Communicated on 17 March 2015

FIFTH SECTION

Application no. 24314/13 Vaclav FISCHER against the Czech Republic lodged on 5 April 2013

STATEMENT OF FACTS

The applicant, Mr Václav Fischer , is a German national, who was born in 1954 and lives in Berlin . He is represented before the Court by Mr J. Černohlávek , a lawyer practising in Prague .

A. The circumstances of the case

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

The applicant owned 100% of the shares in Cestovní kancelář FISCHER, a.s . , a joint stock company incorporated under Czech law ( hereinafter “the company” ). On 4 November 2003 the applicant and K & K Capital Group a.s . , a joint stock company incorporated under Czech law, entered into a cooperative agreement. The agreement stipulates, inter alia , that if there is an increase in the company ’ s share capital, both parties to the agreement will have the right to participate in the increase, proportionally to their share in the company. Subsequently, the applicant transferred 75% of the company ’ s shares to K & K Capital Group.

On 3 March 2004 the general meeting of the company adopted, by vote of K & K Capital Group , a resolution to increase the company ’ s share capital from CZK 1,000,000 to CZK 11,000,000. The pre-emptive subscription rights of the shareholders of the company were excluded and the newly issued shares were offered to Kapitálová společnost K&K a.s . , a joint stock company incorporated under Czech law. The applicant objected and voted against the resolution. As a result of the increase in the company ’ s share capital, the applicant ’ s share decreased from 25% to 2.3%.

1. Proceedings to set aside the r esolution of the general meeting to increase the company ’ s share capital

On 9 March 2004 the applicant lodged with the Prague Municipal Court an action to have the resolution to increase the company ’ s share capital set aside, asserting that it had been adopted contrary to the applicable law and that it violated the cooperative agreement . The applicant claimed that exclusion of pre-emptive subscription rights of current shareholders may be considered, pursuant to Article 204a(5) of the Commercial Code, only if there is a serious reason to do so on the part of the company; the subscription rights may be restricted only to the same extent for all current shareholders. According to him, this was not the case since the new shareholder, Kapit álová společnost K&K was effectively controlled by Mr. K. K., who also controlled K & K Capital Group. Furthermore, the new shareholder did not bring anything valuable to the company which could not be provided for by the applicant or K & K Capital Group and which could justify the exclusion of current shareholders ’ pre-emptive subscription rights. In the applicant ’ s view, the resolution was adopted in order to seize control over the company, in a violation of the cooperative agreement and circumventing Article 204a( 5) of the Commercial Code.

Before the Prague Municipal Court ruled on the action, the general meeting of the company approved, on 17 December 2004, a merger with three other companies, allegedly controlled by Mr. K. K. The merger was entered into the Commercial Register on 18 March 2005. As a result of the merger, the company ’ s share capital was again substantially increased and the applicant ’ s share decreased from 2.3% to 0.07%. The applicant lodged an action also against the resolution of the general meeting of the company approving the merger (see below).

On 13 April 2005 the Prague Municipal Court dismissed the action to set aside the resolution to increase the company ’ s share capital . It held that the resolution to increase the company ’ s share complied with the applicable law, including Article 204a( 5) of the Commercial Code. It noted that even if the resolution had been unlawful, the court could not set it aside with respect to Article 131(3 )( c) of the Commercial Code, which stipulates that if the entry of a merger into the Commercial Register is approved, the court could not set aside a general meeting resolution preceding the approval of the entry. The applicant appealed the decision.

On 11 May 2006 the Prague High Court upheld the decision. As far as the lawfulness of the resolution of the general meeting is concerned, it agreed with the reasoning of the Prague Municipal Court. It however expressed its view that Article 131(3 )( c) of the Commercial Code was not applicable.

Upon the applicant ’ s appeal on points of law, the Supreme Court quashed the decision of the Prague High Court, o n 24 June 2008 , and remitted the case back. It considered erroneous the Prague High Court conclusion that the law could not have been circumvented since Article 204a( 5) of the Commercial Code had been complied with.

