SFT Judgment 4A_312/2017 Football Club X. v. A.
Compatibility of an Agent’s Commission Fee with Public Policy
Validity of a football agent’s (intermediary’s) total commission fee for the signing of a football player with a club that represents ten times the agreed annual salary of the player under Swiss law – Compatibility of such a commission fee with substantive public policy (Art. 190 (2) (e) PILA.
Following an award rendered by the Court of Arbitration for Sport (CAS) on April 19, 2017, the professional football club X. (the Club) was ordered to pay to the former player’s Intermediary A. (the Intermediary) the outstanding amount of a commission of EUR 2’700’000, plus interest, according to the contract concluded on August 23, 2013 (the total commission fee was EUR 3’100’000). As per the contract, the Intermediary undertook to ensure the transfer of Player B. to the Club for the payment of a commission. The transfer took place in 2014 and the Player joined the Club for a duration of five years for a total remuneration of EUR 1’360’000 (EUR 272’000 annually).
The proceedings before the Swiss Federal Tribunal
The appeal of Football Club X. to the SFT
The Club subsequently filed an appeal to the Swiss Federal Tribunal (SFT Judgment 4A_312/2017 of 27 November 2017) requesting the annulment of the award for violation of substantive public policy (Art. 190 (2) (e) Private International Law Act, PILA).1 It alleged that by validating a contract that included an excessive commission fee, the CAS Panel violated the principle of public policy. It argued that the agreement was a brokerage contract on the placement of an employee with an employer. This is a sensitive and regulated area under Swiss law (which was the law applicable to the merits under Art. R45 CAS Code).
More specifically, the Club considered excessive the payment of EUR 3’100’000, compared to the salary of the Player for a period of five years which was EUR 1’360’000. This commission represented 228% of the salary of the Player for the full duration of the employment contract, i.e., more than ten times the annual salary of the Player. According to the Club, by allowing a commission that was grossly disproportionate to the Player’s salary violated public policy. More particularly, it violated the prohibition of excessive commissions in the field of brokerage for the placement of a worker (at 3.2.2).
The SFT judgment
Not a specific notion of public policy adapted to sports / football
The Swiss Federal Tribunal proceeded to a detailed analysis of the plea invoked but refused to make a general statement as to when high commission fees are “excessive”. It held that each case is different and it has to take into account the specific circumstances of each case. Referring to a previous judgment related to the transfer of a football player,2the Federal Tribunal found that the particularities of sports and more particularly football should not create a specific notion of substantive public policy, since this would also contravene the principle of legal certainty when it comes to the definition of this concept. Furthermore, and even though sports arbitration bears some particularities compared to commercial arbitration (e.g., with respect to the waiver of the right to appeal, ATF 133 III 235 at 4.3. 2.2, p. 244), these particularities should not extend to the concept of substantive public policy (at 3.3.2).
Mandatory provisions under Swiss law and violation of public policy under Art. 190 (2) (e) PILA
Another point that was dealt with by the Federal Tribunal was the issue of contractual penalties and the duty of the judge to reduce them when they are excessive under Art. 163 (3) Swiss Code of Obligations (CO) (at 3.3.3). Even though this is a mandatory provision under Swiss law (meaning that the judge should apply it even in the absence of a request by the parties concerned), like Art. 417 CO and other mandatory laws, its violation does not amount to a violation of public policy of Art. 190 (2) (e) PILA.3
Placing the commission fee into a broader context
Importantly, the Federal Tribunal endorsed the CAS Panel’s view in that the determination of a commission fee as excessive should not be made by the comparison of the amount to the agreed salary of the player, nor should there be a fixed percentage for the placement of workers irrespective of the other circumstances surrounding the case (at 3.3.3).
The Federal Tribunal repeated the analysis made by the CAS Panel, which consisted of placing the commission fee into a broader context: even though the amount of EUR 3’100’000 seemed too high compared to the annual salary of the player (more than ten times higher), the Club is a renowned football club that discovered a young footballer and employed the services of the Intermediary in order to conclude the contract of employment. The parties agreed on the amount in writing and the Club waited until the claim to the CAS in order to argue that this amount was excessive.
Doctrine of unforeseeability vs. principle of contractual fidelity
Moreover, the SFT opined, that it is not possible to oppose the doctrine of unforeseeability (clausula rebus sic stantibus) to the principle of contractual fidelity (pacta sunt servanda). This is so because the potential of a player cannot be considered as an “unforeseeable” circumstance. The Federal Tribunal found that the factual findings of the CAS Panel bind the Court (at 126.96.36.199). Also, it found that the Club failed to establish how the payment of the commission fee to the Intermediary would suppress its economic freedom to such an extent that it would endanger the basis of its existence.4Overall, it endorsed the CAS Panel’s position and found that, by allowing the commission fee, the CAS Panel did not violate substantive public policy.
The Takeaway: No Specific Notion of Public Policy in the field of Sports Arbitration / Football
This is an interesting case where the Federal Tribunal confirmed that substantive public policy should not be adapted to the specific field in question, in casu the field of sports and, more particularly, football, since this could lead to lack of legal certainty. It also found that it is not possible to issue general criteria as to when commission fees are excessive (in violation of Art. 190 (2) (e) PILA). It should rather examine each case separately, based on the particular circumstances at issue.
While the Appellant Club pleaded for the applicability of specific Swiss laws prohibiting excessive commissions in the field of brokerage for the placement of workers, the Federal Tribunal held that Art. 27 (2) CC generally covers similar abuses. Art. 27 prohibits the contractual restriction of the economic freedom, which however is excessive only when it suppresses the economic freedom of the party concerned to such an extent that it would endanger the basis of its existence.
An interesting procedural point of the judgment relates to the facts established in the arbitral award that generally bind the Federal Tribunal: it is not necessary for the findings to appear in the factual summary of the award but they can also be part of its legal reasoning.5
The FIFA Regulations on working with Football Intermediaries
Overall, the Federal Tribunal reiterated the limited scope of substantive public policy, notwithstanding the particularities of sports arbitration and refrained (as did the CAS Panel in its award) from issuing a definitive opinion on when a commission fee is excessive. However, it must also be noted that the FIFA Regulations on working with Intermediaries6that set limits to the total commission fee (and which the Panel did not apply because they were not yet in force at the time of the relevant facts) should somehow clarify the situation and regulate this field, at least when it comes to the cases falling within the scope of the FIFA Regulations.
Note: the full judgment is available in French at the website of the Swiss Federal Tribunal www.bger.chThe 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.