MCFC v UEFA: Rubbish In, Rubbish Out
On 13 July 2020 a media release from the Court of Arbitration for Sport (“CAS”) announced that Manchester City FC (“MCFC”) had been partially successful in its appeal against the decision of the Adjudicatory Chamber of UEFA’s Club Financial Control Body (“CFCB”) announced on 14 February 2020 (“the AC Decision”).
A Football Law article published on 12 June 2020 provides the full background and the applicable legal framework that resulted in the AC decision and MCFC’s appeal against the same, which are not repeated in this article. For ease of reference, however, the announcement of the AC decision stated:
‘Following a hearing held on 22 January 2020 the Adjudicatory Chamber of the UEFA Club Financial Control Body [(“CFCB”)]… has today notified [MCFC] of the final decision on the case which was referred by the CFCB Chief Investigator.
The Adjudicatory Chamber, having considered all the evidence, has found that [MCFC] committed serious breaches of the UEFA Club Licensing and Financial Fair Play Regulations by overstating its sponsorship revenue in its accounts and in the break-even information submitted to UEFA between 2012 and 2016.
The Adjudicatory Chamber has also found that in breach of the regulations the Club failed to cooperate in the investigation of this case by the CFCB.
The Adjudicatory Chamber has imposed disciplinary measures on [MCFC] directing that it shall be excluded from participation in UEFA club competitions in the next two seasons (i.e. the 2020/21 and 2021/22 seasons) and pay a fine of €30 million’.
The CAS’s media release referred to at the beginning of this article stated:
‘Following the hearing, the CAS Panel deliberated and concluded that the decision issued on 14 February 2020 by the Adjudicatory Chamber of the CFCB should be set aside and replaced by the following:
a.) MCFC has contravened Article 56 of the Club Licensing and Financial Fair Play Regulations [(“CLFFPR”)].
b.) MCFC shall pay a fine of EUR 10,000,000 to the UEFA, within 30 days as from the date of issuance of the arbitral award’.
On 28 July 2020 the CAS released its final award with reasons, which provides the full reasoning of how the decision announced in the media released was reached (“the CAS Decision”).
This article will, firstly, break down the CAS’s decision by (i) explaining the parties and individuals involved; (ii) summarising the AC Decision as referred to in the CAS Decision; (iii) explaining MCFC’s submissions to the CAS; (iv) explaining UEFA’s submissions to the CAS; (v) explaining the CAS Decision in respect of admissibility of evidence; and (v) explaining the substantive part of the CAS Decision in respect of MCFC not being found to have overstated its sponsorship revenue.[1]
Secondly, this article will consider the significance of the CAS Decision.
The CAS Decision
The parties and individuals
The CAS Decision provides a concise explanation of the facts and allegations that gave rise to the AC Decision and the appeal against the same, and the company entities and individuals involved:[2]
His Highness Sheikh Mansour bin Zayed Al Nahyan (“HHSM”) acquired Manchester City Limited (“MCL”) (CRN: 02989498) at the start of the 2008/2009 season.
MCL owns Manchester City Football Club Limited (CRN: 00040946) (“MCFCL”), the company entity of MCFC.
HHSM owns Abu Dhabi United Group Investment & Development (“ADUG ID”). ADUG ID owns Abu Dhabi United Group Investment and Development Limited (“ADUG JAFZA”), a private investment company registered in the Jebel Ali Free Zone of the United Arab Emirates. The CAS Decision refers to these company entities collectively as “ADUG”.
HHSM used ADUG to purchase MCL. ADUG was the parent company of MCL.
In January 2013 ADUG restructured to create a new intermediate parent company of MCL, City Football Group Limited (CRN: 08355862) (“CFG”), which holds investments in multiple football clubs around the world.
ADUG currently owns 86.21% of CFG. CMC Football Holdings Limited (“CMC”) (a company registered in the Cayman Islands and a holding company for private equity groups China Media Capital and CITIC Capital) owns the remaining 13.79% of CFG.
CFG owns MCL.
Emirates Telecommunications Corporation PJSC (“Etisalat”) is an international telecommunications group headquartered in Abu Dhabi.
Etihad Airways PJSC (“Etihad”) is one of the world’s leading airlines and is part of the Etihad Aviation Group, which is owned by the government of Abu Dhabi.
Etisalat and Etihad entered sponsorship agreements with MCFC in the 2009/2010 season, which ‘were entered into for fair value… [and] the CFCB has not put fair value in issue in these proceedings’.[3] These sponsorship agreements have evolved and have been renegotiated over time.
The first sponsorship agreement between Etisalat and MCFC was effective from 24 February 2010 until 31 December 2012 (“Etisalat 1”), under which Etisalat was to pay a sponsorship fee to MCFC in an amount that has been omitted from the CAS Decision.[4]
In June 2012 Etisalat accepted an increase in the sponsorship fee payable to MCFC, again in an amount that has been omitted from the CAS Decision. This increase in sponsorship fee payable to MCFC was to be for a period of five years from season 2011/2012, such terms being stated provisionally in a heads of terms agreement (“Etisalat 1A”). Etisalat 1A was later put into a long form agreement signed and dated in January 2015 but which had an effective date of 1 February 2012 (“Etisalat 2”). One difference between Etisalat 1A and Etisalat 2 is that the payment of sponsorship fees was to be made to ADUG ID, as the parent company of MCFC, rather than to MCFC directly.
