SECOND SECTION

PARTIAL DECISION

AS TO THE ADMISSIBILITY OF

Application no. 40253/98 by Frederik SALOMONSON and Others against the Netherlands

The European Court of Human Rights (Second Section) , sitting on 19 March 2002 as a Chamber composed of

Mr J.-P. Costa , President , Mr L. Loucaides , Mr C. Bîrsan , Mr K. Jungwiert , Mr V. Butkevych , Mrs W. Thomassen , Mrs A. Mularoni , judges , and Mrs S. Dollé , Section Registrar ,

Having regard to the above application lodged with the European Commission of Human Rights on 2 December 1997 and registered on 13 March 1998,

Having regard to Article 5 § 2 of Protocol No. 11 to the Convention, by which the competence to examine the application was transferred to the Court,

Having deliberated, decides as follows:

THE FACTS

The applicants, Mr Frederik Salomonson, Mr Hans Gerard Smits and Mr Barend Gerrit Wilmink, are Netherlands nationals. Mr Salomonson was born in 1933 and lives in Kapellen, Belgium. Mr Smits was born in 1933 and lives in Bussum, Netherlands. Mr Wilmink was born in 1931 and lives in Huizen, Netherlands. All three applicants are represented before the Court by Mr O.L.O. de Witt Wijnen, a lawyer practising in Rotterdam.

A. The circumstances of the case

The facts of the case, as submitted by the applicants , may be summarised as follows.

1. The inquiry

The applicants were members of the board of commissioners ( raad van commissarissen ) of Text Lite Holding N.V. (hereinafter “Text Lite”), a limited liability company ( naamloze vennootschap ). Text Lite was declared bankrupt on 30 October 1990.

On 12 July 1991 a group of 113 disgruntled Text Lite shareholders applied to the Enterprise Section ( Ondernemingskamer ) of the Court of Appeal ( gerechtshof ) of Amsterdam for, in so far as is relevant to the case before the Court, the appointment of one or more investigators for the purpose of establishing whether there had been mismanagement and assessing the part played by certain named members of the management board ( bestuur ) and the board of commissioners in the company’s downfall. The individuals named included the applicants. It was further requested that the Enterprise Section set the cost of the inquiry at 75,000 Netherlands guilders (NLG), to be paid out of the company’s assets by the trustee in bankruptcy ( curator ). The respondent party was Text Lite itself, represented by its trustee in bankruptcy.

The trustee in bankruptcy did not deny that there was an appearance of mismanagement and did not call for the shareholders’ application to be rejected. In view of the limited means available, he suggested that the inquiry go back no further than three years from the date of the company’s bankruptcy, and be limited to the information currently available, so that the investigator might himself decide what specific issues deserved to be investigated.

After holding two hearings, in which the applicants did not participate, and an adjournment of the proceedings caused by the difficulty in finding the funds to finance an inquiry, the Enterprise Section issued a decision on 6 January 1994. It noted inter alia that Text Lite had suffered increasing losses from 1985 onwards; that Text Lite had apparently continued manufacturing obsolete products long after they had been shown to be unmarketable; that new shares had been issued in circumstances which suggested that the company statutes had been deviated from; and that the company had given large unsecured loans to members of the management board. Finding therefore that the actions of those responsible for the company’s affairs were open to serious question, the Enterprise Section gave an order for an inquiry in the terms suggested by the trustee in bankruptcy. The cost of this was to be NLG 75,000, not including value-added tax. The investigator appointed was a chartered accountant ( registeraccountant ).

2. The report of the inquiry

The investigator’s report was dated 5 December 1994. It ran to seventy-six pages not including appendices. It stated that the investigator had spoken to various individuals involved in the running of the company, including the applicants Salomonson and Smits.

The report found that there had been mismanagement during the period it covered. It named individuals responsible for particular events which had caused the company serious losses. It singled out the members of the management board, who were found to have committed irregularities, for the most serious blame but was also critical of the commissioners. Mr Salomonson had acquiesced in the misreporting of stocks of obsolete products at too high a value and in the issuing of new shares to third persons misrepresented as company personnel exercising share options. Mr Smits and Mr Wilmink had acquiesced in the misreporting of the price at which share options had been issued and exercised; in addition, they had apparently failed to check certain financial statements made by the management board which had been incorrect but which had eventually found their way into the company’s annual reports.

The investigator submitted his report to the Enterprise Section on 12 December 1994. On the same day the Enterprise Section ordered it to be laid open to public inspection.

