On the limited scope of pacta sunt servanda in motions to set aside CAS awards
An employment dispute between a professional coach (the Coach) and a national football federation (the Federation) arose after the termination of the Coach’s contract following his refusal to select a certain player for an international match due to match-fixing allegations of the latter. The FIFA Player’s Status Committee (PSC) issued a decision against the Federation ordering the latter to pay damages for breach of contract, decision that was confirmed by the CAS on appeal.
The Federation (Appellant) requested the Federal Tribunal annul the CAS Award for violation of substantive public policy. More specifically, the Federation alleged a violation of the principle of pacta sunt servanda for the incorrect interpretation of a contractual clause on early termination without just cause (at 3.2.1).
As usual, the Federal Tribunal reiterated the extremely limited scope of the principle in federal proceedings, which is only violated if the arbitral tribunal refuses to apply a contractual clause despite holding that that it binds the parties or, inversely, derives an obligation from a clause which it considers non-binding. In contrast, the process of contractual interpretation and the legal consequences drawn therefrom are not covered by the principle of contractual fidelity. In the present case, the Sole Arbitrator had applied the contractual clause but interpreted it differently from the Appellant, which obviously fell outside the scope of pacta sunt servanda (at 3.2.2).
Similarly, the Appellant also alleged a violation of substantive public policy considering that the Sole Arbitrator’s interpretation of the contractual clause constituted an excessive commitment within the meaning of Article 27(2) CC (at 3.3.1). The Federal Tribunal held that this was an inadmissible criticism of appellatory nature which fell outside the scope of the Federal Tribunal’s review. Moreover, the Appellant had failed to show and establish an obvious and serious violation of its rights that could possibly violate substantive public policy (at 3.3.2, with references to BGE 138 III 322 at 4.3).
Judgment of February 15, 2021
First Civil Law Court
Federal Judge Kiss, Presiding
Federal Judge Rüedi,
Federal Judge May Canellas,
Clerk of the Court: Mr. Leemann
A.________ Football Federation,
represented by Marc Cavaliero and Carol Etter,
represented by Dr. Joachim Rain
A.a. B.________ (Claimant, Respondent) is a professional football coach of Croatian nationality.
The A.________ Football Federation (Respondent, Complainant), based in U.________, is the national football association of V.________. It is a member of the Asian Football Confederation (AFC) and the Fédération Internationale de Football Association (FIFA).
A.b. B.________ entered into an employment contract with the A.________ Football Federation on November 19, 2015, as Technical Director (“Technical Director”) for a fixed contract period from December 1, 2015 until the end of the Asian Qualifying Round for the 2022 FIFA World Cup. The contract contained, inter alia, the following clause:
16. Termination without Just Cause
If the contract is terminated by the A.________ Football Federation without just cause, the A.________ Football Federation commits to pay to the Technical Director an amount equaling one full yearly salary or the remaining salaries due under the contract whichever is less, within 45 days as of the day of termination, if not, the full contract must be paid in 30 days.
After it was brought to B.________'s attention in October 2016 that football player C.________ had participated in match fixing in 2008, B.________ refused to nominate the player for the international match against W.________ and requested the A.________ Football Federation to launch an investigation into the events. This led to a disagreement between the parties.
On November 9, 2016, prior to the departure of V._______’s national team for a friendly match with X.________, a meeting was held at the headquarters of the A.________ Football Federation to address C.________'s nomination (which did not take place). After the meeting, B.________ boarded the bus to travel with the team to the airport and, according to him, he was called to another meeting with the general secretary of the A.________ Football Federation, where he was threatened that the denied nomination could have a negative impact on his personal safety in V.________. In addition, he was instructed to stay in V.________ for a longer period of time. In addition, he had been instructed to stay in V.________ and not to travel with the team to X.________.
When B.________ left the meeting room, the team bus had already left. Since his personal belongings were still on the bus, he was left in U.________ without travel documents. According to B.________, the Secretary General had informed him that he was no longer working for the V.________ national team.
On the same day, the A.________ Football Federation general secretary sent the following email to B.________:
I understand that you are worried, and of course we want to do everything to make you feel safe, and we of course will live up fully to our duties towards you as our employee.
However, as you know, we had discussions with you about the future of football in V.________, and we are very disappointed with your demands. In particular, we are disappointed because your actions and behaviour have cause that our team will be left without a coach in its upcoming game, because you do not want to accompany it, although, as you know, you took over the responsibility as Coach of the team one year ago.
