Shakhtar Donetsk 2 Matuzalem 0

On Wednesday 20^th May 2009, Shakhtar Donetsk won the UEFA Cup beating Werder Bremen 2-1 after extra time. It is the first time a Ukrainian team has won that particular competition and they will be the last team to win it before its makeover as the Europa League next season. There were five Brazilians in the victorious Shakhtar team. One Brazilian not playing for them was Matuzalem Francelino de Silva, their captain during the 2006-07 season. Shakhtar had bought him from the Italian side Brescia for €8m three years earlier and he signed a five year deal due to expire in July 2009. However, on 2^nd July 2007, effectively relying on the Webster ruling[1] – which broadly speaking permits a player to ‘buy out’ the remainder of his contract after three years[2] – he unilaterally terminated his contract “in accordance with Article 17” of the FIFA Regulations. Within seventeen days he had signed a three year deal with Spanish club Real Zaragoza. Unfortunately, he soon found himself on the injured list for a significant portion of the 2007-08 season and his new team was relegated. Presumably his new €1.4m annual salary, annual ‘signing-on’ fee of €860,000 plus ‘bonuses’ proved financially prohibitive for a newly relegated team and so he was swiftly shipped out on loan to Lazio in Italy. Lazio also negotiated an ‘option’ to buy him for €13m[3]  and insured him in the same sum.[4] The day before Shakhtar won the UEFA cup, the Court of Arbitration for Sport (‘CAS’) ordered that Matuzalem and Real Zaragoza were jointly and severally liable to Shakhtar in the sum of approximately €13m inclusive of interest.[5] One can but speculate whether Matuzalem regrets leaving the Ukraine in order to “save his marriage” after his wife complained that she could not stand living there any longer.

The case has already been hailed by some as a ‘good decision’, particularly as it is felt that it provides a ‘more realistic’ evaluation of the appropriate level of compensation for post-Webster breaches of contract by players.[6] A convention appears to have developed after Webster whereby players would buy out the remainder of their contract by reference to their expected pay. The decision goes much further than this. The tribunal overtly grounded its decision on the policy concern of pacta sunt servanda (‘agreements must be kept’)[7] and there can be no doubt that the case serves as a deterrent to other players wishing to rely on Webster in the forthcoming and future transfer windows in the absence of any express ‘buy-out’ clause in their individual agreements. In fact, had Shakhtar’s lawyers marshalled their evidence and arguments better it is likely that the final award would have been significantly larger. Whether the decision adds any substance to Cristiano Ronaldo’s claims made on 11^th July 2008[8] that modern professional footballers are ‘slaves’ remains, at best, a moot point. Unlike slaves of yesteryear, footballers can just walk away. But as the case of Matuzalem shows, such a decision is likely to have dizzying financial consequences for that player and any club signing him thereafter.

 

It is a little ironic that the tribunal’s decision is based on the ancient Latin axiom cited because the agreement between Shakhtar and Matuzalem was clearly not a well-drafted document. In other words, even poorly drafted agreements must be kept. There was a ‘release clause’ in that contract which, on ordinary reading, would allow Matuzalem to leave the club in the event that Shakhtar received an offer from another club of at least €25m. Shakhtar unsuccessfully attempted to argue that the clause amounted to a ‘buy-out’ or ‘liquidated damages’ clause and it was the absence of such a clause within the agreement that effectively led to the need for arbitration. Shakhtar insisted that they were entitled to €25m whereas Matuzalem was only prepared to pay them €2.36m (representing two years wages). Later agreements between the player and Real Zaragoza contained buy-out clauses,[9] but in the absence of such an indemnity clause in the original agreement, compensation fell to be determined by Article 17.1 of the FIFA Regulations. Consistently with their stated policy goal of holding parties to their contracts, the Tribunal pointedly asserted that the ‘non-exhaustive’ list of factors to be taken into account when assessing compensation was deliberately wide so that “the financial consequences of a breach or a termination without just cause would be, in their size and amount, rather unpredictable.” This, it was suggested, would encourage players (and indeed clubs) to think twice about terminating contracts early. Yet, any award eventually made would be just, fair, transparent and comprehensible rather than “fully arbitrary”[10] despite the Tribunal being keen to emphasise the discretionary nature of the exercise.[11] Whether it is possible to reconcile these two apparently contradictory aims remains to be seen.

 

According to the Tribunal, Article 17 as a whole plays a “central role” in “upholding the value of contractual stability” post-Bossman and “contractual stability is crucial for the well functioning of international football.”[12] No explanation for why contractual stability is crucial for international football was provided. But the Tribunal also suggested that Article 17 was only concerned with ‘full compensation’[13] or in integrum restitutio rather punishment.[14] And in reaching the fair compensatory award, each case would be assessed on its own merits, evidence and arguments with the burden of proof resting on the injured party.[15] CAS also stressed that there should be no mechanistic approach to the assessment of compensation and in so doing poured scorn on the alleged practice of the FIFA Dispute Resolution Chamber[16] of using a ‘fixed list’ when deciding on the award. Notwithstanding their derision, it is possible to discern a ‘list-like’ approach by CAS in this case. Broadly speaking, their calculation was considered under various headings that can be broken down into ‘Value of Player services’, ‘Loss of Profit (lucrum cessans), ‘Acquisition Expenses’ and a somewhat nebulous category of ‘Additional Costs and further expenses’. Once figures have been calculated under these various heads, it was also important to take account of any relevant ‘local law’ which might moderate the global sum one way or the other; and finally, despite emphasising the allegedly compensatory nature of the task, there seems to be in effect a punitive element considered under the heading of ‘Specificity of Sport’.

