The Coronavirus and basketball agents’ entitlement to receive their commissions

The Coronavirus and basketball agents’ entitlement to receive their commissions

The outbreak of Covid-19 initially led to single games played behind closed doors, until suspending and eventually cancelling entire competitions in order to preserve the health and safety of all the basketball stakeholders.

The outbreak of Covid-19 initially led to single games played behind closed doors, until suspending and eventually cancelling entire competitions in order to preserve the health and safety of all the basketball stakeholders. Such uncertain scenario has inevitably been affecting players and clubs’capacity to fulfil their financial obligations toward agents. Players and clubs experiencing difficulties in paying agents’commissions may potentially lead to a numerous increase of worldwide disputes, which would be decided by the BAT.

The Basketball Arbitral Tribunal (BAT) is an independent judicial body, officially recognized by FIBA providing services for resolution of financial disputes between basketball players, agents, coaches and clubs through arbitration proceedings. In order to have a dispute decided by the BAT, either before or after the dispute has arisen, the parties shall explicitly agree to submit any potential dispute before said arbitral tribunal.

We shall firstly mention that the BAT decides disputes ex aequo et bono, which concept was explained in the first BAT decision as follows: “In substance, it is generally considered that the arbitrator deciding ex aequo et bono receives “a mandate to give a decision based exclusively on equity, without regard to legal rules. Instead of applying general and abstract rules, he/she must stick to the circumstances of the case.” Moreover, the BAT has also consistently applied the doctrine of pacta sunt servanda as an equitable principle in analyzing the contractual obligations of basketball players and clubs: “At the outset the Arbitrator notes that the doctrine of pacta sunt servanda, which is consistent with justice and equity, namely requiring parties who make a bargain are expected to stick to that bargain, is one which is consistently at the heart of BAT awards. Thus, pacta sunt servanda is the principle by which the Arbitrator will examine the merits of the claims.

It is therefore of utmost importance complying with the above principles in order to decide a potential dispute, in which agents request players and/or clubs the payment of their commissions. Specifically, the peculiarities of each case, as well as the wording of the provisions regulating the payment of agents’fees play a fundamental role. The two most common cases refer to said fees payable once executed the relevant contracts or subject to condition precedents.

In such cases, are basketball agents entitled to receive their commission as contractually stipulated? At the opposite, could players and clubs be exempted from the obligation to pay commissions and compensations due to a force majeure situation, such as the Coronavirus outbreak?

Fees payable upon executing the relevant contracts

In the first hypothesis players and clubs (as well as agents and players) prematurely terminate the contracts regulating their working relationships, before agents’commission are fully paid. In one of the BAT precedent cases, the Arbitrator established that the customary basketball practice is that agents’commissions become due when signing the pertinent contracts by stating:

The typical activity of an agent is, to act as an intermediary for one or more principals by helping the principal to locate a contractual partner and to enter into an agreement with him. It is for this activity that an agent – usually – can claim a fee (c.f. e.g. BAT 0036/09, marg. no. 45; BAT 0014/08 marg. no. 80 et seq.). The latter is to be paid by the principal. However, the parties are free to agree that the agent fee is to be borne by the contractual partner of the principal. The usual practice is that the agent fee becomes due with the signing of the main contract (between the principal and the third party). This is also reflected in BAT jurisprudence. The Arbitrator in the matter 0024/08 held in marg no. 59 inter alia:

The Arbitrator finds that, as a matter of principle, the agent fee is due in full because it relates to services already provided in the past. That service consisted in the placement of a player who would be ready to play for a three years term.

It is common practice delaying or scheduling the payment(s) of agents’commissions over the following sporting season(s) depending on the length of the relevant employment contracts between clubs and players. In such case, the question to be answered is whether the full payment of agents’fees may be inferred from the existence of a payment schedule. The BAT jurisprudence gives an answer to this specific question by establishing:

The agent fees claimed by Claimant 2 have been agreed because of his services which undisputedly led to the conclusion of the Contract. The agent fees consist of three annual instalments payable on 30 September 2008, 2009 and 2010. The Respondent failed to pay any of the instalments.

