The Court of Justice of the European Union (CJEU) on October 4 issued a significant ruling in the case C-650/22 FIFA v. BZ, known as the “Diarra case”.

The decision challenges some of FIFA’s regulations on the status and transfer of players, specifically their alignment with EU laws on the free movement of workers and competition rules.

The CJEU’s ruling could open the door for players, clubs, and agents to claim damages if they were affected by the FIFA rules in the past.

For example, if a club had to pay compensation under the old rules, or if a player lost out on a new contract because of them, they might be able to sue FIFA for financial losses.

The dispute began in 2014 when French midfielder Lassana Diarra (a former Real Madrid and Chelsea FC player) got into a legal dispute with Russian club Lokomotiv Moscow. The club accused Diarra of ending his contract without a valid reason and it demanded €20 million in compensation.

On the other hand, Diarra argued that Lokomotiv hadn’t fully paid him his salary, which led to his decision to leave.

Eventually, FIFA’s Dispute Resolution Chamber agreed with Lokomotiv Moscow and ordered Diarra to pay the Russian football club €10.5 million for breach of contract.

As a result of his dispute with the club, Diarra’s career stalled because clubs were hesitant to sign him due to the strict FIFA rules.

Belgian club Royal Charleroi S.C. expressed an interest in signing him but was worried about facing penalties under FIFA’s transfer regulations. Consequently, Diarra filed a case before the Belgian courts against FIFA and its regulations. The Belgian Court referred the case to the CJEU via the preliminary reference procedure.

The disputed FIFA rules

Three specific rules from the FIFA Regulations on the Status and Transfer of Players (FIFA RSTP) were challenged in this case:

(i) Article 17(2): This rule states that if a player breaks a contract without a valid reason, the player and his new club are both responsible for paying compensation to the former club;

(ii) Article 17(4): it presumes that a new club has encouraged the player to break their contract if they sign the player within a certain “protected period.” If this happens, the new club can face penalties like a ban on registering new players; and

(iii) Article 9(1) and Annex 3: These rules prevent a player from being registered with a new club while a contract dispute with their former club is still unresolved.

The European Court's decision

Diarra argued that the FIFA rules violated his right to work within the EU and restricted fair competition among clubs.

The CJEU agreed, finding that those rules unfairly limited both a player’s freedom to move to a new club and a club’s ability to sign the best available talent. The court acknowledged that while FIFA’s aim to maintain stability in the clubs’ squads was legitimate, the current rules were too restrictive.

The CJEU highlighted that existing contract law principles, like the right to compensation for contract breaches, should be enough to maintain stability without resorting to such harsh penalties.

What does the CJEU decision mean in practice?

This decision could lead to big changes in the international football transfer market.

The CJEU said that players still need to honour their contracts, and compensation will still be due to their club if they breach them. However, the CJEU said that compensation should be based on national laws, and factors like the player’s new contract value and the expenses incurred by the club in signing the player should not be considered.

One major change is that new clubs will no longer automatically share financial responsibility with players who break their contracts. Previously, players could count on their new club to help cover these costs.

This means clubs might be more willing to sign players in dispute with their former teams, giving players more freedom to move. However, this also means that players will now be on their own if they have to pay compensation. Therefore, the financial risks for players have increased.

Clubs must still respect existing contracts with other clubs, but the way they deal with compensation claims will change. Without the rule that automatically made new clubs share financial liability, signing a player in dispute might be less risky for clubs.

Sporting sanctions for inducing a contract breach are still possible, but the CJEU has made it harder to assume that a new club is always at fault. Clubs will however need to be more cautious and get legal advice when signing players who are in disputes, as the rules around what counts as “inducing a breach” are now less clear.

Impact on ongoing and past disputes

The CJEU’s ruling could open the door for players, clubs, and agents to claim damages if they were affected by these restrictive FIFA rules in the past.

For example, if a club had to pay compensation under the old rules, or if a player lost out on a new contract because of them, they might be able to sue FIFA for financial losses.

For ongoing disputes, this decision may lead to a change in how cases are resolved. Even if FIFA’s judicial bodies or the Court of Arbitration for Sport (CAS) are already handling a case, the parties involved might now argue that it should be reviewed under these new legal standards.

In conclusion, while this ruling is a big deal, it doesn’t completely change the game like the famous Bosman ruling did in 1995. Players must still respect their contracts, and clubs will still have to navigate a complex set of rules.

However, the decision does give more freedom to both players and clubs in handling contract disputes, which could lead to a more flexible and competitive transfer market.  

The CJEU’s decision marks a shift towards balancing the rights of players with the need for fairness in the football transfer system. While it reduces some of the harsh penalties that FIFA’s rules previously imposed, it also places more responsibility on players and clubs to act wisely and seek legal guidance in handling contracts and disputes.

Although it is up to the Belgian Courts to give the final judgment, it is almost certain that the Belgian Court will have to adopt the CJEU findings.

Dr Clive Gerada is Senior Associate AB&A Advocates, specialising in Civil, Commercial and Sports litigation.