Information Note on the Court’s case-law 44

July 2002

Sovtransavto Holding v. Ukraine - 48553/99

Judgment 25.7.2002 [Section IV]

Article 6

Civil proceedings

Article 6-1

Impartial tribunal

Pressure exerted by Executive on courts during proceedings: violation

Access to court

Possibility of final court decisions being challenged: violation

Article 1 of Protocol No. 1

Article 1 para. 1 of Protocol No. 1

Peaceful e njoyment of possessions

Uncertainty as regards peaceful enjoyment of the applicant’s possessions due to challenging of final decisions and intervention of Executive in court proceedings: violation

Facts : The applicant company is a public limited company. Between 1993 and 1997 it held 49% of the shares in another public limited company Sovtransavto-Lugansk (SL). By decisions taken in December 1996, August 1997 and October 1997, SL’s managing director incr eased the company’s share capital, each time by one third, and varied its memorandum and articles of association accordingly. Those decisions were ratified by the competent municipal body, Lugansk Executive Council. These increases in SL’s share capital en abled its directors to assume sole control of the company’s management and assets. The proportion of its shares held by the applicant company fell to 20.7%. In June 1997 the applicant company lodged a complaint with the Lugansk Region Arbitration Tribunal against SL and the Lugansk Executive Council. It sought a declaration that the decisions varying SL’s articles of association and the Executive Council’s decision of 23 January 1996 ratifying the changes were unlawful. The Arbitration Tribunal rejected the its claim. In September 1997 the applicant company lodged with the President of the Lugansk Region Arbitration Tribunal an application for revision of that decision under the “supervisory review” procedure. In October 1997, the tribunal’s vice-president r efused that application. In November 1997 the applicant company applied to the Ukrainian Supreme Arbitration Tribunal seeking revision under the “supervisory review” procedure of the two judgments mentioned above. In a judgment of March 1998 the Supreme Ar bitration Tribunal set the judgments aside and remitted the case for reconsideration to the Kiev Region Arbitration Tribunal. Meanwhile, after being contacted by the managing-director of SL, the President of Ukraine sent a letter in February 1998 to the Pr esident of the Supreme Arbitration Tribunal urging him to “defend the interests of Ukrainian nationals”. After the judgment of March 1998 had been adopted, the Chief Executive of the Lugansk Region asked the President to intervene in the case in order to d efend the interests of the SL and of Ukrainian nationals. In May 1998 the President once again drew the attention of the President of the Supreme Arbitration Tribunal to the need to protect the State’s interests. The President of the Supreme Arbitration Tr ibunal informed the President of the Kiev Region Arbitration Tribunal of the Ukrainian President’s views. In June 1998 the applicant company made a further application against SL and the Lugansk Executive Council to the Kiev Region Arbitration Tribunal, se eking a declaration that certain decisions, and in particular the decisions to increase the share capital, were unlawful. The Region Arbitration Tribunal adjourned the application until after judgment had been given in the first set of proceedings. In June 1998 the Kiev Region Arbitration Tribunal refused the applicant company’s application in the first set of proceedings and in a separate judgment, its applications in the second set of proceedings. Various appeals lodged by the applicant company between Ju ly 1998 and February 1999 were dismissed. In June 1999 a general meeting of SL’s shareholders, organised without the participation of the applicant company, decided to wind SL up. In April 2000 the President of the Supreme Arbitration Tribunal applied unde r the “supervisory review” procedure to a bench of that court, seeking annulment of all the judgments relating to the cases. The bench of the Supreme Arbitration Tribunal set aside the judgments of June and October 1998 and January 1999 and remitted the ca ses to the Kiev Region Arbitration Tribunal for reconsideration. In a judgment of April 2001 the Kiev Region Arbitration Tribunal ordered SL’s successor company to return to the applicant company part of SL’s assets, but refused the applicant’s claim again st the Lugansk Executive Council. Execution of the judgment was, however, stayed because the defendant company had lodged an application for revision under the “supervisory review” procedure. Following an objection by the Attorney-General’s Office after an application under the “supervisory review” procedure by the defendant company, the Kiev Economic Court of Appeal, which had acquired jurisdiction to hear the appeal after a reform of the judicial system, set aside in a judgment of January 2002 the order f or restitution of assets to the applicant company and dismissed all the applicant company’s claims. An initial appeal on points of law by the applicant company against that judgment was dismissed by the Economic Supreme Court, without any examination of th e merits, on the ground that the applicant company had failed to produce evidence that it had paid the court fee payable on the examination of appeals. Although the applicant company had paid the amount due, the Economic Supreme Court reimbursed that amoun t and informed the applicant company that it could renew the appeal once it had paid the fee. When the applicant company lodged a fresh appeal, it was again dismissed without any examination of the merits, this time on the ground that it had failed to comp ly with the one-month time-limit.

Law : Government’s preliminary objection – As regards the applicant company’s complaints under Article 6 § 1, the Court noted that the proceedings in issue had begun in June 1997, such that part of those proceedings fell o utside its jurisdiction rationetemporis . It considered that it had jurisdiction to examine the proceedings from the date of the decision of the vice-president of the Lugansk Region Arbitration Tribunal in October 1997, but decided to take into account even ts prior to September 1997 when examining the applicant company’s complaints. The applicant company’s complaint under Article 1 of Protocol No. 1 concerned its loss of control over SL’s activity and assets following the devaluation of its shares in that co mpany and the lack of adequate compensation following SL’s liquidation. The various stages in the process of devaluation of the applicant company’s shares had created a continuing situation which the applicant company still faced, as it had yet to receive adequate compensation. While the Court could only exercise jurisdiction ratione temporis to examine the applicant’s company’s complaint in respect of the third part of the process of devaluation of its shares (November 1997), it would nonetheless take prio r events into account when examining the complaint.

