Obligation to Pay a Sell-On Clause
This is a real life example of a dispute involving a contractual dispute arising over a sell-on clause. The case was heard by the Court of Arbitration for Sport (“CAS”) and based on the above set of facts.
Let’s say that East London United the failed to make the third payment of the sell-on fee to South Wales. The following complaint was then lodged with FIFA, and placed with the CAS:
On 6 February 2013, the Selling Club lodged a claim at FIFA, requesting from the Club the payment of the amount of EUR 296,875 based on Article 6, Paragraph A of the Player Contract with the Club, plus 5% interest on said
amount as of the date when the alleged breach of contract by the Club occurred. In addition, the Claimant is requesting reimbursement of the
procedural costs incurred from the present proceedings in the amount of EUR 15,000.
Issue: Does East London United have to pay the third installment of the Sell-On Fee to South Wales?
- In support of its claim, the South Wales stated that after receiving the amounts of EUR 190,625 and EUR 296,875, based on the “sell-on-clause” provided for in Article 6, Paragraph A of the agreement and the payment plan, East London United failed to comply with its further contractual obligations.
- In its reply, East London United argued that according to the payment plan, the third installment was only payable by it upon receipt of the third installment of the transfer compensation from Sport Clube Lusitania. Because SCL never paid the third installment of transfer compensation to East London United in accordance with the payment plan, the third installment of EUR 296,875 has not yet fallen due.
- The arguments of both sides can be seen in more detail in linking to the actual CAS decision cited below.
In deciding the case, the judge made the following observations:
The Judge looked at the sell-on clause in the contract and to the term “participate,” which, according to the judge, literally implied the action of taking part in something. Transferring this literal sense onto the wording of the “sell-on-clause”, the Judge said that in order to participate in a “transfer price” as stipulated in the “sell-on-clause”, it is necessary that such “transfer price” be actually paid to East London United which was entitled to receive such compensation from SCL.
Otherwise, according to the Judge, an inequitable result could well occur. East London United would still have to pay 25% of a compensation it never received to South Wales. The Judge observed that this reflects the general nature of ‘’sell-on-fees’’ and the fact that such contractual agreements, per se, are not definitive and are subject to undetermined future events.
Therefore, in the present matter, the Judge considered that the East London United’s obligation to pay a share of the transfer compensation agreed with SCL to South Wales could not be set as of the moment of the conclusion of the contract with SCL and was subject to the subsequent receipt of the relevant amounts by East London United.
On the question of whether a binding payment plan had been agreed upon by the sending of the payment plan via email, the Judge emphasized that regardless of the existence of such an agreement, the obligation lying on East London United was subject to future events which were not certain at the time the emails in question were exchanged. Thus, the arguments of both sides on whether the payment plan emailed by East London United to South Wales constituted a binding payment plan was irrelevant to the outcome of the case.
In conclusion, the Judge decided to reject South Wale’s claim based on the “sell-on-clause”.
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