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Davies, Chris; Dunbar, Neil --- "Contracts Between Sporting Clubs" [2023] JCULawRw 9; (2023) 29 James Cook University Law Review 139

Contracts Between Sporting Clubs

Chris Davies^[1]* and Neil Dunbar^[1]**

I Introduction

There is no doubting the significance of contracts in professional team sports, the most common being employment contracts between players and clubs. There can also be contracts between clubs and the leagues that, for instance, provide guarantees to the clubs that they have a place in the competition for a certain period of time. In News Ltd v Australian Rugby Football League (No 2) ^[1] it was held that if there is no such contract then an implied one-year contract exists between the leagues and the clubs. Less common are contracts between the clubs themselves, though they do exist in European football due to the loan and transfer systems and the subsequent moving of contracted players between clubs.

This research note will examine two such contracts, one involving Leeds United and RasenBallsport Leipzig (‘RB Leipzig’), the other between Cardiff City and Nantes. While these are European based clubs, they are still of relevance to Australian football as players from the A-League can, and are, transferred to these clubs. Former Australian national players Harry Kewell and Mark Viduka, for instance, both played for Leeds United during their careers. This note will examine the general contract aspects relating to the cases, as well as the impact of circumstances such as Covid-19. It will also discuss the potential significance of the judgments for football and other Australian team sports.

II Leeds United and RB Leipzig

A Background Facts

On 25 January 2020 Leeds United entered into a loan agreement with RB Leipzig to obtain the services of its contracted player, Jean-Kevin Augustin, until 30 June 2020. Included in this agreement were both a purchase option and purchase obligation, the latter of which required Leeds United to purchase the player’s rights if it was promoted to the English Premier League (‘EPL’) from the English Football League (‘EFL’). Consequently, the effect of these two agreements was that Leeds United had the option not to purchase the player if it was not promoted to the EPL, though it could still purchase the player if it was not promoted by relying on the purchase option.

The key issue was whether the purchase obligation was triggered by Leeds United’s promotion to the EPL by I July 2020, or by the end of the 2019–20 season which was delayed due to the Covid-19 pandemic. The FIFA Players’ Status Committee (‘FIFA PSC’) upheld RB Leipzig’s claim that the purchase obligation had been triggered at the end of the 2019-2020 season and that Leeds United were required to pay RB Leipzig the agreed transfer fee. Leeds United then appealed this decision to the Court of Arbitration for Sport (‘CAS’).

B The CAS Hearing

In the CAS hearing Leeds United’s main argument was that the date of 1 July was crucial to the agreement as the parties agreed that unless the purchase option was exercised or the purchase obligation triggered, the employment of Augustin by RB Leipzig would be reinstated with effect from 1 July 2020.^[2] That is, it argued that , the parties clearly intended that the purchase obligation would need to be triggered prior to 1 July 2020. On the other hand, RB Leipzig argued that the loan agreement showed that the only condition precedent was the promotion of Leeds United to the EPL at the end of the 2019–20 season.^[3]

Leeds United also argued that if the CAS held that there was more than one possible interpretation of the Agreement, the contra proferentem rule should apply.^[4] It provides that where any provision is unclear in its meaning, the unclear wording will be interpreted against the author of the wording.^[5] However, RB Leipzig argued that there was no ambiguity so there was no need to invoke the contra proferentem principle.^[6]

Further, Leeds United argued that there was no scope for the application of complementary contractual interpretation because the meaning of the agreement was clear and reflected the intentions of the parties.^[7] RB Leipzig then argued that it did apply, stating if the parties had been aware that the season would be extended by the Covid-19 pandemic, they would have agreed to postpone the actual dates.^[8]

