Information Note on the Court’s case-law 35

October 2001

Sovtransavto Holding v. Ukraine (dec.) - 48553/99

Decision 27.9.2001 [Section IV]

Article 6

Civil proceedings

Article 6-1

Impartial tribunal

Independent tribunal

Alleged pressure by Executive on court with a view to influencing the outcome of the proceedings: admissible

Civil rights and obligations

Arbitration proceedings concerning a claim to 49% of t he shares in a limited company: Article 6 applicable

Public hearing

Absence of public hearing in arbitration proceedings: admissible

Between 1993 and 1997 the applicant, a Russian limited company, held 49% of the shares in Sovtransavto–Lugansk, a Ukrainian public limited company. In January 1996 a general meeting of Sovtransavto-Lugansk’s shareholders decided to vary the company’s artic les of association, turning it into a private limited company. The Lugansk Executive Council, the only public body empowered to ratify the decisions of limited companies, having scrutinised their compliance with the law and their articles of association, r atified that decision. In December 1996, August 1997 and October 1997 Sovtransavto-Lugansk’s managing director increased the company’s share capital, each time by one third. These decisions were likewise ratified by the Executive Council. As a result, the board of directors was able to assume sole control of Sovtransavto-Lugansk and its assets and the proportion of the capital held by the applicant company was reduced to 20.7%. In June 1997 the applicant company brought arbitration proceedings against Sovtr ansavto-Lugansk and the Executive Council, submitting that the changes to the articles of association and the decisions to ratify them had contravened the legislation in force. Complaints by the applicant company were dismissed by the Lugansk Region Arbitr ation Tribunal and its President. It accordingly applied to a bench of the Ukrainian Supreme Arbitration Tribunal seeking revision under the “supervisory review” procedure. The Supreme Arbitration Tribunal quashed both decisions and remitted the case for r etrial at first instance. In January 1998, after receiving a letter from the directors of Sovtransavto-Lugansk, the President of Ukraine urged the President of the Supreme Arbitration Tribunal to defend “national interests”, which in the present case were stated to be identical to the interests of Sovtransavto-Lugansk. In February 1998 a general meeting of Sovtransavto-Lugansk’s shareholders adopted new articles of association, with the approval of the Executive Council. In April 1998 the Securities Exchang e Commission, a public body responsible for supervising limited companies, reported its finding that the resolution adopted by Sovtransavto-Lugansk’s shareholders in January 1996 and the decisions subsequently adopted by its board had been unlawful. In May 1998, at the request of a member of parliament, the President of Ukraine again urged the President of the Supreme Arbitration Tribunal to defend “national interests” in the case. The arbitrator appointed by the arbitration tribunal to conduct the proceedi ngs refused to try the case, complaining publicly of pressure brought to bear by Sovtransavto-Lugansk and the Executive Council. In June 1998 the applicant company lodged a further application with the arbitration tribunal complaining that the decisions to increase Sovtransavto-Lugansk’s share capital and vary the articles of association and the ratification of those decisions had been unlawful. The arbitration tribunal dismissed the applicant company’s complaint against the decision of January 1996 to vary the articles of association and the ratification of that decision, using, according to the applicant company, a stereotypical form of words. Its further application was also dismissed. Subsequent appeals, particularly appeals under the “supervisory review ” procedure to the president of the first-instance arbitration tribunal and to a bench of the Supreme Arbitration Tribunal, were unsuccessful. In June 1999 a general meeting of Sovtransavto-Lugansk’s shareholders decided, without the participation of the a pplicant company’s representatives, to wind up the company. In May 2000 the President of the Supreme Arbitration Tribunal refused a request by the president of the first-instance arbitration tribunal for the cases to be remitted to another court in order t o “guarantee the objectivity and impartiality of the proceedings”. In a judgment of April 2001 the first-instance arbitration tribunal allowed the applicant company’s claims in part, in so far as it ordered the company which had succeeded Sovtransavto-Luga nsk to return to the applicant part of the assets it owned at the material time. It held that the decisions in 1996 and 1997 to increase the company’s share capital and vary its articles of association had been unlawful and that the compensation the applic ant company had received following the winding-up of Sovtransavto-Lugansk had not been in proportion with the percentage of the latter company’s share capital held by the applicant when Sovtransavto-Lugansk’s articles of association were ratified in 1996. Execution of the above judgment was stayed in May 2001 because the defendant company had lodged an appeal. The domestic proceedings are still pending.

Admissible under Articles 6 § 1 (independent and impartial tribunal, fair trial, public proceedings and r easonable time), Article 1 of Protocol No. 1 and Article 14.

Government’s preliminary objections – (a) (competence ratione temporis ): the question whether, and if so to what extent, the Court could take account of events that had occurred before 11 Septemb er 1997, when the Convention came into force in respect of Ukraine, as the background to the matters referred to the Court, was to be joined to the merits.

(b) (applicability of Article 6): since a share in a limited company has economic value it can be co nsidered a possession. Since the applicant company possessed 49% of Sovtransavto-Lugansk’s shares it had influence under Ukrainian legislation and Sovtransavto-Lugansk’s articles of association over the company’s activity, notably on account of its voting power at the general meeting of shareholders; its shares therefore had economic value and could accordingly be considered “possessions” within the meaning of Article 1 of Protocol No. 1, so that Article 6 § 1 was applicable to the arbitration proceedings: objection dismissed.

(c) (victim status): no decision had recognised or made good any violation by the State of the applicant company’s rights under the Convention. With regard in particular to the complaint concerning the applicant company’s right of property, the arbitration tribunal’s judgment of April 2001 had admittedly recognised the fact that the compensation received by the applicant company following the winding-up of Sovtransavto-Lugansk had not been proportionate, and the tribunal had ordered the restitution to it of part of its assets, but execution of that judgment had been stayed on account of an appeal by the defendant company and the complaints lodged by the applicant company at the start of the proceedings complained of had been unsuccessful. The consequences of the allegedly unlawful acts had therefore not been entirely effaced: objection dismissed.

(d) (six-month rule): the applications for revision lodged by the applicant company under the “supervisory review” procedure with the president of the first-instance arbitration tribunal and a bench of the Supreme Arbitration Tribunal were remedies which had to be used for the purposes of Article 35 § 1. The “final decision” had therefore been given within the six-month period: objection dismissed.

(e) (non-exhaustion ): the applicant company had exhausted the remedies available under Ukrainian law to secure redress for the complaints it had submitted and the Government had not indicated any remedies that it had not used. Moreover, on the date when the application was l odged the final decision in the arbitration proceedings had been given and the applicant company had done everything that could reasonably have been expected of it to exhaust domestic remedies: objection dismissed.

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