Case struck by CAS because of late payment of advance on fees
The decision is quite an unusual one as the case involves the late payment of a deposit to the Court of Arbitration for Sport (“CAS”) and whilst I can think of several cases – of no great scholarly interest incidentally – where a payment was made too late to the Federal Tribunal, I suspect this is the only one involving late payment to an arbitral institution.
In 2006, the well known football trainer Luis Fernandez was taken to the FIFA Players’ Status Committee by the Al-Rayyan Sports Club of Doha (Qatar) and ordered to pay € 400’000 in a decision of March 13, 2008. Claiming that amount had already been paid, Fernandez appealed to the CAS and the CAS Court Office asked both parties to pay a deposit of CHF 19’000 for the appeal proceedings. The Appellant paid his share but the Respondent did not, so the Appellant was given a time limit to make the complete payment.
A few days after the time limit expired, counsel for the Appellant advised the CAS that the payment was going to be made “shortly” and it was indeed made on November 12, 2008 instead of October 10, 2008.
In a decision of November 18, 2008 the Deputy President of the Appeals Arbitration Division of the CAS (Gunnar Werner) took notice that the payment had not been made timely, struck the case off the CAS docket and ordered Claimant’s original advance reimbursed.
An appeal was made to the Federal Tribunal and although Swiss counsel did his very best to try to have the decision overturned on every single possible ground – public policy included - it was nonetheless upheld. The Federal Tribunal took a very narrow view of the duty to make procedurally required payments timely, fully admitting that an arbitral institution is entitled to refuse to continue an arbitration when payment is made late. The Federal Tribunal effectively held that “what is sauce for the goose is sauce for the gander” and that the strict approach followed by state courts in this respect may be adopted by arbitral institutions as well. Chapters 4 and 5 of the opinion are worth reading in this regard.
The decision may leave some practitioners feeling somewhat uneasy. After all, the advance was paid in full, albeit a month late and it has to be assumed that if counsel (not Swiss) had bothered to apply for an extension, the CAS would probably have granted it. Whether an arbitral institution wishes to be so strict or not is of course a matter of choice for the institution, but international practitioners should be aware of the consequences and never assume that an arbitral institution in Switzerland will take a liberal view of a late payment.
Judgement of February 20, 2009
First Civil Law Court
Federal Judge KLETT (Mrs), Presiding,
Federal Judge KOLLY,
Federal Judge KISS (Mrs),
Clerk of the Court: CARRUZZO.
Represented by Mr Cédric AGUET
Represented by Mr Ettore MAZZILLI
On February 22, 2006, the football club Y.________ seized the Federation Internationale de Football Association (FIFA) of a request seeking in particular the payment of EUR 400’000.- from its former trainer as contractual compensation in connection with the untimely termination of the employment contract.
The Respondent submitted that the request should be rejected and claimed to have already paid that amount to the club.
In a decision of March 13, 2008, notified to the parties on June 20, 2008, the Players’ Status Committee ordered the Respondent to pay to the Claimant the amount of EUR 400’000.- with interest, considering that proof of payment had not been given.
B.a On July 7, 2008, Mr Z.________, an attorney at the Paris Bar, filed a notice of appeal with the Court of Arbitration for Sport (CAS) on behalf of the Respondent.
In a letter of July 23, 2008, the Court Office of the CAS acknowledged receipt of the notice of appeal and drew the attention of the parties to the fact that they would be invited to pay an advance of costs according to Art. R64 of the Sport Arbitration Code (hereafter “the Code”). Paragraphs 1 and 2 of that provision state the following:
“R64.1 Upon filing of the request/statement of appeal, the Claimant shall pay a minimum Court Office fee of Swiss francs 500.-, without which the CAS shall not proceed. The CAS shall in any event keep this fee. The Panel shall take it into account when assessing the final amount of the fees.
R64.2 Upon formation of the Panel, the Court Office shall fix, subject to later changes, the amount and the method of payment of the advance of costs. The filing of a counterclaim or a new claim shall result in the calculation of separate advances.
To determine the amount to be paid in advance, the Court Office shall fix an estimate of the costs of arbitration, which shall be borne by the parties in accordance with Art. R64.4. The advance shall be paid in equal shares by the Claimant and the Respondent. If a party fails to pay its share, the other may substitute for it; in case of non-payment, the request/appeal shall be deemed withdrawn. This provision shall also apply to any counterclaim.”
