing or omitting to consider the clear language of the termination clause, i.e. FIFA did not interpret the verb “may” used by the parties in said clause, as opposed to FIFA’s own approach in FIFA DRC no. 03142787 Daniel Bozhkov v Widzew Lodz.

 

b. The 90-day time limit as a grace period for payment of remuneration

In the case FIFA DRC no. 03132433, decision of 15 March 2013, the DRC had to decide on the validity of a contractual clause providing that “the employer has the right and shall pay all the employee’s emoluments in the manner specified herein with a grace period of 90 (ninety) days.”

In its decision, the DRC upheld the validity of said clause, considering as follows:

16. Subsequently, the Chamber observed that said clause was included in the contract as a result of mutual consent of the parties and, therefore its legal consequences were accepted by the Claimant.

17. In addition, the Chamber recalled that the inclusion of such stipulations in the contract, regarding the payment date of remuneration, is not prohibited by the FIFA Regulations.

18. Consequently, the DRC concluded that art. 11 of the contract, as a valid clause established by the free will of the parties, is applicable to the matter at hand and, therefore, the salaries of April and May 2011 were indeed not yet outstanding by the time of termination and cannot be considered as a valid cause to justify the unilateral termination of the contract by the Claimant on 26 July 2011.”

In the matter FIFA DRC no. 11141064, decision of 6 November 2014, the DRC was seized by a player with a claim for outstanding salaries and compensation for breach of the employment contract by the club, under which all payments due by the latter to the former should be paid on the 31st of each month “and with a grace period of 90 days.”

The DRC, while repeating its arguments in the afore-cited FIFA DRC no. 03132433, decision of 15 March 2013, “concluded that the salaries of October, November and December 2012 were indeed not yet outstanding by the time of termination and cannot be considered as a valid cause to justify the unilateral termination of the contract by the Claimant / Counter-Respondent on 25 January 2013.”[14]

Notwithstanding the foregoing, and referring to the principle of pacta sunt servanda, the DRC decided that the club must pay the player the salaries for October, November and December 2012 and monthly accommodation, which should bear interest of 5% per annum accruing since the expiry of the 90-day grace period for payment until the date of effective payment.[15]

The player appealed to CAS, and the Panel partially reformed the DRC decision, making further clarifications as to the validity and consequences stemming from the application of the “90-day grace period” clause.[16]

The following considerations of the Panel are worth noting and should be considered by the DRC in the future:

8.34 The Panel emphasises, however, that it does not, by implication, take the view that a player, in case of continued non-payment after the expiry of a similar grace period, would have to wait another three months before the contractual relationship could be terminated with just cause in accordance with the Regulations.

8.35 On the contrary, the Panel considers that the commencement date for determining how long a club has been in breach of the contract for non-payment will still be the original due date when the club in question fails to pay the outstanding amount within an agreed grace period. Furthermore, and in case of continued non-payment after the expiry of a grace period, interest may be calculated as from the original monthly due date on the last day of the month in which a monthly payment fell due.

8.36 Where a grace period is validly agreed between a player and a club it is generally not considered to be contrary to the Regulations. In this context, the Panel attaches particular importance to the agreed grace period not exceeding a period which is considered acceptable in accordance with current practice before the player concerned can be certain to have just cause for termination of the contractual relationship as a result of non-payment.

8.37 The Panel also emphasises that it, by accepting the expressly agreed grace period, has not precluded the possibility that the Appellant, for other reasons, could have had just cause to terminate his contract of employment. The Panel thus emphasises that, in order to determine whether in any circumstances just cause exists to terminate a contractual relationship, it must still be crucial whether the relevant party in good faith, can be expected to continue the employment relationship.”

 

[1] Cf. also Article 163 par. 1 of the Swiss Code of Obligations (CO)

[2] Par. II.26 of the cited DRC decision

[3] Cf. CAS 2015/A/4067, 4068, par. 169

[4] Ibid., par. 170.

[5] Cf. par. 95: “Swiss law does not require “penalty clauses” to be “reciprocal” in order to be valid. Therefore, the DRC was not entitled to disregard it, only because it would not apply to a breach committed by [the club]”.

[6] Cf. par. 77-80, 83-84, in which the CAS Panel upheld the validity and enforceability of a liquidated damages clause in favor of the club only, noting, inter alia, that the fact that the clause only foresees the consequences of its potential breach by the player does not mean at all that in case it was the club the one breaching the clause, no consequence would arise. This consequence could be well established in accordance with the applicable law to the contract.

[7]Where the injured party consented to the action which caused the loss or damage or circumstances attributable to him helped give rise to or compound the loss or damage or otherwise exacerbated the position of the party liable for it, the court may reduce the compensation due or even dispense with it entirely.”

[8] “[A]ccording to Article 44 para. 1 CO, compensation may be reduced if there are circumstances attributable to the injured party that helped to give rise to or increase the damage.”

[9] Cf. par. II.18 of the cited DRC decision

[10] Cf. CAS 2006/A/1180, par. 22 of the brief award published by CAS

[11] Cf. par. 87 of the cited CAS award

[12] Cf. par. 88 of the cited CAS award

[13] Cf. par. II.27 of the cited DRC decision

[14] Cf. par. II.18 of the cited DRC decision

[15] Cf. par. II.21-22 of the cited DRC decision

[16] Cf. CAS 2015/A/3993