New Article 12bis of the FIFA Regulations: Pacta Sunt Servanda and consequences for clubs
Through its Circular Letter no.1468
January 2015, FIFA has issued amendments to the Regulations on the Status and Transfer of Players (“FIFA Regulations
”) and the Rules Governing the Procedures of the Players’ Status Committee (the “PSC
”) and the Dispute Resolution Chamber (the “DRC
”). One of the most important additions, which comes into force on 1st
March 2015, is the new Article 12bis ‘Overdue payables’ (“Article 12bis
Aim and background
According to FIFA itself, the inclusion of Article 12bis aims at establishing a stronger system with regard to overdue payables and the pacta sunt servanda
principle. In this respect, the DRC and the PSC (and the DRC judge and the single judge as the case may be) will have a wider scope of discretion when imposing sanctions on clubs in their respective area of competence1
The main goal is to ensure that clubs comply with their financial contractual obligations in a timely manner. Article 12bis, therefore, codifies and allows additional sanctions to be imposed when there is a failure to meet these financial obligations.
While for the DRC the imposition of sporting sanctions on clubs in employment-related disputes is common practice by virtue of Article 17 of the FIFA Regulations (“Article 17
”), for the PSC sporting sanctions for overdue payables in transfer-related disputes will become a new area2
Looking back, a similar concept could be found in the obsolete FIFA Circular Letter no. 616 dated 4th June 1997, which never translated into the actual FIFA regulations but was referred to in a number of DRC and PSC decisions for several years thereafter. This circular had introduced “…a new procedure for dealing with clubs which fail to comply with their financial obligations” whereby, inter alia, the FIFA administration (sic) was entitled to pronounce a ban on all international transfers against a club that failed to respect FIFA’s order to comply with their financial obligations.
Scope of application and functioning
Article 12bis will be applied exclusively to clubs in their relations with other clubs under transfer agreements and with professional players under employment contracts. Interestingly, associations are excluded from the scope of application of this article and other individuals, including coaches, do not fall under the protection of this new provision.
Moreover, the new article suggests that issues arising from non-payment of training compensation and solidarity mechanism are to be excluded from the scope of the provision. The thinking here from FIFA’s perspective is that these are not financial obligations under the transfer agreement per se, but rather based on the application of the FIFA Regulations. To this end, it is worth mentioning that according to the UEFA Club Licensing and Financial Fair Play Regulations (“CLFFPR”) overdue payables do include training compensation and solidarity contributions. It will be interesting to see how this apparent conflict between Article 12bis and CLFFPR will be resolved.
For a club to be considered as having overdue payables, two main conditions must be met:
(1) A club has delayed a due payment for more than 30 days without a prima facie contractual basis.
(2) The creditor (player or another club) has put the debtor club in default in writing, granting a deadline of at least ten days to comply with its financial obligations3
The first comment that comes to mind relates to FIFA’s use of language. Instead of “claimant” and “respondent”, commonly used in DRC and PSC proceedings, here we see “debtor” and “creditor”, terms that FIFA normally reserves exclusively for its enforcement/disciplinary proceedings, at which stage the existence of a debt has already been ascertained by the deciding authority. This appears to be a very deliberate stance taken by FIFA.
The main question arising from the first requirement is how (and by whom) the existence of a prima facie contractual basis is assessed. The wording of the relevant paragraph suggests that, in order to avoid the sanctions deriving from this article, a club must, primarily, address the creditor’s written request and refer to the contractual provisions to justify the possible non-payment or its delay. For the purpose of Article 12bis, in other words, a club cannot justify the non-payment of an overdue obligation by reference to any financial difficulty it is facing, or to any other external issue.
Following on from this, one must consider what would constitute a “prima facie contractual basis” for delaying payment outwith the contractually agreed time limit. Is it legitimate to expect some creativity in the drafting of employment contracts from now on, by means of the inclusion of provisions justifying payment reduction or delay in order to create such a contractual basis? Even if such clauses were not in compliance with the applicable regulations and were per se null and void, would reference to them as a reason for payment delay exclude application of Article 12bis and, in turn, minimise risks of being sanctioned thereunder? It remains to be seen what kind of submissions would be regarded favourably by FIFA with any clauses relied upon to avoid sporting sanctions being judged to have bona fide contractual reasons, and not included frivolously in order to defeat the ends of justice.
Another challenge arising from the application of Article 12bis is the calculation of time limits. While in a transfer agreement the due dates of the relevant payments are usually explicitly agreed upon by the parties, in an employment contract the due date for paying wages may not be mentioned and may vary from month to month. Furthermore, the manner in which this provision will interact with national employment laws and any other domestic bargaining agreements governing the payment of salaries in each of FIFA’s 209 member associations is yet to be seen.
A club with overdue payables partly paying or settling the outstanding debt shortly after the deadline set by the creditor may also give rise to an ambiguous or uncertain situation. Given that proceedings before the relevant FIFA body may last for few months, the possibility that the club will pay the outstanding amount or part thereof before any decision is taken is relatively high. Would the sanctions under Article 12bis still be applied even when the overdue amount has since been settled4
or if payment delays only concern residual amounts (e.g.
the applicable default interest)? To this end, it is also not yet clear whether sanctions are imposed ex officio
by the deciding body or only upon the relevant request from the aggrieved player or club.
Moreover, what happens if the overdue payable originates from a “side agreement” concluded between the parties and not from the transfer contract, as required by par. 1 of Article 12bis? There are obviously many questions which are open to discussion, and no doubt will be played out in front of the DRC and the PSC or their single judges in due course.