On August 29, 2008 the Court Office of the CAS invited both parties to pay an advance of CHF 19’000.- each before September 15, 2008. The Appellant acted upon that invitation. However, the Respondent did not pay its share of the advance requested.
Whereupon the Court Office of the CAS, in a letter of September 28 referring to its previous letter and to Art. R64.2 of the Code, gave the Appellant until October 10, 2008 to pay an additional advance of CHF 19’000.-. The letter concluded with the following sentence: “I remind you that in the absence of payment within the said time limit, the appeal will be deemed withdrawn”2 (underlined in the original text).
In a letter of October 15, 2008, the Court Office of the CAS, taking notice that the time limit given had run out as of the 10th of the instant month, asked the Appellant to prove that the second advance of CHF 19’000.- had been paid.
Counsel for the Appellant answered the following on October 17, 2008 (sic):
“I received your letter dated October 15, informing that you are expecting to the second advance of costs of CHF 19’000.-. My client informed me that payment will be made shortly.”3
On November 12, 2008, the Court Office of the CAS, taking notice that the additional advance had still not been paid, sent a fax to the parties to inform them that the appeal was deemed withdrawn pursuant to art. R64.2 of the Code and that a termination order would be notified in the next days.
In a letter of November 13, 2008, counsel for the Appellant sent to the CAS a “certificate of payment” and asked to be informed as to the next steps in the proceedings. The document attached to that letter is actually a copy of a letter of November 12, 2008 by which the Appellant asked its bank to pay the amount of CHF 19’000.- into the CAS bank account.
In an order of November 18, 2008, the Deputy President of the Appeals Arbitration Division of the CAS, taking notice that the appeal was deemed withdrawn due to the lack of complete payment of the advances requested, pronounced the proceedings terminated, struck the matter off and ordered the amount paid reimbursed to the Appellant. The order was sent to the parties by fax on the same day.
On November 20, 2008, the Court Office of the CAS received a credit advice from a bank stating that the Appellant had paid the amount of CHF 19’000.- into the CAS account, value date November 18, 2008.
In a Civil law appeal, X._______, represented by new counsel, asks that the Federal Tribunal to annul the “arbitral award” issued on November 18, 2008. He principally alleges a violation of material public policy, in particular the principle of good faith and the prohibition of abuse of rights. Subsidiarily, the Appellant claims that the CAS violated procedural public policy.
The Respondent filed no answer within the time limit it was given for that purpose.
In its answer, the CAS produced its file and submitted that the appeal should be rejected.
A stay was granted by decision of the Presiding judge of January 21, 2009.
According to art. 54 (1) LTF4, the Federal Tribunal issues its decision in an official language, as a rule that of the decision under appeal. When the decision is in another language (here English), the Federal Tribunal resorts to the official language chosen by the parties. In front of the CAS they used English. In the brief submitted to the Federal Tribunal, the Appellant used French. According to its practice, the Federal tribunal will resort to the language of the appeal and consequently issue its decision in French.
In the field of international arbitration, a Civil law appeal is allowed against the decisions of arbitral tribunals under the conditions set forth at art. 190 to 192 PILA5 (art. 77 (1) LTF).
The seat of the CAS is in Lausanne. At least one of the parties (here both) did not have its domicile in Switzerland at the decisive time. The provisions of chapter 12 PILA are accordingly applicable (art. 176 (1) PILA).
In its answer, the CAS argues that the decision under appeal is not an arbitral award, to the extent that it was not made by a Panel but by the Deputy President of the Appeals Arbitration Division, who is a member of the International Council of Arbitration for Sport elected by that body to substitute the President when he is prevented from carrying out his functions (art. S6.2 of the Code) and fulfil the functions of the President, such as forming the Panel (art. R52 of the Code).
