The Pechstein judgment: CAS’s reaction & potential ramifications

The background to the dispute between Claudia Pechstein (“CP”) and the International Skating Union (“ISU”) has been discussed in an earlier article,¹ and may be summarised briefly as follows.

CP, a highly decorated international speed-skater (with multiple Olympic and World titles to her name), failed a doping test in 2009 and was banned from competition for two years.   She challenged this ban before the Court of Arbitration for Sport (“CAS”) but was unsuccessful² – the CAS Award was issued in November 2009. Dissatisfied with this ruling, CP unsuccessfully challenged (on two occasions) the CAS Award in the Swiss Federal Tribunal (see the judgments of the Swiss Court here³ and here⁴).  

In addition to these proceedings, CP issued claims in:

1. The European Court of Human Rights⁵, alleging a contravention of Article 6 ECHR⁶; and
2. The local Court of Munich, challenging the validity and enforceability of the CAS Award.

Decision of the local Court of Munich

On 26 February 2014, the local Court of Munich issued its judgment.⁷ In summary, it concluded that:

1. The arbitration clause in CP’s license with the national and international skating federations was void, owing to the fact that it had been forced upon her – i.e. if she wanted to compete, she had no option but to agree to the arbitration clause;
2. The CAS arbitration did not satisfy all the requirements of Article 6 ECHR, owing to the way in which arbitrators are appointed and the institutional bias in favour of sports federations;
3. Notwithstanding the above, CP was bound by the CAS Award, owing to the fact that she had never raised any objection to the arbitration process (including the competence and impartiality of the panel) at the time, and the German Court was precluded from reconsidering the decision pursuant to the res judicata (a matter already judged) doctrine.

Decision of the Higher Regional Court

CP appealed to the Higher Regional Court in Munich, whose judgment was handed down on 15 January 2014 (the official press release can be viewed, in German, here⁸; and an unofficial translation of the judgment can be viewed here⁹). In summary, the Court concluded that:

1. As a matter of principle, owing to the particular nature of international sports competitions and the disputes arising therefrom, there was nothing unlawful per se about sports federations requiring athletes to sign, as a condition of eligibility to compete in its competitions, an agreement to refer disputes to arbitration.
2. However, on the facts (i.e. as matters stood in 2009), the CAS Award amounted to a violation of German anti-trust / competition law, which prohibits the abuse of a dominant position (or monopoly) in a particular market.
3. The conclusion in (ii) was based upon the Court’s findings that, in essence:
   1. The ISU was the only provider on the market for the organisation of World Championships in speed-skating and therefore, due to the absence of competition, a monopolist in a dominant position;
   2. The fact that CP and other athletes could compete in national competitions without signing the arbitration agreement mandated by the ISU did not affect the analysis in (a) above: the World Championships for speed-skating was a specific market in its own right, owing to the worldwide interest it triggers and the ‘side revenues’ that successful athletes may potentially secure;
   3. It was not an adequate defence for the ISU to submit that the arbitration clause was a mandatory provision of the WADA Code;
   4. Whilst there was no identification of actual bias on the part of the Arbitral Panel appointed to hear CP’s appeal before the CAS, the composition and structure of the International Council of Arbitration for Sport (“ICAS”) – the body which is responsible for establishing the approved list of CAS arbitrators – was weighted heavily in favour of sports federations, which in turn fundamentally undermined the neutrality of the CAS itself;
   5. Put simply, sports associations such as the ISU and the International Olympic Committee (“IOC”) had a disproportionately strong influence on the selection of persons appointed as CAS arbitrators;
   6. In turn, this structural imbalance gave risk to a risk that the arbitrators appointed to determine individual disputes at the CAS would (or may) have a tendency to favour the governing bodies, rather than acting in a wholly neutral, objective and independent manner;
   7. There was no rational justification for the structural imbalance identified by the Court;
   8. The fact that many members / representatives of sports governing bodies are in fact former athletes themselves did not displace or dispel the concerns outlined above;
   9. Furthermore, there was a lack of transparency in the method of appointing the Chairman / President of a CAS panel, which again gave rise to legitimate concerns regarding the objectivity and impartiality of CAS panels (in general);
   10. Having regard to these ‘defects’, an exclusive arbitration clause in favour of the CAS would not, under normal circumstances in a competitive market, be freely entered into by competitors such as CP;  
   11. In all the circumstances, the ISU’s stipulation that CP must sign an arbitration agreement in favour of the CAS constituted an abuse of ISU’s dominant position in the relevant market;
4. Having regard to the above, it would be contrary to German public policy, which prohibits abusive conduct by undertakings that have a dominant position in a particular market, to recognise the CAS Award.
5. In the circumstances, Article V, para. 2 (b) of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards¹⁰ (which provides that “Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that…The recognition or enforcement of the award would be contrary to the public policy of that country”) was applicable;
6. It followed that CP was not precluded, whether by reason of signing the arbitration agreement or by failing to protest at the time about the composition or competence of the CAS Panel, from suing the ISU for damages in the German Courts (albeit no view was expressed by the Court on the underlying merits of the claim).