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The aftermath of the Pechstein ruling: Can the Swiss Federal Tribunal save CAS arbitration? By Thalia Diathesopoulou

It took only days for the de facto immunity of the Court of Arbitration for Sport (CAS) awards from State court interference to collapse like a house of cards on the grounds of the public policy exception mandated under Article V(2)(b) of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards . On 15 January 2015, the Munich Court of Appeals signalled an unprecedented turn in the longstanding legal dispute between the German speed skater, Claudia Pechstein, and the International Skating Union (ISU). It refused to recognise a CAS arbitral award, confirming the validity of a doping ban, on the grounds that it violated a core principle of German cartel law which forms part of the German public policy. A few weeks before, namely on 30 December 2014, the Court of Appeal of Bremen held a CAS award, which ordered the German Club, SV Wilhelmshaven, to pay ‘training compensation’, unenforceable for non-compliance with mandatory European Union law and, thereby, for violation of German ordre public.

Although none of these decisions is yet final, with two red cards in a row, one could presume that the ‘death’ of CAS is closer than ever. Beyond such extreme and rather unconvincing predictions, the two cases set a fundamental precedent: sports arbitration, like all arbitration proceedings, shall abide by minimum standards of institutional impartiality and independence (Pechstein) and apply mandatory EU law (SV Wilhelmshaven).[1] Nevertheless and without prejudice to the need for a potential institutional reform of the CAS (see our analysis here), from a purely international arbitration point of view, the two German courts’ decisions brought into surface the controversial question of the powers of national courts in enforcement proceedings to review CAS arbitral awards with regard to the application of mandatory rules. The Pechstein case illustrates well the potential conflict between two apparently competing policies: the finality of CAS awards and the respect of public policy. In the SV Wilhelmshaven case, the Court went even a step further by implying that sport associations have the ‘duty’ (!) to review a CAS award with regard to its compatibility with German public policy.[2] In view of its uniqueness and complexity, this aspect of the SV Wilhelmshaven case deserves a thorough examination in a future blogpost.

In this blogpost, we will argue that the Pechstein case could be considered as a borderline case with regard to the limits of national courts’ power when scrutinizing CAS awards’ compatibility with domestic public policy. Challenging the validity of CAS awards before national courts, however, is something new under the sun of sports arbitration and could prove fatal for the finality of CAS awards, which is a sine qua non safeguard of procedural equal treatment among athletes[3] and legal coherence in sports law. Should athletes rely on national courts to police the institutional flaws of the CAS? Or is it high time for the Swiss Federal Tribunal (SFT) to abandon the hands-off deferential approach towards CAS arbitration and adopt a broader scope of review in the sporting context?

In this regard, the key claim is the following: national courts’ decisions should not threaten CAS arbitration as long as the Swiss Federal Tribunal review guarantees a minimum quality of CAS arbitrators’ work on the merits.

The Pechstein case: Testing the limits of a national court’s power to review a CAS award

In the latest decision of the Pechstein saga, the Higher Regional Court in Munich found the underlying arbitration agreement between the athlete and ISU in favour of the CAS invalid and that the CAS award issued on the basis of that agreement violated mandatory German cartel law prohibits abusive conduct by companies that have a dominant position on a particular market. The ISU, as sole organizer of speed skating world championship, enjoys a monopolistic position in speed skating and forced the athlete to sign the arbitration agreement at issue. Initially, the Court hold that the arbitration agreement as a prerequisite to the athlete’s participation in competitions does not constitute per se an abuse of a dominant position, since it responds to the specificity of sport and particularly to the need of consistency in sports disputes. However, considering the decisive influence of sports organizations on the selection and appointment of arbitrators under the CAS regulations, the Court concluded that the independence of CAS is questionable. In this light, forcing the athletes to sign an arbitration agreement in favour of a rather dependent and partial tribunal would constitute an abuse of the international sports organizations’ dominant position in the market, thereby infringing the mandatory German antitrust law. More importantly, unlike the First Instance Court, the Higher Regional Court concluded that the res judicata effect of the CAS award does not prevent the athlete from bringing her claim before the Court. Instead, it found  that the recognition of the CAS award would be contrary to Germany’s public policy, since it would perpetuate the abuse of ISU dominant market position.

