Publications

Axel Buhr; in: dRSK, 22.06.2020
Com­men­tary on Swiss Fed­er­al Tri­bunal deci­sion on March 16, 2020

The Swiss Fed­er­al Tri­bunal con­firms its long-stand­ing jurispru­dence, accord­ing to which the res judi­ca­ta effect of arbi­tral awards and state court deci­sions is lim­it­ed to their oper­a­tive part. Sim­i­lar­ly to state courts, arbi­tral tri­bunals are not bound by the con­sid­er­a­tions of pre­vi­ous deci­sions, despite any – in the words of the Swiss Fed­er­al Tri­bunal – «para­dox­i­cal» con­se­quences this may entail. For the avoid­ance of any such «para­dox­i­cal» con­se­quences, par­ties should be allowed to rely on requests for declara­to­ry relief. When future pro­ceed­ings are already on the hori­zon, requests for declara­to­ry relief are legit­i­mate and nec­es­sary, and should not be reject­ed as inadmissible.

I. Back­ground

[1] On 28 April 2014, a pro­fes­sion­al foot­ball club («A.») entered into an agency agree­ment with a Ger­man player’s agent («Z.»). The agency agree­ment con­cerned an under­age foot­ball play­er («J.»), who had pre­vi­ous­ly entered into an employ­ment agree­ment with the club for the time from Jan­u­ary 2013 until June 2015 (see sec. A.a.).

[2] As FIFA reg­u­la­tions lim­it the max­i­mum dura­tion of employ­ment agree­ments with minors to three years, the club sought in April 2014 to enter into a sec­ond employ­ment agree­ment for the time from 1 July 2015 until 30 June 2017, with the inten­tion to fur­ther extend the employ­ment with a third agree­ment until 2020 on or around 29 Novem­ber 2014, when play­er J. turned eighteen.

[3] With the sup­port of agent Z., the club signed play­er J. on 24 April 2014 for the time until 30 June 2017. Sub­se­quent­ly, club A. entered into the agency agree­ment with agent Z., cov­er­ing the ser­vices agent Z. had pro­vid­ed and secur­ing his sup­port for future con­tract nego­ti­a­tions with play­er J.

[4] The agency agree­ment was sub­ject to Swiss law and gov­erned by an arbi­tra­tion agree­ment pro­vid­ing for the juris­dic­tion of the com­pe­tent FIFA body or the Court of Arbi­tra­tion for Sport («CAS»). In terms of remu­ner­a­tion, the agency agree­ment enti­tled agent Z. to:

1. a first com­mis­sion of EUR 400’000, «payable with­in five work­ing days of the sign­ing» of the sec­ond employ­ment agree­ment (for the time from 1 July 2015 until 30 June 2017), which was paid by the club accord­ing­ly (sec. A.b.),
2. a sec­ond com­mis­sion of EUR 400’000, «payable with­in five work­ing days after the sign­ing» of the third employ­ment agree­ment (for the time from 1 July 2017 until 30 June 2020), and
3. a bonus of 10% of the amount payable to the club in the event of a trans­fer of play­er J. to anoth­er club, «as addi­tion­al remu­ner­a­tion for ren­der­ing the ser­vices […] lead­ing to the con­clu­sion of a con­tract with the Play­er» (sec. A.a.).

[5] The third employ­ment agree­ment for the time from 1 July 2017 until 30 June 2021 was signed on 8 April 2015 (sec. A.e), with­out the involve­ment of agent Z. (sec. A.f.). Agent Z. had not pro­vid­ed any fur­ther ser­vices to the club under the agency agree­ment after April 2014 (sec. A.b.). Appar­ent­ly, play­er J. had ter­mi­nat­ed his col­lab­o­ra­tion with agent Z. in Novem­ber 2014 (see sec. A.d and A.f, which are not entire­ly clear).

[6] A dis­pute arose between the club and agent Z. when agent Z. request­ed pay­ment of the sec­ond com­mis­sion. In June 2015, agent Z. ini­ti­at­ed arbi­tra­tion pro­ceed­ings before the CAS, request­ing the Arbi­tral Tribunal

1. to order the club to pay the sec­ond com­mis­sion, and
2. to declare that agent Z. was enti­tled to the addi­tion­al bonus in the event of a future trans­fer to anoth­er club.

[7] With an award ren­dered in Sep­tem­ber 2016, the arbi­tral tri­bunal dis­missed the pay­ment request, on the grounds that agent Z. had not been involved in or con­tributed to the sign­ing of the sec­ond employ­ment agree­ment at all. The arbi­tral tri­bunal refused to ren­der a deci­sion on agent Z.’s declara­to­ry request as the require­ments for declara­to­ry relief were not met in the eyes of the arbi­tral tri­bunal (sec. A.f).

[8] In Feb­ru­ary 2017, play­er J. was trans­ferred to anoth­er club for EUR 29 Mio. (sec. A.g.).

