Excessive Contractual Penalties in Football

It is common to have a penalty clause inserted in a football-related contract (e.g. a player-transfer contract) in case of non-compliance with its terms. Due to the fact that contractual penalties are not explicitly regulated in the FIFA Regulations on the Status and Transfer of Players (RSTP), Swiss law applies very often for the interpretation of such penalty clauses. Numerous arbitral awards of the Court of Arbitration for Sport (CAS) have dealt with this issue (in most cases in appeals against decisions rendered by the FIFA Player Status Committee, PSC but also the FIFA Dispute Resolution Chamber, DRC), and the CAS panels are called to determine whether a penalty is excessive and reduce it accordingly. Notwithstanding the case-specific character of contractual penalties, the present paper examines a) how penalty clauses are generally treated under Swiss law, b) what are the conditions in order to consider a contractual penalty as being excessive c) what are the criteria to employ in order to reduce an excessive penalty clause under CAS case law and d) what are the limits of control by the Swiss Federal Tribunal (SFT) and e) by foreign jurisdictions that are called to enforce CAS awards