From a substantive point of view it is evident that the decision primarily concerns the independence of CAS arbitration. However, considering that the Court based its reasoning on the application of German competition law, it could also serve as a model for an abuse of dominant position in the meaning of Article 102 TFEU[4], since the decision provides important insights on the role of a national court in tackling competition law issues at the enforcement stage of an arbitral award. In the Pechstein case, the Court examined the enforcement of a CAS award, which failed to deal with competition law, since the issue was not raised during the arbitral proceedings.[5] Indeed, a competition law issue was never raised before the CAS and neither before the Swiss Federal Tribunal. Interestingly enough, the invalidity of the forced arbitration agreements was raised only in the German courts proceedings.

Given the mandatory nature of competition law, one could argue that if the matter was not raised during the arbitration proceedings by the parties or ex officio by the arbitrators, it could still be considered in enforcement proceedings.[6] However, this approach could hardly be followed in a situation where the applicability of competition law is not prima facie evident and the alleged breach would in no case amount to a hard-core violation of competition law.[7] The answer to this dilemma is to be found in the difficult balance between the public interest in the application and enforcement of competition law on the one hand and the public interest in the finality of CAS arbitral awards on the other. In this light, the following remarks can be made regarding the Pechstein case.

First, it is debatable whether the enforcement of the CAS award results in serious violation of competition law.[8] The Court alleged violation of German cartel law based on the structural imbalance of the CAS and the subsequent challenge of its independence. However, this was rather an examination of the potential effects of the absence of CAS independence which could be hardly interpreted as a hard-core violation of competition law. While the CAS is still “perfectible”[9], the German Court’s decision did not clearly demonstrate to what extent the so-called structural imbalance actually weighted against Pechstein before the CAS. Moreover, one cannot not exclude the possibility that a national court reviewing a CAS awards would be less neutral than the CAS itself as it may have the unconscious intention to safeguard its own athlete.[10] Furthermore, as Nathalia Voser interestigly remarks, the Pechstein ruling failed to provide an assessment of actual excluding and exploitative effects of the forced arbitration clause, in absence of which, it is questionable whether the rules of an arbitral institution could be considered anticompetitive.

Even assuming that the violation of competition law is serious, it is problematic that this issue was raised only in the proceedings before the national courts. The German Court argued that the athlete had no choice but to sign the arbitration agreement and the fact that she never raised a violation of competition law could not justify a perpetuation of the abuse of a dominant position by the ISU.[11] Nevertheless, this argument seems hardly convincing. A refusal of enforcement of an award for failure to apply competition law in the arbitration proceedings, notwithstanding that the party which would have benefited from its application did not raise the issue during the arbitration, could be conceived as an invitation to the parties to behave in bad faith.[12] Had Pechstein won before the CAS, she would not challenge the validity of the arbitration agreement and the Court would not delve into the conformity of the forced arbitration agreement with competition law.

For these reasons, it is the opinion of the author that competition law issues should have been raised in a timely fashion in their proper venue, before the arbitrators. This solution does not entail a danger of systematic violation of competition rules, since the national courts can still protect athletes in case of hard-core violations. On the contrary, treating competition law as a second bite of a cherry for athletes seems to be at odds with the rationale of the public policy exemption and open the road to abusive practices seriously compromising the principle of finality of CAS awards.

The counterbalance? A stricter review of the CAS awards by the Swiss Federal Tribunal (SFT)

In the wake of the Pechstein ruling, it is almost certain that more athletes will resort to national courts to challenge CAS awards aiming to reverse them in their favour and even claim damages against the sports governing bodies imposing sanctions on the basis of these awards. This can lead to a problematic situation as States adopt different standards of protection of fundamental rights of the athletes and arbitration clauses inserted in statutes of international sports federations can potentially conflict with non-Swiss legal systems.[13] Furthermore, it has been demonstrated in this blogpost that a meticulous review of the application of mandatory rules by national courts poses a serious risk for the effectiveness of arbitration without necessarily guaranteeing much better protection of public policy.

