European Court of Human Rights

FIFTH SECTION

FINAL DECISION

AS TO THE ADMISSIBILITY OF

Application no. 31223/03
by Viktor Mykolayovych KETKO
against Ukraine

The European Court of Human Rights (Fifth Section), sitting on 14 October 2008 as a Chamber composed of:

Rait Maruste, President,
Karel Jungwiert,
Volodymyr Butkevych,
Renate Jaeger,
Mark Villiger,
Isabelle Berro-Lefèvre,
Mirjana Lazarova Trajkovska, judges,
and Claudia Westerdiek, Section Registrar,

Having regard to the above application lodged on 29 August 2003,

Having regard to the decision to examine the admissibility and merits of the case together (Article 29 § 3 of the Convention).

Having regard to the partial decision of 3 April 2006,

Having regard to the observations submitted by the respondent Government and the observations in reply submitted by the applicant.

Having deliberated, decides as follows:

THE FACTS

The applicant, Mr Viktor Mykolayovych Ketko, is a Ukrainian national who was born in 1942 and lives in Kyiv. He is represented before the Court by Ms M. Kudelya, a lawyer practising in Kyiv. The Ukrainian Government (“the Government”) are represented by their Agent, Mr. Y. Zaytsev.

A.  The circumstances of the case

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

1.  General background

The applicant owns a 50 % share in AB Imeks Ltd, a joint venture (hereinafter the “Company”). The Company was incorporated on 17 September 1992 as a joint venture with a 49 % share at all relevant times being owned by a Polish partner. The Company and its subsidiary were conducting a gas trading business.

The Company also fell into the category of “companies with foreign investments”, within the meaning of the Foreign Investments Act 1992 (the “1992 Act”), until its repeal in 2000.

The 1992 Act was adopted with a view to encouraging foreign investments and was applied to companies where a foreign partner had at least a 20% share. This Act established preferential treatment for such companies, including, inter alia, 10 years' immunity from changes in the law governing foreign investments (Section 9). This immunity was to be granted on the making of the relevant application and calculated from the date of its establishment.

On 17 February 2000 Parliament passed the Companies set up with National Property and Assets (Termination of Discrimination) Act 2000 (the “2000 Act”), which provided that companies with a foreign shareholding were subject to general tax, customs and currency regulations, and repealed the 1992 Act. The 2000 Act affected all joint ventures irrespective of when the foreign investment had been made.

In its judgment of 29 January 2002, the Constitutional Court gave a binding interpretation of Section 5 of the 2000 Act, holding that it provided valid grounds for refusing new and withdrawing previously granted taxation privileges.

2.  Particular circumstances of the case

a.  The immunity litigation

In November 1998 the Company instituted proceedings in the Lutsk City Court claiming immunity under Section 9 of the 1992 Act. On 18 January 1999 the court found for the Company and declared that, until 17 September 2002, the Company was exempted from any new taxes, duties, changes in the method of calculation or payment of taxes introduced after 17 September 1992.

On 4 March 1999 the Volyn Regional Court, following the appeal of the customs authorities, quashed this decision and remitted the case. On 15 June 1999 the Company's claim was declared inadmissible.

On 3 November 1999 the Supreme Court, upon the supervisory complaint of its Deputy President, quashed the decisions of 4 March 1999 and 15 June 1999, and upheld the judgment of 18 January 1999, thus reinstating the Company's immunity from any changes in tax and customs law.

On 1 December 2000 the Lutsk City Court clarified its judgment of 18 January 1999 upon the Company's request. The court specified that the Company, as well as its subsidiaries, was immune from any changes in fiscal legislation, including that introduced by the 2000 Act. This ruling was upheld by the Volyn Regional Court on 25 June 2001 and by the Supreme Court on 12 October 2001. On 28 October 2002 the Supreme Court rejected the request of the Head of Volyn Customs Office to reopen the proceedings due to the new circumstances.

b.  The gas litigation

On 17 June 2002 the Central Energy Customs Service (hereafter “CECS”) refused to allow the Company's subsidiary free transit of a certain amount of gas across the Ukrainian border. The Company's subsidiary together with the applicant and the Company's foreign shareholder challenged this decision before the courts.

On 25 July 2002 the Podilsky District Court of Kyiv allowed this claim and ordered CECS to allow the gas to be imported, referring in this respect to the January 1999 judgment.

On 7 February 2003 the Kyiv City Court of Appeal granted CECS's appeal, quashed the judgment of 25 July 2002 and rejected the claim as unfounded. The court indicated that the 2000 Act, as interpreted by the Constitutional Court, gave sufficient grounds for annulling the taxation privileges enjoyed by the Company and its subsidiary.

