Communicated on 1 February 2017

SECOND SECTION

Application no. 1920/14 PROJECT-TRADE D.O.O . against Croatia lodged on 20 December 2013

STATEMENT OF FACTS

The applicant, Project-Trade d.o.o . (hereafter “the applicant company”), is a commercial (limited liability) company incorporated under Croatian law with its seat in Zagreb. It is represented before the Court by Mr J. Butigan , an advocate practising in Zagreb.

A. The circumstances of the case

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

1. Background to the case

The applicant company was a shareholder of the Croatia banka d.d ., a joint-stock company incorporated under Croatian law with its seat in Zagreb (hereafter “the bank”). The bank was entirely owned by private individuals and companies. The applicant company held 1,251 share in the nominal value of 200 Croatian kunas (HRK) each.

On 23 February 1999 the Croatian National Bank ( Hrvatska narodna banka , hereafter “the CNB”) adopted a decision appointing a temporary administrator to the bank. Under section 84(2) of the Banks Act, from the date of service of such decision, all powers of the bank ’ s governing bodies were transferred to the temporary administrator. Subsequently, on 23 August 1999 the CNB extended the temporary administrator ’ s term of office for a further two months.

Meanwhile, on the basis of an expert opinion indicating that the bank ’ s debts largely outweighed its share capital and that it therefore presented a danger for the general stability of the financial market, on 18 June 1999 the CNB had proposed to the Government of Croatia that the process of recovery ( sanacija ) and restructuring of the bank be commenced, as provided for by the domestic legislation.

In accordance with that proposal, on 23 September 1999 the Government of Croatia adopted the Decision on Recovery and Restructuring of the Croatia banka d.d . (“the Government Decision”). From that date, all shares held by the bank ’ s shareholders were revoked and cancelled. Following the process of recovery, the bank was to issue new shares, all in the name of the State Agency for Securing Savings Deposits and Recovery of Banks ( Državna agencija za osiguranja štednih uloga i sanaciju banaka , hereafter “DAB”). The process of recovery and restructuring of the bank was completed on 13 September 2000.

In 1999 and 2000 five shareholders of the bank, but not the applicant company, filed four separate petitions for review of the constitutionality and legality ( prijedlog za ocjenu ustavnosti i zakonitosti ) of the Government ’ s Decision of 23 September 1999. They complained that the Decision violated their constitutional rights as shareholders of the bank guaranteed by Articles 48 § 1, 49 § 4 and 50 of the Croatian Constitution. They also claimed that the bank had been in good standing and that the Decision had therefore been unnecessary.

During the proceedings the Constitutional Court obtained opinions from two financial experts and opinions from two professors of commercial and company law. Financial experts suggested that the Government Decision had not been economically justified or necessary. The law professors suggested that the Decision was contrary to Article 49 § 3 of the Croatian Constitution.

On 30 January 2003 the Constitutional Court ( Ustavni sud Republike Hrvatske ) discontinued the proceedings because the legislation on which the Decision was based, namely the 1994 Recovery and Restructuring of Banks Act, had in the meantime, on 31 May 2000, been repealed. It added:

“The contested Decision is, by its legal nature, subordinate (secondary) legislation but the legal effects [of some of its provisions] directly interfere with individual rights of a certain category of citizens (founders and former shareholders of Croatia banka ).

...

The Constitutional Court notes the Croatian legal system guarantees to every founder and/or shareholder of Croatia banka who considers that his rights have been violated by ... the contested Decisions, the ...chance to obtain judicial protection.

...

It is evident form the existing case-law that individual legal protection is also available in civil proceedings by applying the relevant provisions of the Obligations Act.

Judicial protection against possible infringements of the rights of founders and former shareholders of Croatia banka , brought about by the contested Decision, is also available in the proceedings based on section 19(2) of the [1994] Courts Act, according to which the commercial courts have jurisdiction in disputes concerning disposition of membership and membership rights in commercial companies.

Finally, each plaintiff (former shareholder of Croatia banka ) is entitled to lodge a constitutional complaint against the judgment of a competent court and [thereby] institute proceedings before the Constitutional Court if he or she deems that a court judgment has violated certain human rights or fundamental freedoms guaranteed by the Croatian Constitution.”

2. Civil proceedings in the applicant company ’ s case

On 12 September 2003 the applicant company brought a civil action in the Zagreb Commercial Court ( Trgovački sud u Zagrebu ) against the bank and DAB asking the court to issue (a) a declaratory judgment that the company was still the holder of 1,251 shares, (b) order DAB to transfer the corresponding number of shares from its portfolio to the company, and (b) order the bank to record the company as the holder of those number of shares in the bank ’ s register of shareholders.

