In the CAS’s much anticipated decision on the appeal of Manchester City FC (“MCFC” or “Club”) against its 2-year exclusion from participation in UEFA club competitions and against a EUR 30 million monetary fine for alleged breaches of the UEFA Club Licensing and Financial Fair Play regulations, a panel of three arbitrators (“Panel”) partially upheld MCFC’s appeal. In its final award dated 13 July 2020, the Panel annulled the decision of the UEFA Adjudicatory Chamber to ban MCFC from participating in UEFA club competitions and reduced the financial penalty from EUR 30 million to EUR 10 million.
Background of the Award
In March 2019, the UEFA Investigatory Chamber formally initiated investigations against MCFC on the basis of a number of articles published in the German magazine “DER SPIEGEL” about alleged breaches of UEFA’s Financial Fair Play Regulations by the Club. The articles relied on internal documents acquired from MCFC’s computer systems by illegal hacks (“Football Leaks Documents”). The Football Leaks Documents allegedly suggest that MCFC, which is ultimately controlled by Abu Dhabi Sheikh Mansour bin Zayed, for many years disguised equity contributions received from or through its owner as sponsorship money. UEFA’s accusations center on two sponsorship agreements concluded between MCFC and the Abu Dhabi state airline Etihad and telecommunications company Etisalat in the 2009/10 season. Over several years, MCFC’s financial statements reported significant amounts totaling at least GBP 204 million as sponsorship income from Etihad and Etisalat, while such amounts had allegedly not been made by the sponsors but by or through MCFC’s owner.
On the basis of the Football Leaks Documents, the UEFA Adjudicatory Chamber concluded that MCFC had violated Financial Fair Play Rules and imposed the above-mentioned sanctions (the “Appealed Decision”).
The CAS’s Ruling
The majority of the CAS Panel (with the dissenting vote of the German arbitrator and law professor Ulrich Haas) found that the evidence on which UEFA relied was insufficient to allow for the conclusions taken in the Appealed Decision.
Importantly, although the proceedings conducted before the CAS are formally “appeal” proceedings (designated to review decisions such as, in this case, the Appealed Decision), the CAS has full power to review the facts and the law of a case de novo (Article 57 of the CAS Procedural Rules). The CAS’s de novo power allowed MCFC to be, to a large extent, uncooperative during the investigatory proceedings at UEFA level, and to come forward with extensive new evidence as late as at CAS level, many months after the club had been requested by UEFA to comply with the cooperation duties enshrined in UEFA’s Financial Fair Play Regulations. Based on extensive (new) witness testimony and accounting evidence submitted by MCFC, the majority of the Panel found that the e-mails presented by UEFA, which constituted prima facie evidence of an arrangement by means of which equity funding from MCFC’s owner would be disguised as sponsorship income, were inconclusive proof that the discussed arrangements were indeed made and implemented. The Panel argued that MCFC “was not charged for attempting to disguise equity funding as sponsorship contributions”, but for “erroneous reporting of financial information”, “which requires a full act”. In the end, the majority of the Panel was not convinced under the applicable standard of proof of “comfortable satisfaction” that the discussed arrangements had been executed in a manner that contravenes UEFA’s Financial Fair Play Regulations.
The only breach of the Financial Fair Play Regulations which the Panel confirmed was MCFC’s failure to cooperate with the UEFA during the investigation phase. The Panel found that MCFC had no excuse for not presenting several important pieces of evidence produced only during the CAS proceedings (such as the testimony of numerous witnesses and expert reports) earlier during the investigation phase. The Panel found it appropriate to sanction MCFC with a fine of EUR 10 million for failure toc cooperate.
The decision of the CAS Panel is unconvincing for several reasons:
First, the Panel seems to have overstretched the standard of proof of “comfortable satisfaction”. Although the Panel agreed that the e-mails submitted by UEFA provided prima facie evidence for the alleged improper financial injections, it solely relied on the testimony of MCFC’s witnesses and accounting reports to conclude that there is not sufficient proof that the discussed scheme was in fact implemented. The Panel’s explanation that any other conclusion would have required it to find that MCFC’s witnesses had lied and that prestigious accounting firms were misled when examining MCFC’s financial accounts is rather doubtful (as, for example, the current WireCard saga illustrates).
Second, it is unconvincing that MCFC’s undisputed breaches of its cooperation obligations during the UEFA investigation (worth a EUR 10 million penalty) remained without any procedural consequences. Remarkably, even though the Panel expressly concedes that the failure of timely producing relevant evidence cannot be repaired by the de novo nature of CAS proceedings, it refrains from sanctioning such behavior on a procedural level. The appropriate way to do so would have been for the Panel to draw adverse inference from MCFC’s failure to produce evidence without a satisfactory explanation. The circumstances of MCFC’s failure to cooperate are paradigmatic for the application of this procedural principle, which allows an arbitration panel to assume that evidence was not produced because such evidence would be adverse to the withholding party’s interests. At least for well-funded clubs like MCFC, the duty to cooperate remains toothless when the only risk of torpedoing investigatory proceedings is a financial sanction. Procedural sanctions relating to the credibility of evidence presented belatedly would be much more efficient to preserve the effectiveness of the investigation phase, and to force the club to come forward with its defense as early as possible.
The CAS’s decision is worrying to the extent that it might now become much more difficult for UEFA to prove financial fair play violations, and to sanction such violations appropriately. The Panel has set a rather high burden for UEFA, which usually has no access to crucial evidence revealing illegal disguise schemes. It is to be feared that the effective enforcement of the Financial Fair Play Regulations may be impeded following the CAS’s recent award.