On 6 May 2003 the Supreme Court rejected the cassation appeal against the judgment of the Kyiv City Court of Appeal as unfounded.

B.  Relevant domestic law and practice

1.  The Foreign Investments Act 1992

Section 2 of that Act provided that it was applicable to companies of any type or form as long as a foreign investor owned at least a 20% share in such a company.

According to Section 9 of that Act a “company with foreign investments” falling into the scope of this Act could be granted, upon submission of the relevant application, immunity for a period of ten years from changes in special legislation to do with the regulation of foreign investments.

2.  Companies set up with National Property and Assets (Termination of Discrimination) Act 2000

The Preamble specified that the Act's aim was to put companies with foreign shares in an equal position to those without foreign investments, thus protecting free competition and domestic industry.

Section 1 of the Act declared that companies with foreign investments were subject to general tax, customs and currency regulations.

Section 4 of the Act repealed the 1992 Act.

According to Section 5, this Act applied to all joint ventures irrespective of when the foreign investment was made.

3.  The decision of the Constitutional Court of 29 January 2002

Following a request from the Cabinet of Ministers, the Constitutional Court gave an official interpretation of Article 5 of the 2000 Act. The court explained that this provision constituted adequate grounds for refusing new and withdrawing previously granted applications for those privileges regarding taxes, customs duties and currency controls.

COMPLAINT

The applicant complained that the use of legislation to abolish immunity granted by a court, which protected the Company and its subsidiaries from changes in the law, in particular as regards the tax and customs rules, had been contrary to his property rights guaranteed by Article 1 of Protocol No. 1.

THE LAW

The applicant complained that the abrogation of tax and customs immunities granted for the Company and its subsidiaries constituted an unjustified interference with his property rights under Article 1 of Protocol No. 1 which reads as follows:

“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”

The Government maintained that the applicant, being a shareholder of the Company, could not claim to be a victim of the alleged violation of the Company's rights under the Convention. They further contended that the interference with the applicant's right to peaceful enjoyment of possessions, if any, had been proportionate to the general interests of Ukrainian society.

The applicant disagreed. He maintained that the interference in question impaired his own rights and had not been sufficiently justified.

The Court observes that under Article 34 of the Convention, it may receive applications from individuals and others “claiming to be the victim of a violation by one of the High Contracting Parties of the rights set forth in the Convention or the protocols thereto”. In order to claim to be a victim of a violation, a person must be directly affected by the impugned measure (see, for example, Buckley v the United Kingdom, judgment of 25 September 1996, Reports of Judgments and Decisions 1996-IV, p. 128, §§ 56-59).

The concept of “victim” in Article 34 must be interpreted autonomously and independently of domestic law concepts, such as the capacity to bring or take part in legal proceedings (see, for example, Greek Federation of Customs Officers, Gialouris and others v. Greece, no. 24581/94, Commission decision of 6 April 1995, Decisions and Reports 81-B, p. 127).

The Court further observes that, as a general rule, shareholders of a company, including the majority shareholders, cannot claim to be victims of an alleged violation of the company's rights under the Convention (see Agrotexim and Others v. Greece, judgment of 24 October 1995, Series A no. 330-A, pp. 22-26, §§ 59-72 and, most recently, Terem Ltd, Chechetkin and Olius v. Ukraine, no. 70297/01, § 28, 18 October 2005).

The Court has also previously found that the piercing of the “corporate veil” or the disregarding of a company's legal personality will be justified only in exceptional circumstances, in particular where it is clearly established that it is impossible for the company to apply to the Convention institutions through the organs set up under its articles of incorporation (see Agrotexim and Others, cited above, § 66 and, for example, CDI Holding and Others v. Slovakia (dec.), no. 37398/97, 18 October 2001).

In the present case the applicant owns a 50% share in the Company and complains in fact of a violation of the property rights enjoyed by the Company and its relevant subsidiary. There is nothing in the case file to suggest that any exceptional circumstances existed which would allow the Court to disregard the legal personalities of both the Company and its subsidiary in favour of one of the Company's shareholders.

In addition the Court notes that the immunity at issue had been granted to the Company and its subsidiary only because of the foreign investment made into the share capital of the Company. However, such foreign investment had not been made by the applicant but by one of the other shareholders. It follows therefore in any event that it was not the applicant who could claim to have been a victim of the alleged violation of his property interest arising from the foreign investment activity.

In the light of the above considerations the Court concludes that the applicant's complaint is incompatible ratione personae with the provisions of the Convention within the meaning of Article 35 § 3 and must be rejected in accordance with Article 35 § 4.

For these reasons, the Court unanimously

Declares the remainder of the application inadmissible.

Claudia Westerdiek Rait Maruste
Registrar President