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Cite as: [2009] ECHR 1385
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FIRST SECTION
DECISION
AS TO THE ADMISSIBILITY OF
Application nos.
17124/05 and 17126/05
by Zlatko PAVLINOVIĆ and Gordana
TONIĆ
against Croatia
The European Court of Human Rights (First Section), sitting on 3 September 2009 as a Chamber composed of:
Christos
Rozakis,
President,
Nina
Vajić,
Anatoly
Kovler,
Elisabeth
Steiner,
Khanlar
Hajiyev,
Giorgio
Malinverni,
George
Nicolaou,
judges,
and Søren
Nielsen, Section
Registrar,
Having regard to the above applications lodged on 22 and 29 March 2005,
Having regard to the observations submitted by the respondent Government and the observations in reply submitted by the applicants,
Having deliberated, decides as follows:
THE FACTS
The applicants, Mr Zlatko Pavlinović (“the first applicant”) and Mrs Gordana Tonić (“the second applicant”), are Croatian nationals who were born in 1946 and live in Zagreb. They were represented before the Court by Mrs Lj. Nogolica, an advocate practising in Zagreb. The Croatian Government (“the Government”) were represented by their Agent, Mrs Š. StaZnik.
A. The circumstances of the case
The facts of the case, as submitted by the parties, may be summarised as follows.
1. Background to the case
On 1 January 1997 the Act on Compensation for, and Restitution of, Property Taken under the Yugoslav communist regime (Zakon o naknadi za imovinu oduzetu za vrijeme jugoslavenske komunističke vladavine – “the Denationalisation Act”) entered into force. It enabled the former owners of confiscated or nationalised property, or their heirs in the first line of succession (direct descendants or a spouse), to obtain under certain conditions either restitution of or compensation for property appropriated during the communist regime. They were required to submit their requests within six months from the Act’s entry into force. Requests submitted after that date were to be declared inadmissible.
Pursuant to section 22 of the Denationalisation Act, nationalised flats in respect of which third persons had acquired specially protected tenancies (stanarsko pravo) were not to be restored to their former owners. The tenants had a right to purchase such flats from the provider of the flat under favourable conditions set out in the Specially Protected Tenancies (Sale to Occupier) Act (Zakon o prodaji stanova na kojima postoji stanarsko pravo). At the same time, the former owners were entitled to financial compensation in respect of the flats.
On the other hand, pursuant to section 32 of the Denationalisation Act, confiscated flats were to be awarded to their former owners. Under section 13 of the Appropriated Property Compensation Fund Act (Zakon o Fondu za naknadu oduzete imovine), the tenant had the right to purchase a confiscated flat only if no request for its restitution had been submitted or if such request had been dismissed in a final decision.
2. The particular circumstances of the case
(a) Events leading to the civil proceedings
The applicants were holders of specially protected tenancies of flats in Zagreb, measuring 92.92 square metres (the first applicant’s flat) and 87.70 square metres (the second applicant’s flat). Both flats are located in the same building, which in 1946 was confiscated from its owner M.V. by the communist authorities.
(i) The restitution proceedings
On 13 February 1997 M.V.’s daughter M.B. instituted administrative proceedings before the Office for Property Affairs of the City of Zagreb (Grad Zagreb, Gradski ured za imovinskopravne poslove) by submitting a request for restitution of M.V.’s confiscated property, including the above-mentioned building.
On 17 July 1997 M.V. died and her testamentary heirs V.A.-V. and T.A. took over the proceedings.
On 11 May 2001 the Office delivered a decision awarding ownership of the plot of land on which the building at issue was built to V.A.-V. and T.A. It stated, however, that it would decide on the restitution of the building itself at a later date.
On 26 May 2004 the Office issued a decision awarding ownership of the entire building to V.A.-V. and T.A. and declaring that the applicants had acquired the status of protected lessees (zaštićeni najmoprimci) under section 33 of the Denationalisation Act.
On 7 December 2005 the Ministry of Justice (Ministarstvo pravosuđa), as the second-instance administrative authority, dismissed an appeal by the applicants and upheld the first-instance decision of 26 May 2004.
The applicants then brought an action in the Administrative Court (Upravni sud Republike Hrvatske) challenging the Ministry’s decision. On 8 January 2009 the Administrative Court dismissed the applicants’ action. The first-instance decision of 26 May 2004 thereby became final.
The applicants then lodged a constitutional complaint against the judgment of the Administrative Court. It would appear that the proceedings are currently pending before the Constitutional Court (Ustavni sud Republike Hrvatske).
(ii) The sale of the flats
Meanwhile, in March 1997 the applicants made requests to the City of Zagreb to purchase their respective flats, under the Specially Protected Tenancies (Sale to Occupier) Act.
On 16 June 1998 the second applicant asked the Office for Property Affairs of the City of Zagreb whether a request for restitution of the building in which her (and the first applicant’s) flat was located had been submitted. In the letter of 21 July 1998 the Office replied that no such request had been submitted.
On 14 September 1998 the City of Zagreb, as the provider of the flat, concluded a contract of sale with the first applicant whereby it sold him the flat in respect of which he had a specially protected tenancy for 70,145 Croatian kunas (HRK). On 14 December 1998 the City of Zagreb concluded a similar contract with the second applicant, selling her the flat in respect of which she had a specially protected tenancy for HRK 60,696. Shortly afterwards the applicants were recorded as the owners of their respective flats in the land register.