According to Article 9 of the Contract, the agent fees are due because Claimant assisted the Respondent “in locating and contracting with Player”. The payment of the three instalments has not explicitly been made contingent upon whether Claimant 1 was still playing with the club or whether the Contract was still in force on 30 September of the respective year. On the other hand, the fact that the payment dates of the agent fees instalments correspond with the commencement of the new season cannot be completely disregarded.

The Arbitrator finds that, as a matter of principle, the agent fee is due in full because it relates to services already provided in the past. That service consisted in the placement of a player who would be ready to play for a three years term. If the player had left the club without just cause before the end of the contractual term, the Respondent might have been entitled to reduce the compensation accordingly. Given that in this case Claimant 1 was willing to fulfill his contractual obligations but, due to the Respondent’s breach, had no other option but to terminate the contract, there is no reason why Claimant 2 should be held responsible for early termination and be penalised with a reduction of his fees.

It is therefore possible to state that the obligation to pay agents’commissions come into existence upon executing the relevant contracts. Said obligation cannot be avoided by the fact that the working relationships existing between clubs and players (as well as players and agents) come to an end for whatsoever reason, which do not modify the payment obligations toward agents. Anything to the contrary would be a contract to the detriment of a third party, violating the principle of the relativity of the contractual obligations. As a rule, contracts have legal effects only between the parties who participate in the conclusion of said contracts. This principle of relativity of contracts is a manifestation of the overarching idea of private autonomy.

Reading the above BAT decision, it is possible to understand the importance of the parties’attitude, as well as the wording of contractual provisions. In a similar context, in case clubs and players terminated employment contracts due to the Coronavirus situation, even if this will eventually be classified as a force majeure situation, it could not affect the agents’entitlement to claim their commissions because said fees became due in the past, when the contracts were executed. However, it is equally important to understand that each case will be decided taking into consideration its peculiarities and specificities, possibly leading to different decisions. In such scenario, players, clubs, and agents could alternatively try to reach amicable solutions considering the exceptional and unique circumstances caused by the Coronavirus pandemic.

As a final remark, it shall be noted that agents shall in principle comply with the duty to mitigate damages which, besides being recognized by many national legal system, is also applied by the BAT jurisprudence establishing that any other payments received (or might have – acting with due care – received) during the contractual period for which compensation is sought must be deducted from the amount claimed as damages. In a precedent case:

The Arbitrator finds that as a principle, the agent fee is due in full because of the services already provided in the past. That service consisted of the placement of a player who would be ready to play under the terms provided by the Contract. However, deciding ex aequo et bono, the Arbitrator finds that, because the player left the club before the end of the contractual term and concluded a new fully guaranteed contract with another club (BC Khimki), the Respondent is entitled to reduce the compensation accordingly. The whole amount of the agent fee of USD 20’000 as agreed in the new contract with BC Khimki has to be taken into account because of the above-mentioned reasons. Therefore, the Respondent is obliged to pay Claimant 2 a compensation of EUR 29,937.50 (EUR 45,000.00 minus EUR 15,062.50 (USD 20’000; exchange rate of 7 April 2009)), i.e. the agent fee agreed with the Respondent for the 2008/2009 season minus the whole agent fee agreed with BC Khimki.

Fees payable depending on the actual length of the relevant contract

In the second hypothesis, clubs, players, and agents could alternatively agree on conditioning the payment of agents’commissions on specific events. In this sense, agents would be entitled to receive their fees upon triggering conditions materialized.

We refer, for instance, to a case in which a club shall pay a commission to an agent in instalments over the 2019-2020 sporting season, provided that the player keeps performing his professional services for said club. Is the agent entitled to claim the totality of his fees in a situation where the player can neither practice nor play due to the Coronavirus preventive measures adopted by private and public entities?