Leeds United’s final argument was that completion of the transfer of the player could not be met by 1 July 2020 as a result of the Covid-19 pandemic, with the principle of force majeure arising and the purchase obligation being extinguished.^[9] RB Leipzig maintained that force majeure did not apply to the effects of the Covid-19 pandemic, referring to the Fédération Internationale de Football Association (‘FIFA’) Covid-19 Guidelines which do not specify that any clause in a valid loan agreement would automatically become null and void after its original expiry date.^[10]

C The CAS Judgment

The CAS Panel pointed out that the key to the dispute was what the parties had actually agreed about when the purchase obligation was to arise. Leeds United maintained it was 1 July while RB Leipzig submitted that it was at the end of the 2019–20 season.^[11] The Panel held that the issue was to be resolved by considering the intentions of the parties, noting that neither of the interpretations that the parties had put forward were perfect. This was because either the 1 July 2020 date had to be read into the condition precedent, or the condition precedent did not align with the other clauses in the loan agreement which referred to 30 June or 1 July.^[12]

The Panel also stated that the parties’ aim when they executed the purchase obligation was to allow Leeds United to utilise the services of the player in the 2020–21 EPL season.^[13] This would only have been possible if the condition precedent was valid until the end of the season, and not 1 July 2020. It then held that, had the parties known that the EFL competition would not be finished until 22 July 2020, the clubs would have amended the terms of the loan agreement to enable the player to register with Leeds United before the start of the 2020–21 EPL season.^[14]

The use of the contra proferentem rule was not required, but the Panel did state that if it had had to be applied it would be against Leeds United as it had not expressed the relevance of 1 July when first expressing an interest in purchasing the player. It had simply referred to its promotion to the EPL.^[15]

The Panel also held that Leeds United’s argument that complementary contractual interpretation could not apply to the purchase obligation because it interlocked with other contracts, was incorrect in that the other contracts were concluded by parties different to those involved in the current dispute and therefore they had ‘no direct bearing on the outcome of the present proceedings.’^[16]

In regard to the force majeure argument, the Panel was of the opinion that this did not apply since Leeds United had not provided any evidence to show that the Covid-19 pandemic had made it impossible, or difficult, to meet its purchase obligation commitment.^[17]

Thus, the CAS found in favour of RB Leipzig in relation to this contractual dispute with the purchase option being triggered and Leeds United being obliged to pay the first instalment of the transfer fee plus interest.^[18]

III Cardiff City and Nantes

A Background Facts

On 20 July 2015 Emiliano Raul Sala Taffarel had entered into a five-year employment contract with French club, Nantes. Cardiff City made approaches to Nantes regarding a possible transfer for Taffarel in December 2018, and on 18 January 2019 he travelled to Wales and signed a three and a half-year contract. The following day Cardiff City and Nantes entered into a Transfer Agreement, the agreed fee being EUR17m, spread over a number of payments, the first being EUR6m, due within five days of Taffarel being registered with Cardiff City. The contract included a number of conditions precedent in Clause 2.1. Clause 2.1.1 required that Taffarel pass a medical, 2.1.2 required a mutual termination of the contract of employment with Nantes while 2.1.3 required that this mutual termination be registered with Ligie de Football Professional (‘LFP’). Clause 2.1.4 then required that the LFP and the Football Association of Wales (‘FAW’) confirm to both clubs that Taffarel had been registered as a Cardiff City player ‘and that the Player’s International Transfer certificate has been released.’^[19]

Clause 2.2 then required the parties to ‘take all reasonable endeavours to ensure that the conditions are satisfied by 22 January.’ If the conditions were not met by this date, the agreement was null and void. On 21 January the FAW confirmed receipt of Taffarel’s International Transfer Certificate (‘ITC’) and registered him with Cardiff City. The transfer status in FIFA’s Transfer Matching System (‘TMS’) was then changed to ‘Closed – awaiting payment.’ It was at this moment that Nantes claimed Taffarel had become a Cardiff City player ‘and all conditions precedent in the Transfer Agreement had been satisfied.’^[20] However, on the same day Cardiff City reopened negotiations with Taffarel’s agent and a set of proposed changes were made to the contract in order to make it acceptable to the EPL. These changes were sent by email to the EPL, but Taffarel was never registered with the EPL.^[21]

