The Swiss Supreme Court Vacates For The First Time An International Arbitration Award On Ground Of Substantive Public Policy Infringement

Author:Mr Frank Spoorenberg and Isabelle Fellrath
Profession:Tavernier Tschanz
  1. Introduction

    The Swiss Supreme Court has recently vacated an international arbitration award on material public policy ground under Article 190 par. 2 let. (e) of the Private International Law Act (the "PIL Act"). Since the enactment of the Swiss Arbitration Act (PIL Act, Chapter XII) in 1987, it is actually the second instance of annulment on the public policy ground. The first case was also an award issued by the Court of Arbitration for Sport ("CAS") and was caused by a fundamental disregard of generally recognized mandatory procedural principles essential to guarantee the loyalty of proceedings (res judicata effect of a prior judicial decision).1

  2. Facts

    Brazilian born footballer Matuzalem concluded in 2004 a five-year employment contract with an Ukrainian Club (the "2004 Contract"). Three years into the 2004 Contract, the footballer terminated it with immediate effect for just cause, alternatively for sporting just cause (Regulations on the Status and Transfer of Players Art. 14 and 15). A few days later Mr. Matuzalem concluded a three-year contract with the Spanish Club Saragossa. The Spanish Club signed a hold harmless provision whereby it committed to compensate the player for any damages he may incur as a result of his premature termination of the 2004 Contract. Two years into his new contract, Mr. Matuzalem was transferred to the Italian Club Lazio for a transfer fee of EUR 5.1 mio. FIFA Dispute Resolution Chamber condemned the player to pay EUR 6.8 mio in damages to the Ukrainian Club for unjustified premature termination of the 2004 Contract. Mr. Matuzalem and the Spanish Club were held jointly and severally liable to twice that amount on appeal by the CAS. That first CAS award was upheld by the Swiss Supreme Court.

    The Court then considered that the amount of damages awarded was not incompatible with the public order, considering in particular the substantial benefits derived from the transfer by the Club and the player.2

    Mr. Matuzalem and the Spanish Club failed to pay any substantial part of the damages, amidst allegations of the Club's serious financial difficulties. As a result, FIFA Disciplinary Committee initiated disciplinary proceedings against Mr. Matuzalem and the Club for failure to respect a FIFA decision (FIFA Disciplinary Code, Art. 64). It imposed them a CHF 30'000 fine and imparted them a 90-day deadline to proceed to the full payment of the fine, failing which "the creditor may demand in writing from FIFA...

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