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

Last Updated: 19 June 2012
Article by Frank Spoorenberg and Isabelle Fellrath

I. 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

II. 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 that a ban on taking part in any football related activity be imposed on the player Matuzalem Francelino da Silva and/or six (6) points be deducted from the first team of the Club Real Zaragoza SAD in the domestic league championship."

The decision was upheld by the CAS on appeal. Bankruptcy proceedings were initiated in the meantime against the Spanish Club. Matuzalem challenged the second CAS award before the Swiss Supreme Court on public policy grounds. The player argued among others that, as a professional football player, and in the face of his financial inability to pay the EUR 11 mio fine, the sanction amounted to an indeterminate worldwide working ban upon the sole request of the Ukrainian Club. Such ban seriously infringed the core of his personality rights in a way inconsistent with the most fundamental values as recognised in Switzerland.

III. Decision

The Swiss Supreme Court upheld the player's challenge and vacated the second CAS award. It confirmed that a substantive determination violates public policy "when it disregards some fundamental legal principles and thus is wholly inconsistent with the essential, generally recognized values, which should be the foundation of any legal order according to the prevailing view in Switzerland."3 Such principles typically comprise (without limitation), the pacta sunt servanda principle, the prohibition of misuse of rights, the principle of good faith, as well as the prohibition of expropriation without compensation, discrimination, corruption and forced labour.

The Court acknowledged that core privacy and personality rights also belong to such prime values. Such rights include the preservation of the fundamental aspects of the economic freedom (such as the right to freely choose, access and exert an occupation) from unnecessary and/or disproportionate public and private interferences.4 Contractual curtailment of a party's economic freedom would be deemed excessive "when the obligee is exposed to the mercy of a third party, or surrenders or restrains his economic freedom so as to jeopardize his economic existence."5 Measures taken by sport federations which seriously harm the economic development of professional sportsmen are proportionate only "when the overriding interests of the federation justify the infringement of privacy."6

In the case at hand, the Court found that the sanction imposed by the FIFA was neither necessary nor proportionate. It was not necessary insofar as the Ukrainian Club could enforce the first award against the Player and the Spanish Club through the facilitated mechanism of the widely ratified the 1958 New York Convention on the Recognition and Enforcement of Arbitral Awards. The unlimited ban of any football related activity was also out of proportion with the FIFA's goal to secure strict compliance with its decisions. The Court thus concluded that "In the event that no payment be made, the challenged arbitral award would result in the applicant being left at the mercy of his former employer and would restrict his economic freedom to such an extent that it would imperil his economic livelihood without any overriding interest of the Football Association and its members. In view of the corresponding threat, the CAS arbitral award of June 29, 2011 contains a clear and serious personality right infringement and is contrary to public policy (Art. 190 (2) (e) PIL Act)."7

IV. Commentary

The main interest of the case is that it is the first vacation of an international arbitration award on substantive public policy grounds by the Swiss Supreme Court since the PIL Act was enacted in 1987. The violation was quite obvious and thus this annulment of the award is no indication that the Swiss Supreme Court intends to be more intrusive into arbitrators' decisions and reasoning as an appeal court would be. With respect to arbitration, the Supreme Court's review is confined to strict and limited grounds for challenge and the Court remains remarkably constant in its scrutiny of international awards, both on procedural and substantive matters.8

Swiss Supreme Court's decision in the matter 4A_558/2011, Francelino da Silva Matuzalem / FIFA, March 27, 2012. The full text of the decision is available in its original (German) language at http://www.bger.ch/fr/index/juridiction/jurisdiction-inherit-template/jurisdiction-recht/jurisdiction-recht-urteile2000.htm.


1 Swiss Supreme Court's decision 4A_490/2009, April 13, 2010, Club Atlético de Madrid SAD v Sport Lisboa E Benfica - Futebol SAD and Fédération Internationale de Football Association, published in ATF 136 III 345, noted in Mondaq, 15 July 2010, First Annulment of International Arbitration Award on Ground of Infringement of Procedural Public Policy.

2 Swiss Supreme Court's decision in the matter 4A_320/2009, June 2, 2010, ground 4. That same year, the Swiss Supreme Court also upheld another record fine of EUR 17 mio on the same grounds; decision in the matter 4A_458/2009, June 10, 2010, ground 4 (Mutu).

3 Ground 4.1 (authors' translation).

4 Ground 4.3.1.

5 Ground 4.3.2 (authors' translation).

6 Ground 4.3.3 (authors' translation).

7 Ground 4.3.5 (authors' translation).

8 Out of 32 challenge proceedings against international arbitration awards decided between November 2010 and November 2011, only two have been partly successful.


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