(b) The civil proceedings
On 20 April 2000 V.A-V. and T.A. brought a civil action in the Zagreb Municipal Court (Općinski sud u Zagrebu) against the applicants, several other individuals who had purchased flats located in the same building and the City of Zagreb. They asked the court to declare the contracts of sale null and void as being contrary to peremptory rules. They argued that under the Denationalisation Act, confiscated flats were not to be sold to their tenants but awarded to their former owners. Only if the former owner’s request for restitution had been dismissed or declared inadmissible were the tenants allowed to purchase such flats. The plaintiffs explained that they had taken over the administrative proceedings instituted on 13 February 1997 before the Office for Property Affairs of the City of Zagreb by M.B., who had submitted a request for restitution of the entire building in which the flats in question were located, and that this request had not been dismissed or declared inadmissible by the time the impugned contracts of sale had been concluded. Therefore, the City of Zagreb had not been allowed to sell those flats as long as the request for their restitution had been pending.
On 17 October 2002 the court declared the impugned contracts of sale null and void ab initio, endorsing the arguments adduced by the plaintiffs. It found that the contracts were in breach of peremptory rules and therefore null and void from their inception. The respondents appealed.
On 13 January 2004 the Zagreb County Court (Zupanijski sud u Zagrebu) dismissed an appeal by the respondents and upheld the first-instance judgment.
The applicants then lodged constitutional complaints, alleging a violation of their constitutional right to equality before the law.
On 29 September 2004 the Constitutional Court dismissed the applicants’ constitutional complaints.
B. Relevant domestic law
1. The Transfer Prohibition Act
The Act on the Prohibition of the Transfer of Rights to Dispose of and Use Certain Items of Immovable Property in Social Ownership to other Users or into the Ownership of other Natural or Legal Persons (Zakon o zabrani prijenosa prava raspolaganja i korištenja određenih nekretnina u društvenom vlasništvu na druge korisnike odnosno u vlasništvo drugih fizičkih i pravnih osoba, Official Gazette nos. 53/1990, 61/1991, 25/1993 and 70/1993 – “the Transfer Prohibition Act”), which entered into force on 14 December 1990, banned any transfer of property that had been acquired by means of nationalisation or confiscation.
Paragraph 1 of section 1 provided that the prohibition applied to any property appropriated on the basis of legislation listed in that paragraph.
Paragraph 2 of section 1 provided that the prohibition applied to any property appropriated by means of confiscation irrespective of the legislation on which the confiscation measure had been based.
Section 4(1) provided that any contract concluded in contravention of the provisions of the Transfer Prohibition Act was null and void.
Section 6 provided that the prohibition was to apply until the introduction of denationalisation legislation.
2. The Denationalisation Act
(a) Relevant provisions
The Act on Compensation for, and Restitution of, Property Taken During the Yugoslav Communist Regime (Zakon o naknadi za imovinu oduzetu za vrijeme jugoslavenske komunističke vladavine, Official Gazette nos. 92/1996, 92/1999 (corrigendum), 80/2002 (amendments) and 81/2002 (corrigendum) – “the 1996 Denationalisation Act”), which entered into force on 1 January 1997, enables the former owners of confiscated or nationalised property, or their heirs in the first line of succession (direct descendants and a spouse), to seek under certain conditions either restitution of or compensation for appropriated property. The relevant provisions of the Denationalisation Act read as follows:
I. BASIC PROVISIONS
Section 1
“...
(2) Restitution of property appropriated from former owners within the meaning of this Act shall, in principle, take the form of payment of compensation in money or securities (stocks or shares, or bonds), or, exceptionally, restitution in kind.
...
(4) Ownership of confiscated property shall be awarded to its former owner in accordance with this Act, and if this is impracticable ... the former owner shall have the right to compensation in the form of money or securities.”
IV. SUBJECT OF RESTITUTION
3.1. (a) RESTITUTION OF APPROPRIATED FLATS
Section 22
“(1) Unless they were appropriated by means of confiscation, the ownership of flats ... let under specially protected tenancies shall not be restored to their former owners.
...
(3) The former owner shall have the right to compensation and the tenant [i.e. the holder of a specially protected tenancy] shall have the right to purchase the flat.”
3.1. (b) RESTITUTION OF CONFISCATED FLATS
Section 32
“Ownership of a flat appropriated [by means of confiscation] shall be awarded to its former owner.”
Section 33
“Where the flat is awarded to its former owner, the tenants [i.e. the holders of a specially protected tenancy of the flat] shall acquire the status of [protected] lessees under the provisions of [the Lease of Flats Act].”
Section 35
“(1) The [former] owner and the lessee are bound to conclude a lease contract [with protected rent] within 60 days from the day the decision awarding ownership [of the flat to the former owner] became final.
(2) If the [former] owner refuses to conclude the lease contract, the tenant may enforce his or her right by bringing an action in the competent court within 60 days from the day the [former] owner of the flat refused to conclude the lease contract. The court’s decision shall entirely replace the lease contract.”
Section 37(1)
“In the case of further disposal in rem of the flat, the lessee shall have the right of pre-emption.”