During the proceedings the applicant company argued that the Government Decision of 23 September 1999, whereby its shares had been revoked and cancelled, had been contrary to Articles 48 § 1, 49 § 4 and 50 of the Croatian Constitution, which was acknowledged by the High Commercial Court ( Visoki trgovački sud Republike Hrvatske ) in another case, namely, in that court ’ s judgment of 21 December 2004 (see below under Relevant practice).

By a judgment of 21 February 2006 the Zagreb Commercial Court dismissed the applicant company ’ s action.

On 18 June 2008 the High Commercial Court dismissed an appeal by the applicant company and upheld the first-instance judgment.

Both commercial courts held that the Government Decision of 23 September 1999 had never been invalidated as unconstitutional by the Constitutional Court and thus had to be assumed as being in compliance with the Constitution.

The applicant company then, on 14 October 2008, lodged a constitutional complaint alleging violations of its constitutional rights guaranteed by the above-mentioned Articles of the Constitution.

By a decision of 2 October 2013 the Constitutional Court dismissed the applicant company ’ s constitutional complaint and served that decision on the company ’ s representative on 10 October 2013.

That court examined the case under Article 29 § 1 of the Croatian Constitution, which guarantees the right to a fair procedure, and found no violation of that right. It added:

“Regarding the complainant ’ s argument ... that in ‘ these proceedings the first-instance court and the second-instance court had to directly apply the Constitution and the law, and not the [Government ’ s Decision of 23 September 1999 ] ’ the complainant is referred to [consult] points 14 to 17 of the reasons given in the Constitutional Court ’ s decision U-III-736/2005 of 8 July 2013.”

B. Relevant domestic law and practice

1. The Constitution

The relevant Articles of the Constitution of the Republic of Croatia ( Ustav Republike Hrvatske , Official Gazette no. 56/90 with subsequent amendments) read:

Article 48 § 1

“The right of ownership shall be guaranteed.”

Article 49 § 4

“The rights acquired through the investment of capital shall not be diminished by legislation, or by any other legal act...”

Article 50

“1. Ownership may be restricted or taken in accordance with the law and in the interest of the Republic of Croatia subject to payment of compensation equal to the market value.

2. Entrepreneurial freedom and ownership rights may, on an exceptional basis, be restricted by law for the protection of the interests and security of the Republic of Croatia, nature, the environment or public health.”

Paragraph 3 of Article 115 of the Constitution reads as follows:

Article 115 § 3

“ The courts adjudicate [cases] on the basis of the Constitution, statutes, international agreements and other valid sources of law.”

Before it was amended, with the entry into force of the 2010 Amendments to the Croatian Constitution ( Promjena Ustava Republike Hrvatske , Official Gazette no. 76/10) on 2010, that provision read as follows:

Article 115 § 3

“ The courts adjudicate [cases] on the basis of the Constitution and statutes.”

Article 155 of the Croatian Constitution defines jurisdiction of the Constitutional Court. Subparagraphs 1-3, which specify the powers of the Constitutional Court in the so-called abstract review proceedings, read as follows:

Article 125

“The Constitutional Court of the Republic of Croatia:

- shall decide on the conformity of statutes with the Constitution;

- shall decide on the conformity of subordinate legislation with the Constitution and statutes;

- may examine the constitutionality of statutes and constitutionality and legality of other [i.e. subordinate legislation] which are no longer in force, provided that from the moment of they were repealed until the submission of an application or a petition to institute the proceedings [for review before the Constitutional Court] not more than one year has passed.

...”

Subparagraph 3 of Article 125, allowing the Constitutional Court to examine constitutionality of statutes and subordinate legislation which are no longer in force, was added by the 2000 Amendments to the Croatian Constitution ( Promjena Ustava Republike Hrvatske , Official Gazette no. 113/00), which entered into force on 9 November 2000.

2. Relevant legislation

(a) Legislation governing the organisation of judiciary

Section 5 of the 1994 Courts Act ( Zakon o sudovima , Official Gazette no. 3/94 with subsequent amendments), which was in force between 22 January 1994 and 28 December 2005 provided as follows:

Section 5

“1. The courts adjudicate [cases] on the basis of the Constitution and statutes.

2. The courts adjudicate [cases] also on the basis of the international agreements which are the part of the [internal] legal order of the Republic of Croatia. The courts also apply other [i.e. subordinate] legislation adopted in accordance with the Constitution, international agreements or statutes.”

The text of section 5 of the 2005 Courts Act (Official Gazette no. 150/05 with subsequent amendments), which was in force between 29 December 2005 and 13 March 2013, is nearly identical.

