Although it is quite clear the difference between contracts and pre-contracts, some football-related cases have dealt with this difference with some important outcome for CAS practitioners.
The parties must be aware of the importance of the rights and the obligations undertaken, of the commitments agreed personally or through intermediaries and the consequences in case of breach of contract.
Pre-contracts in football employment relationships: a CAS case
The current legal framework and the jurisprudence recognise the principle of contractual freedom starting from the preliminary negotiation phase where the pre-contract can be used to give certainty to the parties to the reciprocal commitments entered into and a reasonable time frame within which each of the parties will fulfil its obligations.
Freedom of contract has been recognized as a “general principle of civil law” by the European Court of Justice (Spain v European Commission, C-240/97 European Court 1999), has been seen as protected by article 16 of the EU Charter of Fundamental Rights (“freedom to conduct business”) and has been set by the EU Commission as a fundamental point of reference for the future development of European contract law (EC Commission 2005).
Under Common law, contract law principles have traditionally upheld and protected the freedom to do business as dictated by the market and not by legislators. Over time, these principles have developed from simply looking to see whether a binding contract exists and now include ensuring that the parties have acted in what the law considers to be an acceptable manner, regardless of whether or not a fully-fledged contract is ever concluded.
Under Civil Law, especially concerning Swiss Law as the law often applied to CAS proceedings (Art. R45 and R58 of the CAS Code), the principle of freedom of contract is of fundamental importance. It follows from the freedom of contract that, in principle, everyone is free to enter in contract negotiations and do terminate them again without incurring any liability.
However, the freedom of contract is limited by the obligation to act in good faith (art. 2 para. 1 Swiss Civil Code) which is of equal fundamental importance. From the moment when the parties enter into contract negotiations, they are in a special legal relationship with each other. That pre-contractual relationship involves certain reciprocal obligations. In particular, the parties must negotiate in a serious manner and accordance with their actual intentions.
A negotiating party that terminates contractual negotiations in violation of these principles, whether with malice or negligence, may become liable to the other party based on the culpa in contrahendo doctrine.
Players and clubs are entering more frequently into preliminary agreements which should lead, in the intentions of the parties, to the signing of employment contracts where the previously agreed conditions are recalled. Therefore, the parties must be aware of the importance of the rights and the obligations undertaken, of the commitments agreed personally or through intermediaries and the consequences in case of breach of contract.
FIFA RSTP (Regulations on the Status and Transfer of Players) only define what is a contract (art. 13) and set out the rules about the maintenance of contractual stability that not exactly refers to a pre-contract. As a consequence, more cases have landed before the FIFA DRC (Dispute Resolution Chamber) to decide whether an agreement is enforceable and which of the parties failed to comply with the obligations stipulated in the agreement.
As the reader may know, FIFA DRC jurisprudence does – generally speaking- not accept any form of “pre-contracts” and considers them to be regular employment contracts as long as they are signed by both parties and contain the essential elements.
This means that the Chamber recalled that for an employment contract to be considered as valid and binding, it should contain the essentialia negotii of an employment contract, such as the parties of the contract and their duties, the duration of the employment relationship, the remuneration and the signature of the parties.
According to general principles of law (for Switzerland see for example SFT 113 II 31 p. 35; SFT 118 II 32 p. 33), a preliminary contract is a contract that obligates the contracting parties to conclude another contract under the law of obligations, which is then called the main contract. It is a legal act creating a relationship of obligation, which is fulfilled by concluding the main contract. It, therefore, obligates someone to obligate himself/herself again at a later point in time.
In 2008, a CAS panel determined the following in respect of “pre-contracts” in football:
“Starting with the argument of the existence of a “precontract”, the Panel first noted that the FIFA Regulations and Swiss law do not provide a specific, explicit definition of a “precontract”. This notion is however well known in legal practice and the Panel would define it as the reciprocal commitment of at least two parties to enter later into a contract, a sort of “promise to contract” (in French: “promesse de contracter”). The clear distinction between a “precontract” and a “contract” is that the parties to the “precontract” have not agreed on the essential elements of the contract or at least the “precontract” does not reflect the final agreement. On the contrary, if the interpretation of the “precontract” leads to the conclusion that the parties agreed on all the essential elements of the final contract, on the basis of the general principles applicable to the conclusion of a contract as defined under Article 1 et seq. of the Swiss Code of Obligations (SCO), the “precontract” would be nothing else but the final contract (see notably Art. 1 and 2 par. 1 SCO).
In this respect, the Panel stressed that it was well known that in contractual negotiations, the parties must consider the risk to be bound at an earlier stage than they sought. This risk is covered by specific wordings that one can find for instance in letters of intent, which can in some cases be considered as “precontract” as the parties agree on some important elements in view of the negotiation of the final contract and may provide for sanctions to be imposed in case of violation of specific commitments already taken at the level of the letter of intent. However, good practice requires from the parties to expressly mention that the document is not the final contract and that it does not represent the definitive agreement between the parties” (CAS 2008/A/1589, para. 13).
