By Charlotte Smith, Partner, and Adam Melling, Associate, in the Employment & Sport teams at Walker Morris
In October, the Court of Justice of the European Union (CJEU) handed down its much-anticipated ruling in the case of FIFA v Lassana Diarra [1].
The CJEU could not have been more explicit in its rejection of FIFA’s multi-pronged, imprecise, discretionary and disproportionate system of sanctions applicable to a player who terminates their playing contract without just cause and those applicable to their new club.
While the Belgian Court of Appeal must finally determine certain elements of the case, this article postulates what the judgment will likely mean for football’s future framework for playing contracts and the transfer system. We have already seen FIFA introduce interim changes to its Regulations on the Status and Transfer of Players (RSTP) while it engages in consultation with stakeholders on making permanent changes to the RSTP to reflect the judgment (Interim Measures).
FIFA v Diarra: The contested provisions
The case concerned the RSTP provisions governing the termination of a playing contract without just cause (see footnote [2]).
While noting that the Interim Measures have temporarily changed how those provisions operate in practice today, the provisions in issue in Diarra (which are now the subject of consultation) can be summarised as follows (Contested Provisions):
- The Financial Sanction: Any party terminating a playing contract without just cause is liable to compensate the other party. The RSTP stipulates that a party must calculate compensation by considering certain ‘objective’ criteria.
- The Joint and Several Sanction: If the player joins a new club, the player and their new club are individually responsible for the full amount of the Financial Sanction.
- The Sporting Sanction: Where a party terminates a contract without just cause in a certain period (see footnote [3]), FIFA can impose sporting sanctions on either the player (a playing ban) or the club (a two-window ban on registering new players). The governing body can also apply a sporting sanction to a prospective new club inducing the player to breach the contract (which would also lead to a transfer ban). The case primarily concerned itself with this latter form of the sanction. Significantly, the presumption is that the new club has induced the breach, so it is on that club to prove the contrary.
- Withholding the ITC: The national association of the former club doesn’t have to deliver an International Transfer Certificate (ITC) to the national association of the player’s new club where, in essence, there is a dispute over the termination of the playing contract. The upshot is that the player cannot register with their new club.
The facts
Many will remember Lassana Diarra from his Portsmouth and Real Madrid days. After Real Madrid, Diarra found himself at Anzhi Makhachkala before signing a four-year deal at fellow Russian side Lokomotiv Moscow (Lokomotiv) in August 2013. Less than a year into his spell at Lokomotiv, things started to sour and culminated in Diarra refusing to train. Lokomotiv asserted that Diarra was in repudiatory breach of his contract, entitling the club to terminate it, which it did in August 2014.
Lokomotiv pursued Diarra for damages for breach of contract before FIFA’s Dispute Resolution Chamber (DRC) to the tune of €20m. Diarra counterclaimed, contending that Lokomotiv had terminated his contract without just cause.
In the meantime, in February 2015, Diarra found a club interested in signing him – Belgian side Sporting Charleroi – but the Russian Football Union (Lokomotiv’s national association) refused to issue an ITC for Diarra while the dispute was ongoing (which it was entitled to do under the RSTP). Charleroi also wanted Diarra to confirm that it wouldn’t be liable for any compensation payable to Lokomotiv if he were to sign for them (the Joint and Several Sanction). The deal ultimately fell through.
On 18 May 2015, the DRC found in Lokomotiv’s favour and awarded compensation. Diarra unsuccessfully appealed to the Court of Arbitration for Sport.
Separately, Diarra commenced proceedings against FIFA and the Belgian FA, seeking €6m in lost earnings, claiming that the Contested Provisions are contrary to EU law. The Belgian court upheld Diarra’s claim, which FIFA and the Belgian FA appealed to the Belgian Court of Appeal.
Before reaching a decision, the Court of Appeal has requested a preliminary ruling from the CJEU on whether the Contested Provisions are precluded by EU law, in particular:
- The right to freedom of movement of workers within the EU (Freedom of Movement Right).
- The prohibition on certain arrangements that: (i) may affect trade between EU Member States; and (ii) by purpose or in effect, restrict, prevent or distort competition within the EU (Prohibition on Anti-Competitive Agreements).
The CJEU’s preliminary ruling
Without getting into technical EU law details, the CJEU unsurprisingly followed recent decisions that the Freedom of Movement Right and the Prohibition on Anti-Competitive Agreements apply to FIFA and, therefore, also the RSTP (see footnote [4]).
- The Freedom of Movement Right
This right precludes any measure that might disadvantage EU nationals when they wish to pursue an economic activity in a Member State other than their own by preventing or deterring them from leaving their state of origin.