 

The headings adopted are broadly derived from Article 17.1 of the FIFA Regulations which state that unless the agreement provides otherwise (ie a liquidated damages clause which presumably would be determinative), then compensation

 

shall be calculated with due consideration for the law of the country concerned, the specificity of sport, and any other objective criteria. These criteria shall include, in particular, the remuneration and other benefits due to the player under the existing contract and/or the new contract, the time remaining on the existing contract up to a maximum of five years, the fees and expenses paid or incurred by the Former Club (amortised over the term of the contract) and whether the contractual breach falls within a Protected Period.

 

The Protected Period is broadly speaking two or three years depending on the age of the player at the time of signature. In Matuzalem’s case, he was 24 when he signed the contract which meant that the Protected Period was 3 years. When he gave his ‘notice’ he had served three years and was therefore outside the Protected Period. Had he attempted to terminate within the Protected Period, this would have been considered a ‘particularly serious breach’, a matter that may well have led to an increased award, in turn indicating that the award cannot therefore be purely compensatory.[17] Moreover, it is worth noting that Article 17.2 provides that the new club (in this case Zaragoza) is jointly and severally liable for any compensation ordered.

 

What CAS appears to have done, then, was to ‘rearrange’ the Article somewhat by considering the compensatory elements first before returning to considerations relating to ‘local law’ and ‘specificity of sport’. Of interest, CAS also arguably misconstrued the Article by suggesting that there might be ‘other objective criteria’ relevant to the assessment of compensation in addition to the specific criteria listed in the Article itself (although no such criteria were in fact identified in this case).[18] On its face, the Article plainly clarifies what the ‘objective criteria’ are by its use of the words “these criteria shall include, in particular…”, but the Tribunal read this as being illustrative rather than exhaustive and on more than one occasion referred to the “non-exclusive” criteria to be taken into account. In any event, CAS proceeded to consider each of the criteria more or less in turn.

 

In the context of assessing the ‘Value of Player services’ to Shakhtar, CAS made an interesting observation: they were “eager to point out that the sole object of [the] approach are the services provided by the player and not the human being as such.”[19] In the circumstances, the tribunal cannot be criticised for not being honest in their brutal commodification of Matuzalem. The implicit message, of course, is that Matuzalem had waived any human right he might have by terminating his agreement with Shakhtar and Article 17 represented an expression of the club’s right in the player’s services, a right “worth legal protection”.[20] Of course, Article 17.1 could equally apply where a club unjustly terminated their contract with a player, but it is difficult to envisage what the equivalent ‘value’ or right would be worthy of legal protection.

 

In valuing the club’s right, the tribunal’s approach did not attain the degree of transparency professed. Apart from taking into account the ‘remaining’ two years of his contractual obligations owed to Shakhtar, CAS seemed to ignore completely the remuneration terms of Matuzalem’s ‘old’ contract despite the express reference to this criterion in Article 17.1. Instead, they assessed his ‘value’ to Shakhtar by reference to what both Zaragoza and Lazio were willing to pay for him. It is not entirely clear how the tribunal reached the annualised figures it eventually adopted;[21] but they did take into account the ‘option to buy’ in the loan agreement between Lazio and Zaragoza and effectively divided the €13m by three[22] to reach an ‘annualised’ figure as representing an indicator of his ‘value’ to those two clubs. The net result over the two remaining years of his contract was about €14.2m (Lazio) and €13m (Zaragoza) from which there had to be deducted the ‘savings’ made for not having to pay the player for two years.[23] That left net figures of between €10.7m and €11.8m. As is common in these situations, the tribunal simply took the mid-point.

 

Shakhtar, who had in fact had an offer for Matuzalem from Palermo for $7m a month before he terminated his contract with them, also argued that they should be entitled to compensation reflecting the ‘lost profits’ (lucrum cessans) that they could have made on a future sale of the player. Although the tribunal did not rule out such a claim in future cases in principle, provided that causation could be proved, this claim was rejected in this case in circumstances where Shakhtar could not prove that they had lost a sale as a result of the player’s unjust termination. In other words, CAS did not countenance a speculative claim for ‘loss of profit’ based on lost chance. In this case, Shakhtar had rejected the offer from Palermo before their former player terminated his contract and therefore they could not prove causation. It seems to follow that in future cases, a claim for ‘lost profit’ is only going to be sustainable where a player leaves before a realistic offer for him has been made, is forthcoming or can otherwise be proved to be more than speculative.

