Government decision to cancel shares for bank restructuring. Lack of judicial control over the need for restructuring. Violation of the right to respect for property and a fair trial
JUDGMENT
PROJECT-TRADE D.O.O. v. Croatia 19.11.2020 (app. no. 1920/14)
SUMMARY
Withdrawal and cancellation of company shares in a bank, right of access to court and right to peaceful enjoyment of property.
Government decision on financial restructuring of the Croatian National Bank, where the applicant company had shares. The contested government decision consisted in the revocation and cancellation of all the shares held by the bank’s shareholders, including those belonging to the applicant company. The applicant had undoubtedly lost its property as a result of that Government decision and could therefore claim to have been the victim of a breach.
As no judicial authority had ever reviewed the evidence on which the Croatian Government based its finding that the Croatian Bank needed restructuring, the ECtHR found that there had been a violation of Article 6 § 1 (access to a court) due to the impossibility of effectively challenging it. decision of the Government before the courts.
Also, the contested governmental decision constituted, under domestic law, secondary legislation and thus could not be controlled by any administrative authority. According to Strasbourg, there had been a violation of Article 1 of the First Additional Protocol (right to peaceful enjoyment of possessions), as the interference with the applicant ‘s right to property was not accompanied by sufficient procedural guarantees against arbitrariness.
Finally, the ECtHR, having taken into account all the necessary criteria, the duration of the proceedings before the Constitutional Court (almost 5 years at a level of jurisdiction) was excessive and did not meet the requirement of “reasonable time”. Violation of Article 6 § 1 (reasonable length of proceedings) of the ECHR.
PROVISION
Article 6
Article 1 of the First Additional Protocol
Article 34
PRINCIPAL FACTS
The applicant, Project-Trade d.o.o., is a limited liability company incorporated under Croatian law
which is based in Zagreb.
The case concerned the applicant company’s complaint of having been deprived of its shares in a
commercial bank following Government restructuring.
The applicant company was a shareholder of Croatia Bank, a privately-owned joint-stock company
incorporated under Croatian law.
In 1999 the Croatian National Bank appointed a temporary administrator at Croatia Bank and
proposed a process of recovery and restructuring to the Croatian Government.
The Government adopted a decision on the recovery and restructuring of Croatia Bank on
23 September 1999. All shares held by the bank’s shareholders were revoked and cancelled. The
bank issued new shares, all in the name of the State agency in charge of the recovery process. The
powers of the bank’s governing bodies and the rights of shareholders were also extinguished.
In 1999 and 2000 five shareholders of the bank lodged four separate applications with the
Constitutional Court for a review of the conformity of the Government’s decision with the
Constitution and with the relevant primary legislation. In January 2003 the Constitutional Court
discontinued the proceedings since the legislation on which the Government’s decision was based
had in the meantime been repealed.
In September 2003 the applicant company brought a civil action against the bank and the State
agency, arguing that the Government’s decision had been unjustified in economic terms and that the
statutory requirements had not been satisfied.
In February 2006, the first-instance court dismissed the applicant company’s action. It established
that all the existing shares of the bank had been extinguished and that the new shares issued were
now owned by the State agency. In June 2008 the appeal court dismissed the applicant’s appeal
concerning the constitutionality of the Government’s decision.
Relying in particular on Article 6 § 1 (right to a fair trial/right of access to court) of the European
Convention and Article 1 of Protocol 1 (protection of property) to the Convention, the applicant
company complained of having been deprived of its shares in Croatia Bank following the
Government decision on its restructuring and recovery, the lack of access to the domestic courts to
complain in respect of the/that decision, and the excessive length of the proceedings.
THE DECISION OF THE COURT…
Having regard to its case-law , the Court considers that in the present case it must itself examine whether the applicant company, as a former shareholder of Croatia Bank, can claim to be a victim of the alleged violation of Article 1 of Protocol No. 1.
