The Swiss Federal Tribunal confirms its long-standing jurisprudence, according to which the res judicata effect of arbitral awards and state court decisions is limited to their operative part. Similarly to state courts, arbitral tribunals are not bound by the considerations of previous decisions, despite any – in the words of the Swiss Federal Tribunal – «paradoxical» consequences this may entail. For the avoidance of any such «paradoxical» consequences, parties should be allowed to rely on requests for declaratory relief. When future proceedings are already on the horizon, requests for declaratory relief are legitimate and necessary, and should not be rejected as inadmissible.
 On 28 April 2014, a professional football club («A.») entered into an agency agreement with a German player's agent («Z.»). The agency agreement concerned an underage football player («J.»), who had previously entered into an employment agreement with the club for the time from January 2013 until June 2015 (see sec. A.a.).
 As FIFA regulations limit the maximum duration of employment agreements with minors to three years, the club sought in April 2014 to enter into a second employment agreement for the time from 1 July 2015 until 30 June 2017, with the intention to further extend the employment with a third agreement until 2020 on or around 29 November 2014, when player J. turned eighteen.
 With the support of agent Z., the club signed player J. on 24 April 2014 for the time until 30 June 2017. Subsequently, club A. entered into the agency agreement with agent Z., covering the services agent Z. had provided and securing his support for future contract negotiations with player J.
 The agency agreement was subject to Swiss law and governed by an arbitration agreement providing for the jurisdiction of the competent FIFA body or the Court of Arbitration for Sport («CAS»). In terms of remuneration, the agency agreement entitled agent Z. to:
- a first commission of EUR 400'000, «payable within five working days of the signing» of the second employment agreement (for the time from 1 July 2015 until 30 June 2017), which was paid by the club accordingly (sec. A.b.),
- a second commission of EUR 400'000, «payable within five working days after the signing» of the third employment agreement (for the time from 1 July 2017 until 30 June 2020), and
- a bonus of 10% of the amount payable to the club in the event of a transfer of player J. to another club, «as additional remuneration for rendering the services [...] leading to the conclusion of a contract with the Player» (sec. A.a.).
 The third employment agreement for the time from 1 July 2017 until 30 June 2021 was signed on 8 April 2015 (sec. A.e), without the involvement of agent Z. (sec. A.f.). Agent Z. had not provided any further services to the club under the agency agreement after April 2014 (sec. A.b.). Apparently, player J. had terminated his collaboration with agent Z. in November 2014 (see sec. A.d and A.f, which are not entirely clear).
 A dispute arose between the club and agent Z. when agent Z. requested payment of the second commission. In June 2015, agent Z. initiated arbitration proceedings before the CAS, requesting the Arbitral Tribunal
(i) to order the club to pay the second commission, and (ii) to declare that agent Z. was entitled to the additional bonus in the event of a future transfer to another club.
 With an award rendered in September 2016, the arbitral tribunal dismissed the payment request, on the grounds that agent Z. had not been involved in or contributed to the signing of the second employment agreement at all. The arbitral tribunal refused to render a decision on agent Z.'s declaratory request as the requirements for declaratory relief were not met in the eyes of the arbitral tribunal (sec. A.f).
 In February 2017, player J. was transferred to another club for EUR 29 Mio. (sec. A.g.).
 In July 2017, agent Z. initiated further arbitration proceedings against the club before the CAS, requesting payment of an additional remuneration of EUR 2.96 Mio (sec. B).
 With an award rendered in July 2018, the second arbitral tribunal largely granted agent Z.'s request, ordering the club to pay EUR 2.86 Mio. The second arbitral tribunal concluded that no involvement of agent Z. in the transfer of player J. was required to entitle agent Z. to the additional bonus (sec. B.).
 With its appeal (sec. C), the club requested the Swiss Federal Tribunal to set aside the second award, complaining that the second award (i) ignored the res judicata effect of the first award and thereby breached procedural public policy and (ii) failed to deal with relevant arguments, violating the club's right to be heard.
 With its decision dated 16 March 2020, the Swiss Federal Tribunal dismissed the club's appeal.
 In relation to the club's first complaint, the Swiss Federal Tribunal reiterated and confirmed its long-standing jurisprudence:
- Res judicata prevents parties from litigating the same claim twice. A claim must not be heard again if it has already been adjudicated by a different court or arbitral tribunal in a previous case involving the same parties (negative res judicata effect; sec. 3.1.1).
- In the event of a further dispute between the same parties, a court or arbitral tribunal is bound by the previous decision (positive res judicata effect; sec. 3.1.1).
- The res judicata effect is limited to the operative part of a decision and does not extend to its considerations. The considerations may be used to understand and interpret the operative part. This may be necessary in particular in cases where a request for relief is rejected (sec. 3.1.1).
- The res judicata effect extends to the existence of a claim only in cases where a «final decision» is rendered on its merits. In the event that a claim is found to be inadmissible, and that no decision is rendered on the merits of a claim for this reason, the res judicata effect is limited to the aspect of inadmissibility (sec. 3.1.2).