Sometime on the night of 21–22 January, Taffarel, together with his pilot, died when their plane crashed into the English Channel.^[22] On 26 February Nantes lodged a claim with FIFA for the first instalment of EUR6m, plus interest.^[23] FIFA’s PSC determined that the conditions precedent in the Transfer Agreement had been complied with and that Cardiff City was therefore required to pay the first installment of the transfer fee plus 5% interest.^[24] Cardiff City challenged the decision before the CAS.

B CAS Judgment

The first thing to note was that the Panel allowed Cardiff City and Nantes to mutually agree to extend time limits due to problems relating to Covid-19 and the resulting difficulties in liaising with expert witnesses.^[25] As a consequence, an appeal lodged with CAS in November 2019 did not have a final ruling until 26 August 2022.

The Panel noted that the main issue that needed to be resolved was whether, at the time of his death, Taffarel had ‘definitively been transferred’ which then triggered a payment obligation from Cardiff City to Nantes of EUR6m.^[26] Cardiff City tried to argue that if the payment obligation existed, Nantes was liable for Taffarel’s death as the return flight was organised by agents of Nantes ‘and that this tort claim is to be set off against any payment obligation.’^[27]

The Panel, however, held that it was ‘only empowered to decide upon the substance of the tort claim if the FIFA PSC was competent to do so.’ This was because the mandate of the Panel in appeal arbitration proceeding, ‘cannot, in principle, exceed the mandate of the first instance.’^[28] It was noted by the Panel that ‘the set of claims is not linked to the breach of contract. The only arguable nexus is the crude and obvious causal one: if there had been no transfer link, then there would not have been a plane crash.’^[29] It was therefore concluded that Cardiff City was ‘procedurally precluded from availing itself of the alleged set-off claim,’ further noting however that it was not precluded ‘from bringing its set-off claim in an ordinary arbitration proceeding before CAS’ or in a national court.^[30]

Cardiff City then argued that while it accepted that clause 2.1.1 of the Transfer Agreement had been complied with, it disputed whether clauses 2.1.2, 2.1.3 and 2.1.4 had been. In regard to clause 2.1.2, the Panel considered that this condition precedent had been fulfilled since Nantes and Tarrafel had mutually agreed to terminate their employment contract.^[31] In regard to 2.1.3 it was held that it was ‘undisputed’ that the LFP had registered the Termination Agreement and ‘whether such registration was correct or not, is immaterial, since it is the registration that was provided for under the Transfer Agreement, no more.^[32] Thus, this condition precedent was also held to have been satisfied.

In regard to Clause 2.1.4 the Panel noted that ‘a transfer is considered executed and finalised once a player is registered with the new association,’ stating that it interpreted the word ‘registered’ in this clause ‘a referring to registration by the FAW.’ It therefore held that ‘clause 2.1.4 did not provide any basis to suggest that the Player was to be registered by the Premier League as well as by the FAW.’^[33] The Panel further noted that as ‘both Parties are experienced stakeholders in the world of football, it is reasonable and fair to interpret objectively that clause 2.1.4 of the Transfer Agreement refers to the factual matrix and the standing practice of the football industry.’^[34] Since Taffarel could have played in other competitions such as the FA Cup, even if the EPL would not register his contract, there was a ‘clear indication’ that he had become a Cardiff City player.^[35] Thus, ‘the condition precedent in clause 2.1.4 of the Transfer Agreement had also been satisfied.’^[36]

Therefore, as the transfer and the conditions precedent in the Transfer Agreement had been fulfilled, the Panel upheld Nantes claim to the first instalment, plus 5% interest.^[37]

IV Discussion

The CAS decision regarding Leeds United and RB Leipzig followed the standard approach to the interpretation of contracts with the Panel considering the parties’ intentions at the time the contract was made in January 2020. The contract was drawn up to provide Leeds United with a significant degree of certainty and flexibility as it did not have to proceed with its obligation to purchase Augustin’s registration rights if it was not promoted to the EPL, but, on the other hand, the option provided in the contract still gave Leeds United the opportunity to purchase the player’s contract even if it was not promoted. However, if it was promoted the purchase obligation would be triggered.