The result of Etisalat 1, Etisalat 1A and Etisalat 2 (collectively “the Etisalat Sponsorship Agreements”) is that MCFC was ‘entitled to sponsorship fees of GBP [xxx] from Etisalat in relation to the seasons 2011/12, 2012/13, 2013/14, 2014/15 and 2015/2016’.[5]
The first sponsorship agreement between Etihad and MCFC was agreed on 20 May 2009, and between 2009 and 2016 Etihad and MCFC renegotiated the terms of this sponsorship at various times (“the Etihad Sponsorship Agreements”). The Etihad Sponsorship agreements entitled MCFC ‘to sponsorship fees and bonuses of GBP 220,575,000 and USD 1,750,000 from Etihad in relation to the seasons 2012/13, 2013/14 and 2015/16’ (“the Etihad Relevant Period”).[6]
The AC Decision
The CAS Decision also provides an excerpt of the AC Decision[7]. In summarising the excerpt from the AC Decision and from this point onwards, and in addition to the defined terms provided above, the defined terms provided in the Football Law article published on 12 June 2020 will also be used:
The Referral Decision was made on the basis that MCFC had not truthfully declared its sponsorship income, that payments made by sponsors were in reality payments from ADUG or HHSM.
Leaked emails dated 5 September 2012 and 17 December 2012 ‘provide compelling evidence that arrangements were made under which payments were made or caused to be made by ADUG but attributed to the sponsorship obligations of Etisalat so as to disguise the true purpose of providing equity funding, and those arrangements were carried into effect by the payments made by [X] totalling[…]’. The identity of ‘X’ is omitted from the AC Decision and the CAS Decision. Further, due to MCFC’s management’s awareness of this, MCFC’s management ‘could not properly have caused [MCFC] to account for the liabilities purportedly due under Etisalat 1A and Etisalat 2 as sponsorship revenue due from Etisalat for services rendered by [MCFC]’. Furthermore, ‘financial statements submitted to the FA overstated [MCFC’s] true sponsorship revenue by including… the full liabilities purportedly due under Etisalat 1A and Etisalat 2 for the years ended 31 May 2012 and 2013 under “other commercial activities”’.
The leaked emails referred to above also ‘provide compelling evidence that arrangements were made under which the sponsorship obligations of Etihad in excess of £8 million per year were to be funded or procured to be funded by or on behalf of ADUG, but paid through Etihad and attributed to its sponsorship obligations so as to disguise the true purpose of providing equity funding’. Further, due to MCFC’s management’s awareness of this, MCFC’s management ‘could not properly cause [MCFC] to account for the full amount of liabilities purportedly due under the [Etihad Sponsorship Agreements] as sponsorship revenue due from Etihad for services rendered by [MCFC] in the years ended 31 May 2013, 31 May 2014 and 31 May 2016’. Furthermore, ‘financial statements submitted to the FA overstated [MCFC’s] true sponsorship revenue by including… all the liabilities purportedly due under the [Etihad Sponsorship Agreements] for the years ended 31 May 2013, 31 May 2014 and 31 May 2016 under “other commercial activities”’.
As a result of MCFC’s ‘incorrect treatment of sponsorship revenue’ in financial statements for the years ended 31 May 2013, 31 May 2014 and 31 May 2016, and because the financial statement for the year ended 31 May 2015 referred to the turnover in the year ended 31 May 2014, ‘all financial statements for the years between 2012 and 2016 contained statements as to turnover which were not complete and correct’. Accordingly, MCFC did not comply with Articles 13, 43, 47 and 51, and Annex VI, Annex VII of the CLFFPR.
Further, considering the AC’s finding that MCFC used sponsorship revenue to ‘disguise the true purpose of providing equity funding’ and that MCFC had ‘substantially [overstated] sponsorship revenue’ the information for reporting periods ended 31 May 2013, 31 May 2014 and 31 May 2016 was incorrect and inaccurate. In particular, that incorrect and inaccurate information ‘was submitted, in respect of at least two reporting periods, in each of the monitoring periods between 2013 and 2016’. Accordingly, MCFC did not comply with Articles 13, 58, 62, and Annex X of the CLFFPR.
In respect of a club’s duty to cooperate with the IC under article 56 of the CLFFPR, the AC noted that ‘Article 56 is clear in requiring a club to respond properly and cooperatively to any reasonable requests for documents and information which the [IC] considers relevant to its decision-making. Relevance and admissibility is for the CFCB to decide. The mantra that [MCFC] “will not be validating whether to admit or deny the accuracy or completeness of criminally obtained documents” was impermissibly used as cover for failing to disclose documents and information reasonably required’. Further, the AC found MCFC had breached its duty under Article 56 of the CLFFPR by (i) advancing a case that ADUG must have known to have been false insofar as ADUG knew that amounts paid under the Etisalat Sponsorship Agreements had not been funded by Etisalat and, pursuant to Etisalat 2, had arranged for sponsorship fee payments to be made to ADUG rather than directly to MCFC; and (ii) not answering any questions on the authenticity of the criminally obtained documents or not producing any of the documents requested by CFCB’s chief investigator.
The AC Decision also identifies that the AC did not have jurisdiction to determine the allegation that MCFC was in breach of the May 2014 Settlement Agreement raised in the Referral Decision. In particular, it is noted that the Referral Decision was made ‘under Article 14(1) of the [PRCFCB], not under Article 15(5) which permits the Chief Investigator to refer a case where a club has failed to comply with the terms of a settlement agreement. Nor does the Referral Decision explain how the alleged breaches of clauses 3.1, 3.2 and 7 of the Settlement Agreement constitute contraventions of the applicable Regulations’.
