FIFTH SECTION

CASE OF BAZALT IMPEKS, TOV v. UKRAINE

( Application no. 39051/07 )

JUDGMENT

STRASBOURG

1 December 2011

FINAL

01/03/2012

This judgment has become final under Article 44 § 2 of the Convention. It may be subject to editorial revision .

In the case of Bazalt Impeks , Tov v. Ukraine ,

The European Court of Human Rights ( Fifth Section ), sitting as a Chamber composed of:

Dean Spielmann , President, Elisabet Fura , Karel Jungwiert , Boštjan M. Zupančič , Ann Power-Forde , Ganna Yudkivska , Angelika Nußberger , judges, and Claudia Westerdiek , Section Registrar ,

Having deliberated in private on 8 November 2011 ,

Delivers the following judgment, which was adopted on that date:

PROCEDURE

1 . The case originated in an application (no. 39051/07 ) against Ukraine lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by a Ukrainian company , Bazalt Impeks, Tov (“the applicant company ”), on 21 August 2007 .

2 . The applicant company was represented by Mr K. Buzadzhy , a lawyer practising in Kyiv . The Ukrainian Government (“the Government”) were represented by their Agent, Mrs V. Lutkovska , from the Ministry of Justice .

3 . On 10 January 2011 the President of the Fifth Section decided to give notice of the application to the Gove rnment. I t was also decided to rule on the admissibility and merits of the application at the same time ( Art icle 29 § 1) .

THE FACTS

I. THE CIRCUMSTANCES OF THE CASE

4 . The applicant company , Bazalt Impeks limited liability company , is a Ukrainian legal entity registered in Svitlovodsk .

5 . In June 2006 an IT c ompany lodged a claim with the Kirovograd Regional Commercial Court against the applicant company seeking the cancellation of a contract and return of property.

6 . By a decision of 26 July 2006, the court found against the applicant company . On 2 October 2006 the Dnipropetrovs ’ k Regional Commercial Court of Appeal dismissed the applicant company ’ s appeal and upheld the decision of the first-instance court.

7 . By a decision of 12 December 2006, the Higher Commercial Court, upon the applicant company ’ s appeal, quashed the decisions of the lower courts and found in favour of the applicant company .

8 . On 20 February 2007 the Supreme Court of Ukraine, upon the IT company ’ s cassation appeal, quashed the ruling of the Higher Commercial Court on the ground that its findings had been unfounded and erroneous, and upheld the decision of the Dnipropetrovs ’ k Regional Commercial Court of Appeal. In taking this decision, the Supreme Court noted:

“ The Supreme Court of Ukraine , with regard to the provisions of Articles 6 and 8 of the Constitution of Ukraine , does not consider it necessary to rem it the case for fresh examination to the first - instance court . This would be contrary to the provisions of Article 125 of the Constitution of Ukraine and sections 2 and 39 of the Law of Ukraine “ On the Judicial System of Ukraine ” [the Judiciary Act] regarding the status of the Supreme Court of Ukraine and its task to ensure the administration of justice in accordance with the law . It would further cause a constitutionally unacceptable need to quash the lawful decision of the court of appeal . In this regard, the list of possible outcomes of cassation appeal s against decision s of the Higher Commercial Court of Ukraine envisaged in Article 111-18 of the Code of Commercial Procedur e of Ukraine is not considered a legal impediment to adopti ng the decision. ”

9 . On 5 March 2007 the decision of the Supreme Court was sent to the applicant company.

II. RELEVANT DOMESTIC LAW

A . The Constitution (1996)

10 . The relevant extract of the Constitution of Ukraine reads as follows:

Article 6

“State power in Ukraine is exercised on the principles of its division into legislative, executive and judicial power.

Bodies of legislative, executive and judicial power exercise their authority within the limits established by this Constitution and in accordance with the laws of Ukraine .”

Article 8

“ In Ukraine , the principle of the rule of law is recognised and effective.

The Constitution of Ukraine has the highest legal force. Laws and other normative legal acts are adopted on the basis of the Constitution of Ukraine and shall conform to it.

The norms of the Constitution of Ukraine are norms of direct effect. Appeals to the court in defence of the constitutional rights and freedoms of the individual and citizen directly on the grounds of the Constitution of Ukraine are guaranteed.”

