Necessity for the regulation of pre-contracts in football transfers


Introduction


The recent Netflix documentary titled the “Figo Affair: The transfer that changed football” has brought to the forefront a contentious legal issue marring ‘Bosman Transfers’ – enforceability of pre-contracts. Amongst all the rumours and money involved, the controversial transfer of Luis Figo to Real Madrid from FC Barcelona spawned due to an alleged pre-contract entered between the agent of Luis Figo and the President of Real Madrid, Florentino Perez. This pre-contract bound Luis Figo to enter into an employment contract with Real Madrid, failing which he would be liable to sanctions.



However, was such a pre-contract legally valid and enforceable? If not, could Luis Figo have breached the terms of the pre-contract without facing any sanctions? While the outcome of the same has been left open for speculation, the ambiguity surrounding the nature of pre-contract and its legal validity has remained a common issue in football transfers.


What are pre-contracts?


A pre-contract, as the name suggests, is a promise to enter into a contract at a future date. In the context of football, a pre-contract has been defined as “a contract under the law of obligations that creates the obligation to conclude a main contract at a later point in time (Beijing Renhe FC v. Marcin Robak (CAS 2016/A/4489)”.

Such agreements have arisen as a natural off-shoot of the Bosman ruling in 1995. The Bosman ruling primarily guaranteed the freedom of movement of players and contractual stability. These principles have been enshrined under Article 18 of the FIFA Regulations on the Status and Transfer of Players (“FIFA RSTP”). Specifically, Article 18(3) of the FIFA RSTP provides that, “A club intending to conclude a contract with a professional must inform the player’s current club in writing before entering into negotiations with him. A professional shall only be free to conclude a contract with another club if his contract with his present club has expired or is due to expire within six months. Any breach of this provision shall be subject to appropriate sanctions.”


Accordingly, players’ whose contracts are due to expire have been authorised to enter into pre-contract negotiations with other clubs, with the only caveat being that the club has to belong to another country. Clubs tend to prefer pre-contracts to gain an advantage in contract negotiations with the player and to ensure exclusivity in negotiations with the player. Moreover, such agreements have been adopted by clubs to avoid entering into a bidding war with other clubs over the transfer of a player whose contract is due to expire.


Regulatory lacuna pertaining to pre-contracts


Despite the increase in number of pre-contracts entered into between players and clubs, such contracts have remained undefined and unregulated under the FIFA RSTP. This has led to a lot of ambiguity regarding the nature of a pre-contract and the rights of the parties to a pre-contract under the law. Further, as most pre-contracts are speculative and conditional upon the execution of an employment contract in the future, parties often misinterpret their obligations under the pre-contract. Both clubs and players consider pre-contracts to be binding and enforceable only upon the conclusion of the final employment agreement.


For instance, player A from club XYZ signed a pre-contract with club CDE. As per the terms of the pre-contract, club CDE promised to offer player A an employment contract upon the conclusion of the player A’s contract with club XYZ. However, after executing the pre-contract, player A suffered an ACL injury that would keep the player A out for at least one year. Club CDE therefore opted to not offer the player A an employment contract. The player A was therefore left with no employment offer after the expiry of the term of the pre-contract. Due to the lack of regulatory clarity on the enforceability of pre-contracts, both the club and the player have been left with no legal basis to enforce their claims against one another. Further, an undesirable notion has been created amongst players and clubs that there is no effectual link between the player and the club until the execution of the employment agreement. Such a situation is undesirable to both the player and the club as either party can breach the terms of the pre-contract without just cause and without any sanction. Moreover, the value of pre-contracts would be rendered infructuous and further enable players to sign multiple pre-contracts with several clubs simultaneously.


Enforceability of pre-contracts


While the regulatory framework provides little to no insight on resolving such issues, the decisions of the FIFA Dispute Resolution Chamber (“FIFA DRC”) and Court of Arbitration for Sport (“CAS”) have provided certainty to the enforceability of pre-contracts. At the outset, in the case of CAS 2008/A/1589 MKE Ankaragücü Spor Külübü v. J., the CAS differentiated a ‘pre-contract’ from that of a ‘contract’. It was held that a pre-contract is a “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.” The CAS further went on to hold that such pre-contracts would be binding if “the interpretation of the “precontract” leads to the conclusion that the parties agreed on all the essential elements of the final contract”. Therefore, in order for a pre-contract to be enforceable, it would have to include all the “essentialia negotii” such as the “date of contract, the name of the parties, the duration of the contract, the amount of remuneration and the signature of the parties. (CAS 2015/A/2953 & 3954)”.


In essence, a pre-contract would be considered a valid contract if it included the essential elements of a contract such as a promise, acceptance, lawful consideration and intent to enter into a contractual relationship. In addition to this, the FIFA DRC and CAS has also favoured the binding nature of pre-contracts if the parties have begun to perform their obligations under the pre-contract.


To ensure legal certainty to pre-contracts, CAS has applied the provisions of Article 17 of the FIFA RSTP in case of breach of pre-contracts without just cause. The rationale of the CAS was to ensure that parties maintained “certain duties of care, considerateness, good faith” and “negotiate seriously and in a fair manner”. Such principles have been derived from the doctrine of trust and good faith bargaining and are applicable at the contract negotiation stage, irrespective of whether the contract is concluded later or not. However, to maintain a distinction between the breach of pre-contracts and breach of contracts, the damages resulting from a breach of pre-contract have been held to be lower than that of a breach of contract owing to the speculative nature of a pre-contract. Nevertheless, the damages have been calculated in the same manner as that of a breach of contract, in order to maintain status of quo amongst all parties.


Concluding remarks


In spite of a level of certainty established by the CAS and FIFA DRC, it is imperative for the regulatory authorities to regulate pre-contracts in the football industry. Without any legal deterrent in place, clubs and players use pre-contracts as leverage in transfer negotiations without strictly complying with the terms of the pre-contract. Trust and good faith bargaining at the contract negotiation stage are key to maintaining and strengthening the principle of pacta sunt servanda in international football. Without any legal recognition and guidelines on the same, stability of any contract entered into on the basis of an unregulated pre-contract is always vulnerable to dispute. Therefore, the intent and purpose of the FIFA RSTP is defeated due to the lack of regulation at the preliminary stages of negotiation. According to the authors, the regulatory bodies must specifically formulate guidelines concerning the following – form and elements of a pre-contract, parties to a pre-contract, duration of a pre-contract, compensation and dispute resolution. This will in turn reduce the burden on the adjudicating authorities and provide a legal basis for parties to enforce their claims in case of any breach of a pre-contract.


Article written by Aditya Shankar, an Associate in the dispute resolution team at Samvad Partners, Bangalore. Thank you for your invaluable contribution.