Finally, in deciding to impose the sanctions quoted at the beginning of this article, the reasoning of the AC in imposing the same included the following:
‘The [AC] recognises that it does not have jurisdiction under the Referral Decision to impose disciplinary measures for any breaches of the Settlement Agreement but the scale of the unfair advantage gained by concealment of the overstatement of sponsorship revenue must be taken into account in assessing the disciplinary measures…
Sanctions on clubs which have been found to contravene the break-even requirements have generally resulted in exclusion from one season of UEFA club competition[s]. This case is by far the most serious… taking into account… the seriousness, repetition and intentional nature of the conduct. The fair and proportionate sanction in this case must result in disciplinary measures, by exclusion and a fine, substantially in excess of those previously imposed, in order to protect the integrity of UEFA club competition[s]’.
MCFC’s submissions to the CAS
MCFC submitted the following ten arguments to the CAS Panel and sought relief reflecting the same:[8]
1. The allegations that the true nature of payments made under the Etisalat Sponsorship Agreements and the Etihad Relevant Period was deliberately concealed and improperly reported by MCC under the CLFFPR requires ‘a conspiracy on the part of MCFC, its shareholder and these two sponsors’. MCFC submitted that those allegations are irreconcilable with the factual evidence, as verified by accounting evidence.
2. The AC Decision was based ‘on inferences drawn from documents that were… obtained by illegal means’. MCFC submitted that pursuant to Swiss law (which, in addition to the CLFFPR and the PRCFCB, is the applicable law as explained at paragraphs 78-81 of the CAS Decision) the AC had erred in concluding that the criminally obtained documents were admissible. Further and alternatively, MCFC submitted that even if the criminally obtained documents were/are admissible, they do not ‘establish an agreement between the supposed parties; they do not contain relevant admissions; and their meaning is, at best, unclear, particularly when their context is understood’. MCFC expressly refer to emails dated 14 April 2010 and 6 September 2012.
14 April 2010 email: there is no reasonable basis for the CFCB’s inferences in respect of this email because, inter alia, (i) at the time the CLFFPR had yet to be ratified and the introduction of the CLFFPR’s break-even requirement was over a year away; and (ii) the email relates to a proposed sponsorship agreement not with Etisalat or Etihad but with another company and which in any event did not materialise.
6 September 2012 email: MCFC required £66.1m to meet its cash needs during September to November 2012. It was originally proposed that the £66.1m would be sourced through an equity contribution from ADUG, but due to time constraints in raising such funds it was later proposed that some of the £66.1m could be provided from early collection of sponsorship fees payable by Etisalat and Etihad. Ultimately, the £66.1m was provided by an equity contribution of £53.3m and a sale of intellectual property rights at £12.8m.
3. The CAS Panel cannot be satisfied with the AC basing its decision upon inferences only. Whilst the standard or proof ‘is one of comfortable satisfaction’, the AC failed to apply that standard. Further, the standard of proof concerning allegations of fraud and conspiracy should be higher, ‘beyond reasonable doubt’, as confirmed by CAS jurisprudence (CAS 2011/A/2625 Mohamed Bin Hammam v FIFA).
4. Evidence provided by MCFC to the AC and ‘supplemented’ before the CAS Panel demonstrates that Etisalat and Etihad paid their sponsorship fees in relation to each of the seasons in issue, supported in evidence from accountants and senior executives at Etisalat and Etihad in relation to (i) the value of the sponsorship; (ii) the contemporaneous accounting treatment; and (iii) that ‘no “disguised” payments were made to Etihad or Etisalat’. MCFC highlighted that the AC had accepted that the services provided under the Etisalat Sponsorship Agreements and the Etihad Sponsorship Agreements were provided by MCFC at all times. Further, MCFC accepted that Etisalat’s sponsorship fees were paid either directly to MCFC or indirectly through ADUG, and that Etihad’s sponsorship fees were paid directly to MCFC. MCFC submitted that the only remaining issues were:
Etisalat: ‘The issue is whether the two advance payments of [xxx] each… which ADUG arranged to be made to MCFC with respect to the 2011/12 and 2012/13 seasons were reimbursed by Etisalat out of its payment of [xxx] on 18 March 2015, thereby meeting its legally binding sponsorship obligations with respect to those seasons. The answer is yes’.
Etihad: ‘It is accepted by the [AC] that Etihad paid directly to MCFC the approximately £220 million due from it under the sponsorship agreements for the seasons 2012/13, 2013/14 and 2015/16. The issue for this Panel is whether, of these payments that Etihad was legally bound to make, all but £8 million per season (i.e. approximately £196 million in total) was funded by or at the directions of ADUG as “disguised equity funding”? The answer is no’.
5. The AC Decision applies an irrational case theory that requires an acceptance of MCFC giving away sponsorship deals considerably below market value. For example, if the sponsorship fee payable by Etihad was £8m per year, this would be considerably below the market value. MCFC submitted that the CFCB had itself valued Etihad’s sponsorship rights for 2012/2013 at between £40m to £77m.