When it comes to cases brought by shareholders of a company, it is crucial to draw a distinction between complaints brought by shareholders about measures affecting their rights as shareholders and those about acts affecting companies, in which they hold shares . In the former group, shareholders themselves may be considered victims whereas in the latter group the general principle is that shareholders of companies cannot be seen as victims within the meaning of Article 34 of the Convention. For shareholders to be able to claim to be the victims the impugned measures or acts must impact their legal rights both directly and personally and go beyond merely disturbing their interests in the company by upsetting their position in the company’s governance structure.
Like in the case of Olczak v. Poland, in the present case the measure complained of, namely the impugned Government Decision on the recovery and restructuring of Croatia Bank, consisted of the revoking and cancellation of all shares held by the bank’s shareholders, including those belonging to the applicant company. The applicant company thus undeniably lost its property as a result of that Decision. Accordingly, the applicant company’s rights protected by Article 1 of Protocol No. 1 were directly affected in a manner that went beyond merely upsetting the applicant company’s position in the Croatia Bank’s governance structure.
The Court therefore concludes that the applicant company may claim to be a victim of the violation complained of.
Violation of Article 6 § 1 (Access to court)
The Court found that the Government Decision of 23.09.1999 on the recovery and restructuring of the Croatian Bank did not come under judicial review within the scope of Article 6 § 1.
In particular, no judicial authority has ever reviewed the evidence on which the Croatian Government based its finding that the Croatian Bank needed restructuring, nor did it examine whether the other legal requirements were met, ie whether the relevant law was properly applied to the facts of the case. .
In view of the above, the Court held that the impossibility of effectively challenging the Government ‘s decision before the courts was in breach of the applicant company’ s right of access to a court.
The ECtHR found a violation of Article 6 § 1 due to lack of access to a court.
Article 1 of the First Additional Protocol
According to the ECtHR, in order for an interference with a right of the Convention to be lawful, it must be accompanied by sufficient procedural safeguards against arbitrariness, including the possibility of effectively challenging that measure.
The Court pointed out that the Government Decision of 23.09.1999 on the recovery and restructuring of the Croatian Bank constituted, under domestic law, secondary legislation and that it could not be reviewed by any administrative authority.
The procedural guarantees provided to the company by the domestic authorities did not offer it the opportunity to effectively challenge the measure in question and therefore could not even meet the requirements of Article 1.
The Court could not ascertain whether the other requirements of that provision had been complied with. The Court therefore declined to comment on the expediency of the Government Decision of 23.09.1999 to recover and restructure the Croatian Bank or on whether the measure in question was in the public interest and, if so, whether a fair balance between the requirements of the general interest of the community and the protection of the applicant company ‘s right to peaceful enjoyment of the property.
In the light of those findings, and in the light of its case-law on the subject, the Court concluded that the interference with the applicant’s right to property was not accompanied by sufficient procedural guarantees against arbitrariness and was therefore not lawful within the meaning of Article 1 of the First Additional Protocol.
Violation of Article 6 § 1 (Reasonable length of proceedings)
The applicant company complained that the length of the proceedings in its case was incompatible with the “reasonable time” requirement set out in Article 6 § 1 of the Convention.
According to the ECtHR, the relevant period to be considered is the period during which the disputed procedure before the Constitutional Court was pending, ie the period between 14.10.2008 (when the company submitted its constitutional complaint) and 10.10.2013 (when the decision of the Constitutional Court was served on the applicant). Thus the trial lasted almost five years at a level of jurisdiction.
The Court reiterated that the reasonableness of the proceedings must be assessed in the light of the circumstances of the case and with reference to the following criteria: the complexity of the case, the conduct of the applicant and the competent authorities and the applicant’s dispute.
The ECtHR took due account of the arguments put forward by the Government. However, he considered that the complexity of the case could not adequately explain the delay in the proceedings.
In the light of its case-law, the Court considered that, in the present case, the length of the proceedings before the Constitutional Court was excessive and did not meet the “reasonable time” requirement.
It therefore found a violation of Article 6 § 1 due to the excessive length of the proceedings.
Just satisfaction
The Court rejected the applicant company ‘s claim for just satisfaction.
