The Court of Arbitration for Sport (CAS) last month delivered an important decision on the issue of termination of football players' contracts without just cause. The ruling in the Matuzalem case, is the latest landmark decision regarding buying out contracts and transfers, following in the footsteps of the Bosman and Webster cases.
Brazilian Matuzalem signed for Ukrainian side Shakhtar Donetsk in 2004, on a five-year contract running from 1 July 2004 – 1 July 2009. On 2 July 2007, Matuzalem notified Shakhtar in writing that he was unilaterally terminating their contractual relationship with immediate effect. Two days later, Matuzalem signed a three-year contract with Real Zaragoza of Spain, to run until 2010.
Shakhtar, who had written to Matuzalem before he signed for Zaragoza indicating that they deemed his contract with Shakhtar was still in force and ordered him to report for pre-season training, initiated proceedings with the FIFA Dispute Resolution Chamber (DRC). Shakhtar sought payment from Matuzalem and Zaragoza jointly and severally of EUR 25m (this being the amount specified as a minimum release fee in Matuzalem's contract). The FIFA DRC awarded Shakhtar EUR 6.8m in November 2007. Both Shakhtar and Matuzalem and Zaragoza appealed to the CAS in March 2008. Matuzalem has since joined Lazio in Italy on loan, with an option to make the transfer permanent.
Previous Position – the 'Webster Rule'
Before this ruling, the decision in the case involving Scotland international Andy Webster was believed to have shifted the balance of power in football transfers firmly in favour of the player.
Essentially Webster was allowed to transfer from Heart of Midlothian to Wigan Athletic by terminating his contract with Hearts and paying a nominal fee, which was simply the residual value of his contract with Hearts i.e. a sum equivalent to his remaining salary. This 'buy-out' could take place without the threat of sporting sanctions after the expiry of the "Protected Period" as is defined in the FIFA Regulations on the Status of Transfers and Players (FIFA Regs). For players who signed the contract in question before reaching the age of 28, this is 3 seasons or 3 years (whichever comes first), and for players who signed the contract after reaching the age of 28 this is 2 seasons or 2 years (whichever comes first).
Article 17 of the FIFA Regulations
Article 17, entitled 'Consequences of terminating a contract without just cause', had to be amended to reflect the Webster decision.
Where the breach takes place within the Protected Period referred to above, then sporting sanctions set down in Article 17 shall be imposed on the guilty party (this can be either a player or a club). Further, sanctions shall be imposed in the case of breach by a player where notice is not given within 15 days of the club's last official match of the season.
Where a player subsequently signs for another club after he terminates his existing contract, it is presumed (unless established otherwise) that this club has induced the player to commit the breach. Where a player is required to pay compensation for the breach, the player and his new club shall be jointly and severally liable for payment.
The Matuzalem Ruling
The CAS raised the amount of compensation ordered by the FIFA DCR to approximately EUR 11.85m plus interest. It was undisputed before the CAS that Matuzalem terminated his contract with Shakhtar unilaterally, prematurely and without just cause. The CAS stressed that:
- Article 17 does not provide a legal basis for a party to freely terminate an existing contract at any time, prematurely, without just cause; and
- even if the termination occurs outwith the Protected Period, this remains a serious violation of the obligation to respect the existing contract.
Compensation was therefore payable in accordance with Article 17 of the FIFA Regs. Matuzalem and Zaragoza argued that it should be EUR 2,363,760 (or in the alternative EUR 3.2m), whereas Shakhtar sought EUR 25m due to the release fee referred to above. They claimed this was a contractually agreed amount by Matuzalem should he leave Shakhtar before the expiry of his contract.
The CAS ruled that:
- the clause Shakhtar sought to rely on could not be said to be addressing a situation of unilateral, premature breach and therefore the factors of Article 17 were applicable in assessing compensation;
- it is not possible to evaluate the amount of compensation that will be due in advance – the judging party will have to establish the damage suffered on a case-by-case basis, taking into consideration the circumstances of the individual case, the arguments raised and the evidence produced;
- the purpose of Article 17 is to reinforce contractual stability; and
- in determining the compensation, the judging authority should aim at determining an amount that puts the injured party in the position that the same party would have had if the contract was performed properly.
The CAS evaluated the amount due to Shakhtar applying the following criteria:
- the value of the lost services of Matuzalem to Shakhtar;
- the amount of salary expenses that Shakhtar did not have to pay to Matuzalem; and
- the status and behaviour of the player. Matuzalem left the club just a few weeks before the start of the qualification rounds for the 2007/08 UEFA Champions League, after a season in which he had become Shakhtar captain and been voted player of the year. As a result the CAS awarded an additional amount equal to 6 months of his salary.
The amount of compensation awarded therefore was EUR 11,858,934 plus interest of 5% p.a. from 5 July 2007 until payment. Matuzalem and Zaragoza were held jointly and severally liable for the amount.
The decision essentially softens the perceived affect of the Webster ruling and signals a swing back towards football clubs, away from the perceived increase in 'player power'. That said, the decision did not specifically address the issue of buy-out clauses and further litigation in this area is likely.