This is a breach of your duties under your employment contract, and we hereby formally notify you of this severe contractual violation. We must reserve all our rights, including the rights to terminate your contract with immediate effect, should such or similar violation occur again in the future.
We also understand that you want to leave the country. We respect this wish and will organise what is necessary, but we must put on record that this again constitutes a refusal of you to live up to our contractual obligations.
On November 10, 2016, B.________ flew back to Europe, with the A.________ Football Federation organizing the flight for him.
On November 25, 2016, B.________'s legal representative wrote an email to the President and General Secretary of the A.________ Football Federation, in which he stated that he was
“…very surprised to read in your email from 18.11.2016 that after the happening on 09.11.2016, in particular, the termination of the contract by A. ________ Football Federation without just cause and accepting the bringing of our client in life danger by leaving him alone on his own in U.________, you still expect our client to take his responsibility of the Head Coach again, or at least as the Technical Director again.”
On July 2, 2017, the A.________ Football Federation informed FIFA about the match fixing that took place in 2008.
A.c. The Claimant initiated proceedings before the FIFA Players' Status Committee against the A.________ Football Federation, requesting that it be ordered to pay damages for breach of contract in the amount of USD 246,000, plus interest at 5% since July 1, 2017, as well as USD 6,000 for travel expenses and USD 96,000 for the fact that the employment contract would have been extended under Article 2.
By decision dated April 16, 2019, the Sole Arbitrator of the Players' Status Commission dismissed the claim.
On October 11, 2019, the Claimant filed an appeal with the Tribunal Arbitral du Sport (CAS) against the decision of the FIFA Players’ Status Committee Sole Arbitrator of April 16, 2019, requesting that the contested decision be annulled and that the Respondent be ordered to pay USD 246,000.00 and EUR 6,000.00, plus interest at 5% since July 1, 2017.
An oral hearing was held in Lausanne on July 2, 2020.
By arbitration decision of November 18, 2020, the Sole Arbitrator of the CAS partially approved the Claimant's appeal, annulled the decision of the Sole Arbitrator of the FIFA Players' Status Committee of April 16, 2019, and ordered the Respondent to pay USD 246,000, plus interest at 5% since July 1, 2007.
The Sole Arbitrator of the CAS considered it proven that the Respondent had deliberately put the Claimant's life in danger, or threatened to do so, by leaving him alone and unprotected in U.________. He concluded, after assessing the evidence offered, that the Defendant had terminated the employment contract with the Claimant on November 9, 2016. The Claimant had acted in accordance with the contract by waiving the nomination of the player C.________, and therefore there was no good cause for the termination within the meaning of Article 16 of the employment contract of November 19, 2015. With regard to the amount of compensation, the Sole Arbitrator held that the relevant assessment principles were clearly set out in Article 16 of the employment contract. The payment of compensation corresponding to the agreed salary for the remaining term of the contract was also not to be considered excessive within the meaning of Article 163 of the Swiss Code of Obligations. Accordingly, the Claimant was entitled to USD 246,000 plus interest. Compensation for travel expenses, on the other hand, was not owed due to the lack of evidence of corresponding expenses.
With its appeal in civil matters, the Defendant requests the Federal Tribunal annul the arbitral decision of the Sole Arbitrator of the CAS of November 18, 2020 and to refer the case back to the Arbitral Tribunal for a new assessment.
By submission of January 22, 2021, the Appellant also requested that suspensive effect be granted.
No consultations were obtained.
Pursuant to Art. 54(1) LTF,2 the decision of the Federal Tribunal is issued in an official language, as a rule in the language of the contested decision. If the latter has been drafted in another language, the Federal Tribunal shall use the official language used by the parties. The contested decision is written in English. Since this is not an official language, the decision of the Federal Tribunal is issued in the language of the appeal (BGE 142 III 521 at 1).
In the area of international arbitration, the civil law appeal is admissible under the conditions of Art. 190-192 PILA3 (SR 291) (Art. 77(1)(a) LTF).
2.1 The seat of the Arbitral Tribunal in the present case is in Lausanne. At the relevant time, both parties were domiciled, habitually resident, or had their seat outside Switzerland (Art. 176(1) PILA). Since they did not expressly exclude the application of Chapter 12 PILA, the provisions of this chapter apply (Art. Art. 176(2) PILA).
