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Invalidity of forced arbitration clauses in organised sport…Germany strikes back! - By Björn Hessert

Editor's note: Björn Hessert is a research assistant at the University of Zurich and a lawyer admitted to the German bar.

 

The discussion revolving around the invalidity of arbitration clauses in organised sport in favour of national and international sports arbitral tribunals has been at the centre of the discussion in German courtrooms.[1] After the decisions of the German Federal Tribunal[2] (“BGH”) and the European Court of Human Rights[3] (“ECtHR”) in the infamous Pechstein case, this discussion seemed to have finally come to an end. Well…not according to the District Court (LG) of Frankfurt.[4] On 7 October 2020, the District Court rendered a press release in which the court confirmed its jurisdiction due to the invalidity of the arbitration clause contained in the contracts between two beach volleyball players and the German Volleyball Federation[5] (“DVV”) – but one step at a time.

 

1.     Arbitration clauses in organised sport

Over the past few decades, the Olympic movement has created its own judicial system in its endeavour to create and maintain a uniform judicial level playing field outside national courts. This is important, because athletes participating in international sports competitions need to be subject to the same sanctioning regime in the light of fairness and equality in sport.[6] In this regard, the jurisdiction of national courts threatens the uniform application of rules and regulations of international sports federations insofar as they could apply them differently. This could lead to the unsatisfying result that, for example, an athlete from Germany is punished for an anti-doping rule violation with a 2-year ineligibility sanction while a Swedish athlete is subject to a lifetime ban for the same misconduct.

In order to preserve the uniform application of sporting rules and – ultimately – a legal level playing field, the rules and regulations of the respective sports federation or individual contracts, including employment contracts or athlete agreements and licence agreements (“entry forms”), generally contain arbitration clauses in favour of private sports arbitral tribunals, e.g. the Court of Arbitration for Sport (��CAS”). As a result, the arbitration agreement between the parties to membership contracts or entry forms ousts the jurisdiction of national courts.[7] Due to the fact that athletes are not generally direct members of national and international sports federations, contractual clauses in their employment contracts or entry forms make reference to arbitration clauses set out in the rules and regulations of said sports federations. For example, international football players are generally bound by the regulations of the Fédération Internationale the Football Association (“FIFA”), including its statutes. Article 58(1) of the FIFA Statutes (2020 edition) provides that “[a]ppeals against final decisions passed by FIFA’s legal bodies against decisions passed by confederations, member associations or leagues shall be lodged with CAS […]”. References in individual contracts of sportspersons contained in the rules and regulations of sports federations, so-called “arbitration agreements by reference”, have been considered to be valid. In this respect, the Swiss Federal Tribunal (“SFT”) held that

in sporting matters the Swiss Federal Tribunal examines arbitration agreements between parties with a certain goodwill in order to promote the fast resolution of disputes by specialised courts, which as the CAS, offer comprehensive guarantees of independence and neutrality.[8]

Athletes are generally forced to accept such arbitration agreements in favour of sports arbitral tribunals due to the monopolistic structure in organised sport, meaning that only one national and international sports federation governs each sport on the basis of the pyramidal European Model of Sport (so-called Ein-Platz-Prinzip).[9] In other words, athletes can only choose between accepting such arbitration agreements (by reference) or renouncing their calling as professional athletes.[10] Against this background, it appears to be questionable whether mandatory arbitration agreements in organised sport concluded between monopolistic sports federations and athletes are valid, taking into account that arbitration as a mechanism of alternative dispute resolution generally finds its basis in the free and voluntary will of the parties to the dispute concerned. The validity of mandatory arbitration agreements was at the heart of the Pechstein[11] case and has now been addressed in the recent decision rendered by the District Court of Frankfurt[12].

 

2.     The decisions of the BGH and the ECtHR in the Pechstein case

Claudia Pechstein is a professional speed-skater. Prior to the speed-skating world championships, organised by the International Skating Union (“ISU”), she signed an entry form, including an arbitration agreement in favour of the CAS.[13] During her proceedings before German courts and the ECtHR, Pechstein argued that the arbitration agreement concluded between her and the ISU had not been accepted freely and voluntarily, because otherwise she would not have been eligible to participate in professional speed-skating competitions.