VI. EXCEPTIONS FROM RESTITUTION IN KIND OF NATIONALISED, CONFISCATED OR OTHERWISE APPROPRIATED PROPERTY
Section 52
“Unless otherwise provided by this Act, ownership and possession of property of which third persons have acquired ownership on the basis of a valid legal title, or of property which has been handed over into their possession on the basis of a valid legal title for acquiring ownership, shall not be returned to the former owner.”
(b) Case-law of the Supreme Court
In its judgment no. Rev 927/07-2 of 12 February 2008 the Supreme Court held that the time-limit specified in section 35(1) of the Denationalisation Act was not preclusive and that therefore by failing to observe it, a former holder of a specially protected tenancy did not lose his right to conclude a lease contract with protected rent.
3. The Appropriated Property Compensation Fund Act
The Appropriated Property Compensation Fund Act (Zakon o Fondu za naknadu oduzete imovine, Official Gazette nos. 69/1997, 105/1999 and 64/2000), which entered into force on 12 July 1997, reads as follows in so far as relevant:
Section 13
“The tenants (lessees) of confiscated flats in respect of which no requests for restitution were submitted within the time-limit prescribed by [the Denationalisation Act], or such requests were dismissed by a final decision, shall acquire the right to purchase their flats under the provisions of that Act.”
4. The Specially Protected Tenancies (Sale to Occupier) Act
The Specially Protected Tenancies (Sale to Occupier) Act (Zakon o prodaji stanova na kojima postoji stanarsko pravo, Official Gazette no. 27/1991), which entered into force on 19 June 1991, entitled the holder of a specially protected tenancy of a socially owned flat to purchase it from the provider of the flat under favourable conditions.
5. The Lease of Flats Act
(a) Relevant provisions
The Lease of Flats Act (Zakon o najmu stanova, Official Gazette no. 91/1996 of 28 October 1996), which entered into force on 5 November 1996, regulates the legal relationship between the landlord and the lessee with respect to the lease of flats. It recognises a special category of lessees (“protected lessees” – zaštićeni najmoprimci), namely those who were previously holders of specially protected tenancies on privately owned flats or those who did not purchase their flats under the Specially Protected Tenancies (Sale to Occupier) Act. That category is subject to a number of protections, for instance, the obligation of landlords to contract a lease for an unlimited period of time; payment of protected rent (zaštićena najamnina), the amount of which is to be prescribed by the Government; and limited list of grounds for termination of the lease.
Pursuant to the Act, a landlord may terminate the lease of a protected lessee in the following cases:
if the lessee does not pay the rent or charges;
if the lessee sublets the flat or part of it without permission from the landlord;
if the lessee or other tenants in the flat disturb other tenants in the building;
if another person, not named in the lease contract, lives in the flat for longer than thirty days without permission from the landlord, except where that person is a spouse, child or parent of the lessee or of the other legal tenants in the flat, or a dependant of the lessee or a person on whom the lessee is dependent;
if the lessee or other legal tenants do not use the flat as living accommodation but for other purposes;
if the landlord does not have another flat and is entitled to social welfare benefits or is more than sixty years of age.
Under section 40(1) of the Act, the landlord may also terminate the lease of a protected lessee if the landlord intends to move into the flat himself or install his children, parents or dependants in it.
Section 30 provided that by the Act’s entry into force, specially protected tenancies were to be abolished and the holders of such tenancies were to become protected lessees.
Section 33(2) provided that the lessee had to submit a request for the conclusion of a lease contract with protected rent to the landlord within six months from the Act’s entry into force, or from the day on which the decision determining the right of that person to use the flat became final.
(b) Case-law of the Constitutional Court
In its decision no. U-1031/2000 of 1 June 2005 the Constitutional Court held that the time-limit set forth in section 33(2) of the Lease of Flats Act was not preclusive and that therefore by failing to observe it, a former holder of a specially protected tenancy did not lose her right to conclude a lease contract with protected rent.
6. The Obligations Act
The relevant part of the Obligations Act (Zakon o obveznim odnosima, Official Gazette of the Socialist Federal Republic of Yugoslavia nos. 29/1978, 39/1985 and 57/1989, and Official Gazette of the Republic of Croatia no. 53/1991 with subsequent amendments – “the 1978 Obligations Act”) provided as follows:
Nullity
Section 103
“(1) A contract that is contrary to the Constitution, peremptory rules or morals shall be null and void unless the purpose of the breached rule indicates some other sanction or the law in a particular case provides otherwise.
(2) If the conclusion of a contract is prohibited only to one party, the contract shall remain valid, unless the law in a particular case provides otherwise, and the party that has breached the statutory prohibition shall bear the relevant consequences.”
Effects of nullity
Section 104(1)
“Where a contract is null and void, each contracting party is bound to return to the other everything it has received on the basis of such a contract. If that is not possible, or if the nature of the obligation performed renders restitution impracticable, an appropriate [amount of] monetary compensation shall be given, according to the prices at the moment a court decision is passed, unless the law provides otherwise.”
Subsequent disappearance of the cause of nullity
Section 107
“(1) A contract that is null and void shall not become valid if the cause of nullity subsequently disappears.
(2) However, if a prohibition was of minor importance, and the contract has been performed, the issue of nullity may not be raised.”