[9] In July 2017, agent Z. ini­ti­at­ed fur­ther arbi­tra­tion pro­ceed­ings against the club before the CAS, request­ing pay­ment of an addi­tion­al remu­ner­a­tion of EUR 2.96 Mio (sec. B).

[10] With an award ren­dered in July 2018, the sec­ond arbi­tral tri­bunal large­ly grant­ed agent Z.’s request, order­ing the club to pay EUR 2.86 Mio. The sec­ond arbi­tral tri­bunal con­clud­ed that no involve­ment of agent Z. in the trans­fer of play­er J. was required to enti­tle agent Z. to the addi­tion­al bonus (sec. B.).

[11] With its appeal (sec. C), the club request­ed the Swiss Fed­er­al Tri­bunal to set aside the sec­ond award, com­plain­ing that the sec­ond award (i) ignored the res judi­ca­ta effect of the first award and there­by breached pro­ce­dur­al pub­lic pol­i­cy and (ii) failed to deal with rel­e­vant argu­ments, vio­lat­ing the club’s right to be heard.

II. Deci­sion

[12] With its deci­sion dat­ed 16 March 2020, the Swiss Fed­er­al Tri­bunal dis­missed the club’s appeal.

[13] In rela­tion to the club’s first com­plaint, the Swiss Fed­er­al Tri­bunal reit­er­at­ed and con­firmed its long-stand­ing jurisprudence:

1. Res judi­ca­ta pre­vents par­ties from lit­i­gat­ing the same claim twice. A claim must not be heard again if it has already been adju­di­cat­ed by a dif­fer­ent court or arbi­tral tri­bunal in a pre­vi­ous case involv­ing the same par­ties (neg­a­tive res judi­ca­ta effect; sec. 3.1.1).
2. In the event of a fur­ther dis­pute between the same par­ties, a court or arbi­tral tri­bunal is bound by the pre­vi­ous deci­sion (pos­i­tive res judi­ca­ta effect; sec. 3.1.1).
3. Theres judi­ca­ta effect is lim­it­ed to the oper­a­tive part of a deci­sion and does not extend to its con­sid­er­a­tions. The con­sid­er­a­tions may be used to under­stand and inter­pret the oper­a­tive part. This may be nec­es­sary in par­tic­u­lar in cas­es where a request for relief is reject­ed (sec. 3.1.1).
4. The res judi­ca­ta effect extends to the exis­tence of a claim only in cas­es where a «final deci­sion» is ren­dered on its mer­its. In the event that a claim is found to be inad­mis­si­ble, and that no deci­sion is ren­dered on the mer­its of a claim for this rea­son, the res judi­ca­ta effect is lim­it­ed to the aspect of inad­mis­si­bil­i­ty (sec. 3.1.2).
5. An award that ignores the res judi­ca­ta effect of a pre­vi­ous deci­sion vio­lates pro­ce­dur­al pub­lic pol­i­cy. The vio­la­tion qual­i­fies as suf­fi­cient grounds for set­ting aside the award based on Arti­cle 190(2)(e) of the Swiss Pri­vate Inter­na­tion­al Law Act (sec. 3.1.3).

[14] Based on these prin­ci­ples, the Swiss Fed­er­al Tri­bunal came to the con­clu­sion that agent Z.’s request for pay­ment of the addi­tion­al remu­ner­a­tion was not res judi­ca­ta, as the first arbi­tral tri­bunal had refused to hear agent Z’s request for declara­to­ry relief and accord­ing­ly had not ren­dered a deci­sion on the mer­its of such request.

[15] Final­ly, the Swiss Fed­er­al Tri­bunal also dis­missed the club’s sec­ond com­plaint. Ana­lyz­ing the rea­son­ing of the award, the Swiss Fed­er­al Tri­bunal found that the arbi­tral tri­bunal in fact had suf­fi­cient­ly con­sid­ered, but decid­ed not to fol­low, the club’s argu­ments. (sec. 4.2). As a pre­lim­i­nary remark, the Swiss Fed­er­al Tri­bunal also empha­sized that the sec­ond com­plaint was for­feit­ed nei­ther by the club’s con­fir­ma­tion at the end of the hear­ing that the club’s right to be heard had been ful­ly respect­ed, nor by boil­er­plate lan­guage in the award, stat­ing that the arbi­tral tri­bunal had con­sid­ered all alle­ga­tions, argu­ments and evi­dence of the par­ties. Impor­tant­ly, such find­ing is not a depar­ture of the Swiss Fed­er­al Tri­bunal’s long-stand­ing jurispru­dence that par­ties for­feit their right to request the set­ting aside of an award, if they fail to time­ly object to a poten­tial vio­la­tion of their right to be heard in the pro­ceed­ings (see GABRIEL/SCHREGENBERGER, The new Swiss approach to the right to be heard – bal­anc­ing chal­leng­ing fair­ness and effi­cien­cy con­cerns, IJAL 8[2020], p. 65): As the com­plaint did not con­cern the pro­ceed­ings, but the rea­son­ing in the award, the club was obvi­ous­ly unable to raise the com­plaint before the release of the award.