After the Higher Regional Court (OLG) of Munich had decided that the arbitration agreement signed by Ms Pechstein was invalid under German competition law as a result of ISU’s abuse of a dominant position[14], the BGH overruled this decision.[15] In the view of the BGH, the ISU is a monopoly within the meaning of sec. 19(1) of the German Competition Act (“GWB”).[16] However, the BGH took the view that the dominant position of a party to the arbitration agreement does not automatically revoke the voluntary nature of the consent to an arbitration agreement in favour of private sports arbitral tribunals.[17] Instead, the examination of the validity of the arbitration agreement is subject to a balancing process in consideration of the interests of both parties, i.e. sports federations and individual athletes.[18] In consideration of the legal protection of athletes and the specificity of sport, particularly in ensuring fair competitions and uniform case law in organised sport, which “would be seriously jeopardised”[19] by the invalidity of the arbitration agreement, the court came to the conclusion that the interests of the ISU prevail in this regard.[20] The CAS is a genuine arbitration court and guarantees legal protections for athletes equivalent to national courts.[21] Furthermore, the consistent application of the rules and regulations of sports federations by a specialised arbitration institution is not only in the interest of sports federations, but also in the interest of athletes.[22] 

The ECtHR indirectly confirmed the validity of the arbitration agreement concluded between Ms Pechstein and the ISU. However, in determining the free will of athletes when entering into an arbitration agreement with a monopolistic sports federation, the court held that the arbitration clause is generally not based on the free consent of the athlete and thus has a forced nature.[23] In case the athlete is compelled to accept an arbitration agreement, Article 6(1) of the ECHR is applicable to the sports arbitration proceedings in protection of the procedural rights of the athlete.[24]  

However, arbitration agreements in organised sport are not compulsory per se if the applicable sports rules and regulations leave it to the sports federation and the athlete to freely and voluntarily agree on an arbitration agreement. In this case, athletes are not in the same predicament and may therefore choose between different clubs before signing an arbitration agreement.[25]Furthermore, the complaining athlete must provide evidence that “other professional football clubs, which perhaps have more modest financial means, would have refused to hire him on the basis of a contract providing for dispute settlement in ordinary courts.”[26]

According to the BGH, the validity of arbitration agreements in organised sport is subject to a balancing process between the competing interests of the parties to it. However, if an athlete was compelled to accept arbitration clauses of monopolistic sports federations, the ECtHR concluded that Article 6(1) of the ECHR is applicable to the arbitration proceedings concerned. Both courts therefore set the benchmark against which the validity of arbitration agreements and proceedings in organised sport is measured. 

 

3.     Decision of the District Court of Frankfurt (based on the press release)

The decision of the District Court of Frankfurt is insofar remarkable as the court was in the position to consider both the decision of the BGH and the ECtHR in its decision-making process. With regard to the validity of the arbitration agreement concluded between two volleyball players and the DVV, the court stated in its press release of 7 October 2020[27] as follows:

Die Streitigkeit habe nicht vorrangig vor einem Schiedsgericht ausgetragen werden müssen. Zwar enthielten die Verträge der Klägerinnen mit dem Beklagten jeweils eine Schiedsvereinbarung. Dieser sei aber unwirksam, «weil die Klägerin sich ihr nicht freiwillig unterworfen habe», so die Richter. Seit der Entscheidung des Europäischen Gerichtshofs für Menschenrechte (EGMR) im Fall Pechstein sei bei professionellen Leistungssportlern von einer unfreiwilligen Unterwerfung unter einer Schiedsgerichtsbarkeit auszugehen, wenn die Profisportler «vor der Wahl stehen, eine Schiedsklausel anzunehmen, um durch die Ausübung ihres Sports ihren Lebensunterhalt bestreiten zu können, oder sie nicht zu akzeptieren und damit vollständig auf ihren Lebensunterhalt durch Ausübung des Sports zu verzichten.» Es sei nicht belegt, dass die Klägerinnen seinerzeit tatsächlich die Wahl hatten, die Schiedsklauseln abzuschliessen oder nicht. Deswegen sei von einer Unfreiwilligkeit auch dann auszugehen, wenn die Volleyballerinnen die Klauseln kritiklos unterzeichnet hätten.”

