Seizure of shares of a public limited company for offenses committed by the CEO without sufficient justification. Property violation
JUDGMENT
Sebeleva and others v. Russia 01.03.2022 (app. no. 42416/18)
SUMMARY
Confiscation to shareholders of the shares of a public limited company for offenses of the managing director. Property right and proportionality of intervention.
The applicants bought shares in a public limited company. The CEO of the company was then accused of distinguished frauds and embezzlement. The shareholders’ shares were confiscated to secure the corporate creditors, the payment of possible fines and court costs in case the CEO was convicted but also as evidence for the clarification of the offense. Considering the measure of confiscation unfair, they filed a lawsuit for violation of the right to property.
The ECtHR noted that the seizure of the shares was maintained for a period of 2 months and 13 days without a court decision, however because it was re-imposed it considered it appropriate to consider the proportionality of the intervention as a whole.
It found that the national courts in no way assessed the proportionality of the prolonged detention of the attachment nor considered alternatives to it, despite the suggestions of the Constitutional Court. They also did not justify the expediency of this intervention or explain how these intangible shares could contain information that could help establish the facts of the case. Taking into account that the applicants had not been charged with any offense or had any connection with the Executive Director, the ECtHR considered that the seizure was an unnecessary measure and that the intervention did not comply with the principle of proportionality.
The ECtHR found a violation of their right to property. The Court awarded each of the first three applicants EUR 2,000 in respect of non-pecuniary damage and EUR 4,000 in total for costs and expenses.
PRINCIPAL FACTS
The applicants, Irina Viktorovna Sebeleva, who was born in 1981 and lives in Omsk, Tatyana
Ivanovna Grosu, who was born in 1951 and lives in Lvovka (Samara Region), Aleksey Pavlovich
Shalunov, who was born in 1987 and lives in Samara, and Pavel Vladimirovich Shalunov, who was
born in 1962 and lives in Samara, are Russian nationals who, on different dates, purchased shares in an open joint-stock company, Omsktransstroy (OTS). The first three applicants thereby became majority shareholders in OTS. The four of them together currently hold 54.5% of the shares, while
the State owns 25.5%. On 26 October 2016 a criminal investigation was opened into offences of aggravated fraud and misappropriation to the detriment of OTS. The company’s former managing director was charged.
The case concerns the attachment since May 2017 of the applicants’ shares in OTS.
Relying on Article 1 of Protocol No. 1 (protection of property) to the European Convention, the
applicants complain that their shares have been under attachment since 2017.
THE DECISION OF THE COURT…
The Court noted that the national courts upheld the seizure and retention of both Article 115 § 1 of the CCP (on the grounds that it concerned the property belonging to the accused and that the measure was intended to provide compensation for damage caused by offenses and the payment of a possible fine and court costs) as well as in article 115 § 3 CCP (that in fact it was an instrument that had been used by the accused to commit crimes). He noted that a third legal basis was added to them, Article 81 of the CCP, when the investigator described the actions as “material evidence” that contained information that may contribute to the establishment of the facts of the case.
With regard to Article 115 § 1 of the CCP, the Court noted that the applicants were not charged or summoned to the proceedings as defendants. That provision could not therefore be regarded as the legal basis for the intervention in question under Article 1 of the First Additional Protocol.
With regard to Articles 81 and 115 § 3 of the CCP, the Court considered that they could be a legal basis for the measure, as the authorities had reasonable grounds to believe that the shares had been used by the managing director to commit the offenses The Court therefore held that the intervention had a legal basis within the meaning of Article 1 of the First Additional Protocol.
However, the Court agreed with the applicants that for two months and thirteen days the seizure was not upheld by any court decision. Indeed, the decision of the Court of Appeal on the basis of which the seizure was extended was annulled by a decision of the Supreme Court on 21 December 2020. A new seizure was ordered only on 3 March 2021. However, the Court noted that, despite these decisions, seizure was maintained in practice. The seizure was therefore unlawful and therefore incompatible with the requirements of Article 1 of the First Additional Protocol during this period.
However, as the seizure was re-imposed after 3 March 2021, the Court ruled on the proportionality of the intervention in its entirety.
a) Proportionality of the intervention
While the total duration of the confiscation of the shares – four years and eight months, from 27 May 2017 to 25 January 2022 – does not in itself make the intervention disproportionate, the Court attached great importance to the reasoning of the decisions in this regard. taking into account, on the one hand, the long duration and, on the other, the nature and extent of the restrictions which have arisen.
In that regard, it observed from the outset that the seizure of the applicants’ shares deprived them of all related rights, including the right to obtain information about the company, without the competent national courts considering less burdensome restrictions on the applicants.
The Court also noted that national courts had re-imposed the seizure almost automatically, citing systematic reasons, including the need to protect the victim’s rights and to prevent the CEO from continuing to manage OTS assets. and on the other hand to guarantee the payment of any criminal fine.
It is noted that the national courts in no case assessed the proportionality of the prolonged detention of the seizure nor considered alternatives to it, despite the suggestions of the Constitutional Court.
In addition, the Court noted that the national courts did not explain how the shares could constitute an “instrument of the offense”, nor did they explain how these intangible shares could contain information that could contribute to establishing the facts of the case. In addition, it was never explained what the relationship might be between the votes cast at the general meetings between 2009 and 2015 and the sales of OTS-owned goods. Such a link has never been proven by domestic authorities. Finally, the Court noted that the Russian courts never assessed, at any stage of the proceedings, the arguments put forward by the applicants to challenge the allegations that they had acted in accordance with the instructions of the Executive Director. On the contrary, they stated that they had no jurisdiction in this regard, while criticizing the interested parties that they did not deny the position of the prosecuting authorities. In this respect, it was not disputed that the applicants had no connection or kinship with the managing director and none of them had been charged with any offense in connection with the charges against the managing director. The fact that in February and March 2017, the shareholders met in an extraordinary general meeting, and voted on decisions that were later found to be illegal and abusive, was not convincing to justify the seizure of the shares or the maintenance of this measure.
Finally, the national courts did not provide sufficient justification for the need for the seizure in question and its extension. In the light of those factors, the Court considered that the intervention was not proportionate, which made it unnecessary to consider the other arguments put forward by the parties.
The ECtHR found a violation of Article 1 of the First Additional Protocol to the Convention for the first three applicants.
Just satisfaction: The Court awarded each of the first three applicants EUR 2,000 for non-pecuniary damage and EUR 4,000 in total for costs and expenses (edited by echrcaselaw.com).