In this light, the concentration of jurisdiction at a single forum is an overriding need in order to ensure that the athletes participating in competitions are on equal footing.[14] Nevertheless, this does not come without limits. In view of the ‘forced’ nature of sports arbitration and the specificity of sports disputes, athletes should enjoy further safeguards for their rights. To this end, the Swiss Federal Tribunal (SFT) should play a key role. By adopting a broader and stricter review of the CAS awards, (namely one that would really take into account the forced nature of sports arbitration) the SFT could at the same time safeguard the enforceability of CAS awards and uniform application of sports law at domestic and international level, while guaranteeing athletes’ fundamental rights.

In fact, a CAS award can be challenged before the SFT on the limited grounds provided in Article 190 (2) PILA and particularly: (a) if the sole arbitrator or the arbitral tribunal was not properly appointed or composed; (b) if the arbitral tribunal erroneously held that it had or did not have jurisdiction; (c) if the arbitral tribunal ruled on matters beyond the claims submitted to it or if it failed to rule on one of the claims; (d) if the equality of the parties or their right to be heard in an adversarial proceeding was not respected; or (e) if the award is incompatible with public policy. The current SFT jurisprudence reviewing CAS awards has demonstrated its capacity to protect parties’ procedural rights.[15] Nonetheless, when it comes to the merits of the dispute, the SFT has consistently adopted a hands-off approach by interpreting the concept of incompatibility with public policy under Article 190 (2)(e) very narrowly, covering only those fundamental principles that are widely recognized and should underlie any system of law according to the prevailing conceptions in Switzerland.[16] For example, in practice, this means that the SFT will not consider whether an award is compatible with EU competition law and EU fundamental principles, irrespective of whether such an award could be enforced within the EU, since they are not embedded in Swiss legal tradition.

It was only in 2012 that the SFT for the first time in over twenty years took the bold step to annul a CAS award on the basis of a violation of substantive public policy.[17] In this judgment, the SFT has answered the criticism that its substantive review under Art 190(2) (e) PILA is a dead letter[18] and more importantly it made it clear that the CAS has the primary responsibility of ensuring that its awards are fair on the merits and the SFT’s role is to examine whether the CAS successfully assumed this duty. However, the Matuzalem ruling instead of marking a turning point in the SFT review on the merits, was soon proven to be a rare exception. The repeated ‘excuse’ of the SFT for this pro-CAS arbitration approach has been that Art 190(2) (e) PILA mandates an excessively limited review on the merits. The CAS arbitration being under the sword of Damocles, should this hands-off approach be sustained?

This question has to be answered negatively. In fact, Chapter 12 of the PILA, including Article 190(2), was originally drafted for the purpose of governing international commercial arbitration. Nevertheless, in its almost 20 years of practice, the SFT has acknowledged that sports arbitration should be treated differently than standard commercial arbitration.[19] It could be argued, therefore, that in view of the particularity of sports arbitration, the restrictive reading of substantive public policy under Art 190 (2)(e) could be tolerated in international commercial arbitration, but not for CAS arbitration. It has been suggested, instead, that in view of protecting athletes’ fundamental rights, the SFT should engage in a broader review and take into account the specificity of sports arbitration in defining the scope of its review on the merits of CAS awards.[20] A suggestion has also been made for a redefinition of public policy under which the SFT could freely review whether CAS has complied with the essential rights of athletes.[21] Considering that athletes are forced to accept CAS arbitration, a broader scope of review that would ensure a minimum quality guarantee of the CAS awards on the merits should be offered to athletes. Therefore, a potential institutional reform of the CAS to ensure independence and impartiality coupled with a more stringent review of its awards by the SFT should bring about a more restraint approach of national courts when reviewing CAS awards’ compliance with domestic public policy and ensure the subsequent finality of CAS awards.