6. All of the alleged breaches were the subject of the May 2014 Settlement Agreement and therefore cannot be lawfully pursued by the CFCB. The May 2014 Settlement Agreement was made in respect of a dispute between the CFCB and MCFC as to the correct reporting of MCFC’s sponsorship revenues and ‘involved looking at the same sponsorship agreements now in issue (again)’. MCFC submitted that there are no new facts or any new dispute that could ‘justify invalidation/rescinding the [May 2014 Settlement Agreement]’ and even if ‘Criminally Obtained Documents do contain new facts, those new facts emerged at the latest… between 2 November 2018 and 2 March 2019… [and] the CFCB ran out of time under Swiss law to make a claim of invalidation [of the May 2014 Settlement Agreement] after the expiry of… 12 months’. MCFC Agreed with and submitted that the CAS Panel should follow the AC Decision insofar as it decided that the AC did not have jurisdiction to determine the allegation that MCFC was in breach of the May 2014 Settlement Agreement, as the Referral Decision was made under Article 15(5) of the CLFFPR. Further, MCFC submitted that the AC erred in concluding that the five-year limitation period under article 37 of PRCFCB ended on 7 March 2019 (although there is no mention to this in the excerpts of the AC Decision summarised above). In particular, MCFC submitted:
The limitation period ended on the date that the AC Decision was announced, i.e. on 14 February 2020, and therefore any alleged breaches committed before 14 February 2015 are time-barred.
7. MCFC’s financial accounts and its ‘returns to the CFCB’ were correctly prepared in accordance with the relevant accounting standards, ‘including the accrual basis and the need for a fair representation’.
8. MCFC submitted that there had been compliance with Article 56 CLFFPR as the reason why the CFCB knew of the Etisalat Sponsorship Agreements and the Etihad Sponsorship Agreements is because MCFC had cooperated and explained the same in great detail. Further, MCFC submitted that whilst there had not been authentication of the ‘Criminally Obtained Documents’ the same had been addressed as if they were genuine, in terms of submissions and evidence against the same.
9. MCFC submitted that the IC had breached its obligation to complete its investigation before issuing the Referral Decision and therefore denied MCFC the opportunity to present its case on key issues in the AC Decision. This argument was in particular reference to the issue of whether ADUG, Etisalat and Etihad are ‘related parties’, which they are not (see Section F of Annex X of the CLFFPR). MCFC also submitted that the CFCB had ‘breached its duties of confidentiality and impartiality’, issues that had already been before the CAS as explained in the Football Law article published on 12 June 2020.
10. Finally, MCFC submitted that because (i) it was not ‘lawfully right’ for the AC to have referred to the May 2014 Settlement Agreement when determining the sanction in the AC Decision; and (ii) the amount of time that had passed since the alleged breaches, the two-season ban from UEFA club competitions was disproportionate.
UEFA’s submissions to the CAS
UEFA submitted the following six arguments to the CAS Panel and sought relief reflecting the same:[9]
1. MCFC disguised equity contributions as sponsorship income, falsely declaring the same in financial statements to The FA and in its break-even submissions to UEFA. UEFA submitted:
Two payments made in 2012 and 2013 were made by ADUG rather than Etisalat, such payments had been reported by MCFC as coming from Etisalat, and ‘for more than three years, Etisalat did not make any payment of its sponsorship obligations’.
Etihad’s annual contribution to its sponsorship fee was for several years £8m, with the remaining payments of £174m being ‘funded or procured to be funded by or on behalf of ADUG’ but with MCFC reporting all payments as sponsorship income from Etihad.
A total of at least £204m was ‘disguised as equity sponsorship income, while in reality it consisted of equity’.
As to Etisalat, UEFA submitted:
Etisalat paid the sponsorship fees to MCFC due under Etisalat 1. Under Etisalat 1A it was agreed in principle that Etisalat would increase the sponsorship fee payable to MCFC, and the final form, Etisalat 2, was not signed until January 2015. Further:
‘Etisalat says that it was unable to pay its obligations until the execution of Etisalat 2. Notwithstanding this, MCFC invoiced Etisalat for the increased sums due and there is nothing on record that Etisalat reacted or otherwise commented on these invoices, which it would have obviously done, if really it was unable at the time to pay against those invoices and payments were due from Etisalat.
On 12 June 2012, [X] paid GBP [xxx] towards Etisalat’s sponsorship obligations. This sum was part of an aggregate payment of GBP [xxx] that included not only sums attributed to other sponsors, but also sums attributable to equity funding. The payment was arranged by [Mr Z] of ADUG’.
As to the 6 September 2012 email (also referred to in MCFC’s submissions), UEFA submitted that this email showed a request that funding from ADUG ‘was to be attributed to sponsors’, with a certain amount being attributed to Etisalat, which resulted in ‘[X] [making] a further payment of GBP [xxx]… [which] was not the full amount due in relation to Etisalat’s sponsorship obligation… [and the] balance of GBP [xxx] was not paid by Etisalat until 22 March 2015’.
UEFA submitted that the only conclusion to be drawn from this was that HHSM or ADUG had agreed to fund part of Etisalat’s sponsorship obligations.
As to Etihad, UEFA submitted:
There are emails that ‘consistently refer to Etihad’s direct contribution being GBP 8,000,000 per season with the balance of Etihad’s sponsorship obligations being funded by ADUG’ and then remitted via Etihad.
2. MCFC acted in breach of Article 56 of the CLFFPR by refusing to provide answers, refusing to produce documents, refusing to make witnesses available and gave incorrect written explanations. UEFA emphasised the two points made in the AC Decision in respect of MCFC’s breach of Article 56 of the CLFFPR.