Liability of a person responsible for the nullity of a contract
Section 108
“A contracting party responsible for the conclusion of a contract that is null and void shall be liable in damages to the other contracting party for the damage sustained on account of the nullity of the contract, if the latter did not know or, according to the circumstances, should not have known of the existence of the cause of nullity.”
Examining nullity
Section 109
“(1) The court shall examine the issue of nullity of its own motion [ex officio] and any interested party may raise it.
(2) A state attorney shall also have the right to plead nullity.”
Unlimited period for pleading nullity
Section 110
“The right to plead nullity shall not lapse.”
On 1 January 2006 the new Obligations Act (Zakon o obveznim odnosima, Official Gazette, nos. 35/2005 and 41/2008 – “the 2006 Obligations Act”) entered into force. Its sections 322, 323 and 326 to 328 contain the same provisions as sections 103, 104 and 107 to 110 of the 1978 Obligations Act.
COMPLAINTS
THE LAW
A. Alleged violation of Article 1 of Protocol No. 1 to the Convention
The applicants complained that, by having declared null and void the contracts of sale whereby they had purchased their flats, the domestic courts had deprived them of their ownership. They relied on 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 disputed the admissibility of this complaint on two grounds. They argued that the applicants had failed to exhaust domestic remedies and that, in any event, this complaint was manifestly ill-founded.
1. The submissions of the parties
(a) Non-exhaustion of domestic remedies
The Government first submitted that the applicants, by relying on sections 104(1) and 108 of the 1978 Obligations Act, could have sought: (a) reimbursement of the purchase price they had paid for their flats under the contracts of sale that had later on been declared null and void, and (b) compensation for any further damage they might have sustained in this respect. However, they had never done so. Therefore, the Government submitted that the applicants had failed to exhaust domestic remedies within the meaning of Article 35 § 1 of the Convention.
The applicants did not address this issue.
(b) Whether the complaint is manifestly ill-founded
(i) The Government
The Government did not dispute that the decisions of the domestic courts declaring the applicants’ ownership titles null and void had interfered with their right to peacefully enjoy their possessions. They argued, however, that the interference in question had been justified as it had been lawful and in the public interest and had satisfied the requirement of proportionality.
The interference had been provided for by law as it had been based on: (a) the Obligations Act, which provided that contracts in breach of peremptory rules had to be declared null and void, and (b) the Denationalisation Act, which banned the sale of flats confiscated under the socialist regime.
The interference had been in the public interest as it served to protect the rights of others, in particular the rights of former owners.
As to the proportionality of the interference, the Government submitted that it was necessary to take into account the specific circumstances surrounding the privatisation of socially owned flats in Croatia and the wide margin of appreciation enjoyed by the State in such matters. A sensitive balance had had to be maintained between the conflicting private interests of the former owners of such flats who had been deprived of their property under the former regime, and the holders of specially protected tenancies (tenants) who had been using the flats. An equitable solution to this sensitive question had been found in the Denationalisation Act, which had enabled the tenants to purchase the flats they had been living in, while the former owners had been entitled to compensation. However, an exception had been made as regards confiscated flats. In view of the gravity of violations of ownership rights resulting from confiscation, it had been decided that confiscated property would be restored. Former owners who had been deprived of their property by means of confiscation had often suffered far greater injustice than those whose property had been appropriated on other grounds.
However, tenants living in confiscated flats had not been left unprotected or placed in a worse position than the one they had been in under the former regime. The Denationalisation Act had enabled them to acquire the status of a protected lessee, pursuant to the provisions of the Lease of Flats Act. This status had allowed them to continue using those flats for residential purposes under very favourable conditions.
Therefore, the interference in the present case, namely the declaration that the contracts of sale were null and void, had not placed the applicants in a worse position. The applicants continued to occupy freely the flats at issue and, under the Lease of Flats Act, could acquire the status of protected lessees, allowing them to live in their flats for a minimum rent.
In the Government’s view, the applicants in their applications had not disputed the legitimacy or proportionality of the legislation applied by the domestic courts. Rather, they had argued that it had been erroneously and arbitrarily applied in their case. However, from the decisions delivered by the domestic courts it was evident that these decisions contained satisfactory reasons as regards the application of the substantive law, and that they did not disclose any arbitrariness. It was absolutely clear that the flats occupied by the applicants had been and were excluded from sale as long as the proceedings for the restitution of property were still pending. Accordingly, pursuant to the relevant legislation, whose legitimacy or proportionality the applicants did not contest, the applicants could not have lawfully acquired ownership of the flats in question.
The Government further argued that, as regards compensation for deprivation of possessions, situations when the State expropriated someone’s property in the public interest had to be distinguished from those in which a court, further to a request by a third party, declared an illegal contract on the acquisition of ownership null and void. Whereas in the event of expropriation, the case-law established under Article 1 of Protocol No. 1 required payment of an amount which bore a reasonable relationship to the value of the expropriated property, the same principle could not be applied to situations where contracts on the acquisition of ownership were declared null and void. Consequently, a person who had allegedly acquired ownership on the basis of a contract that had been declared null and void ab initio had never actually become the owner of the property. This person was, therefore, not entitled to any compensation for deprivation of possessions.
