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Judicial Review of Arbitration Awards in International Sports Arbitration—the German Federal Court of Justice’s Ruling in the Pechstein Case

Oliver Englisch

On June 7, 2016, the German Federal Court of Justice (BGH) decided the Pechstein case. The issue was whether an arbitral award issued by the Court of Arbitration for Sports (CAS), Lausanne, Switzerland, could be reviewed before German courts when the athlete involved in the dispute subject to the arbitral award had entered into an agreement stipulating that the CAS had jurisdiction to determine the dispute. The case attracted wide media attention in Germany. This article summarizes the different legal conclusions of the various stages of the case.

The Facts of the Case

Claudia Pechstein is a German ice speed skater and five-time Olympic gold medalist. In order to participate in the 2009 World Allround Speed Skating Championships in Hamar, Norway, Ms. Pechstein agreed in writing to comply with the anti-doping rules of the International Skating Union (ISU). She also agreed in writing that the CAS would be the institutional arbitration organization having jurisdiction to determine any disputes between her and the ISU. Ms. Pechstein submitted to a blood doping test. The ISU’s Disciplinary Committee determined that she had failed the test, and Ms. Pechstein was banned by the ISU for competing for two years. Her results from the Championships were annulled.

Ms. Pechstein challenged the ISU’s decision before the CAS arguing that inconsistencies in the blood doping test resulted from an inherited blood disease. The CAS determined that the evidence was insufficient to sustain Ms. Pechstein’s claim, and the CAS’s arbitral award essentially upheld the ISU’s ban and annulment. Ms. Pechstein unsuccessfully challenged the CAS’s arbitral award before the Swiss Supreme Court.

The Procedure of the Case and the Decisions of the German Courts

Ms. Pechstein sought damages resulting from her ban before the Regional Court (LG), Munich, Germany. She challenged the decision of the LG Munich before the Higher Regional Court (OLG), Munich, Germany. The ISU then challenged the decision of the OLG Munich before the BGH.

The LG Munich Decision

The LG Munich (LG Munich 1, Decision of Feb. 26, 2014, Az. 37 O 28331/12) held that the arbitration agreement between Ms. Pechstein and the ISU was invalid, because her signature on the agreement had not been obtained voluntarily. The Court concluded this due to the ISU’s monopoly in the market with respect to participation of ice speed skaters in the Championships and the fact that Ms. Pechstein’s participation in the Championships was conditioned on her signing the arbitration agreement. The LG Munich went on to hold that, although the arbitration agreement was invalid, the arbitration award was indeed valid. The LG Munich reached this conclusion based on the fact that, since Ms. Pechstein had failed to plead the involuntary nature of the arbitration agreement before the CAS, she was precluded from raising this issue at a later stage. The LG Munich concluded that Ms. Pechstein’s claim for damages was, therefore, unfounded.

The OLG Munich Decision

The OLG Munich (OLG Munich, Decision of Jan. 15, 2015, U 1110/14 Kart) also determined that the arbitration agreement was invalid. The OLG Munich reasoned that the ISU abused its dominant position in the market with respect to participation of ice speed skaters in the Championships, which thereby violated German competition law and thus invalidated the underlying agreement between Ms. Pechstein and the ISU. The OLG Munich emphasized that a mandatory arbitration clause in a contract does not necessarily constitute an abuse of a dominant position in the market. Rather, the OLG reasoned that the process of determining the constitution of the arbitral panel was imbalanced to the detriment of athletes and that such an imbalance constituted an abuse. In contrast to the LG Munich, the OLG Munich took the view that the arbitration award of the CAS was not to be recognized because the underlying arbitration agreement was in violation of the ordre public by infringing German competition law. The OLG Munich did not follow the LG Munich’s res judicata argument. Instead, the OLG Munich decided that consideration of the invalidity of the arbitration award was not precluded by res judicata, because the issue before the German courts dealt with Ms. Pechstein’s claim for damages, whereas the claim before the CAS dealt with Ms. Pechstein’s challenge to the ISU’s Disciplinary Commission’s decision. The OLG Munich concluded that the state of the proceedings did not permit a decision on the merits of the case.