[1] B Hess and F Kaps, ‘Claudia Pechstein and SV Wilhelmshaven: Two German Higher Regional Courts Challenge the Court of Arbitration for Sport’ (6 February 2015).

[2] Hanseatisches Oberlandesgericht in Bremen, SV Wilhelmshaven e.V. gegen Norddeutscher Fußball-Verband e.V. (30 Dezember 2014) “i) Der Senat sieht weder sich noch den Beklagten durch die Satzung des Beklagten und die darin in Bezug genommene Satzung des DFB daran gehindert, die Ent-scheidung des Beklagten vom 13.01.2014 unter diesem rechtlichen Aspekt zu prüfen und im Hinblick auf die Unvereinbarkeit der der Vereinsstrafe zugrunde liegenden Festsetzung der Ausbildungsentschädigung mit Art. 45 AEUV die Rechtswidrigkeit des angegriffenen Zwangsabstiegs der ersten Herrenmann-schaft festzustellen. Im Gegenteil war der Beklagte verpflichtet, die „umzuset-zende“ Disziplinarentscheidung und den ihr zugrunde liegenden CAS-Schiedsspruch darauf zu überprüfen, ob diesen nicht zwingendes nationales oder internationales Recht entgegensteht.’’

[3] A Rigozzi, ‘International Sports Arbitration: Why does Swiss Law Matter?’ in Citius, Altius, Fortius-Mélanges en l’ honneur de Denis Oswald (2012), 446.

[4]A Duval, ‘The Pechstein ruling of the Oberlandesgericht München - Time for a new reform of CAS?’ (19 January 2015).

[5] A similar example of this situation is the Eco Swiss v Benetton arbitration, which led to the C-126/97 judgement of the Court of Justice.

[6] L Radicati di Brozolo, ‘Antitrust: a paradigm of the relations between mandatory rules and arbitration-a fresh look at the “second look” ’ (2004) 7 (1) International Arbitration Law Review, 31.

[7] Ibid

[8]  For an interesting analysis on the competition law perspectives of the Pechstein case, see N Voser ‘The Most Recent Decision in the Pechstein Saga: Red Flag for Sports Arbitration?’ (22 January 2015)

[9] Decision 4P.267–270/2002 du 27 mai 2003, Lazutina c. CIO, ATF 129 III 445, Bull. ASA 2003, 465

[10] L Mintas, ‘Dr Laila Mintas: Is this the end of CAS arbitration?’ (3 February 2015)

[11] OLG München · Teil-Urteil vom 15. Januar 2015 · Az. U 1110/14 Kart, paras 135 and 137.

[12] L Radicati di Brozolo (n 5) 32.

[13] J Lukomski, ‘Arbitration clauses in sport governing bodies statutes: consent or constraint? Analysis from the perspective of Article 6(1) of the ECHR’ (2013) 13 The International Sports Law Journal, 69

[14] S Netzle, ‘Jurisdiction of arbitral tribunals in sports matters : arbitration agreements by reference to regulations of sports organisations’ in Arbitration of sports-related disputes (1998,  Basel : Association suisse de l'arbitrage) 47

[15] A Rigozzi, ‘L’importance du droit suisse de l’arbitrage dans la résolution des litiges sportifs internationaux’ (2013) Revue de droit suisse 2013, 320.

[16] Ibid

[17] Swiss Federal Tribunal, Francelino Da Silva Matuzalem v FIFA (27 March 2012) 4A_558/2011

[18] P Landolt, ‘Annulment of Swiss International Arbitration Awards for Incompatibility with Substantive Public Policy: First Annulment in over Twenty Years’ (2012) 27 MEALEY’S International Arbitration Report Issue 4, 22.

[19] Swiss Federal Tribunal, Guillermo Cañas v. ATP Tour (22 March 2007) 4P.172/2006 See also, A Rigozzi (n 13), 321-322.

[20] M Baddeley, ‘La décision Cañas: nouvelles règles du jeu pour l’arbitrage international du sport’ (2007)  CAUSASPORT 2007, 161.

[21] A Rigozzi (n 13), 325.

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