However, if such a person had acquired ownership in good faith, he or she was entitled to reimbursement of the amount paid under an illegal contract and, as the case might be, to claim damages from the contracting party responsible for the conclusion of such a contract. In this connection the Government referred to their above arguments concerning non-exhaustion of domestic remedies.
Lastly, the Government argued that the present case should be distinguished from the case of Gashi v. Croatia (no. 32457/05, 13 December 2007). In the Gashi case the Court had found that declaring null and void the contract for the sale of a socially owned flat to the applicant as a tenant had not been justified because, inter alia, no other private interest had been at stake. However, the instant case presented a substantially different situation because the declaration of nullity had been sought by third persons, heirs of a person who had been deprived of property under the former regime. The mistake of the authorities that had led to the conclusion of unlawful contracts in this case had been harmful to those persons’ private interests. It had therefore been justified to declare the contracts null and void in order to protect the rights of those persons.
In view of the above, the Government concluded that there had been no violation of Article 1 of Protocol No. 1 to the Convention in the present case.
(ii) The applicants
The applicants challenged the Government’s contention that the interference had been in the public interest, provided for by law and proportionate.
The applicants submitted that when they had purchased their flats in September and December 1998, the ban on the sale of flats appropriated during the communist regime had no longer applied. They explained that the sale of confiscated flats had been proscribed by section 1 of the Transfer Prohibition Act but that the ban had been lifted by the entry into force of the Denationalisation Act on 1 January 1997, as expressly provided in section 6 of the Transfer Prohibition Act. Since the Denationalisation Act itself had not prohibited the sale of confiscated flats, their contracts of sale had been valid and should not have been declared null and void.
The applicants further emphasised that they had acquired ownership of their flats in good faith as they had relied on the information supplied by the Office for Property Affairs of the City of Zagreb in the letter of 21 July 1998, to the effect that no request for restitution had been submitted in respect of the building in which their flats were located. The resultant conflict between, on the one hand, their rights as former holders of specially protected tenancies to purchase their flats and retain ownership acquired thereby and, on the other hand, the rights of the former owners to obtain restitution, had been resolved in section 1(4) of the Denationalisation Act, which provided that restitution in kind was impracticable, the former owners of confiscated property had the right to compensation in the form of money or securities.
Since the domestic courts had disregarded these provisions, the applicants found it difficult to argue that the interference with their right of ownership had been lawful, in the public interest or proportionate. Rather, in their view, the decision by which they had been deprived of their ownership had exclusively furthered the private interests of former owners.
A further example to show that they had been forced to bear an excessive individual burden was provided by the fact that they had never been reimbursed the sum of money they had paid for the purchase of their flats, let alone been paid the accrued statutory default interest. Moreover, contrary to the Government’s allegations, the applicants had not been able to enjoy the status of protected lessees either, because they had been unable to observe the time-limit of 60 days specified in section 35(1) of the Denationalisation Act and request the conclusion of lease contracts with protected rent.
For all these reasons the applicants concluded that there had been a breach of Article 1 of Protocol No. 1 in their case.
2. The Court’s assessment
(a) Whether there was interference with the peaceful enjoyment of “possessions”
The Court reiterates that Article 1 of Protocol No. 1 guarantees in substance the right of property and comprises three distinct rules. The first, which is expressed in the first sentence of the first paragraph and is of a general nature, lays down the principle of peaceful enjoyment of property. The second rule, in the second sentence of the same paragraph, covers deprivation of possessions and makes it subject to certain conditions. The third, contained in the second paragraph, recognises that the Contracting States are entitled, amongst other things, to control the use of property in accordance with the general interest. The second and third rules, which are concerned with particular instances of interference with the right to peaceful enjoyment of property, are to be construed in the light of the general principle laid down in the first rule (see, among other authorities, Draon v. France [GC], no. 1513/03, § 69, 6 October 2005).
The Court notes in this connection that the applicants purchased their respective flats under the contracts of sale concluded in 1998 with the City of Zagreb and were subsequently recorded on that basis as the owners of the flats in the land register. It was not disputed between the parties that the Zagreb Municipal Court’s judgment of 17 October 2002 declaring null and void the contracts of sale from which the applicants derived their ownership constituted interference with their right to peaceful enjoyment of their possessions, as guaranteed by Article 1 of Protocol No. 1 to the Convention. As to the question whether the interference was covered by the first or second paragraph of that Article, the Court has already found that declaring title to property null and void is to be examined under the second sentence as it amounts to deprivation of possessions (see Gashi v. Croatia, no. 32457/05, §§ 27 28, 13 December 2007; and Velikovi and Others v. Bulgaria, nos. 43278/98, 45437/99, 48014/99, 48380/99, 51362/99, 53367/99, 60036/00, 73465/01 and 194/02, §§ 159-160, 15 March 2007). It considers that the same approach must be followed in the present case.
The Court must further examine whether the interference was justified.
(b) Justification for the interference with the peaceful enjoyment of “possessions”
(i) Whether the interference was “provided for by law”
The Court reiterates that the first and most important requirement of Article 1 of Protocol No. 1 is that any interference by a public authority with the peaceful enjoyment of possessions should be lawful (see Iatridis v. Greece [GC], no. 31107/96, § 58, ECHR 1999 II).