Assuming the absence of any contractual force majeure provision, BAT Arbitrators could take into consideration additional factors when deciding this kind of disputes. For instance, not only hierarchically higher decisions taken by public (i.e. central or local governmental institutions) and private authorities (i.e. leagues, trade unions…), but also the countries and leagues concerned and the attitude of the parties over the suspension period might play a crucial role in this respect. In this sense, it is important to highlight that the BAT Arbitrators’mandate is not absolute, being subject to specific limits in the following terms:

When the parties authorize the arbitrator to decide ex aequo et bono, the arbitrator is required to decide ex aequo et bono. That said, this duty does not prevent the arbitrator from referring to the solution which arises from the application of the law before reaching a decision ex aequo et bono, in particular to “guide or reinforce” his/her own understanding of fairness.”

The Arbitrators could also rely on precedent BAT cases involving force majeure situation, as a critical factor to determine if compensation shall be paid. In some precedent cases, the BAT, deciding ex aequo et bono, has applied force majeure even if not specifically provided in the contracts. Moreover, when deciding the amount of compensation, force majeure could be considered as mitigating factor to reduce the final sum which should be based on the guaranteed residual value of contracts.

In one of the precedent cases, the Arbitrator, upon recognizing the existence of a type of force majeure having disrupted and affected the pacific fulfilment of the two parties’obligations, established:

Bearing in mind all the foregoing elements – notably the contractual guarantees, the Player’s contractual permission to have another job in parallel and the fact that he had/has a full-time job, the existence of a force majeure situation suffered by the Club which led to the termination by the Player and the latter’s engagement by another club for a lower salary – the Arbitrator finds it fair and just, overall, that in the particular circumstances of this case the Player not receive any compensation for the season and-a-half that were guaranteed beyond the termination, but that he receive compensation for the fact that, without him being at fault, he was unable to play for the Club during the first half of the 2013/2014 season and therefore justifiably terminated his contract and was only able to find a lesser-paid engagement with a second-division club for the remainder of the season.

It is important to precisely determine the starting point in time of the force majeure situation. Indeed, only the fulfilment of future obligations would be altered, while previous obligations would remain unaffected.

In another case, the Arbitrator applied the concept of pacta sunt servanda strictly, stating that:

There is no provision in the Agreement for the application of a force majeure situation, and consistently BAT awards have explicitly rejected the economic conditions of clubs as a reason to excuse non-performance of payment obligations.

In the same line, by strictly applying the concept of ex aequo et bono, the Arbitrator ruled that:

It is well established in BAT jurisprudence that financial difficulties faced by a club provide no defence to a claim by a player for salary payments which are due and unpaid. The Arbitrator does not find that the Respondent’s submissions on this point in relation to Greek law and other principles help him to reach a conclusion in this case which departs from the BAT jurisprudence. As explained above, the Arbitrator must decide this dispute ex aequo et bono, and that is what he has done The Arbitrator does not find that the Respondent’s submissions on this point in relation to Greek law and other principles help him to reach a conclusion in this case which departs from the BAT jurisprudence. As explained above, the Arbitrator must decide this dispute ex aequo et bono, and that is what he has done. The Arbitrator finds that the existing BAT jurisprudence applies in this case. In disputes before the BAT, financial hardship – even if caused by a global or national financial crisis – is not a defence or answer to claims for amounts due and unpaid under contracts

However, the current worldwide Coronavirus outbreak resulted in an unprecedented WHO’s declaration of global pandemic, which is graver and more complex situation rather than a financial hardship. Thus, in case of unsuccessful negotiations, agents’disputes could be possibly decided taking into consideration the exceptional circumstances and all the factors described above.

COVID-10 outbreak could be in principle justify a force majeure situation even in the absence of specific contractual or regulatory provisions. The BAT Arbitrators could therefore decide these disputed without establishing financial consequences of any kind or with specific consequences established by decisions adopted by the competent authorities. It is important to highlight that, lacking any contractual force majeure provision, the parties could still mutually reach an amicable solution by taking into consideration their respective financial interests, as well as their safety. In case of unsuccessful negotiation, the outcome of the subsequent BAT proceedings would be inevitably subject to possible future decisions of the competent public authorities and the relevant private institutions.

Source: Ruiz-Huerta & Crespo.

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