The Court of Arbitration for Sport (CAS) has recently dismissed former Chelsea FC striker Adrian Mutu's appeal against the large compensation award in favour of Chelsea FC following his sacking for failing a drugs test in 2004.
In October 2004, Romanian International Adrian Mutu's contract was terminated by his club, Chelsea FC, after a drug test had revealed traces of cocaine.
Mutu had joined Chelsea from Italian side Parma in August 2003 for a fee of €22,500,000 on a five-year contract.
In addition to his sacking, Mutu was also subject to a seven-month ban imposed by the Football Association's Disciplinary Commission. This ban was adopted by the FIFA Disciplinary Committee, thus meaning he was banned from playing worldwide for this time.
Mutu moved back to Italy and registered with AS Livorno followed by transfers to Juventus then to Fiorentina in July 2006, where he currently still plays.
After Mutu appealed to the FA Premier League Appeals Committee against Chelsea's decision to terminate his contract, the CAS upheld the Chelsea's action and stated that he had committed a breach of his contract without just cause.
Chelsea then applied to FIFA for an award of compensation against Mutu. FIFA's Dispute Resolution Chambers (DRC) ruled it did not have jurisdiction to make a decision in the dispute. However, the CAS found in Chelsea's favour on this point and therefore the matter was referred back to the DRC.
Chelsea's claim for compensation comprised various heads, including the wasted cost of acquiring the player; the unearned portion of the signing on bonus and other benefits received by Mutu, and legal costs.
The DRC awarded Chelsea the sum of €17,173,990 compensation.
Mutu appealed this award to the CAS, describing it as "inhumane and unjust". Essentially Mutu's case in the appeal was that:-
1. None of the heads of damage awarded by the DRC were recoverable under English law. In particular, the amortised cost of the transfer fee should not be recoverable on the ground of remoteness.
2. Once a player has signed the employment contract, the signing on fee received has been fully deserved and its reimbursement cannot be requested.
3. Alternatively, Mutu claimed that the DRC's application of Article 22 of the FIFA Regulations breached EC law in that (i) he had been subjected to different rules on compensation and different treatment compared to a UK national; (ii) the application of the rules on compensation in this case are in breach of both Article 81 and 82 of the EC Treaty; (iii) calculating the amount of compensation on the basis of a transfer fee determined by the clubs involved and not the player would affect the freedom of movement of players and hinder their career; and (iv) the FIFA dispute resolution, disciplinary and arbitration system is contrary to EU law.
The CAS dismissed Mutu's appeal and held that he must pay Chelsea FC €17,173,990 plus interest and costs.
In the first instance, the panel found that the dispute was properly to be determined on the basis of English law and the FIFA Regulations. The employment contract between Chelsea FC and Mutu allowed for compensation to be considered on the basis of both English law and the Regulations. The panel underlined that the concurrent application of English law and the Regulations with respect to compensation for breach of contract is allowed by both of these sources.
The main question to be examined was in relation to the measure of damages, most specifically regarding the criteria to be observed in the calculation.
The panel held that the determination of an amount of compensation to be payable by the player can be based on the unamortised acquisition cost and that is fully consistent with both English law and Article 22 of the Regulations. This position is not only explicitly provided for in Article 22 but is also consistent with previous CAS jurisprudence (for example, inter alia, the Matuzalem case noted in the previous edition of this E-Bulletin).
Further, the loss suffered by the Club (i.e. the impossibility to amortise over the contract term the acquisition cost or to transfer the player for a fee) was not an unusual type of loss. Such loss was (or could have been) at the time of conclusion of the employment contract, in the reasonable contemplation of the parties, not an unlikely result of the breach. In order for such damage not to be too remote, the parties need only have contemplated the "head" of damage and not the "extent" of that loss. The panel further stated that the fact that the player was not party to the transfer contract is entirely irrelevant.
The panel further noted that the Club could not be required to try to transfer the player for a fee before exercising its right to terminate the employment contract.
The panel did not agree with Mutu's submissions on the EC law points, holding that the Regulations are not contrary to EC law.
Chelsea FC, understandably have welcomed the awards and noted that the decision "recognises the damaging effect incidents involving drugs have on football and the responsibility we all have in this area." It is unclear whether Mutu intends to seek to pursue the matter further but is understood to have approached Chelsea FC with a view to making a significant charitable donation as an alternative to the penalty, which if not paid on time, is subject to a 5% increase followed by a possible playing ban for Mutu.
In any event, the decision is significant in identifying that sportspersons who find their contracts terminated for breach as a result of doping offences could be susceptible to large compensation claims as well as potential suspension, sacking and reputational damage.