On 12 February 2009 the Prague High Court upheld the decision of the Prague Municipal Court again. It held that the resolution had breached the cooperation agreement, therefore the resolution had been adopted contrary to good morals and had circumvented the law. The court then proceeded to the question whether it could set aside the res olution with respect to Article 131(3) of the Commercial Code. It observed that as a result of the merger of the company with three other joint stock companies, those companies had been dissolved and their shareholders had received shares of the company and gained bona fide rights associated with the shares. According to the court, the resolution could not be set aside with respect to Article 131(3 )( b) of the Commercial Code which prevents the court to set aside a resolution of the general meeting if such a determination would substantially interfere with third parties ’ rights acquired in good faith.

On 16 June 2010 the Supreme Court dismissed the applicant ’ s appeal on points of law. It held that the Prague High Court had interpreted and applied Article 131(3 )( b) of the Commercial Code correctly. According to the Supreme Court, a shareholder whose rights were infringed such as in the present case is entitled to compensation from the company for any damage suffered and also to just satisfaction for a violation of the shareholder ’ s fundamental rights (Article 131(4) of the Commercial Code).

On 8 October 2012 the Constitutional Court dismissed the applicant ’ s constitutional appeal as manifestly ill-founded. It held the applicant ’ s right of access to a court was respected by the Supreme Court since it had examined the appeal on points of law. As for his property rights, the Constitutional Court noted that it was immanent that mere possession of shares of a joint-stock company did not guarantee a shareholder an unchanged position and influence over the company. It shared the view of the Supreme Court that the statutory limitations set out in Article 131(4) of the Commercial Code allowed the applicant to initiate the compensatory proceedings even after his action to set aside the resolution was dismissed.

2. Proceedings to set aside the r esolution of the general meeting to approve the merger

On 20 December 2004 the applicant lodged an action with the Prague Municipal Court to set aside the resoluti on of the general meeting of 17 December 2004 approving the merger. Claiming he still owned 25% share of the company, the applicant maintained, inter alia, that the resolution had not been approved by the required 90% majority.

The Prague Municipal Court dismissed his action on 17 January 2012. It pointed out to the fact that the applicant ’ s action to set aside the resolution to increase the company ’ s share capital had been dismissed. Thus it took the view that the applicant had not any longer held 25% share of the company at the general meeting on 17 December 2004 and the resolution had been adopted by the required majority. The court added that even if there had been a violation, it would have to take into consideration Article 131(3 )( c) and possibly (b), because the merger had already been entered into the Commercial Register.

Upon the applicant ’ s appeal, the Prague High Court upheld the judgment o n 17 May 2013 .

The applicant did not lodge an appeal on points of law or a constitutional appeal against the decisions, claiming there was no prospect of success.

B. Relevant domestic law

1. The Commercial Code (as in force at the relevant time)

Article 131(1) gives shareholders the right to contest a general meeting resolution by means of an application to set it aside if it was deemed to contravene the law, a deed of incorporation or by-laws. The provision is applicable to general meeting resolutions of joint stock companies by virtue of Article 183(1).

The relevant part of Article 131(3) reads as follows:

“ The Court does not set aside a general meeting resolution under Article 131 (1) or (2), if

(...)

b) the action under (1) would substantially interfere with rights of third parties acquired in good faith,

c) the court in charge of the Commercial Register recorded a merger, transfer of assets, demerger, or change of legal form into the Commercial Register, ...”

The relevant part of Article 131(4) reads as follows:

“ Persons who have suffered damage by a resolution of the general meeting a dopted contrary to law, the deed of incorporation or by-laws, have the right to claim damages and the right to just satisfaction for an impairment of fundamental shareholders ’ rights, which may be compensated also financially . This right can be asserted even if a court did not set the general meeting resolution aside for one of the reasons set out in Article 131(3). The claim for just satisfaction has to be made before the court within the same time-limit as applied for i ntroducing an application to set aside of a general meeting resolution, or within three months following the day on which the decision of a court made under (3) becomes final.”

2. Case-law of the Constitutional Court

In its judgment no. I. ÚS 1768/09 of 21 March 2011, the Constitutional Court held (§ 28):

“Any applicant [to the Constitutional Court] may be deprived of protection of their rights claimed through the action [to set aside the resolution of the general meeting] by a reference to good faith of third parties. Use of this procedural remedy thus becomes a toothless attempt at protection of rights. Constitutionality, as well as lawfulness, of the compulsory acquisition of shares hence falls out of scope of judicial review, which contravene s Article 13 of the Convention ... ”

C. Resolutions of the Committee of Ministers

The Committee of Ministers of the Council of Europe closed its examination of the case Kohlhofer and Minarik and the subsequent cases by adopting, on 10 July 2013, the Resolution CM/ResDH(2013)140 and , on 20 November 2013, the Resolution CM/ResDH(2013)227 .