(b) The Constitutional Court Act

Section 37 of the Constitutional Act on the Constitutional Court of the Republic of Croatia ( Ustavni zakon o Ustavnom sudu Republike Hrvatske , Official Gazette no. 99/99 with subsequent amendments – “the Constitutional Court Act”), which has been in force since on 24 Septem ber 1999, reads as follows:

Section 37

“(1) If the [ordinary] court in proceedings finds that the statute to be applied or some of its provisions are not in accordance with the Constitution, it shall stop the proceedings and submit an application to the Constitutional Court to review the conformity of the statute or its provisions with the Constitution.

(2) If the [ordinary] court in proceedings finds that another [i.e. subordinate] legislation to be applied, or some of its provisions are not in accordance with the Constitution or a statute, it shall directly apply the statute and [at the same time] submit an application to the Constitutional Court to review the conformity of the impugned [subordinate] legislation or its provisions with the Constitution and the [relevant] statute.”

(c) Other legislation

The relevant provisions of the 1998 Banks Act, the 1994 Recovery and Restructuring of Banks Act and the relevant legislation that repealed it, and of the Government ’ s Decision on Recovery and Restructuring of the Croatia banka d.d . are summarised in the case of Miljenko Kovač v. Croatia ( dec. ), no. 39739/06 , 15 January 2009.

3. Relevant practice

In the judgments no. Pž-6234/04-2 of 21 December 2004 and no. Pž ‑ 6233/04-3 of 19 January 2005 the High Commercial Court ruled in cases where the plaintiffs, shareholders of the Croatia banka d.d ., had sued the bank and DAB before the competent commercial court claiming that they had been deprived of their shares and the rights derived from them without any compensation. They sought declaratory judgments that they were still shareholders of the bank and asked the court to order the respondents to transfer them back their shares. In ruling for the plaintiffs the High Commercial Court directly applied Articles 48 § 1 and 49 § 4 of the Constitution. It expressly stated that the Government ’ s Decision of 23 September 1999 was contrary to the latter Article and reasoned as follows:

“In particular, any restriction or deprivation of the rights deriving from shares would be contrary to that provision of the Constitution, as it would constitute diminution or deprivation of membership rights acquired through the investment of capital in a joint-stock company.”

Both judgments were, upon constitutional complaints by Croatia banka d.d ., subject to review by the Constitutional Court. In decisions no. U ‑ III ‑ 736/2005 and U-III/1706/2005, both adopted on 8 July 2013, the Constitutional Court ruled for the bank. It quashed the High Commercial Court ’ s judgments and remitted the cases. The Constitutional Court held, inter alia , that it had never pronounced itself on the constitutionality of the Government ’ s Decision of 23 September 1999 because the relevant proceedings for abstract constitutional review had been discontinued (see above under Facts). This meant that the Decision had to be presumed as being in accordance with the Constitution. Thus, by calling into question the constitutionality of that Decision, the High Commercial Court had overstepped the bounds of its jurisdiction.

COMPLAINTS

1. The applicant company complains under Article 1 of Protocol No. 1 to the Convention that, on the basis of the Government Decision of 23 September 1999, it was deprived of its shares without a valid reason and without compensation. In particular, the applicant company complains that the Decision in question was unconstitutional and that the domestic courts refused to examine its conformity with the Constitution.

2. The applicant company also complains under Article 6 § 1 of the Convention that the Constitutional Court ’ s decision was not adequately reasoned because that court examined the company ’ s constitutional complaint in the light of Article 29 § 1 of the Constitution and not in the light of the Articles the company had actually relied on.

3. Lastly, the applicant company complains, also under Article 6 § 1 of the Convention, that it took the domestic courts more than ten years to decide on its civil action.

QUESTIONS TO THE PARTIES

1. Did the applicant company have access to court, as required by Article 6 § 1 of the Convention, given that neither the Constitutional Court nor commercial courts examined or were entitled to examine whether the Government Decision of 23 September 1999 was compatible with the Constitution, or otherwise justified, an issue directly decisive for the outcome of the applicant company ’ s civil action (see, mutatis mutandis , Capital Bank AD v. Bulgaria , no. 49429/99, §§ 98-166, ECHR 2005 ‑ XII (extracts)) ?

2. Did the Constitutional Court, when deciding on the applicant company ’ s constitutional complaint, examine the alleged violations of Articles 48 § 1, 49 § 4 and 50 of the Croatian Constitution? In the negative, was the Constitutional Court ’ s decision of 2 October 2013 sufficiently reasoned, as required by Article 6 § 1 of the Convention?

3. Was the length of the civil proceedings in the present case in their part before the Constitutional Court, in breach of the “reasonable time” requirement of Article 6 § 1 of the Convention?

4. Has the applicant company been deprived of its possessions in violation of its right to peaceful enjoyment of its possessions guaranteed by Article 1 of Protocol No. 1 to the Convention (see, mutatis mutandis , Capital Bank AD v. Bulgaria , no. 49429/99, §§ 132-140, ECHR 2005 ‑ XII (extracts))?