In the Court’s view the decisions of the domestic courts in the present case had a legal basis in domestic law, in particular in section 103 of the 1978 Obligations Act read in conjunction with sections 22(1) and 32 of the Denationalisation Act, which provided for restitution in kind of confiscated flats. There is no indication that the courts applied those provisions arbitrarily or that their decisions and the resulting deprivation of property were unlawful under domestic law. In particular, the Court considers that from sections 22(1) and 32 of the Denationalisation Act it could reasonably be inferred, by converse implication, that the confiscated flats were not to be sold, that is to say, that the sale of such flats to their tenants was not allowed. As to the applicants’ argument to the contrary, the Court reiterates that its power to review compliance with domestic law is limited (see, among other authorities, Allan Jacobsson v. Sweden (no. 2), 19 February 1998, § 57, Reports of Judgments and Decisions 1998 I). It is in the first place for the national authorities, notably the courts, to interpret and apply the domestic law, even in those fields where the Convention “incorporates” the rules of that law since the national authorities are, in the nature of things, particularly qualified to settle the issues arising in this connection (see, mutatis mutandis, Winterwerp v. the Netherlands, 24 October 1979, § 46, Series A no. 33).
The Court is therefore satisfied that the interference in the present case was “provided for by law”, as required by Article 1 of Protocol No. 1 to the Convention.
(ii) Whether the interference was “in the public interest”
Any interference with a right of property, irrespective of the rule it falls under, can be justified only if it serves a public (or general) interest.
The Court reiterates that, because of their direct knowledge of their society and its needs, the national authorities are in principle better placed than the international judge to decide what is “in the public interest”. Under the system of protection established by the Convention, it is thus for the national authorities to make the initial assessment as to the existence of a problem of public concern warranting measures interfering with the peaceful enjoyment of possessions. Here, as in other fields to which the safeguards of the Convention extend, the national authorities, accordingly, enjoy a certain margin of appreciation (see, inter alia and mutatis mutandis, Draon, cited above, § 75).
Furthermore, the notion of “public interest” is necessarily extensive. The Court, finding it natural that the margin of appreciation available to the legislature in implementing social and economic policies should be a wide one, will respect the legislature’s judgment as to what is “in the public interest” unless that judgment is manifestly without reasonable foundation (see, inter alia, Draon, cited above, § 76). The same applies necessarily, if not a fortiori, to radical social changes as those occurring in Central and Eastern Europe after 1989 (see Jahn and Others v. Germany [GC], nos. 46720/99, 72203/01 and 72552/01, § 91, ECHR 2005 VI).
In this connection the Court notes that it has already held that the legislation providing that the State should restore the property it had appropriated without compensation during the Communist regime pursued an important aim in the public interest: compensating the victims of arbitrary deprivations and restoring justice and the rule of law. The fact that such legislation often authorised the former owners to claim their property back even from private individuals, whenever the latter’s title had been tainted by breaches of the law, did not render its approach illegitimate as such, having regard to the specific context of the transition from a totalitarian to a democratic society and the wide margin of appreciation enjoyed by the authorities in these matters (see Velikovi and Others, cited above, §§ 170-172).
That being so, the Court considers that, contrary to the applicants’ view, the interference in the present case was not for the mere advantage of the former owners but can be seen as pursuing an aim that was in the public interest, namely that of protecting the rights of others.
(iii) Proportionality of the interference
The Court must also examine whether an interference with the peaceful enjoyment of possessions strikes the requisite fair balance between the demands of the general interest of the public and the requirements of the protection of the individual’s fundamental rights, or whether it imposes a disproportionate and excessive burden on the applicants (see, among many other authorities, Jahn and Others, cited above, § 93).
In this connection the Court reiterates that in situations such as the one in the present case, involving fundamental reform of a country’s political, legal and economic system during the transition from the socialist regime to a democratic state, the national authorities face an exceptionally difficult exercise in having to balance the rights of different persons affected by the process. Under these circumstances, a wide margin of appreciation should be accorded to the respondent State (see Jahn and Others, cited above, §§ 91-92, and, mutatis mutandis, Broniowski v. Poland [GC], no. 31443/96, § 182, ECHR 2004 V).
Despite the margin of appreciation given to the State the Court must nevertheless, in the exercise of its power of review, determine whether the requisite balance was maintained in a manner consonant with the applicants’ right to property (see Rosiński v. Poland, no. 17373/02, § 78, 17 July 2007). The concern to achieve this balance is reflected in the structure of Article 1 of Protocol No. 1 to the Convention as a whole, including therefore the second sentence, which is to be read in the light of the general principle enunciated in the first sentence. In particular, there must be a reasonable relationship of proportionality between the means employed and the aim sought to be realised by any measure depriving a person of his or her possessions (see Pressos Compania Naviera S.A. and Others v. Belgium, 20 November 1995, § 38, Series A no. 332; and Former King of Greece and Others v. Greece [GC], no. 25701/94, § 89, ECHR 2000 XII). Thus, the balance to be maintained between the demands of the general interest of the community and the requirements of fundamental rights is upset if the person concerned has had to bear a “disproportionate burden” (see, among many other authorities, Holy Monasteries v. Greece, 9 December 1994, §§ 70-71, Series A no. 301 A).