The CJEU confirmed that the Contested Provisions are all of that nature; the Contested Provisions prevented and/or deterred Diarra from finding a new club in the EU and/or clubs across the EU from engaging him. The former association’s decision to withhold the ITC prevented the player from joining a club in another state. However, FIFA can justify such restrictions on overriding grounds of public policy, provided it is proportionate.
The CJEU accepted that ensuring the regularity of club competitions is a legitimate objective of FIFA. This objective requires maintaining stability at clubs (which the Contested Provisions seek to do). As for proportionality, the key issue is whether the relevant measure goes no further than is necessary to achieve that objective. This is ultimately a question for the Belgian Court of Appeal to determine, but the CJEU gave its opinion on each limb:
The Financial Sanction: The CJEU was particularly critical of the factors laid down in the RSTP for calculating compensation. The relevant factors include the ‘specificities of sport’ and the player’s remuneration at their new club. Regarding the first, the CJEU considered it too imprecise a term to be ‘necessary’ to ensure the regularity of club competitions. Regarding the latter, the CJEU considered what the player earns at their new club is irrelevant in calculating their former club’s compensation (see footnote [5]).
The Joint and Several Sanction: Proportionality requires assessment of the specific facts of a case, in particular, the actual conduct of the new club. In other words, holding the new club liable regardless of whether it is at fault can hardly be necessary to ensure the regularity of club competitions.
The Sporting Sanction: Imposing the Sporting Sanction on the new club also goes beyond what is necessary, particularly where the onus is on the new club to prove that it didn’t induce the breach of contract. As mentioned, proportionality requires assessment of the facts – at the very least, the former club should have to provide some evidence of incitement to shift the burden of proof to the new club. The CJEU also noted that imposing a rigid two-window registration ban, which can’t be adapted depending on the facts, is clearly at odds with the principle of proportionality.
Withholding the ITC: As above, the ability of the former association to withhold the ITC overlooks the specific circumstances of a case, in particular, the factual context in which the breach of contract occurred (and indeed, whether a breach of contract has actually occurred). It also fails to consider the player’s actions, the former club’s conduct, and the new club’s involvement or lack thereof.
Regarding the Joint and Several Sanction, the Sporting Sanction and Withholding the ITC, the CJEU acknowledged that there is flexibility to derogate from them where appropriate. In this case, the DRC determined that the Sporting Sanction should not apply to Diarra’s next club. However, the mechanisms for such exceptions are too imprecise and ill-defined to cure the disproportionality of the existing framework.
- Prohibition on Anti-Competitive Agreements
The CJEU firmly stated that the Contested Provisions aim to restrict or even prevent competition. In the court’s view, the Contested Provisions pose significant harm to competition. More specifically, they prevent clubs from unilaterally recruiting players already under contract or those alleged to have terminated their employment contract without just cause. Recruiting top players is, of course, a particularly significant aspect of competition between clubs.
While it’s possible to fall outside the prohibition where the relevant measures pursue legitimate objectives, a crucial limb of that test is that the means used must be genuinely necessary for such objectives. It will be apparent from the foregoing that the CJEU considered the harm caused by these measures too great to be justified and proportionate (see footnote [6]).
Does the ruling completely shake up football contracts and the global transfer system?
While the Belgian Court of Appeal must still make specific findings – and the case is technically limited in scope to the EU and, in the case of the Freedom of Movement Right, to transfers with a cross-border element involving an EU national – FIFA’s Interim Measures show that FIFA accepts the need to make changes to the RSTP and intends to do so globally.
While the Interim Measures are not intended to prejudice the ongoing consultation with stakeholders, they do reflect the general trend towards increased player rights.
Footnotes:
[1] Fédération internationale de football association (FIFA) v BZ, C‑650/22.
[2] These rules also apply to cases where the ‘injured’ party terminates a contract in response to the other party’s serious breach of contract (which is what happened in this case).
[3] The period from when the contract becomes binding until the end of a specific number of seasons or years, whichever comes first. If the player is under 28 when the contract is signed, the period is 3 seasons or years; for players 28 and over, it’s 2.
[4] See European Superleague Company, SL v FIFA and UEFA; and UL and SA Royal Antwerp Football Club v Union royale belge des sociétés de football association ASBL.
[5] Another factor is the law of the state concerned, which FIFA itself admits in its commentary on the RSTP is rarely followed in practice. The CJEU considered this unsatisfactory – there should be a real consideration of and effective compliance with such laws.
[6] The Belgian court will also have to determine whether a further specific exemption provided for under EU law, under article 101(3) of the Treaty on the Functioning of the European Union, is engaged. If so, the measures would not fall foul of the prohibition. However, again, one of those limbs concerns the necessity of the conduct (which the CJEU has made its position quite clear on).
