The case involves a dispute between Al Ittihad Club (Ittihad) and Club de Regatas Vasco da Gama (Vasco da Gama) over a football player transfer agreement signed on 23 July 2012. The agreement stipulated that Ittihad would pay Vasco da Gama a total transfer fee of €5,000,000 in three installments, with penalties for late payments, including a 10% penalty for overdue second and third installments and a 20% penalty if all installments remained unpaid after triggering an early maturation clause. Additionally, the agreement included a 10% annual interest on overdue amounts. Ittihad failed to make any payments, prompting Vasco da Gama to file a claim with FIFA’s Players’ Status Committee (PSC) on 4 October 2012, seeking the unpaid fee, a €1,000,000 penalty, and interest. Ittihad acknowledged the debt but argued financial difficulties, as the player left after only four months. On 15 January 2014, the FIFA PSC partially accepted Vasco da Gama’s claim, ordering Ittihad to pay €5,000,000 plus 10% interest and the penalty.
Ittihad appealed to the Court of Arbitration for Sport (CAS), which examined the case under Swiss law. The CAS noted that while contractual penalties are permissible under Swiss law, courts may reduce excessive penalties only in cases of manifest imbalance. The CAS found the 20% penalty reasonable as a deterrent for timely payment and clarified that default interest cannot generally be awarded alongside penalties unless explicitly agreed upon in the contract. The CAS upheld the FIFA PSC’s decision, confirming the debt, interest, and penalty, emphasizing the enforceability of contractual terms.
Vasco da Gama argued that Ittihad’s non-payment caused significant financial and sporting harm, including relegation, while Ittihad claimed financial and administrative challenges. The Panel rejected Ittihad’s arguments, noting the lack of evidence justifying non-payment and the blatant nature of the breach, including a false payment instruction. The Panel upheld the 20% penalty, deeming it proportionate given the severity of the breach and the agreement’s terms. Regarding interest, the Panel confirmed the 10% rate for the transfer fee, as stipulated in the agreement, but upheld the FIFA PSC’s 5% rate for the penalty, as Vasco da Gama did not appeal this aspect.
The Panel rejected Ittihad’s claim that combining penalties and interest was disproportionate, citing the explicit contractual allowance for both. The ruling reinforced the principle of pacta sunt servanda, emphasizing that contractual terms must be honored unless manifestly unfair. The CAS dismissed Ittihad’s appeal, upholding the FIFA PSC’s decision and ordering Ittihad to pay the €5,000,000 transfer fee, €1,000,000 penalty, and 10% interest on the fee from 11 August 2012, plus 5% interest on the penalty. The case highlights the enforceability of contractual obligations in football transfers and the limited circumstances under which penalties may be adjusted.