There is no doubt, however, that Leeds United’s desire to purchase Augustin’s contract subsequently declined. In April 2020 Leeds United sought an extension in time to pay the instalment payments for the player. By June 2020 its position had changed even further with it clearly being concerned about Augustin’s lack of fitness and form. This change of position led to it looking for ways to withdraw from its contractual obligation which is why it sought to argue that 1 July 2020 was an operative date, but, as the Panel determined, the parties’ intention was that Augustin would join Leeds United if it was promoted to the EPL. Thus, while Leeds United was looking for a technicality in order to get out of a contractual agreement by which it no longer wished to be bound, the CAS Panel enforced the agreed terms of the contract. While the contract was entered into at a time during which Covid-19 was affecting European football, this did not affect enforcement of the contract. It did not prevent it from being performed, but merely delayed its performance. This is why the force majeure argument failed.

While the contractual situation involving Cardiff City and Nantes actually pre-dated the Covid-19 pandemic, it was still indirectly affected by it since it caused considerable delays in the proceedings, resulting in a decision not being handed down until, literally, years after the application was lodged.

Like Leeds United, Cardiff City was seeking to be relieved of its contractual obligations. With Leeds United it was because it was no longer interested in acquiring the services of a player it viewed as being unfit and out of form, but with Cardiff City it was due to the fact that the player had been tragically killed before even playing a single game for the club. This left Cardiff City owing Nantes EUR17m without the benefit of obtaining a player who could assist its on-field performances. This was unquestionably an unfortunate outcome for Cardiff City, but it should also be remembered that Nantes may well have begun making arrangements and undertaking potential commitments with other clubs in order to find a replacement player during football’s January transfer window.

It is understandable that Cardiff City would try to argue that it was no longer obligated to pay Nantes the transfer fee, but it was never going to be a strong argument, given the clear wording of the contract and the fact that, as the Panel pointed out, both parties were experienced stakeholders in the business of football. It was also an expensive decision by Cardiff City as the appeal to CAS involved many expert witnesses and, while the normal procedure in a CAS hearing is for the parties to cover their own legal costs, in this case the Panel held that, given the circumstances, the costs ‘shall be borne in full’ by Cardiff City.^[38]

The main Australian rules football competitions, up until the 1980s, had a transfer system under which, as in European football, money could be transferred between clubs when players moved. This no longer occurs. However, what does take place in the Australian Football League (‘AFL’) during the early part of the off-season is the exchange of draft selections in the annual national draft for players already playing in the AFL. For example, the club finishing last in a particular season may decide to exchange its number one draft selection for a very good, well-established player from another club. The analogous situation to that involving Cardiff City and Nantes would be that the day after any such this exchange has been agreed to by the clubs, the player being traded is tragically killed, for example, in a car accident. The question then arises: which club has the right to the number one selection. The recent CAS decision indicates that it should be the club that had traded the player.

The next question would then be whether the club that had traded away its selection should be compensated. While there was no means of providing compensation in the Cardiff City case, there is in the AFL as it could be decided that the affected club be compensated by being given the next selection in the draft. In the hypothetical situation suggested here, it would be the number two selection. While this would adequately compensate the affected club, it would also impact on the other clubs which would all drop down one place in the draft order. This could mean that some clubs will not be able to obtain the services of players they had earmarked as being essential to the club needs or, depending on the quality of the draft affected, may not be able to draft a player of AFL standard.

