Communicated on 21 June 2018

FIFTH SECTION

Applications nos. 26222/11 and 41601/11 ISKRA-ILIEVI I SIE SD against Bulgaria and S P DEVELOPMENTS EOOD against Bulgaria lodged on 15 April 2011 and 2 June 2011 respectively

STATEMENT OF FACTS

The applicant in the first application (“the first applicant”), Iskra ‑ Ilievi I Sie SD ( събирателно дружество ), is a company registered in Bulgaria and operating in Pleven. It is managed and represented by Mr M. Iliev , a Bulgarian citizen living in Pleven. The company is represented before the Court by Mr G. Genov , a lawyer practising in Pleven.

The applicant in the second application (“the second applicant”), SP Developments EOOD, is a company registered in Bulgaria, operating in Sofia and being owned by a Spanish company called Tuent Gestion EOOD. SP Developments EOOD is managed by a Sp anish citizen, Mr J.E. Lasa de Ca ñ o, and is represented before the Court by Mr A. Sazdov and Mr B. Petrov , lawyers practising in Sofia.

A. The circumstances of the case

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

1. The first applicant, Iskra- Ilievi and Sie SD

( a ) Proceeding in which a penalty imposed on the first applicant was quashed as unlawful

On 3 November 2008, the respective territorial department of the National Revenue Agency imposed a penalty ( наказателно постановление ), in the form of a monetary sanction of about 8,000 euros (EUR), on the first applicant for delayed payment of a value-added tax due under the Value-added Tax Act. Following judicial review proceedings brought by the first applicant in respect of the penalty, on 5 January 2009 the Pleven District Court quashed it as unlawful. After a subsequent appeal by the tax authorities, the Pleven Administrative Court confirmed the lower court ’ s judgment in a final decision of 27 April 2009.

At both judicial instances in the above-described proceedings the first applicant claimed costs in the form of legal fees which the company had paid to a lawyer retained by it to legally represent it in those proceedings. The amounts claimed were respectively EUR 760 and EUR 350 for the proceedings at first and second instance. The Pleven District Court did not deal with that request, while the Pleven Administrative Court awarded the sum claimed before it in full, namely EUR 350.

(b) Proceeding for damages stemming from the unlawful penalty

On 1 June 2009 the first applicant brought judicial proceedings under the State and Municipalities Responsibility for Damage Act 1988 (“the SMRDA”). In those proceedings the company claimed pecuniary damages in the amount of EUR 760 in relation to the legal fees it had paid in the first instance proceedings in which the Pleven District Court had quashed the monetary penalty as unlawful. The company considered that, given that the penalty had been quashed in proceedings for which it had hired a lawyer, the fees it had paid to the latter were due to it under the SMRDA as related damages stemming from an act of the public authorities which had been quashed as unlawful.

The Pleven Administrative Court left the claim without examination, requesting clarifications from the first applicant. After the company clarified its claim the court dismissed it as inadmissible. In particular it found that the imposition of the penalty in question could not be considered to have been done “in the exercise of an administrative function” by the authorities and, therefore, the SMRDA was not applicable.

Upon an appeal by the first applicant, in a decision of 8 October 2009 the Supreme Administrative Court (“the SAC”) quashed the lower court ’ s decision and returned the case to it for further examination. More specifically the SAC held that the question whether damages could be sought in connection with the penalty was a matter on the merits of the dispute and did not concern its admissibility.

Deciding on the merits, on 15 February 2010 the Pleven Administrative Court rejected the company ’ s claim, finding in particular that there had been no direct causal link between the quashing of the monetary penalty and the payment of the lawyer ’ s fee. As the participation of a lawyer had not been mandatory in those proceedings and the first applicant had hired a lawyer on its own initiative, the payment of the related legal fee did not represent damage caused by the authorities.

In a final decision of 14 February 2011 the SAC confirmed the lower court ’ s decision in full.

2. The second applicant, SP Developments EOOD

(a) Proceeding in which an administrative act concerning the second applicant was quashed as unlawful

On 8 April 2008, the respective territorial department of the National Revenue Agency (“the Agency”) issued a financial revision act ( ревизионен акт ) to the second applicant, the company, refusing to grant to it a tax credit in the amount of EUR 174,380. The company challenged the refusal before the Agency ’ s Appeals Department and the latter quashed it as unlawful on 20 June 2008. The second applicant had hired a lawyer for that appeal to whom it had paid EUR 3,500 in fees.

(b) Proceeding for damages stemming from the unlawful administrative act

Subsequently, the second applicant brought proceedings for damages under the SMRDA, seeking pecuniary damages in the amount which it had paid as legal fees in the proceedings in which the act had been quashed as unlawful. Having acknowledged that there was no legal provision in either the Tax Code or the Administrative Procedure Code concerning costs incurred by claimants in proceeding before an administrative body, the Administrative Court Sofia City rejected the claim on 8 March 2010. That court held in particular that there had been no direct causal link between the quashing as unlawful of the financial revision act (the refusal to grant tax credit) and the payment of the lawyer ’ s fee in those proceedings.

