FIFA v Diarra: the contested provisions

The case concerned FIFA’s Regulations on the Status and Transfer of Players (RSTP), specifically, the provisions governing the termination of a playing contract without just cause [1].

The provisions in issue (the Contested Provisions) can be summarised as follows:

1. The Financial Sanction: Any party terminating a playing contract without just cause is liable to pay compensation to the other party. The RSTP provides that compensation must be calculated by taking into account certain ‘objective’ criteria.
2. The Joint and Several Sanction: If the player joins a new club, the player and their new club are each individually responsible for the full amount of the Financial Sanction.
3. The Sporting Sanction: Where a contract is terminated without just cause in a certain period of time, [2] sporting sanctions can be imposed on either the player (in the shape of a playing ban) or the club (in the shape of a two-window ban on registering new players). A sporting sanction can also be applied to a prospective new club which induces the player to breach the contract (which would also lead to a transfer ban) – the case was primarily concerned with this latter form of the sanction. Significantly, the starting point is that the new club is presumed to have induced the breach, so it is on that club to prove the contrary.
4. Withholding the ITC: The national association of the former club doesn’t have to deliver an International Transfer Certificate (ITC) to the national association of the player’s new club where, in essence, there is a dispute over the termination of the playing contract. The upshot is that the player cannot be registered with their new club.

While the case looks at the Contested Provisions in force at the time of the dispute, they have not materially changed since. The CJEU’s judgment therefore impacts the status of the current RSTP.

The facts

Many will remember Lassana Diarra from his Portsmouth and Real Madrid days, after fairly muted spells at Chelsea and Arsenal. After Real Madrid, Diarra found himself at Anzhi Makhachkala before signing a four-year deal at fellow Russian side Lokomotiv Moscow (Lokomotiv) in August 2013. Less than a year into his spell at Lokomotiv, things started to sour and culminated in Diarra refusing to train. Lokomotiv asserted that Diarra was in repudiatory breach of his contract, entitling Lokomotiv to terminate it, which it did in August 2014.

Lokomotiv pursued Diarra for damages for breach of contract before FIFA’s Dispute Resolution Chamber (DRC), to the tune of €20m. Diarra counterclaimed, contending that Lokomotiv had terminated his contract without just cause (i.e., it had breached his contract by purporting to terminate it without the right to do so).

In the meantime, in February 2015, Diarra found a club interested in signing him – Belgian side Sporting Charleroi –but the Russian Football Union (Lokomotiv’s national association) refused to issue an ITC for Diarra while the dispute was ongoing (which it was entitled to do under the RSTP). Charleroi also wanted Diarra to confirm that they would not be held responsible for any compensation payable to Lokomotiv if he were to sign for them (the Joint and Several Sanction). The deal ultimately fell through.

On 18 May 2015, the DRC found in Lokomotiv’s favour and awarded compensation. Diarra unsuccessfully appealed to the Court of Arbitration for Sport.

Separately, Diarra commenced proceedings against FIFA and the Belgian FA, seeking €6m in lost earnings on the basis that the Contested Provisions are contrary to EU law. The Belgian court upheld Diarra’s claim, which FIFA and the Belgian FA appealed to the Belgian Court of Appeal.

Before reaching a decision, the Court of Appeal has requested a preliminary ruling from the CJEU on whether the Contested Provisions are precluded by EU law, in particular:

• The right to freedom of movement of workers within the EU (Freedom of Movement Right).
• The prohibition on certain arrangements which may affect trade between EU Member States and which have as their object or effect the prevention, restriction or distortion of competition within the EU (Prohibition on Anti-Competitive Agreements).

The CJEU’s preliminary ruling

Without getting into technical EU law detail, the CJEU unsurprisingly followed recent decisions to the effect that the Freedom of Movement Right and the Prohibition on Anti-Competitive Agreements apply to FIFA, and therefore also the RSTP [3].

(a) Freedom of Movement Right

The right precludes any measure which might place EU nationals at a disadvantage when they wish to pursue an economic activity in a Member State other than their own, by preventing or deterring them leaving their state of origin.

The CJEU confirmed that the Contested Provisions are all of that nature; the Contested Provisions prevented and/or deterred Diarra from finding a new club in the EU and/or clubs across the EU from engaging him. For example, the former association’s decision to withhold the ITC literally prevented the player from joining a club in another state.

However, any such restriction can be justified on overriding grounds of public policy, provided it is proportionate.

The CJEU accepted that ensuring the regularity of club competitions is a legitimate objective of FIFA (for example, ensuring teams compete with uniform regularity and technical conditions to ensure competitions are won on sporting merit), and this objective requires the maintenance of a certain degree of stability at clubs (which the Contested Provisions seek to do).

