FIFTH SECTION

DECISION

Application no. 55854/10 KRAUJAS HES against Latvia

The European Court of Human Rights (Fifth Section), sitting on 20 October 2020 as a Committee composed of:

Latif Hüseynov , President, Lado Chanturia , Mattias Guyomar , judges, and Anne-Marie Dougin , Acting D eputy Section Registrar ,

Having regard to the above application lodged on 21 September 2010,

Having regard to the observations submitted by the respondent Government and the observations in reply submitted by the applicant,

Having deliberated, decides as follows:

THE FACTS

1 . The applicant company, Kraujas HES, is a limited liability company with its registered address in Ērgļi parish, Latvia (the “applicant company”).

2 . The applicant company was represented by Mr M. Grudulis , a lawyer practising in Riga. The Latvian Government (“the Government”) were represented by their Agent, Ms K. Līce .

3 . The facts of the case may be summarised as follows.

4 . On 20 June 2001 the applicant company was established with a view to constructing and operating a hydroelectric power (“HEP”) station on the River Ogre. For this purpose, on 27 June 2001 it acquired property rights over two plots of land in the Madona district; there is no information about the value of these transactions. On 9 May 2002 its property rights were registered in the Land Register.

5 . On 14 December 2001 the relevant authority issued technical specifications that the applicant company had to comply with during the development of the HEP project on the River Ogre; they were valid for two years.

6 . On 15 January 2002 the Cabinet of Ministers adopted regulation no. 27(2002). The regulation contained a list of rivers on which the construction of any HEP dams was prohibited in order to protect fishery resources. This prohibition did not apply, inter alia , to those HEP projects that had already been submitted to the Ministry of Economics with a view to receiving the relevant permit and if such projects would, in due course, receive a building permit ( būvatļauja ). The applicant company ’ s project for the HEP station on the River Ogre (submitted to the Ministry of Economics on 16 November 2001) was expressly included in the list of HEP projects that had already been submitted to the Ministry of Economics for receiving its permit.

7 . On 24 January and 28 February 2002 the relevant municipal councils included the River Ogre HEP station in their general spatial plans for their respective territories.

8 . On 21 February 2002 the Ministry of Economics issued permit no. 47 allowing the applicant company to develop its HEP project on the River Ogre. The relevant parts of that permit read as follows:

“Permit to commence the project as submitted”

“In accordance with [the relevant provisions of] the Energy Law, [regulations no. 28(2002) and no. 29(2002) adopted by the Cabinet of Ministers] and on the basis of the information submitted by [the applicant company] and [the enclosed documents issued by various domestic authorities],

1. [The applicant company] is allowed to commence the setting-up of the HEP-generating equipment (900kW) by constructing an HEP station on the River Ogre in the Madona district.

2. In carrying out the project, [the applicant company shall] comply with the general requirements regarding environmental protection, the expected use of the real estate and the social impact thereof, [and the] requirements set by [various domestic authorities].

3. A building plan ( būvniecības projekts ) for the HEP station shall be drafted and [its implementation] shall be coordinated [with the relevant authorities]; [the HEP station] shall be constructed, and an agreement on the purchase of the surplus of the electricity produced shall be concluded in accordance with law”.

9 . From 3 until 31 May 2002 the planned HEP project was subject to a public consultation process. At least one meeting was held, and documents were submitted whereby local residents, various authorities, non-governmental organisations and experts communicated their views on the project.

(a) Micro-reserve on the first plot of land

10 . In the meantime, on 19 March 2002 the State Forest Service established a micro-reserve designed for the protection of a specific biotope of certain trees; the first plot of land was included in this micro-reserve. The applicant company, together with the owners of other affected properties, contested this decision. By a final decision of 8 October 2003 the Senate of the Supreme Court (the “Senate”) dismissed their appeals.

(b) Protected area on the first and second plots of land

11 . Subsequently, on 8 March 2004 the Cabinet of Ministers included both of the applicant company ’ s plots of land in a specially protected nature territory – the Ogre Valley nature park. In 2004 both of the applicant company ’ s plots of land were also included in the European Union Natura 2000 network of protected areas.

12 . On 30 January 2006 the applicant company claimed compensation under a special law that had taken effect on 1 January 2006 – the Law on the Right of Landowners to Compensation for Restrictions on Economic Activities in Specially Protected Nature Territories and Micro-Reserves ( Likums “Par zemes īpašnieku tiesībām uz kompensāciju par saimnieciskās darbības ierobežojumiem īpaši aizsargājamās dabas teritorijās un mikroliegumos ” – hereinafter “the Compensation Law”). The applicant company sought compensation for pecuniary damage in the form of lost profit, amounting to more than 600,000 euros (EUR).

