Player contracts, liquidated damages & the principle of reciprocity at FIFA & CAS

In football employment-related disputes, FIFA has applied the principle of ‘reciprocity’, which foresees that the parties stipulate mutually fair obligations in their contracts. As we will see, this can have a significant impact on the amount due to clubs and players for breach of an employment contract.  Article 17 of the FIFA Regulations on the Status and Transfer of Players (RSTP) (Consequences of terminating a contract without just cause) enables the parties to establish the amount of compensation payable in the event of the premature termination of a contract without just cause by either the club or the player/coach.[1] It states:

In all cases, the party in breach shall pay compensation. Subject to the provisions of article 20….., and unless otherwise provided for in the contract, compensation for the breach shall be calculated with due consideration for the law of the country concerned, the specificity of sport, and any other objective criteria. (emphasis added)

If the parties do not agree on a specific amount in the employment contract (otherwise known as a liquidated damages clause) then the compensation for termination without just cause is calculated as per the criteria set forth under Article 17 (1) RSTP.[2]

Liquidated damages clauses are controversial at law, as they can stipulate payments that are disproportionate to the actual losses suffered by a contractual breach. In such cases, the clause effectively does not constitute a proportionate pre-estimate of actual loss, but a punishment or penalty.  National laws often moderate the ability of parties to enforce such ‘penalty’ clauses.  Under Swiss law, parties are free to determine the amount of contractual penalty for non or defective performance of a contractual term;^[3] however, the court at its discretion may reduce any penalty that it considers excessive to an amount it considers reasonable to address the actual damages suffered^[4].  English law is stricter: penalty clauses are not enforceable at law, and so liquidated damages clauses must be proportionate and not exorbitant or unconscionable to the legitimate interests of the enforcing party, otherwise they risk being struck out entirely by the courts.^[5]

Notably, the adjudicatory bodies of FIFA and the Court of Arbitration for Sport (CAS) have also taken divergent approaches to the enforcement of Article 17 liquidated damages clauses in cases where the amount of compensation agreed by the parties is not reciprocal.

In this article the author summarises:

• FIFA’s Interpretation of Liquated Damages Clauses
• CAS Panels Interpretation of Liquated Damages Clauses
• Comment & Recommendations
• Key Case Law On Liquidated Damages
  • Al Gharafa S.C & Mark Bresciano v. Al Nasr S.C. & FIFA
  • Al Hilal Sports Club v. Diego Garzitto
  • Emirates Football Company v Hassan Tir, Raja Club and FIFA
  • Nilmar Honorato da Silva v. El Jaish FC & Fédération Internationale de Football Association
  • Al Arabi Sports Club Co. For Football v. Matthew Spiranovic
  • Esteghlal Football Club v. Pero Pejic