- An award that ignores the res judicata effect of a previous decision violates procedural public policy. The violation qualifies as sufficient grounds for setting aside the award based on Article 190(2)(e) of the Swiss Private International Law Act (sec. 3.1.3).
 Based on these principles, the Swiss Federal Tribunal came to the conclusion that agent Z.'s request for payment of the additional remuneration was not res judicata, as the first arbitral tribunal had refused to hear agent Z's request for declaratory relief and accordingly had not rendered a decision on the merits of such request.
 Finally, the Swiss Federal Tribunal also dismissed the club's second complaint. Analyzing the reasoning of the award, the Swiss Federal Tribunal found that the arbitral tribunal in fact had sufficiently considered, but decided not to follow, the club's arguments. (sec. 4.2). As a preliminary remark, the Swiss Federal Tribunal also emphasized that the second complaint was forfeited neither by the club's confirmation at the end of the hearing that the club's right to be heard had been fully respected, nor by boilerplate language in the award, stating that the arbitral tribunal had considered all allegations, arguments and evidence of the parties. Importantly, such finding is not a departure of the Swiss Federal Tribunal's long-standing jurisprudence that parties forfeit their right to request the setting aside of an award, if they fail to timely object to a potential violation of their right to be heard in the proceedings (see GABRIEL/SCHREGENBERGER, The new Swiss approach to the right to be heard – balancing challenging fairness and efficiency concerns, IJAL 8, p. 65): As the complaint did not concern the proceedings, but the reasoning in the award, the club was obviously unable to raise the complaint before the release of the award.
 The following three aspects of the decision of the Swiss Federal Tribunal and the related arbitral awards are interesting:
 First, the first arbitral award is a gentle reminder for all arbitration practitioners that many arbitral tribunals in Switzerland still require parties to demonstrate a «legal interest» for any declaratory relief requested, even in international arbitration proceedings. While this requirement is well established for proceedings before Swiss state courts, there is no statutory basis commanding its application in international arbitration proceedings, and many legal authorities rightfully demand a more flexible approach (see e.g. LEIMGRUBER, Declaratory Relief in International Arbitration, ASA Bull. 3/2014, p. 476 et seqq.; GIRSBERGER/VOSER, International Arbitration, Comparative and Swiss Perspectives, 3rd ed. Zurich 2016, para. 1192; SCHNEIDER, Non-Monetary Relief in International Arbitration: Principles and Arbitration Practice, in: Schneider/Knoll [eds.], Performance as a Remedy: Non-Monetary Relief in International Arbitration, ASA Special Series No. 30, Huntington 2011, p. 30).
 Second, the limitation of the res judicata effect to the operative part of a decision was once more expressly confirmed by the Swiss Federal Tribunal, despite any – in the words of the Swiss Federal Tribunal – «paradoxical» consequences this limitation may entail (sec. 3.3.1). The Swiss Federal Tribunal recalled that even in cases where two partial claims with the same legal basis are consecutively brought before two arbitral tribunals or state courts, the analysis of the basis of the claim by the first arbitral tribunal or court will not bind the second (see sec. 3.1.1 in fine and the further references to the case law of the Swiss Federal Tribunal).
 Importantly, the limitation of the res judicata effect to the operative part does not only affect awards rendered by arbitral tribunals with seat of arbitration in Switzerland. The Swiss Federal Tribunal has confirmed numerous times in the past that the res judicata effect of a foreign decision cannot be greater than the res judicata effect of a similar decision rendered in Switzerland (BGE 141 III 229, sec. 3.2.3; BGE 140 III 278, sec. 3.2). As a consequence, the limitation also applies to any decision rendered abroad, regardless of the res judicata effect that the foreign decision may have at the place where the decision was rendered.
 Third, avoiding the «paradoxical» consequences that may result from the limitation of the res judicata effect must qualify as a valid legal interest for the filing of additional requests for declaratory relief: For the avoidance of any such «paradoxical» consequences, parties should be allowed to rely on requests for declaratory relief. When future proceedings are already on the horizon, requests for declaratory relief are legitimate and necessary, and should not be rejected as inadmissible by arbitral tribunals.
 Parties, on the other hand, face a difficult task and, at an early stage of the proceedings, must carefully weigh their chances of a declaratory request versus later arbitration proceedings.
 In the present case, the refusal of the first arbitral tribunal to render a decision on agent Z's request for declaratory relief emerged as quite a Pyrrhic victory for the club. The club was not only drawn into costly second arbitration proceedings, it was also ordered to pay the additional bonus – an outcome which might have been avoided, had the club agreed to, or even requested as a counterclaim, a declaration on agent Z.'s entitlement to the additional bonus in the first arbitration case. Assuming that the refusal was made upon the club's request, it is now – with the benefit of hindsight – easy to conclude that any such request backfired considerably. The take-away still is: Be careful what you wish for.
Edited By Felix Dasser, Homburger
Originally published in dRSK, June 22, 2020
dRSK-Rechtsgebiet: IPR/IZPR und Arbitration
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.