COVID-Related Disputes Before the Court of Arbitration for Sport: Opening Pandora’s Box?
A highly visible impact of the COVID-19 pandemic on the sphere of sport took place in the Court of Arbitration for Sport (CAS) where employment disputes with athletes included efforts to justify non-performance or early termination of contracts, based on the doctrines of force majeure1 and/or clausula rebus sic stantibus.2 Even though clubs’ reliance on these doctrines in COVID-related disputes has ultimately failed, dicta in CAS awards rendered in 2020-2022 suggested that employers might be able to avoid performance of their financial obligations toward athletes based on economic difficulties. This emerging concept in CAS jurisprudence could open a Pandora’s box, eventually leading to instability of employment relations and adversely affect the athletes’ rights. Thus, a clear understanding of recent developments involving application of both doctrines in the sphere of sport becomes crucial for protecting athletes’ rights in case of future disputes resulting from extraordinary events affecting the sport sector.
Impact of COVID-19 on the Use of Force Majeure Doctrine in CAS Arbitration
Addressing efforts to justify non-performance of their contractual obligations on the basis of force majeure doctrine in the pre-COVID era, the CAS panels consistently acknowledged that that “force majeure” implied an objective impediment, beyond the control of the obliged party, that is unforeseeable, cannot be resisted and renders the performance of the obligation impossible.3 Since force majeure introduces an exception to the binding force of an obligation (principle of pacta sunt servanda),4 CAS panels narrowly interpreted the conditions for the occurrence of force majeure,5 finding non-performance justified only on one occasion related to the Egyptian civil war.6 In view of the “impossibility” element, the panels consistently held that financial problems could not be invoked as a justification for the non-compliance with an obligation.7 Similar considerations have led the CAS panels to deny the existence of force majeure in the only two epidemic-related cases of the pre-COVID era.8
However, in three CAS awards in COVID-related disputes between the Turkish football club Yeni Malatyaspor and several of its players, the same sole arbitrator significantly deviated from precedent by opining that in certain circumstances force majeure could be proven.9 In these three disputes, the club consistently argued that because of the COVID-19 pandemic, football clubs suffered serious financial losses, that there has been a 30% decrease in its seasonal revenues and that the impact of the pandemic on the EURO/TL (Turkish Lira) exchange rate has put the club to the brink of bankruptcy.10 Addressing these arguments, the arbitrator found that the club did not submit any evidence to prove that the financial effect of COVID-19 pandemic on the EURO/TL exchange rate and the temporary suspension of sports activities caused serious financial difficulties to the club, and, furthermore, the club did not prove that there has been a 30% decrease in seasonal revenues which consequently affected its ability to make the payments.11 The arbitrator further noted that the “force majeure” approach submitted by the club had to be dismissed for several reasons: the suspension of football related activities in Turkey temporary and the financial difficulties the club alleged (but failed to prove) to be associated with the pandemic did not justify the failure to make the required payments in accordance with well-established jurisprudence of CAS.12
If the sole arbitrator had simply followed well-established jurisprudence of CAS concerning financial difficulties as a basis for breach, he could have summarily disposed of the club’s case without even considering whether the club proved the existence of these financial difficulties. By referring to the lack of proof, the arbitrator suggested that there was a possibility of relying on such difficulties as an excuse for non-performance of monetary obligations toward players. Moreover, this reasoning mirrored the approach previously articulated by the FIFA according to which the establishment of force majeure situation (or its equivalent) in the country or territory of a member association was a matter of law and fact, which must be addressed on a case-by-case basis.13
Impact Of COVID on the Use of Clausula Rebus Sic Stantibus Doctrine in CAS Arbitration