3. Proceedings in the Enterprise Section leading up to the decision of 2 November 1995

The trustees in bankruptcy of Text Lite lodged a statement of defence on 15 March 1995. In so far as is relevant to the case before the Court, they did not contest any of the investigator’s findings but asked that seven named individuals, including the applicants, all members of either the management board or the board of commissioners, should be held severally liable for the cost of the inquiry (Article 2:354 of the Civil Code – see below).

The individuals concerned were invited to join the proceedings as interested parties. Five of them, including the applicants, did so.

The applicants lodged written statements of defence on 27 April 1995.

Hearings were held on 11 May 1995 and 21 September 1995.

As the applicants’ arguments were rendered in the Enterprise Section’s decision, they all denied having been derelict in their duties towards the company. Mr Salomonson stated that he had not acquiesced in the unlawful issuing of shares to unentitled third parties; rather, options for the purchase of those shares had been sold to those third parties and exercised by them. In so far as he had misrepresented the value of stocks of obsolete products, he had erred in good faith. Messrs Smits and Wilmink likewise alleged that they had been misinformed, and even misled, by the management board, which had placed them before irreversible faits accomplis .

The Enterprise Section issued its final decision on 2 November 1995. It found it established that there had been mismanagement. It based this decision on the facts found by the investigator, in so far as these had not been sufficiently contested.

According to the decision, Mr Salomonson could not reasonably have been unaware of the unlawful issuing of a large number of shares, bypassing the rights of existing shareholders, in addition to which he had failed to act on information which indicated that the value of certain stocks of obsolete products had been knowingly misrepresented by the management board.

Although Mr Smits and Mr Wilmink had been critical of the management board and had attempted to appoint a new financial manager, they had nonetheless tacitly co-operated in misreporting the price at which share options had been issued and exercised by failing to follow up a warning given by the company’s accountant.

The Court of Appeal retrospectively annulled a number of decisions of the board of commissioners approving what had been found to be improper acts of the management board, as well as certain decisions of shareholders’ meetings which had been based on faulty information.

Two members of the management board and four of the commissioners, including all the applicants, were made severally liable for the costs of the proceedings. These included the expense of the inquiry, NLG 75,000 plus value-added tax.

4. Proceedings in the Supreme Court

On 2 January 1996 Mr Salomonson lodged an appeal on points of law with the Supreme Court ( Hoge Raad ). The following day Mr Smits and Mr Wilmink lodged a joint appeal, raising largely the same points as Mr Salomonson .

In so far as is relevant to the case before the Court, they argued, firstly, that the Enterprise Section had the competence to order an inquiry in order to establish whether there had been mismanagement in a company, but not to investigate the actions of an individual member of the company’s management or supervisory bodies, and still less to express a negative opinion on their actions.

Secondly, invoking Article 6 of the Convention, they complained that fundamental rules of the fairness of proceedings, including the audi et alteram partem principle, had been infringed in that they had not been involved in the proceedings leading up to the establishment of the inquiry report; it followed that the report ought not to bind them.

Thirdly, the Enterprise Section ought not to have accepted the facts stated in the report of the inquiry as established without examining them for itself.

Mr Smits and Mr Wilmink complained in addition that the order to pay the shareholders’ procedural costs was unlawful.

The Procurator General ( procureur-generaal ) of the Supreme Court submitted an advisory opinion to the Supreme Court on 20 January 1997. He recommended quashing the decision of the Enterprise Section on grounds not relevant to the case now before the Court. It is stated by the applicants that they only received a copy of the advisory opinion together with the Supreme Court’s decision.

The Supreme Court delivered its decision at a public hearing on 4 June 1997. Its reasoning included the following:

“4.1.1.  ...

The basis of the right of inquiry ( enquêterecht ) is the investigation into the running of, and the state of affairs within, the company in order to determine whether there is (or has been) mismanagement. The aims of an inquiry include ... among other things, the disclosure of facts and the establishment of responsibility for any mismanagement that may be found, which may engage in the first place the responsibility of the various statutory bodies of the company.

In the event of such an inquiry, it will not always be possible to separate the responsibility of a statutory body of a company and the individual responsibility of the persons who make up the statutory body. It cannot therefore be stated, as a general rule, that an inquiry cannot extend to an investigation into the functioning of the persons whose actions are those of the company ( die de rechtspersoon doen optreden ).