Another CAS panel in CAS 2016/A/4709 (SASP Le Sporting Club de Bastia v. Christian Koffi N’Dri Romaric) stated that if a contractual document ( a “proposal”) signed by both parties to envisage the extension of an existing employment contract contains all the necessary essential elements, i.e. an agreement on the performance of work against remuneration, the names and the signatures of the parties, the club’s stamp, a signature date, a reference to the parties’ underlying contract of employment, and further stipulates the starting date of the extended employment contract, the player’s guaranteed and conditional remuneration during said an extended period and the counterparty’s financial entitlements related to a further conditional extension of the parties’ contractual relationship, it contains all the contractual essentialia negotii to be considered as a valid and binding employment contract in itself.
Accordingly, the CAS panel deemed that the document signed by the Parties and called “Proposal” did not derogate from its true nature as a valid and binding contract and that the club was bound to the agreed extension of the employment contract for the following season.
The core of these decisions converges on the fact that the relevant contract was not a “pre-contract” but a definite employment contract because it contained all the essentialia negotii.
In CAS 2016/A/4489 (Beijing Renhe FC v. Marcin Robak) the Panel found that several elements led it to the conclusion that the Draft Employment Contract is a “pre-contract” rather than a definite employment contract.
In June 2014, a Chinese Club and a Polish football club negotiated on a possible transfer of a Polish Player from the second to the first Club. In those days, the Player met the owner of the Chinese Club in London to discuss his possible employment by the Club and the day after the Club requested the Chinese Embassy to issue a visa for the Player to come to China to discuss the details of the employment contract.
On 27 June 2014, a representative of the Chinese Club sent a signed “draft of foreign football player employment contract” (the “Draft Employment Contract”) to the Player.
The Draft Employment Contract referred to a term of employment of two sporting seasons, i.e. from 1 July 2014 until 30 June 2016, a yearly remuneration of EUR 550,000 and that “Both Parties will sign official contract after the [Player] has passed medical examination in China. The rest of articles and details of official contract will be decided by both Parties through friendly negotiation”.
On 3 July 2014, the Polish Club allegedly returned a duly signed copy of the Transfer Agreement to the Club and so did the player with his copy of the employment agreement duly signed.
The day after, on 4 July 2014, the Chinese club informed the player that the transfer negotiations with the Polish club had collapsed.
Unlike this communication, the Polish Club and the Player deemed that a valid transfer agreement, as well as a valid employment contract, had been concluded and, consequently, the Player called the Club to set a date for his arrival to enable him to execute his contractual obligations and to conclude the final contract with the Club.
With no avail, the Player requested the Club for either the signing of the “final professional football player contract”, or for the payment of EUR 1,100,000 as liquidated damages.
The Chinese Club objected that it would not pay said amount because it did not reach a transfer agreement with the Polish Club and the Player lodged a claim in front of the FIFA DRC.
FIFA DRC held that a legally binding employment contract had been entered into and that the Chinese Club – by informing the player that it had no intention in the performance of the contract – had terminated the contract without just cause.
As a result, the FIFA DRC awarded the player with the amount of EUR 330.000 as the requested compensation was mitigated due to two elements: 1) the player had signed a new contract with another club; 2) the Chamber considered that, although the contract was valid, it never entered into force, i.e. the “real execution of the contract had never started.
On March 2016, the Club filed an appeal before CAS to annul the decision of FIFA DRC being not proved its liability in the breach of contract with the Player.
Also, the Player filed its answer asking to sustain the decision of the FIFA DRC and order the Appellant to pay the costs of the proceedings.
It is worth noting that, after the requests of the parties, in the application of the principle of “de novo review” (Art. R57 of the Code) and pursuant to Art. R44.3 of the CAS Code, the Panel admitted a hearing and the examination of the supposed representative of the Chinese club during the negotiations as well as the polish player.
At the end of the hearing, as a relevant outcome, the Panel observed that the representative testified that he was not authorised by the Club to send the Draft Employment agreement (the “Draft”) to the player for him to sign it. Rather, he stated that he signed the Draft on behalf of the Club, that he did not inform the Club that he sent this document to the Player. He also testified that he considered having done nothing wrong as the Draft Employment Contract was not sealed, which is allegedly a legal requirement in China for a contract to be valid.
On the other side, the Player testified that, before receiving the Draft, he met the owner of the Club in London and that he was expecting to receive a contractual proposal from the Club after this meeting. The Player further testified that he received the Draft from his Agent and that it already contained a signature at the location where the Club was supposed to sign and that it was in compliance with the discussions that had taken place in London earlier.
Considering some following e-mail communications of the parties where it derived as a consequence that the existence of a pre-contract was taken for granted by the parties themselves, the Panel, irrespectively of the Draft having been signed or not, deemed that tacit ratification of the negotiations had occurred and that the agreement was validly concluded and entered into force.
