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Sulmacz vs. BM Slam Stal A Case Study, by Shubham Arun.

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Introduction

On 14th May 2020, The Basketball Arbitral Tribunal(BAT), issued an award in a dispute of contract between Grzegorz (Greg) Sulmacz, a Polish-Canadian professional basketball player and BM Slam Stal S.A, a Basketball club in a high profile basketball league in Poland (the ‘Club’). The tribunal ruled in favour of the Player and awarded him the full amount of dispute with interest and the legal expense incurred during the proceeding.

This matter is of paramount significance as it influences the future of International Basketball. Firstly, it is the first case regarding the COVID-19 scenario, during which BAT issued a reward. This pronouncement considers the COVID guidelines and acts as guiding light for the parties in the current situation of uncertainty in which one party may take advantage of the other.

Secondly, the BAT President with power vested in him in the latest BAT Arbitration Rules ascertained that the case raised issues in the interest of the Basketball community at large. Hence FIBA, which is the world basketball governing body published the issues and award in favour of the Player, even though the regular value of the dispute threshold amounting to EUR 100,000 had not been crossed, as per Article 16.2 of BAT.

It also signified that the tribunal has fulfilled its commitment to review the first COVID-19 force majeure (unusual circumstances) case in an expedite manner and to publish the decision in a way that provides relevant guidance and clarification to the professional basketball community.

An overview of the BAT COVID-19 Guidelines

The need for BAT to intervene with such guidelines for the pandemic was important for both basketball clubs and players as they failed to respect the contracts signed by them. Also, the breach of contracts in international basketball often went unsanctioned and the injured party had to spend years fighting for its rights at great financial expense in an unfamiliar legal system. The COVID-19 guidelines were developed by the BAT President to cope up with the difficult situation caused by the outbreak of COVID-19. The legal grounds enabling the BAT to issue the Guidelines, are found in Article 16.1 of the BAT Arbitration Rules, which authorizes the BAT President and Arbitrators to consult among themselves the substantive issues that arise in the pending cases, in the interests of developing BAT case law.

It needs to be kept in mind that the COVID-19 guidelines are binding rules of mandatory application and do not affect the Arbitrator’s liberty as per Article 16.1 found in BAT. They only incorporate principles reflecting a consensus reached by the BAT President and Arbitrators. Given that BAT decides disputes, ex aequo et bono (according to what is equitable and good) by default, i.e. unless there is a contract in the contrary.

Hence, the guidelines enshrine the principle that helps in a friendly settlement preferably in solving disputes arising out of the pandemic.

Facts of Case

The dispute between the Player and the Club arose out of an employment contract concluded by the parties on 29 July 2019 (the ‘contract’). The medical and physical examinations that the Player was obliged to undertake upon arrival at the Club, before the start of the pre-season training, was a condition precondition to the Contract. On 12 August 2019 the Player failed to pass these examinations due to the presence of an illegal substance (marijuana) in his urine sample. Subsequently, the Player admitted to recreational use of marijuana during his summer stay in Canada (where the use of this substance is legal both for recreational and medical purposes), before he entered into the Contract with the Club. Nonetheless, the Club decided not to declare the Contract null and void. Instead, the Club decided to re-examine the Player and expressly stated that the decision as to the potential legal consequences would be subject to the second examination. In the meantime, the Player began performing for the Club under the Contract by participating in the pre-season practices, games and other activities of the Club. The result of the second examination for the presence of an illegal substance administered to the Player on 26 August 2019 was negative. Consequently, the Club did not take any action and the Player continued playing for the Club. 

The Club then raised the issue of the failed examinations again, approximately two months later, at the beginning of the basketball season, after an injury had been sustained by the Player on 29 September 2019. On 14 October 2019 the Club decided to unilaterally terminate the Contract with the Player, referring to the breach of the prohibition on the use of illegal substances. Additionally, the Club decided to impose a contractual penalty on the Player pursuant to the internal regulations of the Club.

Consequently, the Player decided to challenge the unilateral termination of the Contract and the contractual penalty imposed by the Club, seeking damages for terminating the Contract without just cause as well as reimbursement of the medical expenses that he incurred in connection with the treatment of his injury. Subsequently, the parties entered into negotiations, but no settlement was reached. As a result, the Player decided to file the request for arbitration to the BAT.

Decision of the BAT

The BAT Arbitrator upheld the Player’s claims for relief by confirming that the unilateral termination of the Contract had been without just cause.

The Arbitrator came to the conclusion that despite the fact that the conditions of the validity of the contract had not been met, the Contract was valid and effective as the second narcotic test of the Player was negative and there was no objection by the Club. Furthermore, the result of the first examination administered as the basis of termination of Contract on in the later stages as:

  1. The Club expressly conditioned the fate of the Contract on the result of the second test, which turned out to be negative and
  2. The Player performed services for the Club without any reservation of rights that would have given the Player reasonable grounds to doubt whether the Contract had been entered into full force and effect.