4.1.2.  It follows from what is laid down in Article 2:255 taken together with Articles 2:356 and 2:354 of the Civil Code that in the situations referred to in those provisions the Enterprise Section is empowered to make arrangements affecting individual members of the management board and commissioners and to decide that costs can be recovered from (one or more of) them. The exercise of these powers will have to be reasoned, which implies that, depending on the circumstances, the Enterprise Section will have to judge the functioning of individual members of the management board and commissioners.

...

4.4.1.  The right of inquiry concerns the company and not the members of the management board or the commissioners individually. It is therefore right and proper that the applicants were not involved in the proceedings which led to the decision in which the request for an inquiry was allowed.

4.4.2.  Ordering arrangements as set out in Article 2:345 and allowing the recovery of costs pursuant to Article 2:354 affects the civil rights and obligations of the members of the management board and the commissioners concerned. It appears from Articles 2:355 and 2:354 that requests [of such nature] can be allowed “if the report shows that there has been mismanagement” (Article 2:355) and “if the report shows that this person” (sc. a member of the management board, a commissioner or another person in the service of the company) “is responsible for mismanagement or for an unsatisfactory state of affairs within the company”. Contrary to the argument made in the points of appeal, it does not follow from these legal texts that the requests may be allowed immediately once the report concludes that there has been mismanagement or that someone is responsible therefor. If those who have sought the inquiry, or the company, are of the opinion that the report shows that there has been mismanagement, they can make the request at issue; it is then for the Enterprise Section to decide whether there has in fact been mismanagement, the Enterprise Section not being bound by the findings of the investigator. Moreover, the procedures provided for in Articles 2:354 and 2:355 are, as far as possible, subject to the rules governing normal civil proceedings initiated with a request ( verzoekschriftprocedure ), which means that the individual members of the management board and the individual commissioners concerned by the requests should be involved in the proceedings.

4.4.3.  The procedures referred to above thus meet the requirements of fair procedure as well as Article 6 of the Convention.

In so far as the grounds of appeal argue otherwise they are unfounded.

...

4.8.  It is further stated in the points of appeal (...), in an entirely general way, that the Enterprise Section ought not to have accepted as established the facts related and found in the report.

4.8.1.  This general complaint is of no interest to the applicants, since they do not state that the Enterprise Section based its decision on irrelevant or incorrect facts. ...”

However, it was correct that the applicants ought not to have been ordered to pay the shareholders’ procedural costs; the Enterprise Section had only been entitled to hold that the cost of the inquiry was recoverable from the applicants. To that extent only the appeal was held to be well-founded. It was dismissed for the remainder.

B. Relevant domestic law

1. The Civil Code

A public limited company may have a board of commissioners. They have the task of supervising the management board’s decision-making ( beleid ) and, more generally, the running of the company and its commercial enterprise. They advise the management board when needed. They are guided by the interests of the company and its commercial enterprise (Article 2:140 of the Civil Code ( Burgerlijk Wetboek )).

The Enterprise Section of the Amsterdam Court of Appeal may, on written application, order an inquiry into the management and state of affairs of a particular company (Article 2:345 § 1). Those entitled to apply include shareholders, provided that a certain minimum proportion of the share capital is represented (Article 2:346 under b.).

An inquiry shall be ordered only if there are serious doubts about the decision-making of the company’s management (Article 2:350 § 1). In that event, the Enterprise Section shall decide how much the inquiry may cost, the costs being borne by the company itself (Article 2:350 § 3).

The Enterprise Section may order the report of the inquiry to be laid open to public inspection (Article 2:353 § 2).

If the company so requests, the Enterprise Section may decide that the cost of the inquiry shall be recoverable from those who applied for the inquiry, if their application is devoid of reasonable foundation, or from a member or members of the management board or board of commissioners or other individuals employed by the company, if they are found to be responsible for mismanagement or for an unsatisfactory state of affairs within the company (Article 2:354).

On application, the Enterprise Section may also give other decisions affecting the company, including reversing decisions of statutory bodies of the company, suspending or dismissing certain members of the management board or board of commissioners or temporarily appointing others, the temporary placing in trust of shares or the liquidation of the company (Articles 2:355 and 2:356).

2. The Code of Civil Procedure

Article 429f § 1 of the Code of Civil Procedure requires the Enterprise Section to summon the interested – i.e. respondent – parties mentioned in the application, and empowers it to summon further interested parties at any time. Such interested parties may be represented or assisted by counsel (Article 429f §§ 5 and 6).