Article 125

“In Ukraine the system of courts of general jurisdiction is formed in accordance with the territorial principle and the principle of specialisation.

The Supreme Court of Ukraine is the highest judicial body in the system of courts of general jurisdiction ...”

Article 129

“ ... The main principles of judicial proceedings are:

1) legality ... ”

B . Judiciary Act (no longer in force)

11 . The relevant provisions of the Act (i n its wording of 1 January 2007 ) read as follows:

Section 2. Tasks of the court

“ The c ourt, exercising justice based on the rule of law shall ensure the protection of the rights and freedoms of natural persons , the rights and legitimate interests of legal persons, and the interest s of society and of the S tate as guaranteed by the Constitution of Ukraine and by the law .”

Section 47. The Supreme Court of Ukraine – the highest judicial body

“ 1. The Supreme Court of Ukraine is the highest judicial bod y within the system of courts of general jurisdiction ...

2. The Supreme Court of Ukraine shall:

1) review ... the cases under the cassation procedure in the situations established by law...

7) exercise ot her powers pursuant to the law.”

Section 39 of the Act dealt with the competences of the Higher Specialised Courts .

C . Code of Co mmercial Procedure (as worded at the material time)

12 . The Code of Commercial Procedure (formerly : Arbitration Procedure) was significantly reworded on 21 June 2001. At that time , a fourth level of jurisdiction was introduced in to c ommercial p rocedure. According to the relevant provisions of the Code, a cassation appeal to the Higher Commercial Court , similar to th at found in other member States of the Council of Europe, and a second (or repeated) cassation appeal to the Supreme Court was available to the p arties in a commercial case. Commercial p rocedure was the only judicial procedure of Ukraine where a fourth level of jurisdiction exist ed and where the Supreme Court act ed as a second -instance court of cassation (in criminal and civil proce edings it act ed as an ordinary court of cassation and in administrative and administrative offences proce edings it perform ed only extraordinary review). The relevant legislation was changed in July 2010 and the competence of the Supreme Court in commercial case s was limited to the review of a case in the event of inconsistenc ies in judicial practice or in the event that a decision is adopted by an international tribunal.

The relevant provisions of the Code of Commercial Procedure (in its wording of 15 May 2003) read as follows:

Article 80 Nullification of the proceedings

“A commercial court shall nullify proceedings in the case, if

1) a dispute is not subject to examination in the commercial courts of Ukraine ; ...”

Chapter XII-2 [1] Review of judicial decisions of the Higher Commercial Court of Ukraine by the Supreme Court of Ukraine

Article 111-14 The r ight to appeal in cassation against the judicial decisions of the Higher Commercial Court of Ukraine

“ The p arties to a case and the Prosecutor General of Ukraine have the right to appeal in cassation to the Supreme Court of Ukraine against a resolution of the Higher Commercial Court of Ukraine adopted following the review of a decision of a first - instance commercial court that has entered into force, or a resolution of the Commercial Court of Appeal [as well as the ruling of the Higher Commercial Court of Ukraine on return of the appeal (request for review) in cassation] .”

Article 111-15 The grounds for appeal to the Supreme Court of Ukraine against a resolution [or ruling] of the Higher Commercial Court of Ukraine

“The Supreme Court of Ukraine reviews in cassation the resolutions [or rulings] of the Higher Commercial Court of Ukraine if they are appealed against :

1) on the basis of the application by the Higher Commercial Court of Ukraine of a law or normative act which contravenes the Constitution of Ukraine;

2) where a decision contravenes decisions of the Supreme Court of Ukraine or of a higher court of a different specialisation on the issue of the application of the norms of substantive law;

3) where it is revealed that the Higher Commercial Court of Ukraine has applied the same provision of the law or any other normative act differently in similar case s ;

[3-1) due to the inconsistency of the resolutions or rulings with the international treaties of Ukraine agreed as binding b y the Verkhovna Rada of Ukraine ;]

4) where an international judicial body whose jurisdiction is recognised by Ukraine finds that a resolution [or ruling] has violated the international obligations of Ukraine .”

Article 111-17 The procedure for review in cassation of the resolutions [and rulings] of the Higher Commercial Court of Ukraine

“ ... The resol ution [or ruling] of the Higher Commercial Court of Ukraine shall be reviewed in cassation on the basis of the rules for consideration of the case in the first-instance commercial court, save for procedural actions to establish and prove the actual circumstances of the case.”

