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.