 

There were also a number of other heads of loss. Shakhtar had paid a transfer fee of €8m for Matuzalem in 2004. This figure was net of agents’ fees (a staggering €3.75m) and about €225,000 pursuant to ‘solidarity contributions’ in favour of two Brazilian clubs (presumably two clubs with which Matuzalem had had some prior involvement). Neither of the latter two sums were awarded; the ‘solidarity contributions’ because Shakhtar could have included it in the transfer fee and chose not to; the former because they could not prove that they as a club (rather than a third party, in this case a company known as Medco) was in fact responsible for the payment. Clearly, the world of football agents is as murky on the continent as it is in the UK. However, it is clear from the judgment that agents’ fees are in principle recoverable on an amortised basis if causation can be proved. Furthermore, in principle, a club could potentially claim the costs of hiring an alternative player. In this case Shakhtar claimed the €20m they paid for the Mexican player, Nery Alberto Castillo, who they claimed had been bought to breach the void left by Matuzalem. Yet again, the tribunal rejected the claim on the basis that it is not enough to simply argue that a replacement played in the same position as the player in breach of contract. In other words, the evidence presented by Shakhtar simply was not sufficiently compelling to warrant this head of loss; perhaps not a surprising conclusion given that Castillo appears to have spent most of 2007-09 on loan at Manchester City.

 

The only sum awarded in addition to the sum based on remuneration, therefore, was two fifths of the €8m transfer fee (representing the two remaining years of Matuzalem’s five year contract: the ‘amortised’ amount), namely €3.2m. Furthermore, although the tribunal did not rule out the possibility of claiming other expenses such as costs related to training a player and so forth, no such claim was advanced in this case. The global figure at this stage was said to stand at €11.23m. It was at this point that CAS noted the injunction within Article 17 which required them to take into account ‘local law’. CAS dealt with the point swiftly by suggesting that there was nothing in Ukrainian law which suggested that the provisional €11.23m should be either increased or decreased. No hint was given about what sort of local law considerations might be relevant in future cases. But hang on a minute. The alert reader will have noted that the ‘remuneration’ aspect of the award was said to be between €10.6m and €11.8m and to this should be added the amortised €3.2m from the original transfer fee. It would seem that CAS simply forgot to add the €3.2m to the award and one can only assume that CAS has the equivalent to the ‘slip-rule’ that allows them to amend their order and that Shakhtar’s lawyers have spotted the error!

 

Finally CAS had to take account of the somewhat nebulous ‘Specificity of Sport’. It is noteworthy that the DRC had awarded Shakhtar €1.2m because Matuzalem was deemed to have ‘offended the good faith’ of Shakhtar by agreeing increased remuneration with them shortly before terminating his contract. CAS’s approach was a little more nuanced. Rather CAS discussed what was meant by ‘Specificity of Sport’, suggesting that awarding bodies needed to take into account “the whole football community;”[24] they cited from the Lombe case[25] which referred to the values of the independent nature of sport, free movement of players and football as a market and they emphasised the “specific nature and needs of the football world” including the fact that footballers have ‘asset value’ to clubs that goes beyond their transfer fee and remuneration (merchandising and so forth[26]). In their opinion, “professional football is a special sector, and the Panel considers it may be often wrong to treat the players as being the weak party per se.”[27] In other words, it is quite plausible to read this decision as an open attack on ‘player power’. On the other hand, CAS was also keen to confirm that any additional award under this head should be “subordinate” to other compensation determined in accordance with Article 17 and although they recognised that there was a punitive element to this award it should be “sensitively applied”.

 

With that background in mind, CAS took into account the fact (in his favour) that Matuzalem had given his notice outside the Protected Period but (against him) had ‘offended the good faith’ of the club in circumstances where he was their captain and their best player when he unilaterally terminated his contract; and finally, not all of his explanations for wishing to leave had been accepted.[29] In all the circumstances, CAS felt that the appropriate award under this head was €600,000. In other words, they reduced the award here by 50% perhaps in recognition of the fact that despite Real Zaragoza being jointly liable for this sum, the reality is that that this sum would ultimately be paid by the player himself. Whatever their motivation, there is also a clear message from CAS that the punitive element should be toned down as a quid pro quo for the more creative and generous approach to the assessment of compensation under the other heads.

 

The decision is relatively fresh and thus far few have publicly expressed views on it. Unsurprisingly, the strongest supporter of the decision to date appears to have been FIFA who feel that the decision has vindicated their own Regulations and the underlying principle of contractual stability in Article 17. Yet FIFA can hardly bask in any glory here in circumstances where they were simply asking for the original decision resulting in an award of €6.8m to be upheld. On the other hand, the Association of European Professional Football Leagues has already asked FIFA to review Article 17. It is unlikely that FIFA will do so before the next transfer window opens, and of course, players wishing to terminate their contracts outside the Protected Period can only do so legitimately if they give notice within 15 days of the last game of the season. It is unlikely that many players will wish to do so unless they already have a fixed penalty clause in their extant contracts or can otherwise negotiate compensation with their former employers. The decision does not quite mean a return to the days prior to Bossman, but on any view it is a decision that shifts the power very firmly away from players and onto their employer.