In a recent decision, the Swiss Federal Supreme Court confirmed that the principle of res judicata (when the same issues have already been decided by a judicial body) is part of procedural public policy, and set aside an arbitral award rendered by a tribunal of the Court of Arbitration for Sport (CAS). This is the first time that the Federal Supreme Court has set aside an arbitral award for violation of public policy in any sense. It is crucial to understand public policy as it is a ground for refusing to recognise and enforce awards under the New York Convention that has varying interpretations across the jurisdictions.
The case originated in 2000, when a Portuguese football player terminated his contract with Benfica football club and transferred to Atlético Madrid. Benfica subsequently sought compensation from Atlético for training and promotion pursuant to the then in force FIFA Regulations for the Status and Transfer of Players (FIFA Rules). The FIFA Special Committee upheld the claim and awarded Benfica USD 2.5 million. Atlético appealed this decision to Zurich’s Commercial Court which annulled the decision on the basis that the FIFA Rules were void and in violation of antitrust laws.
A couple of months later, Benfica sought a new decision from the FIFA Special Committee ordering Atlético to pay compensation but, this time, the Committee rejected Benfica's claim. Benfica appealed this decision to the CAS (not the Commercial Court as the FIFA had in the meantime introduced an arbitral review procedure for the decisions of the FIFA Special Committee). CAS upheld the appeal in part and ordered Atlético to pay EUR 400,000 compensation. Atlético appealed to the Swiss Federal Supreme Court, claiming that the CAS award violated public policy as it disregarded the principle of res judicata given the previous ruling of the Commercial Court.
The Federal Supreme Court set aside the CAS award. It held that the proceedings before the Commercial Court between FIFA and Atlético dealt with the annulment of a resolution of an association (i.e. FIFA) which, under the Swiss Civil Code, not only binds the parties to the proceedings but all members of the association. Therefore, even though Benfica had not been a party to the Commercial Court proceedings, Benfica's claim before the CAS tribunal was barred by res judicata. Relying on previous case law, the Federal Supreme Court confirmed that res judicata forms part of Swiss procedural public policy. It therefore held that the CAS tribunal had violated procedural public policy by granting Benfica's claim notwithstanding the Commercial Court's judgment.
The Federal Supreme Court appears to have extended the application of the principle of res judicata under Swiss law - which generally requires an identity of the parties in the previous and the subsequent proceedings. Furthermore, the decision appears to contradict the principle that an arbitral tribunal should have the power to "decide on its own jurisdiction notwithstanding an action on the same matter already pending before a State Court or another Arbitral Tribunal, unless there are serious reasons to stay the proceedings". This could incentivise parties to 'race' to the tribunal to ensure that the arbitral award cannot be challenged on the basis of a violation of procedural public policy due to prior state court proceedings.
Nonetheless, the Federal Supreme Court's decision must be viewed in light of the peculiarities of Swiss Association Law which resulted in the effect that the Commercial Court's decision bound all members of the association. It therefore remains to be seen whether the application of the res judicata principle has indeed been extended.
(Swiss Federal Supreme Court, First Civil Chamber, 4A_490/2009 of 13 April 2009, published on 2 July 2010)