According to its title (Order) the decision under appeal could be a mere procedural order, which could be modified or withdrawn during the proceedings; as such it could not be appealed to the Federal Tribunal (see ATF 122 III 492 at 1b/bb). However, in order to decide if the matter is capable of appeal, the contents of the decision under appeal are decisive and not its title. From that point of view, there is no doubt that the CAS decision did not limit itself to organizing the next steps in the proceedings. It takes notice of the fact that the advance requested was not paid within the time limit set for that purpose and draws the consequences as per art. R64.2 of the Code, namely the irrebuttable fiction of a withdrawal of the appeal. It is similar to a decision terminating a case based on procedural rules. Whether issued by the Deputy President of the Appeals Arbitration Division or by a Panel, which incidentally had not yet been formed, does not prevent it from being a decision that can be appealed to the Federal Tribunal (in this sense, see Judgement 4A_126/2008 of May 9, 2008 at 1).
The Appellant is directly concerned by the decision under appeal, which prevents him from challenging in front of the CAS the decision of March 13, 2008 pursuant to which the Players Status Committee ordered him to pay to the Respondent the amount of EUR 400’000.- with interest. He therefore has a personal, present and legally protected interest to ensure that the CAS decision was not issued in violation of art. 190 (2) (e) PILA, which gives him standing to appeal (art. 76 (1) LTF).
Filed within 30 days after the award under appeal was notified (art. 100 (1) LTF in connection with art. 46 (1) (c) LTF), the appeal satisfies the formal requirements of art. 42 (1) and is accordingly to be allowed.
The Federal Tribunal issues its decision on the basis of the facts established by the arbitral tribunal (art. 105 (1) LTF). It may not rectify or supplement ex officio the factual findings of the arbitrators, even when the facts were established in a manifestly inaccurate manner or in violation of the law (see art. 77 (2) LTF ruling out the application of art. 105 (2) LTF). However, as was the case under the previous federal statute organizing federal courts (see ATF 129 III 727 at 5.2.2; 128 III 50 at 2a and the cases quoted), the Federal Tribunal retains the faculty to review the factual findings on which the award under appeal is based if one of the grievances at art. 190 (2) PILA is raised against the factual findings or if some facts or new evidence are exceptionally taken into account within the framework of the proceedings of the Civil law appeal (judgement 4A _450/2007 of January 7, 2008 at 2.2).
These principles are not directly applicable in this case as the decision under appeal merely takes notice of the presumably irrevocable withdrawal of the notice of appeal as a consequence of the failure to pay the advance requested by the CAS. Yet they may be, at least by analogy. Thus, this Court will take into account the circumstances described in the decision of the Players’ Status Committee as well as the proceedings in front of the CAS as they appear from the file the latter produced. Yet it will not consider the Appellant’s allegations relating to some exorbitant circumstances of the arbitral proceedings, such as the reference to another arbitration conducted in front of the CAS by the same French counsel who assisted the Appellant in the arbitral proceedings concluded by the decision under appeal (T._______ case).
The Appellant principally claims a violation of material public policy, more precisely the principle of good faith and the prohibition of abuse of rights.
An award is contrary to material public policy when it violates some fundamental principles of material law to such an extent that it is no longer consistent with the determining legal order and value system; among such principles are in particular contractual trust, compliance with the rules of good faith, the prohibition of abuse of rights, the prohibition of discriminatory or confiscatory measures and the protection of incapables (ATF 132 III 389 at 2.2.1).
According to case law, the rules of good faith and the prohibition of abuse of rights must be understood in the light of case law relating to art. 2 CC6 (Judgement 4A_220/2007 of September 21, 2007 at 12.2.2).
In the first chapter of his principal grievance, the Appellant argues first of all that French counsel representing him in front of the CAS had previously acted in front of the same body as counsel to a young football player named T._______. In that case, displaying “great flexibility” with regard to the time limit within which it should issue its award, the CAS, applying art. R59 (5) of the Code, “outrageously” extended that time limit. Thus, trusting the flexibility of the CAS, the Appellant did not pay the advance within the time limit he had been given for that purpose. The argument rests on a fact that is extraneous to the arbitral proceeding involved. As such, it may not be considered (see at 3. in fine above). The grievance is in any case flimsy. The Appellant himself concedes that the CAS did not adopt a “contradictory attitude strictly speaking” as he was not given a peremptory time limit which the CAS would not have imposed on the parties in the T._______ case. Moreover, the CAS adds at paragraph 17 of its answer that the time limits set in that case were all complied with, whether they were extended or not. Moreover, one hardly sees what the fact that an arbitral tribunal would not issue an award within the time limit anticipated for that purpose (as to the nature of such a time limit for the CAS, see Antonio RIGOZZI, L’arbitrage international en matière de sport, 2005, p. 516 at 1005) would have in common with the fact that a party would not pay an advance of costs within the time limit that it was given under penalty of seeing its appeal deemed to have been withdrawn irrevocably. Finally, it appears surprising, to the very least, that an attorney would not consider important to comply with such a time limit on the mere basis of the alleged flexibility with which the Arbitral tribunal would apply the procedural rules concerning time limits.