13 . By a final decision of 9 July 2010 the Senate dismissed the applicant company ’ s claim. The issue to be decided was whether the applicant company was entitled to claim compensation for lost profit arising from restrictions on economic activities conducted on its plots of land, which had been included in the territory of the micro-reserve and the nature park.

14 . Firstly, the Senate referred to Article 105 of the Constitution ( Satversme ) and examined its scope in the light of Article 1 of Protocol No. 1 to the Convention, with reference to various judgments delivered either by the Constitutional Court or by the Court in Strasbourg.

15 . Secondly, it considered that all protected nature territories had been established with the purpose of nature conservation. The establishment of micro ‑ reserves and the inclusion of properties in specially protected nature territories (e.g. nature parks) were to be considered as constituting a restriction on property rights with the legitimate aim of environmental protection. The applicant company argued before the Senate that the said restrictions had prevented it from proceeding with the construction of the HEP station and carrying on the respective economic activity; consequently, it had been prevented from realising a profit, compensation for which it had claimed before the administrative courts. The Senate was, therefore, called upon to examine the issue of whether the State has provided a fair compensation mechanism for restrictions imposed in specially protected nature territories and micro-reserves.

16 . In this respect, the Senate examined the drafting history of the relevant provisions of the Law on Specially Protected Nature Territories and the Compensation Law in Parliament. During debates in Parliament it had not been envisaged that monetary compensation could be granted for any economic restrictions other than those imposed in respect of the field of commercial forestry. The Senate expressly dismissed the applicant company ’ s argument that it had a right to claim compensation for lost profit arising from restrictions imposed on economic activities on its plots of land. It upheld and further explained the lower courts ’ conclusions that the Compensation Law did not provide for any monetary compensation other than for restrictions on economic activities in the field of commercial forestry. At the same time, the Senate concluded that the applicant company had merely requested compensation for lost profit and had not asked for compensation for economic restrictions imposed in respect of the area of forestry or for the allocation of another plot of land, or that the State buy back the land in question.

17 . The Senate also rejected the applicant company ’ s argument that it could claim compensation on the grounds of section 92 of the Administrative Procedure Law ( Administratīvā procesa likums ); the Compensation Law was lex specialis in that respect. At the same time, the Senate disagreed with the appellate court ’ s finding that the applicant company could claim compensation in the courts of general jurisdiction. The issue of compensation was exclusively regulated by the Compensation Law.

18 . Lastly, the Senate held that the applicant company could lodge a constitutional complaint with the Constitutional Court if it considered that it could not receive adequate compensation for restrictions on its property rights and if it considered that the legal provisions of the Compensation Law were not compatible with the Constitution.

19 . Article 92 of the Constitution provides, inter alia , that “any person whose rights are violated without justification has a right to commensurate compensation”.

20 . Article 105 provides as follows:

“Everyone has the right of property. Property may not be used for purposes contrary to the interests of society. Property rights may be restricted only as provided by law. Forced deprivation of property in the interests of society shall be authorised only in exceptional cases, on the basis of a special law, and in return for fair compensation.”

21 . Under section 92 of the Administrative Procedure Law, which has been in force since 1 February 2004, everyone has the right to receive commensurate compensation for pecuniary and non ‑ pecuniary damage caused by an administrative act or action of a public authority.

22 . Section 2 of the Law on Specially Protected Nature Territories sets out various specially protected nature territories, including nature parks ( dabas parki ) and nature reserves ( dabas liegumi ).

23 . Sections 29 and 30 of this law have been amended on several occasions. Most importantly, since 25 December 2003 they have provided that the conditions and procedures for granting compensation to landowners in respect of restrictions imposed on economic activities in specially protected nature territories are to be laid down in a separate law.

24 . The Law on the Conservation of Species and Biotopes (effective since 19 April 2000) provides for the establishment of micro-reserves ( mikroliegumi ) in order to ensure the satisfactory conservation of specially protected species and biotopes (section 8(2)). Since 11 October 2005, section 10(2) of this law provides that landowners have the right to compensation for restrictions on economic activities in micro-reserves as laid down in law.