III. Com­ments

[16] The fol­low­ing three aspects of the deci­sion of the Swiss Fed­er­al Tri­bunal and the relat­ed arbi­tral awards are interesting:

[17] First, the first arbi­tral award is a gen­tle reminder for all arbi­tra­tion prac­ti­tion­ers that many arbi­tral tri­bunals in Switzer­land still require par­ties to demon­strate a «legal inter­est» for any declara­to­ry relief request­ed, even in inter­na­tion­al arbi­tra­tion pro­ceed­ings. While this require­ment is well estab­lished for pro­ceed­ings before Swiss state courts, there is no statu­to­ry basis com­mand­ing its appli­ca­tion in inter­na­tion­al arbi­tra­tion pro­ceed­ings, and many legal author­i­ties right­ful­ly demand a more flex­i­ble approach (see e.g. LEIM­GRU­BER, Declara­to­ry Relief in Inter­na­tion­al Arbi­tra­tion, ASA Bull. 3/2014, p. 476 et seqq.; GIRSBERGER/VOSER, Inter­na­tion­al Arbi­tra­tion, Com­par­a­tive and Swiss Per­spec­tives, 3^rd ed. Zurich 2016, para. 1192;SCHNEIDER, Non-Mon­e­tary Relief in Inter­na­tion­al Arbi­tra­tion: Prin­ci­ples and Arbi­tra­tion Prac­tice, in: Schneider/​Knoll [eds.], Per­for­mance as a Rem­e­dy: Non-Mon­e­tary Relief in Inter­na­tion­al Arbi­tra­tion, ASA Spe­cial Series No. 30, Hunt­ing­ton 2011, p. 30).

[18] Sec­ond, the lim­i­ta­tion of the res judi­ca­ta effect to the oper­a­tive part of a deci­sion was once more express­ly con­firmed by the Swiss Fed­er­al Tri­bunal, despite any – in the words of the Swiss Fed­er­al Tri­bunal – «para­dox­i­cal» con­se­quences this lim­i­ta­tion may entail (sec. 3.3.1). The Swiss Fed­er­al Tri­bunal recalled that even in cas­es where two par­tial claims with the same legal basis are con­sec­u­tive­ly brought before two arbi­tral tri­bunals or state courts, the analy­sis of the basis of the claim by the first arbi­tral tri­bunal or court will not bind the sec­ond (see sec. 3.1.1 in fine and the fur­ther ref­er­ences to the case law of the Swiss Fed­er­al Tribunal).

[19] Impor­tant­ly, the lim­i­ta­tion of the res judi­ca­ta effect to the oper­a­tive part does not only affect awards ren­dered by arbi­tral tri­bunals with seat of arbi­tra­tion in Switzer­land. The Swiss Fed­er­al Tri­bunal has con­firmed numer­ous times in the past that the res judi­ca­ta effect of a for­eign deci­sion can­not be greater than the res judi­ca­ta effect of a sim­i­lar deci­sion ren­dered in Switzer­land (BGE 141 III 229, sec. 3.2.3; BGE 140 III 278, sec. 3.2). As a con­se­quence, the lim­i­ta­tion also applies to any deci­sion ren­dered abroad, regard­less of the res judi­ca­ta effect that the for­eign deci­sion may have at the place where the deci­sion was rendered.

[20] Third, avoid­ing the «para­dox­i­cal» con­se­quences that may result from the lim­i­ta­tion of the res judi­ca­ta effect must qual­i­fy as a valid legal inter­est for the fil­ing of addi­tion­al requests for declara­to­ry relief: For the avoid­ance of any such «para­dox­i­cal» con­se­quences, par­ties should be allowed to rely on requests for declara­to­ry relief. When future pro­ceed­ings are already on the hori­zon, requests for declara­to­ry relief are legit­i­mate and nec­es­sary, and should not be reject­ed as inad­mis­si­ble by arbi­tral tribunals.

[21] Par­ties, on the oth­er hand, face a dif­fi­cult task and, at an ear­ly stage of the pro­ceed­ings, must care­ful­ly weigh their chances of a declara­to­ry request ver­sus lat­er arbi­tra­tion proceedings.

[22] In the present case, the refusal of the first arbi­tral tri­bunal to ren­der a deci­sion on agent Z’s request for declara­to­ry relief emerged as quite a Pyrrhic vic­to­ry for the club. The club was not only drawn into cost­ly sec­ond arbi­tra­tion pro­ceed­ings, it was also ordered to pay the addi­tion­al bonus – an out­come which might have been avoid­ed, had the club agreed to, or even request­ed as a coun­ter­claim, a dec­la­ra­tion on agent Z.’s enti­tle­ment to the addi­tion­al bonus in the first arbi­tra­tion case. Assum­ing that the refusal was made upon the club’s request, it is now – with the ben­e­fit of hind­sight – easy to con­clude that any such request back­fired con­sid­er­ably. The take-away still is: Be care­ful what you wish for.