Although this, the Panel found that the Draft could not be equated to a “definite/final employment agreement”.
In a nutshell, CAS held that there were plenty of elements that would suggest that a pre-contract had been concluded rather than a definite employment contract such as:
- The title of the contract had the word “draft” in it;
- Art. 4 of the contract indicated that the official contract would be concluded at a later stage;
- The contract did not define any duties for the player ( “the rest of the articles and details of official contract will be decided by both Parties through friendly negotiation”);
- The contract failed to set out conditions related to the player’s accommodation, flight tickets and car;
- In a follow-up e-mail, the club had stated that the pre-contract could not be executed because the two clubs could not make the transfer deal on time.
As a result, CAS found that the draft contract did not contain all the essentialia negotii and could not be considered as a definite employment contract.
Besides, CAS held that whereas it agreed with the FIFA DRC that definite employment contracts cannot be made subject to the passing of a medical test, it failed to see why a “pre-contract” cannot be made subject to the passing of a medical test; CAS did not find it “unreasonable for the player and club to want some kind of certainty in the form of a “pre-contract” before having the player come over to China to subject himself to a medical examination”.
CAS further concluded that: “the draft Employment Contract served as some kind of warranty for the contractual parties that they would not withdraw from negotiations lightly and, indeed, already agreed on some of the main terms of the employment relationships”.
Despite this, the Club could not simply terminate the pre-contract without any consequence.
CAS considered that a pre-contract is a contract under the (Swiss) law of obligations that creates the obligation to conclude the main contract at a later point in time: a party to the preliminary contract is not entirely free to exclude itself from the negotiations concerning the conclusion of a final agreement.
- The parties must negotiate in good faith;
- The parties should not abandon the negotiations without a compelling reason to do so;
- These conditions apply even more so when the contractual negotiations have already found their way into a written preliminary contract.
Taking all this into consideration, CAS did not find that the Club negotiated the conclusion of a definite contract in good faith, since:
- It did not invite the player to come to China to subject himself to the medical examination;
- Rather, the club instructed the player not to come to China at all. By doing that, the club violated a specific commitment that it had already made at the level of the preliminary contract.
- The reason for abandoning the negotiations (i.e. the fact that allegedly no transfer agreement could be concluded with the Polish club) was not a valid reason since such condition was not explicitly mentioned in the pre-contract.
As a result, CAS determined that the club had breached its obligation towards the player under the pre-contract and had to pay him compensation.
First of all, the Panel observed that just like the obligations deriving from a “pre-contract” are not the same as those deriving from a definite contract, the damages resulting from a “pre-contract” are not the same either. Indeed, the damages incurred in case of a breach of a “pre-contract” are generally lower as one needs to be conscious that there is still a chance that no definite agreement will come about.
As a second matter, the Player found new employment soon after the breach and consequently his damages, therefore, remained fairly limited because the Player successfully mitigated them.
Regarding the amount of the awarded compensation, The Panel stated that the scope of Article 17(1) of the Regulations is not limited to definite employment contracts, but that also the compensation for breach of a “pre-contract” can be calculated on this basis. Indeed, article 17(1) of the Regulations is headed “consequences of terminating a contract without just cause”.
Consequently, in the application of the principle of “positive interest”, the Panel followed the framework as set out by a previous CAS Panel as follows: “When calculating the compensation due, the judging body will have to establish the damage suffered by the injured party, taking in consideration the circumstances of the single case, the arguments raised by the parties and the evidence produced. Of course, it is the injured party that requests compensation who bears the burden of making, as far as possible, sufficient assertions and who bears as well the burden of proof. As it is the compensation for the breach or the unjustified termination of a valid contract, the judging authority shall be led by the principle of the so-called positive interest (or “expectation interest”), i.e. it will aim at determining an amount which shall basically put the injured party in the position that the same party would have had if the contract was performed properly, without such contractual violation to occur. This principle is not entirely equal, but is similar to the praetorian concept of in integrum restitution, known in other law systems and that aims at setting the injured party to the original state it would have if no breach had occurred. (CAS 2008/A/1519-1520, at para. 85 et seq.).
Considering that the Player found new employment 34 days later than the supposed starting date of the contract with the Chinese club, the Panel deemed it appropriate to award the Player the equivalent of at least another month salary under the terms of the Draft Employment Contract with the interests at a rate of 5%, dismissing all the other prayers for relief.
- Code of Sports-related Arbitration: https://www.tas-cas.org/fileadmin/user_upload/CAS_Code_2020__EN_.pdf
- The Court of Arbitration for Sport (CAS) Emergency Guidelines, valid from 16 March 2020: https://www.tas-cas.org/fileadmin/user_upload/CAS_Guidelines_COVID-19_15.05.20.pdf
- CAS Mediation Rules: https://www.tas-cas.org/fileadmin/user_upload/CAS_Mediation_Rules_2016__clean_.pdf