25 . On 30 June 2005 Parliament passed the Compensation Law (see paragraph 12 above). It took effect on 1 January 2006 (and remained in force until 1 June 2013). This law provided landowners ’ right to receive compensation for restrictions imposed on economic activities and set out the conditions in respect thereof (section 2). Two forms of compensation were available: ( i ) monetary compensation, which was to cover landowners ’ unrealised profit ( neiegūtais mantiskais labums ), and (ii) the allocation of another plot of land (section 3). Under the transitional provisions, landowners could ask that another plot of land be allocated only from 1 January 2007 onwards; on the latter date the entry into force of this transitional provision was postponed for one more year. Lastly, this form of compensation was deleted from this law, effective from 1 January 2008, and was replaced by another form of compensation – the buying back of the plot of land in question by the State.

26 . General conditions for receiving compensation were laid down in section 5 of the Compensation Law, which provided that landowners may receive only one form of compensation in respect of restrictions on economic activities: monetary compensation or the allocation of another plot of land.

27 . Section 6(1) of the Compensation Law set out the specific circumstances in which landowners could claim monetary compensation for restrictions on economic activities; such circumstances only related to the field of commercial forestry.

28 . Section 79 of the Energy Law ( Enerģētikas likums ) provided as follows:

Section 79 (as in force from 1 June 2001 until 14 April 2005)

“(1) The [relevant] Minister shall issue a permit for the construction and installation of the new power dam referred to in section 40 of this Law, taking into account the [installation ’ s] capacity referred to in section 40(4) of this Law.

(2) In the event that it is declined to issue a permit, the [relevant] Minister shall provide reasons therefor in writing.”

29 . Section 40(1) of this law (as in force from 1 June 2001 until 14 April 2005), provided that licenced electricity distribution companies had to purchase the surplus of the energy produced by small HEP dams (that is to say dams with less than 2 MW capacity) that remained after energy used for their own needs, provided that the exploitation of those dams and their equipment had started before 1 January 2003 and if the energy produced conformed to the parameters set by the State. The purchase price was to be set at a rate corresponding to twice the average rate for the energy tariff. That rate was set for a period of eight years, running from the date of the start of exploitation of the dam. After that period, the rate had to be set by the relevant regulatory authority.

30 . Section 40(4) of this law (as in force from 1 June 2001 until 14 April 2005) provided that the Cabinet of Ministers had to set the total capacity for various renewable energy resources. In 2002, the total capacity allocated to new hydroelectric power installations was set at 10 MW (under regulation no. 28(2002), which was adopted on 15 January 2002). In subsequent years (that is to say 2003, 2004 and 2005) the capacity allocated to new hydroelectric installations was set at zero.

31 . Lastly, regulation no. 29(2002), which was adopted on 15 January 2002 by the Cabinet of Ministers, concerned procedures governing the installation and location of installations producing electric power from renewable resources. Renewable energy resources could be developed throughout the territory of Latvia, except in areas where restrictions had been set (paragraph 5 of this regulation). Until 3 October 2003 this regulation did not specify any conditions for receiving a permit, which was to be issued by the Ministry of Economics. The Ministry had to respond to anyone who applied and to inform the relevant domestic authority of its decision (paragraph 8). Paragraph 15 of this regulation read as follows:

“If the owners of power dams ... do not wish to or cannot acquire the aid provided for in law or under this regulation ..., they may construct such power dams without receiving the aid provided for in law if a permit to construct a power plant and to install equipment has been issued by the [relevant] Minister and if other requirements laid down in law have been complied with ...”

32 . On 29 November 2004 the Constitutional Court instituted proceedings regarding the compliance of regulation no. 27(2002) (see paragraph 6 above) with Article 91 of the Constitution (the principle of non-discrimination). This case was brought before the Constitutional Court by the Administrative Regional Court ( Administratīvā apgabaltiesa ) within the context of proceedings brought by a company which had already received a permit from the Ministry of Economics in 2000 but which had not been included in the list of the HEP projects contained in regulation no. 27(2002).

33 . On 22 April 2005 the Constitutional Court adopted a decision to terminate the proceedings, finding that the two groups of relevant companies (those that had been included in the regulation and those that had not been included but had already received a permit from the Ministry of Economics) were treated equally. The Constitutional Court made the following findings as to the systemic and historic interpretation of regulation no. 27(2002):

“6.1. Interpreting the contested provisions in a systemic manner, [and] taking into account other provisions of the regulation, several conclusions can be made.

6.1.1. The purpose of the regulation, which also appears in the title of the regulation, is to protect fishery resources, by defining rivers on which it was prohibited to construct [or] renovate hydroelectric power dams and to create any mechanical obstacles.

...

6.1.2. When comparing the contested provisions, it can be seen that both of them, as a condition for the implementation of hydroelectric power projects, require not only the [relevant] permit [to have been] issued by the Ministry of Economics, but also for a building permit [to have been issued].

