Sports Arbitration – Munich Court of Appeals Does Not Recognize CAS Arbitral Award in Pechstein Case

Today, the Munich Court of Appeals (Oberlandesgericht) issued an interim judgment (Zwischenurteil) in the case of Claudia Pechstein, the speed skater. It held the arbitration agreement between Pechstein and the sport’s governing body, the International Skating Union (ISU), to be invalid on competition law grounds. As a consequence, Pechstein’s claims for damages suffered as a result of the doping ban can be brought in the German courts.

Background

Claudia Pechstein, a five-time Olympic gold medallist, was banned from competitions between 2009 and 2011 for a doping offence. After the World Championships in 2009, the ISU had accused Pechstein of blood doping and issued the ban, which was based on irregular levels of reticulocytes in her blood. Pechstein denied the doping allegations. Legal proceedings before the Court of Arbitration for Sport (CAS) and the Swiss Federal Supreme Court followed. The ban was ultimately upheld; apparently, Pechstein’s case was the first doping ban to be based on circumstantial evidence alone. Pechstein is now suing ISU in the German courts for damages she suffered as a result of the ban. The interim judgment does not deal with the merits of the case, but only with the admissibility of the claim in the state courts, given that the athlete’s agreement Pechstein entered into with the ISU contains an arbitration agreement.

In February 2014, the Munich District Court (Landgericht München I) as the court of first instance had also found the arbitration agreement to be invalid, and on similar grounds.* However, it had considered itself bound by the CAS arbitral award, because, inter alia, Pechstein had not invoked the invalidity of the arbitration agreement. Ultimately it found against Claudia Pechstein. The matter was heard, upon appeal, by the competition senate (Kartellsenat) of the Munich Court of Appeals.

Invalidity of the arbitration agreement

The court first dealt with the validity of the arbitration agreement. It held that it was invalid, since it was in violation of non-dispositive competition law provisions under the German Act Against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen, GWB). The court started its analysis by determining the relevant market, which was the market of speed skating world championships. Here, quite clearly, defendant ISU had a monopoly.

In abstract terms, requesting an athlete to sign an arbitration agreement does, in the court’s view, not constitute per se an abuse of market power. However, an analysis of the arbitration agreement in question did convince the court that in the given circumstances, the ISU did abuse its market power. The court held that in particular with respect to the selection of arbitrators, the arbitration agreement contained a structural imbalance. The court found that the national skating associations were favoured in the arbitrator selection process. In addition, the President of the Appeals Arbitration Division of the CAS serves as the appointing authority in case the parties cannot agree on arbitrators. This person is elected, by simple majority, by a body “structurally dependent upon on the national associations” (“strukturell von den Verbänden abhängt.”). The entire process lacks safeguards that would prevent manipulation in the arbitrator selection process.  

CAS Arbitral Award Not Capable of Recognition in Germany

In a second step, the Court of Appeals then looked at the impact that the CAS arbitral award has on its analysis. Here, does not agree with the court of first instance: the German courts are not bound by the findings of the CAS, since the arbitral award violates German public policy within the meaning of Sec. 1061 German Code of Civil Procedure (ZPO) in conjunction with Article 5 of the New York Convention. Fundamental provisions of competition law are an integral part of Germany’s public policy (ordre public). The ISU was in violation of these provisions, in that it insisted on Pechstein entering into the arbitration agreement. If the award were to be recognised, this would amount to an implicit recognition of this illegal behaviour and would perpetuate the abuse of market power by defendant ISU. In addition, the claimant’s fundamental right under Article 101 of  the German Basic Law (Grundgesetz) not to be deprived of the lawful judge (gesetzlicher Richter) would be violated.

Leave of Appeal

The Court of Appeals has granted leave to appeal (Zulassung der Revision), given the fundamental nature of the legal issues that the case raises. The matter will thus most likely progress to the Federal Supreme Court (Bundesgerichtshof);  I would be surprised if the ISU would not take the matter to the Federal Supreme Court, and we will of course be following up as the matter progresses.

Comment

The first instance judgment has been read, by some commentators, as being the end of sport arbitration as we know it. It would appear that a close reading of the Munich judgment would open up ways out for the various sports governing bodies. They would need to revise their arbitration agreements and the corresponding arbitration Systems, including the Court for Arbitration in Sport, in a way that removes the “structural imbalance” between the athlete on the one hand and the national or international associations on the other hand.

Court of Appeals (Oberlandesgericht) München, interim judgment dated January 15, 2015; file no. U 1110/14 Kart.

* For a detailed analysis of the first instance decison, see  Pfeiffer, Thomas: Rechtsgeschäftliche Entscheidungsfreiheit beim Abschluss von Schiedsvereinbarungen, German Arbitration Journal (SchiedsVZ) 2014, 161 – 165. Here is the English abstract: “In its decision of 26 February 2014, the Munich I District Court argues, an arbitration agreement signed by the Scater Claudia Pechstein is invalid because of duress and, in its reasoning, refers to principles of German constitutional law and the European Human Rights Convention. This article, which is based on a conference speech of the author, discusses the relevance of these general principles and their interplay with the rules on conflict of laws and international arbitration. On this basis, the article comes to the conclusion that a case law analysis of these principles does not give sufficient support to the District Court’s position; however, the conclusions also emphasize that the case may raise further questions such as the athlete’s right to be heard, which are not discussed here.”

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4 thoughts on “Sports Arbitration – Munich Court of Appeals Does Not Recognize CAS Arbitral Award in Pechstein Case

  1. How do the German courts get to ignore a decision of a fellow European Court upholding the award namely the Swiss Federal Tribunal and how does Germany get to ignore the New York Convention, let alone fine competition law rather than perhaps and individual right to contract as the basis for its decision? This decision could have far reaching effects but how does it fit in the legal structure of international arbitration and sport?

    • Jeff, thanks for your comment. I think it is well established under the NYC that foreign courts are not bound by judgments on challenges in the country of origin, if they apply the public policy provision under the NYC. Thus, the Munich court would most likely respond to your challenge all they have done is apply the NYC….

  2. Pingback: Arbitragem Esportiva – Caso Pechstein – Tribunal de Munique julga inválida cláusula de arbitragem | Direito Alemão

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