Appeal resignation on behalf of the non-legally appointed representative of the appellant. Violation of the right of access to court

JUDGMENT

Madžarović and others v. Montenegro 05.05.2020 (no.  54839/17 and  71093/17)

see here 

SUMMARY

Right to appeal. The applicants are the CEO of the company and 2 subsidiaries. From the above mentioned, a third company was established, which concluded a loan agreement with the Bank, providing its shares in the common investment fund as collateral. The company did not fulfill its contractual obligations and the creditor bank transferred the shares to another company. The applicants appealed to the domestic courts for annulment of the transfer, but in the second instance, their appeals were waived by the illegally elected new CEO of the applicant first company.
The ECtHR found that the appeals were lawful and admissible as the company continued to be represented by the then Chief Executive Officer and the first applicant. The Court of Appeal illegally accepted the resignation from the appeals made by the new Chief Executive Officer. The ECtHR therefore ruled that the applicants’ obstruction of the possibility of an appeal constituted a breach of a fair trial (Article 6§1).

With regard to the transfer of the pledged shares, the ECtHR found that the debtor company had not complied with its contractual obligations and therefore the decisions of the domestic courts that rejected its lawsuits to avoid the transfer were not disproportionate. The ECtHR ruled that there was no violation of Article 1 of the first Additional Protocol.

PROVISIONS

Article  6§1,
Article 1 of the First Additional Protocol

PRINCIPAL FACTS

The applicants in this case are Mihailo Madžarović, a Slovenian national who was born in 1949 and
lives in Ljubljana, and two companies which he founded in Montenegro in 2000, Zetmont d.o.o. and
Bermont d.o.o.

The case concerned two sets of commercial proceedings brought against another company, T.,
which had been founded and was owned by the two applicant companies, for failing to meet its
obligations when taking out a 7,500,000 euro loan with an Austrian-based bank. The bank loan had
been secured by shares which T. company held in a joint investment fund.

Mr Madžarović was the legal representative of these three companies in the proceedings.

There were two Commercial Court decisions in both sets of proceedings. The first and main decisions
ordered the transfer of shares in the investment fund to the bank because company T. had not
honoured its debt, while the second decisions rectified the first ones.

The T. company appealed against all four decisions. However, two of the appeals, against the
rectification decision of 25 November 2013 in the first set of proceedings (complained of in
application no. 54839/17) and against the decision of 8 November 2013 to transfer shares in the
second set of proceedings (complained of in application no. 71093/17), were withdrawn by a newly
appointed executive director of company T.. In particular, while the appeals were pending, the bank
had sold the transferred shares to a third party, the O.B. company, and a new executive director
at company T., had been appointed to replace Mr Madžarović.

The two remaining appeals were ultimately unsuccessful. In the first set of proceedings the Court of
Appeal, addressing all arguments in both appeals, found it undisputed that the T. company had
failed to meet its obligations under the loan agreement which had been secured by pledges. In the
second set of proceedings the Court of Appeal found that it could not examine the rest of company
T.’s submissions because they related to the main decision, and the appeal against that decision had
been withdrawn.

In the meantime, the applicants challenged the administrative authority’s decision to register the
new executive director and informed the domestic courts of this, submitting that he did not have standing to withdraw the appeals. These proceedings were eventually stayed as the company O.B.
withdrew its request to register the new executive director and the Ministry of Finance had in any
case annulled the decision on the new executive director’s appointment.

Mr Madžarović lodged constitutional appeals on behalf of the T. company in both sets of
proceedings, complaining of a lack of access to court given that an unauthorised person had
withdrawn its appeals, a lack of an effective legal remedy and a deprivation of property. The
Constitutional Court dismissed both appeals in 2016.

Relying in particular on Article 6 (right to access to a court) of the European Convention on Human
Rights, the applicants alleged that they had been deprived of access to a court and an effective
domestic remedy given that the appeals against the decisions of 8 and 25 November 2013 had been
rejected after having been withdrawn by a person who had never been company T.’s lawful
representative.

THE DECISION OF THE  COURT…

α) application no. 71093 / 17
Article 6§1

The Court observes that in the present case there were also two decisions of the Commercial Court: the main one, ordering the transfer of the shares, and the second one, rectifying the main one. The debtor appealed against both of them, the two appeals being substantially the same, and both relating in substance to the main decision. While these appeals were pending, the creditor sold the transferred shares to a third party, the company O.B. Following this sale and O.B.s request in that regard, the CRPS issued a decision registering the new company officers in the debtor, including a new executive director, I.P.

I.P. had withdrawn the debtors appeal against the main decision, and the Court of Appeal rejected the appeal. While the court examined on the merits the second appeal, which had not been withdrawn, it limited itself to finding that the rectification had been duly done pursuant to the relevant provisions of the Civil Procedure Act. It explicitly held that it could not examine the rest of the debtors submissions as in substance they related to the main decision. In other words, the Court of Appeal never examined on the merits the debtors arguments relating to the main decision, either those from the first appeal or from the second one.

