Transfer Agreements – conditions precedent and conditions subsequent
In accordance with the jurisprudence of CAS, it is possible for a clause in a transfer agreement to invalidate the same if the transfer fee is not paid on an agreed date.
Notable jurisprudence:
- RC Recreativo de Huelva SAD v. Trabzonspor[1]
“The Panel is of the opinion that the transfer agreement dated 31 August 2007 was a binding and valid agreement, with the obligation upon the Appellant to pay USD 1’000’000 by 23:59 pm that day, being an essential element of the contract. The Panel acknowledges that in evidence the strict time limit was changed by agreement of Mrs Karahasanoglu on behalf of the Respondent in that she spoke with Mr Dumois late on 31 August 3007 and indicated that the Respondent accepted that the payment could not be received on that day but was to be made on the next business day, namely 3rd September 2007.” (Para 11)
“The Panel is of the opinion that the Respondent’s position on the matter shall be upheld as Article 78 para. 2 implies that the Parties can agree that the performance of an obligation can occur on a Sunday or a day officially recognised as a public holiday and that, according to legal commentary, Article 79 CO is of dispositive law (HOHL F., in: Commentaire Romand, Code des obligations I, p. 491, N 10 ad Art. 79). In the case at hand, the Parties agreed that the payment had to be made at or before 23:59 pm on Friday 31 August 2007 and this agreement was therefore valid and binding under the above-mentioned provisions of Swiss law.” (Para 15)
“In view of the above, the Panel concludes that the transfer agreement was set aside by the Respondent as invalid on or about 4 September 2007 and that Respondent preferred, due to the short delay in the arrival of the transfer monies, and in spite the fact that they knew that the transfer fee was about to be received, to consider the agreement as no longer valid.” (Para 16)
Article 9 (1) of the FIFA RSTP provides that the ITC shall be “issued free of charge without any conditions or time limit” and that “any provisions to the contrary shall be null and void”.
However, as per the jurisprudence of FIFA and CAS, there is no prohibition to condition the validity of a transfer agreement to the issuance of the ITC or registration of the player.
Notable jurisprudence:
- Club S v. Club O[2]
“In this context, the Bureau recalled that in accordance with art. 3 par. 1 of Annexe 3a of the Regulations (hereinafter: Annexe 3a), the new club of a professional player is responsible to submit all applications to register the professional player in question during one of the registration periods established by its association, whereas all applications shall be accompanied by a copy of the contract between the new club and the professional as well as by a copy of the transfer agreement in question, if applicable. Equally, the Bureau pointed out that, as required by art. 2 par. 2 of Annexe 3a, the ITC of a player has to be requested, at the very latest, on the last day of the registration period of the new association.” (Para 10)
“Considering the aforementioned, the Bureau was eager to emphasize that in casu, the Respondent, as new club of the player, was responsible to insert the relevant documents in TMS in accordance with Annexe 3a. Hence, from the Bureau’s point of view, the Respondent was the only one who could have actually influenced the fulfillment of the conditions included in art. 2 of the agreement by making sure that by the last day of the summer registration period of 2011, all documents needed in accordance with Annexe 3a were actually ready to be uploaded in TMS on time, whereas the Claimant had clearly no power to do so. As a result, the Bureau concluded that, taking into account that the Respondent had undisputedly only started uploading several mandatory documents in TMS in the last minutes of the last day of the relevant registration period so that ultimately, the upload in question could not be finalized before midnight and the relevant transfer was declined by the system, the Respondent had acted with negligence and was therefore to be considered the sole responsible of the non- completion of the transfer instruction.” (Para 11)
“Having established the aforementioned and as to the potential consequences of the non-execution of the agreement caused by the Respondent’s negligent behavior, the Bureau pointed out once again that the Claimant had had no influence on the fulfillment of the relevant conditions included in the agreement. Hence, the Bureau considered that the Claimant could not be disadvantaged by the non-execution of the agreement and had to be treated as if the conditions included in the agreement had been fulfilled. Consequently, the Bureau came to the conclusion that the Claimant should be entitled to receive from the Respondent the transfer fee as if the transfer of the player had actually been finalized. Accordingly, the Bureau decided that the Claimant is entitled to receive from the Respondent EUR 1,000,000 plus 5% interest p.a. on the said amount as from 15 February 2012.” (Para 13)
- Sporting Club de Portugal SAD v. SASP OGC Nice Cote d’Azur
“As a general rule, therefore, a contract that has been concluded subject to one or more conditions precedent, does not take effect if the condition(s) precedent is (or are) not fulfilled. The exception that the Parties intended otherwise refers to situations in which the Parties actually intended that rights and obligations should arise already before the condition is fulfilled.” (Para 102)
