Prohibition of Third Party Ownership (TPO) agreements in football under the FIFA Regulations. Legality of the CAS awards and CAS independence from FIFA. European competition law and violation of substantive public policy. Restriction of the economic freedom of the clubs with respect to TPO agreements and prohibition of excessive commitments of Art. 27 (2) Swiss Civil Code.
This judgment can also be characterized as a sequel of the Lazutina judgment rendered by the Swiss Federal Tribunal 15 years ago. It is also interesting for a number of other reasons.
The case related to a disciplinary sanction imposed by FIFA on a football club for violation of the Third-Party Ownership (TPO) provisions of the FIFA Regulations on the Status and Transfer of Players (RSTP). The Appellant, a third division club (RFC Seraing) registered with the Royal Belgian Football Association (RBFA) had concluded TPO contracts with the investment company (Doyen Sports Investment Ltd). The TPO agreements are prohibited under Art. 18ter of the FIFA RSTP.
The FIFA Disciplinary Commission imposed a four-year transfer ban on the Appellant and a CHF 150’000 fine, a decision that was subsequently confirmed by the FIFA Appeal Commission. The sanction was partially confirmed by the CAS in a lengthy and quite interesting award. RFC Seraing and the TPO Company Doyen Sports Investments Ltd had initiated other proceedings before the European Commission and the state courts in Belgium.
The TPO Provisions
The provisions on TPO aim at preventing third parties from acquiring ownership of the players’ economic rights. The TPO practice consists of having a professional football club selling, totally or partially, its economic rights over a player to a third-party investor, so that this investor may benefit from any potential capital gain that the club will make upon the future transfer of the player. In return, the investor provides financial assistance to the club to allow it to resolve cash flow problems or helps acquire a player, among other objectives.
A club that is interested in a player but is unable to pay the transfer fee required by the player’s current employer may call upon an investor who will provide the necessary funds for the payment of all or part of the transfer fee. In exchange, the investor obtains a share of the profits on the indemnity that the club will get in case of subsequent transfer of the player (at A.a. and A.b of the SFT judgment).
In its award rendered on March 9, 2017, the CAS Panel applied the FIFA RSTP and Swiss law and considered the mandatory rules of European law but refused to apply Belgian law.
The CAS Panel considered the rights guaranteed by the Treaty on the Functioning of the EU (TFEU), including the free movement of capital (Art. 63 TFEU). The restrictions on capital movements from, to or between the EU Member States from Art. 18bis and Art. 18ter RSTP were found to respect the principle of proportionality: they pursue a legitimate objective (such as safeguarding the regularity of sports competitions) and they were appropriate to achieve such objective without going beyond what is necessary in order to achieve said objective (since the measures only prohibit certain financing schemes which give the investor the power to influence the independence and policy of a club).
The Panel found another case related to the TPO that led to the SFT judgment 4A_116/2016 not relevant to the case at hand since it involved different parties and did not deal with the compliance of the TPO type contracts with Art. 18ter RSTP.
The sanctions imposed by FIFA were also found to be proportionate to the violation – two separate offences, deliberate and repeated violations of the RSTP and unwillingness to cooperate in the FIFA proceedings. However, since this was the first case dealing with the matter of prohibition of TPO, the panel reduced the sanction to three consecutive transfer periods while confirming the amount of fine (at B.b.a and B.b.b. of the SFT judgment).
In the subsequent appeal to the SFT, the Appellant primarily alleged that the CAS is not a true arbitral tribunal (thus invoking the incorrect constitution of the arbitral tribunal of Art. 190 (2) (a) PILA); it also alleged that the Chaiman of the Panel violated its right to be heard through his conduct during the proceedings (Art. 190 (2) (d) PILA) and a violation of substantive public policy (Art. 190 (2) (e) PILA) for endorsing FIFA’s total ban on TPO and imposing manifestly disproportionate sanctions.
The main part of the judgment focuses on the “legality” of the CAS as an arbitral institution but also its independence from FIFA, since the Lazutina judgment had only reviewed the independence of the CAS from the IOC. According to the Appellant, the obligation to have recourse to CAS is illegal also because it is imposed by a “mafia-like” association that is FIFA (at 3.1.1). Another argument raised was that FIFA is the dominant federation in terms of volume of business to the extent that it affects its independence.
In its answer, the CAS gave – for the first time – important information on its governance and internal financial structure. It disclosed, for example, that FIFA’s annual financial contribution to CAS’ overhead costs was CHF 1’500’000. This amount was compared to CHF 7’500’000 paid by the entire Olympic movement out of a total CAS budget of CHF 16’000’000. The CAS also highlighted the fact that most football arbitration proceedings are of commercial nature (where the parties need to pay the arbitration costs) and FIFA only plays an active role in the CAS proceedings in cases arising out of the FIFA Disciplinary Code and the FIFA Code of Ethics (approximately 5% on average).
