Sébastien Ledure, Arnaut Kint and Wouter Janssens published an article in the special report on minors in football of the June 2017 edition of Football Legal (see it here), explaining the use of surety agreements and commenting on the decision of the Brussels’ Court of First Instance in the ‘Lokilo case’
| SECURING INVESTMENTS IN YOUTH TRAINING: THE LOKILO-CASE |
- The need for clubs to secure investments in youth training
The importance of youth training for professional football clubs cannot be underestimated, both from a sporting and a financial point of view. Over the past decade, the amounts invested in youth training programs have been significantly increasing. These investments, however, are at risk in case trained talents would sign their first professional contract with another club.
FIFA’s regulations on training compensation[1] aim precisely at compensating clubs that have invested in the training of young players. Indeed, certain amounts are payable as training compensation by the new club to the former training clubs when a player signs his first professional contract and following each subsequent transfer until the end of the season of the player’s 23rd birthday. The training compensation system, however, is not bulletproof: the amounts payable as training compensation are theoretical and can be lower than a player’s real value or training cost. Besides, training clubs must comply with several prerequisites to be entitled to training compensation.
Considering the limits of the training compensation system, clubs revert to the remedies available in their respective national legal framework to try to secure their investments in youth training: pre-registration system, non-solicitation agreement, forgivable loan, etc.[2] One of the remedies used by Belgian clubs is the surety agreement.
- The surety agreement
A surety agreement (convention de porte-fort) is an agreement whereby party A undertakes towards party B that party C, which is not a party to the surety agreement, will do, give or refrain from doing[3]. In turn, party A receives a compensation from party B. In case party A does not perform its undertaking (i.e. party C does not do, give or refrain from doing), party B will be entitled to an indemnity from party A.
Surety agreements are being used by some Belgian clubs to secure the signing of the first professional contract by their youth players:
- the club signs a surety agreement with the parents of a youth player, who undertake that the player will sign his first professional contract with the club once he has reached the age legally required to do so, being 16 in Belgium;
- as a counterpart, the club undertakes to pay a compensation to the player’s parents; and
- in case the player does not sign his first professional contract with the club (which implies that the parents did not perform their obligation towards the club), the parents undertake to pay an indemnity to the club.
- The Lokilo-case
The use of surety agreements has been challenged in the “Royal Sporting Club Anderlecht / Kasongo & Eyanga Lokilo” case, in which the Brussels’ Court of First Instance (“the Court”) rendered a decision on November 22, 2016.
1. The facts
In early 2007, Belgian powerhouse Royal Sporting Club Anderlecht (“RSCA”) set up a high-level youth training program, combining football training and regular schooling.
Jason Lokilo, born September 17, 1998, (“the Player”) joined RSCA’s youth training program in May 2007.
On July 1, 2011, RSCA and the Player’s parents (“the Parents”) signed a surety agreement (“the Surety”) per which:
- the Parents undertook that the Player would sign his first professional contract with RSCA on September 17, 2014, being the date he turns 16 years old (“the Contract”);
- RSCA undertook to bear all training costs of the Player as well as to pay the Parents an amount of € 75.000 as compensation; and
- the Parents undertook to pay RSCA an amount of € 450.000 as indemnity in case the Player would not sign the Contract.
Upon the signing of the Surety, RSCA paid the Parents an amount of € 75.000 as compensation.
At the end of 2013, several foreign clubs showed interest in the Player. The Player’s father, being a licensed football agent, informed RSCA that Aston Villa was willing to bear the amount of € 450.000 as indemnity.
The Player resigned from RSCA in July 2014, at the age of 15, and signed a contract with Crystal Palace in the summer of 2015, at the age of 16. Crystal Palace’s offer to pay an amount of € 45.753,42 as training compensation did not result in an agreement with RSCA.
2. The merits
Since the Player did not sign the Contract, RSCA claimed an amount of € 450.000 from the Parents as indemnity under the Surety.
The Parents did not contest that they did not perform their obligation under the Surety, yet did not agree with RSCA’s claim and raised the following objections to avoid the payment of the indemnity:
1. Invalidity of the object of the Surety
Under Belgian law, an agreement is invalid if its object is illicit, i.e. contrary to public order or good moral standards[4]. The sanction for the invalidity of an agreement is the nullity, which leads to cancellation of the agreement and the retroactive annihilation of all consequences of the execution of the agreement.
The Court considered that the Surety is only binding for the Parents and does not create any obligation for the Player. The Surety does not affect the Player’s freedom of association, as the Player remains free to decide whether to sign the Contract or not.
Furthermore, the signing of the Contract by the Player would not be illicit: in accordance with article 6 of the Belgian law d.d. February 24, 1978 regarding employment agreements for paid sportsmen, employment agreements can be signed as of the moment a player has completed his mandatory full time schooling, being when he turns 16 years old.
2. Invalidity of the indemnity
As the validity of the Surety was confirmed, the Parents challenged the validity of the indemnity under the Surety.
The Court considered that the indemnity did not jeopardize the Player’s choices for his future career and, hence, was not contrary to the Player’s freedom of association.