Article 6 § 1 – As regards the impartiality and independence of the courts and tribunals, the Court noted that at the material time the President of the Supreme Arbitration Tribunal, state counsel and their deputies were empowered by Article 97 of the Code of Arbitrat ion Procedure to challenge final judgments under the supervisory review procedure by lodging an objection ( protest ). That power was discretionary such that final judgments were liable to review indefinitely. In the case before the Court, by a judgment of A pril 2000 made on an objection by its President, the Supreme Arbitration Tribunal had quashed all the judicial decisions concerning the applicant company and remitted the cases in which it was involved to the first-instance tribunal for a rehearing. Unlike the applicant in the Brumarescu v.Romania case, the applicant company had been afforded a fresh opportunity to put forward its case before the tribunals of fact, as, by a judgment of April 2001, the Kiev Region Arbitration Tribunal had held that the decis ions of the managing director of SL that had resulted in the devaluation of the applicant company’s shares were unlawful and the compensation it had received following the SL’s liquidation insufficient. The tribunal had ordered SL’s successor company to re turn to the applicant company part of the assets it had owned at the time. By a judgment of January 2002, following inter alia an objection ( protest ) by state counsel’s office, which was not a party to the initial proceedings, the Kiev Economic Court of Ap peal had set aside the part of the judgment of April 2001 that was favourable to the applicant company and upheld the remainder. The risk under the objection ( protest ) procedure of final judgments being set aside repeatedly was incompatible with the princi ple of legal certainty that was one of the fundamental aspects of the rule of law for the purposes of Article 6 § 1. Other features of the case raised serious doubts regarding compliance with the applicant company’s right to a fair hearing by an independen t and impartial tribunal within the meaning of Article 6 § 1 of the Convention. Firstly, there were notable differences and on occasion conflicting approaches in the Ukrainian courts’ application and interpretation of the domestic law, while the Ukrainian authorities acting at the highest level had intervened in the proceedings on a number of occasions. In view of their content and the manner in which they were made, those interventions were incompatible with the notion of an “independent and impartial trib unal”. In the circumstances of the case before the Court, the applicant company could objectively have had concerns as to the independence and impartiality of the tribunals.

On a separate issue, the Supreme Economic Court had not examined the applicant com pany’s appeal on points of law, owing to its failure to comply with the statutory rules, a state of affairs that might be regarded as showing that the applicant company has failed to exhaust domestic remedies. However, the rule on the exhaustion of domesti c remedies had to be applied with some degree of flexibility and without excessive formalism. For the purposes of reviewing whether it had been observed, it was essential to have regard to the circumstances of the individual case. Although the Supreme Econ omic Court had acknowledged that the applicant company had paid the court fees due, it had nonetheless dismissed its appeal on points of law on the ground that it had failed to produce evidence of payment. In addition, it must have been aware when it infor med the applicant company that it could reinstate its appeal once it had complied with the procedural rule concerned that the one-month time-limit for the lodging of appeals would have expired. Consequently, it had dismissed the applicant company’s appeal on points of law as being out of time. In view of the stance taken by the Supreme Economic Court and the other domestic courts and tribunals, it would be unduly formalistic for the blame for the failure of its appeal on points of law to be laid on the appl icant company. In the light of the foregoing, the applicant company’s right to a fair and public hearing had been infringed.

Conclusion : violation (unanimously).

Article 1 of Protocol No. 1 – In the light of the circumstances of the case and having regard to the special nature of the applicant company’s possessions, the Court considered that owing to its factual and legal complexity the case could not be classified in any specific category within Article 1 of Protocol No. 1 and had to be examined in the lig ht of the general rule set out in that Article. The manner in which the proceedings in issue had been conducted had had a direct impact on the applicant company’s right to the peaceful enjoyment of its possessions, as it was indisputable that the refusal o f the tribunals of fact to comply with the instructions of the Supreme Arbitration Tribunal, coupled with the considerable differences of approach by the various levels of jurisdiction to the application and interpretation of the domestic law, had made the repeated reopening of the proceedings in issue possible, thus creating permanent uncertainty about the lawfulness of the decisions of SL and of the Lugansk Executive Council. The Executive’s interventions in the proceedings had significantly added to that uncertainty. Lastly, the manner in which the proceedings had ended did not appear to be compatible with the State’s obligation to respond appropriately to the situation in which the applicant company found itself. Consequently, the applicant company had h ad to contend with that uncertainty during the period in which the initial value of its shares had fallen, a factor that had reduced its capacity to manage SL and to control its assets. Ultimately, the manner in which the proceedings in issue had been cond ucted and the uncertainty faced by the applicant company had upset the fair balance that had to be struck between the general interest and the need to protect the applicant company’s right to the peaceful enjoyment of its possessions. The State had therefo re failed to comply with its obligation to secure to the applicant company the effective enjoyment of its right of property, as guaranteed by Article 1 of Protocol No. 1. Consequently, there had been a violation of Article 1 of Protocol No. 1.

Conclusion : violation (6 votes to 1).

© Council of Europe/European Court of Human Rights This summary by the Registry does not bind the Court.

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