Article 111-18 The jurisdiction of the Supreme Court of Ukraine in the course of a cassation review of the resolutions [ or rulings ] of the Higher Commercial Court of Ukraine

“The Supreme Court of Ukraine, following consideration of an appeal in cassation, or a request for review in cassation lodged by the Prosecutor General of Ukraine against a resolution [ or ruling ] of the Higher Commercial Court of Ukraine, shall be entitled to:

1) leave the resolution [ or ruling ] unchanged and dismiss the appeal (request);

2) quash the resolution and remit the case to the first-instance court for further consideration [or quash the ruling and remit the case for further consideration to the Higher Commercial Court ];

3) quash the resolution [or ruling] and nullify the proceedings in the case.”

Article 111-19 The grounds fo r quashing the resolutions [or rulings] of the Higher Commercial Court

“The resolutions [or rulings] of the Higher Commercial Court of Ukraine shall be quashed if they contraven e the Constitution of Ukraine, international treaties agreed as binding b y the Verkhovna Rada of Ukraine, or if the substantive law has been mis applied otherwise .”

Article 111-20 Resolutions of the Supreme Court

“... A resolution of the Supreme Court of Ukraine shall be final and shall not be subject to appeal.”

Article 111-21 The binding nature of the instructions adopted in the resolution of the Supreme Court

“ Instructions, contained in the resolution of the Supreme Court of Ukraine, shall be binding for the first-instance court during a new consideration of the case [and for the Higher Commercial Court of Ukraine during consideration of the materials of the appeal in cassation or the request for review in cassation ].

The r esolution of the Supreme Court of Ukraine, following a re-examination of the case on the basis of an appeal in cassation against the resolution [or ruling] of the Higher Commercial Court of Ukraine shall not include instructions as to the admissibility or inadmissibility of evidence, the superiority of one type of evidence over another, the norm s of substantive [or procedural] law which shall be applicable or the kind of decision that shall be adopted as a result of the further consideration of the case.”

D . E xecution of judgments and application of case-law of the European Court of Human Rights Act , 2006

13 . Section 13 of the Act provides for general measures to be taken by the domestic authorities to eliminate underlying problems which led to finding of a violation by the Court and reasons for similar applications in the future.

14 . Section 17 foresees the application of the Convention and the case-law of the Court as a source of law by the Ukrainian courts in adjudication of cases before them.

THE LAW

I. ALLEGED VIOLATION OF ARTICLE 6 § 1 OF THE CONVENTION

15 . The applicant company complained that the Supreme Court had exceeded its competence in upholding the decision of the appellate court and that this unfair decision had caused it serious pecuniary damage. It referred to Article 6 § 1 of the Convention, which reads as follows:

“In the determination of his civil rights and obligations ..., everyone is entitled to a fair ... hearing ... by an independent and impartial tribunal established by law.”

A. Admissibility

16 . The Court notes that the application is not manifestly ill-founded within the meaning of Article 35 § 3 (a) of the Convention. It further notes that it is not inadmissible on any other grounds. It must therefore be declared admissible.

B. Merits

17 . The Government agreed that the Supreme Court had not follow ed the relevant procedural rules and exceeded its competence under the Code of Commercial Procedure. They considered , however , that the principle of the rule of law, enshrined in Article 8 of the Constitution, and the tasks entrusted to the Supreme Court under sections 2 and 47 of the Judiciary Act necessitated the course of action taken by the said court in the present case and that the Court, in the case of Sokurenko and Strygun v. Ukraine (nos. 29458/04 an d 29465/04, 20 July 2006) [2] , had acknowledged that in exceptional circumstances the highest judicial body competent to interpret the law could take a decision which was not strictly provided by the law . They further reiterated the reasoning given by the Supreme Court itself in its impugned decision (see paragraph 8 above).

18 . The Government also observed that the relevant domestic legislation had been changed in July 2010 and that under the amended law the Supreme Court was no longer competen t to review the cases as a second -instance court of cassation. In the Government ’ s opinion such legislative changes rectified the situation and dispensed the State of liability. They referred to the case of Milasi v. Italy ( 25 J une 1987, § 18, Series A no. 119) in which the Court accepted that by taking sufficiently prompt and effective measures for correcting the situation the State was dispensed of responsibility for the situation, formed in connection with procedural or other shortcomings of the judicial system.