3. The evidence against MCFC is overwhelming, and which consists of the Football Leaks documents and accounting evidence. UEFA submitted that the Football Leaks documents are admissible due to there being an overriding interest in finding the truth. Further, UEFA submitted that its case was not based solely on inference being drawn from the Football Leaks documents:
‘… the Football Leaks Documents are contemporaneous communications between senior members of MCFC’s management that set out in black and white arrangements by which HHSM and ADUG are to fund the majority of the Abu Dhabi-based sponsors’ obligations. There is no need for inferences to be drawn… it is also based on the fact that transactions described in the Football Leaks Documents were reflected in materials provided by MCFC’.
Furthermore, insofar as MCFC submitted that UEFA’s case theory is irrational, UEFA submitted (somewhat desperately in this author’s opinion):
‘The funding by HHSM/ADUG of the obligations of MCFC’s sponsors was part of a broader plan to develop the economy of Abu Dhabi through promoting some of its companies as global brands… the financial support provided by HHSM to MCFC was of benefit to MCFC, its sponsors and Abu Dhabi’.
4. MCFC provides two new explanations to the CAS, which UEFA submitted must be false as there is no support for the same in contemporaneous documents. In particular this related to:
‘The first new explanation is that Etisalat could not pay its sponsorship obligations between 2012 and 2015 because of internal rules. This totally contradicts MCFC’s earlier statements. In addition, if no contract was signed until 2015, including these payments as revenue or relevant income was wrong.
The second new explanation concerns Etihad’s direct contribution of £8m only. MCFC now says that the Football Leaks Documents only describe that £8m came out of Etihad’s “marketing budget” whereas the balance came from “centrally held funds”’.
5. The May 2014 Settlement Agreement ‘did not give MCFC a sort of general blanket waiver for any other possible breach of the CLFFPR’ and it did not ‘concern the issues in this case’. UEFA submitted that ‘MCFC has never been sanctioned for what is at stake in this case’ as ‘no sanction was previously imposed for disguised equity funding’. Further, in respect of the five-year limitation period under article 37 of the PRCFCB, UEFA agreed with the AC Decision that the relevant date for the ‘prosecution’ was five years back from the date the IC opened its investigation on 7 March 2019. Accordingly breaches before 7 March 2014 cannot be subject to prosecution, and that is why the AC Decision concerned ‘financial information submitted by MCFC [to the FA and to UEFA] as from 7 March 2014 to fall within the prosecution period’.
6. Finally, UEFA submitted, inter alia, that any sanctions must ‘punish and serve justice’ and ‘deter other clubs from committing the same or similar violations of the [CLFFPR]’, and that accordingly the sanctions imposed on MCFC by the AC Decision are proportionate.
Admissibility of evidence
A controversial point surrounding the AC Decision was the reliance upon Football Leaks documents (the content and source of which is explained in the Football Law article published on 12 June 2020).
The CAS Panel noted that the authenticity of the Football Leaks documents – which related to six emails and one attachment out of 5,500,000 documents – had been resolved as MCFC had ‘submitted the unredacted original versions of the Leaked Emails into evidence’, save that one email contained a part that was redacted and another email included an attachment which had not been submitted.[10] Further, it was noted that MCFC’s witnesses acknowledged the authenticity of the Football Leaks documents.[11]
The CAS Panel noted that the Football Leaks documents are publicly available and that UEFA had no involvement with how those documents became publicly available.[12] Further, in consideration of procedural law under Swiss law and the PRCFCB, and applying a ‘balancing of interests’ test, the CAS Panel found that ‘the balance clearly swings in favour of the interest of discerning the truth at the expense of MCFC’s personality rights that are not violated by using publicly available evidence in an arbitration procedure’.[13]
Accordingly, the CAS Panel found that the Football Leaks documents were admissible evidence.[14]
Overstating sponsorship revenue
This part of the CAS Decision begins with an explanation of the CLFFPR.[15] This is also explained in the Football Law article published on 12 June 2020 and is therefore not repeated in this article.
The CAS Decision then identifies the seven remaining issues to be resolved, which shall be explained in turn.[16]
Did the CFCB breach its obligations of due process and, if so, what are the consequences?
The CAS Panel determined that MCFC’s ‘related party’ issue was ‘separable from the charges based on the Leaked Emails’, simply because the Referral Decision made no reference to any issue in respect of related parties or the fair value of the Etisalat Sponsorship Agreements and/or the Etihad Sponsorship Agreements.[17]
In respect of MCFC’s argument that the CFCB had ‘breached its duties of confidentiality and impartiality’, the CAS Panel determined resolutely that:
‘… insofar as the alleged defects of the proceedings before the [IC] had not already been cured by the [AC], such defects are cured by the present appeals arbitration proceedings before CAS.
… whether or not information was leaked to the media by member(s) of the [IC] or the UEFA administration, the Panel is not convinced that one or more members of the [IC] lacked the required impartiality and that the entire process before the CFCB must be considered a nullity and requires the annulment of the [AC Decision]’.[18]
Does the conclusion of the May 2014 Settlement Agreement and release from the same prevent UEFA from charging MCFC for the issues raised in these proceedings?
