Liquidated damages clauses: a critical analysis of the jurisprudence of the Dispute Resolution Chamber and the Court of Arbitration for Sport

Ever since the adoption of the Regulations on the Status and Transfer of Players (RSTP), FIFA has set the primacy of the parties’ autonomy as the key principle when assessing the financial consequences of a contract’s early termination. This yardstick is enshrined in Article 17 RSTP, which regulates these financial consequences “unless otherwise provided for in the contract”. Nevertheless, more than fifteen years since the formal adoption of this principle, practice shows that the Dispute Resolution Chamber (DRC)’s jurisprudence tends to take a restrictive approach regarding this principle. Therefore, and unlike how it might seem at first sight, the primacy of the parties’ autonomy when settling the amount of payable compensation is, in the DRC’s view, rather an exception.

Penalty clauses under Swiss Law

It is commonly accepted, and has been recognised by the Court of Arbitration for Sport (CAS) on several occasions, that a clause regulating in advance the payable compensation under Article 17 RSTP should be qualified as “a contractual penalty or ‘liquidated damages’ clause (‘clause pénale’ or ‘Konventionalstrafe’) under Swiss Law.”[1] As a consequence, the validity and enforceability of such a clause will be assessed by the decision-making body in light of Articles 160 et seq. of the Swiss Code of Obligations (CO).[2] In particular, the following elements are required for a clause to be qualified as a valid contractual penalty clause under Swiss Law: (i)...

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