19 . The applicant company made no further observations in reply to those of the Government.

20 . The Court reiterates that Article 6 of the Convention does not compel the Contracting States to set up courts of appeal or of cassation. However, where such courts do exist, the guarantees of Article 6 must be complied with . According to the Court ’ s case-law, the phrase “established by law” covers not only the legal basis for the very existence of a “tribunal”, but also compliance by the tribunal with the particular rules that govern it (see Sokurenko and Strygun , cited above, §§ 22 - 24, with further references) .

21 . In the case of Sokurenko and Strygun (cited above, § 26), the Court noted that the Supreme Court ’ s competence under the Code of Commercial Procedure was limited to review of the decisions of the Higher Commercial Court, as it could only have quashed the resolution of the Higher Commercial Court , remitted the case for fresh consideration or nullified the proceedings (see paragraph 12 above). Instead , the Supreme Court upheld the decision of the c ourt of a ppeal , without giving any reasons for exceeding its jurisdiction, when no such course of action was provided for in the Code of Commercial Procedure. The Court concluded that the Supreme Court had acted contrary to Article 6 § 1 of the Convention, not as a “tribunal established by law” , as it overstepped the limits of its jurisdiction , which were clearly laid down in the Code of Commercial Procedure (see Sokurenko and Strygun , cited above, §§ 26-28).

22 . In the Court ’ s view, the factual and legal circumstances of the present case are identical to those already examined by the Court in the judgment s of Sokurenko and Strygun (cited above) and Veritas v. Ukraine ( no. 39157/02, §§ 27 and 28 , 13 November 2008 ) . T he Court sees no reasons which would justify departure from its previous case-law .

23 . As to t he Government ’ s arguments concerning the exception al nature of the Supreme Court ’ s actions in overstepping procedural rules, the Court notes that in Sokurenko and Strygun the Government acknowledged that taking such decisions had become usual practice for the Supreme Court (see Sokurenko and Strygun , cited above, §§ 19 and 27) .

24 . The Court notes that at the time of the proceedings before the Supreme Court, the judgment in the above-cited Sokurenko and Strygun case had become final and had been translated and published in the official law journal of Ukraine. The Court is concerned with the fact that despite the clear provisions of Section 17 of the E xecution of judgments and application of case-law of the European Court of Human Rights Act, the highest judicial body of Ukraine failed to have regard to the Court ’ s findings in the above-mentioned case and the reasoning given by the Supreme Court in the present case (see paragraph 8 above) rather explained why the Supreme Court had not considered itself bound by the procedural rules once it had disagreed with a decision of the Higher Commercial Court.

25 . Finally , the Government ’ s argument that the State could be dispensed of liability for a violation of the applicant company ’ s rights under Article 6 of the Convention once measures had been taken to remedy the situation (see paragraph 17 above) does not demonstrate in what way the legislative change s, made more than three years after the impugned decision in the applicant company ’ s case had been taken , could remedy its individual situation so that the applicant company could no longer claim to be a victim .

26 . In the view of the above, the Court concludes that there has been a violation of Article 6 § 1 of the Convention in the present case .

II . APPLICATION OF ARTICLE 41 OF THE CONVENTION

27 . Article 41 of the Convention provides:

“If the Court finds that there has been a violation of the Convention or the Protocols thereto, and if the internal law of the High Contracting Party concerned allows only partial reparation to be made, the Court shall, if necessary, afford just satisfaction to the injured party.”

28 . The applicant company did not submit a claim for just satisfaction. Accordingly, the Court considers that there is no call to award any sum on that account.

FOR THESE REASONS, THE COURT UNANIMOUSLY

1. Declares the application admissible;

2 . Holds that there has been a violation of Article 6 § 1 of the Convention .

Done in English, and notified in writing on 1 December 2011 , pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.

Claudia Westerdiek Dean Spielmann              Registrar              President

[1] . Words in brackets show amendments of 15 May 2003 , introduced by the Law on the Introduction of Changes and Amendments to the Code of Commercial Procedure of Ukraine.

[2] . The judgment in the case of Sokurenko and Strygun was translated into Ukrainian and published in the Official Herald of Ukraine, No. 1 of 19/01/2007. A summary of this judgment was also published in the Government's Currier No. 6 of 13/01/2007.