The CAS Panel noted that the May 2014 Settlement Agreement concerned MCFC having a break-even result for 2012 and 2013 that was in excess of the allowable deviation under CLFFPR, and that whilst MCFC denied any breach of CLFFPR ‘and for the purpose of avoiding the costs, duration and risks arising out of any litigation’ the May 2014 Settlement Agreement was entered.[19] The CAS Panel also noted that MCFC were released from the May 2014 Settlement Agreement on 20 April 2017.[20]
The CAS Panel then explained, as noted in the AC Decision, that the Referral Decision was not made on the basis of a breach of the May 2014 Settlement Agreement/article 15(5) of the PRCFCB, and therefore MCFC’s arguments on this point are irrelevant.[21]
Further, the CAS Panel determined that the issues that resulted in the May 2014 Settlement Agreement – (i) MCFC’s break-even deficit; (ii) fair value of sponsorship agreements; and (iii) issues of sponsors being related parties – are not in issue in the Referral Decision and the AC Decision.[22] The issue in the Referral Decision and the AC Decision is whether HHSM and/or ADUG provided disguised equity funding to MCFC through Etisalat and Etihad and whether the same was properly reflected in financial statements submitted to The FA and UEFA.
Accordingly, the CAS Panel explained that that difference makes it irrelevant that MCFC was released from the May 2014 Settlement Agreement as the same ‘did not immunise MCFC from any possible further and different charges from the ones covered by the [May 2014 Settlement Agreement]’.[23]
The CAS Panel also stated that the May 2014 Settlement Agreement did not contain sanctions per se. Rather, the May 2014 Settlement Agreement ‘contains reciprocal undertakings, considerations and concessions on the agreed and expressed “purpose of avoiding the costs, duration and risks arising out of any litigation”… a contractual arrangement voluntarily entered into’, which applied only to issues settled in the May 2014 Settlement Agreement.[24]
As such, UEFA was not prevented from charging MCFC for the issues raised in these proceedings. This is sound reasoning and identifies that this author fell down an unnecessary hole in his analysis of MCFC’s prospects of success in this appeal set out in the Football Law article published on 12 June 2020.
Are the charges against MCFC time-barred?
Article 37 of the PRCFCB states that ‘[prosecution] is barred after five years for all breaches of the [CLFFPR]’. In consideration of the applicability of the five-year limitation period under article 37 of the PRCFCB, the CAS Panel identified that ‘the relevant issue is to determine when the “prosecution” in the present matter started’.[25]
The CAS Panel decided that MCFC’s argument on this issue ‘cannot be right’, as ‘the word “prosecution” cannot be considered to be an equivalent of the word “sanction”’.[26]
The CAS Panel also decided that ‘UEFA’s position that the date of the “prosecution” is the date of the opening of the investigation cannot be right either’.[27]
The CAS Panel found that, whilst recognising that the drafting of article 37 PRCFCB lacked clarity, ‘“prosecution” starts with the filing of charges… this moment is the moment of issuance of the Referral Decision [on 15 May 2019], because it was this document that explicitly and formally served MCFC with the charges filed against it’.[28] Accordingly, breaches committed before 15 May 2014 are time-barred:
‘… the alleged breaches related to the financial statements for the years ended May 2012 and May 2013 are time-barred, but the alleged breaches related to the financial statement for the year ended May 2014 are not [having been submitted at the least after 9 October 2014]. Furthermore, the alleged breaches related to the break-even information submitted for the 2013/2014 monitoring process are time-barred, but the alleged breaches related to the break-even information submitted for the 2014/15 monitoring process are not [having been submitted between 14 July and 15 October 2014]’.[29]
Further, the CAS Panel found that although the financial statement for the year ending May 2014 and the break-even information for the 2014/2015 contain ‘information that was first submitted for licensing and monitoring purposes the year before’, MCFC could not be prosecuted ‘on the basis of financial information that was first submitted at a point in time that lies outside the limitation period, because this would artificially extend the 5-year limitation period to… 6 or even 7 years without a clear legal basis to do so’ (emphasis added).[30] Whilst a different approach may be permissible in respect of fulfilment of break-even requirements which requires the consideration of a three-year reporting period, ‘MCFC is accused of… providing incorrect information for CLFFPR purposes and such violations are to be considered committed the first time such incorrect information is submitted’.[31] This is a slight but significant distinction.
As a consequence of those findings:
Etisalat: UEFA is time-barred from prosecuting MCFC for the alleged disguised equity funding by HHSM and/or ADUG through Etisalat as ‘MCFC received these payments on 13 June 2012 and 10 January 2013 and was therefore firstly reported in the financial statements of the year ended May 2013 and for the 2013/14 monitoring process’.[32] (Notwithstanding what is explained in the sections below, this finding appears insinuating.)
Etihad: UEFA is time-barred from prosecuting MCFC for the alleged disguised equity funding through Etihad for payments received in the season 2012/13, but UEFA is not time-barred from prosecuting MCFC ‘with respect to payments received [by MCFC] from Etihad in the seasons 2013/14 and 2015/16’.[33]
What is the applicable standard of proof?
The CAS Panel accepted the parties’ agreement that the standard of proof is that of ‘comfortable satisfaction’. Notwithstanding the seriousness of UEFA’s allegations against MCFC, the CAS Panel rejected MCFC’s further argument that a standard of proof of ‘beyond reasonable doubt’ applied to the same.[34] However, the CAS Panel explained its awareness that when assessing evidence the CAS Panel should keep in mind that corruption is by nature concealed, and that the more serious the allegation the more cogent the evidence should be supporting the same.[35]
Did MCFC disguise equity funding as sponsorship contributions?
The CAS Decision provides the original versions of the Football Leaks documents, which are referred to as Leaked Email No. 1, Leaked Email No. 2, Leaked Email No. 3, Leaked Email No. 4, Leaked Email No. 5, and Leaked Email No. 6.