From the fact that the disputed time limit could have been extended pursuant to art. R32 of the Code, the Appellant seeks to deduct that the time limit has no “absolute character”. The argument is groundless. That a time limit may be extended is one thing. That the failure to comply with a time limit should not be sanctioned when it could have been extended but was not failing an ad hoc request, is another matter.
Finally, the Appellant claims that art. R64.2 of the Code merely sanctions the failure to pay the advance and not an omission to comply with the time limit to make the payment. According to him, the time limit would be merely perfunctory. Hence, the decision under appeal, taken “in a manifest fit of temper” would be contrary to the principle of good faith to the extent that it sanctions exclusively the omission to request the extension of a formal time limit and because it causes a loss of EUR 400’000.- to the “ victim of the bad faith of an arbitral institution”.
Such a grievance, unnecessarily hurtful in its formulation, does not withstand scrutiny. Its author overlooked the fact that the erroneous or even arbitrary application of a set of arbitration rules does not per se constitute a violation of public policy (ATF 126 III 249 at 3b and the cases quoted). Moreover, the literal interpretation of the provision which the Appellant proposes would mean, if it were followed, that the parties themselves could decide the time convenient for them to pay the advances requested by the arbitration institution, completely or in part, without any attention to the time limits set by the CAS. Whilst jeopardizing the rule of law and the equality of the parties, such a system could paralyse an institution, which cannot provide its services on a credit basis as the CAS emphasised at paragraph 24 of its answer. Finally, it goes without saying that when the sanction for failing to comply with a time limit is that the appeal is no longer allowed or – which is the same thing – the irrebuttably presumed withdrawal of the appeal, the party availing itself of that legal resource is no longer in a position to have the appeal body sanction a possible mistake made by whoever issued the decision under appeal. It is inconceivable that such a sanction would be applicable or not depending on the more or less serious financial consequences the decision would have for the appealing party, unless one wishes to open the way to arbitrary decisions. Moreover, there is not the slightest clue here of the bad faith the Appellant gratuitously blame the CAS for.
In the second chapter of his main argument, the Appellant blames the CAS for failing to react to the letter he sent on October 17, 2008 and letting him believe that in view of its silence over several weeks the time limit initially set at October 10, 2008 for the payment of the advance had been conclusively extended. According to him, under such conditions, good faith would have required the CAS to give him a last time limit to make the payment.
It is not so. The CAS letter of September 25, 2008 clearly stated the sanction the Appellant would face if he did not pay the advance of CHF 19’000.- by the 10th of October 2008. In a letter of October 15, 2008, the Court Office of the CAS, pointing out that the time limit had expired since the 10th of the same month, asked the Appellant to provide proof of payment. Hence it did not at all imply that its inaction before the time limit expired would have no consequence. Whereupon counsel for the Appellant, in a letter of October 17, 2008, simply informed the CAS that the payment would be made shortly. Obviously, he could not consider in good faith that the lack of reaction of the CAS to that letter would mean that the arbitral body had treated the October 17, 2008 letter as a request to extend the time limit, which it had effectively granted by its silence. He was even less entitled to do so that the CAS had just invited him to prove that he had complied with the time limit of October 10, 2008.
Hence, the grievance under review, which verges on recklessness, is groundless.
Subsidiarily, the Appellant claims that the CAS violated procedural public policy.
Procedural public policy guarantees to the parties the right to an independent judgement on the submissions and the facts presented to the arbitral tribunal in accordance with applicable procedural law; procedural public policy is violated when some fundamental and generally recognized principles were violated, thus leading to unbearable contradiction with the feeling of justice, so that the decision appears inconsistent with the values recognized in a state ruled by law (ATF 132 III 389 at 2.2.1).