Upon an appeal by the second applicant, the SAC confirmed the lower court ’ s decision in full in a final decision of 12 December 2010.

B. Relevant domestic law and practice

Section 1 of the State and Municipalities Liability for Damage Act 1988 (SMRDA) provides that the State is liable for damage suffered by individuals or legal persons as a result of unlawful decisions, actions or omissions by civil servants, committed in the course of or in connection with administrative action. Section 4 provides that the State is liable for all pecuniary and non ‑ pecuniary damage which is a direct and proximate result of the impugned decision, action or omission.

In some cases the domestic courts have refused to award counsel ’ s fees in proceedings under the Administrative Offences and Sanctions Act 1969 (“the 1969 Act”) on the basis that the 1969 Act did not provide for that and that damages, including counsel ’ s fees, could be claimed separately in proceedings under the SMRDA (see реш . от 26 април 2001 г. по н. а. х. д. № 891/2001 г., СРС; реш . от 15 януари 2002 г. по а. х. д. № 1401/2001 г., СГС, НК; реш . от 1 фе вруари 2002 г. по н. а. х. д. № 4828/2001 г., СРС ). Similarly, in criminal proceedings the Supreme Court of Cassation has held that fees paid for privately retained counsel could be claimed by way of damages in proceedings under the SMRDA ( реш . № 41 от 13 март 2002 г. по н. д. № 686/2001 г., ВКС, І II н. о. ).

Notwithstanding the above decisions, the courts dealing with cases under the SMRDA have repeatedly rejected claims for the award of damages in relation to counsel ’ s fees incurred in earlier proceedings in which administrative acts had been quashed as unlawful, on the basis that they were not a direct and proximate result of unlawful administrative action and that legal representation was not mandatory in those proceedings ( опр . № 260 от 7 януари 2008 г. по адм . д. № 593/2007 г., АСВТ; реш . № 347 от 10 януари 2008 г. по адм . д. № 8867/2007 г., ВАС, ІІІ о.; реш . № 504 от 14 януари 2008 г. по адм . д. № 8865/2007 г., ВАС, ІІІ о.; реш . № 8033 от 17 юни 2009 г. по адм . д. № 9614/2008 г., ВАС, ІІІ о.; реш . № 8050 от 29 юни 2010 г. по адм . д. № 15826/2009 г., ВАС, ІІІ о.; реш . № 6506 от 9 май 2012 г. по адм . д. № 15893/2011 г., ВАС, ІІІ о.).

The matter was settled with the adoption of an interpretative decision by the SAC in March 2017 (see тълкувателно решение № 1 от 15 март 2017 по т.д. № 2 / 2016 г., ОСС, I и II колегия ). In it, after acknowledging the existence of inconsistent judicial practice on the question, it confirmed that legal fees – paid in proceedings in which administrative acts had been declared unlawful – represented a direct and proximate result of the unlawful administrative act within the meaning of section 4 of the SMRDA. Thereafter, the courts started systematically awarding pecuniary damages sought under section 1(1) of the SMRDA in connection with legal fees paid in proceedings in which administrative acts had been declared unlawful. In doing so the courts held that, while the legal fees had been considered “costs” in the context of the proceedings in which the administrative act had been declared unlawful, those fees represented damage sustained by the claimant in the context of his or her exercise of their right to protection against unlawful acts or actions by public authorities (see , among others, реш . № 1722 от 8 февруари 2018 г. на ВАС по адм .д. № 11551 / 2016 г., III о. ; реш . № 1724 от 8 февруари 2018 т. на ВАС по адм . Д. № 12308 / 2016 г., III о. ; реш . № 1823 от 12 февруари 2018 г. на ВАС по адм .д. № 7 / 2017 г., III о. ; реш . № 3111 от 12 март 2018 г. на ВАС по адм .д. № 610 / 2017 г., III о. ; реш . № 17 24 от 8 февруари 2018 г. на ВАС по адм .д. № 12380 / 2016 г., III о. ).

COMPLAINTS

The applicant companie s complain under Article 1 of Protocol No. 1 to the Convention and under Article 13 of the Convention about their inability to peacefully enjoy their possessions as a result of the domestic courts ’ refusal to award them damages in respect of the legal fees they had paid in proceedings in which their administrative penalty had been overturned as unlawful, as well as about the lack of a related effective domestic remedy.

QUESTIONS TO THE PARTIES

1. Has there been a breach of the applicant companies ’ peaceful enjoyment of possessions, within the meaning of Article 1 of Protocol No. 1 to the Convention, as a result of the rejection of their claims for damages in respect of legal costs incurred in prior proceedings in which administrative acts against them had been declared unlawful?

2. Did the applicant companies have at their disposal an effective domestic remedy for the complaint under Article 1 of Protocol No. 1, as required by Article 13 of the Convention?