The Court reiterates that the right of access to a court as enshrined in Article 6 implies, among other things, the possibility for a person whose civil rights have been interfered with to bring proceedings directly and independently. It also observes that Article 20 of the Constitution provides that everyone is entitled to a legal remedy against a decision on their rights or a legally based interest. Section 20(9) of the Pledge Act provides that an appeal can be lodged against the enforcement decision issued in the proceedings relating to a pledge. The Court notes in this regard that the applicants had a legally based interest given that the Commercial Courts decision affected both them and the debtor. In addition, the appeals were duly submitted while the debtor was still represented by the first applicant, and before I.P. was registered. While the Court notes that it is unclear how the sale of shares owned by the debtor in the Fund led to the changes of the debtors Board of Directors, it nevertheless observes that this was the case.

As regards I.P.s registration the Court notes that the applicants appealed against this decision and informed the domestic courts that they had done so. It also notes in this regard that the national legislation provided that an appeal had suspensive effect with regard to the execution of the impugned decision. Furthermore, after the Court of Appeal rejected the appeal as inadmissible, the Ministry of Finance, in response to the applicants appeal, annulled the decision on the new company officers registration, including I.P.s registration. It is noted in this regard that pursuant to the relevant legislation, and contrary to the Governments submission, the annulment has retroactive effect. Eventually, the proceedings in this connection were stayed as O.B. had withdrawn its request for registration. Therefore, the decision on I.P.s appointment had indeed never become final as it had never been upheld by a second-instance body. In addition, the Securities Commission itself found that O.B.s purchase of more than 10% of the shares had not been in accordance with the law as it had lacked that Commissions consent.

The Court lastly observes that in a subsequent case involving the debtor the same domestic courts did indeed stay the proceedings until it was established who the debtors legal representative was.

In view of the above, the Court has serious doubts as to whether the impugned limitation was lawful. Even assuming, however, that it was, the Government offered no argument whatsoever as regards the aim thereof or as to the proportionality between the means employed and the aim pursued, whatever it might have been. The Court therefore considers that the applicants loss of the possibility of using a remedy which they had reasonably believed to be available amounted to a disproportionate hindrance 

b) Application 54839/17
Article 1 of the First Additional Protocol

The Court further reiterates that in all States Parties to the Convention the legislation governing private-law relations between individuals, including legal persons, includes rules which determine the effects of these legal relations with respect to property and, in some cases, compel a person to surrender a possession to another. This type of rule cannot in principle be considered contrary to Article 1 of Protocol No. 1 unless a person has been arbitrarily and unjustly deprived of property in favour of another

Turning to the present case, the Court firstly notes that the enforcement proceedings instituted by the creditor resulted in the seizure and transfer of the debtors shares to the creditor. Those enforcement proceedings were conducted on the basis of three contracts of pledge as the valid enforcement title (see paragraph 9 above). By those contracts the debtor and the applicants explicitly accepted that should the debtor fail to honour the debt to the creditor, the creditor was entitled to the shares specified in the contracts. The Court further observes that the existence and contents of the contracts of pledge had never been disputed by either party.

 The Court also takes note that the contracts of pledge were concluded by the applicants of their own free will, and that they accepted the terms and thereby guaranteed the bank loan with the shares specified therein. In addition, section 20 of the Pledge Act provides details in cases when the main contract has been breached and the pledge activated (see paragraphs 41-44 above). In particular, in such a case the pledgee has the right to address the courts and seek the object of the pledge. While the same section allows for an appeal against an enforcement decision given by the courts, it also explicitly provides that lodging an appeal does not have suspensive effect as regards the execution of the decision. Therefore, the fact that the State-run agency transferred the object of the pledge to the creditor – in this case the debtors shares – while the debtors appeals in this regard were still pending, was neither unforeseeable nor unlawful. It was also not disproportionate, given that the applicants themselves had agreed to the pledge in the first place and the corollary that the debtors shares might be transferred to the creditor. The Court, therefore, finds no indication that those decisions were based on arbitrary or manifestly unreasonable considerations or that they were unlawful under the domestic law.

The Court further notes that the debtor, and hence the applicants, had an opportunity to appeal against the Commercial Courts decision of 10 October 2013, of which they availed themselves. The mere fact that the outcome of the appeal was not favourable for them does not mean that the State did not comply with its positive obligation under Article 1 of Protocol No. 1 to the Convention, as it is an obligation of means, not of result.

Once the shares had been transferred it was the creditor who had disposed of them further, and not the respondent State. It is noted in this regard that section 20 of the Pledge Act provides that after lawfully obtaining the object of the pledge the pledgee can, inter alia, sell it. However, quite apart from this section, the Court notes that if the applicants had considered that the creditors sale of the shares had been unlawful and/or had caused them damage, they could have lodged a civil claim pursuant to the relevant provisions of the Obligations Act, thereby seeking compensation from the creditor. However, the applicants did not submit any evidence that they had instituted such proceedings.

In the light of the foregoing considerations, the Court finds that the applicants complaint under Article 1 of Protocol No. 1 to the Convention is manifestly ill-founded and must be rejected in accordance with Article 35 §§ 3 (a) and 4 of the Convention.

Just Satisfaction:  3.600 euros for non pecuniary damage.


ECHRCaseLaw

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