The Court and the Commission have already dealt with cases involving the annulment of contracts of sale under which applicants bought flats they occupied (see, inter alia, Panikian v. Bulgaria, no. 29583/96, Commission decision of 10 July 1997, Decisions and Reports 90; pp. 109-119; Pincová and Pinc v. the Czech Republic, no. 36548/97, ECHR 2002-VIII; and Velikovi and Others, cited above). In those cases, the Court and the Commission were called upon to assess particular situations which concerned legislation adopted with the aim of making good injustices dating back decades and inherited from communist rule in the respective States. In particular, in the judgment of Velikovi and Others (cited above, § 190) the Court set out certain criteria for deciding whether the principle of proportionality had been complied with in such cases. It held:
“ ... [T]he proportionality issue must be decided with reference to the following factors: (i) whether or not the case falls clearly within the scope of the legitimate aims of the Restitution Law, having regard to the factual and legal basis of the applicants’ title and the findings of the national courts in their judgments declaring it null and void (abuse of power, substantive unlawfulness or minor omissions attributable to the administration) and (ii) the hardship suffered by the applicants and the adequacy of the compensation actually obtained or the compensation which could be obtained through a normal use of the procedures and possibilities available to the applicants at the relevant time, including ... the possibilities for the applicants to secure a new home for themselves.”
The Court considers that the above criteria apply, mutatis mutandis, in the present case as it also concerns the proportionality of measures which – with the aim of compensating persons from whom property had been arbitrarily taken by the communist regime – had deprived other individuals of property they had purchased from the State.
In this connection, the Court notes at the outset that the domestic courts declared null and void the contracts of sale whereby the applicants had acquired ownership of the flats in question because they had been concluded contrary to the peremptory rules prohibiting the sale of confiscated flats to their tenants. However, the Court also notes that the applicants did not claim that they had been unaware that the flats which they had been occupying had been confiscated or that the sale of confiscated flats was prohibited. Rather, they concluded the contracts of sale in question because the Office for Property Affairs of the City of Zagreb in its letter of 21 July 1998 had wrongly informed them that no request for restitution of the building in which those flats were located had been submitted, causing them to believe that those contracts would be lawful. In these circumstances, the Court considers that it may be concluded that the applicants acted in good faith and that the defect rendering the contracts of sale null and void was the result of an administrative error and thus attributable to the authorities.
In the Court’s view, in the absence of other relevant circumstances, in such cases the fair balance required by Article 1 of Protocol No. 1 to the Convention could not be achieved without adequate compensation. In the assessment of whether adequate compensation was available to the applicants, the Court must have regard to the particular circumstances of each case, including the availability of compensation and the practical realities in which the applicants found themselves (see Velikovi and Others, cited above, § 231).
However, the Court will not regard as disproportionate every imbalance between the public interest pursued by the restitution legislation and its effects on the particular individual concerned. In such complex cases as the present one, which involve difficult questions in the context of transition from a totalitarian regime to democracy and rule of law, a certain “threshold of hardship” must have been crossed for the Court to find a breach of the applicants’ rights under Article 1 of Protocol No. 1 (ibid., § 192).
The Court first notes in this connection that the impugned measures did not result in depriving the applicants of a place to live. In particular, by a decision of the Office for Property Affairs of the City of Zagreb of 26 May 2004 the applicants were accorded the status of protected lessees in respect of their flats. Under the Lease of Flats Act, that category of lessees is subject to a number of protections, such as: the obligation of landlords to contract a lease for an unlimited period of time; payment of protected rent (the amount of which is prescribed by the Government); and limited list of grounds for termination of the lease. In the Strunjak case (Strunjak and Others v. Croatia (dec.), no. 46934/99, ECHR 2000-X; see also Sorić v. Croatia (dec.), no. 43447/98, 16 March 2000) the Court described the protection afforded to protected lessees under the Lease of Flats Act as quite broad. It held, in particular:
“The Court notes, in this respect, that, under the [Lease of Flats] Act, the protection of persons in the applicants’ position is quite broad. The [Lease of Flats] Act invests in persons in the applicants’ position the right to rent a flat for an unlimited period of time, thus protecting the applicants from being arbitrarily evicted by a decision of the owner. The owner has a right to terminate the lease only for limited reasons, each of which involves a gross breach of the lessee’s obligations or a necessity for the owner himself to live in the flat in question. However, the Act does not authorise an owner directly to seek the eviction of a person in the applicants’ position. In cases where the owner himself or members of his family have the right to occupy the flat, he has to institute appropriate civil proceedings in the ordinary domestic courts in order to secure an eviction. Only after a detailed review of all the relevant facts may a court reach a decision to order the eviction of a tenant.”
What is more, on the basis of section 37(1) of the Denationalisation Act, protected lessees in confiscated flats have the right of pre-emption if the owner of such a flat decides to sell it.
The Court also notes that, pursuant to section 35 of the Denationalisation Act and section 33(2) of the Lease of Flats Act, applicants had to conclude with the landlords lease contracts with protected rent in order to fully enjoy their status of protected lessees. In this respect the Court takes note of the applicants’ argument that they were unable to benefit from the status of protected lessees because they had been unable to observe the time-limit of 60 days specified in section 35(1) of the Denationalisation Act for requesting the conclusion of such a contract. However, both the case-law of the Supreme Court developed in respect of that section and the case-law of the Constitutional Court developed in respect of section 33(2) of the Lease of Flats Act suggest that the time-limits laid down in those provisions are not preclusive and that therefore by failing to observe either of them, the former holders of specially protected tenancies do not forfeit their right to conclude a lease contract with protected rent.