In respect of this evidence, the majority of the CAS Panel delivered two crippling paragraphs in the CAS Decision:
‘The majority of the Panel does not agree… that in the absence of any evidence produced by… [MCFC] the Leaked Emails are direct evidence that the arrangements were made and implemented. MCFC is not charged for attempting to disguise equity funding as sponsorship contributions; it is charged for erroneous reporting of financial information, which requires a completed act. Accordingly, it is for UEFA to prove that the arrangements discussed in the Leaked Emails were as they appear to be and were indeed executed.
The majority of the Panel finds that the Leaked Emails by themselves are not sufficient evidence to support a finding that MCFC provided incorrect information to UEFA by disguising equity funding as sponsorship. The arrangements discussed must be rooted in contemporaneous accounting or transactional evidence, for otherwise it cannot be ascertained that the arrangements discussed in the Leaked Emails were in fact executed’.[36]
The majority of the CAS Panel noted that there was no evidence, either an email or otherwise, showing HHSM, ADUG or Etihad had any involvement with the alleged arrangements.[37]
The CAS Panel considered UEFA’s point that ‘Etihad had made two separate payments of GBP 59,500,000 and GBP 8,000,000 to MCFC, which were exactly the amounts described in Leaked Email No. 6 as having been funded by ADUG and Etihad separately… [and] there would be no reason for such split payments if Etihad funded all its sponsorship contributions from its own resources’.[38] However, the majority of the CAS Panel found that MCFC’s witness evidence supported the explanation that that £8m came out of Etihad’s “marketing budget” whereas the £59.5m came from “centrally held funds” (as submitted by MCFC) and to suggest that those two payments demonstrate payments from two difference sources (i.e. HHSM or ADUG and Etihad) ‘would necessarily require finding that [two of MCFC’s witnesses] were lying’.[39] Consequently, there was insufficient evidence to prove that the arrangements discussed in the Football Leaks documents were in fact executed.[40]
Further, in respect of arrangements referred to in Leaked Email No. 2 (dated 6 September 2012) and its attachment, the majority of the CAS Panel found:
‘… there is no evidence on file that the arrangement discussed in the schedule attached to the Leaked Email No. 2 was ever executed’;
There was no evidence ‘whatsoever that Etihad was somehow in on the arrangements discussed in Leaked Email No. 2’; and
The evidence relied upon (‘MCFC’s credit ledger’) was not in respect of payments made by Etihad in 2013/2014 and 2015/2016 (i.e. the periods UEFA were not time-barred from prosecuting on).[41]
With reference to the standard of proof, that UEFA’s evidence must be ‘particularly cogent’, the majority of the CAS Panel provided a damning interim conclusion that ‘the Leaked Emails in combination with the GBP 59,500,000 and GBP 8,000,000 payments by Etihad and MCFC’s ledger entries are not sufficient evidence to conclude that MCFC committed the violations alleged by UEFA’.[42]
In addition to that interim conclusion, firstly, was the CAS Panel’s consideration of MCFC’s witness evidence (‘most of which [was] not before the [AC]’ it should be noted) which ‘vehemently denied’ UEFA’s allegations that Etihad’s sponsorship fee obligations were funded, or procured to be funded, by HHSM and/or ADUG.[43] The CAS’s consideration of such witness evidence was:
‘The Panel agrees with MCFC that a finding that Etihad’s sponsorship contributions were funded, or procured to be funded, by HHSM and/or ADUG would require a conclusion that the evidence of several high-ranking officials of large international commercial enterprises… were false and that at least [two of those witnesses] would be subject to criminal sanctions. This conclusion is not warranted based on the evidence available to the Panel…
UEFA’s theory would also mean that not only MCFC lied to The FA and UEFA, but also that accountancy firms such as BDO, Deloitte, Ernst & Young and AlixPartners that all examined accounts of one or more entities involved were all misled. The Panel finds that such allegations are also not warranted based on the evidence presented’.[44]
Secondly, the majority of the CAS Panel’s consideration of MCFC’s accounting evidence was that, despite doubts as to the reliability of the data upon which it was produced (UEFA made the submission of “rubbish in, rubbish out”), the conclusions of MCFC’s accounting evidence ‘[supported] MCFC’s case… the theory that ADUG directly funded or reimbursed Etihad for its sponsorship contributions to MCFC is discredited’.[45] Further, the same “rubbish in, rubbish out” criticism applied to UEFA’s accounting evidence, but the conclusion of UEFA’s accounting evidence was, in fact, inconclusive in that it was unable to ‘exclude any hypothesis’ put forward by UEFA or MCFC:
‘The Majority of the Panel finds that it transpires from the accounting evidence that Etihad transferred the full amounts under the Etihad Sponsorship Agreements during the Etihad Relevant Period to MCFC and that there is no meaningful evidence corroborating the hypothesis that funding from HHSM and/or ADUG was channelled to Etihad directly, or that it was procured to be funded by HHSM and/or ADUG through unidentified third parties’.[46]
Accordingly, ‘the majority of the Panel [was] not comfortably satisfied that MCFC disguised equity funding from HHSM and/or ADUG as sponsorship income through Etihad’.[47]
Did MCFC fail to cooperate with the CFCB’s investigation?
The two points made in the AC Decision in respect of MCFC’s breach of Article 56 of the CLFFPR which UEFA supported in its submissions to the CAS Panel were considered in turn.