Besides, the indemnity cannot be considered as an illegal transfer fee. Referring to the definition of a transfer under the Bosman ruling[5], the Court considered that the Player has not been subject to a transfer, yet simply resigned from RSCA in July 2014.
3. Rejection of the indemnity
As the validity of the indemnity under the Surety was confirmed, the Parents requested the Court not to grant any indemnity in the alleged absence of the proof by RSCA of any prejudice following the inexecution of the Parents’ obligation under the Surety.
The Court, however, considered RSCA’s prejudice to be indisputable:
- it was not able to integrate the Player as one of its professional players;
- it paid the Parents an amount of € 75.000 as compensation; and
- its efforts to train the Player would have been profitable in case the Parents would have performed their obligation under the Surety.
4. Reduction of the amount of the indemnity
As the existence of RSCA’s prejudice was confirmed, the Parents requested the Court to reduce the amount of the indemnity.
Under Belgian law, the amount of a contractual indemnity must correspond to what the Parties could have reasonably foreseen -at the time of signing- to be the compensation for the prejudice resulting from the inexecution of an obligation under the agreement.
The Court considered that the Player’s father, as a licensed football agent, was or should have been duly aware of the good practice in professional football. Moreover, the Player’s father ratified the amount of € 450.000 by informing RSCA of Aston Villa’s offer. However, the Surety was signed jointly by the Player’s father and mother, the latter not being a professional in football.
Therefore, the Court decided that the amount of € 450.000 exceeded what the Parents could have reasonably foreseen as compensation for the prejudice resulting from the inexecution of their obligation under the Surety.
Furthermore, the Court did not deem the evidence provided by RSCA regarding the actual cost of the training of the Player sufficient to justify the amount of € 450.000.
In addition, the Court noted that RSCA would have been entitled to an amount as training compensation approximating the amount offered by Crystal Palace, being € 45.753,42.
Considering the above, the Court granted RSCA an indemnity set ex aequo et bono at an amount of € 140.000, without any breakdown being provided.
- Conclusion
Clubs are in demand of alternative tools, besides FIFA’s training compensation system, to secure their investments in youth training. In that respect, the use of civil code based surety agreements is an option withheld by some professional clubs.
At first sight, one could be tempted to adhere to the primary criticism of the surety technique, advocating that such agreements should be voided as they unlawfully create direct or indirect barriers to the Player’s exercise of fundamental rights such as his freedom of association and his right to work.
However, the Court’s decision in the Lokilo-case, albeit in first instance, rightfully recalls that the Surety is a res inter alia acta for the Player, the agreement between RSCA and the Parents being a distinct, autonomous obligation which the former have freely entered into. On the one hand, this implies that clubs bear the risk of the parents’ insolvability, since clubs cannot claim the indemnity under surety agreements from the player. On the other hand, the role and responsibility of the Parents is not to be neglected: to the extent they have consented freely, the Parents willfully vouched to respect all of the Surety’s terms and conditions. Pacta sunt servanda. In this respect, parent’s chances to invoke post factum the abusive or imbalanced nature of their engagement under a surety agreement are of course more likely to be tempered in case the up-front amount received by the parents is substantial. Such argument, to say the least, could reveal ambiguous…
Regarding the amount of the indemnity due to RSCA by the Parents, questions can be raised on the arbitrarily way the Court valued RSCA’s damages at € 140.000. As mentioned above, the Court decided that the amount of € 450.000 exceeded what the Parents could have reasonably foreseen to be the compensation for the prejudice resulting from the inexecution of their obligation under the Surety. Obviously, this stresses the weak spot of the use of surety agreements and the enforcement of the contractually stipulated indemnities: if not properly justified nor proportionate, the amount of the indemnities will more likely be subject to successful legal challenges. As a result, the proper drafting of the surety agreement will be crucial. In the Lokilo-case, the Court’s decision might have been different -and the amount of the indemnity granted might have been higher- in case the Surety would have explicitly stipulated the Parents’ acknowledgement of (i) the fact that the amount of € 450.000 is the reasonable compensation for the prejudice resulting from the inexecution of their obligation and (ii) an exhaustive and detailed overview of the costs related to the Player’s training.
Nevertheless, the amount stipulated as indemnity under a surety agreement should correspond in a reasonable manner to the actual cost of a player’s training. Hence, an amount exceeding such cost, e.g. based upon a player’s alleged sporting value, is unlikely to be granted.
Finally, it could be considered to convert the parents’ undertaking under surety agreements: rather than undertaking that the player will sign his first professional contract with the club that provided for his training and education, the parents could undertake that the player will not sign his first professional contract with any other professional football club. As such, the underlying philosophy of surety agreements would be more accurately reflected, since no indemnity would be due in case the player does not become a professional football player yet opts for an alternative professional future.
[1] Article 20 and Annex 4 of the 2016 edition of the FIFA Regulations on the Status and Transfer of Players (“RSTP”).
[2] DUCHENE, R., « Legal protection for the training of talented young football players », World Sports Advocate, February 2017, pp. 15-17.
[3] Article 1120 of the Belgian Civil Code.
[4] Article 6 of the Belgian Civil Code.
[5] European Court of Justice, December 15, 1995, Union Royale Belge des Sociétés de Football Association ASBL v Jean-Marc Bosman, C-415/93.