“Sporting argues that the Player started training and played friendly matches with Nice, such that Nice essentially effected the transfer agreement before the conditions were fulfilled. However, the Panel is not convinced that the training of the Player constitutes an “other intention” under Article 151 para. 2 CO. This provision requires a “clear” intention of both parties that an agreement should take effect prior to the fulfilment of the condition. The intention of Nice to execute the Second Transfer Agreement prior to the issuance of the ITC is, at least, not “clear”. In this respect, Nice tried to obtain the ITC after 1 September and, therefore, expected or hoped to be able to register the Player. In this period, it made sense to let the Player train with the team, in order to be able to use his services as soon as his registration would be completed. However, merely following a sensible approach to allow a player to start to train with his future club cannot lead to the conclusion that a party has consciously waived the conditional nature of the transfer agreement that is expected to bring, legally, the player to the new club. In this respect, no convincing evidence was provided by Sporting which would lead the Panel to conclude that the rather informal inclusion of the Player in the training sessions of Nice or in some friendly matches could represent a form of amendment to the Transfer Agreement, i.e. as a waiver of its conditional nature. Accordingly, the Panel is satisfied that the training of the Player and/or his inclusion in some friendly matches does not evidence any clear intention on the part of Nice to execute the Second Transfer Agreement independently of the conditions precedent agreed with Sporting. Article 151 para. 2 CO is therefore not applicable.” (Para 103)
Considering that Article 18 par. 4 of the FIFA RSTP prohibits a player’s employment contract from being made subject to a successful passing of a medical examination, a football club must therefore exercise necessary due diligence and carry out relevant medical examinations prior to entering into an employment contract. Such conditions therefore can be included as “suspensive conditions” and/or “conditions precedent” to a transfer agreement.
Notable jurisprudence:
- Zantong Zhiyan FC v. Caracas FC[3]
[unpublished award]
Before CAS, the Appellant had argued that the transfer agreement was invalid because it was conditioned on the player’s successful medical examination, which the Appellant alleged was never properly completed.
The Sole Arbitrator pointed out that “transfer agreements between football clubs can legitimately be made subject to a player passing his medical examination.”
- SC Fotbal Club Timisoara SA v. FC Slovan Liberec[4]
“The Panel notes the condition is “the player passed the medical test”. During the hearing, Timisoara confirmed that they did carry out a medical test on the Player at the time of the transfer, as the Player had stated in his written statement. The Panel shares the position of Liberec in that it is custom and practice in the world of football for the purchasing club to take the responsibility for carrying out a medical test on any new player. As such, the Panel are satisfied that the conditions attaching to the payment of the first instalment were met.” (Para 16)
- Villarreal CF SAD v. SS Lazio Roma S.p.A.
“A preliminary question that must be addressed is whether Article 18.4 of the FIFA Regulations also applies to agreements between clubs.” (Para 44)
“In its reply brief, Lazio emphasized that – as stated by the Single Judge in his Decision – transfer agreements between football clubs can legitimately be made subject to a player passing his medical examination. It argues that the prohibition under Article 18.4 of the Regulations only applies to contracts between players and clubs; this is evident from the heading of Article 18, namely “special provisions relating to contracts between professionals and clubs”. The Commentary on the FIFA Regulations similarly limits the prohibition in Article 18.4 to an “employment contract between a player and a club”.” (Para 45)
“The Panel notes that the prohibition laid down in Article 18.4 of the FIFA Regulations belongs to Section IV of the regulations, which concerns the “[m]aintenance of contractual stability between professionals and clubs”, and is expressly qualified as a “special” provision “relating to contracts between professionals and clubs.” (Para 46)
“Therefore, based on a prima facie literal reading, the prohibition in Article 18.4 cannot be applied to contracts between clubs.” (Para 47)
“This conclusion is supported by a purposive interpretation of the provision, which aims at fostering the contractual stability of employment contracts and thus avoiding disruptions during the football season.” (Para 48)
“In addition, given that Article 18 is qualified as a “special” provision, its scope should be narrowly interpreted.” (Para 49)
Owing to the large value of player transfers over the last two decades, the business of international player transfers has massively benefited. Considering this value, clubs who sign talented players and subsequently transfer them to another club, intend to retain a right to secure a return on their initial investment in case of a future sale of the player at a higher value. In view of this, sell-on clauses have become common-place in transfer agreements involving young and promising players so that the club can retain the financial interest in the player and capitalise on their investment in the player, in case of an increase in the market value of the player in the future.
As explained above, such clauses are inserted in a transfer agreement between the players old club and new club, whereby the new club pays a small amount as transfer fee to secure the transfer of the player. The old club is amenable to a reduced/small transfer fee as it has contemplated for the possibility of retaining rights in the future earnings of the new club from the further sale of the player to a third club at a higher value. This way, not only does the old club benefit from the sell-on clause, but also new club as it can secure the transfer of the player at a relatively low transfer price, without the risk of having to pay a higher fee if the player does not develop as initially expected.
It is important to note that a “sell-on clause” is nothing but a new condition to the transfer agreement and should not be used to retain control over the economic rights of the player, as that would be in breach of Article 18ter of the FIFA RSTP. For this, only a club or the player itself can receive the benefits from a sell-on clause and no other third party.