It is suggested that while legal action is unlikely to prevent the possibility of this occurring, the AFL could include in its draft rules what will happen if this unlikely, but not unforeseeable event, should take place. The solution that would appear to have the least impact on the integrity of the draft is to grant the affected club the next draft selection to the one that it had traded away. This is also consistent with AFL rules regarding free agency when a club loses a very good player. In such circumstances it receives a compensation selection immediately after its first-round selection.

V Conclusion

Conditions precedent are standard clauses that can be included in contracts. If performed, they will trigger obligation clauses within agreed contracts. In regards to Leeds United it became obligated to purchase the registration rights to Augustin whenever it was promoted to the EPL. It would appear that the club, in taking legal action, was trying to get out of the contract on a technicality due to the fact it no longer wanted the player, owing to fitness concerns. Perhaps the legal action could have been prevented by having standard clauses in such agreements that not only expressly refer to a specific date, but also contain a term that covers any need to expand the season due to unforeseen circumstances such as a pandemic. Thus, it could, for instance, read ‘by I July or any later date required to complete the season due to unforeseen circumstances.’

Cardiff City was, likewise, still liable for the transfer fee for Taffarel, even though he had been tragically killed on the night when all the contractual obligations had been fulfilled. The reason for taking legal action was to ensure it did not have to pay a transfer fee for a player who never played for the club. Unlike the Leeds United case, there is no further clause that could be incorporated into an agreement to help resolve any issues as it will always be a situation as to which club had the registration rights to the player at the relevant time. Any solution would therefore have to lie outside the agreement with insurance being one possibility. This, in Cardiff City’s case, would have involved taking out life insurance immediately which, given the fact the negotiations had been on-going for some time, was feasible. What would make it impractical is the likely high premiums involved. It should also be noted that there are risks in any transfer as the player may not fit into the team as well as expected or may not display the same level of performance as prior to the transfer. Cardiff City’s case was never a strong one and hopefully CAS has provided a clear indication as to how such a situation will be decided should it ever arise again.

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^* Associate Professor, College of Business, Law and Governance, James Cook University

^** Senior Lecturer, College of Business, Law and Governance, James Cook University

^[1] [1996] FCAFC 870; (1996) 64 FCR 410, 508

^[2] CAS 2021/A/82229 Leeds United Football Club Limited v RasenBallsport Leipzig GmbH [72].

^[3] Ibid, [74].

^[4] Ibid, [72].

^[5] HDI Global Specialty SE v Wonkana No 3 Pty Ltd [2020] NSWCA 296; (2020) 104 NSWLR 634 [30].

^[6] Ibid, [74].

^[7] Ibid, [72]. The term ‘complementary contractual interpretation' is recognised under German and Swiss law. It arises when the parties to a contract failed to consider an issue that later occurred. In this situation it is necessary to examine what the parties would have agreed if they had considered the issue.

^[8] Ibid, [74].

^[9] Ibid, [72].

^[10] Ibid, [74].

^[11] Ibid, [87].

^[12] Ibid, [105].

^[13] Ibid, [110].

^[14] Ibid, [111].

^[15] Ibid, [132].

^[16] Ibid, [131].

^[17] Ibid, [133].

^[18] Ibid, [149].

^[19] CAS 2019/A/6504 Cardiff City Football Club Limited v SASP Football Club de Nantes, [17].

^[20] Ibid, [28].

^[21] Ibid, [31].

^[22] Ibid, [32]

^[23] Ibid, [33].

^[24] Ibid, [35].

^[25] Ibid, 14

^[26] Ibid, [102].

^[27] Ibid, [104]

^[28] Ibid, [130].

^[29] Ibid, [172].

^[30] Ibid, [190].

^[31] Ibid, [353]

^[32] Ibid, [362].

^[33] Ibid, [376].

^[34] [379].

^[35] [382].

^[36] [363].

^[37] [388].

^[38] CAS 2019/A/6504 Cardiff City Football Club Limited v SASP Football Club de Nantes, [392].