Pursuant to Article 12bis par. 4), a club in breach may be sanctioned with the following:
(a) a warning;
(b) a reprimand;
(c) a fine;
(d) a ban from registering any new players, either nationally or internationally, for one or two entire and consecutive registration periods.
The word ‘may’ (in contrast with ‘shall’ under Article 17) appears to give a considerable discretion to the deciding body as to whether or not to apply a sanction. Therefore, it is possible that, even having an overdue payable, a club may not necessarily incur a sanction under Article 12bis.
These sanctions may be applied cumulatively, and repeated offence will lead to a more severe penalty. Article 12bis explicitly provides for the possibility to impose a transfer ban suspended for a probation period from six months to two years. This probation period will be revoked if another infringement were to take place. Such flexibility clearly evidences the aim of the legislator: Article 12bis has been conceived as a form of prevention from overdue payables as opposed to a merely punitive remedy.
Interestingly, Article 17 stipulates a transfer ban for two entire and consecutive registration periods, whereas Article 12bis provides for a ban for one or two entire and consecutive registration periods. In fact, Article 12bis will be without prejudice to the application of further measures relating to the maintenance of contractual stability between professional players and clubs, including sporting sanctions available so far only for the DRC and only within employment-related disputes pursuant to Article 17.
UEFA regulations on Club Licencing and Financial Fair Play
It is very well known that UEFA has adopted provisions regulating the consequences for clubs which have overdue payables. According to Article 49 of the CLFFPR, all clubs wishing to obtain a UEFA licence must prove the absence of overdue payables that refer to transfer activities with other clubs. Interestingly, the UEFA regulations go much further. Apart from the amounts due by a club as a result of transfer activities, payables also include training compensation and solidarity contributions as observed above. Article 50 of the CLFFPR imposes similar obligations in relation to wages but imposes this requirement for all of the clubs’ employees (including all administrative and technical staff) and related payables to the social/tax authorities5
Although the provisions regarding overdue payables under the UEFA regulations stipulate further restrictions for a club and employ different means (allowing participation in UEFA competitions), it is clear that both FIFA and UEFA are united in the idea that clear sanctions should exist for clubs in relation to their financial incapacity, or negligence, in non-paying their creditors in a timely manner. In a world where financial rewards seem to be ever increasing, it is necessary and correct that the overriding regulatory authorities encourage and require rules that aid financial stability.
Implication at national level
It is worth noting that, pursuant to the amended article 1 par. 3a) of the FIFA Regulations, each member association is obliged to include Article 12bis without modification in its domestic regulations. How such new article will apply within the internal regulations is not clear: each association has its own bodies for dispute resolution, some have NDRCs based on the recommendations of FIFA, but others use independent arbitration tribunals. Should such arbitral tribunals be vested with the sanctioning powers under Article 12bis? Or should national disciplinary bodies acting within the associations impose sanctions in relation to overdue payables?
In any event, it must be observed that several football associations within Europe have already fully adopted the UEFA CLFFPR, and club licences to take part in national competitions are issued based on compliance of these.
Appeal and enforcement
Pursuant to Article 67 of the FIFA Statutes, any decision taken by the DRC or the PSC (or their single judges) in relation to sporting sanctions can be subject to an appeal at CAS.
It is crucial to remember that while enforcement of financial decisions rendered by the DRC or the PSC is automatically suspended upon an appeal is being filed with CAS, in a case with sporting sanctions of a non-monetary nature (notably, lit. d) of par. 4 of Article 12bis), the club involved, upon filing a statement of appeal, will be required to explicitly request the stay of execution of such sporting sanction until CAS has rendered a final and binding decision6
Possible consequences for clubs
With the aim of preventing clubs from holding on to overdue payables and forcing them to respect the principle of pacta sunt servanda
, Article 12bis will certainly be an effective instrument of resisting the phenomenon that has been described as “the FIFA loan”7
, whereby a club has a systematic approach to debts with other clubs, simply ignoring them until forced by FIFA or CAS to pay. Through this bad faith stance, a club de facto
procures credit from other clubs and thereby creates an uneven playing field. The risk of a sporting sanction, particularly that of a ban on registrations (a “transfer ban”), should have a positive impact on “serial defaulters”.
However, some clubs indeed have financial difficulties, sometimes due to the economic crisis in their jurisdictions or other external reasons, and overdue payables in such clubs are not necessarily caused by negligent or reckless behaviour, or even by poor management, but rather by truly compelling external factors. Would the FIFA deciding bodies, when considering the imposition of sporting sanctions under Article 12bis, take into account any such bona fide reasons for overdue payables?
The new Article 12bis should become an effective addition to the powers of the DRC and the PSC (and their single judges) while resolving employment-related and transfer disputes. Sporting sanctions, available under this article are expected to seriously discourage clubs from having overdue payables to other clubs or professional players.
Although the application of Article 12bis is not fully clear at this stage, in time, the relevant jurisprudence of the DRC and the PSC will no doubt shed light on certain issues of ambiguous interpretation. It does appear that due to the strong sanctions available for the DRC and the PSC to tackle any transgressions, the protection of the rights of many clubs and professional players will be strengthened. The number of clubs paying creditors only after a lengthy groundless legal process is expected to diminish and this will enhance the overall financial stability of the industry. As with any new rules, however, there may be some unintended consequences. It will be a waiting game as usual to see how all these elements play out.
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