The Appellant claims in substance that the CAS was unduly formalistic when it struck the case off after receiving the entire advance requested. According to him, the terminating order had no interest for the CAS, to which it did not do the least harm, whilst causing the Appellant to lose any possibility to avoid the double payment of an amount of EUR 400’000.-.
Excessive formalism takes place when strictly applying the procedural rules is justified by no interest worthy of protection, becomes an end in itself, complicates in an untenable way the application of material law or creates some inadmissible obstacles to accessing the courts. According to well established case law, there is no excessive rigor in refusing to entertain an appeal when in accordance with applicable procedural law its admission has been made subject to the payment of an advance of costs within a specified time limit; yet the party must have been appropriately warned of the amount to pay, of the time limit for payment and of the consequences of failing to comply with the time limit (ATF 104 Ia 105 at 5 p. 112; 96 I 521 at 4 p. 523).
In this case, the letter that the CAS sent to the Appellant on September 25, 2008, fulfilled all these requirements. Thus could, without being unduly formalistic, the TAS take notice of the fact that the consequence attributed by art. R64.2 of the Code to the failure to pay the advance was applicable to the circumstances of the case under review.
That the advance had indeed been paid before the CAS took notice of the withdrawal of the appeal in the decision under review is not decisive, no matter what the Appellant claims, let alone that the payment, made the day on which the decision was issued, became known to the CAS only two days later. The Federal Tribunal too refuses to entertain an appeal, on the basis of art. 62 (3) LTF, when the advance of costs was not timely paid, even if it has the amount of the advance paid outside the time limit when it issues the termination order. Indeed, (the Federal Tribunal) takes the view that procedural forms are necessary to ensure effective legal recourses, with a view to ensure that proceedings take place in accordance with the principle of equal treatment. One does not see why it should be different for an arbitral institution. This would overlook that in an arbitral proceeding as in a state proceeding, the respondent is entitled to expect from the arbitral tribunal that it applies and abides by the provisions of its own rules of procedure.
Judgement 4.2/2003 of March 12, 2003, quoted by the Appellant, is of no assistance to him. (The Judgement) invites the arbitral tribunal to determine clearly the peremptory consequence that may be connected with the failure to pay the advance of costs to the extent that the applicable rules themselves do not spell it out (at 3.4). This is what the CAS did in this case in its letter of September 25, 2008, in which it reminded the Appellant of the sanction foreseen at art. R64.2 of the Code should he fail to pay the advance of costs.
As to the arguments the Appellant draws from a comparison with the T._______ precedent and the impact of the decision under appeal on his financial situation, they were rejected above and there is no need to come back to them (see at 126.96.36.199 and 188.8.131.52 in fine).
It appears from this review that the Appellant vainly sought to ascribe to the CAS his previous counsel’s negligence in conducting the proceedings in front of that body. Therefore the appeal cannot but be rejected to the extent that the matter is capable of appeal.
Consequently, the Appellant shall pay the judicial costs related to the federal proceedings (art. 66 (1) LTF). However, he will not have to compensate the Respondent as the latter did not submit an answer.
Therefore, the Federal Tribunal pronounces:
1. The appeal is rejected to the extent that the matter is capable of appeal.
2. The judicial costs set at CHF 5’000.- shall be borne by the Appellant.
3. This judgement shall be notified to the representatives of the parties and to the Court of Arbitration for Sport (CAS).
Lausanne, February 20, 2009
In the name of the First Civil Law Court of the Swiss Federal Tribunal
The presiding Judge : The Clerk:
KLETT (Mrs) CARRUZZO
- 1. Translator’s note: Quote as X.________ v. Y.________, 4A_600/2008. The original of the decision is in French. The text is available on the website of the Federal Tribunal www.bger.ch.
- 2. Translator’s note: In English in the original text.
- 3. Translator’s note: In English in the original text.
- 4. Translator’s note: LTF is the French abbreviation for the Federal Statute of June 17, 2005 organizing the Federal Tribunal, RS 173 110
- 5. Translator’s note: PILA is the most frequently used English abbreviation for the Federal Statute of December 18, 1987, on Private International Law, RS 291.
- 6. Translator’s note: CC is the commonly used French abbreviation for the Swiss Civil Code.