2.2 The appeal within the meaning of Art. 77(1) LTF is in principle of a purely cassatory nature, i.e. it can only lead to the annulment of the contested decision (cf. Art. 77(2) LTF, which excludes the applicability of Art. 107(2) LTF insofar as the latter allows the Federal Tribunal to decide on the merits of the case).
If the dispute concerns the jurisdiction of the arbitral tribunal or its composition, an exception to this effect applies to the extent that the Federal Tribunal itself may determine the jurisdiction or the lack of jurisdiction of the arbitral tribunal or rule on the challenge of the arbitrator in question (BGE 136 III 605 at 3.3.4 p. 616 with references). The Federal Tribunal may also refer the matter back to the arbitral tribunal (judgments 4A_124/2020 of November 13, 2020 at 2.1; 4A_418/2019 of May 18, 2020 at 2.3; 4A_294/2019 of November 13, 2019 at 2.2).
Accordingly, the appellant's application is admissible. The appeal is to be admitted - subject to a sufficient statement of grounds (Art. 77(3) LTF).
2.3 Only the objections which are exhaustively listed in Art. 190(2) PILA are admissible (BGE 134 III 186 at 5 p. 187; 128 III 50 at 1a p. 53; 127 III 279 at 1a p. 282). Pursuant to Art. 77(3) LTF, the Federal Tribunal only examines the objections that have been raised and reasoned in the appeal; this corresponds to the obligation to provide reasons in Art. 106(2) LTF for the violation of fundamental rights and of cantonal and intercantonal law (BGE 134 III 186 at 5 p. 187 with reference). Appellatory criticism is inadmissible (BGE 134 III 565 at 3.1 p. 567; 119 II 380 at 3b p. 382).
The Appellant accuses the Sole Arbitrator of a violation of the substantive public policy (Art. 190(2)(e) PILA).
The substantive review of an international arbitral award by the Federal Tribunal is limited to the question whether the award is compatible with public policy (BGE 121 III 331 at 3a p. 333). The substantive assessment of a disputed claim only violates public policy if it fails to recognize fundamental legal principles and is therefore wholly incompatible with the essential, widely recognized set of values which, according to the prevailing view in Switzerland, should form the basis of any legal system (BGE 144 III 120 at 5.1 p. 130). These principles include the principle of contractual fidelity (pacta sunt servanda), the prohibition of abuse of rights, the principle of good faith, the prohibition of expropriation without compensation, the prohibition of discrimination, the protection of persons without capacity to act, and the prohibition of onerous commitments (cf. Art. 27(2) CC)4, where this constitutes an obvious and serious violation of a party’s rights. However, this list is not exhaustive. Promises of bribes are also contrary to public policy if proven, or, for example, a decision will be contrary to public policy where it disregards the prohibition on forced labor (BGE 144 III 120 at 5.1 p. 130; 138 III 322 at 4.1 p. 327; each with references).
The challenged award will only be set aside if it violates public policy not merely in its reasoning but also in its result (BGE 144 III 120 at 5.1 p. 130; 138 III 322 at 4.1 and at 4.3.1/4.3.2; 132 III 389 at 2.2 p. 392 et seq; each with references).
3.2.1 The Appellant submits that Article 16 of the employment contract of November 19, 2015, only applies if it terminates the contract without good cause. Thus, the 45-day period cannot begin to run until unfair termination has been either acknowledged by the Appellant or established by a court. The Sole Arbitrator did not make any comments on the first sub-sentence of Article 16 and thus did not interpret it. Rather, he completely ignored the first sub-sentence; in other words, he did not apply this part of the contractual clause. The consequence of not applying the first clause was that the 45-day period began to run at a time when unfair dismissal had neither been admitted nor judicially established. The Sole Arbitrator's interpretation of Article 16 of the employment contract constituted a disregard of the principle pacta sunt servanda, which violated substantive public policy within the meaning of Art. 190(2)(e) PILA.