The majority of the CAS Panel decided, firstly, that the alleged false case advanced in respect of the Etisalat Sponsorship Agreements relates to an issue that is time-barred, was a “fruit from a poisonous tree”, and therefore MCFC could not be sanctioned on that basis.[48]
Secondly, in respect of MCFC’s failure to cooperate with the CFCB’s investigation, the majority of the CAS Panel found that MCFC breached article 56 of the CLFFPR in failing to cooperate with the CFCB’s investigation in respect of two separate issues:
Witness evidence from two people had been requested from MCFC by the CFCB chief investigator to be put before the IC but MCFC did not provide such witness evidence from those two people until the this appeal. Those people’s evidence was significant as they were authors of emails in the Football Leaks documents.[49]
The CFCB chief investigator had also requested that MCFC provide complete and accurate copies of the Football Leaks documents and ‘MCFC only (partially) complied with this request over one year later by letter dated 18 May 2020 in the present appeal arbitration’.[50]
If any breach of the CLFFPR has been committed what is the appropriate sanction?
Considering MCFC’s breaches of Article 56 of the CLFFPR, the majority of the CAS Panel noted:
‘MCFC’s failure to produce the original versions of the Leaked Emails is particularly serious, because the production thereof would have pre-empted any arguments of MCFC as to the authenticity, which has been a key argument of MCFC throughout the entire process’.[51]
‘Some of the information that was now provided by MCFC to the CFCB in the 2019 investigation would have provided a more complete and accurate picture of two payments to MCFC in 2012 and 2013 that were before the CFCB when the Settlement Agreement was entered’.[52] It is unclear how this correlates with the CAS Panel’s reasoning in considering whether the charges against MCFC are time-barred and/or the relevance to the specific matters in consideration in the appeal, but the point is nonetheless understandable.
Consequently, the majority of the CAS Panel found that MCFC’s breaches of Article 56 of the CLFFPR were severe and that ‘MCFC [was] to be seriously reproached for obstructing the CFCB’s investigations’.
In applying the appropriate sanction for MCFC’s breach of article 56 of the CLFFPR, the majority of the CAS Panel considered that it was inappropriate to impose any ban on MCFC participating in UEFA club competitions, but that a fine of €10m was appropriate considering (i) MCFC’s financial resources; (ii) the importance of the cooperation of clubs in investigations conducted by the CFCB; and (iii) MCFC’s ‘blatant disregard of such principle and its obstruction of the investigations’.[53]
Significance of the CAS Decision
Following the release of the CAS Decision news reporters and fans were decrying “the end of FFP”. The CAS Decision does not signify that. More particularly, despite the CAS Panel’s comments on the drafting of the limitation period stated in article 37 PRCFCB, there is nothing negative stated about UEFA’s CLFFPR or its procedures. The CAS Decision, if anything, is a rousing call for clubs to give greater support and cooperation to the CFCB when it is the subject of an investigation or charge under the CLFFPR and PRCFCB.
On the point of article 37 PRCFCB – although UEFA will not see it this way considering the overall outcome – it is welcomed that there is now some clear authority on the interpretation of the same. Whilst I would agree with Professor Jack Anderson’s comment that the CAS Panel’s interpretation of article 37 PRCFCB included ‘no reference to previous CAS cases, Swiss law or comparative law’, the interpretation provided by the CAS Panel, in this author’s opinion, is fitting. UEFA may adopt such an interpretation in future editions of the PRCFCB, or may draft a limitation clause to reflect the AC Decision and UEFA’s submissions to the CAS Panel (i.e. that time stops on the date the IC opens its investigation, not when a referral decision is issued as decided by the CAS Panel).
Footnotes
[1] CAS 2020/A/6785 Manchester City FC v UEFA.
[2] Ibid, [7]-[13].
[3] Ibid, [10].
[4] Ibid, [11].
[5] Ibid.
[6] Ibid, [12].
[7] Ibid, [29].
[8] Ibid, [61].
[9] Ibid, [63].
[10] Ibid, [83] and [87]-[88].
[11] Ibid, [86].
[12] Ibid, [81].
[13] Ibid, [96]-[107].
[14] Ibid, [108].
[15] Ibid, [109]-[121].
[16] Ibid, [122].
[17] Ibid, [126]-[129].
[18] Ibid, [146]-[147].
[19] Ibid, [150].
[20] Ibid, [151].
[21] Ibid, [152].
[22] Ibid, [153]-[154] and [157].
[23] Ibid, [158].
[24] Ibid, [161].
[25] Ibid, [167].
[26] Ibid, [168].
[27] Ibid, [169].
[28] Ibid, [170]-[171].
[29] Ibid, [182].
[30] Ibid, [187]-[189].
[31] Ibid, [191].
[32] Ibid, [196].
[33] Ibid, [198].
[34] Ibid, [200]-[205].
[35] Ibid, [207]-[208].
[36] Ibid, [215]-[216].
[37] Ibid, [217]-[227].
[38] Ibid, [230]-[231].
[39] Ibid, [232]-[235].
[40] Ibid, [236].
[41] Ibid, [237]-[243].
[42] Ibid, [244].
[43] Ibid, [245]-[252].
[44] Ibid, [254]-[255].
[45] Ibid, [262]-[268].
[46] Ibid, [269]-[273].
[47] Ibid, [290]-[293].
[48] Ibid, [296]-[297].
[49] Ibid, [316]-[318].
[49] Ibid, [319].
[51] Ibid, [328].
[52] Ibid, [329].
[53] Ibid, [334]-[335].
31 July 2020