The relevant parts of the Resolution CM/ ResDH( 2013)140 read as follows :

“ Action Report submitted by the Czech Government on 3 December 2012

...

In 2011, the Ministry of Justice prepared an amendment of the relevant legislation, which became Act No. 355/2011 and entered into force on 1 January 2012 (the “Act”). The Act inter alia explicitly reflects the Kohlhofer and Minarik judgment and introduces measures intended to remedy the previous legislative shortcomings identified by the Court. In particular, Section 131(3 ) ( c) of the Commercial Code, i.e. one of the provisions that were at the cente r of the Court ’ s criticism, has been abolished. Furthermore, Sections 57(2) and (3) of the Companies Transformations Act have been modified in order to provide for a possibility to continue the proceedings to set aside a decision on transformation of the company (such as transfer of assets to the majority shareholder) after the entry of the transformation into the Commercial Register. This applies on condition that a minority shareholder changes the object of his motion to seek a determination whether the transformation project (e.g. transfer of assets) or the decision approving it are contrary to the legislation or internal statutes of the company. Upon a court ’ s decision declaring an inconsistency of such transformation project or of the corresponding decision with legislation or the company ’ s internal statutes, the minority shareholders are entitled to claim damages or a just satisfaction for non-pecuniary damage. Therefore, even after the entry of the transformation into the Commercial Register, minority shareholders will have access to court to contest the general meeting ’ s resolution that has deprived them of their shares. Despite not being able to achieve quashing of the resolution, the merits of their claims, in particular the question whether the resolution had been adopted in breach of law or the company ’ s internal statutes, will be heard and finally decided in adversarial proceedings before the court . Such solution allows for striking a fair balance between the competing interests of the minority shareholders on the one hand and those of the majority shareholder, the company and the broader public interest on the other hand. ”

COMPLAINTS

1. The applicant asserts under Article 6 § 1 of the Convention that his right to a fair trial has been violated. He compares his situation to that of the applicants in Kohlhofer and Minarik v. the Czech Republic ( nos. 32921/03, 28464/04 and 5344/05, 15 October 2009 ) and Roman Minarik v. the Czech Republic ( no. 58874/11, 22 November 2012). The applicant maintains he has taken all the necessary steps to protect his rights, the domestic courts concluded his rights had been violated, yet his action was dismissed.

2. Relying on Article 1 of Protocol No. 1 and the Court ’ s judgment Sovtransavto Holding v. Ukraine (no. 48553/99, ECHR 2002 ‑ VII) , the applicant complains that because of the unlawful resolution of the general meeting, his share in the company was reduced from 25% to 2.3%. If the resolution to increase the company ’ s share capital had been set aside, he could have prevented the merger with a view to protecting his right to the peaceful enjoyment of his possessions . Seeking restitutio in integrum in the first place, the applicant does not consider compensatory proceedings under Article 131(4) of the Commercial Code to provide an effective and accessible remedy. He argues that the special s tatutory limitations in Article 131(4) apply only to claims for just satisfaction, but not to claims for compensation for material damage.

QUESTIONS TO THE PARTIES

1. Did the applicant have a fair h earing in the determination of his civil rights and obligations, in accordance with Article 6 § 1 of the Convention? In particular, did he have effective access to the domestic courts concerning his action against the resolution of the company ’ s general meeting to increase the company ’ s share capital?

2. Did the applicant exhaust all accessible and effective domestic remedies in relation to his complaint under Article 1 of Protocol No. 1? In particular, were the compensatory proceedings under Article 131(4) of the Commercial Code accessible to the applicant, given the statutory limitations set out by that provision (see Roman Minarik v. the Czech Republic , no. 58874/11 , § 38 , 22 November 2012 )?

3. Has there been an interference with the applicant ’ s peaceful enjoyment of possessions, within the meaning of Article 1 of Protocol No. 1? If so, has t he respondent State complied with its positive obligations under Article 1 of Protocol No. 1?

The Government are invited to submit examples of decisions delivered by the domestic courts in proceedings under Article 131(4) of the Commercial Code.