For the first time in more than 20 years, an international arbitral award has been annulled by the Swiss Federal Supreme Court for breach of substantive public policy. In a landmark decision, the Federal Supreme Court overruled a Court of Arbitration for Sport (CAS) award in which the decision of the FIFA Disciplinary Committee was confirmed. The decision had found the Brazilian football player Francelino da Silva Matuzalem and the Spanish football club Real Saragossa guilty of breaching their obligations towards the Ukrainian football club Shakhtar Donetsk. Among other consequences, Matuzalem would therewith automatically have been banned from any activity in connection with football pursuant to the applicable FIFA regulations. The Federal Supreme Court has now considered such a worldwide ban as a breach of public policy, and in particular as an excessive commitment in the sense of art. 27 para. 2 of the Swiss Civil Code.
How it all Began: The First Decision of the Federal Supreme Court
In 2004 Matuzalem entered into a five year employment contract with Shakhtar Donetsk. After three years Matuzalem terminated his contract and signed a contract with Real Saragossa, which undertook to hold him harmless from any claims that could arise from the termination of the contract without just cause. Based on article 17 of the Regulations on the Status and Transfer of Players, FIFA ordered Matuzalem and Real Saragossa to pay compensation to Shakhtar Donetsk in the amount of EUR 6'800'000 plus interest at 5% from July 2007. Both parties appealed against the FIFA decision. Thereafter, CAS increased the compensation to be paid to Shakhtar Donetsk to EUR 11'858'934 plus interest at 5% from July 2007.
An appeal against this decision was filed by Matuzalem and Real Saragossa with the Federal Supreme Court. The appeal was rejected on 2 June 2010 (case no. 4A_320/2009). Therewith, the Federal Supreme Court substantially strengthened the position of the football clubs in the world of football. The Federal Supreme Court considered the extremely punitive calculation of the compensation only as a "compensation for damages".
However, CAS had in fact decided that the football player had to pay a compensation comprising of (i) a possible future salary (minus the salary Matuzalem would have earned with Shakhtar Donetsk), plus (ii) a possible future transfer sum defined in the contract but never paid, plus (iii) a sport specific penalty in the amount of...