The BGH Decision

In contrast to the LG Munich and the OLG Munich, the BGH (BGH, Decision of June 7, 2016, KZR 6/15) considered the arbitration agreement to be valid.

First, with respect to the LG Munich’s concern about the involuntary character of the arbitration agreement, the BGH applied a much narrower understanding of involuntary action, which it considered to comprise situations such as physical or mental violence or deception. Still, the BGH recognized that the ISU had a significantly stronger bargaining position than Ms. Pechstein when concluding the agreement. Based on this imbalance, the BGH argued that the protection of Ms. Pechstein’s fundamental rights through, in particular, the prohibition of an abuse of a dominant position, had to be taken into consideration. To determine whether the ISU had abused its dominant position, the BGH weighed Ms. Pechstein’s right to access to justice and her right to occupational freedom against the ISU’s autonomy resulting from its right to freedom of association. This balancing of interests led the BGH to conclude that the ISU had not abused its dominant position.

Second, with respect to the OLG Munich’s concern that the procedure for composing the arbitration panel led to a structural imbalance, the BGH argued that such an imbalance could arise only if sport associations and athletes belonged to groups with conflicting interests. According to the BGH, however, the interests of sport associations and athletes are in principle aligned when it comes to combating doping in sports. Based on this assumption and supported by certain provisions in the statutes and rules of procedure of the CAS, the BGH considered the CAS to be characterized by sufficient independence and neutrality. As the BGH considered the CAS to be sufficiently independent and neutral, the Court found it to qualify as a proper institutional arbitration organization under German civil procedural law and, therefore, to produce arbitration awards that are legally binding. The BGH did not find any reasons that would have led to an invalidity of the arbitration agreement. The Court, therefore, considered the arbitration award to be recognizable under German law, thus producing a binding effect.

Implications of the BGH’s Judgment

The BGH is the highest court in the German civil court system. Still, the judicial dispute about this case is not over. Following the BGH’s judgment, Ms. Pechstein lodged a constitutional complaint before the German Federal Constitutional Court (BVerfG), arguing that her right to access to justice as well as her right to occupational freedom have been violated. In addition, in 2010, Ms. Pechstein lodged a case before the European Court of Human Rights (ECtHR), invoking Article 6 (right to a fair trial) of the European Convention of Human Rights, which is still pending.

The relevance of this case expands beyond the immediate dispute. Considering the importance for the international sports community to progress in the combat against doping, it appears vital also to gain clarity on the protection of athletes. This case has shown that sports arbitration is a rather specific field. While arbitration awards are to be given effect in all countries (currently 156) that are party to the New York Convention of 1958, the question of whether or not awards issued by the CAS produce such an effect is rather controversial. For German athletes, the BGH’s judgment produces some clarity. It is, however, possible that courts in other jurisdictions will arrive at different conclusions. The outline of the dispute in Germany in this article gives some indication as to which points might play a role in the evaluation. By reviewing the history of the case before the German courts, the composition of the panel of arbitrators can be identified as a major concern. In this context, it is noteworthy that recent reforms of the CAS have indeed addressed the composition of the arbitration panel. For instance, former athletes are encouraged to act as arbitrators, and the list of which persons may be chosen as arbitrators has expanded. Considering the current concerns regarding the credibility of sports in terms of doping, it is extremely important to provide a swift dispute resolution system that ensures sufficient and fair hearing safeguards for athletes. The Pechstein case may have served to promote the development of the CAS in this desirable direction.

Oliver Englisch

Oliver Englisch is a first-year PhD student in the program “The Economics of the Internationalization of the Law” at the University of Hamburg. He holds a master’s degree in European and International Law from the University of Amsterdam.