The CAS Secretary General further disclosed that 65% of the CAS’ workload involves football cases but almost half of them do not concern FIFA since they are either domestic cases, decisions rendered by continental confederations such as UEFA and so-called “direct” proceedings involving parties wishing to bring their case to the CAS without going through the FIFA instances.
The SFT repeated the arguments laid down in the Lazutina judgment of May 27, 2003 (and the subsequent jurisprudence confirming said judgment), where it had found that the CAS was sufficiently independent of the IOC as well as of all the parties calling upon its services and its decisions can be considered as “real” awards assimilated to state court decisions. It also referred to the Pechstein judgment of the German Bundesgerichtshof of 7 June 2016 which confirmed that the CAS is a genuine, independent and impartial arbitral tribunal (3.4.1).
As held by the SFT in its judgment, and in accordance with the principle of sovereign nations, the opinions expressed by the superior courts of an EU member state have no more weight than that of the supreme judicial authority of the country in which the case in dispute is pending (in casu, Switzerland, at 3.4.1).
The SFT reiterated its mission when controlling the legality of an arbitral institution based in Switzerland, which is not to reform the CAS nor to recast its governing regulations but must only ensure that it reaches the independence level required to be assimilated to a State court (at 3.4.2.).
The SFT further highlighted the institutional amendments made by the ICAS in the last years, such as the President of the Appeals Division is no longer the IOC Vice-President but a former athlete. Furthermore, the ICAS is no longer required to have a quota of arbitrators selected from among the persons proposed by the sports organizations (1/5th each for the IOC, the IFs and the NOCs).
Regarding the violation of the parties’ right to be heard by the Chairman of the Panel during the CAS proceedings, the SFT found these criticisms to be unfounded: the Chairman of the Panel, who had stopped the Appellant from criticizing FIFA as an organization and the conduct of some of the members of its Executive Committee, was merely directing the debates, ensuring that they were concise and inviting the parties to focus on the subject of the dispute (Art. R44.2(2) of the Code by reference to Art. R57 (3) CAS Code.
Finally, with respect to the alleged violation of substantive public policy, the SFT referred to the Tensacciai judgment of March 8, 2006 and confirmed that the provisions of any competition law do not fall within the scope of substantive public policy (at 5.2). What is more, an obligation imposed by an award to compensate another party fairly would not fall within the restricted scope of substantive public policy even if it contradicted a norm of supranational law (at 5.2).
Within the scope of substantive public policy, the Appellant also attacked the CAS award for violation of Art. 27 (2) Swiss Civil Code that prohibits excessive commitments (at 5.4.1). The SFT reiterated that there needs to be a severe and obvious violation of Art. 27 (2) CC to fall within the scope of substantive public policy, a condition that was not fulfilled in this case: By prohibiting TPOs, FIFA is restricting the economic freedom of the clubs for certain types of investment but does not suppress it. Clubs remain free to pursue investments, as long as they do not secure them by assigning the economic rights of the players to third party investors.
FC Seraing, Doyen Sports Ltd and other parties filed claims with the State Courts in Belgium with a view to authorize TPO agreements and declare the TPO prohibition illegal. The 18th Chamber of the Brussels Court of Appeal issued, on August 29, 2018, an interlocutory decision dismissing the request for suspension of the disciplinary sanction filed by FC Seraing and Doyen Sports Investments Ltd against FIFA et al. In this decision, the Court accepted its jurisdiction, considered that it can hear the case to the extent that its effects are limited to the Belgian territory (based on Art. 6 (1) Lugano Convention) and, finally, rejected the request for provisional measures filed by Doyen & FC Seraing for lack of new elements that would otherwise constitute a change of circumstances compared to the Court’s judgment of March 10, 2016.
Legality of the FIFA arbitration clause
The most interesting point of the interlocutory decision of August 29, 2018 is the examination of validity of the arbitration clause enshrined in the FIFA Statutes. The Belgian Court proceeded to the interpretation of the FIFA arbitration clauses under Belgian law and found them to be too broad to be valid since the scope is not limited to a specific legal relationship.
The fact that the FIFA clause was meant to cover FIFA’s activities and its relationship with its members through its specialized statutes was found to be irrelevant, all the more since RFC Seraing is only an indirect member of FIFA / UEFA. The argument that disputes covered by the FIFA clause would implicitly only cover “sporting disputes” (since the CAS could only accept those disputes) was equally dismissed, since it is not part of the arbitration clause and the CAS is a third party free to amend its rules at all times irrespective of the FIFA statutes.
The Court further found that the principle of “favor arbitrandum” is not a general principle that would go so far as to circumvent the specificity of the scope of the arbitration clause.