A hearing shall be held, which shall be public unless it is ordered that the hearing shall be held in private in the interests of morals, public order or national security, where the interests of juveniles or the protection of the private life of applicants or interested parties so require, or to the extent that such an order is considered strictly necessary in special circumstances where a public hearing would prejudice the interests of justice (Article 429g § 1).

Up until the beginning of the hearing, or even during the hearing if the Enterprise Section so allows, every interested party may lodge a written statement (Article 429h § 1).

COMPLAINTS

The applicants raise the following complaints under Article 6 § 1 of the Convention:

Firstly, that their “civil rights and obligations” were determined on the basis of a report established following proceedings to which they had not been party.

Secondly, that the procedure followed by the investigator in drawing up the report was unfair to them.

Thirdly, that the Enterprise Section accepted the findings of the investigator without establishing the facts for itself.

Fourthly, that they did not have the opportunity to respond to the Procurator-General’s advisory opinion to the Supreme Court.

THE LAW

Article 6 § 1 of the Convention, in relevant part, provides as follows:

“In the determination of his civil rights and obligations ..., everyone is entitled to a fair ... hearing ... by [a] ... tribunal...”

1. The applicants’ first complaint is that they were never involved in either the proceedings leading up to the decision ordering the inquiry into the company’s affairs, or in the actual preparation of the report of the inquiry. Their second, and related, complaint is that the procedure followed in the preparation of the report was unfair to them.

The Court notes, in relation to the first complaint, that the inquiry was ordered with a view to obtaining information as to the state of affairs of the company, and as to the causes thereof, in order to take certain measures in favour of a better functioning of the company. It was not the purpose of the inquiry to secure evidence concerning the applicants’ or any other person’s individual legal liability. Moreover, the investigator’s report did not, and could not, of itself “determine” the applicants’ “civil rights and obligations”. Nor were the findings it contained in themselves binding on the Enterprise Section of the Amsterdam Court of Appeal or any other tribunal. There was therefore, for the purposes of Article 6 § 1 of the Convention, no reason for the applicants to be called to participate in the proceedings until the report was submitted to the Enterprise Section (cf. Fayed v. the United Kingdom , judgment of 21 September 1994, Series A no. 294-B, pp. 47-48, §§ 60-62).

From this it follows that, until the investigator finalised his report and submitted it to the Enterprise Section, the question of fairness in the sense of Article 6 § 1 of the Convention vis-à-vis the applicants could not arise.

The position changed when the trustees in the company’s bankruptcy sought an order for a number of named individuals, including the applicants, to be held severally liable for the substantial cost of the report. From then on the proceedings determined the applicants’ “civil rights and obligations”. The applicants were in fact called upon to participate in the proceedings from this point onwards. They were in a position to submit argument and evidence of their own to challenge the information contained in the report, as in fact they did.

It follows that no violation of Article 6 § 1 of the Convention is apparent from the applicants’ first and second complaints, which must therefore be rejected as being manifestly ill-founded, pursuant to Article 35 §§ 3 and 4 of the Convention.

2. The applicants’ third complaint is that the Enterprise Section failed to investigate the facts for itself, preferring instead to rely unquestioningly on the investigator’s report.

The Court finds that this complaint is unsubstantiated: The Enterprise Section did in fact consider whether individual findings contained in the report had been sufficiently contested. The decision reflects a weighing of the applicants’ arguments and explanations against the findings of the investigator and the rejection of the former as insufficient. It cannot therefore be said that the Enterprise Section’s decision was based on an uncritical acceptance of the investigator’s findings. It follows that this complaint is also to be rejected as being manifestly ill-founded, pursuant to Article 35 §§ 3 and 4 of the Convention.

3. The applicants’ final complaint is that they were not offered an opportunity to respond to the advisory opinion of the Procurator General to the Supreme Court. They state that the advisory opinion was only sent to them together with the Supreme Court’s decision.

The Court considers that it cannot, on the basis of the case-file, determine the admissibility of this complaint and that it is therefore necessary, in accordance with Rule 54 § 3 (b) of the Rules of Court, to give notice of this part of the application to the respondent Government.

For these reasons, the Court unanimously

Decides to adjourn the examination of the applicants’ complaint that they did not have the opportunity to respond to the Procurator-General’s advisory opinion to the Supreme Court ;

Declares inadmissible the remainder of the applicants’ complaints.

S. Dollé J.-P. Costa Registrar President