Prior to the COVID pandemic, since mid-2000s, CAS panels consistently relied on the concept “clausula rebus sic stantibus” in disputes involving immediate termination of employment contracts (usually, fixed-term) between professional football players and their clubs,14 referring to Swiss law as the law applicable to these disputes.15 Under Swiss law, an employment contract that has been concluded for a fixed term can only be terminated prior to expiry if there is “good cause,”16 “Good cause” generally means that the party who terminated the contract cannot in good faith be expected to continue the employment relationship.17 Thus, good cause allows either of the parties to end their contract when the essential contractual conditions, whether of an objective or personal nature, are no longer present.18 Accordingly, such good cause termination is viewed by Swiss courts as a definition of the doctrine of clausula rebus sic stantibus.19
Determining the existence of “good cause” in disputes prior to 2020, the CAS panels were ordinarily dealing with circumstances related to the performance of obligations by one of the parties to the employment contracts, such as late return from a personal trip abroad authorized by the club or staying away from training without leave,20 non-payment or late payment of remuneration by an employer,21 or alleged continuous “poor performance” by the player.22 From this perspective, the major development concerning application of clausula rebus sic stantibus in COVID-related disputes was a significant shift. While previous cases typically involved changed circumstances associated with some “internal” factors related to the to the performance of obligations by one of the parties to the employment contracts, COVID-related disputes dealt with an “external” event, independent of the parties’ will and outside of their control. Reflecting this shift, in joint case Club Olimpia de Paraguay v. FC Dynamo Kyiv & FC Dynamo Kyiv v. Club Olimpia de Paraguay, the arbitrator held that even though a certain event (such as the COVID-19 pandemic) might be considered as unforeseeable, the party claiming release from obligations on the basis of this doctrine still had to prove that this event created a disproportionate impact on one of the parties that would make it abusive to insist on compliance with the existing agreement.23
Conclusion
CAS awards in COVID-related disputes implicitly offered employers the possibility of relying on financial problems in support of a claim of force majeure. Similarly, a manifest shift in the application of the doctrine of clausula rebus sic stantibus from “internal” factors to “external” factors could potentially allow clubs to unilaterally reduce remuneration of players or even terminate their fixed-term employment contracts. This line of reasoning should be rejected. Even if the COVID pandemic may be regarded as an extraordinary circumstance, impossible to foresee when concluding fixed-term employment contracts between clubs and players, it should be considered as an integral part of clubs’ economic risk. In a market economy, employers should bear this economic risk. The clubs’ obligation to assume the consequences of unforeseen circumstances such as the COVID crisis should be considered as the flip side of the clubs’ advantage: if there is an unforeseen benefit, normally clubs have no legal obligation to share it with their players even if the players have contributed decisively.24
Clubs should not be allowed to stop paying salaries to their players on the basis of doctrine of force majeure despite unforeseen financial losses. Neither should they be allowed to correct an alleged excessive imbalance between their continued payment obligations and inability of players to perform their sporting obligations because of health restrictions and to terminate fixed-term employment contracts with them on the basis of clausula rebus sic stantibus. Such termination in the midst of the COVID-crisis would literally put players on the street, with no realistic prospect of finding another job.
These considerations justify the need for the sporting community to promptly take measures to counteract any emerging instability in the labor relations with athletes. One possible solution could be a recommendation adopted by international sport federations addressed to their member national federations and clubs to contract for insurance covering the risk of athletes’ loss of income for a certain period in case of future extraordinary circumstances affecting the sport sector.
Dmitry A. Pentsov is a partner at MLL Meyerlustenberger Lachenal Froriep Ltd (Geneva, Switzerland), a member of the New York State Bar Association and “avocat” (Switzerland). The views expressed in this article are solely of its author.
Endnotes
17 Code des obligations [CO] [Code of Obligations] Mar. 30, 1911, RS 220, art. 337(2) (Switz.).
18 Tribunal fédéral [TF] [Federal Supreme Court] Sep. 17, 1975, 101 ATF Ia 545, ¶2a (Switz.).
19 Bundesgericht [BGer] [Federal Supreme Court] May 5, 2003, 129 BGE III 380, ¶2.2, ¶3.1 (Switz.).
20 CAS 2006/A/1062 Da Nghe Football Club v. Ambroise Alain François Ndzana Etoga, Award, ¶14-15.
