Exceptional FIFA ruling orders Italian clubs to pay for player’s breach of contract

November 4, 2013

contract

By Shaun Foster – Thompson Rivers University 2L JD Student

Chelsea Football Club is no stranger to big money transactions in the footballing world. Since Russian billionaire Roman Abramovich purchased the club in 2003, the club has spent on players without much business concern for turning a profit. This practice was most recently demonstrated in 2010 with the record breaking purchase price for Fernando Torres of £50 million (which, incidentally, has been viewed by many as a failure, with each goal Torres has scored costing Abramovich £3.3 million to date).

Perhaps as a result of their extravagant purchases, or the impending Financial Fair Play rules that will soon come into force, there are signs that Chelsea is beginning to tighten the purse strings. Interestingly, the most recent financial development for the club is in its legal battle with former player Adrian Mutu.

Mutu signed with Chelsea in 2003 for a reported £15.8 million. He started brightly with the club, but the new relationship went sour in September of 2004 when he failed a drug test for cocaine use. He was released from the club the following month and received a 7-month ban for his failed test.

This was followed by a series of legal battles between Mutu and the club, which concluded with the Court of Arbitration for Sport affirming a FIFA Dispute Resolution Chamber ruling that Mutu would have to pay Chelsea compensation of €17,173,990 for breach of contract. Mutu attempted an appeal to the Federal Supreme Court of Switzerland, but that was also dismissed and the order of CAS was affirmed.

After being released from Chelsea, Mutu was essentially a free agent in the footballing market. Juventus was the first club to show an interest in signing the elite striker on a free transfer since he had been released. As league rules governing the signing of non-EU players from abroad prevented Juventus from signing him directly, Livorno FC signed the player and held him for them (clubs are limited to how many players they can sign directly from abroad, so Livorno signed the player and then transferred him to Juventus to avoid the rule.

It has recently been reported by Italian newspaper Gazzetta dello Sport that Juventus and Livorno have been ordered by FIFA to pay Chelsea £17.9 million in compensation. Although neither club was involved in Chelsea’s contract with Mutu, it appears that the FIFA Dispute Resolution Chamber feels that they significantly benefited from the circumstances, and have informed Chelsea that they can demand the money from the two Italian clubs. It has been suggested that Livorno will argue that they were simply a pawn in the process, used by Juventus to get around the league rules and that they did not benefit from the signing.

Juventus, on the other hand, will await the written decisions from FIFA as to why they should be paying the damages caused by Mutu’s contractual breach.

The general principle surrounding privity of contract is that only the parties named in the contract are permitted to sue for breach. However, there have been both British and Canadian cases that have made exceptions to this rule. In London Drugs Ltd v Kuehne & Nagel International Ltd, an exception was made to allow for employees to benefit from limitation of liability clauses even though they were not named in the contract.

In Beswick v Beswick, Lord Denning made an equitable exception to the privity rule, where not doing so would have meant that the state of the law would be deplorable. He said that “no third person can sue, or be sued, on a contract to which he is a third party,” but that “is only a rule of procedure.” It is clear that both Livorno and Juventus were not party to the contract between Chelsea and Mutu. There is, however, no doubt that Juventus benefited from the acquisition of a released player (who was arguably worth nearly £16 million, as that is what Chelsea paid for him) without having to pay a transfer fee. The legal question, though, is on what grounds FIFA will be saying that Juventus must compensate Chelsea.

Without seeing the written decision, we can only speculate that FIFA’s order may be a principled exception to the general doctrine of privity of contract, stating that Juventus were unjustly enriched by Mutu’s breach with Chelsea. On the other, hand, some would argue that Juventus simply completed a bit of good business. They saw a troubled player for free in the market, and were willing to take a chance on him after Chelsea had disposed of his services. Either way, it is almost certain that Juventus will be appealing the decision to CAS, and it will be interesting to see the legal arguments and how it is decided.

Contract law, and the doctrine of privity of contract is understood in general terms to apply to all situations. It could be that FIFA’s judgment will demonstrate an understanding of how contracts in football terms are different from general employment contracts. In the normal workforce, a company does not pay millions of dollars in order to acquire another company’s star employee. Most valuable employees’ contracts will contain some sort of restrictive covenant that prevents them from working for certain competitors within a certain period of time if they breach their contract. In football, as is demonstrated in Mutu’s case, clubs pay their competitors compensation in order to retain their star players. It could be that, in light of this distinguishing feature, FIFA feels the need to create an exception to the doctrine to prevent abuse by competing clubs.

No matter what happens, Chelsea will be looking to collect £17.9 million in compensation (the original judgment, plus interest) from either Mutu, Juventus, Livorno, or some combination of all three. If football were a game played in purely financials and statistics, that would buy them another 5 goals from Fernando Torres.

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One Comment on “Exceptional FIFA ruling orders Italian clubs to pay for player’s breach of contract”

  1. Selachii Says:

    Wow, this is huge news! The whole Mutu saga is been going on for a while, I am unsure if Fifa have a leg to stand on with this one but it will sure be interesting to see how it all pans out although I suspect we’ll be waiting for a good few years yet.

    Reply

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