The Court therefore considers that awarding the applicants the status of protected lessees in respect of the flats in question, on the basis of which they could seek conclusion of lease contracts with protected rent, had already alleviated to a considerable extent the burden imposed on them when the domestic courts deprived them of their ownership of those flats.
The Court further notes that, in addition to obtaining the status of protected lessees, a clear and foreseeable possibility of obtaining compensation was secured to the applicants (see, by converse implication, Velikovi and Others, cited above, § 227). In particular, by relying on sections 104(1) and 108 of the 1978 Obligations Act (or, after 1 January 2006, section 323 of the 2006 Obligations Act), the applicants could have sought not only the reimbursement of the purchase price but also the accrued statutory default interest as well as compensation for any further damage they might have sustained.
Although the Denationalisation Act itself does not provide for a specific action against the State for persons in the applicants’ situation, the Court is satisfied that a civil action based on those provisions of the Obligations Act is sufficient to provide redress in such circumstances (see, mutatis mutandis, Costescu v. Romania (dec.), no. 13636/02, 3 March 2009). Therefore, while it finds it regrettable that the domestic authorities have not of their own motion reimbursed the applicants for the purchase price they had paid under the contracts of sale that were later on declared null and void, the Court cannot disregard the fact that the applicants – who were legally represented throughout the domestic proceedings – never even asked for reimbursement, let alone brought a civil action under the Obligations Act.
In these circumstances, despite the authorities’ failure to take into account the responsibility of the State authorities for the deficiencies regarding the applicants’ title, the Court considers that adequate compensation was available to the applicants and that the fair balance required by Article 1 of Protocol No. 1 to the Convention has been achieved (see, mutatis mutandis, Dzhagarova and Others v. Bulgaria (dec.), no. 5191/05, 3 March 2009).
It is true that the applicants would have been in a better position had their contracts of sale not been declared null and void and had they retained ownership of the flats in question. However, as the Court stated above, being mindful of the importance of the legitimate aims pursued by restitution legislation and the particular difficulties involved in regulating the restitution of property appropriated under the socialist regime, the Court cannot regard as disproportionate every imbalance between the relevant public interest and the effects of restitution legislation on the particular individual concerned. A certain threshold of hardship must have been crossed for the Court to find a breach of the applicants’ rights under Article 1 of Protocol No. 1 (see Velikovi and Others, cited above, § 234). Having regard to the fact that the applicants have been able to enjoy the status of protected lessees in respect of the flats at issue and to the compensation available to them under the relevant provisions of the Obligations Act, the Court does not consider that the threshold of hardship has been reached in the present case (ibid., § 235, mutatis mutandis). Accordingly, the interference complained of did not place on the applicants an excessive individual burden.
Having examined all the material submitted to it, and having regard to its case-law on the subject (see Mohylová v. the Czech Republic (dec.), no. 75115/01, 6 September 2005; the case of Nikolovi, examined in Velikovi and Others, cited above, §§ 229-235; Bornazovi v. Bulgaria (dec.), no. 59993/00, 18 September 2007; Ivanovi v. Bulgaria (dec.), no. 14226/04, 16 September 2008; Yakimovi v. Bulgaria (dec.), no. 26560/05, 3 February 2009; and Dzhagarova and Others, cited above), the foregoing considerations are sufficient to enable the Court to conclude that the interference with the applicants’ property rights in the present case was not disproportionate or otherwise contrary to Article 1 of Protocol No. 1 to the Convention.
It follows that this complaint is inadmissible under Article 35 § 3 as manifestly ill-founded and must be rejected pursuant to Article 35 § 4 of the Convention.
In view of this conclusion the Court does not find it necessary to examine separately the Government’s objection as regards the non-exhaustion of domestic remedies.
B. Alleged violation of Article 6 § 1 of the Convention
The applicants also complained that the proceedings described above were unfair, alleging that the domestic courts had erred in the application of the relevant provisions of substantive law. They relied on Article 6 § 1 of the Convention, the relevant part of which reads:
“In the determination of his civil rights and obligations ... everyone is entitled to a fair ... hearing ...”
The Court notes that the applicants complained about the outcome of the proceedings, which, unless it was arbitrary, the Court is unable to examine under Article 6 § 1 of the Convention. The applicants did not complain, and there is no evidence to suggest, that the domestic courts lacked impartiality or that the proceedings were otherwise unfair. In the light of all the material in its possession, the Court considers that in the present case the applicants were able to submit their arguments before courts which offered the guarantees set forth in Article 6 § 1 of the Convention and which addressed those arguments in decisions that were duly reasoned and not arbitrary.
It follows that this complaint is also inadmissible under Article 35 § 3 as manifestly ill-founded and must be rejected pursuant to Article 35 § 4 of the Convention.
For these reasons, the Court by a majority
Decides to join the applications;
Declares the applications inadmissible.
Søren Nielsen Christos Rozakis
Registrar President