[free translation: The dispute did not have to be settled primarily before an arbitration tribunal. It is true that the plaintiffs' contracts with the defendant each contained an arbitration agreement. However, this was invalid ‘because the plaintiff did not voluntarily submit to it’, the judges said. Since the decision of the European Court of Human Rights (ECtHR) in the Pechstein case, professional athletes must be presumed to have involuntarily submitted to arbitration if the professional athletes ‘are faced with the choice of accepting an arbitration clause in order to be able to earn their living by practising their sport or not accepting it and thus refrain completely from earning a living from their sport’. There is no evidence that the plaintiffs at the material time actually had the choice of whether or not to accept the arbitration clauses. Therefore, it can be assumed that the arbitration was involuntary even if the volleyball players had signed the clauses without criticism/objection.]

Based on the wording of the press release – and in absence of the full judgement – it appears that the court sided with the findings of the ECtHR insofar as it qualified the arbitration agreement contained in entry forms of athletes as mandatory in nature.

Furthermore, it can only be speculated why the court stated in its press release that the athletes had not objected to the signing of an arbitration clause. The court may have considered that the volleyball players were in a similar position than Ms Pechstein. This approach would be consequent, because beach volleyball players, like the plaintiffs in the proceedings before the District Court Frankfurt, are generally faced with the same dilemma as Ms Pechstein was. They cannot choose between different national federations for the sport of volleyball. In this case, it is not necessary for the athletes to show that they could not conclude a contract with the DVV without an arbitration agreement in favour of a sports arbitral tribunal.

Be it as it may, it is – with the BGH decision in the Pechstein case in mind – difficult to understand how the District Court of Frankfurt came to the conclusion that the arbitration agreement between the beach volleyball players and the DVV is invalid. It appears that the court deduces this invalidity from the compulsory nature of arbitration clauses in organised sport, as highlighted by the ECtHR. This would contradict the BGH’s view that forced arbitration can be justified in the sporting context and that the validity of particular clause must be determined on the basis of a balancing process.[28] If the District Court of Frankfurt applied such a balancing process between the competing interests of the parties to the dispute, it will be interesting to see why the court arrived at the conclusion that the arbitration agreement is invalid. In light of the above, the specificity of sport, particularly the consistent and uniform application of rules and regulations of sports federations, is a strong argument in favour of forced arbitration. Indeed, the legal level playing field and ultimately the sporting level playing field would be jeopardised if national courts would decide on sporting cases instead of national sports arbitral tribunals, such as the German Court of Arbitration for Sport (“DIS”) or the CAS. The interest of sports federations also prevails in domestic disputes. Otherwise, there is a risk that the national courts will interpret the sporting rules of a particular sports federation inconsistently.

On balance, it will be important to carefully analyse how the Frankfurt court substantiated its departure from the BGH decision in the Pechstein case. In my view, the press release indicates that the court was apparently unable to strike a fair balance between the competing interests involved, bearing in mind the specificities of sport.


[1] See e.g. District Court (LG) Cologne, decision of 13 September 2006, 28 O (Kart) 38/05; District Court (LG) Munich I, decision of 26 February 2014, 37 O 28331/12; Higher Regional Court (OLG) Munich, decision of 15 January 2015 – U 1110/14 Kart.

[2] BGH, decision of 7 June 2016, KZR 6/15; a translation of the decision is published on the CAS website.

[3] Mutu and Pechstein v Switzerland, ECtHR, Application no. 40575/10 and no. 67474/10, 2 October 2018.

[4] District Court Frankfurt, 7 October 2020, 2-06 O 457/19 (unpublished); press release available at https://ordentliche-gerichtsbarkeit.hessen.de/sites/ordentliche-gerichtsbarkeit.hessen.de/files/PM%207_10_2020%20Schadensersatz%20f%C3%BCr%20Profi-Volleyballerinnen_0.pdf.