...

6.2. [Historic interpretation]

6.2.2. [The relevant ministry expressly explained the need to include the requirement to have a building permit in the regulation] because it had transpired that HEP owners had often misunderstood the essence of the permit issued by the Ministry of Economics and had commenced their projects immediately after receiving that permit, even though a building permit was also necessary.”

COMPLAINT

34 . The applicant company complained under Article 1 of Protocol No. 1 to the Convention that by setting up a micro-reserve and nature park on its two plots of land, the State had effectively prohibited the development of the HEP project and that the applicant company could therefore not enjoy the fruits of its property. In particular, it had been unable to obtain compensation for the loss of future profits at the domestic level and it had lost its investment in the HEP project.

THE LAW

35 . The applicant company submitted that the State had interfered with its property rights in respect of the two plots of land in question and alleged that it had been unable to obtain any compensation for loss of future profit in this respect. It had also lost its investment in the HEP project. The applicant company relied on Article 1 of Protocol No. 1 to the Convention, which reads as follows:

“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”

36 . The Government argued that the complaint was, firstly, manifestly ill-founded on the grounds that the applicant company could not claim to have a “possession” or “legitimate expectation” within the meaning of Article 1 of Protocol No. 1 to the Convention. The Government explained that in the process of developing the HEP project, the applicant company had fulfilled only some of the requirements and had received only some of the necessary authorisations: the HEP project had been included in the general spatial plans, the applicant company had received a planning document ( plānošanas un arhitektūras uzdevums ) and had developed a technical plan ( tehniskais projekts ); however, it had not obtained approval for its building plan ( būvniecības projekta akcepts ) or, subsequently, a building permit, which had been indispensable to proceeding with the HEP project. The Government explained that only a building permit allowed the commencement of construction.

37 . Similarly, permit no. 47 issued by the Ministry of Economics could not have created a legitimate expectation that the applicant company ’ s HEP project would be approved; it still had to obtain the building permit. The Government referred to the terms of permit no. 47 and the Constitutional Court ’ s findings (see paragraphs 8 and 33 above). The Government also argued that any allegations regarding the loss of future profits were purely speculative, given that the construction work had not been authorised and had not started yet. Lastly, they emphasised that the domestic courts at all levels had held that the Compensation Law envisaged only one type of monetary compensation: namely, compensation for restrictions imposed in the field of commercial forestry and not (as claimed by the applicant company) for the inability to develop an HEP project.

38 . Secondly, the Government argued that the applicant company had failed to exhaust the available domestic remedies. If the applicant company considered that the legal provisions of the Compensation Law did not allow it to receive adequate compensation, it should have lodged an individual constitutional complaint with the Constitutional Court challenging the compatibility of the relevant provisions of the Compensation Law with the Constitution, as had been held by the Senate in the compensation proceedings (see paragraph 18 above).

39 . The applicant company disagreed. Firstly, it had had “sufficient confidence in the possibility of implementing” the HEP project not only because it had received permit no. 47, but also on the basis of it being included in the list of HEP projects included in regulation no. 27(2002) and in the general spatial plans (see paragraphs 7 and 8 above). This confidence had reflected the political will to accept the HEP project and had been of importance for its implementation. The building project approval and building permit had merely constituted formal prerequisites. The Government had not given any indication that the applicant company would encounter any obstacles in having the building project approved and the building permit issued. Nor had the applicant company been aware of any obstacles. Its allegations regarding the loss of future profits were not speculative as they had been based on the guaranteed electricity purchase tariff (that is to say the purchase price) laid down by law.

40 . Secondly, the applicant company argued that Latvian laws did not contain any provision allowing the applicant company to receive compensation. The applicant company concluded that it was impossible to lodge a constitutional complaint regarding the lack of such a legal provision.

41 . The Court must first determine whether the applicant company had a “possession” or “legitimate expectation” within the meaning of Article 1 of Protocol No. 1 and whether that Article is consequently applicable in the instant case.

42 . The Court reiterates that an applicant may allege a violation of Article 1 of Protocol No. 1 only in so far as the impugned decisions relate to his or her “possessions” within the meaning of that provision (see Kopecký v. Slovakia [GC], no. 44912/98, § 35, ECHR 2004 ‑ IX). “ Possessions ” can be “ existing possessions ” or claims that are sufficiently established as to be regarded as “assets” (ibid.). Where a proprietary interest is in the nature of a claim, it may be regarded as an “asset” only if there is a sufficient basis for that interest in national law (for example, where it is confirmed by settled case-law of the domestic courts) – that is to say when the claim is sufficiently established as to be enforceable (see Kopecký , cited above, §§ 49 and 52, and Stran Greek Refineries and Stratis Andreadis v. Greece , 9 December 1994, § 59, Series A no. 301 ‑ B).