As for proportionality, the key issue is whether the relevant measure goes no further than is necessary to achieve that objective. This is ultimately a question for the Belgian Court of Appeal to determine, but the CJEU gave its opinion on each limb:

• The Financial Sanction: The CJEU was particularly critical of the factors laid down in the RSTP for calculating the level of compensation. The relevant factors include things like the ‘specificities of sport’ and the remuneration the player earns at their new club. In respect of the first, the CJEU considered it too imprecise a term to be ‘necessary’ to ensure regularity of club competitions. In respect of the latter, the CJEU considered it to be irrelevant what the player earns at his new club in calculating how much he should be liable to pay his former club [4].
• The Joint and Several Sanction: Proportionality requires assessment of the specific facts of a case, in particular, the actual conduct of the new club. In other words, holding the new club liable regardless of whether it is at fault can hardly said to be necessary to ensure the regularity of club competitions.
• The Sporting Sanction: Imposing the Sporting Sanction on the new club also goes beyond what is necessary, particularly where the onus is on the new club to prove that it didn’t induce the breach of contract. As above, proportionality requires assessment of the facts – at the very least, the former club should have to provide some evidence of incitement to shift the burden of proof to the new club. It was also noted that imposing a rigid two-window registration ban, which can’t be adapted depending on the facts, is clearly at odds with the principle of proportionality.
• Withholding the ITC: As above, the ability of the former association to withhold the ITC ignores the specific circumstances of a case, in particular, the factual context in which the breach of contract occurred (and indeed, whether a breach of contract has actually occurred), the respective conduct of the player concerned and his former club and the role or lack of role played by the new club.

With regards to the Joint and Several Sanction, the Sporting Sanction and Withholding the ITC, the CJEU acknowledged that there is a level of flexibility to derogate from them where appropriate. For example, the DRC in this case determined that the Sporting Sanction should not apply to Diarra’s next club. However, the mechanisms for such exceptions are too imprecise and ill-defined to cure the disproportionality of the existing framework.

(b) Prohibition on Anti-Competitive Agreements

The CJEU was emphatic in its conviction that the object of the Contested Provisions is to restrict, or even prevent, competition. In their view, the Contested Provisions present a high degree of harm to the competition which professional football clubs could engage in. More specifically, they prevent clubs unilaterally recruiting players already engaged by a club or players whose employment contract is allegedly terminated without just cause. The recruitment of top players is, of course, a particularly significant aspect of competition between clubs.

While it is possible to fall outside the prohibition where the relevant measures pursue legitimate objectives, a crucial limb of that test is that the means used must be genuinely necessary for such objectives. It will be clear from the foregoing that the CJEU considered the degree of harm caused by these measures too great to be justified and proportionate [5].

Does the ruling completely shake up football contracts and the global transfer system?

The Belgian Court of Appeal must still make certain findings on the facts. However, the CJEU’s views on those points are in particularly strong terms, so a radical departure would be unexpected.

Much speculation has been cast as to what this case means for football contracts and the transfer system. Technically, the decision is limited in scope to the EU and, in the case of the Freedom of Movement Right, to transfers with a cross-border element involving an EU national. However, it seems highly likely that FIFA will apply any changes to the RSTP across the board.

In that regard, the CJEU’s rejection of the Contested Provisions (which are substantially unchanged since the facts of this case) make it clear that FIFA’s multi-pronged, infinitely flexible and uncertain model is unsatisfactory. Following this judgment, we anticipate a number of changes to the RSTP, in particular:

1. A review of the criteria for calculating the Financial Sanction. In that regard, it is noted that the CJEU made reference to the Belgian national law, under which, in similar circumstances, a sportsperson would expect to be liable for an amount corresponding only to the remuneration remaining due until the end of the employment contract which was terminated.
2. The CJEU made numerous references to the combined effect of the measures which, of course, is relevant to their overall proportionality. However, it stopped short of saying the various measures should not be used together. It may be that FIFA considers it disproportionate to retain the multi-pronged approach.
3. If retained, the Joint and Several Sanction, the Sporting Sanction and Withholding the ITC will need to build in due regard for the specific facts of a case. In particular, in the absence of proof of a new club inducing the player to terminate their contract without just cause, such sanctions would appear to be disproportionate to the aim of ensuring regularity of club competitions. Where they do apply, a blunt measure which applies in all cases, such as a two-window registration ban, will be incompatible with EU law.

The ruling reflects the general trend we are seeing towards increased player rights. Players may become more emboldened when taking decisions following disputes with their club, although the general contractual principles applicable to a breach of contract are still likely to be a suitable deterrent to most players.

[1] Fédération internationale de football association (FIFA) v BZ, C‑650/22.

[2] These rules also apply to cases where a contract is terminated by the ‘injured’ party in response to the other party’s serious breach of contract (which is what happened in this case).

[3] The period from the date on which the contract is entered into until the end of a specific number of seasons or years, whichever comes first. If the player is under 28 when the contract is signed, the period is 2 seasons or years; for players 28 and over, it’s 3.

[4] See European Superleague Company, SL v FIFA and UEFA; and UL and SA Royal Antwerp Football Club v Union royale belge des sociétés de football association ASBL.

[5] Another factor is the law of the state concerned, which FIFA itself admits in its own commentary on the RSTP is rarely followed in practice. The CJEU considered this to be unsatisfactory – there should be real consideration of, and effective compliance with, such laws.

[6] The Belgian court will also have to determine whether a further specific exemption provided for under EU law, under article 101(3) of the Treaty on the Functioning of the European Union, is engaged. If so, the measures would not fall foul of the prohibition. However, again, one of those limbs concerns the necessity of the conduct (which the CJEU has made its position quite clear on).