While inserting sell-on clauses, it is very important to clearly determine the conditions that trigger the payment of the same, as well as define the scope of the earnings that the old club would be entitled to. For the sake of clarity, it is important to consider the following:
- Whether the triggering condition of the sell-on clause applies on the permanent transfer or also in situations of a loan of the player;
- Whether the triggering condition of the sell-on clause is time bound – that is, whether the future transfer of the player has to happen within a certain registration period for the old club to receive a percentage of the transfer fee from the third club;
- Whether the “transfer fee” is inclusive of all the amounts earned by the new club from the future transfer of the player (that, is whether it is limited only to the fixed transfer fee or the variable fees as well). In this regard, it is necessary to consider all possible pecuniary add-ons and benefits that maybe received by the new club only if the third club reaches certain sporting targets, or if the player achieves certain sporting milestones;
- Whether the percentage of the “transfer fee” for consideration is the “net transfer fee” or the “gross transfer fee”;
- Whether the sell-on fee contemplates situations of a mutual termination, premature termination of the player’s contract with the new club;
- Lastly, in case of player swaps, where there normally is no payment of transfer fee, it would also be necessary to ensure that the scope of the sell-on clauses covers non-pecuniary earnings also, so that the old club earnings are not deprived in such circumstances.
Notable jurisprudence:
- Sevilla FC v. RC Lens[5]
“The Sell-On Clause contains a well-known mechanism in the world of professional football: its purpose is to “protect” a club (the “old club”) transferring a player to another club (the “new club”) against an unexpected increase, after the transfer, in the market value of the player’s services; therefore, the old club receives an additional payment in the event the player is “sold” from the new club to a third club for an amount higher than that one paid by the new club to the old club. In transfer contracts, for that reason, a sell-on clause is combined with the provision defining the transfer fee: overall, the parties divide the consideration to be paid by the new club in two components, i.e. a fixed amount, payable upon the transfer of the player to the new club, and a variable, notional amount, payable to the old club in the event of a subsequent “sale” of the player from the new club to a third club.” (Para 20)
- FC Apollonia v. KF Laçi[6]
“The Sole Arbitrator concurs with the considerations of the panels in the abovementioned cases, and notes that, in general, the parties to a transfer agreement are, as long as they comply with relevant football regulations, free to agree the terms of the transfer. Including a sell-on clause in a transfer agreement may be beneficial to both parties to the agreement. From the buying club’s perspective, the sell-on clause may contribute to reducing the fixed transfer fee to be paid to the selling club, whilst the selling club will be entitled to a portion of the rise in the player’s future transfer value. As such, the parties to a transfer agreement with a sell-on clause agree, in principle, to share the risk and potential benefit related to the development of the player’s transfer value.” (Para 107)
- Sevilla FC v. AS Nancy Lorraine[7]
“As noted in CAS 2010/A/2098 (§ 67), referred to by the Parties, the Sell-On Clause contains a well-known mechanism in the world of professional football. Its purpose is to “protect” a club (the “old club”) transferring a player to another club (the “new club”) against an unexpected increase, after the transfer, in the market value of the player’s services; therefore, the old club receives an additional payment in the event the player is “sold” from the new club to a third club for an amount higher than that one paid by the new club to the old club. In other words, the new club agrees to share with the old club a portion of any profit made by the new club in connection with a player’s movement. In transfer contracts, for that reason, a sell-on clause is combined with the provision defining the transfer fee: overall, the parties divide the consideration to be paid by the new club in two components, i.e. a fixed amount, payable upon the transfer of the player to the new club, and a variable, notional amount, payable to the old club in the event of a subsequent “sale” of the player from the new club to a third club.” (Para 69)
- Helsingborgs IF v. Parma FC S.p.A[8].
“In the opinion of the Panel, it is common practice in the world of football that contracting parties deviate from initially agreed fictitious amounts. The Panel considers that a sell on fee is to be based on the amount actually received for selling a player to a subsequent club and not on an indicative amount.” (Para 73)
- Genoa Cricket and Football Club v. GNK Dinamo Zagreb[9]
“As a result, the Panel is confident that by “total transfer compensation” the parties, which are established football clubs that are commercially experienced and familiar with transfer agreements and the terms used therein, intended to regard both the fixed transfer fee and the variable amounts stipulated for the subsequent transfer of the Player.” (Para 44)
[1] CAS 2011/A/2451.
[2] FIFA PSC Decision of 19 March 2014, Ref. No. 0314776.
[3] CAS 2020/A/7482.
[4] CAS 2010/A/2317 & 2323, award of 9 September 2011.
[5] CAS 2010/A/2098, award of 29 November 2010.
[6] CAS 2023/A/9436.
[7] CAS 2019/A/6526, award of 14 April 2020.
[8] CAS 2012/A/2875, award of 28 February 2013.
[9] CAS 2017/A/5213, award of 15 December 2017.