Swiss Federal Tribunal Overrules CAS Award in a Landmark Decision: FIFA vs Matuzalem

1. INTRODUCTION This case is a landmark decision of the Swiss Federal Tribunal (1). For the first time in history, an award of the Court of Arbitration for Sport ("CAS") was annulled by the Swiss Federal Tribunal because it violated 'fundamental principles of law', the so called 'substantive public policy' (Article 190 (2) (e) Private International Law Act ("PILA")). This marks the first time that a CAS award has been overruled based on substantive law and not procedural law. 2. FACTS The case concerns the Brazilian footballer Francelino Matuzalem da Silva ("Matuzalem"), who (at the time of writing) plays for S.S. Lazio s.p.a. , Rome ("Lazio"). In June 2004 he entered into an employment agreement with the Ukrainian football club FC Shakhtar Donetsk ("Shakhtar"). It was a fixed-term agreement for five years, effective 1 July 2004 until 1 July 2009. On 2 July 2007 (i.e. one day after the protected period ended), Matuzalem terminated his contract with immediate effect to play for the Spanish club Real Zaragoza SAD ("Zaragoza"). It is undisputed that he unilaterally and prematurely terminated the contract without just cause. Shakhtar initiated proceedings with the FIFA Dispute Resolution Chamber ("FIFA DRC") which concluded that Shakhtar was entitled to the payment of EUR 6.8 M (2). This decision was appealed before the CAS by both parties. On 19 May 2009, CAS issued its decision whereby Matuzalem was ordered to pay to Shakhtar the amount of EUR 11,858,934, plus interest of 5% p.a. accruing from 5 July 2007 (3). Matuzalem and Real Zaragoza were held jointly and severally liable for the amount. This CAS award became known as the 'Matuzalem case' and many commentaries were written about it due to the fact that it was the first time that CAS, when calculating the claim for damages, took into consideration not only the residual value of a player, i.e. the total amount of wages outstanding under the fixed term contract (as had been applied in the Webster case (4)), but also the lost service of the value of Matuzalem, i.e. possible future income of the club with the player such as transfer opportunities. Many commentaries claimed that CAS used Matuzalem to make an example to the football world that contracts must be honored. The CAS panel argued that the purpose of Article 17 of the FIFA Regulations on the Status and Transfer of Players (which deals with the consequences of terminating a contract without just cause) is '[. ] basically nothing else than to reinforce contractual stability, i.e. to strengthen the principle of pacta sunt servanda in the world of international football, by acting as a deterrent against unilateral contractual breaches and terminations, be it breaches by a club or by a player[. ] (5) The panel further stated that 'The deterrent effect of Article 17 FIFA Regulations shall be achieved through the impending risk for a party to incur disciplinary sanctions, if some conditions are met, and, in any event, the risk to have to pay a compensation for the damage caused by the breach or the unjustified termination. In other words, both players and club are warned: if one does breach or terminate a contract without just cause, a financial compensation is due, and such compensation is to be calculated in accordance with all those elements of Art. 17 FIFA Regulations that are applicable in the matter at stake, including all the non-exclusive criteria listed in para. 1 of said article that, based on the circumstances of the single case, the panel will consider appropriate to apply. ' (6) The Swiss Federal Tribunal upheld this decision in 2010 (7). As neither Real Zaragoza nor Matuzalem were able to pay the amount of almost EUR 12 M. , FIFA's Disciplinary Committee informed them on 14 July 2010 that (i) disciplinary proceedings would be initiated against them and that (ii) corresponding sanctions would be applied in accordance with Article 64 of the FIFA Disciplinary Code. …