Also, according to the Contract and the Player’s stance, the Arbitrator agreed that the calculation of the salary amount due, should be according to the criteria agreed upon in the Contract for the reduction of the Player’s salary in case of injury. The Arbitrator also pointed out that the player satisfied his obligation to mitigate the damage by entering into a new contract with another basketball club for the remainder of the season.

Furthermore, the Arbitrator agreed with the Player’s position that the Club bears the responsibility for the medical expenses borne by him, as the injury was sustained while playing for the Club.

Key Findings on COVID-19 and force majeure submission

The conclusions of the BAT Arbitrator were not affected by the Club’s submission to re-open the proceedings and present its position regarding the new legal situation caused by the COVID-19 pandemic.

The Club filed the submission following the decision of the Polish Basketball League authorities to prematurely close the basketball season in Poland due to the pandemic and the declaration of a state of emergency by the Polish government. The Club submitted that as a consequence of the measures taken by the state and basketball authorities, the Club was forced to cease its activity for an indefinite period of time and to unilaterally terminate all the contracts with its players with immediate effect.

The Club invoked the principles of force majeure, rebus sic stantibus (fundamental change of circumstances) and impossibility of performance of the obligation for both parties. Consequently, the Club requested the Arbitrator to re-examine the scope of the Player’s financial claims and consider, in its calculation of damages, the new situation resulting from pandemic.

The Arbitrator dismissed the Club’s submissions due to the effects of the pandemic on the Club’s obligations towards the Player in their entirety:

  1. The tribunal agreed with the player stating that principles of rebus sic stantibus and impossibility of performance for both the parties were irrelevant as the contract had been prematurely terminated by the Club. The principle of rebus sic stantibus can only be applied to the existing relationship between the parties.
  2. The tribunal laid stress that the force majeure concept could be potentially applicable. Notwithstanding anything, a relation needs to be established between the unforeseen and difficulty in discharging the obligation in question to be established. The Club failed to satisfy the requirement and did not provide any reasonable argument in this regard.

The Arbitrator concluded that “the Club had unlawfully terminated the Contract with the Player and that this conclusion was not in any way undermined or affected by the COVID-19 pandemic”. In this regard, the findings of the arbitrator were fully in line with the principles set in the BAT COVID-19 Guidelines. In particular, point 11 of these guidelines provides as follows:

“When calculating damages for any unlawful termination not related to the COVID-19 crisis, the arbitrators will, in principle, not take into account the hypothetical impact that the COVID-19 crisis would potentially have had on the contract had it run its normal course. In particular, in case of any unlawful termination by a club that is unrelated to the COVID-19 crisis, the Guidelines on reductions of players’ and coaches’ salaries shall, in principle, not apply to the calculation of damages or outstanding remunerations under the contract. The onus of proof that the Guidelines exceptionally apply for reasons of equity shall be on the respective club. Elements that may be taken into account in this context are, in particular, the nature, the motive and the gravity of the contractual breach committed, the vicinity of the breach to the Lockdown Period and the behaviour of the parties subsequent to the breach. In case there are reasons to deviate from the above principle, i.e. non-application of the Guidelines, preference should be given to deferring the maturity of some of the claims to the beginning of the 2020/21 season”.

The Tribunal said that the Club could not satisfy the burden of proof to determine the principle of BAT COVID-19 guidelines on reduction of player’s salary in this case.

Author’s Comments

The main doctrine applied, in this case, was “force majeure” that requires the party, who wants relief by taking the defence of this doctrine, to establish the difficulty and impossibility to perform the obligations. However, it is important to establish a clear distinction between difficulty to perform a duty and impossibility of performance, and only when it becomes impossible to perform the obligation the doctrine can be invoked.

The reason for this decision is likely to be taken into consideration with respect to the future cases arising due to the COVID-19 situation for the determination of BAT.

Additionally, a recent amendment to the BAT rules in Article 16(3)(b) empowers the BAT President to decide whether an award shall be rendered with reasons, taking into account the issues raised in the case, as well as the aforementioned interest of the basketball community.

 

-Shubam Arun

KIIT School of Law

References

  1. https://www.fiba.basketball/en/Module/85132837-66aa-4ff3-a063-8cdfe44ea14d/7b588708-f69b-420b-a275-6c78627dfd6e
  2. http://www.fiba.basketball/bat/covid-19
  3. https://www.fiba.basketball/en/Module/c9dad82f-01af-45e0-bb85-ee4cf50235b4/8675ca42-177d-4a50-9646-089fd342f5cd
  4. https://www.lawinsport.com/sports/basketball/item/a-review-of-the-basketball-arbitral-tribunal-s-first-covid-19-decision-surmacz-v-bm-slam-stal?category_id=159
  5. https://www.fiba.basketball/bat/process/arbitration-rules-january-1-2017

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