43 . The Court has also referred to claims in respect of which an applicant can argue that he has at least a “legitimate expectation” that they will be realised – that is to say that he or she will obtain effective enjoyment of a property right (see, inter alia , Gratzinger and Gratzingerova v. the Czech Republic ( dec. ) [GC], no. 39794/98, § 69, ECHR 2002 ‑ VII, and Kopeck ý , cited above, § 35). However, a legitimate expectation has no independent existence; it must be attached to a proprietary interest for which there is a sufficient legal basis in national law ( ibid., §§ 45-53).

44 . The Court notes at the outset that the applicant company was established with a view to constructing and operating an HEP station on the River Ogre; it acquired two plots of land for that purpose. Prior to the commencement of any construction works, the first plot of land was included in a micro-reserve, and both plots of land were included in a nature park dedicated to nature conservation (see paragraphs 10-11 and 15 above); as a result the applicant company could not construct and operate the HEP station, in relation to which it had previously received permit no. 47 (see paragraph 8 above).

45 . By contrast with cases where the Court has found Article 1 of Protocol No. 1 to the Convention applicable in respect of business activities subject to licensing requirements, the applicant company in the present case had not started its activities and, what is more important in the eyes of the Court, had not acquired all the necessary permits for the construction, building and exploitation of the HEP station at the material time (compare and contrast Fredin v. Sweden (no. 1) , 18 February 1991, §§ 10, 21 and 27, Series A no. 192, in respect of the revocation of an exploitation permit for a gravel pit which the applicants ’ family had held for more than twenty years, and, more recently, O ’ Sullivan McCarthy Mussel Development Ltd v. Ireland , no. 44460/16 , §§ 5 and 14, 7 June 2018, in respect of a temporary prohibition on mussel-seed fishing in respect of the applicant company, which had been engaged in that activity for almost forty years).

47 . Furthermore, the domestic law specified the guaranteed electricity purchase tariff only for those HEP dams that had been in operation prior to 1 January 2003. In subsequent years, no capacity was allocated to new hydroelectric power installations (see paragraphs 29-30 above). Nor had the applicant company received a licence from the Public Utilities Commission for the production of energy (compare and contrast Vecba štika and Others v. Latvia (dec.) [ Committee ], no. 52499/11, §§ 39-43, 19 November 2019).

48 . The Court concludes that the applicant company ’ s HEP project did not comply with the necessary conditions laid down by the domestic law at the material time. Its claim for lost profit arising from the restrictions on its business activities was not sufficiently established to be regarded as “assets”.

49 . Accordingly, the Court agrees with the Government that the applicant company did not have “possession” or a “legitimate expectation” within the meaning of Article 1 of Protocol No. 1 to the Convention and dismisses the applicant company ’ s arguments to the contrary.

50 . Article 1 of Protocol No. 1 applies only to existing possessions and does not create a right to acquire property. Future income cannot be considered to constitute “possessions” unless it has already been earned or is definitely payable (see, most recently, Denisov v. Ukraine [GC] , no. 76639/11, § 137, 25 September 2018, with further references). However, in the present case the applicant company ’ s future income has not actually been earned. Neither can it be argued that it was definitely payable in the circumstances of the present case.

51 . The Court concludes that the applicant company, given the circumstances of the present case, viewed as whole, did not have title to a proprietary interest protected by Article 1 of Protocol No. 1 to the Convention. In these circumstances, this complaint is incompatible ratione materiae with the provisions of the Convention and the Protocols thereto and must be rejected in accordance with Article 35 §§ 3 (a) and 4.

52 . The Court notes that the applicant company has failed to substantiate its actual financial investment in the project. Moreover, there is no information as to the value of the transactions whereby the applicant company acquired the land in question (see paragraph 4 above).

53 . Accordingly, this complaint is manifestly ill-founded and must be rejected in accordance with Article 35 §§ 3 (a) and 4 of the Convention.

54 . In the light of its conclusions above, the Court does not need to rule on the other objections raised by the Government.

For these reasons, the Court, unanimously,

Declares the application inadmissible.

Done in English and notified in writing on 19 November 2020 .

Anne-Marie Dougin Latif Hüseynov Acting Deputy Registrar President