[5] Press Release, District Court Frankfurt, 7 October 2020 available at https://ordentliche-gerichtsbarkeit.hessen.de/sites/ordentliche-gerichtsbarkeit.hessen.de/files/PM%207_10_2020%20Schadensersatz%20f%C3%BCr%20Profi-Volleyballerinnen_0.pdf.

[6] Mutu and Pechstein v Switzerland, ECtHR, Application no. 40575/10 and no. 67474/10, 2 October 2018, para. 98.

[7] Daniel Girsberger and Nathalie Voser, International Arbitration (3rd edn, Schulthess Juristische Medien AG, 2016) 4; see also Antoine Duval, ‘Not in my Name! Claudia Pechstein and the Post-Consensual Foundations of the Court of Arbitration for Sport’ Max Planck Institute for Comparative Public Law & International Law (MPIL) Research Paper No 2017-01.

[8] SFT, decision of 7 November 2011, 4A_246/2011, para. 2.2.2; see also SFT, decision of 28 May 2018, 4A_314/2017, para. 2.3.1; SFT, decision of 2 February 2018, 4A_490/2017, para. 3.1.2.

[9] Commission of the European Communities, ‘White Paper on Sport’, COM(2007) 391 final, 13. SFT, decision of 22 March 2007, 4P.172/2006, para. 4.3.2.2.; BGH, decision of 7 June 2016, KZR 6/15; Mutu and Pechstein v Switzerland, ECtHR, Application no. 40575/10 and no. 67474/10, 2 October 2018, para. 113.

[10] SFT, decision of 22 March 2007, 4P.172/2006, para. 4.3.2.2.; BGH, decision of 7 June 2016, KZR 6/15; Mutu and Pechstein v Switzerland, ECtHR, Application no. 40575/10 and no. 67474/10, 2 October 2018, para. 113.

[11] BGH, decision of 7 June 2016, KZR 6/15; Mutu and Pechstein v Switzerland, ECtHR, Application no. 40575/10 and no. 67474/10, 2 October 2018.

[12] District Court Frankfurt, 7 October 2020, 2-06 O 457/19 (unpublished)¸ ); press release available at https://ordentliche-gerichtsbarkeit.hessen.de/sites/ordentliche-gerichtsbarkeit.hessen.de/files/PM%207_10_2020%20Schadensersatz%20f%C3%BCr%20Profi-Volleyballerinnen_0.pdf.

[13] BGH, decision of 7 June 2016, KZR 6/15, para. 2.

[14] Higher Regional Court (OLG) Munich, decision of 15 January 2015 – U 1110/14 Kart.

[15] BGH, decision of 7 June 2016, KZR 6/15.

[16] Ibid, para. 9.

[17] Ibid, para. 54; Ulrich Haas, ‘The German Federal Court on Treacherous Ice- A final point in the Pechstein case’ in Christoph Müller, Sébastian Besson and Antonio Rigozzi (eds), New Development in International Commercial Arbitration 2016 (1st edn, Schulthess Juristische Medien AG, 2016) 219, 256 et seq.

[18] Ibid, para. 55.

[19] Ibid, para. 50.

[20] Ibid, para. 59; Ulrich Haas, ‘The German Federal Court on Treacherous Ice- A final point in the Pechstein case’ in Christoph Müller, Sébastian Besson and Antonio Rigozzi (eds), New Development in International Commercial Arbitration 2016 (1st edn, Schulthess Juristische Medien AG, 2016) 219, 263 et seq.

[21] Ibid, para. 62.

[22] Ibid.

[23] Mutu and Pechstein v Switzerland, ECtHR, Application no. 40575/10 and no. 67474/10, 2 October 2018, para. 113.

[24] Mutu and Pechstein v Switzerland, ECtHR, Application no. 40575/10 and no. 67474/10, 2 October 2018, para. 115.

[25] Ibid, para. 120.

[26] Ibid, para. 119.

[27] Press Release, District Court Frankfurt, 7 October 2020, 2.

[28] Ulrich Haas, ‘The German Federal Court on Treacherous Ice- A final point in the Pechstein case’ in Christoph Müller, Sébastian Besson and Antonio Rigozzi (eds), New Development in International Commercial Arbitration 2016 (1st edn, Schulthess Juristische Medien AG, 2016) 219, 250.

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