In its decision 4A_260/2017 rendered on 20 February 2018, the Swiss Federal Supreme Court declined to set aside an award rendered by the Court of Arbitration for Sport (CAS), confirming, among other points, that the panel constituted under the CAS rules satisfies the requirement of independence as applied in Switzerland.

Case background

In 2008, FIFA introduced a new provision to the Regulations on the Status and Transfer of the Players (RSTP) (Article 18bis), preventing clubs or third parties from acquiring ownership of players’ economic rights, a practice known as third-party ownership (TPO). It provided that the FIFA Disciplinary Committee would impose sanctions on the clubs failing to comply with Article 18bis of the RSTP, which would enter into force as of 1 May 2015, as per Article 18ter of the RSTP.

A football club (“Club“) and an investment company signed two TPO-type of agreements, in January and July 2015 respectively, that enabled the Club to transfer the economic rights of its players to the investment company in return for lump-sum payments.

In July 2015, the FIFA Disciplinary Committee initiated disciplinary proceedings against the Club based on the grounds that the agreements constituted breaches of Articles 18bis and 18ter of the RSTP. The FIFA Disciplinary Committee found the Club guilty of such breaches; ordered it to pay a fine of EUR 150,000; and prohibited it from registering players for four registration periods. The Club subsequently appealed the decision, but the FIFA Appeal Committee dismissed the Club’s appeal and confirmed the Disciplinary Committee’s decision. In March 2016, the Club appealed the decision to the CAS; however, the panel constituted under the CAS rules dismissed the appeal and confirmed the FIFA Appeal Committee’s decision in essence, but shortened the prohibition period of player registration.

Further to the CAS’ award, the Club brought an action before the Swiss Federal Supreme Court for the annulment of the award by alleging that (i) the panel constituted under the CAS rules cannot be regarded as a genuine arbitral tribunal; (ii) the conduct adopted by the President of the tribunal toward the Club’s lawyers during the hearing violated the Club’s right to be heard; and (iii) the award is contrary to Swiss substantive public policy, all of which are breaches of Article 190(2) of the PILA.

Evaluation of the case by Swiss Federal Supreme Court

(i) CAS panel is a genuine arbitral tribunal

In essence, the Club argued that the panel constituted under the CAS rules did not constitute a genuine arbitral tribunal within the context of the New York Convention for the Recognition and Enforcement of Foreign Arbitral Awards, but rather was an appellate body for sports federations, and the obligation to recourse to CAS arbitration was illegal as it is imposed by FIFA’s statutes. The Club argued that FIFA’s financial contributions and structural alliance, created by referring disputes to the CAS, would cause FIFA to have predominance over the CAS and prevent panels constituted under the CAS rules from rendering awards against FIFA, and thus being independent.

The Swiss Federal Supreme Court recalled the Lazutina case, where it found that the CAS was independent from sports federations, and based on the established case law, it held that the present case did not bear sufficient substance to revisit its decision. It also examined the Club’s arguments regarding FIFA’s financial contribution and structural alliance and concluded that, considering that FIFA’s annual contribution is less than 10% of the CAS’ annual budget and that the CAS had undergone managerial structural changes, neither financial contribution nor structural alliance would prevent the CAS panel from being independent. The Swiss Federal Supreme Court ruled that the CAS was an independent arbitral tribunal and the Club’s claims based on Article 190(2)(a) of the PILA were inadmissible.

 

(ii) Hearing conduct adopted by the President of the tribunal did not violate the Club’s right to be heard

The Club further argued that the President of the arbitral tribunal interrupted its lawyer during the hearing of 17 October 2016 while he made his oral pleading on the ban of the TPO and commented on the FIFA executives’ morals. The Club argued this interruption would constitute a violation of the Club’s right to be heard as per Article 190(2)(d) of the PILA.

The Swiss Federal Supreme Court first clarified that the right to be heard did not include the right to speak, but rather the arbitral tribunal failing to take into consideration the parties’ arguments and evidence that are important for the outcome of the award. The court explained that the Club merely being unable to make an oral statement on the moral issues could not be regarded as violation of the right to be heard and the Club was not prevented from explaining its position throughout the proceedings. In addition, as the Club did not raise any objection with respect to the violation of its right to be heard during the hearing, it should not be allowed to do so later on. The court ruled that the Club’s claim based on Article 190(2)(d) of the PILA was unfounded.

(iii) The award was not contrary to Swiss substantive public policy

Finally, the Club argued that the award was incompatible with Swiss substantive public policy based on the grounds that the regulations adopted by the RSTP prohibiting TPO violated EU and Swiss competition law. However, the Swiss Federal Supreme Court recalled the decision in the Tensacciai case, whereby it concluded that the provisions of competition law did not form part of the core values of public policy; ruled that the Club’s claim based on Article 190(2) (e) of the PILA was inadmissible; and dismissed the challenge to the award.

Conclusion

While the annulment application brought against the CAS award relied on different grounds pursuant to Article 190 of the PILA, the most important point of the decision is certainly the Swiss Federal Supreme Court’s confirmation that the panel constituted under the CAS rules is a proper arbitral tribunal. Although the grounds for annulment of arbitral awards are limited and its application quite strict, based on the established case law, the Swiss Federal Supreme Court would not allow the validity of an award that does not comply with the requirements of Article 190 of the PILA. Especially when it comes to independence and impartiality of the arbitrators, the Swiss Federal Supreme Court would annul an award in case one of the parties submits evidence showing that there exists legitimate doubts that the arbitrator is linked to the other party or has an interest in the outcome of the case (such as existence of economic ties between the arbitrator and one of the parties (or its counsel) or the arbitrator being the official of the league in which the appellant takes part). On the other hand, this decision reasserts that the Swiss Federal Supreme Court, after examining all facts, arguments and evidence, would also not allow any party to discriminate against the awards rendered by a panel constituted under the CAS or any other rules for the annulment of arbitral awards unless there is clear evidence of the panel’s bias.