On 7 October 2020, the Regional Court of Frankfurt/Main (“Court”, judgment dated 7 October 2020, 2-06 O 457/19) upheld a damages claim of two professional German beach volleyball players (“Athletes”) against the German Volleyball Association (“DVV”) for the DVV’s systematic refusal to nominate the Athletes for international beach volleyball tournaments since April 2019.
From a procedural perspective, the decision is interesting and potentially worrisome for the sports arbitration community, because the Court invalidated an arbitration agreement between the Athletes and the DVV, inter alia, due to the involuntary nature of the arbitration agreement. The Court expressly rejected the 2016 landmark decision of the German Supreme Court taken in 2016 in the case of Claudia Pechstein (Judgment dated 7 June 2016 – KZR 6/15), considering that this decision was overruled by the European Court of Human Rights (“ECtHR”, Judgement dated 2 October 2018 – 40575/10, 67474/10) in respect of the question whether arbitration agreements between market dominant sports federations and athletes contained in athletes’ declarations or participation agreements can be considered voluntary.
Background of the Decision
The Athletes are professional beach volleyball players who make a substantial part of their living from prize money earned at international beach volleyball competitions. In the international ranking, they were among the four best German teams at the beginning of the 2019 season. The DVV is the only volleyball federation in Germany eligible to nominate German teams for international tournaments. In early 2019, the DVV changed its nomination policy for international competitions. Instead of nominating teams by their international ranking (which would have qualified the Athletes as the 4th best German team to receive nominations), the DVV chose to privilege certain other, lower-ranked teams which it considered would have a better long-term perspective with a view to the Tokyo 2020 Olympic Games. The DVV sought to shield these athletes from the permanent national pre-qualification pressure by guaranteeing the chosen athletes admission to international events. As a result of this policy, the Athletes were no longer considered for a nomination in these events.
The Athletes had signed an arbitration agreement provided to them by the DVV as a precondition for their participation in volleyball tournaments. The arbitration agreement covered any and all disputes between the Athletes and the DVV. The arbitral tribunal was to be constituted by three arbitrators, two party-appointed arbitrators and a chairman. The designated chairman was to be the president of the DVV’s internal disciplinary court.
As a result of their non-nomination to international competitions, the Athletes were unable to earn any price money and sued the DVV for damages before the Court, at the DVV’s seat. The DVV objected to the Court’s jurisdiction with a view to compel arbitration on the basis of the arbitration agreement.
The Court’s Ruling
The Court dismissed the DVV’s jurisdictional objection. It found the arbitration agreement between the DVV and the Athletes to be invalid for two reasons:
First, it found that the arbitration clause unduly disadvantaged the athletes because of the unequal constitution of the arbitral tribunal. Because the chairman of the arbitral tribunal was in all cases the president of the DVV’s disciplinary court, the Court considered that the DVV could effectively provide for two of its members to be a part of the arbitral tribunal, while the Athletes could only appoint one arbitrator out of three. The Court found that this imbalance constituted an undue discrimination of the Athletes under the German law on standard terms and conditions, which rendered the arbitration clause invalid.
Second, the Court found that the arbitration agreement was invalid because the Athletes had not signed it voluntarily. No evidence had been presented in the proceeding that the Athletes had any choice when they entered into the arbitration agreement, because the respective clause was never open for discussion. The Court expressly rejected the rationale of the German Supreme Court in the Pechstein case, which had argued that an arbitration agreement may only be considered to be involuntary in (rare) cases of undue influence exercised by one party, e.g. through duress or violence.
The Court relied on the recent judgement of the ECtHR in the Pechstein case. The ECtHR took the view that the choice before Ms. Pechstein had not been whether to take part in one competition rather than another, depending on whether or not she had accepted the arbitration clause. The only choice in Ms. Pechstein’s (as in the beach volleyball players’) case was between accepting the arbitration clause and thus earning her living by exercising her sport professionally, or not accepting it and being obliged to refrain completely from earning a living from her sport at professional level. In such a scenario, the ECtHR concluded, it could not be asserted that the athlete had accepted that clause freely and unequivocally.
Unfortunately, while the Court’s invalidation of the arbitration agreement was the right conclusion under the particular circumstances of the case, its reasoning is fundamentally flawed. The Court overlooked the important fact that the ECtHR did not consider compulsory arbitration agreements to be invalid per se. Rather, the ECtHR found that an involuntary arbitration agreement is valid if the prospective arbitration proceedings afford the safeguards secured by Article 6 § 1 of the European Human Rights Convention (“ECHR”), in particular an “independent and impartial tribunal established by law”. In the case of Claudia Pechstein, the ECtHR had found that the Court of Arbitration for Sports (“CAS”) was such an independent and impartial arbitral tribunal established by law, and that – for this reason – the arbitration agreement was valid despite its compulsory nature. In the present case, the arbitral tribunal established by the DVV’s arbitration agreement could not be considered to be independent and impartial due to the preponderant influence of the DVV on its constitution. However, the Court skipped this important step of the analysis.
As a result, the Court’s decision may seed uncertainty in the sports market regarding the relevance of a free will for the validity of an arbitration clause (an uncertainty that seemed to have been overcome by the decision of the ECtHR). Many German sports federations having their seat in Frankfurt could now become concerned that they will no longer be able to enforce their arbitration agreements if athletes or clubs sue them at their Frankfurt seat. It is highly desirable that the Court, or the Higher Regional Court at next instance, takes the opportunity to clarify its position in the sense that the compulsory nature of an arbitration agreement alone cannot invalidate a sports arbitration agreement. If the procedural safeguards of Article 6 § 1 ECHR are met, there is no reason to deny a sports arbitration agreement its effectiveness, in light of the overwhelming advantages sports arbitration provides for its users in terms of uniformity of decisions, expertise of decision makers, and swift enforceability of awards. The judgement is not final. It may be appealed by the Parties to the Higher Regional Court of Frankfurt/Main within one (1) month from when the judgement is served.