Finally, and more generally, an arbitration clause, even when it only involves two parties, can merely cover a specific legal relationship between them and not all possible disputes. The exceptions from the CAS jurisdiction for cases where the jurisdiction of the Zurich State Courts is foreseen only confirm the broad scope of the FIFA arbitration clauses (paras. 14-16 of the Decision of the Brussels Court of Appeal).
The practical consequences
The debate is set to continue in the next months / years. However, what is the value of the finding that the FIFA arbitration clause is too broad and thus unenforceable under Belgian law? The SFT held in its 4A_260/2017 judgment that, based on the principle of national sovereignty, the opinions expressed by the superior courts of an EU member state have no more weight than that of the Swiss supreme judicial authority (4A_260/2017, at 3.4.1).
Furthermore, this finding does not affect the CAS and its legality as an arbitral institution. CAS Panels are called to rule on their jurisdiction based on the Kompetenz-Kompetenz doctrine and on a case-by-case basis. While the FIFA arbitration clause has been under scrutiny by many CAS Panels to date, there has not been a case where the legality of the clause was questioned as such.
Also, Swiss courts have not dealt with this specific question related to the arbitration clauses of sports associations. It should be noted that the Brussels Court of Appeals is merely an interlocutory decision that ruled on its jurisdiction and dismissed the request for provisional measures. The final decision of the Court might as well reach the same conclusion as the CAS Panel in the TAS 2016/A/4490 award and confirm the measures taken by FIFA with respect to the substance of the dispute, which relates to the TPO prohibition.
In any event, the Belgian Court finding was enough to allow the claim to proceed and dismiss the “exception d’arbitrage” objection filed by FIFA et al. The finding that the FIFA arbitration clause was too broad means that other similar arbitration clauses of sports federations may have an analogous fate, if their validity is challenged before other Belgian state courts. In any event, this should lead to a reconsideration of the arbitration clauses of all sports federations in order to resist potential challenges in the future.
The SFT judgment 4A_260/2017 put an end to the judicial journey of the RFC Seraing in Switzerland but the debate seems far from over in Belgium. The issues that the SFT discussed and decided in a final and binding manner in this “Lazutina reloaded” judgment are the following (relevant in terms of Art. 190 (2) (a) and (e) PILA):
- First, the CAS is an independent arbitral tribunal and its awards can be assimilated to state court judgments (at 3.4.2). The CAS is further sufficiently independent from the FIFA, notwithstanding the fact that the latter is one of the principal users of its services.
- Second, a prohibition of TPO agreements seems to be compliant with European law: it pursues a legitimate objective (safeguarding the regularity of sports competitions) and seems appropriate to achieve such objective since the measures only prohibit certain financing schemes which give the investor the power to influence the independence and policy of a club.
On the other side, the debate continues in Belgium where the Brussels Court of Appeals proceeded to a strict and objective interpretation of the FIFA arbitration clause, irrespective of the principle “favor arbitrandum” and the “specificity of sport” that once led the Swiss Federal Tribunal to see arbitration clauses related to sport (and more specifically doping-related disputes) with a certain “benevolence”.
Irrespective of the practical consequences and the impact this finding might have on Swiss Courts, the Brussels Court of Appeal interlocutory decision is a good reminder that sports federations should draft their clauses carefully since CAS jurisdiction is neither self-evident nor automatic and should rely upon a valid and not overly broad arbitration clause.
 See TAS 2016/A/4490, Seraing v. FIFA, award of March 9, 2017. For an insightful comment on the CAS award see http://www.asser.nl/SportsLaw/Blog/post/rfc-seraing-at-the-court-of-arbitration-for-sport-how-fifa-s-tpo-ban-survived-again-eu-law-scrutiny
 See 18th Chamber of the Brussels Court of Appeal of August 29, 2018 (2018/6348). This decision followed another interlocutory decision rendered by the same court on January 11, 2018. Various other proceedings were initiated by FC Seraing and Doyen Sports Investments Ltd as it is shown from the table below (« chronological overview »).
 Art. 1681 of the Code Judiciaire Belge (« au sujet d’un rapport de droit déterminé »).
 See Mavromati / Reeb, The Code of the Court of Arbitration for Sport (CAS) : Commentary, Cases and Materials, Kluwer Law International 2015, p. 39 and the references included therein, in particular CAS 2005/A/952, A. Cole v. FAPL, award of 24 January 2006, para. 7.2 and CAS 2013/A/3199, Rayo Vallecano de Madrid SAD v. RFEF, award of 22 October 2013, para. 5.11.
 ATF 129 III 445
Note: the full judgment is available in French at the website of the Swiss Federal Tribunal www.bger.ch. The English translations of the international arbitration decisions rendered by the Swiss Federal Tribunal (from French, German and Italian) are available on the website www.swissarbitrationdecisions.com , operated jointly by Dr. Despina Mavromati and Dr. Charles Poncet as a service to the international arbitration community.[/vc_column_text][/vc_column][/vc_row]