The case involves a dispute between Cruzeiro E.C. and Club Atlético Morelia over unpaid transfer fees and a penalty clause for non-compliance. The parties initially signed a Transfer Agreement in 2015, stipulating a total transfer fee of USD 2,200,000, payable in installments. Due to Cruzeiro's failure to meet payment deadlines, a Debt Recognition Agreement was signed in 2016, acknowledging outstanding debts of USD 1,600,000 and establishing a new payment plan, including a penalty clause of USD 100,000 for missed payments. When Cruzeiro again defaulted, Morelia filed a claim with FIFA’s Players’ Status Committee (FIFA PSC), which ruled in Morelia's favor, ordering Cruzeiro to pay USD 1,045,000 plus interest and the penalty fee.
Cruzeiro appealed to the Court of Arbitration for Sport (CAS), arguing the penalty was excessive under Swiss law, which governs the dispute. The Sole Arbitrator analyzed the penalty's proportionality, considering factors like the creditor’s interest, the breach's severity, and the parties' financial situations. While acknowledging contractual freedom, the Arbitrator found the flat penalty fee excessive and reduced it to a more reasonable amount, balancing fairness with contractual obligations. The CAS upheld the FIFA PSC’s decision on overdue payments but adjusted the penalty fee to reflect proportionality, emphasizing the need for reasonable penalty clauses in international sports transactions.
Cruzeiro further contested the penalty, citing financial hardship due to Brazil's economic crisis and arguing the penalty was disproportionate. Morelia countered, stressing the principle of pacta sunt servanda (agreements must be honored) and the mutual agreement on the penalty. The Arbitrator confirmed CAS's jurisdiction and deemed the appeal admissible, applying FIFA regulations supplemented by Swiss law. The Arbitrator upheld the penalty, noting it was less than 10% of the outstanding debt and reasonable given Cruzeiro's financial behavior, including significant transfer expenditures despite claimed difficulties. The Arbitrator also adjusted the interest start date to March 3, 2017, aligning with Swiss law, and dismissed procedural objections, stating any deficiencies in FIFA's decision were remedied during CAS review.
Ultimately, the CAS partially upheld Cruzeiro's appeal regarding the interest rate but dismissed other claims, ruling Cruzeiro must pay the agreed amounts of USD 1,045,000 (transfer fee) and USD 100,000 (penalty fee) to Morelia. The decision reinforced the binding nature of contracts and the limited scope for challenging penalties when reviewed comprehensively in arbitration. The CAS award, issued on November 16, 2018, underscored the balance between contractual freedom and judicial oversight to prevent abusive penalties.