3.2.2 The principle of contractual fidelity (pacta sunt servanda), to which the case law on Art. 190(2)(e) PILA gives limited importance, is only violated if the arbitral tribunal refuses to apply a contractual clause despite holding that it binds the parties or, conversely, derives an obligation from a clause although it considers it to be non-binding. Thus, the arbitral tribunal must have applied a contractual provision or refused to apply it and, in so doing, contradicts the result of its own interpretation as to the existence or content of the disputed contract. In contrast, the process of interpretation and the legal consequences drawn therefrom are not covered by the principle of contractual fidelity, which is why it cannot be used to justify a claim of violation of public policy. The Federal Tribunal has emphasized on various occasions that practically the entirety of the legal disputes resulting from the breach of contract is excluded from the scope of protection of the principle of pacta sunt servanda (judgments 4A_346/2020 of January 6, 2021 at 6.2.1; 4A_70/2020 of June 18, 2020 at 7.3.1; 4A_532/2016 of May 30, 2017 at 3.2.2).
With its statements, the Appellant fails to recognize the narrow scope of protection of the principle of contractual fidelity. Contrary to the view expressed in the appeal, the Sole Arbitrator applied Article 16 of the employment contract of November 19, 2015, as a whole, but he attributed a different meaning to the first sub-sentence of the contractual clause than that argued by the Appellant. This does not constitute a violation of substantive public policy. Rather, the Appellant inadmissibly criticizes the arbitral tribunal’s interpretation of the contract.
3.3.1 The Appellant complains subsidiarily that the interpretation of Article 16 of the employment contract of November 19, 2015, in the contested decision violates substantive public policy because a retroactive application of the 45-day period establishes an excessive contractual obligation within the meaning of Article 27(2) CC. The contested decision merely states in one paragraph that on November 25, 2016, the Respondent had demanded payment of damages in the amount of one year's salary within 45 days and that the Appellant had not complied with this demand, which is why it owes damages under Article 16 for the entire remaining term of the contract. However, the Award did not address the fact that the 45-day period could not begin to run until unfair termination had also been either acknowledged by the breaching party or established by a court. Any other interpretation of Article 16 of the employment contract would abrogate the Appellant's economic freedom. It would otherwise have had no way to legally defend itself against the allegation of unfair dismissal if the 45-day period began to run notwithstanding a finding of unfair dismissal, especially as arbitration would take more time. The effect of the arbitral interpretation of the contractual clause in question was economically striking, as the payment of one year's salary amounted to USD 60’000, whereas the remaining term of the entire contract amounted to USD 246’000.
3.3.2 With its submissions, the Appellant once again makes inadmissible criticism of the Arbitral Tribunal’s interpretation of the contract. The fact that the interpretation in the contested decision leads to a considerably higher claim for damages compared to the interpretation in the complaint does not constitute a violation of substantive public policy. Although the Appellant claims an excessive obligation or an impairment of its economic freedom, it does not show in what way the contractual obligation affirmed by the Sole Arbitrator would constitute an obvious and serious violation of personality that could possibly violate substantive public policy (see BGE 138 III 322 at 4.3).
The grievance that the amount of the damages awarded by the Sole Arbitrator violates substantive public policy (Art. 190(2)(e) PILA) is therefore unfounded.
The appeal is to be dismissed insofar as it is admissible. With the decision on the merits, the request for suspensive effect becomes moot.
In accordance with the outcome of the proceedings, the Appellant shall be liable for costs (Art. 66(1) LTF). No compensation is awarded to the Respondent, as he has not incurred any expenses as a result of the Federal Tribunal proceedings (Art. 68(2) LTF).
Accordingly, the Federal Tribunal pronounces:
The appeal is dismissed insofar as it is admissible.
The court costs of CHF 6’000 shall be paid by the Appellant.
No compensation shall be awarded to the parties.
This judgment shall be communicated in writing to the parties and to the Court of Arbitration for Sport (CAS).
Lausanne, February 15, 2021
On behalf of the First Civil Law Court of the Swiss Federal Tribunal
- 1. Translator’s Note: Quote as A.________ v. B.________, 4A_660/2020. The decision was issued in German. The full text is available on the website of the Federal Tribunal, www.bger.ch.
- 2. Translator’s Note: LTF is the most commonly used French abbreviation for the Federal Law of June 6, 2005, organizing the Federal Tribunal (RS 173.110).
- 3. Translator’s Note: PILA is the most commonly used English abbreviation for the Federal Statute on International Private Law of December 18, 1987.
- 4. Translator’s Note: CC is the abbreviation of the Swiss Civil Code.